PROSPECTUS
- --------------------------------------------------------------------------------
$165,313,672
Charter Equipment Lease 1999-1 LLC
$50,293,842 5.777% Lease-Backed Notes, Class A-1
$40,759,879 6.590% Lease-Backed Notes, Class A-2
$18,280,718 6.890% Lease-Backed Notes, Class A-3
$48,544,491 7.070% Lease-Backed Notes, Class A-4
$7,434,742 7.300% Lease-Backed Notes, Class B
CHARTER EQUIPMENT LEASE 1999-1 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
1999-1 LLC, a limited liability company organized under the laws of the state of
Delaware (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 (the "Initial Outstanding Principal
Amount") and monthly interest at a rate per annum for such Class of Notes (the
"Note Interest Rate") on the unpaid portion of such Outstanding Principal Amount
(as defined herein). The Class C Notes and the Class D Notes are not offered
hereby. (continued overleaf)
<TABLE>
<CAPTION>
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
Initial Note Initial Underwriting Proceeds to
Outstanding Interest Public Discount(2) Transferor(3)
Principal Rate Offering
Amount Price(1)
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
A-1 Notes $50,293,842 5.777% 100.00000% 0.200% $50,193,254
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
A-2 Notes $40,759,879 6.590% 99.99559% 0.275% $40,645,992
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
A-3 Notes $18,280,718 6.890% 99.98135% 0.365% $18,210,584
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
A-4 Notes $48,544,491 7.070% 99.99999% 0.400% $48,350,308
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
B Notes $7,434,742 7.300% 99.99400% 0.500% $7,397,122
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
Total $165,313,672 $164,797,261
- ---------------- ------------------ ------------ ------------------- --------------------- ---------------------
(1) Plus accrued interest, if any, from August 23, 1999.
(2) The Issuer and Charter have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933.
(3) Amounts may not total due to rounding. Before deducting expenses, estimated
to be $492,789. The Offered Notes are offered subject to receipt and
acceptance by First Union Capital Markets Corp. (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 August
23, 1999 (the "Closing Date").
FIRST UNION CAPITAL MARKETS CORP.
August 18, 1999
<PAGE>
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.
(cover page continued)
The Notes are backed solely by a pledge of the assets of the Issuer governed
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 August 1, 1999 (the
"Indenture") between the Issuer and LaSalle Bank National Association, 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,
together with all monies received relating thereto (the "Leases"), and the
ownership or security 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 the contractual rights of the
purchasers under the agreements by which the Lease Receivables were acquired.
The Leases include extrusion/intrusion molding, computer, printing,
film/television/video/audio production, transportation, telecommunications,
medical, furniture and fixtures and railroad equipment leases. Only the Class A
Notes and the Class B Notes are hereby being offered (together, the "Offered
Notes"). Each of the Offered Notes will be rated investment grade at the time of
issuance. See "Summary of Terms--Ratings" herein.
Principal and interest will be paid to the holders of the Notes (the
"Noteholders") monthly on the 25th day (or, if such day is not a Business Day,
on the next succeeding Business Day thereafter) of each month, commencing on
August 25th, 1999 (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 the Closing Date. 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 "Stated
Maturity Date") but there can be no assurance that all such payments will be
made by such Payment Dates.
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 AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AT PAGE 21 HEREIN.
THE POOL OF ASSETS (AS DEFINED HEREIN) MAY INCLUDE AN OWNERSHIP OR SECURITY
INTEREST IN THE EQUIPMENT RELATED TO LEASE RECEIVABLES.
Charter Financial, Inc., a New York corporation (in its capacity 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"). Charter Financial,
Inc., (in such capacity the "Servicer") will service the Lease Receivables
pursuant to a servicing agreement dated as of August 1, 1999 (the "Servicing
Agreement") among the Servicer, the Issuer and the Trustee.
2
<PAGE>
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")
, 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, or from the Commission's Web Site
at http://www.sec.gov, free of charge.
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 by reference into the information that this Prospectus
incorporates). Such requests should be directed to: Charter Financial, Inc., 530
Fifth Avenue, New York, New York 10036, Attention: David Oplanich, Treasurer.
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.
3
<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 1999-1 LLC (the
"Issuer"), 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 530 Fifth Avenue, New York,
New York 10036. The Transferor's 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........................... LaSalle Bank National Association, a
national banking association organized
under the laws of the United States (the
"Trustee"). The corporate trust offices of
the Trustee are located at 135 South
LaSalle Street, Suite 1625, Chicago,
Illinois 60674. On each Payment Date, the
Trustee will be entitled to receive a
monthly fee for the related Collection
Period (the "Trustee Fee") equal to the
product of (i) one-twelfth, (ii) 0.05% (the
"Trustee Fee Rate") and (iii) the Aggregate
Discounted Lease Balance as of the first
day of such Collection Period, payable out
of the Distribution Account, as
compensation for acting as Trustee.
Cut-Off Date...................... The close of business on June 30, 1999 (the
"Cut-Off Date").
Closing Date...................... On or about August 23, 1999 (the "Closing
Date").
Collection Period................. The period from and including the first day
of each calendar month to and including the
last day of the calendar month (each, a
"Collection Period").
Payment Date...................... Payments on the Notes will be made on the
twenty-fifth day of each month (or if such
day is not a Business Day (as defined
below), the next succeeding Business Day),
commencing August 25, 1999 (each, a
"Payment Date") to holders of record on the
related Record Date (as defined below).
"Business Day" means any day that is not a
Saturday, Sunday or other day on which
commercial banking institutions in the
cities in which the corporate trust office
of the Trustee or the Servicer are located
are authorized or obligated by law or
executive order to remain closed.
4
<PAGE>
Calculation Date.................. The last day of the month preceding the
month of each Payment Date (each, a
"Calculation Date").
Record Date....................... With respect to any Payment Date, the last
Business Day immediately preceding such
Payment Date (each, a "Record Date").
The Notes......................... The lease-backed notes issued under the
Indenture (the "Notes") consist of seven
Classes of non-recourse debt obligations of
the Issuer: $50,293,842 5.777% Lease-Backed
Notes, Class A-1 (the "Class A-1 Notes"),
$40,759,879 6.590% Lease-Backed Notes,
Class A-2 (the "Class A-2 Notes"),
$18,280,718 6.890% Lease-Backed Notes,
Class A-3 (the "Class A-3 Notes"),
$48,544,491 7.070% Lease-Backed Notes,
Class A-4 (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"), $7,434,742 7.300%
Lease-Backed Notes, Class B (the "Class B
Notes"), $3,936,040 8.070% Lease-Backed
Notes, Class C (the "Class C Notes"), and
$1,312,013 10.480% Lease-Backed Notes,
Class D (the "Class D Notes)", which,
respectively, represent the right to
receive repayment of the then unpaid
principal amount (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 $170,561,725, which is
anticipated to equal 97.50% 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 August, 2000, February, 2002,
September, 2002, January, 2006, October,
2006, December, 2006, and May, 2007,
respectively.
The Notes will be issued pursuant to the
Indenture, to be dated as of August 1,
1999, 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
(collectively, the "Offered Notes") are
being offered hereby.
The Class A Notes and the Class B Notes
will be issued in minimum denominations of
$1,000 and integral multiples thereof.
Each Class of 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 or rental
stream obligations, 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, whether as a result
of the liquidation thereof to offset any
payment deficiency under the Lease, the
receipt of insurance proceeds in respect
thereof, if any, in the event of damage or
destruction of the Equipment, or otherwise
(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 a 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 pursuant
to a lease sale and contribution
5
<PAGE>
agreement between the Seller and the
Transferor (the "Seller Contribution and
Sale Agreement"), as described herein.
The Issuer will be governed pursuant to a
limited liability company operating
agreement (the "LLC Agreement"). The LLC
Agreement will provide for the operation 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 (the
"Servicing Agreement") by and among the
Servicer, the Issuer and the Trustee.
Collectively, the LLC Agreement, the
Transferor Contribution and Sale Agreement,
the Seller Contribution and Sale Agreement,
the Servicing Agreement and the Indenture,
and other agreements relating to the
issuance of the Notes are referred to as
the "Transaction Documents".
The Notes will not be obligations, either
recourse or non-recourse of the Transferor,
the Servicer, the Trustee, 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
Trustee, 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.
Immediately prior to the issuance of the
Notes, the Issuer will have an ownership
interest in the Pool of Assets, and the
Issuer will have a first priority perfected
security interest in the Equipment which is
related to finance leases with an initial
cost in excess of $50,000.00.
Pool of Assets.................... The assets of the Issuer granted pursuant
to the Indenture (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 Trustee 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
6
<PAGE>
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 of an amount at least equal to the
Repurchase Amount (as defined herein), for
the Equipment at the election of the
obligor thereunder (the "Lessee"). The type
and characteristics of the Leases included
in the Pool of Assets are described herein
under the heading "Leases". No more than 5%
of the aggregate Lease Receivables in the
Pool of Assets as of the Closing Date will
deviate from the characteristics of the
Lease Receivables in the Pool of Assets as
of the Cut-Off Date. The Leases, including
any Substitute Leases, will be underwritten
in accordance with Charter's credit
criteria as are in effect from time to
time. Charter's Lease underwriting
procedures focus primarily upon the credit
quality of the related obligor. As such,
the underwriting procedure does not
principally depend upon a credit support
analysis which is based upon the estimated
liquidation value of any related Equipment.
Accordingly, when making investment
decisions with respect to the Notes,
potential investors and Holders of the
Notes should not rely upon the value of any
of the related Equipment in the event of
the liquidation of any Leases hereunder.
Each of the Leases which comprise the Pool
of Assets as of the Closing Date will have
been selected to comply with the criteria
established for an Eligible Lease (as
defined herein). See "The Leases--Eligible
Leases" herein. Further, as of the related
Transfer Date (as defined herein), each
Substitute Lease (as defined herein) shall
be selected to comply with the same
criteria established for an Eligible Lease.
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 the 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 the Trustee on
behalf of Noteholders pursuant to the
Indenture. The Leases transferred to the
Issuer and pledged by the Issuer shall have
an Aggregate 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 any Lease
as of the Cut-Off Date or as of any Payment
Date shall be determined on the Cut-Off
Date or the related Calculation Date,
respectively, and it shall equal the
present value of each remaining Lease
Payment to become due under a Lease
(excluding payments with respect to (x)
Defaulted Leases (as defined herein), (y)
Early Termination Leases (as defined
herein) and Leases subject to a Warranty
Event (as defined herein) which are not
substituted for by Substitute Leases (as
defined herein) or Additional Leases (as
defined herein) on or before the related
Calculation Date,
7
<PAGE>
and (z) Leases subject to Casualty Losses
(as defined herein), to the extent of such
Casualty Losses, which are not substituted
for by Substitute Leases on or before the
related Calculation Date), discounted
monthly, as to each Lease Payment, from the
last day of the Collection Period in which
such Lease Payment is due at a rate equal
to the product of (i) one-twelfth and (ii)
the Discount Rate. Notwithstanding the
foregoing, on the date that a Lease becomes
a Defaulted Lease, the Discounted Lease
Balance for such Lease will be reduced to
zero. A "Warranty Event" with respect to a
Lease shall occur and exist when one or
more of the representations and warranties
given with respect to such Lease under the
Seller Contribution and Sale Agreement or
the Transferor Contribution and Sale
Agreement shall have been breached and
remain uncured.
The "Aggregate Discounted Lease Balance"
for any Calculation Date is the sum of the
Discounted Lease Balances of all Leases.
The "Discount Rate" is 7.505% per annum,
which is equal to 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, weighted by (x) the
Class A-1 Note Initial Outstanding
Principal Amount, the Class A-2 Note
Initial Outstanding Principal Amount,
the Class A-3 Note Initial
Outstanding Principal Amount, the
Class A-4 Note Initial Outstanding
Principal Amount, the Class B Note
Initial Outstanding Principal Amount,
the Class C Note Initial Outstanding
Principal Amount, and the Class D
Note Initial Outstanding Principal
Amount, as applicable, and (y) the
expected weighted average life of
each Class of Notes, as applicable,
assuming no defaults and a constant
prepayment rate of 7%, calculated as
of the Closing Date,
(b) the Servicing Fee Rate (as
hereinafter defined); and
(c) The Trustee Fee Rate.
None of the Lessees are located outside of
the United States. No more than 2% of the
Equipment related to the Leases is located
outside the United States.
8
<PAGE>
Structure of Transaction
Contractual Agreements
-----------------------------
Charter Financial, Inc.
-----------------------------
Seller Contribution and
Sale Agreement
-----------------------------
Charter Funding
Corporation V
-----------------------------
Transferor Contribution
and Sale Agreement
-----------------------------
Charter Equipment Lease
1999-1 LLC
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Indenture
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Trustee
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Noteholders
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Flow of Funds
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Lease Obligors
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Lease Payments
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Lockbox Account
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Distribution
Account Trustee Noteholders
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Available Funds................... With respect to each Payment Date, the
funds received on or prior to 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 (as defined
herein) which are available for
distribution by the Trustee on such Payment
Date. In addition, funds on deposit in the
Reserve Account will be available to make
interest and principal payments to
Noteholders to the extent there occurs an
Available Funds Shortfall (as defined
herein). Available Funds will also include
amounts transferred from the Reserve
Account to the Distribution Account for the
purpose of repaying the Notes in full on
the final Payment Date.
Application of Payments........... Monthly distributions will be made by the
Trustee on each Payment Date from Available
Funds in the following priority:
(a) to pay (i) the Trustee Fee and (ii)
to pay to the Trustee an amount not
to exceed the lesser of (A) any
expenses or liabilities incurred by
the Trustee pursuant to the terms of
the Indenture, or (B) the Trustee
Priority Expense Amount for such
Payment Date;
(b) to pay the Servicing Fee (as
hereinafter defined);
(c) to reimburse unreimbursed Servicer
Advances in respect of a prior
Payment Date;
(d) to make Interest Payments owing on
the Class A Notes concurrently and
pro rata to the Class A-1
Noteholders, Class A-2 Noteholders,
Class A-3 Noteholders and Class A-4
Noteholders;
(e) to make Interest Payments owing on
the Class B Notes;
(f) to make Interest Payments owing on
the Class C Notes;
(g) to make Interest Payments owing on
the Class D Notes;
(h) 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 only until the
Outstanding Principal Amount on the
Class A-4 Notes is reduced to zero
(i) to make the Class B Principal Payment
to the Class B Noteholders;
(j) to make the Class C Principal Payment
to the Class C Noteholders;
(k) to make the Class D Principal Payment
to the Class D Noteholders;
(l) 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,
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thereafter to the Class D Noteholders
until the Outstanding Principal
Amount on the Class D Notes has been
reduced to zero;
(m) to make a deposit to the Reserve
Account in an amount equal to the
excess of the Required Reserve Amount
(as defined herein) over the
Available Reserve Amount (as defined
herein);
(n) to reimburse the Trustee for any
expenses or liabilities pursuant to
the terms of the Indenture to the
extent not already paid pursuant to
clause (a)(ii) hereof; and
(0) to the Issuer, the balance, if any.
See "Description of the Notes --
Application of Payments".
"Trustee Priority Expense Amount" means
with respect to any Payment Date, the
excess, if any, of (x) $50,000, over (y)
the aggregated amounts paid to the Trustee
pursuant to clause (a)(ii) above on all
prior Payment Dates.
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,
since the Closing Date (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. Interest Payments on the
Notes are required to be made on each
Payment Date to Noteholders on the related
Record Date. See "Description of the
Notes--General" and "Application of
Payments".
The Interest Payments with respect to Class
A-1 Notes will be calculated on the basis
of actual days elapsed over a year of 360
days, and with respect to all other Notes,
will be calculated on the basis of a year
of 360 days consisting of twelve 30-day
months.
Principal......................... On each Payment Date, each of the
Noteholders will be entitled to receive
payments of principal ("Principal
Payments") 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.
On each Payment Date, to the extent funds
are available therefor, the following
Principal Payments 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 (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
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(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
only, 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
(as defined below), the Class C Floor
(as defined below) exceeds 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,
Class B Notes, Class C Notes, and
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 (or with
respect to the first Payment
Date, the initial Aggregate
Discounted Lease Balance), and
(B) the Aggregate Discounted
Lease Balance as of the related
Calculation Date, and
(ii) on all Payment Dates on and
after the Class A-1 Stated
Maturity 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) for such
Payment Date.
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).
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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 to
approximately 86.32%. The "Class B
Percentage" will be equal to approximately
5.96%. The "Class C Percentage" will be
equal to approximately 3.16%. The "Class D
Percentage" will be equal to approximately
1.05%.
The "Class B Floor" with respect to each
Payment Date means:
(a) 2.15% 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
minus
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(d) the amount on deposit in the Reserve
Account after giving effect to
withdrawals to be made on such
Payment Date.
The "Class C Floor" with respect to each
Payment Date means:
(a) 1.30% 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,
minus
(d) the amount on deposit in the Reserve
Account after giving effect to
withdrawals to be made on such
Payment Date; provided, however, 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) 0.85% 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,
minus
(d) the amount on deposit in the Reserve
Account after giving effect to
withdrawals to be made on such
Payment Date; 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".
"Additional Principal" with respect to each
Payment Date equals:
(a) zero, if each of the Class Target
Investor Principal Amounts for the
Class B Notes, the Class C Notes, and
the Class D Notes 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
Amount of the Notes plus the
Overcollateralization Balance
as of the immediately preceding
Payment Date after giving
effect to payments on
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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 excess,
if any, of the Aggregate
Discounted Lease Balance as of
the Calculation Date relating
to the immediately preceding
Payment Date, over 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.
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 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
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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.
Reserve Account................... On any Payment Date, the Noteholders will
have the benefit of funds on deposit in an
account (the "Reserve Account") to the
extent that there is a shortfall in the
amount available to pay amounts owing (a)
to the Trustee, the Servicer and to make
interest payments on the Notes and
principal payments on the Notes from the
amount of funds on deposit in the Reserve
Account. The Reserve Account will be funded
by an initial deposit of 1.0% of the
Initial Aggregate Discounted Lease Balance
of the Leases. Thereafter, to the extent
provided in the Indenture, additional
deposits will be made to the Reserve
Account to the extent that the amount on
deposit in the Reserve Account (the
"Available Reserve Amount") is less than
the Required Reserve Amount. The "Required
Reserve Amount" equals the lesser of (a)
1.0% of the Initial Aggregate Discounted
Lease Balance of the Leases and (b) the
Outstanding Principal Amount of the Notes.
Amounts on deposit in the Reserve Account
in excess of the Required Reserve Amount
will be disbursed to the Issuer in
accordance with the provisions of the
Indenture.
If, on any Payment Date, the aggregate
amounts on deposit in the Distribution
Account as of the end of the related
Collection Period and the Reserve Account
are greater than or equal to the sum of (i)
the remaining Outstanding Principal Amount
of the Notes, (ii) the
Overcollateralization Balance as of such
Payment Date, (iii) the accrued and unpaid
interest thereon, (iv) the accrued and
unpaid Servicing Fee, Trustee Fee and
Trustee expenses, (v) the unreimbursed
Servicer Advances, if any, and (vi) any
other amounts owed under the Indenture, the
amount on deposit in the Reserve Account
will be deposited in the Distribution
Account and be used to repay the Notes.
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, the
Servicer, the Transferor, the Issuer,
or the Trustee 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 Leases related
thereto);
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(v) the insolvency of the Seller, the
Transferor or the Issuer; or
(vi) the Issuer becomes an "Investment
Company".
Registration of Notes............. Notes will be represented by global Notes
registered in the name of Cede, 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
circumstances described herein. See
"Description of the Notes -- Book Entry
Registration" herein.
Reacquisition of Lease
Receivables....................... 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 from
the Issuer and the Trustee. 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. Each of the
Seller, the Transferor, the Issuer, and the
Servicer are bound by the terms of the
respective Transaction Documents to act
with respect to the Leases in a manner
consonant with the grant under the
Indenture of a security interest in the
Leases, the Lease Receivables and the
related Equipment to the Trustee, for the
benefit of the Holders of the Notes. Any
attempted sale, pledge or delivery of the
Leases to a third party in violation of the
terms of the Transaction Documents by any
of the Seller, the Transferor, the Issuer,
or the Servicer would be actionable by the
Trustee on behalf of the Holders of the
Notes against any such wrongful party for
breach of conduct and for negligence or
wrongful misconduct, as the case may be,
and any such wrongful party shall be liable
for damages occasioned by any such
wrongdoing.
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. On each Payment
Date, the Servicer will be entitled to
receive a monthly fee for the related
Collection Period (the "Servicing Fee")
equal to the product of (i) one-twelfth,
(ii) 0.50% (the "Servicing Fee Rate") and
(iii) the Aggregate Discounted Lease
Balance as of the first day of such
Collection Period, payable out of the
Distribution Account (as defined herein),
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
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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 Distribution 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) such 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 successor
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 distribution account (the "Distribution
Account") maintained in the name of the
Trustee, within two Business Days of their
receipt by the Servicer.
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.
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 Aggregate Discounted Lease
Balance in respect of the Lease
Receivables, all such remaining Leases and
Lease Receivables at a price equal to the
sum of the Discounted Lease Balances of
such remaining Leases as of the such
Payment Date (a "Clean-Up Call"). The Notes
will be redeemed following such purchase.
Lease Substitution................ The Transferor shall have the right (but
not the obligation) to substitute a Lease
(a "Substitute Lease") for any Lease which
defaults, is the subject of a Casualty Loss
or is subject to a Warranty Event. The
Issuer shall have the right (but not the
obligation) to substitute a Lease
Receivable (an "Additional Lease") for any
Lease Receivable which becomes an Early
Termination Lease as a result of a
prepayment. Substitute Leases and
Additional Leases, as applicable, must be
at least equal in Discounted Lease Balance
and comparable in terms of credit quality,
periodic payment, weighted average life,
and other characteristics; provided, that
in no event shall the maturity date of any
Lease substituted for a Lease removed from
the Pool of Assets in accordance with the
Indenture and the related Transaction
Documents be later than the last maturity
date of any Lease then being replaced.
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Legal Aspects
of the Leases..................... With respect to the transfer of the Leases
to the Issuer pursuant to 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 amount 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 within
three Business Days of the Calculation Date
which follows the occurrence of such
Warranty Event, unless it has otherwise
substituted a Substitute Lease therefor, if
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 30 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
within three Business Days of the
Calculation Date which follows the
occurrence of such Warranty Event unless it
has otherwise substituted a Substitute
Lease therefor, 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 30 days following the
Transferor'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.
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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.
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
"A-1+" by Standard and Poor's Ratings
Services, a Division of McGraw Hill
Companies ("S&P") and "D-1+" by Duff &
Phelps Credit Rating Co. ("DCR"), the Class
A-2 Notes be rated "AAA" by S&P and "AAA"
by DCR, the Class A-3 Notes be rated "AAA"
by S&P and "AAA" by DCR, the Class A-4
Notes be rated "AAA" by S&P and "AAA" by
DCR, the Class B Notes be rated "A" by S&P
and "A" by DCR, the Class C Notes be rated
"BBB" by S&P and "BBB" by DCR, and the
Class D Notes be rated "BB" by S&P and "BB"
by DCR (each of S&P and DCR 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:
You May Not Be Able to Sell Your Notes. 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.
A Third Party May Acquire the Leases and/or Competing Claims to Ownership
of the 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 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,
such violating party will be fully responsible to the Noteholders for its
conduct or intentional wrongdoing, but 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.
Certain Security Interests Are Not Perfected and Other Creditors May Have
Rights to 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 the 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 the
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 "Legal Aspects of the Leases ".
The Issuer may not Realize the Full Amount Due on a Lease After
Repossession and Disposition of Equipment. All Leases will provide that the
obligations of the Lessees thereunder are absolute and
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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.
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 of the Transferor May Reduce Payments to Noteholders. 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 is 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, the Transferor 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 Distribution 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.
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<PAGE>
Lessees of the Equipment may be entitled to assert against the Seller, the
Transferor, or the Issuer claims and defenses which they have, if any, 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.
Technological Obsolescence of the Equipment May Reduce Value of the
Collateral. 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 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.
The Pool of Assets is the Sole Source of Support for the Notes and There is
No Recourse Against the Affiliates of the Issuer. 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.
Prepayments and Related Reinvestment Risk May Reduce Yield to Noteholders.
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, and 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"). 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 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. The Noteholders will bear all reinvestment risk
resulting from the timing of payments in the Notes.
Further, the Issuer will have the option 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. In addition, the Servicer will
be permitted, at its option, to purchase all of the remaining Lease Receivables
in the Pool of Assets as of the end of any Collection Period on which the
Aggregate Discounted Lease Balance is less than 10% of the Initial Aggregate
Discounted Lease Balance pursuant to a Clean-Up Call for an amount equal to the
sum of all amounts which remain to be paid under the Indenture. The Noteholders
will bear all reinvestment risk resulting from an early redemption occasioned by
an Optional Redemption or a Clean-Up Call.
Noteholders should consider, in the case of Offered 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 Offered Notes purchased at a premium,
the risk that a faster than anticipated rate of Prepayments on the Lease
Receivables or an Optional Redemption of the Notes by the Issuer or the exercise
of a Clean-Up Call by the Servicer could result in an actual yield that is less
than the anticipated yield.
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<PAGE>
State Law and Other Factors May Impede Recovery Efforts and Affect the
Ability of the Issuer to Recoup the Full Amount Due on the Leases. 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.
If a Lease Relating to "Soft Items" Becomes a Defaulted Lease, the Recovery
of Proceeds from the Soft Items may be Negligible. 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 recovery of any proceeds from the related
software, services and Soft Items from which to satisfy any unpaid payments
under such Leases may be negligible. 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.
The Inability Of the Seller to Reacquire Lease Receivables may Result in
Losses and Payment Delays to the Noteholders. 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.
Risks Associated with Year 2000 Compliance. 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 may be affected by the Year 2000 issues. To evaluate its state of readiness
to Year 2000 issues, the Servicer has performed software and hardware testing on
all of its existing systems. As of the date of this statement, the Servicer
believes that all of its computer applications are Year 2000 compliant. The
Servicer has received verbal confirmation from each of its third party software
vendors that their systems are Year 2000 compliant and the Servicer is currently
in the process of submitting requests to third party software vendors requesting
written confirmation of Year 2000 compliance. It is planned that all new
software contracts will require a stipulation of Year 2000 compliance and
written certification thereof from the vendor.
The Substitution of Leases May Adversely Affect Cashflow and May Decrease
the Yield on the Notes. The Seller shall have the right (but not the obligation)
to substitute a Lease Receivable for any Lease Receivable which defaults,
prepays or is subject to a Warranty Event. Substitute Lease Receivables must be
at least equal in Discounted Lease Balance and comparable in terms of credit
quality, monthly payment, and other characteristics for the Lease Receivables
for which they are substituted, 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 be later than the last maturity date of any Lease Receivable. In the
event (and only to the extent) that the Seller makes such a substitution, the
amount (or portion thereof) received by the Issuer with respect to a Prepayment
will be allocated directly to the Seller and the payments with respect to the
related Notes will be dependent upon the scheduled payments received on such
Substitute Lease Receivables. Accordingly, payments of principal of and interest
on the Notes may be dependent, in part, upon payments received on such
Substitute Lease Receivables. In addition, with respect to the Notes, to the
extent that the Seller does not substitute one or more Lease Receivables as
Substitute Lease Receivables in connection with the prepayment of a Lease
Receivable, the Aggregate Discounted Lease Balance will be decreased, causing
the weighted average life of the Notes to be decreased. As such Noteholders may
receive principal earlier than they may otherwise anticipated on the Notes, and,
therefore, Noteholders may be faced with reinvestment alternatives which yield
returns on investments may be significantly lower than obtained from the Notes.
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Geographic and Other Concentrations of the Leases May Adversely Affect the
Leases. As of the Cut-Off Date, Obligors with respect to 20.30% and 17.71% of
the Leases (based on Aggregate Discounted Lease Balance and mailing addresses as
of the Cut-Off Date) were located in California and New York, respectively.
Accordingly, adverse economic conditions or other factors particularly affecting
any of these states could adversely affect the delinquency, loan loss or
repossession experience of the Issuer with respect to the Leases.
In addition, prospective investors should note that as Substitute Leases
are transferred into the Pool of Assets any payments in respect of principal
(including payments in the form of voluntary prepayments and the repurchase
prices for any Leases repurchased due to breaches of representations and
warranties) are received with respect to Leases, the remaining Leases as a group
may exhibit increased concentration with respect to the type of Leases, Lease
characteristics, number of Obligors and affiliated Obligors and geographic
location. Because principal on the Notes is payable in sequential order, Classes
that have a lower priority with respect to the payment of principal are
relatively more likely to be exposed to any risks associated with changes in
concentrations.
THE POOL OF ASSETS
The property 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, together with all monies (including accrued interest)
due thereunder on or after the Cut-Off Date or, in the case of Substitute
Leases, the related Transfer Date, received relating thereto (the "Leases") and
the ownership or security interests, if any, held by the Transferor in 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 Trustee pursuant
to the Indenture or 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 Lease Receivables included in the Pool of Assets will be either (i)
originated by the 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 a 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 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 between the
Transferor and the Issuer. Thereupon, the Issuer shall enter into the Indenture
with the Trustee, relating to the issuance of the Notes that will be 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.
Charter's Lease underwriting procedures focus primarily upon the credit quality
of the related obligor. As such, the underwriting procedure does not principally
depend upon a credit support analysis which is based upon the estimated
liquidation value of any related Equipment. Accordingly, when making investment
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decisions with respect to the Notes, potential investors and Holders of the
Notes should not rely upon the value of any of the related Equipment in the
event of the liquidation of any Leases hereunder.
THE ISSUER
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 530 Fifth Avenue,
New York, New York 10036.
The Issuer was established pursuant to a Certificate of Formation dated as
of September 21, 1998, as amended as of May 17, 1999. The Issuer is governed
pursuant to that certain Limited Liability Company Operating Agreement dated as
of September 21, 1998, as amended as of May 17, 1999 and as of August 8, 1999
(the "LLC Agreement"), which describes the administration of the Issuer.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
As of the date of this Prospectus, the Issuer has had no operating history.
The net proceeds of the sale of the Offered Notes will be distributed to the
owners of the Issuer. See "Use of Proceeds". The Issuer is prohibited by the LLC
Agreement from engaging in business other than (i) the purchase of equipment
leases and lease receivables (including equipment) from Charter Financial, Inc.
and its affiliates, (ii) the issuance of notes collateralized by its assets and
(iii) engaging in acts incidental, necessary or convenient to the foregoing and
permitted under Delaware law. The Issuer's ability to incur, assume or guaranty
indebtedness for borrowed money is also restricted by the LLC Agreement to only
such activities that relate to the leases and lease receivables. The Leases
which secure the Notes under the Indenture will be acquired from Charter.
Information concerning the general delinquency and loss experience of Charter's
lease portfolio is set forth under "Charter's Leasing Business-Delinquency
Procedures and Loss Experience". Charter's loss experience is statistically
limited in absolute numbers. As such, the Issuer is unable to discern any
material trends when evaluating Charter's loss experience on the basis of the
equipment type associated with the Leases.
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 the Lease Receivable has been paid in full.
No one vendor or group of vendors accounted for a material portion of the
Leases.
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 (any Lease
meeting such requirements, an "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.
As of the Cut-Off Date, or if a Lease is substituted or added, on the day
of such substitution or addition (the related "Transfer Date"), the Seller will
represent and warrant that each of the Leases shall comply with the following:
26
<PAGE>
(i) the Lease is a valid and binding obligation of the Lessee
enforceable against such Lessee in accordance with its terms (except as may
be limited by bankruptcy laws, other laws affecting creditor's rights in
similar transactions generally, and judicial powers of equity);
(ii) the Lease constitutes a non-cancellable, "hell or high water"
obligation of the Lessee and requires the Lessee to make all Lease Payments
thereon regardless of the condition of the Equipment to which the Lease
relates;
(iii) the Lease is non-cancellable by the Lessee and does not contain
early termination options (except for a Lease which contains early
termination or prepayment clauses, which requires the Lessee to pay the
Prepayment Amount under such Lease upon such cancellation or prepayment);
(iv) all payments payable under the Lease are absolute, unconditional
obligations of the Lessee without right to offset for any reason;
(v) the Lease requires 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;
(vi) the Lease does not materially violate any U.S. or state laws;
(vii) the Lease provides for periodic payments;
(viii) in the event of a Casualty Loss with respect to the Lease, the
Lessee, at the Lessee's expense, is required to replace the Equipment with
like equipment in good repair, acceptable to the Servicer or pay at a
minimum the outstanding principal or net book value of the Leases and any
applicable make whole premium, if any;
(ix) the Lease was originated by the Seller, or was acquired by the
Seller in a "true sale" in the ordinary course of its business and in a
manner which satisfies the underwriting practices set forth in the Credit
and Collection Policy as in effect from time to time;
(x) the Lease has been sold to the Seller free and clear of any Liens
other than Permitted Encumbrances;
(xi) the Lease is assignable without prior written consent of the
Lessee;
(xii) the Lease is denominated and payable only in U.S. dollars, the
Lessor is located in the United States and one or more Lessees who are
fully liable under the Lease are located in the United States;
(xiii) the Lease is not a "consumer lease" within the meaning of
Article 2A of the UCC in any jurisdiction where such Article 2A has been
adopted and governs the construction thereof;
(xiv) the Lease, to the extent such Lease was reacquired by the Seller
from an affiliate prior to its conveyance in this transaction, was acquired
by the Seller in a "true sale";
(xv) no adverse selection was used in selecting the Lease for transfer
to the Transferor;
(xvi) the Lessee has represented to the Seller or Vendor that it has
accepted the Equipment;
(xvii) the Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xviii) the Lease is not a Defaulted Lease;
(xix) the maximum remaining term of the Lease does not exceed 84
months;
(xx) the Lease is not more than 60 days past due at time of transfer
to the Transferor;
27
<PAGE>
(xxi) at least one Lease Payment has been paid by the Lessee on such
Lease;
(xxii) at the time that the Seller conveyed its right, title and
interest in the Lease and the related Equipment, the Seller had no
knowledge that any item of such Equipment had suffered any loss or damage
which has not been repaired;
(xxiii) at the time that the Seller conveyed its right, title and
interest in the Lease and the related Equipment, such Lease shall not have
been amended, altered or modified in any respect, except in writing and all
such writings shall be contained in the Lease File in which the Lease
itself is contained;
(xxiv) at the time that the Seller conveyed its right title and
interest in the Lease and the related Equipment, (A) except to the extent
that payments have been previously received on such Lease, the Lessee will
not have been released, in whole or in part, from any of its obligations in
respect of such Lease, (B) except as shown in the Lease File, no Equipment
related to such Lease will have been released, in whole or in part, from
such Lease, and (C) except as shown in the Lease File, neither the
operation of the Lease nor the exercise of any rights thereunder, nor the
execution of any instrument, nor the occurrence of any facts or
circumstances, has rendered or will render such Lease unenforceable, in
whole or in part, or subject such Lease or any related Equipment to any
right of rescission, setoff, counterclaim or defense (including, without
limitation, the defense of usury);
(xxv) with respect to a Lease which had been acquired by Charter
Financial, Inc. from a third party originator, other than an affiliate of
Charter Financial, Inc., UCC filings have been filed to reflect the
assignment of the security interest from the third party originator to
Charter Financial, Inc.; and
(xxvi) with respect to a Lease which is a Finance Lease, Charter
Financial, Inc. has made all necessary UCC filings in all states where the
related Equipment is located, naming the Lessee as debtor and Charter
Financial, Inc. as secured party, to perfect the security interest of
Charter Financial, Inc. in such Equipment.
The Seller also represents and warrants that as of the Cut-Off-Date:
(i) no more than 2.5% of the Leases by Discounted Lease Balance have
Equipment which is subject to certificate of title regulations in any
jurisdiction;
(ii) the information set forth in the Schedule of Leases is true and
correct;
(iii) no less than 98% of the Leases by Discounted Lease Balance are
Finance Leases;
(iv) no less than 96% of the Leases by Discounted Lease Balance
provide that by the end of the lease term, the Lessee may elect to purchase
the related Equipment upon the exercise of a nominal purchase option; and
(v) no less than 98% of the Leases by Discounted Lease Balance have
Lease Payments which are scheduled to be paid in monthly intervals.
"Credit and Collection Policies" means those credit and collection policies
and practices of Charter relating to leases and lease receivables generally as
in effect from time to time.
"Finance Lease" means a Lease whereby the originator is deemed to have made
a loan to the Lessee, which loan is secured by the Lessee's ownership interest
in the related Equipment, and the lease or installment payments thereon
represent repayment on such loan.
"Permitted Encumbrance" means any of the following: (a) liens, charges or
other encumbrances for taxes and assessments which are not yet due and payable;
(b) liens, charges or encumbrances in favor of the Trustee under the Indenture;
(c) with respect to Equipment, the interest of a Lessee in such Equipment under
the related Lease; or (d) interests of third parties in any Lease, Lease
Receivables, Equipment and/or related security subject to a lease participation
or a rent stream obligation.
28
<PAGE>
"Prepayment Amount" means (a) with respect to any Lease other than a
Synthetic Lease as of any date of determination, the present value (as
determined in such Lease) of all remaining unpaid Lease Payments under such
Lease as of such date of determination, and (b) with respect to any Synthetic
Lease (as defined herein) as of any date of determination, an amount as
specified in such Lease which is no less than 79% of the present value (as
determined in such Lease) of all remaining unpaid Lease Payments under such
Lease as of such date of determination. To the extent that the amounts received
in the liquidation of a Synthetic Lease and the related Equipment together with
the Prepayment Amount thereon exceeds all remaining unpaid Lease Payments under
such Synthetic Lease, the Prepayment Amount for such Synthetic Lease is reduced
by such excess.
"Schedule of Leases" means the schedule of Leases which lists the Leases
conveyed under Seller Contribution and Sale Agreement and under the Transferor
Contribution and Sale Agreement and pledged under the Indenture.
"Synthetic Lease" means a Lease with respect to which the Equipment related
thereto (a) is owned by the Lessor thereof for accounting purposes, and (b) is
owned by the Lessee for tax purposes.
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 Discounted Lease Balance for each
Lease shall be calculated assuming:
(i) Lease Payments are due on the last day of each Collection Period
in which a payment is due; and
(ii) Lease Payments are discounted on a monthly basis using a 30 day
month and a 360 day year.
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".
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 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.
Further, if the Lessees of all Synthetic Leases elect to prepay their
Leases, the Aggregate Discounted Lease Balance of the Leases may decrease by an
amount which exceeds the sum of Prepayment Amounts so received by approximately
$121,000.
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,
29
<PAGE>
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 7.23% (the
"Statistical Discount Rate") of approximately $175,841,202. The statistical
information concerning the pool of Leases set forth herein is based upon
information as of the initial Calculation Date and using the Statistical
Discount Rate. The actual Discount Rate of 7.505% 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, (ii) the Servicing Fee Rate and (iii) the Trustee Fee Rate,
and shall be used to calculate the actual Initial Outstanding Principal Amount
of the Notes 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 $174,935,104. 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 Cut-Off Date and
calculated at the Statistical Discount Rate as presented in this Prospectus,
such variance will not be material.
The Leases have the characteristics specified in the Seller 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 final scheduled payment date on the Lease with the latest maturity is
May, 2006. As of the initial Calculation Date, all of the Leases had (i)
original terms to maturity of 9 months to 98 months, with a weighted average
original term to maturity of approximately 58.85 months; and (ii) a remaining
term to maturity of not less than 2 months and not more than 83 months, with a
weighted average remaining term to maturity of approximately 45.91 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 initial Calculation Date, the Discounted Lease Balance of the
Leases ranged from approximately $274 to approximately $2,646,908. No more than
1.51% of the Aggregate Discounted Lease Balance is attributable to any one
Lessee, and the average Discounted Lease Balance is approximately $254,106. As
of the Cut-Off Date, no more than 1.03% of the Leases by Aggregate Discounted
Lease Balance were 31 to 60 days delinquent.
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 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").
Substitutions
Pursuant to the Transferor Contribution and Sale Agreement, the Transferor
shall have the option to substitute Eligible Leases for (a) either a Defaulted
Lease, or a Lease subject to a Casualty Loss, up to a maximum of 10% of the
Aggregate Discounted Lease Balance of the Leases contributed to the pool, or (b)
a Lease subject to a Warranty Event, provided the following conditions are met:
(i) at the time of substitution, the substitute Eligible Leases have
in the aggregate Discounted Lease Balances of not less than the aggregate
of the Discounted Lease Balance of the Leases being replaced;
30
<PAGE>
(ii) substitutions of Eligible Leases by the Transferor shall have
approximately the same weighted average life of remaining Lease payments as
the leases being replaced and shall not have a final payment date beyond
the final payment date of the Leases being replaced.
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 Transfer 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 Transfer Date) of such Substitute Leases (other
than those substituted for leases subject to Warranty Events) 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 Transfer 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, (i) the sum of the Lease Payments (as defined below) on all Leases
due in any Collection Period thereafter would be less than (ii) the sum of the
Lease Payments which would otherwise be due in such Collection Period.
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 is 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.
The Lease Receivable Statistical Information
Following is certain statistical information relating to the Lease
Receivable pool, calculated as of the Cut-Off Date and at the Statistical
Discount Rate. Certain columns may not total 100% due to rounding. Finance
Leases represent approximately 98% of the Initial Aggregate Discounted Lease
Balance of all Leases as of the Cut-Off Date. Synthetic Leases represent
approximately 2% of the Initial Aggregate Discounted Lease Balance of all Leases
as of the Cut-Off Date.
31
<PAGE>
DISTRIBUTION OF LEASES BY DISCOUNTED LEASES BALANCE
Discounted Lease Balances Percentage of
------------------------------ Aggregate
(Less than Number of Percentage of Sum of Discounted Discounted Lease
(Greater than) or equal to) Leases Total Leases Lease Balances Balance
-------------- ------------ ------ ------------ -------------- -------
<S> <C. <C> <C> <C> <C>
$0 - 100,000 337 48.70% $14,194,544 8.07%
100,000 - 200,000 135 19.51 19,182,685 10.91
200,000 - 350,000 70 10.12 18,945,892 10.77
350,000 - 500,000 40 5.78 16,196,012 9.21
500,000 - 600,000 30 4.34 16,501,202 9.38
600,000 - 800,000 27 3.90 18,755,471 10.67
800,000 - 1,000,000 16 2.31 14,413,441 8.20
1,000,000 - 1,200,000 12 1.73 13,655,786 7.77
1,200,000 - 1,400,000 6 0.87 8,170,638 4.65
1,400,000 - 1,700,000 9 1.30 13,682,549 7.78
1,700,000 - 2,000,000 2 0.29 3,723,207 2.12
2,000,000 - 2,300,000 4 0.58 8,437,695 4.80
2,300,000 - 2,600,000 3 0.43 7,335,174 4.17
2,600,000 - 2,900,000 1 0.14 2,646,908 1.51
- ---------------------------------------------------------------------------------------------------------------------
Total 692 100.00% $175,841,202 100.00%
=====================================================================================================================
</TABLE>
32
<PAGE>
DISTRIBUTION OF THE LEASES BY DEFINED OBLIGOR INDUSTRY
<TABLE>
<CAPTION>
Percentage of
Aggregate
Number of Percentage of Sum of Discounted Discounted Lease
Industry Type Leases Total Leases Lease Balances Balance
- ------------- ------ ------------ -------------- -------
<S> <C> <C> <C> <C>
Advertising 11 1.59% $1,350,990 0.77%
Agriculture 3 0.43 443,918 0.25
Air Transport 3 0.43 2,038,125 1.16
Automotive 4 0.58 895,877 0.51
Beverage 2 0.29 528,789 0.30
Broadcast 1 0.14 27,167 0.02
Building/Development 7 1.01 780,713 0.44
Business Service 117 16.91 15,938,855 9.06
Clothing/Textiles 16 2.31 5,167,233 2.94
Coal 1 0.14 69,387 0.04
Containers 6 0.87 6,299,269 3.58
Cosmetics/Toiletries 3 0.43 555,088 0.32
Drugs 12 1.73 7,826,442 4.45
Education 2 0.29 1,141,100 0.65
Electronics 15 2.17 6,088,301 3.46
Equipment Leasing 38 5.49 2,655,127 1.51
Finance 9 1.30 775,618 0.44
Food 28 4.05 2,719,985 1.55
Food Service 10 1.45 1,542,567 0.88
Foresting 2 0.29 656,856 0.37
Industrial Equipment 21 3.03 2,347,258 1.33
Insurance 2 0.29 75,881 0.04
Leisure 42 6.07 23,039,329 13.10
Marine 3 0.43 2,272,356 1.29
Medical 34 4.91 10,968,247 6.24
Metals 7 1.01 1,061,035 0.60
Non-Ferrous Metals 2 0.29 48,752 0.03
Other 11 1.59 3,075,567 1.75
Paper 1 0.14 2,121,431 1.21
Plastic/Chemicals 92 13.29 28,958,449 16.47
Publishing 2 0.29 911,914 0.52
Rail 9 1.30 4,012,931 2.28
Retail 12 1.73 3,552,894 2.02
Sports 1 0.14 556,541 0.32
Steel 3 0.43 276,301 0.16
Teleproduction 125 18.06 24,832,294 14.12
Telecommunication 26 3.76 7,185,110 4.09
Transport 4 0.58 2,709,583 1.54
Wholesale 5 0.72 333,920 0.19
- ---------------------------------------------------------------------------------------------------------------------
Total 692 100.00% $175,841,202 100.00%
=====================================================================================================================
</TABLE>
33
<PAGE>
DISTRIBUTION OF THE LEASES BY OBLIGOR BILLING ADDRESS
<TABLE>
<CAPTION>
Percentage of
Aggregate
Number of Percentage of Sum of Discounted Discounted Lease
State Leases Total Leases Lease Balances Balance
- ----- ------ ------------ -------------- -------
<S> <C> <C> <C> <C>
Alabama 7 1.01% $1,030,169 0.59%
Alaska 1 0.14 20,082 0.01
Arizona 2 0.29 1,112,586 0.63
Arkansas 5 0.72 2,356,698 1.34
California 135 19.51 35,688,205 20.30
Colorado 12 1.73 2,376,587 1.35
Connecticut 19 2.75 2,212,693 1.26
Delaware 1 0.14 304,587 0.17
District of Columbia 4 0.58 334,219 0.19
Florida 38 5.49 7,160,396 4.07
Georgia 19 2.75 2,160,410 1.23
Idaho 2 0.29 2,610,351 1.48
Illinois 30 4.34 6,189,563 3.52
Indiana 8 1.16 1,263,852 0.72
Iowa 6 0.87 990,115 0.56
Kentucky 1 0.14 33,274 0.02
Louisiana 5 0.72 2,336,227 1.33
Maine 7 1.01 1,527,822 0.87
Maryland 17 2.46 3,215,846 1.83
Massachusetts 30 4.34 9,362,179 5.32
Michigan 6 0.87 1,022,608 0.58
Minnesota 11 1.59 4,961,479 2.82
Missouri 2 0.29 1,455,888 0.83
Nebraska 2 0.29 1,436,407 0.82
Nevada 3 0.43 1,462,118 0.83
New Hampshire 4 0.58 3,877,615 2.21
New Jersey 26 3.76 4,970,726 2.83
New Mexico 3 0.43 924,513 0.53
New York 98 14.16 31,139,227 17.71
North Carolina 42 6.07 6,365,595 3.62
Ohio 13 1.88 4,642,847 2.64
Oklahoma 1 0.14 32,732 0.02
Oregon 1 0.14 95,000 0.05
Pennsylvania 52 7.51 11,510,962 6.55
Rhode Island 1 0.14 96,454 0.05
South Carolina 1 0.14 1,598,676 0.91
Tennessee 4 0.58 1,812,327 1.03
Texas 25 3.61 3,123,267 1.78
Utah 3 0.43 1,946,663 1.11
Vermont 4 0.58 368,313 0.21
Virginia 24 3.47 6,036,743 3.43
Washington 8 1.16 1,577,402 0.90
West Virginia 1 0.14 35,467 0.02
Wisconsin 8 1.16 3,062,313 1.74
- ---------------------------------------------------------------------------------------------------------------------
Total 692 100.00% $175,841,202 100.00%
=====================================================================================================================
</TABLE>
34
<PAGE>
DISTRIBUTION OF THE LEASES BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of
Aggregate
Number of Percentage of Sum of Discounted Discounted Lease
Equipment Type Leases Total Leases Lease Balances Balance
- -------------- ------ ------------ -------------- -------
<S> <C> <C> <C> <C>
Aircraft 2 0.29% $1,998,916 1.14%
Cinema 2 0.29 1,468,325 0.84
Computers 94 13.58 15,749,221 8.96
Construction 1 0.14 586,994 0.33
Earth Moving 2 0.29 268,835 0.15
Electronic Manufacturing 8 1.16 2,627,697 1.49
Extrusion/Injection/Molding 93 13.44 30,302,256 17.23
Film/TV/Video/Audio Production 149 21.53 34,066,384 19.37
Food/Agriculture Processing 4 0.58 1,053,167 0.60
Forestry 1 0.14 82,621 0.05
Furniture & Fixtures 52 7.51 5,307,699 3.02
Graphic Arts 4 0.58 728,545 0.41
Heating/Ventilation and Air Conditioning 1 0.14 226,901 0.13
Leaseholds 2 0.29 1,230,263 0.70
Machining 6 0.87 2,294,776 1.31
Medical 17 2.46 7,815,471 4.44
Manufacturing 1 0.14 310,788 0.18
Metal Processing 10 1.45 2,704,722 1.54
Oil & Gas 1 0.14 1,421,298 0.81
Other-Miscellaneous 47 6.79 17,615,077 10.02*
Packaging 1 0.14 212,182 0.12
Printing 30 4.34 16,064,611 9.14
Railroad 11 1.59 4,006,163 2.28
Real Estate 1 0.14 2,646,908 1.51
Recycling 1 0.14 175,083 0.10
Point of Sale 1 0.14 315,762 0.18
Sewing/Knitting 2 0.29 473,903 0.27
Software 4 0.58 1,094,634 0.62
Telecommunications 25 3.61 8,112,851 4.61
Telephone Systems 4 0.58 693,343 0.39
Textile 7 1.01 3,112,254 1.77
Transportation 5 0.72 4,539,204 2.58
Trucks 36 5.20 3,298,549 1.88
Video Conferencing 67 9.68 3,235,797 1.84
- ---------------------------------------------------------------------------------------------------------------------
Total 692 100.00% $175,841,202 100.00%
=====================================================================================================================
</TABLE>
- ----------
* No one type of equipment represents one percent or more of the Aggregate
Discounted Lease Balance.
35
<PAGE>
DISTRIBUTION OF THE LEASES BY REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Total Sum of Discounted Aggregate Discounted
Months Leases Leases Lease Balances Lease Balance
------ ------ ------ -------------- -------------
<S> <C> <C> <C> <C>
1 -- 12 29 4.19% $3,066,839 1.74%
13 -- 24 178 25.72 19,697,904 11.20
25 -- 36 146 21.10 32,520,139 18.49
37 -- 48 185 26.73 47,440,344 26.98
49 -- 60 114 16.47 31,550,559 17.94
61 -- 72 23 3.32 21,009,638 11.95
73 -- 84 17 2.46 20,555,778 11.69
- ---------------------------------------------------------------------------------------------------------------------
Total 692 100.00% $175,841,202 100.00%
=====================================================================================================================
</TABLE>
DISTRIBUTION OF THE LEASES BY ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Total Sum of Discounted Aggregate Discounted
Months Leases Leases Lease Balances Lease Balance
------ ------ ------ -------------- -------------
<S> <C> <C> <C> <C>
1 -- 12 2 0.29% $83,297 0.05%
13 -- 24 13 1.88 716,529 0.41
25 -- 36 227 32.80 28,021,588 15.94
37 -- 48 95 13.73 23,887,818 13.58
49 -- 60 273 39.45 66,696,340 37.93
61 -- 72 43 6.21 16,650,103 9.47
73 -- 84 37 5.35 37,676,809 21.43
85 -- 96 1 0.14 598,876 0.34
97 -- 108 1 0.14 1,509,842 0.86
- ---------------------------------------------------------------------------------------------------------------------
Total 692 100.00% $175,841,202 100.00%
=====================================================================================================================
</TABLE>
36
<PAGE>
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 530 Fifth Avenue,
New York, New York 10036. Charter's telephone number is (212) 805-1000.
As of December 31, 1998, Charter's most recent fiscal year end, total
assets equaled approximately $145 million compared with approximately $155
million on December 31, 1997. Shareholder's equity equaled approximately $40
million on December 31, 1998 compared with $36 million on December 31, 1997.
Operating revenues and net income for the 12-month period ending December 31,
1998 equaled approximately $27 million and approximately $4 million
respectively, and for the 12-month period ending December 31, 1997 equaled
approximately $20 million and approximately $4.4 million respectively.
Charter 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 United States
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 Charter's major industry segments.
Overview of Industry Segments
<TABLE>
<CAPTION>
Segment Description Equipment Type
- ------------------------- -------------------------------------------- ------------------------------------------------
<S> <C> <C>
Plastics/Packaging Provide equipment financing to companies Aircraft, CD Replication, Computers,
involved in all facets of the plastics Extrusion/Injection Molding, Furniture &
industry as well as recent entries into Fixtures, Machining, Manufacturing, Metal
packaging, and compact discs. Processing, Other-Miscellaneous, Packaging,
Real Estate, Recycling, Telephone Systems
- ------------------------- -------------------------------------------- ------------------------------------------------
Media Provide equipment financing to companies Computers, Electronic Manufacturing,
involved with film and video production and Film/TV/Video/Audio Production; Furniture &
postproduction, printing and graphic arts Fixtures; Graphic Arts,
and other related media business. Other-Miscellaneous, Printing, Software,
Telephone Systems.
- ------------------------- -------------------------------------------- ------------------------------------------------
Specialty Markets Provide equipment financing to a variety of Aircraft, Automobiles, Buses, Cinema,
industry segments based upon market Computers, Construction, Construction-Heavy
opportunities. End users include business Equipment, Earth Moving, Electronic
services, electronics, leisure and Manufacturing, Film/TV/Video/Audio
communications, among others. This segment Production, Food/Agricultural Processing,
also includes (i) Charter's capital markets Forestry, Heavy Equipment, Furniture &
industry segment which provides equipment Fixtures, Graphic Arts, Holdback,
financing to high-growth, late stage Heating/Ventilation and Air Conditioning,
venture capital sponsored companies in Leaseholds, Machining, Manufacturing,
structured transactions, and (ii) Charter's Materials Handling, Medical, Metal
healthcare industry segment which provides Processing, Other-Miscellaneous, Point of
equipment financing to leading hospitals in Sale, Railroad, Real Estate, Recycling,
the New York area. Security Deposit, Sewing/Knitting,
Software, Telecommunication, Telephone
Systems, Textile, Transportation, Tractors.
- ------------------------- -------------------------------------------- ------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Segment Description Equipment Type
- ------------------------- -------------------------------------------- ------------------------------------------------
<S> <C> <C>
Wholesale Acquire lease portfolios and individual Aircraft, Automobiles, Buses, Computers,
transactions from other institutions. Construction, Construction-Heavy Equipment,
Earth Moving, Electronic Manufacturing,
Food/Agricultural Processing, Furniture &
Fixtures, Heating/Ventilation and Air
Conditioning, Machining, Manufacturing,
Metal Processing, Oil & Gas Equipment,
Other-Miscellaneous, Point of Sale, Real
Estate, Recycling, Sewing/Knitting,
Software, Telecommunications, Telephone
Systems, Textile, Transportation, Trailers,
Trucks.
- ------------------------- -------------------------------------------- ------------------------------------------------
Vendor Finance Originate dealer/manufacturer referred Furniture & Fixtures, Other-Miscellaneous,
leases in selected industries. Video Conferencing.
- ------------------------- -------------------------------------------- ------------------------------------------------
</TABLE>
ORIGINATION VOLUME OF LEASES BY INDUSTRY SEGMENT
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ending Ending Ending Ending Ending For Six
December 31, December 31, December 31, December 31, December 31, Months Ending
Segment 1994 1995 1996 1997 1998 June 30, 1999
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Specialty Markets 52.92% 37.32% 38.99% 37.19% 32.68% 31.42%
Media 35.16% 35.84% 30.81% 22.69% 19.74% 25.74%
Wholesale 11.92% 26.84% 30.20% 17.24% 17.76% 9.94%
Plastics/ 22.87% 27.72% 26.39%
Packaging
Vendor Finance 2.10% 6.51%
---------------- ---------------- --------------- ---------------- ---------------- ---------------
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
The above stated percentages are calculated based upon the original lease
balances at origination.
38
<PAGE>
As of December 31, 1998, Charter had approximately 116 full time employees
of which approximately 65 are located in the New York Headquarters,
approximately 22 are located in the Plastics/Packaging divisional office in
Portsmouth, NH, approximately 19 are located at Charter's Canadian subsidiary in
Toronto, Ontario (Canada) and approximately 10 are located in field sales
offices throughout the United States and Canada.
Charter 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 December 31, 1998, Charter was responsible for servicing a total of
approximately 2,500 leases in the US and an additional 1,300 leases in Canada
representing gross receivables balances of approximately $802 million and $87
million respectively. Included in the total of managed leases in the United
States are approximately 300 leases having a gross receivables balance of
approximately $184 million which were originated by Charter 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 asset acceptance criteria
("RAACs") 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 "strong" 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
credit officers or a credit officer and division manager. For transactions
falling within approved RAACs, 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 RAAC compliance. Exposures in excess of these
authority limits or outside the RAACs require the additional signature of the
next highest level of credit approval authority. Credit applications which fall
outside the established RAACs 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 RAACs, 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
39
<PAGE>
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 Charter. The transaction is then entered into Charter'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.
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
which is currently 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.
40
<PAGE>
Delinquency/Loss Statistics
<TABLE>
<CAPTION>
Year Ending Year Ending Year Ending Year Ending Year Ending Six
December 31, December 31, December 31, December 31, December Months Ending
1994 1995 1996 1997 31, 1998 June 30, 1999
-------------- --------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio (includes
receivables sold non-
recourse)
Number of Leases 286 699 1,194 1,805 2,772 2,845
Gross
Receivables ($) 110,214,685 293,961,373 472,427,121 681,395,480 802,083,359 773,398,930
31-60 Days 0.00% 0.55% 0.14% 0.29% 1.61% 2.30%
Delinquent
61-90 Days Delinquent 0.00% 0.00% 0.12% 0.09% 0.09% 0.13%
91-120 Days Delinquent 0.00% 0.00% 0.07% 0.03% 0.27% 0.01%
121 Days or more Delinquent 0.00% 0.10% 0.00% 0.38% 0.63% 1.23%
*Annual Net 0.00% 0.05% 0.14% 0.24% 0.25% 0.01%
Charge-Offs (Losses)
</TABLE>
* Note -- Annual Net Charge-Offs (Losses) 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. Charter's lease
origination business has developed and changed over the time period shown in the
above table. See "Charter's Leasing Business - Overview of Industry Segments"
and "-Origination Volume of Leases by Industry Segment".
41
<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 and 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 530 Fifth Avenue, New York,
New York 10036. The Transferor's 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.
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 530
Fifth Avenue, New York, New York 10036.
The following summary describes all material 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 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 $170,561,725 (the "Initial
Outstanding Principal Amount"), will be issued pursuant to the Indenture. The
Initial Outstanding Principal Amount to be issued thereunder is equal to
approximately 97.50% of the Initial Aggregate Discounted Lease Balance of the
Leases. The Offered 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 to the extent that funds are available therefor.
The first Payment Date for distributions to the Noteholders will be August
25, 1999. 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 Offered 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
42
<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,
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 Transferor'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 Distribution Account with respect to the related Lease
Receivables, and (h) any and all income and proceeds of any of the foregoing.
The Servicer, as custodian, 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 "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 against the Seller and the Transferor in New York; and
(ii) funds in the Distribution Account with respect to the related
Lease Receivables and the funds in the Reserve Account.
Representations and Warranties of the Seller
The Seller will make certain representations and warranties in the Seller
Contribution and Sale Agreement, as described more fully herein under "The
Leases - Eligible Leases", (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 "Transfer Date"), the benefits of which
will be assigned to the Issuer and then to the Trustee.
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 or to substitute a Substitute Lease therefor, which breach has not
been cured or waived in all material respects. This obligation to accept the
reconveyance of the Lease Receivables and remit the Repurchase Amount or to
substitute a Substitute Lease therefor 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
43
<PAGE>
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, the Trustee 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 Trustee will establish and maintain a Distribution Account in the name
of the Trustee to which all Lease Payments received under each Lease, 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.
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 the Cut-Off Date or the Transfer Date, as
applicable, 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 Distribution Account ("Excluded
Amounts") include (i) collections attributable to any taxes, fees or other
charges imposed by any governmental authority; (ii) collections representing
reimbursements of insurance premiums or payments for 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 a Lease which
has been substituted by a Substitute Lease; (v) any servicing charges and (vi)
any late fees or penalties.
44
<PAGE>
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) any Lease Payments due on, or prior to, the related Calculation
Date;
(ii) any Servicer Advances;
(iii) any recoveries on Defaulted Leases to the extent the Servicer
has not substituted an Eligible Lease for such Defaulted Lease;
(iv) any proceeds from repurchases by the Transferor or the Seller due
to a Warranty Event or otherwise to the extent that the Transferor or the
Seller, as the case may be, has not substituted an Eligible Lease for such
Lease;
(v) any Casualty Payments and any Prepayment to the extent not
included in clause (iv) hereof;
(vi) any Termination Payments to the extent the Issuer does not
reinvest such Termination Payments in Additional Leases;
(vii) payments from the Issuer to effect the redemption of the Notes
pursuant to an Optional Redemption;
(viii) any funds on deposit in the Reserve Account to the extent there
occurs an Available Funds Shortfall; and
(ix) amounts transferred from the Reserve Account and deposited in the
Distribution Account for the purpose of repaying the Notes in full on the
final Payment Date.
Reserve Account
The Trustee will establish and maintain an Eligible Account (the "Reserve
Account"). On the Closing Date, the Issuer will make an initial deposit in an
amount equal to 1.0% of the Initial Aggregate Discounted Lease Balance of the
Leases into the Reserve Account. In the event that Available Funds (exclusive of
amounts on deposit in the Reserve Account) are insufficient to pay (a) the
amounts owing the Trustee and the Servicer, (b) the Interest Payments on the
Notes, and (c) the Class A Principal Payment, the Class B Principal Payment, the
Class C Principal Payment and the Class D Principal Payment (such payments, the
"Required Payments" and such shortfall, an "Available Funds Shortfall"), the
Trustee will withdraw from excess of funds on deposit in the Reserve Account an
amount equal to the lesser of the funds on deposit in the Reserve Account (the
"Available Reserve Amount") and such deficiency. In addition, on each Payment
Date, Available Funds remaining after the payment of the Required Payments will
be deposited into the Reserve Account to the extent that the Required Reserve
Amount exceeds the Available Reserve Amount. The "Required Reserve Amount"
equals the lesser of (a) 1.0% of the Aggregated Discounted Lease Balance of the
Leases as of the Cut-Off Date and (b) the Outstanding Principal Amount of the
Notes. Any amounts on deposit in the Reserve Account in excess of the Required
Reserve Amount will be released to the Issuer.
If, on any Payment Date, the aggregate amounts on deposit in the
Distribution Account as of the end of the related Collection Period and the
Reserve Account are greater than or equal to the sum of (i) the remaining
Outstanding Principal Amount of the Notes, (ii) the Overcollateralization
Balance as of such Payment Date, (iii) the accrued and unpaid interest thereon,
(iv) the accrued and unpaid Servicing Fee, Trustee Fee and Trustee expenses, (v)
the unreimbursed Servicer Advances, if any, and (vi) any other amounts owed
under the Indenture, the amount on deposit in the Reserve Account will be
deposited in the Distribution Account and be used to repay the Notes.
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Application of Payments
Monthly distributions will be made on each Payment Date by the Trustee from
Available Funds in the following priority:
(a) to pay (i) the Trustee Fee and (ii) to pay to the Trustee an amount
not to exceed the lesser of (A) any expenses or liabilities incurred
by the Trustee pursuant to the terms of the Indenture, or (B) the
Trustee Priority Expense Amount for such Payment Date;
(b) to pay the Servicing Fee;
(c) to reimburse unreimbursed Servicer Advances in respect of a prior
Payment Date;
(d) to make Interest Payments owing on the Class A Notes pro rata to the
Class A-1 Noteholders, Class A-2 Noteholders, Class A-3 Noteholders
and Class A-4 Noteholders;
(e) to make Interest Payments owing on the Class B Notes;
(f) to make Interest Payments owing on the Class C Notes;
(g) to make Interest Payments owing on the Class D Notes;
(h) 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 only, until the
Outstanding Principal Amount on the Class A-4 Notes is reduced to
zero;
(i) to make the Class B Principal Payment to the Class B Noteholders;
(j) to make the Class C Principal Payment to the Class C Noteholders;
(k) to make the Class D Principal Payment to the Class D Noteholders;
(l) 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;
(m) to make a deposit in the Reserve Account in an amount equal to the
excess, if any, of the Required Reserve Amount over the Available
Reserve Amount for such Payment Date;
(n) reimburse the Trustee for any expenses or liabilities pursuant to the
terms of the Indenture to the extent not already paid pursuant to
clause (a)(ii) hereof; and
(o) to the Issuer, the balance, if any.
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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, since the
Issuance Date) (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".
The Interest Payments with respect to Class A-1 Notes will be calculated on
the basis of actual days elapsed over a year of 360 days, and with respect to
all other Notes will be calculated on the basis of a year of 360 days consisting
of twelve 30 day months.
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.
On each Payment Date, to the extent funds are available therefor, the
following Principal Payments 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 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, Class B
Notes, Class C Notes, and 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
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excess, if any, of (A) the Aggregate Discounted Lease Balance as of
the previous Calculation Date, over (B) the Aggregate Discounted Lease
Balance as of the related Calculation Date, and
(ii) on all Payment Dates on and after the Class A-1 Stated
Maturity 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) for such
Payment Date.
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 to approximately 86.32%. The "Class
B Percentage" will be equal to approximately 5.96%. The "Class C Percentage"
will be equal to approximately 3.16%. The "Class D Percentage" will be equal to
approximately 1.05%.
The "Class B Floor" with respect to each Payment Date means:
(a) 2.15% 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
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(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, minus
(d) the amount on deposit in the Reserve Account after giving effect
to withdrawals to be made on such Payment Date.
The "Class C Floor" with respect to each Payment Date means:
(a) 1.30% 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, minus
(d) the amount on deposit in the Reserve Account after giving effect
to withdrawals to be made on such Payment Date; provided, however, 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) 0.85% 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, minus
(d) the amount on deposit in the Reserve Account after giving effect
to withdrawals to be made on such Payment Date; 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".
"Additional Principal" with respect to each Payment Date equals:
(a) zero, if each of the Class Target Investor Principal Amounts for
the Class B Notes, the Class C Notes, and the Class D Notes 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 Amount 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
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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 to the Servicer in respect of interest on the Notes
on such Payment Date, over
(b) the Aggregate Discounted Lease Balance as of the related
Calculation Date.
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.
Book-Entry Registration
With respect to the Offered Notes, Noteholders may hold their Notes through
DTC if they are participants therein, or indirectly through organizations that
are participants therein. Cede, as nominee for DTC, will hold the global Notes
in respect of given series.
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.
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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. 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.
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.
Definitive Notes
The Offered 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 use its best efforts to notify all
such 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.
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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
Outstanding Principal Amount 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 and the aggregate amount of
fees received by the Trustee for the Collection Period;
(d) the aggregate Outstanding Principal Amount, individual Outstanding
Principal Amounts for each Class of Notes, 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 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
(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.
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.
In addition, by January 31 of each calendar year following any year during
which the Notes are outstanding, commencing January 31, 2000, 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.
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POOL FACTORS
The "Pool Factor" for 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 (after taking into account all
distributions to be made on such 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 amount of the applicable Class of Notes. A Noteholder's
portion of the aggregate outstanding principal amount 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 all material terms of the Transaction
Documents 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 this Prospectus forms a part. The summary does
not purport to be complete. It is subject 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 Sale Agreement and the rights and
benefits of the Issuer under the Transferor Contribution and Sale Agreement will
be assigned to 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 Trustee will establish and maintain with the Trustee one or more
accounts constituting the Distribution Account , in the name of the Trustee on
behalf of the Noteholders, into which all payments made on or with respect to
the related Lease Receivables will be deposited within two Business Days of the
receipt thereof by the Servicer.
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Funds in the Reserve Account (as defined herein) 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 payable to
the Servicer on each Payment Date and shall be treated as additional servicing
compensation.
The Trust Accounts will be maintained as Eligible Accounts. "Eligible
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
(1) a long-term unsecured debt rating acceptable to the Rating Agencies or (2) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (1) a
long-term unsecured debt rating acceptable to the Rating Agencies or (2) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies 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.
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 "Legal Aspects of the Leases".
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.
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Remittance and Other Servicing Procedures
The Servicer, the Trustee and the Issuer will enter into the 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 Distribution 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
Distribution 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 for such Lease. 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 Prepayment Amount for 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 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
during each collection period (each, a "Collection Period") within two Business
Days of receipt thereof into the Distribution Account. Pending deposit into the
Distribution
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Account, collections 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 August 25, 1999, 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)
one-twelfth times 0.50% per annum (the "Servicing Fee Rate") and (b) the
Aggregate Discounted Lease Balance, as of the first day of such Collection
Period. 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), is set forth in the Indenture, as described more fully under
"Description of the Notes--Application of Payments" herein. The Servicing Fee
will be paid prior to any distribution to the Noteholders.
The Servicer will also collect and retain any late fees or 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.
Statements to the Trustee
At least three Business Days 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.
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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.
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 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 the Servicer fails to make any payment or deposit required under
the Servicing Agreement within three Business Days of when required to do so;
(b) if the Servicer fails to submit a Servicer's certificate, within three
Business Days following knowledge or notice of non-receipt; (c) (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; (d) 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; (e) 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; or (f) in the event that the
Servicer assigns or attempts to assign its rights and duties under the Servicing
Agreement except as specifically permitted therein.
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 of the Noteholders 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
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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 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 or the Issuer; 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 outstanding principal amounts and
(ii) repayment in full of the accrued interest on the outstanding principal
amounts of the Notes will be made prior to any further payment to the Issuer of
any residual interest.
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Termination of the Indenture
The Indenture will terminate, (i) at any time which is 100 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 100th day following the date on which the Issuer has deposited
with the Trustee sufficient funds to discharge all obligations under the
Indenture on or after a date one year prior to the final Stated Maturity Date of
the last outstanding Class of the Notes. The Notes will be redeemed following
the exercise by the Issuer of an Optional Redemption or the exercise by the
Servicer of a Clean-Up Call. 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 retain 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.
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, LaSalle Bank National Association, is a national banking
association organized under the laws of the United States of America. 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 Indenture, 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
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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 LaSalle Bank
National Association, in its individual capacity, and LaSalle Bank National
Association 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 Distribution
Account.
The Leases generally do not provide for the right of the Lessee to prepay.
As provided in the Servicing Agreement, the Servicer will be permitted to allow
such Prepayments in full or in part, provided that (x) no partial Prepayment of
a Lease will be allowed unless all current amounts owed on such Lease have been
paid and (y) that no Prepayment in full of a Lease will be allowed unless the
Prepayment Amount for such Lease has been paid.
Prepayment of the Notes may also occur as a result of the exercise of an
Optional Redemption by the Issuer or a Clean-Up Call by the Servicer.
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. In 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.
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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 August 23, 1999, (ii)
distributions on (A) the Notes other than the Class A-1 Notes are made on the
25th day of each month regardless of the day on which the Payment Date actually
occurs, and (B) on the Class A-1 Notes are made on the actual Payment Date,
commencing on August 25, 1999 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 7.505%
per annum, (vi) Prepayments with respect to the Leases are received on the last
day of each Collection Period, commencing on July 31, 1999, (vii) the Initial
Outstanding Principal Amount is $50,293,842 for the Class A-1 Notes, $40,759,879
for the Class A-2 Notes, $18,280,718 for the Class A-3 Notes, $48,544,491 for
the Class A-4 Notes, $7,434,742 for the Class B Notes, $3,936,040 for the Class
C Notes and $1,312,013 for the Class D Notes, (viii) the Servicer exercises its
Clean-Up Call on the earliest possible date, (ix) the Servicing Fee is 0.50% per
annum, (x) the Trustee Fee is 0.05% per annum, (xi) the Lease pool consists of a
single Lease with an Aggregate Discounted Lease Balance equal to $174,935,104
and (xii) 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 may have characteristics which differ from those assumed in preparing the
tables set forth below (for example, the actual Leases may experience
delinquencies or defaults or be repurchased due to a breach of representation
and warranty), 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 0%, 5%, 7% and 10%.
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<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING AT STATED PREPAYMENT SPEEDS
Payment Date A-1 Tranche A-2 Tranche A-3 Tranche
- ------------------------------------------------------------------------------------------------------------------------------------
0% 5% 7% 10% 0% 5% 7% 10% 0% 5% 7% 10%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
August, 1999 91.96 90.51 89.91 88.99 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
September, 1999 84.12 81.29 80.13 78.34 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October, 1999 76.21 72.08 70.38 67.79 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November, 1999 67.98 62.63 60.44 57.08 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December, 1999 60.06 53.55 50.89 46.84 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
January, 2000 52.11 44.51 41.42 36.72 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
February, 2000 43.78 35.18 31.69 26.39 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
March, 2000 35.49 25.97 22.11 16.27 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
April, 2000 25.03 14.73 10.57 4.30 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
May, 2000 16.63 5.57 1.11 0.00 100.00 100.00 100.00 94.04 100.00 100.00 100.00 100.00
June, 2000 8.29 0.00 0.00 0.00 100.00 96.30 91.27 83.72 100.00 100.00 100.00 100.00
July, 2000 0.00 0.00 0.00 0.00 99.92 86.73 81.45 73.54 100.00 100.00 100.00 100.00
August, 2000 0.00 0.00 0.00 0.00 90.96 77.18 71.69 63.46 100.00 100.00 100.00 100.00
September, 2000 0.00 0.00 0.00 0.00 82.34 68.04 62.35 53.86 100.00 100.00 100.00 100.00
October, 2000 0.00 0.00 0.00 0.00 73.91 59.14 53.28 44.56 100.00 100.00 100.00 100.00
November, 2000 0.00 0.00 0.00 0.00 65.25 50.09 44.11 35.21 100.00 100.00 100.00 100.00
December, 2000 0.00 0.00 0.00 0.00 56.82 41.35 35.25 26.21 100.00 100.00 100.00 100.00
January, 2001 0.00 0.00 0.00 0.00 48.74 32.99 26.80 17.65 100.00 100.00 100.00 100.00
February, 2001 0.00 0.00 0.00 0.00 40.81 24.84 18.59 9.35 100.00 100.00 100.00 100.00
March, 2001 0.00 0.00 0.00 0.00 33.28 17.12 10.81 1.51 100.00 100.00 100.00 100.00
April, 2001 0.00 0.00 0.00 0.00 25.53 9.27 2.93 0.00 100.00 100.00 100.00 85.79
May, 2001 0.00 0.00 0.00 0.00 18.10 1.76 0.00 0.00 100.00 100.00 89.78 69.05
June, 2001 0.00 0.00 0.00 0.00 10.79 0.00 0.00 0.00 100.00 87.57 73.46 52.81
July, 2001 0.00 0.00 0.00 0.00 3.09 0.00 0.00 0.00 100.00 70.58 56.58 36.13
August, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 90.86 54.74 40.85 20.62
September, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 75.70 39.81 26.05 6.05
October, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 60.82 25.25 11.66 0.00
November, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 46.70 11.48 0.00 0.00
December, 2001 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 32.97 0.00 0.00 0.00
January, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 16.53 0.00 0.00 0.00
February, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.33 0.00 0.00 0.00
March, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
April, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
May, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
June, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
August, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
September, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
October, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
November, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
December, 2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
February, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
March, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
April, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
May, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
June, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
August, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
September, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
October, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average 0.47 0.41 0.39 0.36 1.46 1.31 1.25 1.17 2.28 2.08 2.00 1.90
Life (years)*
to Call
Weighted Average 0.47 0.41 0.39 0.36 1.46 1.31 1.25 1.17 2.28 2.08 2.00 1.90
Life (years)* to
Maturity
</TABLE>
* The weighted average life of a Class of Notes is determined by (a) multiplying
the amount of cash distributions in reduction of the Outstanding Principal
Amount of the respective Notes by the number of years from the Closing Date to
such Payment Date, (b) adding the results, and (c) dividing the sum by the
respective Initial Outstanding Principal Amount.
This table has been prepared based on the "Modeling Assumptions" preceding this
table and should be read in conjunction therewith.
62
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING AT STATED PREPAYMENT SPEEDS
Payment Date A-4 Tranche B Tranche C Tranche
- ------------------------------------------------------------------------------------------------------------------------------------
0% 5% 7% 10% 0% 5% 7% 10% 0% 5% 7% 10%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
August, 1999 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
September, 1999 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October, 1999 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November, 1999 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December, 1999 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
January, 2000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
February, 2000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
March, 2000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
April, 2000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
May, 2000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 97.74 100.00 100.00 100.00 97.74
June, 2000 100.00 100.00 100.00 100.00 100.00 98.60 96.69 93.83 100.00 98.60 96.69 93.83
July, 2000 100.00 100.00 100.00 100.00 99.97 94.97 92.97 89.97 99.97 94.97 92.97 89.97
August, 2000 100.00 100.00 100.00 100.00 96.58 91.36 89.27 86.16 96.58 91.36 89.27 86.16
September, 2000 100.00 100.00 100.00 100.00 93.31 87.89 85.74 82.52 93.31 87.89 85.74 82.52
October, 2000 100.00 100.00 100.00 100.00 90.12 84.52 82.30 79.00 90.12 84.52 82.30 79.00
November, 2000 100.00 100.00 100.00 100.00 86.83 81.09 78.82 75.45 86.83 81.09 78.82 75.45
December, 2000 100.00 100.00 100.00 100.00 83.64 77.78 75.47 72.04 83.64 77.78 75.47 72.04
January, 2001 100.00 100.00 100.00 100.00 80.58 74.61 72.27 68.80 80.58 74.61 72.27 68.80
February, 2001 100.00 100.00 100.00 100.00 77.58 71.52 69.16 65.66 77.58 71.52 69.16 65.66
March, 2001 100.00 100.00 100.00 100.00 74.72 68.60 66.21 62.69 74.72 68.60 66.21 62.69
April, 2001 100.00 100.00 100.00 100.00 71.79 65.62 63.23 59.70 71.79 65.62 63.23 59.70
May, 2001 100.00 100.00 100.00 100.00 68.97 62.78 60.38 56.86 68.97 62.78 60.38 56.86
June, 2001 100.00 100.00 100.00 100.00 66.20 60.00 57.60 54.10 66.20 60.00 57.60 54.10
July, 2001 100.00 100.00 100.00 100.00 63.29 57.12 54.74 51.26 63.29 57.12 54.74 51.26
August, 2001 100.00 100.00 100.00 100.00 60.56 54.42 52.06 48.63 60.56 54.42 52.06 48.63
September, 2001 100.00 100.00 100.00 100.00 57.99 51.89 49.55 46.15 57.99 51.89 49.55 46.15
October, 2001 100.00 100.00 100.00 96.96 55.46 49.41 47.10 43.75 55.46 49.41 47.10 43.75
November, 2001 100.00 100.00 99.27 91.96 53.06 47.07 44.79 41.49 53.06 47.07 44.79 41.49
December, 2001 100.00 99.31 94.33 87.15 50.72 44.81 42.56 39.32 50.72 44.81 42.56 39.32
January, 2002 100.00 93.44 88.60 81.63 47.93 42.16 39.98 36.83 47.93 42.16 39.98 36.83
February, 2002 100.00 87.70 83.01 76.27 45.18 39.57 37.46 34.41 45.18 39.57 37.46 34.41
March, 2002 95.14 82.98 78.40 71.83 42.93 37.44 35.37 32.41 42.93 37.44 35.37 32.41
April, 2002 90.23 78.36 73.90 67.53 40.71 35.36 33.35 30.47 40.71 35.36 33.35 30.47
May, 2002 85.17 73.65 69.34 63.19 38.43 33.23 31.29 28.51 38.43 33.23 31.29 28.51
June, 2002 80.57 69.37 65.20 59.25 36.35 31.30 29.42 26.73 36.35 31.30 29.42 26.73
July, 2002 76.17 65.31 61.27 55.53 34.37 29.47 27.65 25.06 34.37 29.47 27.65 25.06
August, 2002 71.75 61.25 57.37 51.85 32.38 27.64 25.88 23.40 32.38 27.64 25.88 23.40
September, 2002 67.76 57.60 53.85 48.54 30.58 25.99 24.30 21.90 30.58 25.99 24.30 21.90
October, 2002 63.76 53.97 50.36 45.27 28.77 24.35 22.73 20.43 28.77 24.35 22.73 20.43
November, 2002 59.52 50.16 46.73 41.89 26.86 22.63 21.09 18.90 26.86 22.63 21.09 18.90
December, 2002 55.82 46.84 43.56 38.94 25.19 21.14 19.66 17.57 25.19 21.14 19.66 17.57
January, 2003 52.70 44.04 40.88 36.45 23.78 19.87 18.44 16.44 23.78 19.87 18.44 16.44
February, 2003 49.78 41.42 38.38 34.13 22.46 18.69 17.32 15.40 22.46 18.69 17.32 15.40
March, 2003 46.81 38.78 35.87 31.81 21.12 17.50 16.19 14.35 21.12 17.50 16.19 14.35
April, 2003 43.89 36.21 33.43 0.00 19.81 16.34 15.09 0.00 19.81 16.34 15.09 0.00
May, 2003 41.41 34.02 31.35 0.00 18.68 15.35 14.15 0.00 18.68 15.35 14.15 0.00
June, 2003 39.02 31.92 0.00 0.00 17.61 14.40 0.00 0.00 17.61 14.40 0.00 0.00
July, 2003 36.63 0.00 0.00 0.00 16.53 0.00 0.00 0.00 16.53 0.00 0.00 0.00
August, 2003 33.85 0.00 0.00 0.00 15.28 0.00 0.00 0.00 15.28 0.00 0.00 0.00
September, 2003 31.34 0.00 0.00 0.00 14.14 0.00 0.00 0.00 14.14 0.00 0.00 0.00
October, 2003 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average 3.52 3.29 3.21 3.07 2.53 2.34 2.26 2.15 2.53 2.34 2.26 2.15
Life (years)*
to Call
Weighted Average 3.76 3.53 3.45 3.31 2.74 2.56 2.49 2.39 2.74 2.56 2.49 2.39
Life (years)* to
Maturity
</TABLE>
* The weighted average life of a Class of Notes is determined by (a) multiplying
the amount of cash distributions in reduction of the Outstanding Principal
Amount of the respective Notes by the number of years from the Closing Date to
such Payment Date, (b) adding the results, and (c) dividing the sum by the
respective Initial Outstanding Principal Amount.
This table has been prepared based on the "Modeling Assumptions" preceding this
table and should be read in conjunction therewith.
63
<PAGE>
PERCENTAGE OF INITIAL AGGREGATE OUTSTANDING
PRINCIPAL AMOUNT OUTSTANDING AT STATED PREPAYMENT SPEEDS
Payment Date D Tranche
- --------------------------------------------------------------------------------
0% 5% 7% 10%
Closing Date 100.00% 100.00% 100.00% 100.00%
August, 1999 100.00 100.00 100.00 100.00
September, 1999 100.00 100.00 100.00 100.00
October, 1999 100.00 100.00 100.00 100.00
November, 1999 100.00 100.00 100.00 100.00
December, 1999 100.00 100.00 100.00 100.00
January, 2000 100.00 100.00 100.00 100.00
February, 2000 100.00 100.00 100.00 100.00
March, 2000 100.00 100.00 100.00 100.00
April, 2000 100.00 100.00 100.00 100.00
May, 2000 100.00 100.00 100.00 97.74
June, 2000 100.00 98.60 96.69 93.83
July, 2000 99.97 94.97 92.97 89.97
August, 2000 96.58 91.36 89.27 86.16
September, 2000 93.31 87.89 85.74 82.52
October, 2000 90.12 84.52 82.30 79.00
November, 2000 86.83 81.09 78.82 75.45
December, 2000 83.64 77.78 75.47 72.04
January, 2001 80.58 74.61 72.27 68.80
February, 2001 77.58 71.52 69.16 65.66
March, 2001 74.72 68.60 66.21 62.69
April, 2001 71.79 65.62 63.23 59.70
May, 2001 68.97 62.78 60.38 56.86
June, 2001 66.20 60.00 57.60 54.10
July, 2001 63.29 57.12 54.74 51.26
August, 2001 60.56 54.42 52.06 48.63
September, 2001 57.99 51.89 49.55 46.15
October, 2001 55.46 49.41 47.10 43.75
November, 2001 53.06 47.07 44.79 41.49
December, 2001 50.72 44.81 42.56 39.32
January, 2002 47.93 42.16 39.98 36.83
February, 2002 45.18 39.57 37.46 34.41
March, 2002 42.93 37.44 35.37 32.41
April, 2002 40.71 35.36 33.35 30.47
May, 2002 38.43 33.23 31.29 28.51
June, 2002 36.35 31.30 29.42 26.73
July, 2002 34.37 29.47 27.65 25.06
August, 2002 32.38 27.64 25.88 23.40
September, 2002 30.58 25.99 24.30 21.90
October, 2002 28.77 24.35 22.73 20.43
November, 2002 26.86 22.63 21.09 18.90
December, 2002 25.19 21.14 19.66 17.57
January, 2003 23.78 19.87 18.44 16.44
February, 2003 22.46 18.69 17.32 15.40
March, 2003 21.12 17.50 16.19 14.35
April, 2003 19.81 16.34 15.09 0.00
May, 2003 18.68 15.35 14.15 0.00
June, 2003 17.61 14.40 0.00 0.00
July, 2003 16.53 0.00 0.00 0.00
August, 2003 15.28 0.00 0.00 0.00
September, 2003 14.14 0.00 0.00 0.00
October, 2003 0.00 0.00 0.00 0.00
Weighted Average 2.53 2.34 2.26 2.15
Life (years)* to Call
Weighted Average 2.74 2.56 2.49 2.39
Life (years)* to
Maturity
* The weighted average life of a Class of Notes is determined by (a) multiplying
the amount of cash distributions in reduction of the Outstanding Principal
Amount of the respective Notes by the number of years from the Closing Date to
such Payment Date, (b) adding the results, and (c) dividing the sum by the
respective Initial Outstanding Principal Amount.
This table has been prepared based on the "Modeling Assumptions" preceding this
table and should be read in conjunction therewith.
64
<PAGE>
LEASE CASH FLOW
<TABLE>
<CAPTION>
Collection Period Scheduled Cash Flow Collection Period Scheduled Cash Flow
- ----------------- ------------------- ----------------- -------------------
<S> <C> <C> <C>
July, 1999 $5,138,321.09 January, 2003 $1,824,675.96
August, 1999 5,010,975.27 February, 2003 1,848,749.46
September, 1999 5,022,620.51 March, 2003 1,804,101.51
October, 1999 5,156,746.81 April, 2003 1,551,010.11
November, 1999 4,976,701.51 May, 2003 1,486,552.32
December, 1999 4,969,211.51 June, 2003 1,486,553.66
January, 2000 5,133,635.79 July, 2003 1,688,292.59
February, 2000 5,084,810.96 August, 2003 1,532,823.89
March, 2000 6,152,930.76 September, 2003 1,328,333.07
April, 2000 5,080,856.54 October, 2003 1,275,779.86
May, 2000 5,027,193.16 November, 2003 922,912.59
June, 2000 5,011,181.05 December, 2003 872,526.79
July, 2000 5,011,736.67 January, 2004 849,139.79
August, 2000 4,822,396.37 February, 2004 803,663.79
September, 2000 4,709,691.84 March, 2004 800,422.79
October, 2000 4,794,218.50 April, 2004 747,605.65
November, 2000 4,656,259.05 May, 2004 783,240.78
December, 2000 4,465,775.63 June, 2004 699,691.89
January, 2001 4,372,948.20 July, 2004 1,404,761.67
February, 2001 4,162,899.92 August, 2004 647,390.66
March, 2001 4,239,322.45 September, 2004 647,390.66
April, 2001 4,071,038.72 October, 2004 939,355.66
May, 2001 3,989,648.41 November, 2004 752,635.66
June, 2001 4,149,199.28 December, 2004 579,350.66
July, 2001 3,889,728.22 January, 2005 579,350.66
August, 2001 3,681,550.08 February, 2005 516,394.06
September, 2001 3,603,649.12 March, 2005 499,359.06
October, 2001 3,423,620.45 April, 2005 474,724.06
November, 2001 3,321,742.77 May, 2005 505,309.06
December, 2001 3,876,859.90 June, 2005 409,534.06
January, 2002 3,804,185.98 July, 2005 339,558.06
February, 2002 3,157,038.62 August, 2005 314,893.06
March, 2002 3,097,213.09 September, 2005 301,510.50
April, 2002 3,159,485.66 October, 2005 165,961.86
May, 2002 2,890,260.13 November, 2005 143,397.95
June, 2002 2,755,450.21 December, 2005 126,072.50
July, 2002 2,753,438.27 January, 2006 126,072.50
August, 2002 2,494,567.57 February, 2006 101,996.27
September, 2002 2,490,297.54 March, 2006 101,996.27
October, 2002 2,610,094.74 April, 2006 98,534.27
November, 2002 2,290,394.47 May, 2006 54,098.27
December, 2002 1,950,627.27
</TABLE>
65
<PAGE>
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".
LEGAL ASPECTS OF THE LEASES
General
The Leases that are to be included in the Pool of Assets 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 Leases 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,
66
<PAGE>
and because other creditors may have rights in the related Equipment superior to
those of the Issuer, the Servicer may not be able to recover the entire amount
due on a Defaulted Lease in the event that the Servicer elects to repossess and
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
The following is a discussion of all 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.
Tax Characterization of the Issuer
Tax counsel is of the opinion that the Issuer will not be treated as an
association (or a publicly traded partnership) taxable as a corporation for
federal income tax purposes.
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Tax Characterization of the Notes
In the opinion of Tax Counsel, although no transaction closely comparable
to that contemplated herein has been the subject of any treasury regulation,
revenue ruling or judicial decision, based on the application of existing law to
the facts as set forth in the applicable agreements, the Offered Notes will be
treated as indebtedness for federal income tax purposes. Interest on the Notes
will be taxable as ordinary income for federal income tax purposes when received
by Noteholders using the cash method of accounting and when accrued by
Noteholders using the accrual method of accounting. Noteholders using the
accrual method of accounting may be required to report income for tax purposes
in advance of receiving a corresponding cash distribution with which to pay the
related tax. Interest received on the Notes also may constitute "investment
income" for purposes of limitations in the Code concerning the deductibility of
investment interest expense.
Although it is the opinion of Tax Counsel that the Offered Notes are
properly characterized as indebtedness for federal income tax purposes, no
assurance can be given that this debt characterization of the Offered Notes will
prevail. If any class of Notes were treated as an ownership interest in the
Leases, all income on the Leases would be income to the holders of such class of
Notes, and related fees and expenses would generally be deductible (subject to
the limitations on the deductibility of miscellaneous itemized deductions by
individuals) and the market discount and premium provisions of the Code might
apply to a purchase of the Notes.
If, alternatively, any class of Notes were treated as an equity interest in
the Issuer, the Issuer might be classified as a partnership or as an association
taxable as a corporation or a publicly traded partnership taxable as a
corporation. If such class of Notes were treated as interests in a partnership,
each item of income, gain, loss, deduction and credit generated through the
ownership of the Equipment and the Lease Receivables by the partnership would be
passed through to Noteholders of such class, as partners in a partnership
according to their respective interests therein. The timing, amount and
character of the income or expenses reportable by the Noteholders as partners in
a partnership could differ from the income or expenses reportable by the
Noteholders as holders of debt. If the Noteholders were treated as partners, a
cash basis Noteholder might be required to report income when it accrues to the
partnership rather than when it is received by the Noteholder. Moreover, if
Notes were treated as interests in a partnership, an individual Noteholder's
share of expenses of the partnership (e.g., Servicing Fees) would be
miscellaneous itemized deductions that in the aggregate are allowed only to the
extent they exceed two percent of the individual Noteholder's adjusted gross
income, meaning that the individual Noteholder might be taxed on a greater
amount of income than the stated interest on his or her Notes. Finally, if a
Note were treated as a partnership interest, any taxable income allocated to a
Holder that is a pension, profit sharing or employee benefit plan or other
tax-exempt, could constitute "unrelated business taxable income".
If the Notes were treated as interests in an association taxable as a
corporation or a publicly traded partnership taxable as a corporation, the
resulting entity would be subject to federal income tax at corporate tax rates
on its taxable income generated by ownership of the Lease Receivables. Moreover,
distributions by the entity on the Notes probably would not be deductible in
computing the entity's taxable income and all or part of any distributions to
Noteholders would probably be treated as dividends. The imposition of an
entity-level tax could result in a reduced amount of cash available for
distributions to Noteholders.
Since the Issuer will treat the Notes as indebtedness for federal income
tax purposes, the Trustee (and Participants and Indirect Participants) will not
attempt to satisfy the tax reporting requirements that would apply under these
alternative characterizations of the Notes. Further, if the IRS were to contend
successfully that the Notes are interests in a publicly traded partnership
taxable as a corporation, additional tax consequences would apply to foreign
Noteholders. Investors are urged to consult their own tax advisors with regard
to the potential application of those provisions.
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
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(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.
The adjusted issue price of a Note at any time will equal the issue price
of the Note, increased by the aggregate amount of previously accrued original
issue discount with respect to that Note, and reduced by the amount of any
distributions made on that 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 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
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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.
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 has issued regulations (the "Withholding
Regulations"), which change some of the rules regarding some of the 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, 2001, although valid withholding certificates will remain
current until the earlier of December 31, 2000 or the due date of expiration of
the certificate under the rules as currently in effect.
Foreign Investors
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
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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.
If income or gain with respect to a Note is effectively connected with a
U.S. trade or business carried on by a Noteholder who or which is not a U.S.
person, the 30 percent withholding tax will not apply but the Noteholder will be
subject to U.S. federal income tax at graduated rates applicable to U.S.
persons.
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.
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.
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 Offered
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 Offered Notes, including the reasonable
expectation of purchasers of Offered Notes that the Offered Notes will be repaid
when due, as well as the absence of conversion
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rights, warrants and other typical equity features. The debt treatment of the
Offered Notes for ERISA purposes could change if the Issuer incurred losses.
However, even if the Offered Notes are treated as indebtedness for ERISA
purposes, the acquisition or holding of Offered 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 91-38, regarding investments by bank collective
investment funds; 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 Offered
Notes, or to whom the Offered Notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the Offered 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 Offered 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 Issuer to
the acquisition of the related Lease Receivables from the Transferor and 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 "A-1+" by S&P and "D-1+" by DCR, the Class A-2 Notes be rated
"AAA" by S&P and "AAA" by DCR, the Class A-3 Notes be rated "AAA" by S&P and
"AAA" by DCR, the Class A-4 Notes be rated "AAA" by S&P and "AAA" by DCR, the
Class B Notes be rated "A" by S&P and "A" by DCR, the Class C Notes be rated
"BBB" by S&P and "BBB" by DCR, and the Class D Notes be rated "BB" by S&P and
"BB" by DCR. 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 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 Offered Notes dated August
18, 1999 the Issuer has agreed to sell and First Union Capital Markets Corp.
(the "Underwriter") has agreed to purchase, the Offered Notes. Purchasers of
Offered Notes, including dealers, may, depending on the facts and circumstances
of such purchases, be deemed to be "underwriters"
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within the meaning of the Securities Act in connection with reoffers and sales
by them of Notes. Holders of Offered Notes should consult with their legal
advisors in this regard prior to any such reoffer or sale. The Issuer is
affiliated with Charter.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions therein, to purchase all the Offered Notes offered hereby
if any of such Offered Notes are purchased. The Underwriting Agreement
pertaining to the sale of the Offered Notes will provide that the obligations of
the Underwriter will be subject to certain conditions precedent.
The Underwriter has advised the Issuer that it proposes to offer the
Offered 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 Offered Notes, the Underwriter may receive
compensation from the Issuer 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 Offered 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
Charter and the Issuer 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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Index To Financial Statements
Page
----
Report of Independent Auditors 75
Balance Sheet of the Issuer as of July 15, 1999 76
Notes to Balance Sheet 77
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Charter Equipment Lease 1999-1 LLC:
We have audited the accompanying balance sheet of Charter Equipment Lease 1999-1
LLC ("the Company") as of July 15, 1999. This balance statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in that balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company at July 15, 1999, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
July 15, 1999
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CHARTER EQUIPMENT LEASE 1999-1 LLC
Balance Sheet
July 15, 1999
Assets
Cash $100
----
Total assets $100
====
Members' Equity
Members' equity $100
----
Total members' equity $100
====
See accompanying notes to balance sheet.
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CHARTER EQUIPMENT LEASE 1999-1 LLC
Notes to Balance Sheet
July 15, 1999
(1) Organization
Charter Equipment Lease 1999-1 LLC (the "Company") is a limited purpose
limited liability company organized under the laws of the State of Delaware
and was formed on September 21, 1998 by Charter Funding Corporation V
pursuant to a Certificate of Formation dated as of September 21, 1998, as
amended as of May 17, 1999, and is governed by the Limited Liability
Company Operating Agreement (the "Agreement") dated as of September 21,
1998, as amended as of May 17, 1999, and as of August 8, 1999. Charter
Funding Corporation V is a wholly-owned subsidiary of Charter Financial,
Inc. ("Charter"). The activities of the Company are limited by the terms of
the Agreement to acquiring, owning, and managing lease receivables and
related assets, issuing and making payments on notes and subordinate
securities and other activities related thereto. Prior to July 1, 1999 the
Company did not conduct any activities.
Charter will pay all fees and expenses related to the organization and
operations of the Company (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes)
imposed by the United States or any other domestic taxing authority upon
the Company). Charter has also agreed to indemnify the Company and certain
other persons for certain expenses.
The Company intends to issue notes subsequent to July 15, 1999. The
proceeds will be used to acquire lease contracts and related interests from
Charter Funding Corporation V.
77
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INDEX OF PRINCIPAL DEFINED TERMS
Page
Aggregate Discounted Lease Balance.............................................8
Article 2A....................................................................24
Available Funds...............................................................45
Available Reserve Amount......................................................16
Bankruptcy Code...............................................................67
Benefit Plan..................................................................71
Calculation Date...............................................................5
Casualty Loss.................................................................44
Casualty Payment..............................................................44
Cede...........................................................................3
CFC............................................................................2
Charter......................................................................2,4
Class..........................................................................1
Class A Notes..................................................................5
Class A Percentage.........................................................13,48
Class A Principal Payment..................................................12,47
Class A Target Investor Principal Amount...................................13,48
Class B Floor..............................................................13,48
Class B Notes..................................................................5
Class B Percentage.........................................................13,48
Class B Principal Payment..................................................13,48
Class B Target Investor Principal Amount...................................13,48
Class C Floor..............................................................14,49
Class C Notes..................................................................5
Class C Percentage.........................................................13,48
Class C Principal Payment..................................................13,48
Class C Target Investor Principal Amount...................................13,48
Class D Floor..............................................................14,49
Class D Notes..................................................................5
Class D Percentage.........................................................13,48
Class D Target Investor Principal Amount...................................13,48
Class Target Investor Principal Amount.....................................13,48
Clean-Up Call.................................................................19
Closing Date................................................................4,69
Collection Period..............................................................4
Commission.....................................................................3
Conditional Prepayment Rate...................................................61
CPR...........................................................................61
Credit and Collection Policies................................................28
Cumulative Loss Amount.....................................................15,50
Cut-Off Date...................................................................4
Debtors.......................................................................22
Defaulted Leases..............................................................44
Definitive Notes..............................................................51
Delinquency Amounts...........................................................18
Delinquent Lease..............................................................18
Discount Rate..................................................................8
Discounted Lease Balance.......................................................8
Distribution Account.......................................................18,54
DTC.........................................................................3,17
Early Termination Lease.......................................................44
Eligible Account..............................................................54
Eligible Institution..........................................................54
Eligible Investments..........................................................54
Eligible Lease................................................................26
Equipment..................................................................2,5,7
ERISA.........................................................................20
Event of Default..............................................................16
Event of Servicing Termination................................................57
Event of Termination..........................................................54
Events of Default.............................................................58
Exchange Act...................................................................3
Excluded Amounts..............................................................44
Finance Lease.................................................................28
fully taxable bonds...........................................................70
Indenture....................................................................2,6
Initial Outstanding Principal Amount...........................................1
Insolvency Laws...............................................................22
Interest Accrual Period....................................................11,47
Interest Payments..........................................................11,47
IRA...........................................................................71
Issuer.........................................................................1
Lease Files...................................................................43
Lease Payment.................................................................44
Lease Payments................................................................29
Lease Receivables..............................................................2
Leases.........................................................................2
Legal Aspects of the Leases...................................................21
Lessee.........................................................................7
Lessor.........................................................................7
LLC Agreement.............................................................2,6,26
Note Interest Rate.............................................................1
Noteholders....................................................................2
Notes..........................................................................5
Offered Notes..................................................................5
Optional Redemption...........................................................19
Outstanding Principal Amounts..............................................11,47
Overcollateralization Balance..............................................15,50
Payment Date................................................................2, 4
Percentage Interests..........................................................60
Permitted Encumbrance.........................................................28
Plan..........................................................................20
Plan Assets Regulation........................................................71
Pool Factor...................................................................53
Pool of Assets............................................................5,6,25
Premium Note..................................................................70
Prepayment....................................................................23
Prepayment Amount.............................................................29
Prepayment Assumption.........................................................69
PTCE..........................................................................72
Rating Agencies...............................................................20
Receivables....................................................................5
Record Date....................................................................5
Reporting Date................................................................18
Repurchase Amount.............................................................30
Required Reserve Amount.......................................................16
Reserve Account...............................................................16
Rules.........................................................................51
Schedule of Leases............................................................29
Securities Act................................................................73
Seller.........................................................................2
Seller Contribution and Sale Agreement.........................................2
78
<PAGE>
Servicer.......................................................................4
Servicer Advance...........................................................18,55
Servicing Agreement..........................................................3,6
Servicing Fee..............................................................18,56
Servicing Fee Rate.........................................................18,56
Servicing Officer.............................................................57
Soft Items....................................................................24
Stated Maturity Date...........................................................2
Statistical Discount Rate.....................................................30
Sub-Servicer...................................................................4
Substitute Lease..............................................................31
Successor Servicer............................................................18
Supplementary Report..........................................................57
Tax Code......................................................................20
Termination Payment...........................................................44
Transfer Date..............................................................26,43
Transferor.....................................................................4
Transferor Contribution and Sale Agreement...................................2,6
Trust Accounts................................................................54
Trustee......................................................................2,6
Trustee Expenses..............................................................60
Trustee Fee...................................................................60
Trustee Fee Rate...............................................................4
Trustee Priority Expense Amount...............................................11
U.S. Person...................................................................70
Underwriter...................................................................72
Underwriting Agreement........................................................72
Warranty Event.................................................................8
weighted average life.........................................................60
Withholding Regulations.......................................................70
79
<PAGE>
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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
----
AVAILABLE INFORMATION ..................................................... 3
REPORTS TO NOTEHOLDERS .................................................... 3
ADDITIONAL INFORMATION .................................................... 3
RISK FACTORS .............................................................. 21
THE POOL OF ASSETS ........................................................ 25
THE ISSUER ................................................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION ............................................................ 26
THE LEASES ................................................................ 26
CHARTER'S LEASING BUSINESS ................................................ 37
TRANSFEROR ................................................................ 42
DESCRIPTION OF THE NOTES .................................................. 42
POOL FACTORS .............................................................. 53
DESCRIPTION OF THE TRANSACTION DOCUMENTS .................................. 53
THE TRUSTEE ............................................................... 59
PREPAYMENT AND YIELD CONSIDERATIONS ....................................... 60
PERCENTAGE OF INITIAL AGGREGATE OUTSTANDING PRINCIPAL
AMOUNT OUTSTANDING AT STATED PREPAYMENT SPEEDS ....................... 62
LEGAL ASPECTS OF THE LEASES ............................................... 66
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .................................. 67
STATE AND LOCAL TAX CONSIDERATIONS ........................................ 71
ERISA CONSIDERATIONS ...................................................... 71
USE OF PROCEEDS ........................................................... 72
RATINGS ................................................................... 72
PLAN OF DISTRIBUTION ...................................................... 72
LEGAL MATTERS ............................................................. 73
Until November 16, 1999 (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.
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$165,313,672
Charter Equipment Lease 1999-1 LLC
$50,293,842 5.777% Lease-Backed Notes,
Class A-1
$40,759,879 6.590% Lease-Backed Notes,
Class A-2
$18,280,718 6.890% Lease-Backed Notes,
Class A-3
$48,544,491 7.070% Lease-Backed Notes,
Class A-4
$7,434,742 7.300% Lease-Backed Notes,
Class B
___________________
P R O S P E C T U S
___________________
________________________________
FIRST UNION CAPITAL MARKETS CORP.
Dated August 18, 1999
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