AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON [____________], 1998
REGISTRATION STATEMENT NO. 33- [________]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
CHARTER EQUIPMENT LEASE 1998-1 LLC
(Exact name of registrant as specified in its charter)
[__________]
(Primary Standard Industrial Classification Code Number)
New York 153 East 53rd Street [_________]
(State or other New York, New York 10022 (I.R.S. Employer
Jurisdiction of (212) 805-1000 Identification No.)
Incorporation or Organization) (Address of
principal offices)
----------------------
GARY CORR
Charter Equipment Lease 1998-1 LLC
153 East 53rd Street
New York, New York 10022
(212) 399-7777
(Name, address and telephone number, including area code, of agent for service)
----------------------
Copies to:
STEWART G. ABRAMSON, ESQ. PETER HUMPHREYS, ESQ.
Charter Equipment Lease 1998-1 LLC Dewey Ballantine, LLP
153 East 53rd Street 1301 Avenue of the Americas
New York, New York 10022 New York, New York 10019
JAMES J. CROKE, ESQ.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
---------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration 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. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Amount Amount
Title of Each Class of Securities To Be Proposed Maximum Aggregate Proposed Maximum Aggregate of Registration
to be Registered Registered Price Per Unit(1) Offering Price(1) Fee
====================================================================================================================================
<S> <C> <C> <C> <C>
Lease-Backed Notes, Class A-1 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class A-2 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class A-3 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class A-4 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class B $1,000,000 100% $1,000,000 $295
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
----------------------
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 THE REGISTRATIONSTATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item
No. Name and Caption in Form S-1 Caption in Prospectus
--- ---------------------------- ---------------------
<S> <C>
1. Forepart of the Registration Statement and Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus Front Cover Page of Prospectus; Cross
Reference Sheet
2. Inside Front and Outside Back Cover Pages of Inside Front Cover and Outside Back
the Prospectus Cover Pages of Prospectus; Table of
Contents
3. Summary Information; Risk Factors and Ratio Summary of Terms; Risk Factors; Pool of
of Earnings to Fixed Charges assets; The Leases
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Summary of Terms; Description of the Notes
10. Interest of Named Experts and Counsel Certain Legal Aspects of the Leases
11. Information with Respect to the Registrant Transferor
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
</TABLE>
* Not Applicable
<PAGE>
SUBJECT TO COMPLETION DATED _________, 199_. DB DRAFT OF September 18, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
$[______________ ]
Charter Equipment Lease 1998-1 LLC
[___] Lease-Backed Notes, Class A-1
[___] Lease- Backed Notes, Class A-2
[___] Lease- Backed Notes, Class A-3
[___] Lease-Backed Notes, Class A-4
[___] Lease-Backed Notes, Class B
CHARTER EQUIPMENT LEASE 1998-1 LLC
Issuer
CHARTER FINANCIAL, INC.
Seller and Servicer
CHARTER FUNDING CORPORATION V
Transferor
- --------------------------------------------------------------------------------
The Lease-Backed Notes (the "Notes") issued by the Charter Equipment Lease
1998-1 LLC, a limited liability company organized under the laws of the state of
Delaware (the "LLC" or the "Issuer"), consist of seven classes, the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes (the
foregoing the "Class A Notes") the Class B Notes, the Class C Notes and the
Class D Notes, (each a "Class") of nonrecourse debt obligations of the Issuer,
which respectively represent the right to receive repayment of the initial
outstanding principal amount of such Class of the Notes as set forth in the
table below (the "Initial Outstanding Principal Amount") and monthly interest at
a rate per annum for such Class of Notes as set forth in the table below (the
"Note Interest Rate") on the unpaid portion of such Outstanding Principal
Amount. The Notes are backed solely by a pledge of the assets of the Issuer
formed pursuant to a LLC Agreement (the "LLC Agreement"). The Notes will be
issued by the Issuer pursuant to an indenture of trust dated as of [_______],
1998 (the "Indenture") between the Issuer and [_______] as trustee (the
"Trustee"). The assets of the Issuer will consist of a portfolio of finance
leases, leases intended as security agreements, installment sale contracts, loan
contracts, synthetic leases, and/or rental stream obligations and/or or
participation interests in the foregoing, together with all monies received
relating thereto (the "Leases") and the interests, if any, held by Charter
Funding Corporation V ("CFC" or the "Transferor") in the financed equipment and
property related to such Leases (the "Equipment" together with the Leases, the
"Lease Receivables") originated or acquired by the Seller and underwritten to
the credit and collections policies of Charter Financial, Inc., a specialty
capital equipment finance and leasing company ("Charter") and certain other
property. Only the Class A Notes and the Class B Notes are hereby being offered
(together, the "Offered Notes").
Principal and interest will be paid to the holders of the Notes (the
"Noteholders") monthly on the 15th day (or, if such day is not a Business Day,
on the next succeeding Business Day thereafter) of each month, commencing on the
[_______] day of the month succeeding the Closing Date (each, a "Payment Date"),
as further described herein. Interest will accrue on each Class of the Notes at
the respective Note Interest Rate from Payment Date to Payment Date, or with
respect to the initial Payment Date, from [_______],199_. Distributions of
interest on the Class B Notes will be subordinated in priority of payment to
interest due on the Class A Notes to the extent described herein. Distributions
of interest on the Class C Notes will be subordinated in priority of payment to
interest due on the Class A Notes and the Class B Notes to the extent described
herein. Distributions of interest on the Class D Notes will be subordinated in
priority to interest due on the Class A Notes, the Class B Notes and the Class C
Notes to the extent described herein. Distributions of principal on the Class B
Notes will be subordinated in priority of payment to principal due on the Class
A Notes to the extent described herein. Distributions of principal on the Class
C Notes will be subordinated in priority of payment to principal due on the
Class A Notes and the Class B Notes to the extent described herein.
Distributions of principal on the Class D Notes will be subordinated in priority
of payment to principal due on the Class A Notes, the Class B Notes and the
Class C Notes to the extent described herein. The final payment of principal and
interest on each class of the Notes is scheduled to be made on the respective
Payment Date set forth under "Summary of Terms -- The Notes," to the extent that
there are sufficient funds available (the "Scheduled Maturity Date") but there
can be no assurance that all such payments will be made by such Payment Dates.
[_______] Logo
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE TRANSFEROR, CHARTER, THE TRUSTEE, THE SELLER,
THE SERVICER, ANY SUCCESSOR SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE NOTES NOR THE UNDERLYING LEASES WILL BE GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE TRANSFEROR, CHARTER, THE
TRUSTEE, THE SELLER OR THE SERVICER.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 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.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AT PAGE 17 HEREIN.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Initial Note Initial Underwriting Proceeds to
Outstanding Interest Rate Public Discount (2) Transferor(3)
Principal Amount Offering
Price(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Class
A-1 Note
- ------------------------------------------------------------------------------------------------------------------------------------
Per Class
A-2 Note
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Initial Note Initial Underwriting Proceeds to
Outstanding Interest Rate Public Discount (2) Transferor(3)
Principal Amount Offering
Price(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Class
A-3 Note
- ------------------------------------------------------------------------------------------------------------------------------------
Per Class
A-4 Note
- ------------------------------------------------------------------------------------------------------------------------------------
Per Class
B Note
- ------------------------------------------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from [________], 199[_______].
(2) The Issuer and Charter have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933.
(3) Before deducting expenses, estimated to be $[_____].
The Offered Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and withdraw, cancel, or modify any order without notice. It is
expected that delivery of the Offered Notes will be made in book-entry form
through the facilities of The Depository Trust Company on or about [______],
199[_].
[________] , 1998
2
<PAGE>
(cover page continued)
Charter Financial, Inc., a New York corporation (as seller the "Seller"),
will contribute and sell the Lease Receivables to the Transferor pursuant to a
contribution and sale agreement (the "Seller Contribution and Sale Agreement).
The Transferor will, in turn, sell the Lease Receivables to the Issuer, pursuant
to a separate contribution and sale agreement (the "Transferor Contribution and
Sale Agreement") and together with the Seller Contribution and Sale Agreement,
the "Contribution and Sale Agreements") and Agreement. The Servicer will service
the Lease Receivables pursuant to the Servicing Agreement dated as of [_______],
199__ (the "Servicing Agreement") between the Servicer, and the Trustee.
----------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED NOTES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------
AVAILABLE INFORMATION
The Transferor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Offered Notes offered pursuant to this Prospectus.
This Prospectus, which forms a part of the Registration Statement, omits certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement can be inspected and
copied at the Public Reference Room at the Commission at 450 Fifth Street, N.W.,
Washington, D.C. and the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York, 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a site on the World Wide Web containing
reports, proxy materials, information statements and other items. The address is
http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any Securities other than the Notes offered hereby and thereby, nor an offer
of the Notes to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to its date.
----------
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, periodic and annual unaudited
reports containing information concerning the Lease Receivables will be prepared
by the Servicer and sent on behalf of the Issuer only to Cede & Company ("Cede")
or Morgan Guaranty Trust Company of New York, Brussels office, as operator of
the Euroclear System ("Euroclear"), as nominee of The Depository Trust Company
("DTC") and registered holders of the Offered Notes (as defined herein). See
"Description of the Notes -- Reports to Noteholders" herein. Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Transferor will 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
thereunder and as are otherwise agreed to by the Commission. Copies of such
periodic reports may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Transferor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated
3
<PAGE>
by reference into the information that this Prospectus incorporates). Such
requests should be directed to: Charter Financial, Inc., 153 East 53rd Street,
New York, New York 10022, Attention: David Oplanich.
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein. Certain capitalized terms used
herein are defined elsewhere in this Prospectus on the pages indicated in the
"Index of Terms."
Issuer.......................... Charter Equipment Lease 1998-1 LLC (the
"Issuer" or the "LLC"), a limited liability
company organized under the laws of the
state of Delaware. The activities of the
Issuer will be limited by the terms of the
LLC Agreement to acquiring, holding and
managing the Lease Receivables, issuing and
making payments on the Notes and other
activities related thereto.
Transferor...................... Charter Funding Corporation V (the
"Transferor"), a New York corporation, and
wholly-owned bankruptcy-remote subsidiary of
Charter Financial, Inc. ("Charter" or the
"Company"), a New York corporation, is the
transferor of the Lease Receivables to the
Issuer pursuant to the Transferor
Contribution and Sale Agreement. The
Transferor's principal executive offices are
located at 153 East 53rd Street, New York,
New York 10022, and its telephone number is
(212) 805-1000. See "The Transferor."
Seller.......................... Charter Financial, Inc., the "Seller" of the
Lease Receivables to the Transferor pursuant
to the Seller Contribution and Sale
Agreement.
Servicer........................ Charter Financial, Inc. (in its capacity as
servicer, the "Servicer"), will service the
Lease Receivables comprising the Pool of
Assets owned by the Issuer and pledged to
the Trustee under the Indenture and
administer the Lease Receivables pursuant to
the Servicing Agreement. The Servicer may
subcontract all or any portion of its
obligations as Servicer under the Servicing
Agreement to a qualified subservicer (each,
a "Sub-Servicer") but the Servicer will not
be relieved thereby of its liability with
respect thereto. See "Description of the
Transaction Documents-- The Servicer."
Trustee......................... __________, a banking corporation organized
under the laws of ________ (the "Trustee").
The corporate trust offices of the Trustee
are located at ________.
Cut-Off Date.................... The close of business on [_____, 199_] (the
"Cut-Off Date").
Closing Date.................... _______, 199_ (the "Closing Date").
The Notes....................... The Lease-Backed Notes issued under the
Indenture (the "Notes") consist of seven
Classes of non-recourse debt obligations of
the "Class A-1 Notes," the "Class A-2
Notes," the "Class A-3 Notes," the "Class
A-4 Notes" (collectively, the Class A-1
Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes are referred
to herein as the "Class A Notes"), the
"Class B Notes," the "Class C Notes", and
the "Class D Notes", which, respectively,
represent the right to receive repayment of
the Outstanding Principal Amount of such
Class of Notes and monthly interest at the
respective Note Interest Rate thereof on the
Outstanding Principal Amount thereof. In the
aggregate the Initial Outstanding Principal
Amount of the Notes equals $[_______], which
is anticipated to equal [_______]% of the
Aggregate Discounted Lease Balance (as
defined herein) as of the Cut-off Date. The
"Stated Maturity Dates" for the Class A-1
Notes, the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B
Notes, the Class C Notes and the Class D
Notes are _____, ______, _____, _____,
_____, _____ , ______, , ______, , ______, ,
______, , ______, , ______, and ______,
_______, respectively.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The Notes will be issued pursuant to the
Indenture, to be dated as of [_______],
between the Issuer and the Trustee and will
be secured solely by the Pool of Assets
pursuant to the Indenture. Only the Class A
Notes and the Class B Notes are being
offered hereby (the "Offered Notes" ).
Each of the Class A Notes, the Class B
Notes, the Class C Notes and the Class D
Notes will be issued in minimum
denominations of $[1,000] and integral
multiples thereof.
Each Class of Notes (the "Notes") will
represent non-recourse debt obligations of
the Issuer which are secured solely by a
segregated pool of Lease Receivables (the
"Pool of Assets"), as described herein. The
Pool of Assets may consist of any
combination of finance leases, leases
intended as security agreements, installment
sale contracts, loan contracts, synthetic
leases, rental stream obligations or
participation interests in the foregoing,
together with all monies received relating
thereto (the "Leases"). The Pool of Assets
also may include the underlying equipment
and property relating thereto, together with
the proceeds thereof (the "Equipment" and
together with the Leases, the "Lease
Receivables").
The Equipment underlying the Lease
Receivables included in the Pool of Assets
will generally be limited to personal
property which is leased or financed by the
Seller or the originator of the paper to the
Lessee. However, certain Leases may also
have as additional security or security
interest in related fixtures or be
additionally secured by mortgages on related
real property.
The Transferor will acquire the Lease
Receivables from the Seller on or prior to
the date of issuance of the Notes, as
described herein.
The Issuer will be established pursuant to
an agreement (the "LLC Agreement"). The LLC
Agreement will provide for the formation of
the Issuer and set forth certain
restrictions upon its operation. The Issuer
will enter into a contribution and sale
agreement with the Transferor (the
"Transferor Contribution and Sale
Agreement") by which it will acquire the
Lease Receivables from the Transferor. The
Transferor Contribution and Sale Agreement
will contain schedules which detail the
characteristics of the pool of Lease
Receivables held by the Issuer from time to
time. See "Description of the Transaction
Documents."
The Issuer will enter into an indenture (the
"Indenture") by and between the Issuer and
the trustee named on the Indenture (the
"Trustee"). The Indenture will describe the
respective rights of the Noteholders of each
of the classes of Notes to the funds derived
from the pool of Lease Receivables which
comprise the Pool of Assets and will detail
the security for the debt issued thereunder
by the Issuer.
The Lease Receivables comprising the Pool of
Assets will be serviced by the Servicer
pursuant to a servicing agreement (each, a
"Servicing Agreement") by and between the
Servicer and the Issuer.
The provisions relating to the establishment
of the Issuer, if any, the servicing of the
Lease Receivables and the issuance of the
Notes may be contained in a single
agreement, or in several agreements which
combine certain aspects of the term
"Transaction Document" which means,
collectively, any and all agreements
relating to the establishment of the Issuer,
the sale and contribution of the Lease
Receivables, the servicing of the Lease
Receivables and the issuance of the Notes,
including without limitation, the LLC
Agreement, the Transferor
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Contribution and Sale Agreement, the Seller
Contribution and Sale Agreement, the
Servicing Agreement and the Indenture.
The Notes will not be obligations, either
recourse or non-recourse (except for certain
non-recourse debt described under "Material
Federal Income Tax Considerations"), of the
Transferor, the Servicer, the Seller or any
person other than the Issuer. The Notes
represent obligations of the Issuer, and do
not represent interests in or obligations of
the Transferor, the Servicer, the Seller or
any of their respective affiliates other
than the Issuer. The Notes will, in any
event, be secured by assets in the Pool of
Assets.
Neither the Notes nor the underlying Lease
Receivables will be guaranteed or insured by
the Transferor, the Servicer, the Seller,
the Trustee or any of their affiliates.
Pool of Assets.................. The assets of the Issuer (the "Pool of
Assets") will consist of the Leases and the
interests, if any, held by the Transferor in
the financed equipment (the "Equipment")
originated by the Seller and underwritten to
Charter's credit and collections policies.
The Pool of Assets will not have any
residual interest in the related Equipment
after a) Lease Receivable has been paid in
full. In addition, the Pool of Assets will
include (i) funds on deposit in any Trust
Accounts established and maintained by the
Servicer pursuant to the Servicing Agreement
and the Indenture (ii) the rights to
proceeds from certain insurance policies
covering the Equipment; (iii) the interest
of the Transferor in any proceeds from
recourse to Vendors on contract payments;
(iv) other rights of the Transferor under
the Seller Contribution and Sale Agreement
conveyed to the Issuer under the Transferor
Contribution and Sale Agreement; and (v) all
proceeds of the foregoing.
The Pool of Assets will consist of the
Leases, and may include the Equipment. The
Leases are obligations for the lease or
purchase of the Equipment, or evidence
borrowings used to acquire or refinance the
Equipment, entitling the obligee thereunder
(the "Lessor") to receive a stream of
scheduled payments and related payments and,
in some cases, to either the return of the
Equipment at the termination of the related
Lease or, with respect to certain of the
Leases, the payment of a purchase price for
the Equipment at the election of the obligor
thereunder (the "Lessee").
The Leases which are structured as leases
will be Finance Leases (as defined below)
rather than Operating Leases (as defined
below). In a "Finance Lease," the Lessor
transfers substantially all benefits and
risks of ownership to the Lessee. In
accordance with Statement of Financial
Accounting Standards No. 13 ("FASB 13"), a
lease is classified as a Finance Lease if
the collectability of lease payments are
reasonably certain and it meets one of the
following criteria: (1) the lease transfers
title and ownership of the Equipment to the
Lessee by the end of the lease term; (2) the
lease contains a bargain purchase option;
(3) the lease term at inception is at least
75% of the estimated life of the Equipment;
or (4) the present value of the minimum
lease payments is at least 90% of the fair
market value of the Equipment at inception
of the lease. All leases which do not meet
the criteria of Finance Leases are
classified, in accordance with FASB 13, as
"Operating Leases." Leases which are not
structured as leases will be installment
sale contracts and loan contracts (the
"Purchase Leases") secured by the related
Equipment and will provide for scheduled
payments which fully amortize the amount
financed by an obligor. The type and
characteristics of the
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Leases included in the Pool of Assets are
described herein under the heading "Leases."
The Lease Receivables comprising the Pool of
Assets will be acquired by the Transferor
from the Seller; such Lease Receivables will
have theretofore been either (i) originated
by such Seller, (ii) originated by Vendors
and acquired by the Seller or (iii) acquired
by the Seller from other sellers or owners
of Lease Receivables.
The Transferor will acquire the Lease
Receivables from the Seller pursuant to the
Seller Contribution and Sale Agreement as
defined herein. The Transferor will transfer
such Lease Receivables to the Issuer
pursuant to the Transferor Contribution and
Sale Agreement and thereupon the Issuer will
pledge the Issuer's right, title and
interest in and to such Lease Receivables to
an Trustee on behalf of Noteholders pursuant
to the Indenture. The Leases transferred to
the Issuer and pledged by the Issuer shall
have a Discounted Lease Balance (as defined
herein) specified herein under the heading
"Leases." The obligations of the Transferor,
the Seller, the Servicer, the Issuer and the
Trustee, if any, under the Transaction
Documents include those specified below.
The "Discounted Lease Balance" of a Lease as
of any Cut-Off Date is the present value of
all of the remaining payments scheduled to
be made with respect to such Lease,
discounted at a rate and frequency specified
herein.
Available Funds................. With respect to each Payment Date, the funds
received on or prior to the last day of the
month preceding the month of such Payment
Date (the "Calculation Date") which relate
to payments on the Leases, proceeds from
casualties, terminations or repurchases of
Leases, recoveries on defaulted Leases,
advances made by the Servicer to cover
Delinquent Leases (as defined herein) and
investment proceeds thereon (excluding
certain amounts specified in the Indenture)
shall constitute the "Available Funds" which
are available for distribution by the
Trustee on such Payment Date. The "Payment
Date" shall be the 15th day of each calendar
month or, if such day is not a Business Day,
the next succeeding Business Day; commencing
on the [_______] day of the month succeeding
the Closing Date.
Application of Payments......... Monthly distributions will be made by the
Trustee from Available Funds in the
following priority:
(a) to pay the Servicing Fee;
(b) to reimburse unreimbursed Servicer
Advances in respect of a prior Payment
Date;
(c) to make Interest Payments owing on the
Class A Notes concurrently to the Class
A-1 Noteholders, Class A-2 Noteholders,
Class A-3 Noteholders and Class A-4
Noteholders;
(d) to make Interest Payments owing on the
Class B Notes;
(e) to make Interest Payments owing on the
Class C Notes;
(f) to make Interest Payments owing on the
Class D Notes;
(g) to make the Class A Principal Payment
(i) to the Class A-1 Noteholders only,
until the Outstanding Principal Amount
on the Class A-1 Notes is reduced to
zero, then (ii) to the Class A-2
Noteholders only, until the
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Outstanding Principal Amount on the
Class A-2 Notes is reduced to zero,
then (iii) to the Class A-3 Noteholders
only, until the Outstanding Principal
Amount on the Class A-3 Notes is
reduced to zero and finally, (iv) to
the Class A-4 Noteholders until the
Outstanding Principal Amount on the
Class A-4 Notes is reduced to zero
(h) to make the Class B Principal Payment;
(i) to make the Class C Principal Payment;
(j) to make the Class D Principal Payment;
(k) to pay Additional Principal, if any, to
the Class A Noteholders then receiving
the Class A Principal Payment as
provided in clause (g) above until the
Outstanding Principal Amount on all of
the Class A Notes has been reduced to
zero, then to the Class B Noteholders
until the Outstanding Principal Amount
on the Class B Notes has been reduced
to zero, then to the Class C
Noteholders until the Outstanding
Principal Amount on the Class C Notes
has been reduced to zero, thereafter to
the Class D Noteholders until the
Outstanding Principal Amount on the
Class D Notes has been reduced to zero;
and
(l) to the Issuer, the balance, if any.
See "Description of the Notes -- Application
of Payments."
Interest........................ On each Payment Date, the interest due (the
"Interest Payments") with respect to the
Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the
Class B Notes, the Class C Notes and the
Class D Notes since the last Payment Date
will be the interest that has accrued on
such Notes since the last Payment Date (or
in the case of the first Payment Date, with
respect to the Class A-1 Notes, since the
Issuance Date, and with respect to all other
Notes, since ________________) (the
"Interest Accrual Period") at the applicable
Note Interest Rate applied to the then
unpaid principal amounts (the "Outstanding
Principal Amounts") of the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes, the Class B Notes, the
Class C Notes, and the Class D Notes,
respectively, after giving effect to
payments of principal to the Class A-1
Noteholders, the Class A-2 Noteholders, the
Class A-3 Noteholders, the Class A-4
Noteholders, the Class B Noteholders, the
Class C Noteholders and the Class D
Noteholders, respectively, on the preceding
Payment Date. See "Description of the
Notes--General" and "Application of
Payments."
Principal....................... On each Payment Date, each of the
Noteholders will be entitled to receive
payments of principal, to the extent of
funds available as described herein under
"Description of the Notes -- Available
Funds," in the priorities described herein
under "Application of Payments." Principal
Payments on the Notes are required to be
made on each Payment Date to Noteholders on
the related Record Date.
For each Payment Date, each of the Class A
Noteholders, the Class B Noteholders, the
Class C Noteholders and the Class D
Noteholders will be entitled to receive
payments of principal ("Principal
Payments"), to the extent funds are
available therefor, in the priorities set
forth in the Indenture and described herein
below and under "Description of the
Notes--Application of Payments." On each
Payment Date, to the extent funds are
available therefor, the Principal Payment
will be paid to the Noteholders in the
following priority: (a) (i) to the Class A-1
Noteholders only, until the Outstanding
Principal Amount on the Class A-1 Notes has
been reduced to zero, the Class A Principal
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9
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Payment (as defined below), then (ii) to the
Class A-2 Noteholders only, until the
Outstanding Principal Amount on the Class
A-2 Notes has been reduced to zero, the
Class A Principal Payment, then (iii) to the
Class A-3 Noteholders only, until the
Outstanding Principal Amount on the Class
A-3 Notes has been reduced to zero, the
Class A Principal Payment, and (iv) to the
Class A-4 Noteholders, until the Outstanding
Principal Amount on the Class A-4 Notes has
been reduced to zero, the Class A Principal
Payment, (b) to the Class B Noteholders, the
Class B Principal Payment (as defined
below), (c) to the Class C Noteholders, the
Class C Principal Payment (as defined
below), (d) to the Class D Noteholders, the
Class D Principal Payment (as defined
below), and (e) to the extent that the Class
B Floor (as defined below) exceeds the Class
B Target Investor Principal Amount, the
Class C Floor exceeds (as defined below) the
Class C Target Investor Principal Amount (as
defined below) and/or the Class D Floor (as
defined below) exceeds the Class D Target
Investor Principal Amount (as defined
below), Additional Principal (defined below)
shall be distributed, sequentially, as an
additional principal payment on the Class
A-1 Notes, Class A-2 Notes, Class A-3 Notes,
Class A-4 Notes, the Class B Notes, the
Class C Notes, and the Class D Notes as
applicable, until the Outstanding Principal
Amount of each Class has been reduced to
zero.
The "Class A Principal Payment" shall equal
(a) while the Class A-1 Notes are
outstanding, (i) on all Payment Dates prior
to the Class A-1 Stated Maturity Date, the
lesser of (1) the amount necessary to reduce
the Outstanding Principal Amount on the
Class A-1 Notes to zero and (2) the
difference between (A) the Aggregate
Discounted Lease Balance as of the previous
Calculation Date and (B) the Aggregate
Discounted Lease Balance as of the related
Calculation Date, and (ii) on and after the
Calculation Date, the entire Outstanding
Principal Amount on the Class A-1 Notes and
(b) after the Class A-1 Notes have been paid
in full, the amount necessary to reduce the
Outstanding Principal Amount on the Class A
Notes to the Class A Target Investor
Principal Amount (as defined below).
The "Class B Principal Payment" shall equal
(a) while the Class A-1 Notes are
outstanding, zero and (b) after the
Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the
amount necessary to reduce the Outstanding
Principal Amount of the Class B Notes to the
greater of the Class B Target Investor
Principal Amount (as defined below) and the
Class B Floor (as defined below).
The "Class C Principal Payment" shall equal
(a) while the Class A-1 Notes are
outstanding, zero and (b) after the
Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the
amount necessary to reduce the Outstanding
Principal Amount of the Class C Notes to the
greater of the Class C Target Investor
Principal Amount (as defined below) and the
Class C Floor (as defined below).
The "Class D Principal Payment" shall equal
(a) while the Class A-1 Notes are
outstanding, zero and (b) after the
Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the
amount necessary to reduce the Outstanding
Principal Amount of the Class D Notes to the
greater of the Class D Target Investor
Principal Amount (as defined below) and the
Class D Floor (as defined below).
The "Class A Target Investor Principal
Amount" with respect to each Payment Date is
an amount equal to the product of (a) the
Class A Percentage (as defined below) and
(b) the Aggregate Discounted Lease Balance
as of the related Calculation Date.
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10
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The "Class B Target Investor Principal
Amount" with respect to each Payment Date is
an amount equal to the product of (a) the
Class B Percentage (as defined below) and
(b) the Aggregate Discounted Lease Balance
as of the related Calculation Date.
The "Class C Target Investor Principal
Amount" with respect to each Payment Date is
an amount equal to the product of (a) the
Class C Percentage (as defined below) and
(b) the Aggregate Discounted Lease Balance
as of the related Calculation Date.
The "Class D Target Investor Principal
Amount" with respect to each Payment Date is
an amount equal to the product of (a) the
Class D Percentage (as defined below) and
(b) the Aggregate Discounted Lease Balance
as of the related Calculation Date.
The Class A Target Investor Principal
Amount, the Class B Target Investor
Principal Amount, the Class C Target
Investor Principal Amount, and the Class D
Target Investor Principal Amount are
collectively referred to as the "Class
Target Investor Principal Amounts."
The "Class A Percentage" will be equal
approximately to _________%. The "Class B
Percentage" will be equal approximately to
__________%. The "Class C Percentage" will
be equal approximately to __________%. The
"Class D Percentage" will be equal
approximately to ________%.
The "Class B Floor" with respect to each
Payment Date means (a) ____% of the initial
Aggregate Discounted Lease Balance as of the
Cut-Off Date, plus (b) the Cumulative Loss
Amount with respect to such Payment Date,
minus (c) the sum of the Outstanding
Principal Amount of the Class C Notes, the
Outstanding Principal Amount of the Class D
Notes, and the Overcollateralization Balance
as of the immediately preceding Payment Date
after giving effect to all principal
payments made on that day.
The "Class C Floor" with respect to each
Payment Date means (a) ___% of the initial
Aggregate Discounted Lease Balance as of the
Cut-Off Date, plus (b) the Cumulative Loss
Amount with respect to such Payment Date,
minus (c) the sum of the Outstanding
Principal Amount of the Class D Notes, and
the Overcollateralization Balance as of the
immediately preceding Payment Date after
giving effect to all principal payments made
on that day; provided, (as defined below),
that if the Outstanding Principal Amount of
the Class B Notes is less than or equal to
the Class B Floor on such Payment Date, the
Class C Floor will equal the Outstanding
Principal Amount of the Class C Notes
utilized in the calculation of the Class B
Floor for such Payment Date.
The "Class D Floor" with respect to each
Payment Date means (a) ___% of the initial
Aggregate Discounted Lease Balance as of the
Cut-Off Date, plus (b) the Cumulative Loss
Amount with respect to such Payment Date,
minus (c) the Overcollateralization Balance
as of the immediately preceding Payment Date
after giving effect to all principal
payments made on that day; provided,
however, that if the Outstanding Principal
Amount of the Class C Notes is less than or
equal to the Class C Floor on such Payment
Date, the Class D Floor will equal the
Outstanding Principal Amount of the Class D
Notes utilized in the calculation of the
Class C Floor for such Payment Date.
The Class B Floor, the Class C Floor and the
Class D Floor are collectively referred to
herein as the "Class Floors."
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11
<PAGE>
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"Additional Principal" with respect to each
Payment Date equals (a) zero, if each of the
Class Target Investor Principal Amounts for
Classes B, C, and D exceed their respective
Class Floors on such Payment Date and (b) in
each other case the excess, if any, of
(i)(A) the Outstanding Principal Balance of
the Notes plus the Overcollateralization
Balance as of the immediately preceding
Payment Date after giving effect to payments
on such Payment Date, minus (B) the
Aggregate Discounted Lease Balance as of the
related Calculation Date, over (ii) the sum
of the Class A Principal Payment, the Class
B Principal Payment, the Class C Principal
Payment, and the Class D Principal Payment
to be paid on such Payment Date.
The "Overcollateralization Balance" with
respect to each Payment Date is an amount
equal to the excess, if any, of (a) the
Aggregate Discounted Lease Balance as of the
related Calculation Date over (b) the
Outstanding Principal Amount of the Notes as
of such Payment Date after giving effect to
all principal payments made on that day.
The "Cumulative Loss Amount" with respect to
each Payment Date is an amount equal to the
excess, if any, of (a) the total of (i) the
Outstanding Principal Amount of the Notes as
of the immediately preceding Payment Date
after giving effect to all principal
payments made on that day, plus (ii) the
Overcollateralization Balance as of the
immediately preceding Payment Date, minus
(iii) the lesser of (A) the Aggregate
Discounted Lease Balance as of the
Calculation Date relating to the immediately
preceding Payment Date minus the Aggregate
Discounted Lease Balance as of the related
Calculation Date and (B) Available Funds
remaining after the payment of amounts owing
the Servicer and in respect of interest on
the Notes on such Payment Date, over (b) the
Aggregate Discounted Lease Balance as of the
related Calculation Date.
The "Discounted Lease Balance" of any Lease
as of the Cut-Off Date will mean the present
value of all Lease Payments due thereon
after the Cut-Off Date (excluding payments
with respect to Defaulted Leases, Early
Termination Leases and Leases subject to a
Warranty Event), discounted monthly at a
rate equal to the product of (i) one-twelfth
and (ii) the Discount Rate. The "Discount
Rate" is the sum of (a) the weighted average
of the Class A-1 Note Interest Rate, the
Class A-2 Note Interest Rate, the Class A-3
Note Interest Rate, the Class A-4 Note
Interest Rate, the Class B Note Interest
Rate, the Class C Note Interest Rate and the
Class D Note Interest Rate, calculated as of
the Closing Date and (b) the Servicing Fee
Rate (as hereinafter defined). Thereafter,
the Discounted Lease Balance of any Lease as
of any Payment Date shall be determined on
the related Calculation Date and it shall
equal the present value of each remaining
Lease Payment to become due under a Lease
(excluding payments with respect to
Defaulted Leases (as defined herein), Early
Termination Leases (as defined herein) and
Leases subject to a Warranty Event),
discounted monthly from the date such
payment is to become due at a rate equal to
one-twelfth of the Discount Rate. On the
date that a Lease becomes a Defaulted Lease,
the Discounted Lease Balance for such Lease
will be reduced to zero. The "Aggregate
Discounted Lease Balance" for any
Calculation Date is the sum of the
Discounted Lease Balances of all Leases.
Subordination................... Payments of interest on the Class B Notes,
the Class C Notes and the Class D Notes will
be subordinated in priority of payment to
interest due on the Class A Notes to the
extent described herein. The Class B Notes,
the Class C Notes and the Class D Notes will
not receive any payments of interest with
respect to a Collection Period until the
full amount of interest on the Class A Notes
relating to such Collection Period has been
allocated to the Class A Notes. Payments of
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12
<PAGE>
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interest on the Class C Notes and the Class
D Notes, will be subordinated in priority of
payment to interest due on the Class B Notes
to the extent described herein. The Class C
Notes and the Class D Notes will not receive
any payments of interest with respect to a
Collection Period until the full amount of
interest on the Class B Notes relating to
such Collection Period has been allocated to
the Class B Notes. Payments of interest on
the Class D Notes will be subordinated in
priority of payment to interest due on the
Class C Notes to the extent described
herein. The Class D Notes will not receive
any payments of interest with respect to a
Collection Period until the full amount of
interest on the Class C Notes relating to
such Collection Period has been allocated to
the Class C Notes.
Payments of principal on the Class B Notes,
the Class C Notes and the Class D Notes will
be subordinated in priority of payment to
principal due on the Class A Notes to the
extent described herein. Payments of
principal on the Class C Notes and the Class
D Notes will be subordinated in priority of
payment to principal due on the Class B
Notes to the extent described herein.
Payments of principal on the Class D Notes
will be subordinated in priority of payment
to principal due on the Class C Notes to the
extent described herein.
Events of Default............... "Event of Default" under the Indenture with
respect to the Notes shall include any one
or more of the following:
(i) the failure to pay interest on any Note
within four (4) days of when due or
principal on any Note by its Stated
Maturity Date;
(ii) the failure of the Seller, the
Transferor, or the Servicer to make
payments or deposits required under the
Transaction Documents within three (3)
Business Days;
(iii) the failure of the Seller or the
Servicer, the Transferor, the Issuer,
the Trustee, or to perform any covenant
with respect to the transaction
documents, which failure has a material
adverse effect on the Noteholders and
which continues unremedied for a period
of [60] days after discovery or notice
of such failure (provided no such cure
period shall apply to the Seller's
failure to accept the reassignment of
any Lease that is not an Eligible
Lease, and further provided, only a
five (5) day cure period will apply to
the Seller's, the Transferor's the
Issuer's or the Trustee's covenant not
to grant a security interest in or
otherwise create a lien on the Leases);
(iv) any representation or warranty by the
Seller, the Transferor, the Trustee or
the Issuer is not correct in any
material respect and continues for a
period of [60] days after discovery or
notice of such failure (provided that
the Transferor and/or the Seller can
"cure" such misrepresentation by
purchasing the contracts related
thereto);
(v) the insolvency of the Seller, the
Transferor, the Issuer or the Servicer;
or
(vi) the Issuer becomes an "Investment
Company."
Registration of Notes........... Notes may be represented by global Notes
registered in the name of Cede or Euroclear,
as nominee of The Depository Trust Company
("DTC"), or another nominee. In such case,
Noteholders will not be entitled to receive
definitive Notes representing such
Noteholders' interests, except in certain
limited
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13
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circumstances described herein. See
"Description of the Notes -- Book Entry
Registration" herein.
Contribution and
Sale Agreement.................. The Transferor and/or the Seller will be
obligated to acquire any Lease Receivable
transferred pursuant to a Transaction
Document or pledged pursuant to the
Indenture if the interest of the Noteholders
therein is materially adversely affected by
a breach of any representation or warranty
made by the Transferor or the Seller with
respect to such Lease, which breach has not
been cured. To the extent that the
Transferor so acquires any Lease
Receivables, the Seller will be obligated to
acquire such Lease Receivables from the
Transferor pursuant to the Seller
Contribution and Sale Agreement
contemporaneously with the Transferor's
acquisition of such Lease Receivables. The
obligation of the Transferor to acquire any
such Lease Receivables with respect to which
the Seller has breached a representation or
warranty is subject to the Seller's
acquisition of such Lease Receivables from
the Transferor. In addition, the Transferor
may from time to time reacquire certain
Lease Receivables or substitute other Lease
Receivables for such Lease Receivable held
as part of the Pool of Assets, subject to
specified conditions set forth in the
related Transaction Documents.
Servicing....................... The Servicer will be responsible for
servicing, making collections on and
otherwise enforcing the Leases. 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 contracts owned by the Servicer.
The Servicer will be entitled to receive a
monthly fee (the "Servicing Fee") of the
product of (i) one-twelfth, (ii) [0.50]%
(the "Servicing Fee Rate") and (iii) the
Aggregate Discounted Lease Balance as of the
related Calculation Date, payable out of the
Collection Account, plus late payment fees
and certain other fees paid by the Lessees
("Servicing Charges"), as compensation for
acting as Servicer.
Except as hereinafter provided, on the day
prior to any Payment Date, the Servicer may
make an advance (a "Servicer Advance") to
the Trustee in an amount sufficient to cover
all amounts due and unpaid on any Delinquent
Lease as of the previous Calculation Date
("Delinquency Amounts"). A "Delinquent
Lease" will mean, as of any Calculation
Date, any Lease (other than a Lease which
became a Defaulted Lease prior to such
Calculation Date) with respect to which the
Lessee has not paid all Lease Payments then
due. With respect to any Delinquent Lease,
whenever the Servicer shall have determined
that it will be unable to recover a
Delinquency Amount or portion thereof on
such Delinquent Lease, the Servicer shall
not make a Servicer Advance on such
unrecoverable Delinquency Amount or portion
thereof, but will be required to enforce its
remedies (including acceleration) under such
Lease. In the event that the Servicer
reasonably determines that any Servicer
Advances previously made will not ultimately
be recovered from the related Lease and,
thus, are "Nonrecoverable Advances," or any
Delinquent Leases for which the Servicer has
made advances of Delinquency Amounts in
respect thereof become Defaulted Leases,
then the Trustee shall have the right to
draw on the Collection Account to repay such
Servicer Advances.
Under the Servicing Agreement, a Lease will
constitute a "Defaulted Lease" at the
earlier of the date on which (i) Lease
Payments are due and unpaid for more than
120 days or (ii) the Servicer has declined
to make a Servicer Advance on the grounds
that such advance would be a Nonrecoverable
Advance or (iii) such
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14
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Lease has been charged off by the Servicer
in accordance with its standard servicing
procedures.
Under certain limited circumstances, the
Servicer may resign or be removed, in which
event the Trustee or a qualified success or
servicer designated by the Trustee will be
appointed as successor Servicer (the
"Successor Servicer").
The Servicer will be required to cause
amounts collected on the Lease Receivables
on behalf of the Issuer to be deposited in a
lockbox account (the "Lockbox Account")
maintained in the name of the Trustee. Funds
in the Lockbox Account will be distributed
to the Collection Account (as defined
herein) maintained with the Trustee no later
than the [_______] Business Day prior to
each Payment Date.
On the third Business Day prior to each
Payment Date (each, a "Reporting Date"), the
Servicer shall be required to deliver a
monthly Servicer Report to (i) the Trustee
on behalf of the Noteholders, (ii) each
Rating Agency (as defined herein) and (iii)
the Underwriter (as defined herein)
detailing amounts received on the Leases in
respect of the immediately preceding
Collection Period and available for
distribution on the Payment Date.
[Lease Receivable Substitution.. The Seller shall have the right (but not the
obligation) to substitute a Lease Receivable
for any Lease Receivable which defaults or
prepays. Substitute Lease Receivables must
be at least equal in Discounted Lease
Balance and comparable in terms of credit
quality, monthly payment, and other
characteristics, provided, that in no event
shall the maturity date of any Lease
Receivable substituted for a Lease
Receivable removed from the Pool of Assets
in accordance with the Indenture and the
related Transaction Documents (a
"Substituted Lease Receivable") be later
than the last maturity date of any Lease
Receivable.]
Certain Legal Aspects
of the Leases................... With respect to the transfer of the Leases
to the Issuer pursuant to a the Transferor
Contribution and Sale Agreement or the
pledge of the Issuer's right, title and
interest in and to such Leases on behalf of
Noteholders pursuant to the Indenture, the
Transferor will warrant, in each case, that
such transfer is either a valid transfer and
assignment of the Leases to the Issuer or
the grant of a security interest in the
Leases. The Transferor shall warrant that,
if the transfer or assignment by it to the
Issuer or to the Noteholders is deemed to be
a grant to the Issuer or to the Noteholders
of a security interest in the Leases, then
the Issuer or the Noteholders will have a
first priority perfected security interest
therein, except for certain liens which have
priority over previously perfected security
interests by operation of law, and, with
certain exceptions, in the proceeds thereof.
Optional Redemption............. The Issuer will have the option, subject to
certain conditions set forth in the
Indenture, to prepay all of the Notes on any
Payment Date on which the Aggregate
Discounted Lease Balance is less than 10% of
the Initial Aggregate Discounted Lease
Balance (an "Optional Redemption"). In the
event such option is exercised, the entire
outstanding principal balance of the Notes,
together with accrued interest thereon at
the respective Note Interest Rate, as
applicable, will be required to be paid to
the Noteholders on such Payment Date.
Limited Repurchase
Obligation...................... In the Seller Contribution and Sale
Agreement, the Seller will make certain
representations and warranties with respect
to, among other things, the Lease
Receivables. The Seller will be obligated to
repurchase a Lease Receivable if
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15
<PAGE>
- --------------------------------------------------------------------------------
the interest of the Issuer, the Trustee, the
Transferor or the Noteholders is materially
adversely affected by a breach of such a
representation or warranty made by the
Seller with respect to such Lease Receivable
and if such breach has not been cured as of
[_______] days following the Seller's
discovery or receipt of notice of such
breach.
In the Transferor Contribution and Sale
Agreement, the Transferor will make certain
representations and warranties with respect
to, among other things, the Lease
Receivables. The Transferor will be
obligated to repurchase a Lease Receivable
if the interest of the Issuer, the Trustee
or the Noteholders is materially adversely
affected by a breach of such a
representation or warranty made by the
Transferor with respect to such Lease
Receivable and if such breach has not been
cured as of [_______] days following the
Seller's discovery or receipt of notice of
such breach.
Tax Considerations.............. Subject to the discussion below, under the
Internal Revenue Code of 1986 (the "Tax
Code"), as amended, and existing
regulations, administrative rules and
judicial decisions, Tax Counsel (as defined
herein) is of the opinion that under
existing law the Offered Notes will be
characterized as indebtedness for federal
income tax purposes. Under the Transaction
Documents, the Transferor, the Issuer, the
Seller, the Servicer, the Noteholders and
other parties will agree to treat the Notes
as debt for all income tax purposes. As a
result, a portion of each payment on the
Notes will be treated as interest. Holders
of the Offered Notes will be required to
include interest paid or accrued on the
Offered Notes in gross income. Principal
Payments on the Offered Notes should, to the
extent of the Noteholder's basis in the
Offered Notes allocable thereto, be treated
as a return of capital. See "Material
Federal Income Tax Consequences" herein for
additional information concerning the
application of federal income tax laws.
ERISA Considerations............ The acquisition of Notes by an employee
benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA") or the provisions of
Section 4975 of the Tax Code (a "Plan"),
could result in a prohibited transaction
under "ERISA" or Section 4975 of the Tax
Code, unless such acquisition is subject to
a statutory or administrative exemption, if,
by virtue of such acquisition, assets held
by the Issuer and pledged to the Trustee
were deemed to be assets of the Plan. In
addition, the Issuer or other parties may be
considered to be a fiduciary with respect to
any Plan. Therefore, the acquisition and
transfer of the Notes are subject to certain
restrictions. See "ERISA Considerations."
Ratings......................... It is a condition to the issuance of the
Notes that the Class A-1 Notes be rated
[_______] by _______ and [_______] by
_________, the Class A-2 Notes be rated
[_______] by _____ and [_______] by ______
the Class A-3 Notes be rated [______] by
_____ and [_______] by ______, the Class A-4
Notes be Rated [_______] by _____ and
[_______] by ______the Class B Notes be
rated [_______] by _______ and [_______] by
_______, the Class C Notes be rated
[_______] by ________ and [_______] by
_______, and the Class D Notes be rated
[_______] by ________ and [______] by
______. (each of [_______] and [_______] are
referred to herein as a "Rating Agency," and
collectively as the "Rating Agencies"). A
security 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 "Ratings " herein.
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RISK FACTORS
Prospective Noteholders should consider, among other things, the following
factors in connection with the purchase of the Notes:
Limited Liquidity. There can be no assurance that a secondary market for
the Notes of any Class will develop or, if it does develop, that it will provide
Noteholders with liquidity of investment or that it will continue for the life
of such Notes. [Although the Underwriter intends to establish and maintain a
secondary market in such Notes, it shall not be obligated to do so.] The Notes
will not be listed on any securities exchange.
Ownership of Leases. In connection with the issuance of any Notes, the
Seller will transfer Leases to the Transferor. The Seller will warrant in the
Seller Contribution and Sale Agreement that the transfer of the Leases by it to
the Transferor is a valid assignment, transfer and conveyance of such Leases.
The Transferor will warrant in the Transferor Contribution and Sale Agreement,
that the transfer of the Leases to the Issuer is a valid assignment, transfer
and conveyance of the Leases to the Issuer, and that upon the Issuer's pledge of
the Leases to Trustee, that the Trustee for the benefit of the Noteholders will
have a valid security interest in such Leases. The Transaction Documents will
provide that the Servicer will be required to maintain possession of the
original copies of all Leases that constitute chattel paper. If the Transferor,
the Servicer, the Issuer, or the Seller, while in possession of the Leases,
sells or pledges and delivers such Leases to another party, in violation of a
Transaction Document, there is a risk that such other party could acquire an
interest in such Leases having a priority over the Issuer's interest.
Furthermore, if the Transferor, the Servicer, or the Seller, while in possession
of the Leases, is rendered insolvent, such event of insolvency may result in
competing claims to ownership or security interests in the Leases. Such an
attempt, even if unsuccessful, could result in delays in payments on the Notes.
If successful, such attempt could result in losses to the Noteholders or an
acceleration of the repayment of the Notes, or both. The Seller and the
Transferor will make certain representations and warranties with respect to the
ownership of the Leases as of the date of the transfer to the Transferor, the
Issuer and the pledge to the Trustee, respectively. The Seller will be obligated
to acquire any Lease if there is a breach of such representations and warranties
that materially adversely affects the interests of the Transferor, the Issuer or
the Trustee on behalf of the Noteholders in such Lease and such breach has not
been cured.
Security Interest in the Equipment. The Seller will also contribute all of
its right, title and interest in and to the related Equipment to the Transferor
or to the Issuer. The Seller Contribution and Sale Agreement shall require the
Seller to make certain representations and warranties with respect to the
transfer of title and, in the alternative, perfection and priority of a security
interest, if any, in the Equipment. The Transferor may also transfer the
Equipment to a Issuer and/or may pledge all of its right, title and interest in
and to such Equipment to the Issuer. Pursuant to the Transferor Contribution and
Sale Agreement, the Transferor may warrant (a) if the Transferor transfers such
Equipment to a Issuer, that such transfer is either a valid assignment, transfer
and conveyance of such Equipment to the Issuer or it has granted to the Issuer a
security interest in such Equipment, or (b) if the Transferor retains title,
that it has granted to the Issuer a valid security interest in such Equipment.
The Issuer may pledge all of its right, title and interest in and to such
Equipment to the Trustee under an Indenture. If the Issuer were to grant a
security interest in such Equipment to the Trustee, the Issuer would make or
assign certain similar representations and warranties with respect to the
transfer of title and the perfection and priority of a security interest in the
Equipment.
As specified herein, because of the administrative burden and expense that
would be entailed in so doing, neither the Seller nor the Transferor will file,
or necessarily will be required to file, UCC financing statements identifying
the Equipment as collateral pledged in favor of the Issuer or the Trustee for
the benefit of the Noteholders. In the absence of such filings any security
interest in the Equipment will not be perfected in favor of the Issuer, or the
Trustee. As a result the Issuer or the Trustee could lose priority of its
security interest in such Equipment. Neither the Seller nor the Transferor will
have any obligation to reacquire Equipment as to which such aforementioned
occurrence results in the loss of lien priority after the date the Issuer
receives an interest in such Equipment. See "Certain Legal Aspects of the
Leases."
Restrictions on Recoveries. All Leases will provide that the obligations of
the Lessees thereunder are absolute and unconditional, regardless of any
defense, set-off or abatement which the Lessee may have against the Seller or
any other person or entity whatsoever. The Seller and the Transferor will
warrant, to the best of its knowledge, that no claims or defenses have been
asserted or threatened with respect to the Leases and that all requirements of
applicable law with respect to the Leases have been satisfied.
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In the event that the Transferor or the Issuer must rely on repossession
and disposition of Equipment to recover scheduled payments due on Defaulted
Leases, the Issuer may not realize the full amount due on a Lease (or may not
realize the full amount on a timely basis). Other factors that may affect the
ability of the Issuer to realize the full amount due on a Lease include whether
financing statements to perfect the security interest in the Equipment had been
filed, 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
suffer loss of their investment in the Notes.
Insolvency and Bankruptcy Matters. The Transferor will take steps in
structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by the Seller or the
Transferor (the Seller and the Transferor, collectively for these purposes,
"Debtors") under the United States Bankruptcy Code or similar applicable state
laws ("Insolvency Laws") will not result in the assets of the Pool of Assets
becoming property of the estate of a Debtor within the meaning of such
Insolvency Laws. The Transferor will be a limited-purpose subsidiary of Charter
created pursuant to articles of incorporation containing certain limitations
(including restrictions on the nature of the Transferor's business and a
restriction on the Transferor's ability to commence a voluntary case or
proceeding under any Insolvency Law without the prior unanimous affirmative vote
of all its directors). However, there can be no assurance that the activities of
the Transferor would not result in a court's concluding that the assets and
liabilities of the Transferor should be consolidated with those of the Seller in
a proceeding under any Insolvency Law.
The Seller Contribution and Sale Agreement and , the Transfer Contribution
and Sale Agreement and the Indenture will generally require that the Seller
contribute the Lease Receivables to the Transferor which in turn will transfer
such Lease Receivables to the Issuer, and the Issuer will pledge the Lease
Receivables to the Trustee on behalf of the Noteholders.
With respect to the Lease Receivables, the Trustee and all Noteholders will
covenant that they will not at any time institute against the Transferor any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law,
While the Seller is the Servicer, cash collections held by the Seller may,
subject to certain conditions, be commingled and used for the benefit of the
Seller prior to their deposit into the Lockbox Account and, in the event of the
bankruptcy of the Seller, the Transferor, the Issuer, or the Trustee may not
have a perfected interest in such collections.
The Transferor believes that the transfer of the Lease Receivables by the
Seller to the Transferor should be treated as a valid assignment, transfer and
conveyance of such Lease Receivables. However, in the event of an insolvency of
the Seller, a competing creditor or a trustee in bankruptcy, among other
remedies, could attempt to have a court recharacterize the transfer of the Lease
Receivables by the Seller to the Transferor as a borrowing by the Seller from
the Transferor or the related Noteholders, secured by a pledge of the Lease
Receivables. Such an attempt, even if unsuccessful, could result in delays in
payments on the Notes. If such an attempt were successful, a court, among other
remedies, could elect to accelerate payment of the Notes and liquidate the Lease
Receivables, with the Noteholders entitled to the then outstanding principal
amount thereof and interest thereon at the applicable Note Interest Rate to the
date of payment. Thus, the Noteholders could lose the right to future payments
of interest and might incur reinvestment losses. In the event the Issuer is
rendered insolvent, the Trustee, in accordance with the Indenture, will promptly
sell, dispose of or otherwise liquidate the Lease Receivables in a commercially
reasonable manner on commercially reasonable terms.
The proceeds from any such sale, disposition or liquidation of the Lease
Receivables will be treated as collections on the Lease Receivables. If the
proceeds from the liquidation of the Lease Receivables and any amount available
from any credit enhancement, if any, are not sufficient to pay Notes in full,
the amount of principal returned to the Noteholders will be reduced and the
Noteholders will incur a loss.
Lessees of the Equipment may be entitled to assert against the Seller, the
Transferor, or the Issuer, if any, claims and defenses which they have against
the Seller with respect to the Lease Receivables. The Seller will warrant that
no such claims or defenses have been asserted or threatened with respect to the
Lease Receivables and that all requirements of applicable law with respect to
the Lease Receivables have been satisfied.
Equipment Obsolescence. In the event a Lease becomes a Defaulted Lease and
the Lessee (and any guarantor) has insufficient assets available to pay the
Lease payments on the scheduled payment dates, the only other source of moneys
(other than the applicable credit enhancements, if any) for such amounts will be
the income
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and proceeds from the disposition of the related Equipment. Because the market
value of equipment generally declines with age and may be subject to sudden,
significant declines in value because of technological advances, in the event of
a repossession and sale of Equipment subject to a Defaulted Lease, the Issuer
may not recover the entire amount due on such Lease. As a result, the
Noteholders may be subject to delays in receiving payments and suffer loss of
their investment in the Notes.
Delinquencies. There can be no assurance that the historical levels of
delinquencies and losses experienced by the Seller on its equipment lease
portfolio will be indicative of the performance of the Leases included in the
Pool of Assets or that such levels will continue in the future. Delinquencies
and losses could increase significantly for various reasons, including changes
in the federal income tax laws, changes in the local, regional or national
economies or due to other events.
Subordination; Limited Assets. As described more fully herein,
Distributions of interest and principal on certain Classes of Notes will be
subordinated in priority of payment to interest and principal due on other
Classes of Notes. Moreover, the Issuer will not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
related Lease Receivables. The Notes represent solely debt secured by the Pool
of Assets, and will not represent a recourse obligation to other assets of the
Seller or of the Transferor. No Notes will be insured or guaranteed by the
Seller, the Transferor, the Servicer, or the Trustee. Consequently, holders of
the Notes must rely for repayment primarily upon payments on the Lease
Receivables.
Book-Entry Registration. Issuance of the Notes in book-entry form may
reduce the liquidity of such Notes in the secondary trading market since
investors may be unwilling to purchase Notes for which they cannot obtain
definitive physical notes representing such Noteholders' interests, except in
certain limited circumstances.
Since transactions in Notes will, in most cases, be able to be effected
only through DTC, direct or indirect participants in DTC's book-entry system
("Direct Participants" or "Indirect Participants") or certain banks, the ability
of a Noteholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Notes, may be limited due to lack of a physical security representing the Notes.
Noteholders may experience some delay in their receipt of distributions of
interest on and principal of the Notes since distributions may be required to be
forwarded by the Trustee to DTC and, in such case, DTC will be required to
credit such distributions to the accounts of its Participants which thereafter
will be required to credit them to the accounts of the applicable class of
Noteholders either directly or indirectly through Indirect Participants. See
"Description of the Notes --Book Entry Registration."
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. 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 judgement circumstances (i.e., such as the performance of the
Leases 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 "Ratings."
Maturity and Prepayment Considerations. Because the rate of payment of
principal on the Notes will depend, among other things, on the rate of payment
on the related Leases, the rate of payment of principal on the Notes cannot be
predicted. Payments on the Leases will include scheduled payments as well as
partial and full prepayments (to the extent not replaced with substitute
Leases), payments upon the liquidation of Defaulted Leases, payments upon
acquisitions by the Seller, the Servicer or the Transferor of Leases from the
Pool of Assets on account of a breach of certain representations and warranties
in the related Transaction Document, payments upon an optional acquisition by
the Seller, the Servicer or the Transferor of Leases from the Pool of Assets
(any such voluntary or involuntary prepayment or other early payment of a Lease,
a "Prepayment"), and residual payments. The rate of early terminations of Leases
due to Prepayments and defaults may be influenced by a variety of economic and
other factors, including, among others, obsolescence, then current economic
conditions and tax considerations. The risk of reinvesting distributions of the
principal of the Notes will be borne by the Noteholders. The yield to maturity
on Stripped Notes (as defined in the Tax Code), or Notes purchased at premiums
or discounts
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to par will be extremely sensitive to the rate of Prepayments on the related
Leases. In addition, the yield to maturity on certain other types of classes of
Notes, including Stripped Notes, Accrual Notes or certain other Classes in a
series including more than one Class of Notes, may be relatively more sensitive
to the rate of prepayment of the related Leases than other Classes of Notes.
The Transferor does not have available to it any statistics as to
prepayment rates historically experienced in the equipment leasing industry. The
rate of Prepayments of Leases cannot be predicted and is influenced by a wide
variety of economic and other factors, including prevailing interest rates, the
availability of alternate financing and local and regional economic conditions.
Therefore, no assurance can be given as to the level of Prepayments that the
Pool of Assets will experience.
Noteholders should consider, in the case of Notes purchased at a discount,
the risk that a slower than anticipated rate of Prepayments on the Lease
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Notes purchased at a premium, the risk that a
faster than anticipated rate of Prepayments on the Lease Receivables could
result in an actual yield that is less than the anticipated yield.
Certain UCC Considerations. Certain states have adopted a version of
Article 2A of the Uniform Commercial Code ("Article 2A"). Article 2A purports to
codify many provisions of existing common law. Article 2A 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, 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." Article 2A, however, 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 a wide degree of latitude to vary provisions of the law.
Leases Related to Software and Services. Certain Leases may relate to
software and services that are not owned by the Seller and/or other items which
have little or no collateral value ("Soft Items") and in which no related
interest will be transferred to the Issuer. Accordingly, if any such Lease
becomes a Defaulted Lease, the Issuer will not realize any proceeds from the
related software, services and Soft Items from which to satisfy any unpaid
payments under such Leases. Such Leases may be susceptible to prepayment risk
due to obsolescence or technological change which may cause the Notes to prepay
somewhat earlier, which may expose the related Noteholders to a greater
investment risk.
Risk of Downgrade of Initial Ratings Assigned to 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. The ratings
of the Notes address the likelihood of the timely payment of interest on and the
ultimate repayment of principal of the Notes pursuant to their terms. There is
no assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. The ratings of the Notes are
based primarily on the Rating Agencies' analysis of the Lease Receivables,
overcollateralization and the subordination, if any.
Transfer of Servicing May Delay Payments. If Charter were to cease acting
as Servicer, delays in processing payments on the Lease Receivables and
information in respect thereof could occur and result in delays in payments to
the Noteholders.
Risks Associated with Inability Of the Seller to Reacquire Lease
Receivables. The Seller will make representations and warranties with respect to
certain matters relating to the Lease Receivables. In certain circumstances, the
Seller will be required to reacquire the Lease Receivables with respect to which
such representations and warranties have been breached. In the event that the
Seller is incapable of complying with its reacquisition obligations and no other
party is obligated to perform or satisfy such obligations, the Noteholders may
be subject to delays in receiving payments and suffer loss of their investment
in the Notes.
Year 2000 Computer Issue
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications to
fail completely or create erroneous results unless corrective measures are
taken. The Servicer utilizes some software and related computer hardware
technologies essential to its operations that will be affected by the Year 2000
issues. The Servicer is currently making changes and enhancements to eliminate
this
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problem internally and studying what additional actions will be necessary to
make all of its computer systems Year 2000 compliant. The expense associated
with these actions has yet to be fully determined, but could be material.
THE POOL OF ASSETS
The property of the Issuer (the "Pool of Assets)" will include (i) a pool
of Leases, (ii) all moneys (including accrued interest) due thereunder on or
after the applicable Cut-Off Date, (iii) such amounts as from time to time may
be held in one or more accounts established and maintained by the Servicer
pursuant to the Indenture and the Servicing Agreement, as described below, (iv)
the security or other interests, if any, in the Equipment relating to such pool
of Leases, (v) the right to proceeds from claims on physical damage policies, if
any, covering such Equipment, (vi) the proceeds of any repossessed Equipment
related to the Lease Receivables, (vii) the rights of the Transferor under the
Seller Contribution and Sale Agreement which have been conveyed by the
Transferor Contribution and Sale Agreement, and (viii) interest earned on
certain short-term investments thereon.
The Lease Receivables included in the Pool of Assets will be either (i)
originated by the related Seller, (ii) originated by various Vendors and
acquired by the Seller or (iii) acquired by the Seller from sellers or other
originators of Lease Receivables.
The Equipment underlying the Lease Receivables included in the Pool of
Assets generally will be limited to personal property which is leased or
financed by the Seller or the originator from which the Seller acquired the
Lease Receivables to the Lessee pursuant to Leases which either are "chattel
paper" (as defined in the Uniform Commercial Code) or are Leases that are not
treated materially differently from "chattel paper" for purposes of title
transfer, security interests or remedies on default. However, certain Leases may
also have as additional security or security interest in related fixtures or be
additionally secured by mortgages on related real property. The Issuer will not
have any residual interest in the Equipment after the related Lease Receivable
has been paid in full. The Lease Receivables will be acquired by the Transferor
from the Seller pursuant to the Contribution and Sale Agreement between the
Seller and the Transferor (the "Seller Contribution and Sale Agreement"). The
Lease Receivables included in the Pool of Assets will be selected from those
lease receivables held by the Seller based on the criteria specified in the
applicable Transaction Document and described herein.
On or prior to the Closing Date on which the Notes are delivered to
Noteholders, the Transferor will transfer the Pool of Assets to the Issuer
pursuant to the Transferor Contribution and Sale Agreement Document between the
Transferor and the Issuer. Thereupon, the Issuer shall enter into the Indenture
with the Trustee, relating to the issuance of the Notes, secured by the Lease
Receivables.
The Lease Receivables comprising the Pool of Assets will generally have
been originated by the Seller or acquired by the Seller from Vendors or from
other obligees in accordance with the Seller's specified underwriting criteria.
The Issuer is a limited purpose bankruptcy-remote limited liability company
organized under the laws of the State of Delaware. The Issuer was organized for
the limited purpose of engaging in the transactions described herein,
particularly to acquire the Pool of Assets from the Transferor pursuant to the
Transferor Contribution and Sale Agreement, to issue the securities pursuant to
the Indenture, and any activities incidental to and necessary or convenient for
the accomplishment of such purposes. The Issuer is restricted by the LLC
Agreement from engaging in other activities. In addition, its organizational
documents require the Issuer to operate in a manner intended to minimize the
risk that it would be consolidated in the bankruptcy estate of Charter or its
Affiliates in the event that Charter or any of its Affiliates becomes subject to
bankruptcy or insolvency proceedings. The Issuer's address is
___________________.
The Issuer will be established pursuant to that certain Limited Liability
Company Agreement dated as of ________, 1998 (the "LLC Agreement"). The LLC
Agreement will describe the formation and administration of the Issuer.
The Pool of Assets will consist of a portfolio and related property of
finance leases, leases intended as security agreements, installment sale
contracts, loan contracts, synthetic leases, and/or rental stream obligations
and/or participation interests in the foregoing, together with all monies
received relating thereto (the
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"Leases) and the interests, if any held by the Transferor in the financed
equipment and related property (the "Equipment") originated by the Seller and
underwritten to Charter's credit and collections policies. In addition, the Pool
of Assets will include (i) funds on deposit in any Trust Accounts established
and maintained by the Servicer pursuant to the Servicing Agreement; (ii) the
rights to proceeds from certain insurance policies covering the Equipment; (iii)
the interest of the Transferor in any proceeds from recourse to Vendors on Lease
payments; (iv) other rights of the Transferor under the Seller Contribution and
Sale Agreement conveyed under the Transferor Contribution and Sale Agreement;
and (v) all proceeds of the foregoing.
THE ISSUER
Upon the issuance of the Notes, the proceeds from the issuance will be used
by the Transferor to acquire the Lease Receivables from the Seller. The Servicer
will service the Lease Receivables pursuant to the Servicing Agreement, and will
be compensated for acting as the Servicer.
If the protection provided to the Noteholders of a given class by the
subordination of another Class of Notes is insufficient, the Issuer must rely
solely on the payments from the Lessees on the related Leases, and the proceeds
from the sale of Equipment which secures or is leased under the Defaulted
Leases. In such event, certain factors may affect such Issuer's ability to
realize on the collateral securing such Leases, and thus may reduce the proceeds
to be distributed to the Noteholders.
THE LEASES
The Lease Receivables consist of the Leases and a security interest in the
Equipment. The Issuer will not have any residual interest in the related
Equipment after Lease Receivable has been paid in full.
Eligible Leases
The following eligibility requirements apply to all Leases purchased by the
Transferor on or prior to the Cut-Off Date and all Substitute Leases
(collectively "Eligible Leases"). All Eligible Leases have been originated in
the ordinary course of the Seller's business and comply with the Seller's credit
and collections policies.
The Seller will represent that the Leases shall comply with the following:
(i) The Leases are valid and enforceable, and contain "Hell or High
Water" clauses that unconditionally obligate the Lessee to make periodic
Lease payments (including taxes);
(ii) The Leases are noncancellable by the Lessee and do not contain
early termination options (except for Leases which contain early
termination or prepayment clauses, which require the Lessee to pay the
remainder of all remaining Scheduled Payments under such Lease upon such
cancellation or prepayment);
(iii) All payments payable under the Leases are absolute,
unconditional obligations of the Lessees without right to offset for any
reason;
(iv) All of the Leases require the Lessee or a third party to maintain
the Equipment in good working order, to bear all the costs of operating the
Equipment, including taxes and insurance relating thereto;
(v) The Leases do not materially violate any U.S. or state laws;
(vi) The Leases provide for periodic payments;
(vii) In the event of a Casualty Loss (as defined below), the Lessee,
at the Lessee's expense, is required to replace the Equipment with like
equipment in good repair, acceptable to Seller or pay at a minimum the
outstanding principal or net book value of the Leases and any applicable
make whole premium;
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(viii) The Leases have been sold to the Transferor free and clear of
any liens and are assignable without prior written consent of the Lessee;
(ix) The Leases are U.S. dollar-denominated and the Lessor and each
Lessee are located in the United States;
(x) The Lease is not a consumer lease;
(xi) The Lease is not subject to any guaranty by the Seller;
(xii) No adverse selection was used in selecting the Lease for
transfer to the Transferor or the Issuer;
(xiii) The Lessee has represented to the Seller or Vendor that it has
accepted the Equipment;
(xiv) The Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xv) The Leases are not Defaulted Leases;
(xvi) The maximum remaining term of any Lease shall not exceed
[_______] months ("Maximum Lease Term"); and
(xvii) Each Lease is not more than [_______] days past due at time of
transfer to the Transferor or the Issuer (an "Acceptable Payment Status").
Lease Payments and Valuation
In connection with all calculations required to be made pursuant to the
Transaction Documents with respect to the determination of Aggregate Discounted
Lease Balances, on any Calculation Date the Aggregate Discounted Lease Balance
for each Lease shall be calculated assuming:
(i) Lease Payments are due on the last day of each Collection Period;
(ii) Lease Payments are discounted on a monthly basis using a 30 day
month and a 360 day year; and
(iii) Lease Payments are discounted to the last day of the Collection
Period prior to the Calculation Date.
All of the Leases require the periodic, scheduled payment of rent or other
payments on a monthly, quarterly, semi-annual or annual basis, in arrears or in
advance. Such periodic payments are referred to herein as "Lease Payments."
Delinquencies, Repossessions, and Net Losses
Certain information relating to the Seller's delinquency, repossession and
net loss experience with respect to Leases it has originated or acquired will be
set forth below. This information may include, among other things, the
experience with respect to all Leases in the Seller's portfolio during certain
specified periods, including Leases which may not meet the criteria for
selection as a Lease Receivable for the Pool of Assets. There can be no
assurance that the delinquency, repossession and net loss experience on the Pool
of Assets will be comparable to the Seller's prior experience.
Maturity and Prepayment Considerations
If a Lease permits a Prepayment, such prepayment, together with accelerated
payments resulting from defaults, will shorten the weighted average life of the
pool of Lease Receivables and the weighted average life of the Notes. The rate
of Prepayments on the Lease Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
the Transferor or the Seller will be obligated to reacquire Lease Receivables
from the Pool of Assets pursuant to the applicable Transaction Documents as a
result of
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breaches of representations and warranties. Any reinvestment risks resulting
from a faster or slower amortization of the Notes which results from Prepayments
will be borne entirely by the Noteholders.
Acquisition of Lease Receivables from the Seller
The Lease Receivables underlying the Notes will be acquired by the
Transferor from the Seller pursuant to the Seller Contribution and Sale
Agreement between the Transferor and the Seller.
The Transferor expects that each Lease Receivable so acquired will have
been originated or acquired by the Seller thereof in accordance with the
Seller's underwriting criteria. The Seller pursuant to the Seller Contribution
and Sale Agreement will make certain representations and warranties to the
Transferor in respect of the related Lease Receivables; the material terms of
such representations and warranties will be set forth herein under the heading
"Definition of the Notes--Representations and Warranties." The Transferor will
assign all of its rights (except certain rights of indemnification) and interest
in the Seller Contribution and Sale Agreement to the Issuer, which in turn will
assign all its rights to the Trustee for the benefit of the Noteholders, and the
Seller shall thereupon be liable to the Issuer and the Trustee for defective or
missing documents or an uncured breach of such Seller's representations or
warranties.
The Leases
As of the initial Calculation Date, the Leases had an Aggregate Discounted
Lease Balance (calculated using an assumed discount rate of [_______]%) of
approximately $[_______]. The statistical information concerning the pool of
Leases set forth herein is based upon information as of the initial Calculation
Date and using the then applicable Discount Rate. The actual Discount Rate of
[_______]% applicable to the Closing Date is a per annum rate equal to the sum
of (i) the weighted average Note Interest Rates of the Notes and (ii) the
Servicing Fee Rate, and shall be used to calculate the actual Initial Note
Principal Balances and the actual Initial Aggregate Discounted Lease Balance.
The Initial Aggregate Discounted Lease Balance of the Leases as of the Cut-Off
Date calculated using the Discount Rate is $[_______]. Between the Calculation
Date and the Closing Date some amortization of the pool is expected to occur. In
addition, certain Leases included in the pool as of the Calculation Date may be
determined not to meet the eligibility requirements for the final pool, and may
not be included in the final pool. While the statistical distribution of the
characteristics as of the Closing Date for the final Lease Receivable pool and
calculated at the Discount Rate will vary somewhat from the statistical
distribution of such characteristics as of the Calculation Date and calculated
at the assumed Discount Rate as presented in this Prospectus, such variance will
not be material.
As of any Calculation Date, the Aggregate Discounted Lease Balance shall
equal the sum of the present value of all remaining Lease Payments of Eligible
Leases (excluding payments with respect to Defaulted Leases, Early Termination
Leases and Leases subject to a Warranty Event) becoming due after such
Calculation Date discounted monthly at the Discount Rate.
The Leases have the characteristics specified in the Contribution and Sale
Agreement and described herein, and the Leases eligible to be designated as
Substitute Leases will conform to the characteristics specified in the Seller
Contribution and Sale Agreement and herein.
The terms of the Leases generally range from [_______] to [_______] months.
The final scheduled payment date on the Lease with the latest maturity is
[_______], - [_______]. As of the initial Calculation Date, all of the Leases
had (i) original terms to maturity of [_______] months to [_______] months, with
a weighted average original term to maturity of approximately [_______] months;
and (ii) a remaining term to maturity of not less than [_______] months and not
more than [_______] months, with a weighted average remaining term to maturity
of approximately [_______] months.
References herein to percentages of Lessees refer in each case to the
percentage of the Aggregate Discounted Lease Balance of the Leases as of the
Calculation Date.
As of the Calculation Date, the Aggregate Discounted Lease Balance of the
Leases ranged from $[_______] to $ [_______]. No more than [_______]% of the
Aggregate Discounted Lease Balance is attributable to any one Lessee, and the
average Discounted Lease Balance is approximately $ [ ].
[Under the Servicing Agreement, the Servicer is permitted to allow a Lessee
to prepay a Lease in an amount not less than the related Prepayment Amount. In
addition, in the event that a Lessee requests an upgrade or trade-in of
Equipment, the Servicer may remove such Equipment and related Lease from the
Pool of Assets, but
24
<PAGE>
only upon payment of an amount equal to the sum of (i) the related Discounted
Lease Balance as of the first day of the Collection Period preceding such
removal, (ii) one month's interest thereon at the Discount Rate, and (iii) any
Lease Payments due and outstanding under such Lease that have not been paid by
the Lessee (collectively, the "Repurchase Amount").]
Portfolio Parameters
As described below on the Cut-Off Date, Leases in the aggregate shall be
required to comply with certain portfolio concentration criteria (the "Portfolio
Concentration Criteria"):
a) The Concentrations of individual Lessees and their affiliates shall
be limited as follows:
i) The [number] largest Lessee concentration is limited to [ ] %
of the Aggregate Discounted Lease Balance of the Leases; and
ii) The [number] largest Leases on a combined basis may not
comprise more than [_______] % of the Aggregate Discounted Lease
Balance of the Leases; and
b) At any one time, the maximum state concentration based upon the
location of the related Lessee is limited to [_______] % of the Aggregate
Discounted Lease Balance of the Leases; and
c) The maximum industry concentration based on the Lessee's industry
is limited to [_______]% of the Aggregate Discounted Lease Balance of the
Leases; and
d) The average remaining term of the Leases shall not exceed [_______]
months.
If the inclusion of any Lease in the Lease pool would cause the Leases to fail
to satisfy the Portfolio Concentration Criteria, such Lease shall have its
Discounted Lease Balance deemed to be zero until its inclusion would comply with
such criteria.
Substitutions
Pursuant to the Transferor Contribution and Sale Agreement, subject to FASB
125 restrictions, the Transferor shall have the option to substitute Eligible
Leases for either a Defaulted Lease, a Warranty Event, or a Casualty Loss, up to
a maximum of [_______]% of the Aggregate Discounted Lease Balance of contracts
contributed to the pool, provided the following conditions are met:
(i) At the time of substitution, the substituted Eligible Leases have
in the aggregate Discounted Lease Balances of not less than the discounted
contract balance of the contracts being replaced;
(ii) Substitutions by the Transferor shall be approximately the same
weighted average life of the remaining originally scheduled Lease payments
in the pool and shall not extend the final maturity of the pool beyond the
original maturity of the initial Leases in the pool.
Each substitute Lease shall be a Lease, satisfying certain representations
and warranties set forth in the Servicing Agreement, the Indenture and the
Transferor Contribution and Sale Agreement (a "Substitute Lease") as of the
related Substitute Lease Cut-Off Date. In addition, the following conditions
must be satisfied:
(a) [on a cumulative basis from the Cut-Off Date, the sum of the
Discounted Lease Balance (as of the related Substitute Lease Cut-Off Date)
of such Substitute Leases would not exceed 10% of the Initial Aggregate
Discounted Lease Balance of all Leases as of the Cut-Off Date;
(b) as of the related Substitute Lease Cut-Off Date, the Substitute
Leases then being transferred have in the aggregate Discounted Lease
Balances that are not less than the aggregate of the Discounted Lease
Balances of the Leases being replaced; and
(c) no substitution shall be permitted if, after giving effect to such
substitution, (x) the sum of the Lease Payments (as defined below) on all
Leases due in any Collection Period thereafter would be less than (y) the
sum of the Lease Payments which would otherwise be due in such Collection
Period.]
25
<PAGE>
The Lease Receivable Statistical Information
Following is certain statistical information relating to the Lease
Receivable pool, calculated as of the Calculation Date and assuming a Discount
Rate of [ ]%. Certain columns may not total 100% due to rounding.
26
<PAGE>
<TABLE>
DISTRIBUTION OF LEASES BY DISCOUNTED LEASES BALANCE
<CAPTION>
Discounted Number of Sum of Discounted Lease Percentage of
Lease Balances Leases Balances Aggregate Discounted Lease Balance
-------------- ------ -------- ----------------------------------
Greater Less Than or
Than Equal to
---- --------
<S> <C> <C> <C> <C>
$ 1 $ 5,000 $ %
5,000 10,000
10,000 15,000
15,000 20,000
20,000 25,000
25,000 30,000
30,000 35,000
35,000 40,000
40,000 45,000
45,000 50,000
50,000 55,000
55,000 60,000
60,000 65,000
65,000 70,000
70,000 75,000
75,000 80,000
80,000 85,000
85,000 90,000
90,000 95,000
95,000 100,000
100,000 150,000
150,000 200,000
200,000 250,000
250,000 300,000
300,000 350,000
350,000 400,000
400,000 450,000
450,000 500,000
500,000 600,000
600,000 750,000
- ---------------------------------------------------------------------------------------------------------------------------
Total............................................ $ 100.00%
===========================================================================================================================
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE LEASES BY DEFINED OBLIGOR INDUSTRY (Top 25)
Number Percentage Of
of Sum of Discounted Aggregate Discounted
Industry Type Leases Lease Balances Lease Balance
------------- ------ -------------- ------------
<S> <C> <C> <C>
$ %
- ----------------------------------------------------------------------------------------------------------
Total (Top 25 Defined Industries)...................... $ %
- ----------------------------------------------------------------------------------------------------------
All Others............................................. $ %
- ----------------------------------------------------------------------------------------------------------
Total.................................................. $ 100.00%
==========================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
DISTRIBUTION OF THE LEASES BY OBLIGOR BILLING ADDRESS
<CAPTION>
Percentage of
Number of Sum of Discounted Aggregate Discounted
State Leases Lease Balances Lease Balance
----- ------ -------------- -------------
<S> <C> <C> <C>
Alabama $
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
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
Washington, D.C.
West Virginia
Wisconsin
Wyoming
</TABLE>
29
<PAGE>
<TABLE>
DISTRIBUTION OF THE LEASES BY REMAINING TERM TO MATURITY
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Remaining Term in Months
- ------------------------------------------------------------------------------------------------------------------------------------
Greater Less Than Number Percentage Of
Than or Equal to of Leases Sum of Discounted Lease Balances Aggregate Discounted Lease Balance
----- ----------- --------- -------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
1 12 $ %
12 24
24 36
36 48
48 60
60 72
72 84
84 96
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................. $ 100.00%
====================================================================================================================================
</TABLE>
<TABLE>
DISTRIBUTION OF THE LEASES BY ORIGINAL TERM TO MATURITY
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Original Term in Months
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of
Aggregate Discounted
Greater Less Than Number --------------------
Than or Equal to of Leases Sum of Discounted Lease Balances Lease Balance
---- ----------- --------- -------------------------------- -------------
<S> <C> <C> <C> <C>
1 12 $ %
12 24
24 36
36 48
48 60
60 72
72 84
84 96
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................. $ 100.00%
====================================================================================================================================
</TABLE>
CHARTER'S LEASING BUSINESS
Charter, a New York Corporation, is a specialty capital equipment finance
and leasing company which originates and services medium-term, fixed-rate,
full-payout leases and equipment financings to a wide variety of middle-market
clients in targeted industries throughout the United States and Canada. Charter
was founded in 1985 and is privately owned by members of its senior management
group and Warburg, Pincus Investors, L.P. Charter's address is 153 East 53rd
Street, New York, New York 10022 and its telephone number is (212) 805-1000.
30
<PAGE>
As of December 31, 1997, Charter's most recent fiscal year end, total
assets equaled approximately $155 million compared with approximately $83 on
December 31, 1996. Shareholder's equity equaled approximately $36 million on
December 31, 1997 compared with $32 million on December 31, 1996. Operating
revenues and net income for the 12-month period ending December 31, 1997 equaled
approximately $20 million and approximately $4.4 million respectively, and for
the 12-month period ending December 31, 1996 equaled approximately $15 million
and approximately $4.4 million respectively.
The Company provides financing for a range of middle-market companies in
specialized segments having annual sales volume generally between $2.5 million
and $50 million. Charter finances a broad range of equipment used by its clients
including medical equipment, film and video production equipment, plastic
manufacturing equipment, data processing equipment, office equipment, and
furniture. Charter currently operates 12 offices throughout the U.S. and Canada.
In addition to its New York headquarters, sales offices are maintained in
Portsmouth, NH; Danbury, CT; Charlotte, NC; Cleveland, OH; Portland, OR;
Chicago, IL; Los Angeles, CA and Bethesda, MD in the U.S. as well as in Toronto
and Winnipeg in Canada.
The following table briefly describes the Company's major industry
segments.
Overview of Industry Segments
Segment Description
================================================================================
Plastics/Packaging Provide equipment financing to companies
involved in all facets of the plastics
industry as well as recent entries into
packaging, and CD-ROM
- --------------------------------------------------------------------------------
Media Provide equipment financing to companies
involved with film and video production and
postproduction, printing and graphic arts
and other related media business
- --------------------------------------------------------------------------------
Specialty Markets Provide equipment financing to a variety of
industry segments based upon market
opportunities. End users include business
services, electronics, leisure and
communications, among others
- --------------------------------------------------------------------------------
Capital Markets Provide equipment financing to high-growth,
late stage venture capital sponsored
companies in structured transactions
- --------------------------------------------------------------------------------
Wholesale/Syndication Actively acquire lease portfolios and
individual transactions from other
institutions
- --------------------------------------------------------------------------------
Healthcare Provide equipment financing to leading
hospitals in the New York area
- --------------------------------------------------------------------------------
Vendor Finance Originate dealer/manufacturer referred
leases in selected industries
- --------------------------------------------------------------------------------
Canada Provide equipment financing to Canadian
companies involved with construction,
transportation, logging/forestry and mining
equipment
As of June 30, 1998 Charter had approximately 120 full time employees of
which approximately 60 are located in the New York Headquarters, approximately
30 are located in the Plastics/Packaging divisional office in Portsmouth, NH,
approximately 20 are located at the Company's Canadian subsidiary in Toronto,
Ontario (Canada) and approximately 10 are located in field sales offices
throughout the US and Canada.
The Company services all leases originated in the US at its Headquarters in
New York. Leases originated in Canada are serviced at its office in Toronto,
Ontario. At June 30, 1998 the Company was responsible for servicing a total of
approximately 2,200 leases in the US and an additional 397 leases in Canada
representing
31
<PAGE>
gross receivables balances of approximately $712 million and $33 million
respectively. Included in the total of managed leases in the US are
approximately 271 leases having a gross receivables balance of approximately
$170 million which were originated by the Company and sold to various third
parties on a non-recourse basis.
Charter originates leases primarily through its direct sales force located
in either its main office or regional offices. Transactions are also originated
by referrals under both formal and informal relationships with various equipment
manufacturers and vendors. In addition, Charter's wholesale division purchases
leases or other financing transactions which were originated by other
lessors/lenders provided that the creditworthiness and procedures of such seller
meet the approval of Charter and further provided that Charter approves the
creditworthiness of the client and all of the documentation in such
transactions.
Each client who wishes to enter into a lease/financing transaction with
Charter provides Charter with information required by Charter in order to make a
credit determination with respect to a particular transaction. This information
will generally consist of a complete copy of financial statements including all
notes thereto for the latest two fiscal years and current and prior period
interim statements, tax returns, credit and trade references, a description of
the equipment to be financed and the cost thereof and any other financial and
credit information deemed necessary by Charter to make a credit decision.
Credit approval authority is vested in Charter's credit officers and
divisional managers. Charter has established risk acceptance criteria ("RACs")
for each of the company's major industry segments which include certain
financial ratios such as leverage, working capital and cash flow, as well as
transaction terms such as maximum maturity, amortization and size of exposure,
and other qualitative criteria such as number of years in business, credit
history, reputation and business mix. Credit evaluation is weighted toward the
prospective lessee's ability to pay its obligations from historical cashflow
generated in its ordinary course of business and a "clean" balance sheet as
evidenced by conventional balance sheet ratios consistent with comparable
companies in the industry. Other considerations include strength of management,
clientele, business reputation, credit history, industry trends and the current
and projected value of the assets financed.
Credit approval for all transactions requires the approval of at least two
(2) credit officers or a credit officer and division manager. For transactions
falling within approved RACs, credit officers who have been designated as team
leaders have credit approval authority for exposures of up to $750,000.00 and
division managers have credit approval authority for exposures of up to
$1,500,000.00. The chief credit officer has approval authority for exposures of
up to $3,000,000.00 regardless of RAC compliance. Exposures in excess of these
authority limits or outside the RACs require the additional signature of the
next highest level of credit approval authority. Credit applications which fall
outside the established RACs are considered on an exception basis. In the credit
analysis of prospective transactions, Charter's personnel utilize independent
credit agency reports, bank and trade references, prior payment history, if any,
and/or financial statements in making a determination whether to approve or
decline a particular transaction. For any applicant which does not meet the
applicable RACs, Charter may require credit enhancement such as additional
collateral in the form of unencumbered equipment, accounts receivable or
inventory, a letter of credit, a certificate of deposit or a third-party
guarantee as a prerequisite to approving a transaction.
Concurrent with the credit approval of a transaction, a contract
administrator is assigned to prepare standard transaction documents to be
submitted to the client for execution. All non-standard documents or
non-standard terms and conditions are reviewed and approved by one of the
company's in-house attorneys. The assigned contract administrator is responsible
for obtaining all required executed documents, insurance certificates, UCC
financing statements, appropriate invoices covering the equipment and for
initiating payment of the equipment costs to the vendor and/or reimbursing the
client for any payments previously made to the vendor on account of such
equipment. Prior to releasing funds, the documents are subject to a second
review by an authorized senior contract administrator, who verifies the accuracy
of the documents, and are then approved by the credit team leader who verifies
that all of the terms of the credit approval have been met and that the lessee
is current with all payments on outstanding leases with the Company. The
transaction is then entered into the Company's Lease Administration system as
the final step prior to funding
Charter generally requires clients to maintain property insurance on the
lease/financed equipment covering the property against damage, fire, theft and
other risk of loss for the replacement value of the equipment with Charter named
as loss payee as appropriate. The client is also generally required to obtain
public liability insurance covering both personal injury and property damage,
naming Charter as additional insured as appropriate. The clients generally
obtain the required insurance through its own carrier, or in selected cases
where Charter is satisfied with the client's creditworthiness, through self
insurance.
32
<PAGE>
Delinquency Procedures and Loss Experience
Collection activities with respect to delinquent leases are performed by
the Servicer's staff at its headquarters in New York and Toronto under the
supervision of the Senior Credit Officer, Vice Chairman and General Counsel.
Under current practices, collection activity generally begins when an account
becomes ten days past due, with telephone contact. However, on a case by case
basis, initial contact may be made at an even earlier time. A report is
circulated each week to the appropriate officers, setting forth the payment
status of every transaction held by the Servicer in its portfolio. Generally, if
a transaction continues to be delinquent for more than one week following the
initial telephone contact, a collection officer or administrator makes
additional telephone contact with the client. If an account remains past due
after such telephone contact, Charter generally notifies the client in writing
at approximately twenty days past due. If a transaction continues to be
delinquent, Charter may exercise any remedies available to it under the terms of
the transaction, including termination, acceleration and/or repossession. The
current policy of Charter is that a transaction is written off when it is deemed
to be uncollectible. Generally, Charter does not deem an account to be
uncollectible unless and until it has taken reasonable steps to enforce its
rights and remedies under the transaction and it has determined that a client
does not have sufficient assets with which to satisfy the indebtedness. Upon
repossession and disposition of any equipment, any deficiency remaining will be
pursued to the extent deemed practicable. The servicing and charge-off policies
and collection practices of Charter may change over time in accordance with
Charter's business judgment.
Day-to-day collections are processed through Charter's lockbox account at
Bank of New York. The Bank of New York reviews the customer payment coupons
which accompany the remittance received and the payments are earmarked to the
specific pool where the Lease is funded.
For Charter's held and securitized portfolio, as of ______, 1998, a total
lease balance of $_____ million or _____% of managed receivables was 31-60 days
delinquent, a total lease balance of $_____ thousand or _____% of managed
receivables was 61-90 days delinquent, and a total lease balance of $_____
million or _____% of managed receivables was greater than 90 days delinquent
33
<PAGE>
<TABLE>
Delinquency/Loss Statistics
($ in thousands)
<CAPTION>
six months ending
Total Portfolio (includes December December December December December June 30,
receivables sold non- recourse) 31, 1993 31, 1994 31, 1995 31, 1996 31, 1997 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year Ending
Gross Receivables
+30 Day Delinquencies
*Annual Net
Charge-Offs
</TABLE>
* Note -- Chargeoffs are net of recoveries and are based upon annual average
gross receivables balances for the applicable period.
While the above delinquency experiences reflect Charter's experiences at
the period indicated, there can be no assurance that the delinquency experiences
on the Leases will be similar. Accordingly, the information should not be
considered to reflect the credit quality of the Leases owned by the Issuer, or
as a basis of assessing the likelihood or amount of severity of losses on the
Leases. The Leases, in general, may have characteristics which distinguish them
from the majority of the leases in Charter's existing portfolio.
34
<PAGE>
TRANSFEROR
The Transferor is a wholly-owned bankruptcy remote subsidiary of Charter.
The Transferor was organized for the limited purpose of engaging in transactions
described herein and any activities incidental to an necessary or convenient for
accomplishment of such purposes and is restricted by its organizational
documents and under the Transferor Contribution and Sale Agreement from engaging
in other activities. In addition, its organizational documents and the
Transferor Contribution and Sale Agreement require that it operates in a manner
such that it should not be consolidated in the bankruptcy estate of Charter or
its affiliates in the event that one of them becomes subject to bankruptcy or
insolvency proceedings. The Transferor's address is 153 East 53rd Street, New
York, New York 10022, and its telephone number is (212) 805-1000.
As described herein under "The Pool of Assets," the only obligations, if
any, of the Transferor with respect to the Notes may be pursuant to certain
limited representations and warranties and limited undertakings to repurchase or
substitute Lease Receivables under certain circumstances. The Transferor will
have no servicing obligations or responsibilities with respect to the Lease
Receivables. The Transferor does not have, nor is it expected in the future to
have, any significant assets. The Servicer may be an affiliate of the
Transferor. As described under "Description of the Transaction Documents --
Acquisition of the Lease Receivables Pursuant to a Lease Acquisition Agreement,"
the Transferor may acquire Lease Receivables through or from an affiliate.
Neither the Transferor nor any of its affiliates will insure or guarantee the
Notes.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture to be entered into by
the Issuer and the Trustee. The Servicer will provide a copy of the Indenture to
subsequent Noteholders without charge on written request addressed to it at 153
East 53rd Street, New York, New York 10022.
The following summary describes certain terms of the Seller Contribution
and Sale Agreement, the Transferor Contribution and Sale Agreement, the
Servicing Agreement, and the Indenture. The following summary does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Seller Contribution and Sale Agreement, the Transferor Contribution and Sale
Agreement, the Servicing Agreement, and the Indenture. Wherever provisions of
the Seller Contribution and Sale Agreement, the Transferor Contribution and Sale
Agreement, the Servicing Agreement and the Indenture are referred to, such
provisions are hereby incorporated herein by reference.
General
The obligations evidenced by the Notes are recourse to the assets of the
Issuer only and are not recourse to, or guaranteed by, the Transferor, the
Seller, Charter, the Servicer, the Trustee, or any other Person.
The Issuer will agree in the Indenture and in the respective Notes to pay
to the Noteholders (i) an amount of principal equal to the Outstanding Principal
Amount of such Notes and (ii) monthly interest at the times, from the sources
and on the terms and conditions set forth in the Indenture and in the respective
Notes.
The Notes in the initial principal amount of $[_______] (the "Initial Note
Principal Balance"), will be issued pursuant to the Indenture. The Initial
Outstanding Principal Amount to be issued hereunder is equal to approximately [
]% of the Initial Aggregate Discounted Lease Balance of the Leases. The Notes
will initially be issued in book-entry form only through DTC in minimum
denominations of $1,000 and integral multiples thereof. Payments on the Notes
are required to be made by the Trustee on each Payment Date.
The first Payment Date for distributions to the Noteholders will be
[_______]. Payments are required to be made by the Trustee, by check mailed or,
if requested by the Noteholder, by wire transfer of immediately available funds,
to Noteholders entitled thereto at the address appearing on the certificate
register on the Record Date, which, for so long as the Notes are in book-entry
form through DTC, will be Cede.
Conveyance of Lease Receivables
On the Closing Date, the Issuer will acquire from the Transferor, by means
of an assignment of the rights acquired under the Seller Contribution and Sale
Agreement, of all of the right, title, and interest of the Seller
35
<PAGE>
in and to (a)(i) any Equipment that is owned by the Seller and any and all
income and proceeds from such Equipment, but subject to the rights of the Lessee
to quiet enjoyment of such Equipment under the related Lease and (ii) any
security interest of the Seller in any of the Equipment that is not owned by the
Seller, (b) the Leases, including, without limitation, all Lease Payments,
Residual Receipts, Defaulted Lease Recoveries and any other payments due or made
with respect to the Leases after the Cut-Off Date relating to such Leases, (c)
any guarantees of a Lessee's obligations under a Lease, (d) all other documents
in the Lease Files relating to the Leases, including, without limitation, any
UCC financing statements related to the Leases or the Equipment, (e) any
Insurance Policies and Insurance Proceeds with respect to the Leases, (f) all of
the Seller's right, title and interest in and to, and rights under, the Seller
Contribution and Sale Agreement executed and delivered in accordance therewith,
(g) all amounts on deposit in the Collection Account (as defined herein); and
(h) any and all income and proceeds of any of the foregoing.
The Trustee will have possession of the Leases and the Lease Files, and the
Servicer will retain copies of any other documents which relate to the Lease
Receivables, any related evidence of insurance and payment, delinquency and
related reports maintained by the Servicer in the ordinary course of business
with respect to each Lease Receivable. Prior to transfer of the Lease
Receivables to the Issuer, the Seller will cause its electronic ledger to be
marked to show that such Lease Receivables have been transferred to the
Transferor and then to the Issuer, and the Seller and the Transferor will file
UCC financing statements reflecting the sale and assignment of the Lease
Receivables in certain jurisdictions, as required by the Seller Contribution and
Sale Agreement, the Transferor Contribution and Sale Agreement and the Servicing
Agreement. See "Certain Legal Aspects of the Leases."
Security Interest
The Notes will be secured by:
(i) a first priority security interest in the Leases perfected by
filing blanket Uniform Commercial Code ("UCC") financing statements on the
Leases and the related Equipment against the Seller and the Transferor in
New York, Delaware and other specified filing locations;
(ii) funds in the Collection Account (as defined herein).
Representations and Warranties of the Seller
The Seller will make certain warranties representations and in the Seller
Contribution and Sale Agreement (as of the Closing Date with respect to the
Leases and, with respect to a Substitute Lease, as of the date on which the
Issuer acquires such Substitute Lease (each, a "Sale Date"), the benefits of
which will be assigned to the Issuer and then to the Trustee, including that:
(i) the Leases are valid and enforceable, and contain "Hell or High Water"
clauses that unconditionally obligate the Lessee to make periodic Lease payments
(including taxes), notwithstanding damage to or destruction of the Equipment,
(ii) the Leases are noncancellable by the Lessee and do not contain early
termination options (except for Leases which contain early termination or
prepayment clauses, but require full repayment upon cancellation of the Lease);
(iii) all payments payable under the Leases are absolute, unconditional
obligations of the Lessees without right to offset for any reason; (iv) all of
the Leases require the Lessee to maintain the Equipment in good working order,
to bear all the costs of operating the Equipment, including taxes and insurance
relating thereto; (v) the Leases do not violate any U.S. or applicable state
law; (vi) the Leases provide for periodic payments; (vii) the Leases have been
sold to the Transferor free and clear of any liens and are assignable without
prior written consent of the Lessee; (viii) the Leases must have an Accept
Payment Status; (ix) the term of the Leases do not exceed the Maximum Lease
Term; (x) the Leases are U.S. dollar-denominated and the Lessee is located in
the United States; (xi) the Leases are not consumer leases; (xii) the Leases are
not subject to any guaranty by the Seller; (xiii) no adverse selection was used
in selecting the Leases for transfer to the Transferor; (xiv) the Lessees have
represented to the Seller or the originator of the Lease if not the Seller that
it has accepted the Equipment; (xv) the Lessees are is not subject to insolvency
or bankruptcy as of the Sell Date; (xvi) the Leases are not Defaulted Leases;
(xvii) the Seller and/or Transferor has made no misstatement of material fact
nor omitted to state a material fact; (xviii) the Seller and/or Transferor is
not insolvent and the transfer of assets is a valid sale and does not constitute
a fraudulent conveyance; and (xix) the security interest granted on the Leases
has been duly perfected.
Under the terms of the Seller Contribution and Sale Agreement, the Seller
will be obligated to accept the reconveyance of any Lease Receivables and
deposit the Repurchase Amount on or before the end of the calendar month
following the month of its discovery or receipt of notice of a breach of a
representation or warranty that materially adversely affects such item of Lease
Receivables, which breach has not been cured or waived in all
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material respects. This obligation to accept the reconveyance of the Lease
Receivables and remit the Repurchase Amount will constitute the sole remedy
against the Seller available to, the Transferor, the Issuer, the Trustee and the
Noteholders for a breach of a representation or warranty made by the Seller with
respect to the required characteristics of the Lease Receivables.
[Indemnification
The Servicing Agreement will provide that Charter will defend and indemnify
the Servicer, the Transferor, the Trustee, the Issuer and the Noteholders
against any and all losses, claims, damages and liabilities to the extent, but
only to the extent, that the same have been suffered by any such party by virtue
of (i) a breach by Charter of its obligations (other than breach of Charter's
representations and warranties, with respect to which the sole remedy is
expressly limited to Charter's acceptance of the reconveyance of the affected
Lease Receivables and the remittance of the Repurchase Amount by Charter as
discussed above) under the Servicing Agreement or (ii) in the case of the
Trustee, its performance of its duties, except to the extent that such loss,
claim, damage or liability resulted from the Trustee's gross negligence or
willful misconduct.
The Servicing Agreement will also provide that the Servicer will defend and
indemnify the Transferor, Charter, the Trustee, the Issuer and the Noteholders
against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation,
reasonably incurred, arising out of or resulting from (i) the use, repossession
or operation by the Servicer or any affiliate thereof of any Equipment and (ii)
(A) the failure of the Servicer to perform its duties under the Servicing
Agreement or (B) in the case of the Trustee, its performance of its duties,
except to the extent that such cost, expense, loss, damage, claim or liability
resulted from the Trustee's gross negligence or willful misconduct. Charter's
obligations, as Servicer, to indemnify the Issuer, and the Noteholders for acts
or omissions of Charter as Servicer will survive the removal of the Servicer but
will not apply to any acts or omissions of a successor Servicer. Such
indemnification does not extend to indirect, incidental, special or
consequential damages.]
The Accounts
The Servicer will maintain a Lockbox Account in the name of the Trustee to
which all Lease Payments received under each Lease (including any residual
proceeds and late charges), any recoveries for Defaulted Leases if not
substituted for, proceeds of Casualty Losses and Early Termination Leases, and
payments by the Transferor in connection with a Warranty Event will be directed
within two (2) Business Days of receipt by the Servicer, but excluding any
Excluded Amounts. All funds on deposit in the Lockbox Account will be
transferred to the Collection Account on the business day prior to each Payment
Date.
A "Lease Payment" means, with respect to any Lease, the monthly, quarterly,
semi-annual or seasonal payments scheduled to be made under the terms of the
Lease whether received on or after the expiration or other termination of the
Lease. Casualty Payments, Termination Payments, prepayments of rent required
pursuant to Termination Payments, prepayments of rent required pursuant to the
terms of a Lease at or before the commencement of the term of such lease,
payments becoming due before each Cut-Off Date and supplemental or additional
payments required by the terms of such a Lease with respect to taxes, insurance,
maintenance, or other specific charges shall not be considered Lease Payments
hereunder.
A "Casualty Payment" is any payment pursuant to a Lease on account of the
loss, theft, condemnation, governmental taking, destruction, or damage beyond
repair of any item of Equipment subject thereto which results, in accordance
with the terms of such Lease (such event a "Casualty Loss"), in a reduction in
the number or amount of any future Lease Payments due thereunder or in the
termination of the Lessee's obligation to make future Lease Payments thereunder.
A "Termination Payment" is a payment payable by a Lessee under a Lease upon
the early termination of such Lease, (such Lease, an "Early Termination Lease")
(but not on account of a casualty or a Lease default) which may be agreed upon
by the Servicer, acting in the name of the beneficial owner thereof, and the
Lessee.
"Defaulted Leases" are (i) Leases that have become more than 120 days
delinquent or (ii) Leases that have been charged off by the Servicer.
Amounts exempt from deposit into the Collection Account ("Excluded
Amounts"), including (i) collections attributable to any taxes, fees or other
charges imposed by any governmental authority; (ii) collections
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representing reimbursements of insurance premiums or payments for services that
were not financed by the Seller; (iii) other non-contract or rental charges
reimbursable to the Servicer in accordance with the Servicer's customary
policies and procedures; (iv) collections with respect to repurchased Leases or
Lease which has been substituted by a Substitute Lease; and (v) any servicing
charges.
Available Funds
"Available Funds" for any Payment Date shall include funds received on or
prior to the related Calculation Date, net of any Excluded Amounts, will be
available for distribution by the Trustee on each Payment Date and will include:
(i) Lease Payments (including residual proceeds and late charges);
(ii) Servicer Advances;
(iii) recoveries on Defaulted Leases to the extent the Servicer has
not substituted an Eligible Lease for such Defaulted Lease;
(iv) Casualty Payments or Prepayment Amounts;
(v) proceeds from repurchases by the Transferor or the Seller due to a
Warranty Event; and
(vi) proceeds from investment of funds in the Collection Account (as
defined herein) or the Lockbox Account.
Application of Payments
Monthly distributions will be made by the Trustee from Available Funds in
the following priority:
(a) to pay the Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances in respect of a prior
Payment Date;
(c) to make Interest Payments owing on the Class A Notes concurrently
to the Class A-1 Noteholders, Class A-2 Noteholders, Class A-3
Noteholders and Class A-4 Noteholders;
(d) to make Interest Payments owing on the Class B Notes;
(e) to make Interest Payments owing on the Class C Notes;
(f) to make Interest Payments owing on the Class D Notes;
(g) to make the Class A Principal Payment (i) to the Class A-1
Noteholders only, until the Outstanding Principal Amount on the
Class A-1 Notes is reduced to zero, then (ii) to the Class A-2
Noteholders only, until the Outstanding Principal Amount on the
Class A-2 Notes is reduced to zero, then (iii) to the Class A-3
Noteholders only, until the Outstanding Principal Amount on the
Class A-3 Notes is reduced to zero and finally, (iv) to the Class
A-4 Noteholders until the Outstanding Principal Amount on the
Class A-4 Notes is reduced to zero;
(h) to make the Class B Principal Payment;
(i) to make the Class C Principal Payment;
(j) to make the Class D Principal Payment;
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(k) to pay the Additional Principal, if any, to the Class A
Noteholders then receiving the Class A Principal Payment as
provided in clause (g) above until the Outstanding Principal
Amount on all of the Class A Notes has been reduced to zero, then
to the Class B Noteholders until the Outstanding Principal Amount
on the Class B Notes has been reduced to zero, then to the Class
C Noteholders until the Outstanding Principal Amount on the Class
C Notes has been reduced to zero, thereafter to the Class D
Noteholders until the Outstanding Principal Amount on the Class D
Notes has been reduced to zero; and
(l) to the Issuer, the balance, if any.
Interest
On each Payment Date, the interest due (the "Interest Payments") with
respect to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes, the Class C Notes and the Class D Notes
since the last Payment Date will be the interest that has accrued on such Notes
since the last Payment Date (or in the case of the first Payment Date, with
respect to the Class A-1 Notes, since the Issuance Date, and with respect to all
other Notes, since ________________) (the "Interest Accrual Period") at the
applicable Note Interest Rate applied to the then unpaid principal amounts (the
"Outstanding Principal Amounts") of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class C Notes,
and the Class D Notes, respectively, after giving effect to payments of
principal to the Class A-1 Noteholders, the Class A-2 Noteholders, the Class A-3
Noteholders, the Class A-4 Noteholders, the Class B Noteholders, the Class C
Noteholders and the Class D Noteholders, respectively, on the preceding Payment
Date. See "Description of the Notes--General" and "Distributions on Notes."
Principal
On each Payment Date, each of the Noteholders will be entitled to receive
the Principal Payments, to the extent of funds available as described herein
under "Available Funds," in the priorities described herein under "Application
of Payments." Principal Payments on the Notes are required to be made on each
Payment Date to Noteholders on the related Record Date.
For each Payment Date, each of the Class A Noteholders, the Class B
Noteholders, the Class C Noteholders and the Class D Noteholders will be
entitled to receive payments of principal ("Principal Payments"), to the extent
funds are available therefor, in the priorities set forth in the Indenture and
described herein below and under "Application of Payments" and "Description of
the Notes--Distributions on Notes." On each Payment Date, to the extent funds
are available therefor, the Principal Payment will be paid to the Noteholders in
the following priority: (a) (i) to the Class A-1 Noteholders only, until the
Outstanding Principal Amount on the Class A-1 Notes has been reduced to zero,
the Class A Principal Payment, then (ii) to the Class A-2 Noteholders only,
until the Outstanding Principal Amount on the Class A-2 Notes has been reduced
to zero, the Class A Principal Payment, then (iii) to the Class A-3 Noteholders
only, until the Outstanding Principal Amount on the Class A-3 Notes has been
reduced to zero, the Class A Principal Payment, and (iv) to the Class A-4
Noteholders, until the Outstanding Principal Amount on the Class A-4 Notes has
been reduced to zero, the Class A Principal Payment, (b) to the Class B
Noteholders, the Class B Principal Payment, (c) to the Class C Noteholders, the
Class C Principal Payment, (d) to the Class D Noteholders, the Class D Principal
Payment, and (e) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount, the Class C Floor exceeds the Class C Target Investor
Principal Amount and/or the Class D Floor exceeds the Class D Target Investor
Principal Amount, Additional Principal (defined below) shall be distributed,
sequentially, as an additional principal payment on the Class A-1 Notes, Class
A-2 Notes, Class A-3 Notes, Class A-4 Notes, the Class B Notes, the Class C
Notes, and the Class D Notes as applicable, until the Outstanding Principal
Amount of each Class has been reduced to zero.
The "Class A Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, (i) on all Payment Dates prior to the Class A-1 Stated Maturity
Date, the lesser of (1) the amount necessary to reduce the Outstanding Principal
Amount on the Class A-1 Notes to zero and (2) the difference between (A) the
Aggregate Discounted Lease Balance as of the previous Calculation Date and (B)
the Aggregate Discounted Lease Balance as of the related Calculation Date, and
(ii) on and after the Calculation Date, the entire Outstanding Principal Amount
on the Class A-1 Notes and (b) after the Class A-1 Notes have been paid in full,
the amount necessary to reduce the Outstanding Principal Amount on the Class A
Notes to the Class A Target Investor Principal Amount (as defined below).
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The "Class B Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B Notes to the greater of the Class B
Target Investor Principal Amount (as defined below) and the Class B Floor (as
defined below).
The "Class C Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C Notes to the greater of the Class C
Target Investor Principal Amount (as defined below) and the Class C Floor (as
defined below).
The "Class D Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class D Notes to the greater of the Class D
Target Investor Principal Amount (as defined below) and the Class D Floor (as
defined below).
The "Class A Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class A Percentage (as defined
below) and (b) the Aggregate Discounted Lease Balance as of the related
Calculation Date.
The "Class B Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class B Percentage (as defined
below) and (b) the Aggregate Discounted Lease Balance as of the related
Calculation Date.
The "Class C Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class C Percentage (as defined
below) and (b) the Aggregate Discounted Lease Balance as of the related
Calculation Date.
The "Class D Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class D Percentage (as defined
below) and (b) the Aggregate Discounted Lease Balance as of the related
Calculation Date.
The Class A Target Investor Principal Amount, the Class B Target Investor
Principal Amount, the Class C Target Investor Principal Amount, and the Class D
Target Investor Principal Amount are collectively referred to as the "Class
Target Investor Principal Amounts."
The "Class A Percentage" will be equal approximately to _________%. The
"Class B Percentage" will be equal approximately to __________%. The "Class C
Percentage" will be equal approximately to __________%. The "Class D Percentage"
will be equal approximately to ________%.
The "Class B Floor" with respect to each Payment Date means (a) ____% of
the initial Aggregate Discounted Lease Balance as of the Cut-Off Date, plus (b)
the Cumulative Loss Amount with respect to such Payment Date, minus (c) the sum
of the Outstanding Principal Amount of the Class C Notes, the Outstanding
Principal Amount of the Class D Notes, and the Overcollateralization Balance as
of the immediately preceding Payment Date after giving effect to all principal
payments made on that day.
The "Class C Floor" with respect to each Payment Date means (a) ___% of the
initial Aggregate Discounted Lease Balance as of the Cut-Off Date, plus (b) the
Cumulative Loss Amount with respect to such Payment Date, minus (c) the sum of
the Outstanding Principal Amount of the Class D Notes, and the
Overcollateralization Balance as of the immediately preceding Payment Date after
giving effect to all principal payments made on that day; provided, (as defined
below), that if the Outstanding Principal Amount of the Class B Notes is less
than or equal to the Class B Floor on such Payment Date, the Class C Floor will
equal the Outstanding Principal Amount of the Class C Notes utilized in the
calculation of the Class B Floor for such Payment Date.
The "Class D Floor" with respect to each Payment Date means (a) ___% of the
initial Aggregate Discounted Lease Balance as of the Cut-Off Date, plus (b) the
Cumulative Loss Amount with respect to such Payment Date, minus (c) the
Overcollateralization Balance as of the immediately preceding Payment Date after
giving effect to all principal payments made on that day; provided, however,
that if the Outstanding Principal Amount of the Class C Notes is less than or
equal to the Class C Floor on such Payment Date, the Class D Floor will equal
the Outstanding Principal Amount of the Class D Notes utilized in the
calculation of the Class C Floor for such Payment Date.
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The Class B Floor, the Class C Floor and the Class D Floor are collectively
referred to herein as the "Class Floors."
"Additional Principal" with respect to each Payment Date equals (a) zero,
if each of the Class Target Investor Principal Amounts for Classes B, C, and D
exceed their respective Class Floors on such Payment Date and (b) in each other
case the excess, if any, of (i)(A) the Outstanding Principal Balance of the
Notes plus the Overcollateralization Balance as of the immediately preceding
Payment Date after giving effect to payments on such Payment Date, minus (B) the
Aggregate Discounted Lease Balance as of the related Calculation Date, over (ii)
the sum of the Class A Principal Payment, the Class B Principal Payment, the
Class C Principal Payment, and the Class D Principal Payment to be paid on such
Payment Date.
The "Overcollateralization Balance" with respect to each Payment Date is an
amount equal to the excess, if any, of (a) the Aggregate Discounted Lease
Balance as of the related Calculation Date over (b) the Outstanding Principal
Amount of the Notes as of such Payment Date after giving effect to all principal
payments made on that day.
The "Cumulative Loss Amount" with respect to each Payment Date is an amount
equal to the excess, if any, of (a) the total of (i) the Outstanding Principal
Amount of the Notes as of the immediately preceding Payment Date after giving
effect to all principal payments made on that day, plus (ii) the
Overcollateralization Balance as of the immediately preceding Payment Date,
minus (iii) the lesser of (A) the Aggregate Discounted Lease Balance as of the
Calculation Date relating to the immediately preceding Payment Date minus the
Aggregate Discounted Lease Balance as of the related Calculation Date and (B)
Available Funds remaining after the payment of amounts owing the Servicer and in
respect of interest on the Notes on such Payment Date, over (b) the Aggregate
Discounted Lease Balance as of the related Calculation Date.
The Discounted Lease Balance of any Lease as of the Cut-Off Date will mean
the present value of all Lease payments due thereon after the Cut-Off Date
(excluding payments with respect to Defaulted Leases, Early Termination Leases
and Leases subject to a Warranty Event), discounted monthly at the product of
(i) one-twelfth and (ii) the Discount Rate. The Discount Rate is the sum of (a)
the weighted average of the Class A-1 Note Interest Rate, the Class A-2 Note
Interest Rate, the Class A-3 Note Interest Rate, the Class A-4 Note Interest
Rate, the Class B Note Interest Rate, the Class C Note Interest Rate, and the
Class D Note Interest Rate, calculated as of the Closing Date and (b) the
Servicing Fee Rate (as hereinafter defined). Thereafter, the Discounted Lease
Balance of any Lease as of any Payment Date shall be determined on the related
Calculation Date and it shall equal the present value of each remaining Lease
Payment to become due under a Lease (excluding payments with respect to
Defaulted Leases, Early Termination Leases and Leases subject to a Warranty
Event), discounted monthly from the date such payment is to become due at a rate
equal to one-twelfth of the Discount Rate. On the date that a Lease becomes a
Defaulted Lease, the Discounted Lease Balance for such Lease will be reduced to
zero. The Aggregate Discounted Lease Balance for any Calculation Date is the sum
of the Discounted Lease Balances of all Leases.
Subordination
Payments of interest on the Class B Notes, the Class C Notes and the Class
D Notes will be subordinated in priority of payment to interest due on the Class
A Notes to the extent described herein. The Class B Notes, the Class C Notes and
the Class D Notes will not receive any payments of interest with respect to a
Collection Period until the full amount of interest on the Class A Notes
relating to such Collection Period has been paid to the Class A Notes. Payments
of interest on the Class C Notes and the Class D Notes will be subordinated in
priority of payment to interest due on the Class B Notes to the extent described
herein. The Class C Notes and the Class D Notes will not receive any payments of
interest with respect to a Collection Period until the full amount of interest
on the Class B Notes relating to such Collection Period has been allocated to
the Class B Notes. Payments of interest on the Class D Notes will be
subordinated in priority of payment of interest to interest due on the Class C
Notes to the extent described herein. The Class D Notes will not receive any
payments of interest with respect to a Collection Period until the full amount
of interest on the Class C Notes relating to such Collection Period has been
allocated to the Class C Notes. Payments of principal on the Class B Notes, the
Class C Notes and the Class D Notes will be subordinated in priority of payment
to principal due on the Class A Notes to the extent described herein. Payments
of principal on the Class C Notes and the Class D Notes will be subordinated in
priority of payment to principal due on the Class B Notes to the extent
described herein. Payments of principal on the Class D Notes will be
subordinated in priority of payment to principal due on the Class C Notes to the
extent described herein.
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Book-Entry Registration
Noteholders may 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 that are participants in such systems.
Cede, as nominee for DTC, will hold the global Notes in respect of given
series. CEDEL and Euroclear will hold omnibus positions on behalf of the CEDEL
Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositories (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of securities. Participants
include Notes brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant 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 Notes 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 Notes in CEDEL or Euroclear as
a result of a transaction with a DTC Participant will be made during the
subsequent Notes settlement processing, dated the Business Day following the DTC
settlement date, and such credits or any transactions in such Notes settled
during such processing will be reported to the relevant CEDEL Participant or
Euroclear Participant on such Business Day. Cash received in CEDEL or Euroclear
as a result of sales of Notes by or through a CEDEL Participant or a Euroclear
Participant to a DTC 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.
The Noteholders of a given series 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 through the Participants who in turn will receive them
from DTC. Under a book-entry format, Noteholders may experience some delay in
their receipt of payments, since such payments will be forwarded by the Trustee
to Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or the Noteholders.
It is anticipated that the only "Noteholder" in respect of any series will be
Cede, as nominee of DTC. Noteholder will not be recognized as Noteholders, and
the Noteholders will be permitted to exercise the rights of Noteholders only
indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Notes among Participants on whose behalf it acts with respect to the Notes and
to receive and transmit distributions of principal of, and interest on, the
Notes. Participants and Indirect Participants with which the Noteholders have
accounts with respect to the Notes similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Noteholders.
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Accordingly, although such Noteholders will not possess Notes, the Rules provide
a mechanism by which Participants will receive payments and will be able to
transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Noteholder
to pledge Notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Notes, may be limited due to
the lack of a physical certificate for such Notes.
DTC will advise the Trustee that it will take any action permitted to be
taken by a Noteholder only at the direction of one or more Participants to whose
accounts with DTC the Notes are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional trust
depositary. CEDEL holds Notes for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of Notes
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of Notes. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities lending and borrowing. CEDEL interfaces
with domestic markets in several countries. As a professional trust 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. 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 Notes for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
Notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 28 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the "Euroclear Operator" (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts. with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear Participants.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include the Underwriter. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
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 Notes and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to Notes in the Euroclear System. All Notes in the Euroclear System are
held on a fungible basis without attribution of specific Notes 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
relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee will not have any liability for any
aspect of the records relating to or payments made or account of beneficial
ownership interests of the related Notes held by Cede, as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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Definitive Notes
The Notes will be issued in fully registered, certificated form
("Definitive Notes") to the Noteholders or their nominees, rather than to DTC or
its nominee, only if (i) the Trustee advises in writing that DTC is no longer
willing or able to discharge properly its responsibilities as a trust depositary
with respect to such Notes and the Trustee is unable to locate a qualified
successor, (ii) the Trustee, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an "Event of Default" under
the Indenture or a default by the Servicer under the Servicing Agreement,
Noteholders representing at least a majority of the outstanding principal amount
of such Notes advise the Trustee through DTC in writing that the continuation of
a book-entry system through DTC (or a successor thereto) is no longer in such
Noteholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all such Noteholders through
Participants of the availability of Definitive Notes. Upon surrender by DTC of
the definitive Notes representing such Notes and receipt of instructions for
reregistration, the Trustee will reissue such Notes as Definitive Notes to such
Noteholders.
Distributions of principal of, and interest on, such Notes will thereafter
be made by the Trustee in accordance with the procedures set forth in the
Indenture directly to holders of Definitive Notes in whose names the Definitive
Notes were registered at the close of business on the applicable Record Date.
Such distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the Trustee. The final payment on any
such Security, however, will be made only upon presentation and surrender of
such Security at the office or agency specified in the notice of final
distribution to the applicable Noteholders.
Definitive Notes will be transferable and exchangeable at the offices of
the Trustee, or of a certificate registrar named in a notice delivered to
holders of such Definitive Notes. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
Withholding
The Trustee is required to comply with all applicable federal income tax
withholding requirements respecting payments to Noteholders of interest with
respect to the Notes. The consent of Noteholders is not required for such
withholding. In the event the Noteholder is other than DTC, then in the event
that the Trustee does withhold or causes to be withheld any amount from interest
payments or advances thereof to any Noteholders pursuant to federal income tax
withholding requirements, the Trustee shall indicate the amount withheld
annually to such Noteholders.
Reports to Noteholders
On each Payment Date the Trustee will furnish or cause to be furnished with
each payment to Noteholders, a statement prepared by the Servicer setting forth
the following information (as well as expressed per $1,000 of Initial Note
Principal Balance as to the items described in clauses (a) and (b) below):
(a) with respect to a statement to a Noteholder, the amount of such
payment allocable to such Noteholder's required payment of the Principal
Payment for such Payment Date;
(b) with respect to a statement to a Noteholder, the amount of such
payment allocable to such Noteholder's required payment of the Interest
Payment for such Payment Date;
(c) the aggregate amount of fees and compensation received by the
Servicer pursuant to the Servicing Agreement for the Collection Period;
(d) the aggregate Outstanding Principal Amount, individual Outstanding
Principal Amounts for each Class of Notes, the Note Factor, the Pool Factor
and the Aggregate Discounted Lease Balance, after taking into account all
distributions made on such Payment Date;
(e) the total unreimbursed Servicer Advances with respect to the
related Collection Period;
(f) the amount of residual receipts and recoveries on Defaulted Leases
for the related Collection Period and the Aggregate Discounted Lease
Balances for all Leases that became Defaulted Leases during the related
Collection Period, calculated immediately prior to the time such Leases
became Defaulted Leases; and
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(g) the total number of Leases and the Discounted Lease Balances
thereof, together with the number and Discounted Lease Balances of all
Leases as to which the Lessees, as of the related Calculation Date, were
one, two, three or four Lease Payments delinquent, and Delinquent Leases
reconveyed.
Further, on the Reporting Date, the Servicer shall be required to deliver a
monthly Servicer Report to (i) each Rating Agency and (ii) the Underwriter (as
defined below) detailing amounts received on the Leases in respect of the
immediately preceding Collection Period and available for distribution on the
Payment Date.
The "Note Factor" is the seven digit decimal number that the Servicer will
compute or cause to be computed for each Collection Period and will make
available on the related Calculation Date representing the ratio of (x) the
Outstanding Principal Amount which will be outstanding on the next Payment Date
(after taking into account all distributions to be made on such Payment Date) to
(y) the Initial Outstanding Principal Amount.
The "Pool Factor" is the seven digit decimal number that the Servicer will
compute or cause to be computed for each Collection Period and will make
available on the related Calculation Date representing the ratio of (x) the
Aggregate Discounted Lease Balance as of the end of the immediately preceding
Collection Period to (y) the Aggregate Discounted Lease Balance as of the
Cut-Off Date.
In addition, by January 31 of each calendar year following any year during
which the Notes are outstanding, commencing January 31, [_______], the Trustee
will furnish to each Noteholder of record at any time during such preceding
calendar year, information as to the aggregate of amounts reported pursuant to
items (a) and (b) above for such calendar year to enable Noteholders to prepare
their federal income tax returns.
Optional Redemption
The Issuer will have the option, subject to certain conditions, to redeem
all, but not less than all, of the Notes as of any Payment Date on which the
Aggregate Discounted Lease Balance as of the related Calculation Date is less
than or equal to 10% of the Aggregate Discounted Lease Balance as of the Cut-Off
Date.
POOL FACTORS
The "Pool Factor" for each Class of Notes will be a seven-digit decimal,
which the Servicer will compute prior to each distribution with respect to such
Class of Notes, indicating the remaining outstanding principal balance of such
Class of Notes as of the applicable Payment Date, as a fraction of the initial
outstanding principal balance of such Class of Notes. Each Pool Factor will be
initially 1.0000000, and thereafter will decline to reflect reductions in the
outstanding principal balance of the applicable Class of Notes. A Noteholder's
portion of the aggregate outstanding principal balance of the related Class of
Notes is the product of (i) the Initial Outstanding Principal Amount (as defined
herein) of such Noteholder's Notes and (ii) the applicable Pool Factor.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes certain terms of each Transaction Document
pursuant to which the Lease Receivables will be transferred and the Notes will
be issued. For purposes of this Prospectus, the term "Transaction Document" as
used means, collectively, and except as otherwise specified, any and all
agreements relating to the establishment of the Issuer, the servicing of the
related Lease Receivables and the issuance of the Notes, including without
limitation the Indenture, (i.e. pursuant to which any Notes shall be issued).
Forms of the Transaction Documents have been filed as exhibits to the
Registration Statement of which the Prospectus forms a part. The summary does
not purport to be complete. It is qualified in its entirety by reference to the
provisions of the respective Transaction Documents.
Acquisition of the Lease Receivables Pursuant to a Contribution and Sale
Agreement
On the Closing Date, the Transferor will acquire the Lease Receivables from
the Seller pursuant to the Seller Contribution and Sale Agreement. The
Transferor will either transfer such Lease Receivables, or a portion thereof, to
the Issuer pursuant to the Transferor Contribution and Sale Agreement, or will
pledge the Transferor's right, title and interests in and to such Lease
Receivables, or a portion thereof, to the Issuer, and the Issuer will pledge its
right, title and interests in and to such Lease Receivables to the Trustee on
behalf of Noteholders pursuant to the Indenture. The rights and benefits of the
Transferor under the Seller Contribution and
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Sale Agreement will be assigned to the Issuer or the Trustee on behalf of
Noteholders as collateral for the Notes issued by the Issuer pursuant to the
Indenture. The obligations of the Transferor and the Servicer under such
Transaction Documents include those specified below.
The Transferor and/or the Seller will be obligated to acquire from the
Issuer its interest in any Lease Receivable transferred to the Issuer or pledged
to the Issuer or the Trustee on behalf of the Noteholders if the interest of the
Noteholders therein is materially adversely affected by a breach of any
representation or warranty made by the Transferor or the Seller with respect to
such Lease, which breach has not been cured following the discovery by or notice
to the Transferor of the breach. To the extent that the Transferor so acquires
any Lease Receivables, the Seller will be obligated to acquire such Lease
Receivables from the Transferor pursuant to the Seller Contribution and Sale
Agreement contemporaneously with the Transferor's acquisition of its interest in
such Lease Receivables. The obligation of the Transferor to acquire any such
Lease Receivables with respect to which a Seller has breached a representation
or warranty is subject to such Seller's acquisition of such Lease Receivables
from the Transferor. In addition, the Transferor may from time to time reacquire
certain Lease Receivables or substitute other Lease Receivables for such Lease
Receivable held by the Issuer subject to specified conditions set forth in the
related Transaction Document.
Accounts
The Servicer will establish and maintain with the Trustee one or more
accounts, in the name of such Trustee on behalf of the Noteholders, into which
all payments made on or with respect to the related Lease Receivables will be
deposited (the "Collection Account"). The Servicer will also establish and
maintain with the Trustee separate accounts, in the name of the Trustee on
behalf of the Noteholders, in which amounts released from the Collection Account
for distribution to the Noteholders will be deposited and from which
distributions to the Noteholders will be made (the "Distribution Account").
Funds in the Collection Account, the Lockbox Account and the Distribution
Account (collectively, the "Trust Accounts") shall be invested as provided in
the related Transaction Document and Indenture in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Notes. Subject to
certain conditions, Eligible Investments may include Notes issued by the Issuer,
the Seller, the Servicer or their respective affiliates. Except as described
below, Eligible Investments are limited to obligations that mature not later
than the Business Day immediately preceding the related Payment Date. Investment
earnings on funds deposited in the applicable Trust Accounts, net of losses and
investment expenses (collectively, "Investment Earnings"), shall be deposited in
the Collection Account on each Payment Date and shall be treated as collections
of interest on the related Lease Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution as defined below or (b) a segregated trust account with the
corporate trust department of a trust depository 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), having
corporate trust powers and acting as trustee for funds deposited in such
account, so long as any of the Notes of such Trust depository institution has a
credit rating from each Rating Agency in one of its generic rating categories
which signifies investment grade. "Eligible Institution" means, (a) the
corporate trust department of the Trustee, or (b) a trust depository 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), which (i) (A) has either (w) a long-term unsecured debt rating acceptable
to the Rating Agencies or (x) a short-term unsecured debt rating or certificate
of deposit rating acceptable to the Rating Agencies or (B) the parent
corporation of which has either (y) a long-term unsecured debt rating acceptable
to the Rating Agencies or (z) a short-term unsecured debt rating or certificate
of deposit rating acceptable to the Rating Agencies and (ii) whose deposits are
insured by the FDIC.
The Servicer
The Servicer will service the Lease Receivables which comprise the Pool of
Assets. The Servicer may delegate its servicing responsibilities to one or more
Sub-Servicers, but will not be relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Servicing Agreement. An uncured breach of such a representation or warranty that
in any respect materially and adversely affects the interests of the Noteholders
will constitute an Event of Termination by the Servicer under the Servicing
Agreement.
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Servicing Procedures
The Servicing Agreement will provide that the Servicer will make reasonable
efforts to collect all payments due with respect to the Lease Receivables and,
in a manner consistent with the Servicing Agreement, will continue such
collection procedures as the Servicer follows with respect to the particular
type of Lease Receivable in the particular pool it services for itself and
others. Consistent with its normal procedures, the Servicer may, in its
discretion and on a case-by-case basis, arrange with the Lessee on a Lease to
extend or modify the payment schedule. Some of such arrangements (including,
without limitation any extension of the payment schedule beyond the final
scheduled Payment Date for the related Notes) may result in the Servicer
acquiring such Lease Receivable if such Lease becomes a Defaulted Lease. The
Servicer may sell the Equipment securing the respective Defaulted Lease, if any,
at a public or private sale, or take any other action permitted by applicable
law. See "Certain Legal Aspects of the Lease Receivables."
Advances by the Servicer
Prior to any Payment Date, the Servicer, to the extent that the Servicer
believes such advance to be recoverable from such Lease may, advance (each, a
"Servicer Advance") to the Trustee an amount sufficient to cover delinquencies
on any Leases with respect to the prior Collection Period other than a Defaulted
Lease or a Lease which has been charged off. The Servicer will be reimbursed for
Servicer Advances from Available Funds on the second following Payment Date. See
"Description of the Notes -- Application of Payments" above.
Remittance and Other Servicing Procedures
The Servicer and the Issuer will enter into a Servicing Agreement on or
prior to the Closing Date that will further detail the procedures for Lease
collections and Equipment remarketing. The Servicer has agreed to manage,
administer and service the Lease Receivables and to enforce and make collections
on the Lease Receivables, exercising the degree of skill and care consistent
with that which the Servicer customarily exercises with respect to similar
property owned, managed or serviced by it. In general, the Servicer in
accordance with the Servicer's policies and procedures shall have full power and
authority to do any and all things in connection with such managing, servicing,
administration, and collection that it deems necessary or desirable. The
Servicer's duties will include collection and posting of all payments,
responding to inquiries of Lessees regarding the Leases, investigating
delinquencies, remitting payments to the Collection Account in a timely manner,
furnishing monthly and annual statements with respect to collections and
payments, using commercially reasonable efforts to dispose of any related
Equipment upon the expiration or termination of a Lease, and using its best
efforts to maintain the perfected first priority security interest of the
Trustee on behalf of the Noteholders in the Leases and their respective
interests, if any, in the related Equipment to the extent required herein. The
Servicer will, at its own cost and expense, maintain all documents relating to
the Leases (the "Lease Files"), as custodian for the Noteholders in accordance
with the Servicer's customary practices, policies, and procedures.
The Servicer may grant to a Lessee any rebate, refund or adjustment that
the Servicer in good faith believes is required, because of Prepayment in full
of a Lease. The Servicer may deduct the amount of any such rebate, refund or
adjustment from the amount otherwise payable by the Servicer into the Collection
Account; provided, however, that the Servicer will not permit any rescission or
cancellation of any Lease which would materially impair the rights of the Issuer
or the Noteholders in the Leases or the proceeds thereof, nor will the
prepayment price after giving effect to any such rebate, refund or adjustment
(and without any adjustment for any security deposit previously paid by the
Lessee) be less than the Prepayment Amount. The Servicer may waive, modify or
vary any term of a Lease if the Servicer, in its reasonable and prudent
judgment, determines that it will not be materially adverse to the Noteholders.
However, the Servicer will covenant in the Servicing Agreement that (i) it will
not forgive any payment of rent, principal or interest, (ii) unless a Lessee is
in default, it will not permit any modification with respect to a Lease which
would defer the payment of any principal or interest or any Scheduled Payment or
change the final maturity date on any Lease; provided, however, that no change
in the final maturity date of any Lease shall be permitted under any
circumstances if such new maturity date is later than the latest maturity date
of any other Lease then held by the Issuer, and (iii) the Servicer may accept
Prepayment in part or in full; provided, further, that (1) in the event of
Prepayment in full, the Servicer may consent to such Prepayment only in an
amount not less than the amounts outstanding under such Lease and (2) in the
event of a partial Prepayment, the Servicer may consent to such partial
Prepayment only if (x) following such partial Prepayment there are no delinquent
amounts then due from the Lessee and (y) such partial Prepayment will not reduce
the Aggregate Discount Lease Balance by more than an amount equal to (I) the
amount of such partial Prepayment, minus (II) unpaid interest at the Discount
Rate, accrued through the end of the Collection Period immediately
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following such partial Prepayment on the outstanding Discounted Lease Balance
prior to such partial Prepayment. In the case of a partial Prepayment, the
Servicer is required to accurately recalculate the Aggregate Discounted Lease
Balance, and the allocation of Lease Payments to principal and interest.
The Servicer, as an independent contractor on behalf of the Issuer and for
the benefit of the Noteholders, will be responsible for the managing, servicing
and administering the Lease Receivables and enforcing and making collections on
the Leases and for the enforcing of any security interest in any item of
Equipment, all as set forth in the Servicing Agreement. The Servicer's
responsibilities will include collecting and posting of all payments, responding
to inquiries of Lessees, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the Trustee, providing
appropriate federal income tax information for use in providing information to
Noteholders, collecting and remitting sales and property taxes on behalf of
taxing authorities and maintaining the perfected security interest of the Issuer
in the Equipment and the Leases.
Payments on Lease Receivables
[The Servicer will deposit all payments on the related Lease Receivables
(from whatever source) and all proceeds of the Lease Receivables collected
within [two (2)] Business Days of receipt thereof in the related collection
facility, such as a Lockbox Account or Collection Account. The Servicer will be
required to deposit payments on the Lease Receivables (from whatever source)
collected during each collection period (each, a "Collection Period") into the
Collection Account on the specified day each month. Pending deposit into the
Lockbox Account or the Collection Account, collections in such collection
facility may be invested by the Servicer at its own risk and for its own
benefit, and will not be segregated from funds of the Servicer.]
Distributions
Beginning on the Initial Payment Date, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Notes entitled thereto will be made by the Trustee to the Noteholders. The
timing, calculation, allocation, order, source, priorities of, distribution of,
and requirements for each class of Notes will be set forth herein under the
headings "Description of the Notes -- Application of Payments," "-- Interest,"
and "-- Principal."
Servicing Compensation and Payment of Expenses
The Servicer will be entitled to receive a servicing fee for each
Collection Period (the "Servicing Fee") in an amount equal to the product of (a)
[0.50%] per annum (the "Servicing Fee Rate") of the Aggregate Discounted Lease
Balance, as of the first day of such Collection Period. The Servicing Agreement
will specify the priority of distributions with respect to the Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Payment Dates), such Servicing Fee may be paid prior to any distribution to the
Noteholders.
The Servicer will also collect and retain any late fees, the penalty
portion of interest paid on past due amounts and other administrative fees or
similar charges allowed by applicable law with respect to the Lease Receivables
and any prepayment premiums or other payments in excess of the present value of
all outstanding amounts owed under a Lease by a Lessee as a result of the early
termination thereof, and will be entitled to reimbursement from the Issuer for
certain liabilities. Payments by or on behalf of Lessees will be allocated to
scheduled payments and late fees and other charges in accordance with the
Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of similar types of leases as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Lessees on the Lease Receivables, investigating delinquencies,
sending payment coupons to Lessees, reporting tax information to Lessees, paying
costs of collection and disposition of defaults, and policing the collateral.
The Servicing Fee also will compensate the Servicer for administering the Lease
Receivables, accounting for collections and furnishing statements to the
Trustee, if any, with respect to distributions. The Servicing Fee also will
reimburse the Servicer for certain taxes, accounting fees, outside auditor fees,
data processing costs and other costs incurred in connection with administering
the Lease Receivables.
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Statements to the Trustee
Prior to each Payment Date with respect to each series of Notes, the
Servicer will provide to the Trustee as of the close of business on the last day
of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Noteholders described under "Description of the Notes --
Reports to Noteholders."
Compliance Certification
The Servicing Agreement will provide for annual delivery of a report (the
"Supplementary Report") by the Servicer to the Trustee not later than 120 days
after the end of each fiscal year, signed by an authorized officer of the
Servicer (a "Servicing Officer") on behalf of the Servicer and dated as of the
last day of such fiscal year, stating that (a) a review of the activities of the
Servicer and the Servicer's performance under the Servicing Agreement for the
previous 12-month period has been made under such Servicing Officer's
supervision and (b) nothing has come to such Servicing Officer's attention to
indicate that an Event of Servicing Termination (as defined below) has occurred,
or, if such Event of Servicing Termination has so occurred and is continuing,
specifying each such event known to the officer, the nature and status thereof
and the steps necessary to remedy such event.
Copies of such certificates may be obtained by Noteholders by a request in
writing addressed to the Trustee.
The Servicing Agreement will provide that the Servicer, upon request of the
Trustee, will furnish to the Trustee such underlying data necessary for
administration of the Indenture or enforcement actions as can be generated by
the Servicer's existing data processing system.
Certain Matters Relating to the Servicer
The Servicing Agreement will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon a determination
that the Servicer's performance of such duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Servicing Agreement (the "Successor Servicer"). The Servicer can only
be removed pursuant to an Event of Servicing Termination as discussed below.
Under the circumstances specified in the Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor to the Servicer
under the Servicing Agreement.
Under the circumstances specified in the Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor to the Servicer
under the Servicing Agreement.
Under the circumstances specified in the Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor to the Servicer
under the Servicing Agreement.
The Servicing Agreement will further provide that neither the Servicer nor
any of its respective directors, officers, employees, or agents shall be under
any liability to the Issuer or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Servicing Agreement, or for
errors in judgment; provided, however, that neither the Servicer nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Servicing Agreement will provide that the
Servicer is under no obligation to appear in, prosecute, or defend any legal
action that is not
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incidental to its servicing responsibilities under the Servicing Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Events of Servicing Termination
An "Event of Servicing Termination" under the Servicing Agreement will
occur (a) if there occurs a change of "control" of the Servicer ("control"
having the meaning ascribed to it in the Rules and Regulations under the
Securities Exchange Act of 1934, as amended); (b) if the Servicer fails to make
any payment or deposit required under the Servicing Agreement within three (3)
Business Days but not more than once in any Collection Period; (c) if the
Servicer fails to submit a Servicer's certificate, within three (3) Business
Days following knowledge or notice of non-receipt; (d) (i) if the Servicer fails
to observe or perform in any material respect any other covenant or agreement in
the Servicing Agreement or the Notes or (ii) if any representation or warranty
of the Servicer in the Servicing Agreement is incorrect, and such failure or
breach materially and adversely affects the rights of the Trustee or the
Noteholders and continues unremedied for 30 days after the earlier to occur of
(x) written notice to the Servicer by the Trustee or to the Trustee or the
Servicer by any Noteholders, or (y) the date on which any Servicing Officer or
authorized officer of the Trustee knows, or reasonably should have known, of
such failure or of such breach; (e) upon the filing of an involuntary petition
in bankruptcy or the decree or order of a court, agency or supervisory authority
having jurisdiction over the Servicer for the appointment of a conservator,
receiver, trustee in bankruptcy or liquidator in any bankruptcy, insolvency or
similar proceedings, and the continuance of any such petition, decree or order
undismissed or unstayed and in effect for a period of 60 consecutive days; (f)
upon the voluntary filing of such petition or assignment for the benefit of
creditors, the consent by the Servicer to any such appointment, the admission in
writing by the Servicer of its inability to pay its debts as they become due or
the determination by a court that the Servicer is generally not paying its debts
as they come due; (g) in the event that the Servicer assigns or attempts to
assign its rights and duties under the Servicing Agreement except as
specifically permitted therein; (h) a final judgment or order shall be rendered
against the Servicer for payment in excess of $[_______] and continues for 90
days without a stay.
Rights Upon an Event of Servicing Termination
If an Event of Servicing Termination has occurred and is continuing, the
Trustee shall with the consent of the Majority Holders terminate all (but not
less than all) of the Servicer's rights and obligations under the Servicing
Agreement. Upon such termination, the Successor Servicer will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Servicing
Agreement; provided, however, that the Successor Servicer shall not (i) assume
any obligation to reacquire Lease Receivables by reason of misrepresentations or
breaches of warranties, or (ii) be liable for acts, omissions or breaches of
representations or warranties by the Servicer occurring prior to transfer of the
servicing functions. Notwithstanding such termination, the Servicer shall be
entitled to payment of certain amounts payable to it prior to such termination
for services rendered prior to such termination. The Trustee also may appoint,
or petition a court of competent jurisdiction for the appointment of, a
successor Servicer with a net worth of at least $25,000,000 and whose regular
business includes the servicing of a similar type of leases. The Trustee may
make such arrangements for compensation to be paid, which in no event may be
greater than the servicing compensation payable to the Servicer under the
Servicing Agreement.
Events of Default
Upon the occurrence of an Event of Default, the Trustee, upon the written
direction of a majority of the Noteholders, shall declare the unpaid principal
amount of all the Notes to be due and payable together with all accrued and
unpaid interest thereon without presentment, demand, protest or other notice of
any kind, all of which are waived by the Issuer. ____ "Events of Default"
wherever used herein means any one of the following events:
(i) failure to pay interest on any Note within four (4) days of when due or
the failure to pay principal on any Note by its Stated Maturity Date;
(ii) failure of the Seller, the Transferor, or the Servicer to make
payments or deposits required under the Transaction Documents within three
(3) Business Days;
(iii) failure of the Seller, the Transferor, the Issuer, the Trustee or the
Servicer to perform any covenant with respect to the transaction documents,
which such failure has a material adverse effect on the Noteholders and
which continues unremedied for a period of 60 days (provided no such cure
period shall apply to the Seller's failure to accept the reassignment of
any Ineligible Lease, and further provided, only a five (5) day cure period
will apply to the Seller's, the
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Transferor's, the Issuer's or the Trustee's covenant not to grant a
security interest in or otherwise intentionally create a lien on the
Leases);
(iv) any representation or warranty by the Seller, the Transferor, the
Trustee or the Servicer is not correct in any material respect and
continues for a period of 60 days (provided that the Transferor can "cure"
such misrepresentation by purchasing the contracts related thereto);
(v) the insolvency of the Seller, the Transferor, the Issuer or the
Servicer; or
(vi) the Issuer becomes an "Investment Company."
If the Notes have been declared due and payable following an Event of
Default with respect thereto, the Trustee may and, at the direction of a
majority of the Noteholders, shall institute proceedings to collect amounts due
or foreclose on the Lease Receivables, exercise remedies as a secured party,
sell the related Lease Receivables or elect to have the Issuer maintain
possession of such Lease Receivables and continue to apply collections on such
Lease Receivables as if there had been no declaration of acceleration. The
Trustee, however, will be prohibited from selling the related Lease Receivables
following an Event of Default, unless (i) the holders of all the outstanding
Notes consent to such sale; (ii) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on such outstanding Notes at
the date of such sale; or (iii) the Trustee determines that the proceeds of the
Lease Receivables would not be sufficient on an ongoing basis to make all
payments on the Notes as such payments would have become due if such obligations
had not been declared due and payable, and the Trustee obtains the consent of
the holders of 66 2/3% of the aggregate outstanding amount of the Notes.
Following a declaration upon an Event of Default that the Notes are immediately
due and payable, (i) Noteholders will be entitled to ratable repayment of
principal on the basis of their respective unpaid principal balances and (ii)
repayment in full of the accrued interest on and unpaid principal balances of
the Notes will be made prior to any further payment to the Issuer of any
residual interest.
Termination of the Indenture
The Indenture will terminate, (i) at any time which is [_______] days after
the payment to the Noteholders of all amounts required to be paid to them
pursuant to the Indenture, reducing the aggregate Outstanding Principal Amount
to zero or (ii) after the [_______]th day following the final Scheduled Maturity
Date of any Class of the Notes. In order to avoid excessive administrative
expense, the Servicer will be permitted, at its option, to purchase from the
Pool of Assets, as of the end of any Collection Period immediately preceding a
Payment Date, if the Discounted Lease Balance of the Leases is less than ten
percent (10%) of the initial Pool Balance in respect of the Lease Receivables,
all such remaining Lease Receivables at a price stated which shall in no event
be less than the aggregate of the amounts owed on the Notes as of the such
Payment Date. The Notes will be redeemed following such purchase. Upon
termination of the Indenture and the reduction of the aggregate Outstanding
Principal Amount, to zero and payment of any amounts then owing to the Trustee,
the Issuer shall return any remaining property
The respective representations, warranties and indemnities of Charter, the
Seller, the Servicer and the Transferor will survive any termination of the
Indenture.
Amendment
The Transaction Documents may be amended by agreement of the parties
thereto, the Trustee, and the Issuer at any time, without consent of the
Noteholders, to cure any ambiguity, upon receipt of an opinion of counsel to the
Servicer that such amendment will not adversely affect in any respect the
interests of any Noteholder.
The Transaction Documents may also be amended from time to time by the
parties thereto, the Trustee, the Issuer, and a specified percentage of the
Noteholders for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Transaction Documents or of
modifying in any manner the rights of the Noteholders; provided, however, that
no such amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on the Lease
Receivables or distributions which are required to be made on any Note without
the consent of the holder of such Note or (b) reduce the aforesaid percentage of
Noteholders required to consent to any amendment, without unanimous consent of
the Noteholders.
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The Trustee is required under the Indenture to furnish Noteholders and the
Rating Agencies with written notice of the substance of any such amendment to
the Indenture promptly upon execution of such amendment.
THE TRUSTEE
General
The Trustee, [_________] is a banking corporation organized under the laws
of ________. The Trustee may resign, subject to the conditions set forth below,
at any time upon written notice to the Transferor and the Servicer, in which
event the Servicer will be obligated to appoint a successor Trustee. If no
successor Trustee shall have been so appointed and have accepted such
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition a court of competent jurisdiction for the
appointment of a successor Trustee. Any successor Trustee shall meet the
financial and other standards for qualifying as a successor Trustee under the
Indenture. The Servicer may and shall at the direction of the Noteholders
evidencing more than 25% of the aggregate Outstanding Principal Amount of all
Classes of Notes (the "Percentage Interests"), also remove the Trustee if the
Trustee ceases to be eligible to continue as such under the Indenture and fails
to resign after written request therefor, or is legally unable to act, or if the
Trustee is adjudicated to be insolvent. In such circumstances, the Servicer or
such Noteholders will also be obligated to appoint a successor Trustee. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of the Servicing Agreement, the Notes (other than the authentication thereof) or
of any Lease Receivable or related document and will not be accountable for the
use or application by Charter or the Transferor of any funds paid to the
Transferor in consideration of the sale of any Notes. If no Event of Servicing
Termination has occurred, then the Trustee will be required to perform only
those duties specifically required of it under the Servicing Agreement. However,
upon receipt of the various resolutions, certificates, statements, opinions,
reports, documents, orders or other instruments required to be furnished to it,
the Trustee will be required to examine them to determine whether they conform
as to form to the requirements of the Servicing Agreement.
No recourse is available based on any provision of the Servicing Agreement,
the Notes or any Lease Receivable or assignment thereof against [_________], in
its individual capacity, and [_________] shall not have any personal obligation,
liability or duty whatsoever to any Noteholder or any other person with respect
to any such claim and such claim shall be asserted solely against the Lease
Receivables or any indemnitor, except for such liability as is determined to
have resulted from the Trustee's own negligence or willful misconduct.
The Trustee will be entitled to receive, pursuant to the priority set forth
in the Indenture, (a) reasonable compensation for its services (the "Trustee
Fee"), (b) reimbursement for its reasonable expenses and (c) indemnification for
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of performance of its duties thereunder ((b) and (c) collectively,
the "Trustee Expenses").
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on, and the weighted average life of, the
Notes will be directly related to the rate of principal payments on the
underlying Leases. If purchased at a price other than par, the yield to maturity
will also be affected by the rate of such principal payments. The principal
payments on such Leases may be in the form of scheduled principal payments or
liquidations due to default, casualty, repurchases for breach and the like. Any
such payments will result in distributions to Noteholders of amounts which would
otherwise have been distributed over the remaining term of the Leases. In
general, the rate of such payments may be influenced by a number of other
factors, including general economic conditions. The rate of payment of principal
may also be affected by any removal of the Leases from the pool and the deposit
of the related Prepayment Amount or Repurchase Amount into the Collection
Account.
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The Leases generally do not provide for the right of the Lessee to prepay.
Under the Servicing Agreement, the Servicer will be permitted to allow such
Prepayments in full or in part, provided that no Prepayment of a Lease will be
allowed in unless all current amounts owed on such Lease have been paid.
The Scheduled Final Payment Date for the Notes is [_______]. This date is
the date on which the Note Principal Balance would be reduced to zero, assuming,
among other things, (i) Prepayments with respect to the Leases are received at a
rate of [_______]% CPR and (ii) the Modeling Assumptions (as defined below)
apply. The weighted average life of the Notes is likely to be shorter than would
be the case if payments actually made on the Leases conformed to the foregoing
assumptions, and the final Payment Date with respect to the Notes could occur
significantly earlier than such final scheduled Payment Dates due to defaults,
and because Charter is obligated to repurchase Leases in the event of breaches
of representations and warranties.
The "Weighted Average Life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Notes will be
influenced by the rate at which principal payments (including Lease payments and
prepayments) on the Leases are made. Principal payments on Leases may be in the
form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments and liquidations due to a default or other
dispositions of the Leases). The weighted average lives of the Notes will also
be influenced by delays associated with realizing on Defaulted Leases. The
prepayment model used in this Prospectus, the "Conditional Prepayment Rate" or
"CPR," represents an assumed annualized rate of prepayment relative to the then
outstanding balance on a pool of Leases. The CPR assumes that a fraction of the
outstanding Pool of Assets is prepaid on each Payment Date, which implies that
each Lease in the Pool of Assets is equally likely to prepay. This fraction,
expressed as a percentage, is annualized to arrive at the CPR for the Pool of
Assets. The CPR measures prepayments based on the outstanding principal on the
previous Payment Date. The CPR further assumes that all Leases are the same size
and amortize at the same rate and that each Lease will be either paid as
scheduled or prepaid in full.
The effective yield to holders of the Notes will depend upon, among other
things, the rate at which principal is paid to such Noteholders. The after-tax
yield to Noteholders may be affected by lags between the time interest income
accrues to Noteholders and the time the related interest income is received by
the Noteholders.
Weighted Average Lives of the Notes
For the purpose of the tables below, it is assumed, among other things,
that: (i) the Closing Date for the Notes occurs on [ ], (ii) distributions on
the Notes are made on the [_______] day of each month regardless of the day on
which the Payment Date actually occurs, commencing in [_______] in accordance
with the priorities described herein, (iii) no delinquencies or defaults in the
payment of principal and interest on the Leases are experienced, (iv) no Lease
is repurchased for breach of a representation and warranty or otherwise, (v) the
Discount Rate is [_______]% per annum, (vi) Prepayments with respect to the
Leases are received on the last day of each Collection Period, commencing on
[_______] (vii) the Note Interest Rate is [_______]% per annum for the Class A-1
Notes, [_______]% per annum for the Class A-2 Notes, [_______]% per annum for
the Class A-3 Notes, [_______]% per annum for the Class A-4 Notes, [_______] %
per annum for the Class B Notes, [_______]% per annum for the Class C Notes and
[_______]% per annum for the Class D Notes, (viii) the Servicing Fee is
[_______]% per annum, (ix) the Lease pool consists of a single Lease with an
Aggregate Discounted Lease Balance equal to $ [_______] and (x) Lease Payments
on such Lease are timely received (collectively, the "Modeling Assumptions").
Since the tables were prepared on the basis of the Modeling Assumptions,
there are discrepancies between the characteristics of the actual Leases and the
characteristics of the Leases assumed in preparing the tables. Any such
discrepancies may have an effect upon the percentages of the Outstanding
Principal Amount of the Notes and weighted average lives of the Notes set forth
in the tables. In addition, since the actual Leases which will be owned by the
Issuer have characteristics which differ from those assumed in preparing the
tables set forth below, the related weighted average life may be longer or
shorter than as indicated in the tables.
The following tables set forth the percentages of the initial principal
amount of the Notes that would be outstanding after each of the dates shown,
assuming a CPR of [ ]%.
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PERCENTAGE OF INITIAL AGGREGATE
OUTSTANDING PRINCIPAL AMOUNT
Notes
Prepayment Speed (CPR)
Payment
Date
- --------------------------------------------------------------------------------
Closing Date
- --------------------------------------------------------------------------------
Weighted Average
Life (years)
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The Leases will not have the characteristics assumed above, and there can
be no assurance that (i) the Leases will prepay at any of the rates shown in the
tables or at any other particular rate or will prepay proportionately or (ii)
the weighted average lives of the Notes will be as calculated above. Because the
rate of distributions of principal of the Notes will be a result of the actual
amortization (including prepayments) of the Leases, which will include Leases
that have remaining terms to stated maturity shorter or longer than those
assumed, the weighted average lives of the Notes will differ from those set
forth above, even if all of the Leases prepay at the indicated constant
prepayment rates.
The effective yield to Noteholders will depend upon, among other things,
the price at which such Notes are purchased, and the amount of and rate at which
principal, including both scheduled and Lease Payments thereof, is paid to the
Noteholders. See "Risk Factors -- Maturity and Prepayment Considerations."
CERTAIN LEGAL ASPECTS OF THE LEASES
General
The Leases that are to be included in the Pool of Assets comprise the Lease
Receivables will be "chattel paper" as defined in the Uniform Commercial Code.
Pursuant to the UCC a purchaser of chattel paper must take the same action as a
secured party in a transaction creating a security interest in chattel paper in
order to protect or perfect its interest in chattel paper. The Transferor, the
Servicer and/or the Seller will cause the filing of appropriate UCC-1 financing
statements covering the letter to be made with the appropriate governmental
authorities. Under the Servicing Agreement, the Servicer will be obligated from
time to time to take such actions as are necessary to protect, perfect and
preserve the Issuer's or the Trustee's interests in the Leases and their
proceeds, as the case may be.
The Equipment
The Seller will convey the Seller's interest in the related Equipment to
the Transferor. UCC financing statements will not be filed to perfect any
security interest in the Equipment. Moreover, in the event of the repossession
and resale of Equipment, it may be subject to a superior lien. In such case, the
senior lienholder may be entitled to be paid the full amount of the indebtedness
owed to it out of the sale proceeds before such proceeds could be applied to the
payment of claims of the Servicer.
In the event of a default by a Lessee, the Servicer on behalf of the
Trustee may take action to enforce such Defaulted Lease by repossession and
resale or re-lease of the Equipment. Under the UCC in most states, a creditor
can, without prior notice to the debtor, repossess assets securing a defaulted
contract by the Lessee's voluntary surrender of such assets or by "self-help"
repossession that does not involve a breach of the peace and by judicial
process.
In the event of a default by the Lessee, some jurisdictions require that
the Lessee be notified of the default and be given a time period within which it
may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee with reasonable
notice of the date, time and place of any public sale and/or the date after
which any private sale of the collateral may be held and that any such sale be
conducted in a commercially reasonable manner. The Servicing Agreement may
require the Servicer to sell promptly any repossessed item of Equipment,
reacquire such Equipment from the Issuer, re-lease such Equipment for the
benefit of the Noteholders.
Under most state laws, a Lessee has the right to redeem collateral for its
obligations prior to actual sale by paying to the secured party the unpaid
balance of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type financed
pursuant to the Leases generally declines with age and because of obsolescence,
the net disposition proceeds of Equipment at any time during the term of the
Lease may be less than the outstanding balance on the Lease which it secures.
Because of this, and because other creditors may have rights in the related
Equipment superior to those of the Issuer, the Servicer
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may not be able to recover the entire amount due on a Defaulted Lease in
the event that the Servicer elects to repossess and sell such Equipment at
any time.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a Lessee for any deficiency on repossession
and resale of the asset securing the unpaid balance of such Lessee's contract.
However, some states impose prohibitions or limitations on deficiency judgments.
In most jurisdictions, the courts, in interpreting the UCC, would impose upon a
creditor an obligation to repossess the equipment in a commercially reasonable
manner and to "mitigate damages" in the event of a Lessee's failure to cure a
default. The creditor would be required to exercise reasonable judgment and
follow acceptable commercial practice in seizing and disposing of the equipment
and to offset the net proceeds of such disposition against its claim. In
addition, a Lessee may successfully invoke an election of remedies defense to a
deficiency claim in the event that the Servicer's repossession and sale of the
Equipment is found to be a retention discharging the Lessee from all further
obligations under UCC Section 9-505(2). If a deficiency judgment were granted,
the judgment would be a personal judgment against the Lessee for the shortfall,
but a defaulting Lessee may not have sufficient assets to satisfy such
judgments. Therefore, it may not be useful to seek a deficiency judgment or, if
one is obtained, it may be settled at a significant discount or uncollectible.
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell collateral or obtain a deficiency judgment. In the event of the
bankruptcy or reorganization of a Lessee, various provisions of the Bankruptcy
Code of 1978 (the "Bankruptcy Code") and related laws may interfere with or
eliminate the ability of the Servicer or the Trustee to enforce its rights under
the Lease Receivables. If bankruptcy proceedings were instituted in respect of a
Lessee, the Trustee could be prevented from continuing to collect payments due
from or on behalf of such Lessee or exercising any remedies assigned to the
Trustee without the approval of the bankruptcy court, and the bankruptcy court
could permit the Lessee to use or dispose of the Equipment and provide the
Trustee with a lien on substitute collateral, so long as such substitute
collateral constituted "adequate protection" as defined under the Bankruptcy
Code.
In addition, certain of the Lessees may be governmental entities. Payment
by governmental authorities of amounts due under such Leases may be contingent
upon legislative approval. Further, the assignment of such payment obligations
may be void or voidable if not done in compliance with applicable government
rules and regulations. Accordingly, payment delays and collection difficulties
may limit collections with respect to certain governmental Leases.
These UCC and bankruptcy provisions, in addition to the possible decrease
in value of a repossessed item of Equipment, may limit the amount realized on
the sale of the collateral to less than the amount due on the related Lease.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the material anticipated federal
income tax consequences to investors of the purchase, ownership and disposition
of the Notes offered hereby. The discussion is based upon laws, regulations,
rulings and decisions now in effect, all of which are subject to change. The
discussion below does not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors are urged to consult their own tax advisors in
determining the particular federal, state and local consequences to them of the
purchase, ownership and disposition of the Notes.
The following discussion addresses lease-backed notes such as the Notes
that are intended to be treated for federal income tax purposes as indebtedness
secured by the underlying Lease Receivables.
The Taxpayer Relief Act of 1997 adds provisions to the Internal Revenue
Code of 1986, as amended, (the "Tax Code") that require the recognition of gain
upon the "constructive sale of an appreciated financial position." A
constructive sale of an appreciated financial position occurs if a taxpayer
enters into certain transactions or series of such transactions with respect to
a financial instrument that have the effect of substantially eliminating the
taxpayer's risk of loss and opportunity for gain with respect to the financial
instrument. These provisions apply only to classes of Notes that do not have a
principal balance.
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Dewey Ballantine LLP, special tax counsel to the Transferor ("Tax
Counsel"), will deliver its opinion to the Transferor that the Notes will be
classified as debt secured by the related Lease Receivables. Consequently, the
Notes will not be treated as ownership interests in the Lease Receivables or the
Issuer. Beneficial owners will be required to report income received with
respect to the Notes in accordance with their normal method of accounting. For
additional tax consequences relating to Notes purchased at a discount or with
premium, see "Discount and Premium," below.
Sale or Exchange. If a beneficial owner of a Note sells or exchanges such
Note, the beneficial owner will recognize gain or loss equal to the difference,
if any, between the amount received and the beneficial owner's adjusted basis in
the Note. The adjusted basis in the Note generally will equal its initial cost,
increased by any original issue discount or market discount previously included
in the seller's gross income with respect to the Note and reduced by the
payments previously received on the Note, other than payments of qualified
stated interest, and by any amortized premium.
In general (except as described in "Discount and Premium--Market Discount,"
below), except for certain financial institutions subject to section 582(c) of
the Tax Code, any gain or loss on the sale or exchange of a Note recognized by
an investor who holds the Note as a capital asset (within the meaning of Section
1221 of the Tax Code), will be capital gain or loss and will be long-term or
short-term depending on whether the Note has been held for more than one year.
Alternative Characterization of the Notes
Although, as described above, it is the opinion of Tax Counsel that the
Notes are properly characterized as debt for federal income tax purposes, the
opinion of Tax Counsel is not binding on the courts or the IRS and no assurance
can be given that this characterization will prevail. It is possible that the
IRS could asset that, for purposes of the Tax Code, the transaction contemplated
by this Prospectus with respect to the Notes constitutes a sale of the Lease
Receivables (or an interest therein) to the Noteholders and that the proper
classification of the legal relationship between the Transferor and the
Noteholders resulting from the transaction is that of a partnership.
Taxation of Beneficial Owners of Partnership Interests. If the Issuer is
treated as a partnership for federal income tax purposes, the Issuer will not be
subject to federal income tax and the holders of beneficial ownership interests
in the Trust may be regarded as holding partnership interests in the Issuer
(each a "Partnership Interest"). Instead, each beneficial owner of a Partnership
Interest will be required to separately take into account an allocable share of
income, gains, losses, deductions, credits and other tax items of the Issuer.
These partnership allocations are made in accordance with the Tax Code, Treasury
regulations and the partnership agreement (here, the LLC Agreement and related
documents).
The Issuer's assets will be the assets of the partnership. The Issuer's
income will consist primarily of interest and finance charges earned on the
underlying Lease Receivables. The Issuer's deductions will consist primarily of
interest accruing with respect to any indebtedness issued by the Issuer,
servicing and other fees, and losses or deductions upon collection or
disposition of the Issuer's assets.
In certain instances, the LLC could have an obligation to make payments of
withholding tax on behalf of a beneficial owner of a Partnership Interest. (See
"Backup Withholding" and "Foreign Investors" below).
Substantially all of the taxable income allocated to a beneficial owner of
a Partnership Interest that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Tax Code.
Under Section 708 of the Tax Code, the Issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Issuer are sold or exchanged within a 12-month period. Under
the final regulations issued on May 9, 1997 if such a termination occurs, the
Issuer is deemed to contribute all of its assets and liabilities to a newly
formed partnership in exchange for a Partnership Interest. Immediately
thereafter, the terminated partnership distributes interests in the new
partnership to the purchasing partner and remaining partners in proportion to
their interests in liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests. Generally, capital gain or loss
will be recognized on a sale or exchange of Partnership Interests in an amount
equal to the difference between the amount realized and the seller's tax basis
in the Partnership Interests sold. A beneficial owner of a Partnership
Interest's tax basis in a Partnership Interest will generally equal the
beneficial owner's cost increased by the beneficial owner's share of
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Issuer includible income and decreased by any distributions received with
respect to such Partnership Interest. In addition, both the tax basis in the
Partnership Interest and the amount realized on a sale of a Partnership Interest
would take into account the beneficial owner's share of any indebtedness of the
Issuer. A beneficial owner acquiring Partnership Interests at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Partnership Interest, and upon sale or other disposition of some of the
Partnership Interests, allocate a portion of such aggregate tax basis to the
Partnership Interests sold (rather than maintaining a separate tax basis in each
Partnership Interest for purposes of computing gain or loss on a sale of that
Partnership Interest).
Any gain on the sale of a Partnership Interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the Issuer would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a Partnership Interest is required to recognize an aggregate amount of income
over the life of the Partnership Interest that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Partnership Interest. If a beneficial
owner sells its Partnership Interest at a profit or loss, the transferee will
have a higher or lower basis in the Partnership Interests than the transferor
had. The tax basis of the Issuer's assets will not be adjusted to reflect that
higher or lower basis unless the Issuer files an election under section 754 of
the Tax Code.
Partnership Reporting Matters. A partnership is required to (i) keep
complete and accurate books of the Issuer, (ii) file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Issuer and
(iii) report each beneficial owner of a Partnership Interest's allocable share
of items of Issuer income and expense to beneficial owners and the IRS on
Schedule K-1. The Transferor will not attempt to comply with U.S. federal income
tax reporting requirements applicable to partnerships as such requirements would
apply if the Notes were not treated as indebtedness.
Discount and Premium
A Note purchased for an amount other than its outstanding principal amount
will be subject to the rules governing original issue discount, market discount
or premium. In very general terms, (i) original issue discount is treated as a
form of interest and must be included in a beneficial owner's income as it
accrues (regardless of the beneficial owner's regular method of accounting)
using a constant yield method; (ii) market discount is treated as ordinary
income and must be included in a beneficial owner's income as principal payments
are made on the Note (or upon a sale of a Note); and (iii) if a beneficial owner
so elects, premium may be amortized over the life of the Note and offset against
inclusions of interest income. These tax consequences are discussed in greater
detail below.
Original Issue Discount. In general, a Note will be considered to be issued
with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a Note
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial number of the Notes were sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the first Remittance Period and the closing date relating to such series of
Notes (the "Closing Date"). The stated redemption price at maturity of a Note
that has a notional principal amount or receives principal only or that is or
may provide for accruals of interest is equal to the sum of all distributions to
be made under such Note. The stated redemption price at maturity of any other
Note is its stated principal amount, plus an amount equal to the excess (if any)
of the interest payable on the first Payment Date over the interest that accrues
for the period from the Closing Date to the first Payment Date. The Trustee will
supply, at the time and in the manner required by the IRS, to beneficial owners,
brokers and middlemen information with respect to the original issue discount
accruing on the Notes.
Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25% of the stated redemption
price at maturity of the Note multiplied by its weighted average life. The
weighted average life of a Note is apparently computed for this purpose as the
sum, for all distributions included in the stated redemption price at maturity,
of the amounts determined by multiplying (i) the number of complete years
(rounding down for partial years) from the Closing Date until the date on which
each such distribution is expected to be made under the assumption that the
Lease Receivables prepay at the rate specified under the heading "Prepayment and
Yield Considerations" (the "Prepayment Assumption") by (ii) a fraction, the
numerator of which is the amount of such distribution and the denominator of
which is the Note's stated redemption price at maturity. Even if original issue
discount is treated as zero under this rule, the actual amount of original issue
discount must be allocated to the principal distributions on the Note and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
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Section 1272(a)(6) of the Tax Code contains special original issue discount
rules applicable to prepayable securities. Under these rules (described in
greater detail below), (i) the amount and rate of accrual of original issue
discount on each series of Notes will be based on (x) the Prepayment Assumption,
and (y) in the case of a Note calling for a variable rate of interest, an
assumption that the value of the index upon which such variable rate is based
remains equal to the value of that rate on the Closing Date, and (ii)
adjustments will be made in the amount of discount accruing in each taxable year
in which the actual prepayment rate differs from the Prepayment Assumption.
Section 1272(a)(6)(B)(iii) of the Tax Code requires that the Prepayment
Assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Tax Code provision indicates that
the assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Transferor anticipates that the Prepayment
Assumption for each series of Notes will be consistent with this standard. The
Transferor makes no representation, however, that the Lease Receivables for a
given series will prepay at the rate reflected in the Prepayment Assumption for
that series or at any other rate. Each investor must make its own decision as to
the appropriate Prepayment Assumption to be used in deciding whether or not to
purchase any of the Notes. Each beneficial owner must include in gross income
the sum of the "daily portions" of original issue discount on its Note for each
day during its taxable year on which it held such Note. For this purpose, in the
case of an original beneficial owner, the daily portions of original issue
discount will be determined as follows. A calculation will first be made of the
portion of the original issue discount that accrued during each "accrual
period." Original issue discount calculations must be based on accrual periods
of no longer than one year either (i) beginning on a payment date (or, in the
case of the first such period, the Closing Date) and ending on the day before
the next payment date or (ii) beginning on the next day following a payment date
and ending on the next payment date.
Under Section 1272(a)(6) of the Tax Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Note, if any, as of the end of the accrual period and (B) the
distribution made on such Note during the accrual period of amounts included in
the stated redemption price at maturity, over (ii) the adjusted issue price of
such Note at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
based on (i) the yield to maturity of the Note, calculated as of the Closing
Date, giving effect to the Prepayment Assumption, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period, (iii)
the Prepayment Assumption, and (iv) in the case of a Note calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains the same as its value on the Closing Date over
the entire life of such Note. The adjusted issue price of a Note at any time
will equal the issue price of such Note, increased by the aggregate amount of
previously accrued original issue discount with respect to such Note, and
reduced by the amount of any distributions made on such Note as of that time of
amounts included in the stated redemption price at maturity. The original issue
discount accruing during any accrual period will then be allocated ratably to
each day during the period to determine the daily portion of original issue
discount.
A subsequent purchaser of a Note that purchases such Note at a cost less
than its remaining stated redemption price at maturity also will be required to
include in gross income for each day on which it holds such Note, the daily
portion of original issue discount with respect to such Note (but reduced, if
the cost of such Note to such purchaser exceeds its adjusted issue price, by an
amount equal to the product of (i) such daily portion and (ii) a constant
fraction, the numerator of which is such excess and the denominator of which is
the sum of the daily portions of original issue discount on such Note for all
days on or after the day of purchase).
Market Discount. A beneficial owner that purchases a Note at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of such Note (or, in the case of a Note with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Note, and recognize
ordinary income to the extent such distribution does not exceed the aggregate
amount of accrued market discount on such Note not previously included in
income. With respect to Notes that have unaccrued original issue discount, such
market discount must be included in income in addition to any original issue
discount. A beneficial owner that incurs or continues indebtedness to acquire a
Note at a market discount may also be required to defer the deduction of all or
a portion of the interest on such indebtedness until the corresponding amount of
market discount is included in income. In general terms, market discount on a
Note may be treated as accruing either (i) under a constant yield method or (ii)
in proportion to remaining accruals of original issue discount, if any, or if
none, in proportion to remaining distributions of interest on the Note, in any
case taking
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into account the Prepayment Assumption. The Trustee will make available, as
required by the IRS, to beneficial owners of Notes information necessary to
compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Note multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the Note by
the subsequent purchaser. If market discount on a Note is treated as zero under
this rule, the actual amount of market discount must be allocated to the
remaining principal distributions on the Note and, when each such distribution
is received, gain equal to the discount allocated to such distribution will be
recognized.
Premium. A purchaser of a Note that purchases such Note at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such Note (a "Premium Note") at a premium. Such a purchaser need
not include in income any remaining original issue discount and may elect, under
section 171(c)(2) of the Tax Code, to treat such premium as "amortizable bond
premium." If a beneficial owner makes such an election, the amount of any
interest payment that must be included in such beneficial owner's income for
each period ending on a Payment Date will be reduced by the portion of the
premium allocable to such period based on the Premium Note's yield to maturity.
Such premium amortization should be made using constant yield principles. If
such election is made by the beneficial owner, the election will also apply to
all bonds the interest on which is not excludible from gross income ("fully
taxable bonds") held by the beneficial owner at the beginning of the first
taxable year to which the election applies and to all such fully taxable bonds
thereafter acquired by it, and is irrevocable without the consent of the IRS. If
such an election is not made, (i) such a beneficial owner must include the full
amount of each interest payment in income as it accrues, and (ii) the premium
must be allocated to the principal distributions on the Premium Note and when
each such distribution is received, a loss equal to the premium allocated to
such distribution will be recognized. Any tax benefit from the premium not
previously recognized will be taken into account in computing gain or loss upon
the sale or disposition of the Premium Note.
Some Notes may provide for only nominal distributions of principal in
comparison to the distributions of interest thereon. It is possible that the IRS
or the Treasury Department may issue guidance excluding such Notes from the
rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Note will be treated as having original
issue discount equal to the excess of the total payments to be received thereon
over its issue price. In such event, section 1272(a)(6) of the Tax Code would
govern the accrual of such original issue discount, but a beneficial owner would
recognize substantially the same income in any given period as would be
recognized if an election were made under section 171(c)(2) of the Tax Code.
Unless and until the Treasury Department or the IRS publishes specific guidance
relating to the tax treatment of such Notes, the Trustee intends to furnish tax
information to beneficial owners of such Notes in accordance with the rules
described in the preceding paragraph.
Special Election. For any Note acquired on or after April 4, 1994, a
beneficial owner may elect to include in gross income all "interest" that
accrues on the Note by using a constant yield method. For purposes of the
election, the term "interest" includes stated interest, acquisition discount,
original issue discount, de minimis original issue discount, market discount, de
minimis market discount and unstated interest as adjusted by any amortizable
bond premium or acquisition premium. A beneficial owner should consult its own
tax advisor regarding the time and manner of making and the scope of the
election and the implementation of the constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Notes, may be subject to the "backup withholding tax"
under Section 3406 of the Tax Code at a rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The Internal Revenue Service recently issued final regulations (the
"Withholding Regulations"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective January 1, 1999,
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although valid withholding certificates that are held on December 31, 1998
remain valid until the earlier of December 31, 1999 or the due date of
expiration of the certificate under the rules as currently in effect.
Foreign Investors
The Withholding Regulations would require, in the case of Notes held by a
foreign partnership, that (x) the certification described above be provided by
the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. See "Backup Withholding" above. A look-through rule would apply in the
case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors regarding the application to them of the Withholding Regulations.
The Notes. Distributions made on a Note to, or on behalf of, a beneficial
owner that is not a U.S. Person generally will be exempt from U.S. federal
income and withholding taxes. The term "U.S. Person" means a citizen or resident
of the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate that is subject to U.S. federal income tax regardless of the
source of its income, or a trust if a court within the United States can
exercise primary supervision over its administration and at least one United
States person has the authority to control all substantial decisions of the
trust. This exemption is applicable provided (a) the beneficial owner is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of the Note, (b) the beneficial owner signs a statement under
penalties of perjury that certifies that such beneficial owner is not a U.S.
Person, and provides the name and address of such beneficial owner, and (c) the
last U.S. Person in the chain of payment to the beneficial owner receives such
statement from such beneficial owner or a financial institution holding on its
behalf and does not have actual knowledge that such statement is false.
Beneficial owners should be aware that the IRS might take the position that this
exemption does not apply to a beneficial owner that is a "controlled foreign
corporation" described in Section 881(c)(3)(C) of the Tax Code.
Partnership Interests. Depending upon the particular terms of the LLC
Agreement and the Indenture, a Issuer may be considered to be engaged in a trade
or business in the United States for purposes of federal withholding taxes with
respect to non-U.S. persons. If the Issuer is considered to be engaged in a
trade or business in the United States for such purposes and the Issuer is
treated as a partnership, the income of the Issuer distributable to a non-U.S.
person would be subject to federal withholding tax. Also, in such cases, a
non-U.S. beneficial owner of a Partnership Interest that is a corporation may be
subject to the branch profits tax. If the Issuer is notified that a beneficial
owner of a Partnership Interest is a foreign person, the Issuer may withhold as
if it were engaged in a trade or business in the United States in order to
protect the Issuer from possible adverse consequences of a failure to withhold.
A foreign holder generally would be entitled to file with the IRS a claim for
refund with respect to withheld taxes, taking the position that no taxes were
due because the Issuer was not in a U.S. trade or business.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential Noteholders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Tax Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Tax Code with respect to the
plan. ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA and prohibits certain transactions between a plan and parties
in interest with respect to such plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Tax Code
for such persons.
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In addition to the matters described below, purchasers of Notes that are
insurance companies should consult with their counsel with respect to the United
States Supreme Court case interpreting the fiduciary responsibility rules of
ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank,
114 S. Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets held
in an insurance company's general account may be deemed to be "plan assets" for
ERISA purposes under certain circumstances. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
Notes.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Tax Code if assets of the Issuer
were deemed to be "plan assets" of an employee benefit plan subject to ERISA or
the Tax Code, or an individual retirement account (an "IRA"), or any entity
whose underlying assets are deemed to be assets of an employee benefit plan or
an IRA by reason of such employee benefit plan's or such IRA's investment in
such entity (each a "Benefit Plan"). Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Issuer would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Tax Code only if the Benefit Plan acquires an "equity interest" in
the Issuer and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are treated as an
equity interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuer or any of its affiliates is or becomes, a party in
interest or disqualified person with respect to such Benefit Plan. In such case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the plan fiduciary making the
decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by in-house asset
managers; and PTCE 84-14, regarding transactions by "qualified professional
assets managers." Each investor using the assets of a Benefit Plan which
acquires the Notes, or to whom the Notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the Notes will be
covered by a Department of Labor class exemption.
Employee plans that are government plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(53) of ERISA, are not
subject to ERISA; however, such plans may be subject to comparable state law
restrictions.
Any Benefit Plan fiduciary considering the purchase of a Note should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Benefit Plan fiduciary should
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Notes is appropriate for the Benefit
Plan, taking into account the overall investment policy of the Benefit Plan and
the composition of the Benefit Plan's investment portfolio.
USE OF PROCEEDS
The proceeds from the sale of the Notes will be applied by the Transferor
to the acquisition of the related Lease Receivables from the Seller.
RATINGS
It is a condition to the issuance of the Offered Notes that the Class A-1
Notes be rated [_______] by _______ and [_______] by _________, the Class A-2
Notes be rated [ ____ ] by _______ and [_______] by _______, the Class A-3 Notes
be rated [_______] by ________ and [_______] by _____, the Class A-4 Notes be
rated [ ____ ] by ______ and [_______] by __________ the Class B Notes be rated
[_______] by _______ and [_______] by _______, the Class C Notes be rated
[_______] by ________ and [_______] by _______, and the Class D Notes be rated [
______ ] by ________ and [_______] by ______. 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 not assurance that any such rating will continue for any
period of time or that it
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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 Leases and,
therefore, does not address the effect of the rate of Prepayments on the return
of principal to the Noteholders. Such ratings do not constitute a recommendation
to buy, sell or hold any Notes.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") for the sale of the Notes dated [_______], the
Transferor has agreed to sell and ___________________ (the "Underwriter") has
agreed to purchase, the Notes. Purchasers of Notes, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
reoffers and sales by them of Notes. Holders of Notes should consult with their
legal advisors in this regard prior to any such reoffer or sale. The Transferor
is affiliated with Charter.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions therein, to purchase all the Notes offered hereby if any of
such Notes are purchased. The Underwriting Agreement pertaining to the sale of
the Notes will provide that the obligations of the Underwriter will be subject
to certain conditions precedent.
The Underwriter has advised the Transferor that it proposes to offer the
Notes purchased by the Underwriter for sale from time to time in one or more
negotiated transactions or otherwise, at market prices prevailing at the time of
sale, at prices related to such market prices or at negotiated prices. In
connection with the sale of the Notes, Underwriter may receive compensation from
the Transferor or from purchasers of the Notes in the form of discounts,
concessions or commissions. The Underwriter may effect such transactions by
selling such Notes to or through a dealer, and such dealer may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriters or purchasers of the Notes for whom they may act as agent.
Any dealers that participate with the Underwriter in the distribution of the
Notes purchased by the Underwriter may be deemed to be underwriters, and any
discounts or commissions received by them or the Underwriter, and any profit on
the resale of Notes by them or the Underwriter may be deemed to be underwriting
discounts or commissions under the Securities Act of 1933, as amended (the
"Securities Act").
The Transaction Documents and the Underwriting Agreement provide that the
Servicer and Transferor under certain circumstances will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriter may be required to
make in respect thereof.
Purchasers of Notes, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Holders of Notes should consult with their legal advisors in this regard
prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Issuer by Dewey Ballantine LLP, New York, New York and for the Underwriter by
Cadwalader, Wickersham & Taft, New York, New York. Certain Federal income tax
matters will be passed upon for the Issuer by Dewey Ballantine LLP, New York,
New York.
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ADDITIONAL INFORMATION
This Prospectus contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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INDEX OF PRINCIPAL DEFINED TERMS
Page
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"Transferor Contribution and Sale Agreement............................6
Acceptable Payment Status.............................................24
Aggregate Discounted Lease Balance....................................13
Article 2A............................................................21
Available Funds....................................................8, 39
Bankruptcy Code.......................................................58
Benefit Plan..........................................................64
Calculation Date.......................................................8
Casualty Loss.........................................................38
Casualty Payment......................................................38
Cede...................................................................3
CEDEL Participants....................................................44
Certain Legal Aspects of the Leases...................................18
CFC....................................................................1
Charter.............................................................1, 5
Class..................................................................1
Class A Notes..........................................................5
Class A Percentage................................................11, 41
Class A Principal Payment.........................................10, 40
Class A Target Investor Principal Amount..........................11, 41
Class A-1 Notes........................................................1
Class B Floor.....................................................11, 41
Class B Notes..........................................................5
Class B Percentage................................................11, 41
Class B Principal Payment.........................................10, 41
Class B Target Investor Principal Amount..........................11, 41
Class C Floor.....................................................11, 41
Class C Notes..........................................................5
Class C Percentage................................................11, 41
Class C Principal Payment.........................................10, 41
Class C Target Investor Principal Amount..........................11, 41
Class D Floor.....................................................12, 42
Class D Notes..........................................................5
Class D Percentage................................................11, 41
Class D Target Investor Principal Amount..........................11, 41
Class Target Investor Principal Amount............................11, 41
Closing Date.......................................................5, 60
Collection Account....................................................47
Collection Period.....................................................49
Commission.............................................................3
Conditional Prepayment Rate...........................................54
Cooperative...........................................................44
CPR...................................................................54
Cumulative Loss Amount............................................12, 42
Cut-Off Date...........................................................5
Debtors...............................................................19
Defaulted Lease.......................................................15
Defaulted Leases......................................................38
Definitive Notes......................................................45
Delinquency Amounts...................................................14
Delinquent Lease......................................................14
Depositaries..........................................................43
Direct Participants...................................................20
Discount Rate.........................................................12
Discounted Lease Balance...........................................8, 12
Distribution Account..................................................47
DTC................................................................3, 14
Early Termination Lease...............................................38
Eligible Deposit Account..............................................47
Eligible Institution..................................................47
Eligible Investments..................................................47
Eligible Leases.......................................................23
Equipment....................................................1, 6, 7, 23
ERISA.................................................................16
Euroclear Operator....................................................44
Euroclear Participants................................................44
Event of Default......................................................13
Event of Servicing Termination........................................51
Event of Termination..................................................48
Events of Default.....................................................52
Exchange Act...........................................................3
Excluded Amounts......................................................38
FASB 13................................................................7
Finance Lease..........................................................7
fully taxable bonds...................................................62
Indenture...........................................................1, 6
Indirect Participants.................................................20
Insolvency Laws.......................................................19
Interest Accrual Period............................................9, 40
Interest Payments..................................................9, 40
Investment Earnings...................................................47
IRA...................................................................64
Issuer.................................................................1
Lease Files...........................................................48
Lease Payment.........................................................38
Lease Payments........................................................24
Lease Receivables......................................................1
Leases.............................................................1, 23
Lessee.................................................................7
Lessor.................................................................7
LLC Agreement...................................................1, 6, 22
Lockbox Account.......................................................15
Maximum Contract Term.................................................24
Modeling Assumptions..................................................54
Nonrecoverable Advances...............................................15
Note Factor...........................................................46
Note Interest Rate.....................................................1
Noteholders............................................................1
Notes...............................................................5, 6
Offered Notes..........................................................6
Operating Leases.......................................................8
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Optional Redemption...................................................16
Outstanding Principal Amount...........................................1
Outstanding Principal Amounts......................................9, 40
Overcollateralization Balance.....................................12, 42
Participants..........................................................43
Partnership Interest..................................................59
Payment Date........................................................1, 8
Percentage Interests..................................................53
Plan..................................................................16
Plan Assets Regulation................................................64
Pool Factor...........................................................46
Pool of Assets..................................................6, 7, 22
Premium Note..........................................................62
Prepayment............................................................20
Prepayment Assumption.................................................60
Principal Payments................................................10, 40
PTCE..................................................................64
Purchase Leases........................................................8
Rating Agencies.......................................................17
Receivables............................................................6
Reporting Date........................................................15
Repurchase Amount.....................................................26
Rules.................................................................44
Sale Date.............................................................37
Scheduled Maturity Date................................................1
Securities Act........................................................65
Seller.................................................................3
Seller Contribution and Sale Agreement.................................3
Servicer...............................................................5
Servicer Advance..................................................14, 48
Servicing Agreement.................................................3, 6
Servicing Charges.....................................................14
Servicing Fee.....................................................14, 49
Servicing Fee Rate................................................14, 49
Servicing Officer.....................................................50
Soft Items............................................................21
Sub-Servicer...........................................................5
Substitute Lease......................................................26
Substituted Receivable................................................15
Successor Servicer....................................................15
Supplementary Report..................................................50
Tax Code..........................................................16, 58
Tax Counsel...........................................................59
Termination Payment...................................................38
Terms and Conditions..................................................44
Transaction Document...................................................7
Transferor.............................................................5
Transferor Contribution and Sale Agreement.............................3
Trust Accounts........................................................47
Trustee.............................................................1, 6
Trustee Expenses......................................................53
Trustee Fee...........................................................53
U.S. Person...........................................................63
Underwriter...........................................................65
Underwriting Agreement................................................65
Weighted Average Life.................................................54
Withholding Regulations...............................................62
66
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================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the affairs
of the Seller or the Issuer or any affiliate thereof or the Leases since the
date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so to
anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION..........................................................3
REPORTS TO NOTEHOLDERS.........................................................3
SUMMARY OF TERMS...............................................................5
RISK FACTORS..................................................................18
THE POOL OF ASSETS............................................................22
THE ISSUER....................................................................23
THE LEASES....................................................................23
CHARTER'S LEASING BUSINESS....................................................31
TRANSFEROR....................................................................36
DESCRIPTION OF THE NOTES......................................................36
POOL FACTORS..................................................................46
DESCRIPTION OF THE TRANSACTION DOCUMENTS......................................46
THE TRUSTEE...................................................................53
PREPAYMENT AND YIELD CONSIDERATIONS...........................................54
CERTAIN LEGAL ASPECTS OF THE LEASES...........................................57
MATERIAL FEDERAL INCOME TAX CONSEQUENCES......................................58
STATE AND LOCAL TAX CONSIDERATIONS............................................63
ERISA CONSIDERATIONS..........................................................63
USE OF PROCEEDS...............................................................64
RATINGS.......................................................................64
PLAN OF DISTRIBUTION..........................................................65
LEGAL MATTERS.................................................................65
ADDITIONAL INFORMATION........................................................66
INDEX OF PRINCIPAL DEFINED TERMS..............................................67
Until ____________, 1998 (90 days after the date of this Prospectus), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
================================================================================
$_________
Charter Equipment Lease 1998-1 LLC
$___________ ____% Lease-Backed Notes, Class A-1
$___________ ____% Lease-Backed Notes, Class A-2
$___________ ____% Lease-Backed Notes, Class A-3
$___________ ____% Lease-Backed Notes, Class A-4
$_________ _____% Lease-Backed Notes, Class B
___________________
P R O S P E C T U S
___________________
________________________________
Dated ______ ___, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
SEC Filing Fee....................................................... $
Trustee's Fees and Expenses..........................................
Legal Fees and Expenses..............................................
Accounting Fees and Expenses.........................................
Printing and Engraving Expenses......................................
Blue Sky Qualification and Legal Investment Fees and Expenses........
Rating Agency Fees...................................................
Miscellaneous........................................................
---------
TOTAL $
=========
Item 14. Indemnification of Directors and Officers.
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Section [_______] of the Certificate of Incorporation of Charter Funding
Corporation V provides that all officers and directors of the corporation shall
be indemnified by the corporation from and against all expenses, liabilities or
other matters arising out of their status as an officer or director for their
acts, omissions or services rendered in such capacities. Charter Financial,
Inc., the ultimate corporate parent of Charter Funding Corporation V, maintains
certain policies of liability insurance coverage for the officers and directors
of Charter Financial, Inc. and certain of its subsidiaries, including Charter
Funding Corporation V.
The form of the Underwriting Agreement, filed as Exhibit [_______] to this
Registration Statement, provides that Charter Funding Corporation V will
indemnify and reimburse the underwriter(s) and each controlling person of the
underwriter(s) with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement provides that the underwriter(s) will similarly indemnify
and reimburse Charter Funding Corporation V in with respect to certain material
misstatements or omissions in the Registration Statement which are based on
certain written information furnished by the underwriter(s) for use in
connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of the
registrant, the registrant's By-laws permit the board of directors to purchase
and maintain insurance on behalf of the registrant's agents, including its
officers and directors, against any liability asserted against them in such
capacity or arising out of such agents' status as such, whether or not such
registrant would have the power to indemnify them against such liability under
applicable law.
Item 15. Recent Sales of Unregistered Securities.
Not applicable
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<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
[_] Form of Underwriting Agreement.*
[_] Certificate of Incorporation of Charter Funding Corporation V.*
[_] By-Laws of Charter Funding Corporation V.*
[_] Form of Indenture between the Issuer and the Trustee.*
[_] Form of LLC Agreement.*
[_] Opinion of Dewey Ballantine LLP with respect to validity.*
[_] Opinion of Dewey Ballantine LLP with respect to tax matters.*
[_] Consents of Dewey Ballantine (included in Exhibits 5.1 and 8.1 hereto).*
[_] Form of Seller Contribution and Sale Agreement.*
[_] Form of Transferor Contribution and Sale Agreement.*
[_] Form of Servicing Agreement.*
[_] Form of Statement of Eligibility of Trustee.*
[_] Financial Statement Schedules.*
- ----------
* To be Filed by Amendment.
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described above in Item 15, 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 the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by them is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
B. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Undertaking pursuant to the Trust Indenture Act of 1939.
The Registrant hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
section 310 of the Trust Indenture Act ("Act") in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 21st day of September, 1998. As of the date hereof, the Registrant
reasonably believes that the Security rating requirement for asset-backed
offerings on Form S-1 will be met at the time of each sale.
CHARTER EQUIPMENT LEASE 1998-1 LLC
By: CHARTER FUNDING CORPORATION V
By:
--------------------------------------
Name: Gary Corr
Title: President
POWER OF ATTORNEY
The undersigned directors and/or officers of the managing member of
the Registrant, by virtue of their signatures to this Registration Statement
appearing below, hereby constitute and appoint Henry Frommer and Gary Corr or
any of them, with full power of substitution, as attorneys-in-fact in their
names, places and steads to execute any and all amendments to this Registration
Statement in the capacities set forth opposite their names and hereby ratify all
that said attorneys-in-fact may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Director September 21, 1998
- ------------------------------
Henry Frommer
Director September 21, 1998
- ------------------------------
Alan Fischer
Director September 21, 1998
- ------------------------------
David Paris
Director September 21, 1998
- ------------------------------
Gary Corr
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<PAGE>
EXHIBIT INDEX
[_] Form of Underwriting Agreement.*
[_] Certificate of Incorporation of Charter Funding Corporation V.*
[_] By-Laws of Charter Funding Corporation V.*
[_] Form of Indenture between the Issuer and the Trustee.*
[_] Form of LLC Agreement.*
[_] Opinion of Dewey Ballantine with respect to validity.*
[_] Opinion of Dewey Ballantine with respect to tax matters.*
[_] Consents of Dewey Ballantine (included in Exhibits 5.1 and 8.1 hereto).*
[_] Form of Seller Contribution and Sale Agreement.*
[_] Form of Transferor Contribution and Sale Agreement.*
[_] Form of Servicing Agreement.*
[_] Form of Statement of Eligibility of Trustee.*
[_] Financial Statement Schedules.*
- ----------
* To be Filed by Amendment.
II-4
