AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 18, 1999
REGISTRATION STATEMENT NO. 333-64045
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
CHARTER EQUIPMENT LEASE 1999-1 LLC
(Exact name of registrant as specified in its charter)
[ ]
(Primary Standard Industrial Classification Code Number)
<TABLE>
<S> <C> <C>
New York 153 East 53rd Street [ ]
(State or other Jurisdiction of New York, New York 10022 (I.R.S. Employer
Incorporation or Organization) (212) 805-1000 Identification No.)
</TABLE>
(Address of principal offices)
----------------------
GARY CORR
Charter Equipment Lease 1999-1 LLC
153 East 53rd Street
New York, New York 10022
(212) 399-7777
(Name, address and telephone number, including area code, of agent for service)
----------------------
Copies to:
<TABLE>
<S> <C> <C>
STEWART G. ABRAMSON, ESQ. PETER HUMPHREYS, ESQ. JAMES J. CROKE, ESQ.
Charter Equipment Lease 1999-1 LLC Dewey Ballantine, LLP Cadwalader, Wickersham & Taft
153 East 53rd Street 1301 Avenue of the Americas 100 Maiden Lane
New York, New York 10022 New York, New York 10019 New York, New York 10038
</TABLE>
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Amount Proposed Maximum Proposed Maximum Amount
Title of Each Class of Securities To Be Aggregate Price Per Aggregate Offering of Registration Fee
to be Registered Registered Unit(1) Price(1)
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<S> <C> <C> <C> <C>
Lease-Backed Notes, Class A-1 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class A-2 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class A-3 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class A-4 $1,000,000 100% $1,000,000 $295
Lease-Backed Notes, Class B $1,000,000 100% $1,000,000 $295
====================================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATIONSTATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item
No. Name and Caption in Form S-1 Caption in Prospectus
--- ---------------------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Forepart of the Registration Statement; Front
Front Cover Page of Prospectus Cover Page of Prospectus; Cross Reference
Sheet
2. Inside Front and Outside Back Cover Pages of the Inside Front Cover and Outside Back Cover
Prospectus Pages of Prospectus; Table of Contents
3. Summary Information; Risk Factors and Ratio of Summary of Terms; Risk Factors; Pool of
Earnings to Fixed Charges assets; The Leases
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Summary of Terms; Description of the Notes
10. Interest of Named Experts and Counsel Certain Legal Aspects of the Leases
11. Information with Respect to the Registrant Transferor
12. Disclosure of Commission Position on Included as an Undertaking in Item 17 of Part
Indemnification for Securities Act Liabilities II hereof
</TABLE>
* Not Applicable
<PAGE>
SUBJECT TO COMPLETION DATED June ___, 1999. DB DRAFT OF May 17, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
$[______________ ]
Charter Equipment Lease 1999-1 LLC
[ ] Lease-Backed Notes, Class A-1
[ ] Lease- Backed Notes, Class A-2
[ ] Lease- Backed Notes, Class A-3
[ ] Lease-Backed Notes, Class A-4
[ ] Lease-Backed Notes, Class B
CHARTER EQUIPMENT LEASE 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 "LLC" or the "Issuer"), consist of seven classes, the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes (the
foregoing the "Class A Notes") the Class B Notes, the Class C Notes and the
Class D Notes, (each a "Class") of nonrecourse debt obligations of the Issuer,
which respectively represent the right to receive repayment of the initial
outstanding principal amount of such Class of the Notes as set forth in the
table below (the "Initial Outstanding Principal Amount") and monthly interest at
a rate per annum for such Class of Notes as set forth in the table below (the
"Note Interest Rate") on the unpaid portion of such Outstanding Principal Amount
(as defined herein). (continued overleaf)
- --------------------------------------------------------------------------------
Initial Note Initial Underwriting Proceeds to
Outstanding Interest Public Discount (2) Transferor(3)
Principal Rate Offering
Amount Price(1)
- --------------------------------------------------------------------------------
Per Class
A-1 Note
- ---------------------------------------- ---------------------------------------
Per Class
A-2 Note
- ---------------------------------------- ---------------------------------------
Per Class
A-3 Note
- --------------------------------------------------------------------------------
Per Class
A-4 Note
- --------------------------------------------------------------------------------
Per Class
B Note
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from [ ], 1999.
(2) The Issuer and Charter have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933.
(3) Before deducting expenses, estimated to be $[ ].
The Offered Notes are offered subject to receipt and acceptance by 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 June [ ] , 1999. June [ ] , 1999
FIRST UNION CAPITAL MARKETS
<PAGE>
(cover page continued)
The Notes are backed solely by a pledge of the assets of the Issuer formed
pursuant to a LLC Agreement (the "LLC Agreement"). The Notes will be issued by
the Issuer pursuant to an indenture of trust dated as of June [ ], 1999 (the
"Indenture") between the Issuer and [ ] as trustee (the "Trustee"). The assets
of the Issuer will consist of a portfolio of finance leases, leases intended as
security agreements, installment sale contracts, loan contracts, synthetic
leases, and/or rental stream obligations and/or lease participation interests in
the foregoing, 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 post-production and miscellaneous 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
July 26th, 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
[ ],1999. 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.
[ ] Logo
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE TRANSFEROR, CHARTER, THE TRUSTEE, THE SELLER,
THE SERVICER, ANY SUCCESSOR SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE NOTES NOR THE UNDERLYING LEASES WILL BE GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE TRANSFEROR, CHARTER, THE
TRUSTEE, THE SELLER OR THE SERVICER.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 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 20 HEREIN.
THE POOL 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"). The Servicer will
service the Lease Receivables
2
<PAGE>
(cover page continued)
pursuant to the servicing agreement dated as of June [ ], 1999 (the "Servicing
Agreement") between the Servicer and the Trustee.
--------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED NOTES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------
AVAILABLE INFORMATION
The Transferor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Offered Notes offered pursuant to this Prospectus.
This Prospectus, which forms a part of the Registration Statement, omits certain
information contained in such Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement can be inspected and
copied at the Public Reference Room at the Commission at 450 Fifth Street, N.W.,
Washington, D.C. and the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York, 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a site on the World Wide Web containing
reports, proxy materials, information statements and other items. The address is
http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the Notes offered hereby and thereby, nor an offer
of the Notes to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to its date.
--------------------
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, periodic and annual unaudited
reports containing information concerning the Lease Receivables will be prepared
by the Servicer and sent on behalf of the Issuer only to Cede & Company ("Cede")
, 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., 153
East 53rd Street, New York, New York 10022, Attention: David Oplanich,
Treasurer, and after July 1, 1999, 530 Fifth Avenue, New York, New York 10036,
Attention: David Oplanich, Treasurer.
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" or
the "LLC"), a limited liability company organized
under the laws of the state of Delaware. The
activities of the Issuer will be limited by the
terms of the LLC Agreement to acquiring, holding
and managing the Lease Receivables, issuing and
making payments on the Notes and other activities
related thereto.
Transferor................. Charter Funding Corporation V (the "Transferor"), a
New York corporation, and wholly-owned
bankruptcy-remote subsidiary of Charter Financial,
Inc. ("Charter" or the "Company"), a New York
corporation, is the transferor of the Lease
Receivables to the Issuer pursuant to the
Transferor Contribution and Sale Agreement. The
Transferor's principal executive offices are
located at 153 East 53rd Street, New York, New York
10022, and after July 1, 1999 will be 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.................... __________, a banking corporation organized under
the laws of ________ (the "Trustee"). The corporate
trust offices of the Trustee are located at
________.
Cut-Off Date............... The close of business on [ May 31, 1999] (the
"Cut-Off Date").
Closing Date............... On or about [June 22], 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, the next succeeding business
day), commencing July 26, 1999 (each, a "Payment
Date") to holders of record on the related Record
Date (as defined below).
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 other than the
first Payment Date, the last day of the calendar
month immediately preceding such Payment Date
(each, a "Record Date"). With respect to the first
Payment Date, the Record Date will be the Closing
Date.
4
<PAGE>
The Notes.................. The lease-backed notes issued under the Indenture
(the "Notes") consist of seven Classes of
non-recourse debt obligations of the "Class A-1
Notes," the "Class A-2 Notes," the "Class A-3
Notes," the "Class A-4 Notes" (collectively, the
Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes are referred to
herein as the "Class A Notes"), the "Class B
Notes," the "Class C Notes", and the "Class D
Notes", which, respectively, represent the right to
receive repayment of the 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 $[ ], which is anticipated to
equal [ ]% of the Aggregate Discounted Lease
Balance (as defined herein) as of the Cut-off Date.
The "Stated Maturity Dates" for the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes, the Class B Notes, the Class C
Notes and the Class D Notes are _____, 20__, _____,
20__, _____, 20__ , ______, 20__, ______, 20__, ,
______, 20__, and ______, 20__, respectively.
The Notes will be issued pursuant to the Indenture,
to be dated as of June [ ] 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 are being
offered hereby (the "Offered Notes").
Each of the Class A Notes, the Class B Notes, the
Class C Notes and the Class D Notes will be issued
in minimum denominations of $[1,000] and integral
multiples thereof.
Each Class of Notes will represent non-recourse
debt obligations of the Issuer which are secured
solely by a segregated pool of Lease Receivables
(the "Pool of Assets"), as described herein. The
Pool of Assets may consist of any combination of
finance leases, leases intended as security
agreements, installment sale contracts, loan
contracts, synthetic leases, rental stream
obligations or lease participation interests in the
foregoing, together with all monies received
relating thereto (the "Leases"). The Pool of Assets
also may include the underlying equipment and
property relating thereto, together with the
proceeds thereof, 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, as described herein.
The Issuer will be established pursuant to an
agreement (the "LLC Agreement"). The LLC Agreement
will provide for the formation of the Issuer and
set forth certain restrictions upon its operation.
The Issuer will enter into a contribution and sale
agreement with the Transferor (the "Transferor
Contribution and Sale Agreement") by which it will
acquire the Lease Receivables from the Transferor.
The Transferor Contribution and Sale Agreement will
contain schedules which detail the characteristics
of the pool of Lease Receivables held
5
<PAGE>
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 between the Servicer and the Trustee.
The provisions relating to the establishment of the
Issuer, if any, the servicing of the Lease
Receivables and the issuance of the Notes may be
contained in a single agreement, or in several
agreements which combine certain aspects of the
term "Transaction Document" which means,
collectively, any and all agreements relating to
the establishment of the Issuer, the sale and
contribution of the Lease Receivables, the
servicing of the Lease Receivables and the issuance
of the Notes, including, without limitation, the
LLC Agreement, the Transferor Contribution and Sale
Agreement, the Seller Contribution and Sale
Agreement, the Servicing Agreement and the
Indenture.
The Notes will not be obligations, either recourse
or non-recourse [except for certain non-recourse
debt described under "Material Federal Income Tax
Considerations"], of the Transferor, the Servicer,
the Seller or any person other than the Issuer. The
Notes represent obligations of the Issuer, and do
not represent interests in or obligations of the
Transferor, the Servicer, the Seller or any of
their respective affiliates other than the Issuer.
The Notes will, in any event, be secured by assets
in the Pool of Assets.
Neither the Notes nor the underlying Lease
Receivables will be guaranteed or insured by the
Transferor, the Servicer, the Seller, the Trustee
or any of their affiliates. The terms of the
underlying leases are shorter than the stated
maturity of the Notes.
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 $______.
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 Servicer pursuant to the
Servicing Agreement and the Indenture (ii) the
rights to proceeds from certain insurance policies
covering the Equipment; (iii) the interest of the
Transferor in any proceeds from recourse to Vendors
on contract payments; (iv) other rights of the
Transferor under the Seller Contribution and Sale
Agreement conveyed to the Issuer under the
Transferor Contribution and Sale Agreement; and (v)
all proceeds of the foregoing.
6
<PAGE>
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"). No more than 5% of the aggregate
Lease Receivables in the Pool of Assets as of the
Cut-Off Date will deviate from the characteristics
of the Lease Receivables in the Pool of Assets as
of the Closing Date.
The Leases which are structured as leases will be
Finance Leases (as defined below) rather than
Operating Leases (as defined below). In a "Finance
Lease," the Lessor transfers substantially all
benefits and risks of ownership to the Lessee. In
accordance with Statement of Financial Accounting
Standards No. 13 ("FASB 13"), a lease is classified
as a Finance Lease if the collectability of lease
payments are reasonably certain and it meets one of
the following criteria: (1) the lease transfers
title and ownership of the Equipment to the Lessee
by the end of the lease term; (2) the lease
contains a bargain purchase option; (3) the lease
term at inception is at least 75% of the estimated
life of the Equipment; or (4) the present value of
the minimum lease payments is at least 90% of the
fair market value of the Equipment at inception of
the lease. All leases which do not meet the
criteria of Finance Leases are classified, in
accordance with FASB 13, as "Operating Leases."
Leases which are not structured as leases will be
installment sale contracts and loan contracts (the
"Purchase Leases") secured by the related Equipment
and will provide for scheduled payments which fully
amortize the amount financed by an obligor. The
type and characteristics of the Leases included in
the Pool of Assets are described herein under the
heading "Leases."
The Lease Receivables comprising the Pool of Assets
will be acquired by the Transferor from the Seller;
such Lease Receivables will have theretofore been
either (i) originated by 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 a Lease as of the
Cut-Off Date is the present value of all of the
remaining payments scheduled to be made with
respect to such Lease, discounted at a rate and
frequency specified herein.
None of the Lessees are located outside of the
United States. No more than 2% of the Equipment
related to the Leases are located outside the
United States.
7
<PAGE>
Structure of Transaction
Contractual Agreements
------------------------------
Charter Financial, Inc.
------------------------------
(Seller Contribution and Sale
Agreement)
------------------------------
Charter Funding Corporation V
------------------------------
(Transferor Contribution and (Servicing
Sale Agreement) Agreement)
------------------------------
Charter Equipment Lease 1999-1
LLC
------------------------------
(Indenture)
------------------------------
Trustee
------------------------------
------------------------------
Noteholders
------------------------------
Flow of Funds
- -------------------------
(Lease Obligors)
- -------------------------
Lease Payments
- -------------------------
Lockbox Account
- -------------------------
- ------------------------- --------------------- --------------------
Distribution Account Trustee Noteholders
- ------------------------- --------------------- --------------------
8
<PAGE>
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" 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
payments to Noteholders to the extent there occurs
an Available Funds Shortfall (as defined herein).
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 the Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances in
respect of a prior Payment Date;
(c) to make Interest Payments owing on the Class A
Notes concurrently and pro rata to the Class
A-1 Noteholders, Class A-2 Noteholders, Class
A-3 Noteholders and Class A-4 Noteholders;
(d) to make Interest Payments owing on the Class B
Notes;
(e) to make Interest Payments owing on the Class C
Notes;
(f) to make Interest Payments owing on the Class D
Notes;
(g) to make the Class A Principal Payment (i) to
the Class A-1 Noteholders only, until the
Outstanding Principal Amount on the Class A-1
Notes is reduced to zero, then (ii) to the
Class A-2 Noteholders only, until the
Outstanding Principal Amount on the Class A-2
Notes is reduced to zero, then (iii) to the
Class A-3 Noteholders only, until the
Outstanding Principal Amount on the Class A-3
Notes is reduced to zero and finally, (iv) to
the Class A-4 Noteholders until the Outstanding
Principal Amount on the Class A-4 Notes is
reduced to zero
(h) to make the Class B Principal Payment to the
Class B Noteholders;
(i) to make the Class C Principal Payment to the
Class C Noteholders;
(j) to make the Class D Principal Payment to the
Class D Noteholders;
(k) to pay Additional Principal, if any, to the
Class A Noteholders then receiving the Class A
Principal Payment as provided in clause (g)
above until the Outstanding Principal Amount on
all of the Class A Notes has been reduced to
zero, then to the Class B Noteholders until the
Outstanding Principal Amount on the Class B
Notes has been reduced to zero, then to the
Class C Noteholders until the Outstanding
Principal Amount on the Class C Notes has been
reduced to zero, thereafter to the Class D
Noteholders until the Outstanding Principal
Amount on the Class D Notes has been reduced to
zero;
9
<PAGE>
(l) 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);
and
(m) to the Issuer, the balance, if any.
See "Description of the Notes -- Application of
Payments."
Interest................... On each Payment Date, the interest due (the
"Interest Payments") with respect to the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes, the Class B Notes, the Class C
Notes and the Class D Notes since the last Payment
Date will be the interest that has accrued on such
Notes since the last Payment Date (or in the case
of the first Payment Date, with respect to the
Class A-1 Notes, since the Closing Date, and with
respect to all other Notes, since ________________)
(the "Interest Accrual Period") at the applicable
Note Interest Rate applied to the then unpaid
principal amounts (the "Outstanding Principal
Amounts") of the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes,
the Class B Notes, the Class C Notes, and the Class
D Notes, respectively, after giving effect to
payments of principal to the Class A-1 Noteholders,
the Class A-2 Noteholders, the Class A-3
Noteholders, the Class A-4 Noteholders, the Class B
Noteholders, the Class C Noteholders and the Class
D Noteholders, respectively, on the preceding
Payment Date. 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
(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
10
<PAGE>
(iv) to the Class A-4 Noteholders, until the
Outstanding Principal Amount on the Class
A-4 Notes has been reduced to zero, the
Class A Principal Payment,
(b) to the Class B Noteholders, the Class B
Principal Payment (as defined below),
(c) to the Class C Noteholders, the Class C
Principal Payment (as defined below),
(d) to the Class D Noteholders, the Class D
Principal Payment (as defined below), and
(e) to the extent that the Class B Floor (as
defined below) exceeds the Class B Target
Investor Principal Amount (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 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).
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
11
<PAGE>
A-1 Notes has been reduced to zero, the amount
necessary to reduce the Outstanding Principal
Amount of the Class C Notes to the greater of the
Class C Target Investor Principal Amount (as
defined below) and the Class C Floor (as defined
below).
The "Class D Principal Payment" shall equal: (a)
while the Class A-1 Notes are outstanding, zero and
(b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the
amount necessary to reduce the Outstanding
Principal Amount of the Class D Notes to the
greater of the Class D Target Investor Principal
Amount (as defined below) and the Class D Floor (as
defined below).
The "Class A Target Investor Principal Amount" with
respect to each Payment Date is an amount equal to
the product of (a) the Class A Percentage (as
defined below) and (b) the Aggregate Discounted
Lease Balance as of the related Calculation Date.
The "Class B Target Investor Principal Amount" with
respect to each Payment Date is an amount equal to
the product of (a) the Class B Percentage (as
defined below) and (b) the Aggregate Discounted
Lease Balance as of the related Calculation Date.
The "Class C Target Investor Principal Amount" with
respect to each Payment Date is an amount equal to
the product of (a) the Class C Percentage (as
defined below) and (b) the Aggregate Discounted
Lease Balance as of the related Calculation Date.
The "Class D Target Investor Principal Amount" with
respect to each Payment Date is an amount equal to
the product of (a) the Class D Percentage (as
defined below) and (b) the Aggregate Discounted
Lease Balance as of the related Calculation Date.
The Class A Target Investor Principal Amount, the
Class B Target Investor Principal Amount, the Class
C Target Investor Principal Amount, and the Class D
Target Investor Principal Amount are collectively
referred to as the "Class Target Investor Principal
Amounts."
The "Class A Percentage" will be equal
approximately to _________%. The "Class B
Percentage" will be equal approximately to
__________%. The "Class C Percentage" will be equal
approximately to __________%. The "Class D
Percentage" will be equal approximately to
________%.
The "Class B Floor" with respect to each Payment
Date means:
(a) ____% of the initial Aggregate Discounted Lease
Balance as of the Cut-Off Date, plus
(b) the Cumulative Loss Amount with respect to such
Payment Date, minus
(c) the sum of the Outstanding Principal Amount of
the Class C Notes, the Outstanding Principal
Amount of the Class D Notes, and the
Overcollateralization Balance as of the
immediately preceding Payment Date after giving
effect to all principal payments made on that
day minus
12
<PAGE>
(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) ___% 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.
The "Class D Floor" with respect to each Payment
Date means:
(a) ___% of the initial Aggregate Discounted Lease
Balance as of the Cut-Off Date, plus
(b) the Cumulative Loss Amount with respect to such
Payment Date, minus
(c) the Overcollateralization Balance as of the
immediately preceding Payment Date after giving
effect to all principal payments made on that
day, 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 Balance of
the Notes plus the Overcollateralization
Balance as of the immediately preceding
Payment Date after giving effect to
payments on such Payment Date, minus (B)
the Aggregate Discounted Lease Balance as
of the related Calculation Date, over
13
<PAGE>
(ii) the sum of the Class A Principal Payment,
the Class B Principal Payment, the Class
C Principal Payment, and the Class D
Principal Payment to be paid on such
Payment Date.
The "Overcollateralization Balance" with respect to
each Payment Date is an amount equal to the excess,
if any, of (a) the Aggregate Discounted Lease
Balance as of the related Calculation Date over (b)
the Outstanding Principal Amount of the Notes as of
such Payment Date after giving effect to all
principal payments made on that day.
The "Cumulative Loss Amount" with respect to each
Payment Date is an amount equal to the excess, if
any, of
(a) the total of:
(i) the Outstanding Principal Amount of the
Notes as of the immediately preceding
Payment Date after giving effect to all
principal payments made on that day, plus
(ii) the Overcollateralization Balance as of
the immediately preceding Payment Date,
minus
(iii) the lesser of (A) the Aggregate
Discounted Lease Balance as of the
Calculation Date relating to the
immediately preceding Payment Date minus
the Aggregate Discounted Lease Balance as
of the related Calculation Date and (B)
Available Funds remaining after the
payment of amounts owing the Servicer and
in respect of interest on the Notes on
such Payment Date, over
(b) the Aggregate Discounted Lease Balance as of
the related Calculation Date.
The "Discounted Lease Balance" of any Lease as of
the Cut-Off Date will mean the present value of all
Lease Payments due thereon after the Cut-Off Date
(excluding payments with respect to Defaulted
Leases, Early Termination Leases and Leases subject
to a Warranty Event), discounted monthly, 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.
The "Discount Rate" is the sum of :
(a) the weighted average of the Class A-1 Note
Interest Rate, the Class A-2 Note Interest
Rate, the Class A-3 Note Interest Rate, the
Class A-4 Note Interest Rate, the Class B Note
Interest Rate, the Class C Note Interest Rate
and the Class D Note Interest Rate, calculated
as of the Closing Date, and
(b) the Servicing Fee Rate (as hereinafter
defined).
Thereafter, the Discounted Lease Balance of any
Lease as of any Payment Date shall be determined on
the related Calculation Date and it shall equal the
present value of each remaining Lease Payment to
become due under a Lease (excluding payments with
respect to Defaulted Leases (as defined herein),
Early
14
<PAGE>
Termination Leases (as defined herein) and Leases
subject to a Warranty Event), 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.
The "Aggregate Discounted Lease Balance" for any
Calculation Date is the sum of the Discounted Lease
Balances of all Leases.
Subordination.............. Payments of interest on the Class B Notes, the
Class C Notes and the Class D Notes will be
subordinated in priority of payment to interest due
on the Class A Notes to the extent described
herein. The Class B Notes, the Class C Notes and
the Class D Notes will not receive any payments of
interest with respect to a Collection Period until
the full amount of interest on the Class A Notes
relating to such Collection Period has been
allocated to the Class A Notes. Payments of
interest on the Class C Notes and the Class D
Notes, will be subordinated in priority of payment
to interest due on the Class B Notes to the extent
described herein. The Class C Notes and the Class D
Notes will not receive any payments of interest
with respect to a Collection Period until the full
amount of interest on the Class B Notes relating to
such Collection Period has been allocated to the
Class B Notes. Payments of interest on the Class D
Notes will be subordinated in priority of payment
to interest due on the Class C Notes to the extent
described herein. The Class D Notes will not
receive any payments of interest with respect to a
Collection Period until the full amount of interest
on the Class C Notes relating to such Collection
Period has been allocated to the Class C Notes.
Payments of principal on the Class B Notes, the
Class C Notes and the Class D Notes will be
subordinated in priority of payment to principal
due on the Class A Notes to the extent described
herein. Payments of principal on the Class C Notes
and the Class D Notes will be subordinated in
priority of payment to principal due on the Class B
Notes to the extent described herein. Payments of
principal on the Class D Notes will be subordinated
in priority of payment to principal due on the
Class C Notes to the extent described herein.
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 Servicer and to make interest
payments on the Notes and principal payments on the
Notes (other than with respect to the Class D
Notes) from the amount of funds on deposit in the
Reserve Account. The Reserve Account will be funded
by an initial deposit of [ [ %] 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) [ %] 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.
Events of Default.......... "Event of Default" under the Indenture with respect
to the Notes shall include any one or more of the
following:
15
<PAGE>
(i) the failure to pay interest on any Note
within four (4) days of when due or principal
on any Note by its Stated Maturity Date;
(ii) the failure of the Seller, the Transferor, or
the Servicer to make payments or deposits
required under the Transaction Documents
within three (3) Business Days;
(iii) the failure of the Seller or the Servicer,
the Transferor, the Issuer, 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);
(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 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.
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
16
<PAGE>
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") of
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 Lockbox
Account (as defined herein) or the Distribution
Account (as defined herein), plus late payment fees
and certain other fees paid by the Lessees
("Servicing Charges"), as compensation for acting
as Servicer.
Except as hereinafter provided, on the day prior to
any Payment Date, the Servicer may make an advance
(a "Servicer Advance") to the Trustee in an amount
sufficient to cover all amounts due and unpaid on
any Delinquent Lease as of the previous Calculation
Date ("Delinquency Amounts"). A "Delinquent Lease"
will mean, as of any Calculation Date, any Lease
(other than a Lease which became a Defaulted Lease
prior to such Calculation Date) with respect to
which the Lessee has not paid all Lease Payments
then due. With respect to any Delinquent Lease,
whenever the Servicer shall have determined that it
will be unable to recover a Delinquency Amount or
portion thereof on such Delinquent Lease, the
Servicer shall not make a Servicer Advance on such
unrecoverable Delinquency Amount or portion
thereof, but will be required to enforce its
remedies (including acceleration) under such Lease.
In the event that the Servicer reasonably
determines that any Servicer Advances previously
made will not ultimately be recovered from the
related Lease and, thus, are "Nonrecoverable
Advances," or any Delinquent Leases for which the
Servicer has made advances of Delinquency Amounts
in respect thereof become Defaulted Leases, then
the Trustee shall have the right to draw on the
Lockbox Account or 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 lockbox account (the
"Lockbox Account") maintained in the name of the
Trustee. Funds in the Lockbox Account will be
distributed to the Distribution Account maintained
with the Trustee no later than the [ ] Business Day
prior to each Payment Date.
On the third Business Day prior to each Payment
Date (each, a "Reporting Date"), the Servicer shall
be required to deliver a monthly Servicer Report to
(i) the Trustee on behalf of the Noteholders, (ii)
each Rating Agency (as defined herein) and (iii)
the Underwriter (as defined herein) detailing
amounts received on the Leases in respect of the
immediately preceding Collection Period and
available for distribution on the Payment Date.
[Lease Receivable
Substitution............... The Seller shall have the right (but not the
obligation) to substitute a Lease Receivable for
any Lease Receivable which defaults or prepays.
Substitute Lease Receivables must be at least equal
in Discounted Lease Balance and comparable in terms
of credit quality, monthly payment, and other
characteristics; provided, that in no event shall
the maturity date of any Lease Receivable
substituted for a Lease Receivable removed from the
Pool of Assets in accordance with the Indenture and
the related Transaction Documents (a
17
<PAGE>
"Substitute Lease Receivable") be later than the
last maturity date of any Lease Receivable.]
Legal Aspects
of the Leases.............. With respect to the transfer of the Leases to the
Issuer pursuant to a the Transferor Contribution
and Sale Agreement or the pledge of the Issuer's
right, title and interest in and to such Leases on
behalf of Noteholders pursuant to the Indenture,
the Transferor will warrant, in each case, that
such transfer is either a valid transfer and
assignment of the Leases to the Issuer or the grant
of a security interest in the Leases. The
Transferor shall warrant that, if the transfer or
assignment by it to the Issuer or to the
Noteholders is deemed to be a grant to the Issuer
or to the Noteholders of a security interest in the
Leases, then the Issuer or the Noteholders will
have a first priority perfected security interest
therein, except for certain liens which have
priority over previously perfected security
interests by operation of law, and, with certain
exceptions, in the proceeds thereof.
Optional Redemption........ The Issuer will have the option, subject to certain
conditions set forth in the Indenture, to prepay
all of the Notes on any Payment Date on which the
Aggregate Discounted Lease Balance is less than 10%
of the Initial Aggregate Discounted Lease Balance
(an "Optional Redemption"). In the event such
option is exercised, the entire outstanding
principal balance of the Notes, together with
accrued interest thereon at the respective Note
Interest Rate, as applicable, will be required to
be paid to the Noteholders on such Payment Date.
Limited Repurchase
Obligation................. In the Seller Contribution and Sale Agreement, the
Seller will make certain representations and
warranties with respect to, among other things, the
Lease Receivables. The Seller will be obligated to
repurchase a Lease Receivable if the interest of
the Issuer, the Trustee, the Transferor or the
Noteholders is materially adversely affected by a
breach of such a representation or warranty made by
the Seller with respect to such Lease Receivable
and if such breach has not been cured as of
[_______] days following the Seller's discovery or
receipt of notice of such breach.
In the Transferor Contribution and Sale Agreement,
the Transferor will make certain representations
and warranties with respect to, among other things,
the Lease Receivables. The Transferor will be
obligated to repurchase a Lease Receivable if the
interest of the Issuer, the Trustee or the
Noteholders is materially adversely affected by a
breach of such a representation or warranty made by
the Transferor with respect to such Lease
Receivable and if such breach has not been cured as
of [_______] days following the Seller's discovery
or receipt of notice of such breach.
Tax Considerations......... Subject to the discussion below, under the Internal
Revenue Code of 1986 (the "Tax Code"), as amended,
and existing regulations, administrative rules and
judicial decisions, Tax Counsel (as defined herein)
is of the opinion that under existing law the
Offered Notes will be characterized as indebtedness
for federal income tax purposes. Under the
Transaction Documents, the Transferor, the Issuer,
the Seller, the Servicer, the Noteholders and other
parties will agree to treat the Notes as debt for
all income tax purposes. As a result, a portion of
each payment on the Notes will be treated as
interest. Holders of the Offered Notes will be
required to include interest paid or accrued on the
Offered Notes in gross income. Principal Payments
on the Offered Notes should, to the extent of the
Noteholder's basis in the Offered Notes allocable
thereto, be treated as a return
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of capital. See "Material Federal Income Tax
Consequences" herein for additional information
concerning the application of federal income tax
laws.
ERISA Considerations....... The acquisition of Notes by an employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the
provisions of Section 4975 of the Tax Code (a
"Plan"), could result in a prohibited transaction
under "ERISA" or Section 4975 of the Tax Code,
unless such acquisition is subject to a statutory
or administrative exemption, if, by virtue of such
acquisition, assets held by the Issuer and pledged
to the Trustee were deemed to be assets of the
Plan. In addition, the Issuer or other parties may
be considered to be a fiduciary with respect to any
Plan. Therefore, the acquisition and transfer of
the Notes are subject to certain restrictions. See
"ERISA Considerations."
Ratings.................... It is a condition to the issuance of the Notes that
the Class A-1 Notes be rated [ ] by [ ] and [ ] by
[ ], the Class A-2 Notes be rated [ ] by [ ] and [
] by [ ], the Class A-3 Notes be rated [ ] by [ ]
and [ ] by [ ], the Class A-4 Notes be Rated [ ] by
[ ] and [ ] by [ ], the Class B Notes be rated [ ]
by and [ ] by [ ], the Class C Notes be rated [ ]
by [ ] and [ ] by [ ], and the Class D Notes be
rated [ ] by [ ] and [ ] by [ ] (each of [ ] and [
] are referred to herein as a "Rating Agency," and
collectively as the "Rating Agencies"). A security
rating is not a recommendation to purchase, hold or
sell Notes inasmuch as such rating does not comment
as to market price or suitability for a particular
investor. Ratings address the likelihood of timely
payment of interest and the ultimate payment of
principal on the Notes pursuant to their terms.
Ratings will not address the likelihood of an early
return of invested principal. There can be no
assurance that any rating will remain for a given
period of time or that a rating will not be lowered
or withdrawn entirely if, in the judgment of any
Rating Agency, circumstances in the future so
warrant. See "Ratings " herein.
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RISK FACTORS
Prospective Noteholders should consider, among other things, the following
factors in connection with the purchase of the Notes:
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 ."
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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 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 will be a limited-purpose
subsidiary of Charter created pursuant to articles of incorporation containing
certain limitations (including restrictions on the nature of the Transferor's
business and a restriction on the Transferor's ability to commence a voluntary
case or proceeding under any Insolvency Law without the prior unanimous
affirmative vote of all its directors). However, there can be no assurance that
the activities of the Transferor would not result in a court's concluding that
the assets and liabilities of the Transferor should be consolidated with those
of the Seller in a proceeding under any Insolvency Law.
The Seller Contribution and Sale Agreement , 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 Lockbox Account and, in the event of the
bankruptcy of the Seller, the Transferor, the Issuer, or the Trustee may not
have a perfected interest in such collections.
The Transferor believes that the transfer of the Lease Receivables by the
Seller to the Transferor should be treated as a valid assignment, transfer and
conveyance of such Lease Receivables. However, in the event of an insolvency of
the Seller, a competing creditor or a trustee in bankruptcy, among other
remedies, could attempt to have a court recharacterize the transfer of the Lease
Receivables by the Seller to the Transferor as a borrowing by the Seller from
the Transferor or the related Noteholders, secured by a pledge of the Lease
Receivables. Such an attempt, even if unsuccessful, could result in delays in
payments on the Notes. If such an attempt were successful, a court, among other
remedies, could elect to accelerate payment of the Notes and liquidate the Lease
Receivables, with the Noteholders entitled to the then outstanding principal
amount thereof and interest thereon at the applicable Note Interest Rate to the
date of payment. Thus, the Noteholders could lose the right to future payments
of interest and might incur reinvestment losses. In the event the Issuer is
rendered insolvent, the Trustee, in accordance with the Indenture, will promptly
sell, dispose of or otherwise liquidate the Lease Receivables in a commercially
reasonable manner on commercially reasonable terms.
The proceeds from any such sale, disposition or liquidation of the Lease
Receivables will be treated as collections on the Lease Receivables. If the
proceeds from the liquidation of the Lease Receivables and
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<PAGE>
any amount available from any credit enhancement, if any, are not sufficient to
pay Notes in full, the amount of principal returned to the Noteholders will be
reduced and the Noteholders will incur a loss.
Lessees of the Equipment may be entitled to assert against the Seller, the
Transferor, or the Issuer 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 yield to maturity on Stripped Notes (as defined in the Tax Code), or Notes
purchased at premiums or discounts to par will be extremely sensitive to the
rate of Prepayments on the related Leases. In addition, the yield to maturity on
certain other types of classes of Notes, including Stripped Notes, Accrual Notes
or certain other Classes in a series including more than one Class of Notes, may
be relatively more sensitive to the rate of prepayment of the related Leases
than other Classes of Notes.
The Transferor does not have available to it any statistics as to
prepayment rates historically experienced in the equipment leasing industry. The
rate of Prepayments of Leases cannot be predicted and is influenced by a wide
variety of economic and other factors, including prevailing interest rates, the
availability of alternate financing and local and regional economic conditions.
Therefore, no assurance can be given as to the level of Prepayments that the
Pool of Assets will experience. The Noteholders will bear all reinvestment risk
resulting from the timing of payments in the Notes.
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 could result in an actual yield that is less than the anticipated
yield.
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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 or
prepays. Substitute Lease Receivables must be at least equal in Discounted Lease
Balance and comparable in terms of credit quality, monthly payment, and other
characteristics 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
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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.
Geographic Concentration of the Leases May Adversely Affect the Leases. As
of the Cut-Off Date, Obligors with respect to [ ]% and [ ]% of the Leases (based
on Aggregate Discounted Lease Balance and mailing addresses as of the Cut-Off
Date were located in [ ] and [ ], 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. [Need to include states in which there is a
material concentration of Lease Receivables & Equipment]
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 and/or lease participation interests in the foregoing,
together with all monies (including accrued interest) due thereunder on or after
the applicable Cut-Off 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 Servicer 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 related Seller, (ii) originated by various Vendors and
acquired by the Seller or (iii) acquired by the Seller from sellers or other
originators of Lease Receivables.
The Equipment underlying the Lease Receivables included in the Pool of
Assets generally will be limited to personal property which is leased or
financed by the Seller or the originator from which the Seller acquired the
Lease Receivables to the Lessee pursuant to Leases which either are "chattel
paper" (as defined in the Uniform Commercial Code) or are Leases that are not
treated materially differently from "chattel paper" for purposes of title
transfer, security interests or remedies on default. However, certain Leases may
also have as additional security 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.
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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 153 East 53rd
Street, New York, New York 10022, and after July 1, 1999 shall be 530 Fifth
Avenue, New York, New York 10036.
The Issuer was established pursuant to a Certificate of Formation as of
September 21, 1999. The Issuer is governed pursuant to that certain Limited
Liability Company Agreement dated as of September 21, 1998, as amended as of May
17, 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
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 of 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, on the day of such
substitution, the Seller will represent and warrant that the Leases shall comply
with the following:
(i) The Leases are valid and enforceable, and contain "Hell or High
Water" clauses that unconditionally obligate the Lessee to make periodic
Lease payments (including taxes);
(ii) The Leases are noncancellable by the Lessee and do not contain
early termination options (except for Leases which contain early
termination or prepayment clauses, which require the Lessee to pay the
present value of (as determined in such Lease) all remaining Scheduled
Payments under such Lease upon such cancellation or prepayment);
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(iii) All payments payable under the Leases are absolute,
unconditional obligations of the Lessees without right to offset for any
reason;
(iv) All of the Leases require the Lessee or a third party to maintain
the Equipment in good working order, to bear all the costs of operating the
Equipment, including taxes and insurance relating thereto;
(v) The Leases do not materially violate any U.S. or state laws;
(vi) The Leases provide for periodic payments;
(vii) In the event of a Casualty Loss (as defined below), the Lessee,
at the Lessee's expense, is required to replace the Equipment with like
equipment in good repair, acceptable to Seller or pay at a minimum the
outstanding principal or net book value of the Leases and any applicable
make whole premium;
(viii) The Leases have been sold to the Transferor free and clear of
any liens and are assignable without prior written consent of the Lessee;
(ix) The Leases are U.S. dollar-denominated and the Lessor and each
Lessee are located in the United States;
(x) The Lease is not a consumer lease;
(xi) The Lease is not subject to any guaranty by the Seller;
(xii) No adverse selection was used in selecting the Lease for
transfer to the Transferor or the Issuer;
(xiii) The Lessee has represented to the Seller or Vendor that it has
accepted the Equipment;
(xiv) The Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xv) The Leases are not Defaulted Leases;
(xvi) The maximum remaining term of any Lease shall not exceed [ ]
months ("Maximum Lease Term"); and
(xvii) Each Lease is not more than 60 days past due at time of
transfer to the Transferor or the Issuer (an == "Acceptable Payment
Status").
Lease Payments and Valuation
In connection with all calculations required to be made pursuant to the
Transaction Documents with respect to the determination of Aggregate Discounted
Lease Balances, on any Calculation Date the 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;
26
<PAGE>
All of the Leases require the periodic, scheduled payment of rent or other
payments on a monthly, quarterly, semi-annual or annual basis, in arrears or in
advance. Such periodic payments are referred to herein as "Lease Payments."
Delinquencies, Repossessions, and Net Losses
Certain information relating to the Seller's delinquency, repossession and
net loss experience with respect to Leases it has originated or acquired will be
set forth below. This information may include, among other things, the
experience with respect to all Leases in the Seller's portfolio during certain
specified periods, including Leases which may not meet the criteria for
selection as a Lease Receivable for the Pool of Assets. There can be no
assurance that the delinquency, repossession and net loss experience on the Pool
of Assets will be comparable to the Seller's prior experience.
Maturity and Prepayment Considerations
If a Lease permits a Prepayment, such Prepayment, together with accelerated
payments resulting from defaults, will shorten the weighted average life of the
pool of Lease Receivables and the weighted average life of the Notes. The rate
of Prepayments on the Lease Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
the Transferor or the Seller will be obligated to reacquire Lease Receivables
from the Pool of Assets pursuant to the applicable Transaction Documents as a
result of breaches of representations and warranties. Any reinvestment risks
resulting from a faster or slower amortization of the Notes which results from
Prepayments will be borne entirely by the Noteholders.
Acquisition of Lease Receivables from the Seller
The Lease Receivables underlying the Notes will be acquired by the
Transferor from the Seller pursuant to the Seller Contribution and Sale
Agreement between the Transferor and the Seller.
The Transferor expects that each Lease Receivable so acquired will have
been originated or acquired by the Seller thereof in accordance with the
Seller's underwriting criteria. The Seller pursuant to the Seller Contribution
and Sale Agreement will make certain representations and warranties to the
Transferor in respect of the related Lease Receivables; the material terms of
such representations and warranties will be set forth herein under the heading
"Definition of the Notes-- Representations and Warranties." The Transferor will
assign all of its rights (except certain rights of indemnification) and interest
in the Seller Contribution and Sale Agreement to the Issuer, which in turn will
assign all its rights to the Trustee for the benefit of the Noteholders, and the
Seller shall thereupon be liable to the Issuer and the Trustee for defective or
missing documents or an uncured breach of such Seller's representations or
warranties.
The Leases
As of the initial Calculation Date, the Leases had an Aggregate Discounted
Lease Balance (calculated using an assumed discount rate of [ ]%) of
approximately $[ ]. The statistical information concerning the pool of Leases
set forth herein is based upon information as of the initial Calculation Date
and using the then applicable Discount Rate. The actual Discount Rate of [ ]%
applicable to the Closing Date is a per annum rate equal to the sum of (i) the
weighted average Note Interest Rates of the Notes and (ii) the Servicing Fee
Rate, and shall be used to calculate the actual Initial Note Principal Balances
and the actual Initial Aggregate Discounted Lease Balance. The Initial Aggregate
Discounted Lease Balance of the Leases as of the Cut-Off Date calculated using
the Discount Rate is $[ ]. 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.
As of any Calculation Date, the Aggregate Discounted Lease Balance shall
equal the sum of the present value of all remaining Lease Payments of Eligible
Leases (excluding payments with respect to Defaulted
27
<PAGE>
Leases, Early Termination Leases and Leases subject to a Warranty Event)
becoming due after such Calculation Date discounted monthly at the Discount
Rate.
The Leases have the characteristics specified in the 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 terms of the Leases generally range from [ ] to [ ] months. The final
scheduled payment date on the Lease with the latest maturity is [ ], [ ]. As of
the initial Calculation Date, all of the Leases had (i) original terms to
maturity of [ ] months to [ ] months, with a weighted average original term to
maturity of approximately [ ] months; and (ii) a remaining term to maturity of
not less than [ ] months and not more than [ ] months, with a weighted average
remaining term to maturity of approximately [ ] months.
References herein to percentages of Lessees refer in each case to the
percentage of the Aggregate Discounted Lease Balance of the Leases as of the
Calculation Date.
As of the Calculation Date, the Aggregate Discounted Lease Balance of the
Leases ranged from $[ ] to $ [ ]. No more than [ ]% of the Aggregate Discounted
Lease Balance is attributable to any one Lessee, and the average Discounted
Lease Balance is approximately $ [ ].
Under the Servicing Agreement, the Servicer is permitted to allow a Lessee
to prepay a Lease in an amount not less than the related Prepayment Amount. In
addition, in the event that a Lessee requests an upgrade or trade-in of
Equipment, the Servicer may remove such Equipment and related Lease from the
Pool of Assets, but 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 either a Defaulted
Lease, a Lease subject to a Warranty Event, or a Lease subject to a Casualty
Loss, up to a maximum of [ ]% of the Aggregate Discounted Lease Balance of
contracts contributed to the pool, provided the following conditions are met:
(i) At the time of substitution, the substituted Eligible Leases have
in the aggregate Discounted Lease Balances of not less than the aggregate
of the Discounted Contract Balance of the Leases being replaced;
(ii) Substitutions by the Transferor shall be approximately the same
weighted average life of the remaining originally scheduled Lease payments
in the pool and shall not extend the final maturity of the pool beyond the
original maturity of the initial Leases in the pool.
Each substitute Lease shall be a Lease, satisfying certain representations
and warranties set forth in the Servicing Agreement, the Indenture and the
Transferor Contribution and Sale Agreement (a "Substitute Lease") as of the
related Substitute Lease Cut-Off Date. In addition, the following conditions
must be satisfied:
(a) [on a cumulative basis from the Cut-Off Date, the sum of the
Discounted Lease Balance (as of the related Substitute Lease Cut-Off Date)
of such Substitute Leases would not exceed 10% of the Initial Aggregate
Discounted Lease Balance of all Leases as of the Cut-Off Date;
(b) as of the related Substitute Lease Cut-Off Date, the Substitute
Leases then being transferred have in the aggregate Discounted Lease
Balances that are not less than the aggregate of the Discounted Lease
Balances of the Leases being replaced; and
28
<PAGE>
(c) no substitution shall be permitted if, after giving effect to such
substitution, (x) the sum of the Lease Payments (as defined below) on all
Leases due in any Collection Period thereafter would be less than (y) the
sum of the Lease Payments which would otherwise be due in such Collection
Period.]
The Lease Receivable Statistical Information
Following is certain statistical information relating to the Lease
Receivable pool, calculated as of the Cut-Off Date and assuming a Discount Rate
of [ ]% (the "Statistical Discount Rate"). Certain columns may not total 100%
due to rounding.
29
<PAGE>
DISTRIBUTION OF LEASES BY DISCOUNTED LEASES BALANCE
<TABLE>
<CAPTION>
Percentage of
Discounted Number of Sum of Discounted Aggregate Discounted
Lease Balances Leases Lease Balances Lease Balance
-------------- ------ -------------- -------------
Greater Less Than or
Than Equal to
---- --------
<S> <C> <C> <C> <C>
$ 1 $ 5,000 $ %
5,000 10,000
10,000 15,000
15,000 20,000
20,000 25,000
25,000 30,000
30,000 35,000
35,000 40,000
40,000 45,000
45,000 50,000
50,000 55,000
55,000 60,000
60,000 65,000
65,000 70,000
70,000 75,000
75,000 80,000
80,000 85,000
85,000 90,000
90,000 95,000
95,000 100,000
100,000 150,000
150,000 200,000
200,000 250,000
250,000 300,000
300,000 350,000
350,000 400,000
400,000 450,000
450,000 500,000
500,000 600,000
600,000 750,000
==============================================================================================
Total............................... $ 100.00%
==============================================================================================
</TABLE>
30
<PAGE>
DISTRIBUTION OF THE LEASES BY DEFINED OBLIGOR INDUSTRY (Top 25)
<TABLE>
<CAPTION>
Number Percentage Of
of Sum of Discounted Aggregate Discounted
Industry Type Leases Lease Balances Lease Balance
------------- ------ -------------- -------------
<S> <C> <C> <C>
$ %
- ------------------------------------------------------------------------------------------------------------
Total (Top 25 Defined Industries).............. $ %
- ------------------------------------------------------------------------------------------------------------
All Others..................................... $ %
============================================================================================================
Total ....................................... $ 100.00%
============================================================================================================
</TABLE>
31
<PAGE>
DISTRIBUTION OF THE LEASES BY OBLIGOR BILLING ADDRESS
Percentage of
Number of Sum of Discounted Aggregate Discounted
State Leases Lease Balances Lease Balance
- ----- --------- ----------------- --------------------
Alabama $ %
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington, D.C.
West Virginia
Wisconsin
Wyoming
32
<PAGE>
DISTRIBUTION OF THE LEASES BY REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Remaining Term in Months
- -----------------------------------------------------------------------------------------------------------
Percentage Of
Greater Less Than Number Sum of Discounted Lease Aggregate Discounted Lease
Than or Equal to of Leases Balances Balance
----- ----------- --------- -------- -------
<S> <C> <C> <C> <C>
1 12 $ %
12 24
24 36
36 48
48 60
60 72
72 84
84 96
- -----------------------------------------------------------------------------------------------------------
Total ..................... $ 100.00%
===========================================================================================================
</TABLE>
DISTRIBUTION OF THE LEASES BY ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Original Term in Months
- -----------------------------------------------------------------------------------------------------------
Percentage of
Greater Less Than Number Sum of Discounted Lease Aggregate Discounted
Than or Equal to of Leases Balances Lease Balance
---- ----------- --------- -------- -------------
<S> <C> <C> <C> <C>
1 12 $ %
12 24
24 36
36 48
48 60
60 72
72 84
84 96
- -----------------------------------------------------------------------------------------------------------
Total ..................... $ 100.00%
===========================================================================================================
</TABLE>
33
<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 153 East 53rd
Street, New York, New York 10022 and after July 1, 1999, 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 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 U.S. and Canada.
In addition to its New York headquarters, sales offices are maintained in
Portsmouth, NH; Danbury, CT; Charlotte, NC; Cleveland, OH; Portland, OR;
Chicago, IL; Los Angeles, CA and Bethesda, MD in the U.S. as well as in Toronto
and Winnipeg in Canada.
The following table briefly describes Charter's major industry segments.
Overview of Industry Segments
Segment Description
================================================================================
Plastics/Packaging Provide equipment financing to companies involved in
all facets of the plastics industry as well as
recent entries into packaging, and CD-ROM
- --------------------------------------------------------------------------------
Media Provide equipment financing to companies involved
with film and video production and postproduction,
printing and graphic arts and other related media
business
- --------------------------------------------------------------------------------
Specialty Markets Provide equipment financing to a variety of industry
segments based upon market opportunities. End users
include business services, electronics, leisure and
communications, among others
- --------------------------------------------------------------------------------
Capital Markets Provide equipment financing to high-growth, late
stage venture capital sponsored companies in
structured transactions
- --------------------------------------------------------------------------------
Wholesale Acquire lease portfolios and individual transactions
from other institutions
- --------------------------------------------------------------------------------
Healthcare Provide equipment financing to leading hospitals in
the New York area
34
<PAGE>
Segment Description
================================================================================
Vendor Finance Originate dealer/manufacturer referred leases in
selected industries
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 US 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 US 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
(2) 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
35
<PAGE>
may require credit enhancement such as additional collateral in the form of
unencumbered equipment, accounts receivable or inventory, a letter of credit, a
certificate of deposit or a third-party guarantee as a prerequisite to approving
a transaction.
Concurrent with the credit approval of a transaction, a contract
administrator is assigned to prepare standard transaction documents to be
submitted to the client for execution. All non-standard documents or
non-standard terms and conditions are reviewed and approved by one of the
company's in-house attorneys. The assigned contract administrator is responsible
for obtaining all required executed documents, insurance certificates, UCC
financing statements, appropriate invoices covering the equipment and for
initiating payment of the equipment costs to the vendor and/or reimbursing the
client for any payments previously made to the vendor on account of such
equipment. Prior to releasing funds, the documents are subject to a second
review by an authorized senior contract administrator, who verifies the accuracy
of the documents, and are then approved by the credit team leader who verifies
that all of the terms of the credit approval have been met and that the lessee
is current with all payments on outstanding leases with 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.
For Charter's held and securitized portfolio, as of March 31, 1999, a total
lease balance of $9.3 million or 1.6% of managed receivables was 31-60 days
delinquent, a total lease balance of $4.3 million or 0.50% of managed
receivables was 61-90 days delinquent, and a total lease balance of $5.2 million
or 0.60% of managed receivables was 91 days or more.
36
<PAGE>
Delinquency/Loss Statistics
($ in thousands)
<TABLE>
<CAPTION>
three
Total Portfolio (includes months
receivables sold non- December December December December December ending
recourse) 31, 1994 31, 1995 31, 1996 31, 1997 31, 1998 March 31,
1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year
Ending
Gross
Receivables
30-60 Days
Delinquent
61-90 Days Delinquent
91 Days or more
Delinquent
*Annual Net
Charge-Offs
</TABLE>
* Note -- Chargeoffs are net of recoveries and are based upon annual average
gross receivables balances for the applicable period.
While the above delinquency experiences reflect Charter's experiences at
the period indicated, there can be no assurance that the delinquency experiences
on the Leases will be similar. Accordingly, the information should not be
considered to reflect the credit quality of the Leases owned by the Issuer, or
as a basis of assessing the likelihood or amount of severity of losses on the
Leases. The Leases, in general, may have characteristics which distinguish them
from the majority of the leases in Charter's existing portfolio.
37
<PAGE>
TRANSFEROR
The Transferor is a wholly-owned bankruptcy remote subsidiary of Charter.
The Transferor was organized for the limited purpose of engaging in transactions
described herein and any activities incidental to an necessary or convenient for
accomplishment of such purposes and is restricted by its organizational
documents and under the Transferor Contribution and Sale Agreement from engaging
in other activities. In addition, its organizational documents and the
Transferor Contribution and Sale Agreement require that it operates in a manner
such that it should not be consolidated in the bankruptcy estate of Charter or
its affiliates in the event that one of them becomes subject to bankruptcy or
insolvency proceedings. The Transferor's address is 153 East 53rd Street, New
York, New York 10022, and after July 1, 1999, will be 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. The Servicer may be an affiliate of the
Transferor. As described under "Description of the Transaction Documents --
Acquisition of the Lease Receivables Pursuant to a Lease Acquisition Agreement,"
the Transferor may acquire Lease Receivables through or from an affiliate.
Neither the Transferor nor any of its affiliates will insure or guarantee the
Notes.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture to be entered into by
the Issuer and the Trustee. The Servicer will provide a copy of the Indenture to
subsequent Noteholders without charge on written request addressed to it at 153
East 53rd Street, New York, New York 10022 and after July 1, 1999, 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 and qualified in its entirety by
reference to the Seller Contribution and Sale Agreement, the Transferor
Contribution and Sale Agreement, the Servicing Agreement, and the Indenture.
Wherever provisions of the Seller Contribution and Sale Agreement, the
Transferor Contribution and Sale Agreement, the Servicing Agreement and the
Indenture are referred to, such provisions are hereby incorporated herein by
reference.
General
The obligations evidenced by the Notes are recourse to the assets of the
Issuer only and are not recourse to, or guaranteed by, the Transferor, the
Seller, Charter, the Servicer, the Trustee, or any other Person.
The Issuer will agree in the Indenture and in the respective Notes to pay
to the Noteholders (i) an amount of principal equal to the Outstanding Principal
Amount of such Notes and (ii) monthly interest at the times, from the sources
and on the terms and conditions set forth in the Indenture and in the respective
Notes.
The Notes in the initial principal amount of $[ ] (the "Initial Outstanding
Principal Amount"), will be issued pursuant to the Indenture. The Initial
Outstanding Principal Amount to be issued hereunder is equal to approximately [
]% of the Initial Aggregate Discounted Lease Balance of the Leases. The 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.
The first Payment Date for distributions to the Noteholders will be [ ].
Payments are required to be made by the Trustee, by check mailed or, if
requested by the Noteholder, by wire transfer of immediately
38
<PAGE>
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 in and to
(a)(i) any Equipment that is owned by the Seller and any and all income and
proceeds from such Equipment, but subject to the rights of the Lessee to quiet
enjoyment of such Equipment under the related Lease and (ii) any security
interest of the Seller in any of the Equipment that is not owned by the Seller,
(b) the Leases, including, without limitation, all Lease Payments, residual
receipts, defaulted lease recoveries and any other payments due or made with
respect to the Leases after the Cut-Off Date relating to such Leases, (c) any
guarantees of a Lessee's obligations under a Lease, (d) all other documents in
the Lease Files relating to the Leases, including, without limitation, any UCC
financing statements related to the Leases or the Equipment, (e) any Insurance
Policies and Insurance Proceeds with respect to the Leases, (f) all of the
Seller's right, title and interest in and to, and rights under, the Seller
Contribution and Sale Agreement executed and delivered in accordance therewith,
(g) all amounts on deposit in the Distribution Account (as defined herein) or in
the Lockbox Account with respect to the related Lease Receivables; and (h) any
and all income and proceeds of any of the foregoing.
The Trustee will have possession of the Leases and the Lease Files, and the
Servicer will retain copies of any other documents which relate to the Lease
Receivables, any related evidence of insurance and payment, delinquency and
related reports maintained by the Servicer in the ordinary course of business
with respect to each Lease Receivable. Prior to transfer of the Lease
Receivables to the Issuer, the Seller will cause its electronic ledger to be
marked to show that such Lease Receivables have been transferred to the
Transferor and then to the Issuer, and the Seller and the Transferor will file
UCC financing statements reflecting the sale and assignment of the Lease
Receivables in certain jurisdictions, as required by the Seller Contribution and
Sale Agreement, the Transferor Contribution and Sale Agreement and the Servicing
Agreement. See "Legal Aspects of the Leases."
Security Interest
The Notes will be secured by:
(i) a first priority security interest in the Leases perfected by
filing blanket Uniform Commercial Code ("UCC") financing statements on the
Leases and the related Equipment against the Seller and the Transferor in
New York, Delaware and other specified filing locations;
(ii) funds in the Distribution Account or in the Lockbox Account with
respect to the related Lease Receivables.
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 "Sale 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, 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 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.
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Indemnification
The Servicing Agreement will provide that Charter will defend and indemnify
the Servicer, the Transferor, the Trustee, the Issuer and the Noteholders
against any and all losses, claims, damages and liabilities to the extent, but
only to the extent, that the same have been suffered by any such party by virtue
of (i) a breach by Charter of its obligations (other than breach of Charter's
representations and warranties, with respect to which the sole remedy is
expressly limited to Charter's acceptance of the reconveyance of the affected
Lease Receivables and the remittance of the Repurchase Amount by Charter as
discussed above) under the Servicing Agreement or (ii) in the case of the
Trustee, its performance of its duties, except to the extent that such loss,
claim, damage or liability resulted from the Trustee's gross negligence or
willful misconduct.
The Servicing Agreement will also provide that the Servicer will defend and
indemnify the Transferor, Charter, the Trustee, the Issuer and the Noteholders
against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation,
reasonably incurred, arising out of or resulting from (i) the use, repossession
or operation by the Servicer or any affiliate thereof of any Equipment and (ii)
(A) the failure of the Servicer to perform its duties under the Servicing
Agreement or (B) in the case of the Trustee, its performance of its duties,
except to the extent that such cost, expense, loss, damage, claim or liability
resulted from the Trustee's gross negligence or willful misconduct. Charter's
obligations, as Servicer, to indemnify the Issuer, and the Noteholders for acts
or omissions of Charter as Servicer will survive the removal of the Servicer but
will not apply to any acts or omissions of a successor Servicer. Such
indemnification does not extend to indirect, incidental, special or
consequential damages.
The Accounts
The Servicer will maintain a Lockbox Account in the name of the Trustee to
which all Lease Payments received under each Lease (including any residual
proceeds and late charges), any recoveries for Defaulted Leases if not
substituted for, proceeds of Casualty Losses and Early Termination Leases, and
payments by the Transferor in connection with a Warranty Event will be directed
within two (2) Business Days of receipt by the Servicer, but excluding any
Excluded Amounts. All funds on deposit in the Lockbox Account with respect to
the related Lease Receivables for the related Collection Period will be
transferred to the Distribution Account on the business day prior to each
Payment Date.
A "Lease Payment" means, with respect to any Lease, the monthly, quarterly,
semi-annual or seasonal payments scheduled to be made under the terms of the
Lease whether received on or after the expiration or other termination of the
Lease. Casualty Payments, Termination Payments, prepayments of rent required
pursuant to Termination Payments, prepayments of rent required pursuant to the
terms of a Lease at or before the commencement of the term of such lease,
payments becoming due before the Cut-Off Date or the ______ 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 or the Lockbox
Account ("Excluded Amounts"), including (i) collections attributable to any
taxes, fees or other charges imposed by any
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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 Lease which has been
substituted by a Substitute Lease; and (v) any servicing charges.
Available Funds
"Available Funds" for any Payment Date shall include funds received on or
prior to the related Calculation Date, net of any Excluded Amounts, will be
available for distribution by the Trustee on each Payment Date and will include:
(i) 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 Lease Repurchase Amounts from repurchases by the Transferor
or the Seller due to a Warranty Event or otherwise to the extent the
Servicer has not substituted an Eligible Lease for such Lease;
(v) any Casualty Payments and any Prepayment Amounts to the extent not
included in clause (iv);
(vi) any proceeds from investment of funds in the Distribution Account
or the Lockbox Account;
(vii) any Termination Payments to the extent the Issuer does not
reinvest such Termination Payments in Additional Leases;
(viii) any late charges or residual proceeds with respect to a Lease
Receivable not advanced by the Servicer.
(ix) any funds on deposit in the Reserve Account to the extent there
occurs an Available Funds Shortfall.
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 [ ]% 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 Servicer and Interest Payments on the Notes, the Trustee will
withdraw from the amount of funds on deposit in the Reserve Account, an amount
equal to the lesser of the funds on deposit in the Reserve Account and such
deficiency and (b) the Class A Principal Payment, the Class B Principal Payment
and the Class C Principal Payments (such payments, the "Required Payments" and
such shortfall, an "Available Funds Shortfall"), the Indenture 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) [ %] of the Discounted Present Value 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.
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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 the Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances in respect of a prior
Payment Date;
(c) to make Interest Payments owing on the Class A Notes concurrently
and pro rata to the Class A-1 Noteholders, Class A-2 Noteholders,
Class A-3 Noteholders and Class A-4 Noteholders;
(d) to make Interest Payments owing on the Class B Notes;
(e) to make Interest Payments owing on the Class C Notes;
(f) to make Interest Payments owing on the Class D Notes;
(g) to make the Class A Principal Payment (i) to the Class A-1
Noteholders only, until the Outstanding Principal Amount on the
Class A-1 Notes is reduced to zero, then (ii) to the Class A-2
Noteholders only, until the Outstanding Principal Amount on the
Class A-2 Notes is reduced to zero, then (iii) to the Class A-3
Noteholders only, until the Outstanding Principal Amount on the
Class A-3 Notes is reduced to zero and finally, (iv) to the Class
A-4 Noteholders until the Outstanding Principal Amount on the
Class A-4 Notes is reduced to zero;
(h) to make the Class B Principal Payment to the Class B Noteholders;
(i) to make the Class C Principal Payment to the Class C Noteholders;
(j) to make the Class D Principal Payment to the Class D Noteholders;
(k) to pay the Additional Principal, if any, to the Class A
Noteholders then receiving the Class A Principal Payment as
provided in clause (g) above until the Outstanding Principal
Amount on all of the Class A Notes has been reduced to zero, then
to the Class B Noteholders until the Outstanding Principal Amount
on the Class B Notes has been reduced to zero, then to the Class
C Noteholders until the Outstanding Principal Amount on the Class
C Notes has been reduced to zero, thereafter to the Class D
Noteholders until the Outstanding Principal Amount on the Class D
Notes has been reduced to zero;
(l) to make a deposit in the Reserve Account in an amount equal to
the excess of the Required Reserve Amount over the Available
Reserve Amount; and
(m) to the Issuer, the balance, if any.
Interest
On each Payment Date, the interest due (the "Interest Payments") with
respect to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes, the Class C Notes and the Class D Notes
since the last Payment Date will be the interest that has accrued on such Notes
since the last Payment
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Date (or in the case of the first Payment Date, with respect to the Class A-1
Notes, since the Issuance Date, and with respect to all other Notes, since
________________) (the "Interest Accrual Period") at the applicable Note
Interest Rate applied to the then unpaid principal amounts (the "Outstanding
Principal Amounts") of the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B Notes, the Class C Notes, and the Class
D Notes, respectively, after giving effect to payments of principal to the Class
A-1 Noteholders, the Class A-2 Noteholders, the Class A-3 Noteholders, the Class
A-4 Noteholders, the Class B Noteholders, the Class C Noteholders and the Class
D Noteholders, respectively, on the preceding Payment Date. See "Description of
the Notes--General" and "--Distributions on Notes."
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 (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
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difference between (A) the Aggregate Discounted Lease Balance as of
the previous Calculation Date and (B) the Aggregate Discounted Lease
Balance as of the related Calculation Date, and
(ii) on 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 approximately to _________%. The
"Class B Percentage" will be equal approximately to __________%. The "Class C
Percentage" will be equal approximately to __________%. The "Class D Percentage"
will be equal approximately to ________%.
The "Class B Floor" with respect to each Payment Date means:
(a) ____% of the initial Aggregate Discounted Lease Balance as of the
Cut-Off Date, plus
(b) the Cumulative Loss Amount with respect to such Payment Date,
minus
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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 da y, 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) ___% 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.
The "Class D Floor" with respect to each Payment Date means:
(a) ___% of the initial Aggregate Discounted Lease Balance as of the
Cut-Off Date, plus
(b) the Cumulative Loss Amount with respect to such Payment Date,
minus
(c) the Overcollateralization Balance as of the immediately preceding
Payment Date after giving effect to all principal payments made on that
day, 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 Balance of the Notes plus the
Overcollateralization Balance as of the immediately preceding Payment
Date after giving effect to payments on such Payment Date, minus (B)
the Aggregate Discounted Lease Balance as of the related Calculation
Date, over
(ii) the sum of the Class A Principal Payment, the Class B
Principal Payment, the Class C Principal Payment, and the Class D
Principal Payment to be paid on such Payment Date.
The "Overcollateralization Balance" with respect to each Payment Date is an
amount equal to the excess, if any, of (a) the Aggregate Discounted Lease
Balance as of the related Calculation Date over (b) the
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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.
The Discounted Lease Balance of any Lease as of the Cut-Off Date will mean
the present value of all Lease payments due thereon after the Cut-Off Date
(excluding payments with respect to Defaulted Leases, Early Termination Leases
and Leases subject to a Warranty Event), discounted monthly from the date such
payment is to become due at a rate equal to the product of (i) one-twelfth and
(ii) the Discount Rate. The Discount Rate is the sum of:
(a) the weighted average of the Class A-1 Note Interest Rate, the
Class A-2 Note Interest Rate, the Class A-3 Note Interest Rate, the Class
A-4 Note Interest Rate, the Class B Note Interest Rate, the Class C Note
Interest Rate, and the Class D Note Interest Rate, calculated as of the
Closing Date and
(b) the Servicing Fee Rate (as hereinafter defined).
Thereafter, the Discounted Lease Balance of any Lease as of any Payment
Date shall be determined on the related Calculation Date and it shall equal the
present value of each remaining Lease Payment to become due under a Lease
(excluding payments with respect to Defaulted Leases, Early Termination Leases
and Leases subject to a Warranty Event), 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. The Aggregate Discounted Lease Balance for any Calculation Date is the sum
of the Discounted Lease Balances of all Leases.
Subordination
Payments of interest on the Class B Notes, the Class C Notes and the Class
D Notes will be subordinated in priority of payment to interest due on the Class
A Notes to the extent described herein. The Class B Notes, the Class C Notes and
the Class D Notes will not receive any payments of interest with respect to a
Collection Period until the full amount of interest on the Class A Notes
relating to such Collection Period has been paid to the Class A Notes. Payments
of interest on the Class C Notes and the Class D Notes will be subordinated in
priority of payment to interest due on the Class B Notes to the extent described
herein. The Class C Notes and the Class D Notes will not receive any payments of
interest with respect to a Collection Period until the full amount of interest
on the Class B Notes relating to such Collection Period has been allocated to
the Class B Notes. Payments of interest on the Class D Notes will be
subordinated in priority of payment of interest to interest due on the Class C
Notes to the extent described herein. The Class D Notes will not receive any
payments of interest with respect to a Collection Period until the full amount
of interest on the Class C Notes relating to such Collection Period has been
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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.
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.
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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 notify all such Noteholders through
Participants of the availability of Definitive Notes. Upon surrender by DTC of
the definitive Notes representing such Notes and receipt of instructions for
reregistration, the Trustee will reissue such Notes as Definitive Notes to such
Noteholders.
Distributions of principal of, and interest on, such Notes will thereafter
be made by the Trustee in accordance with the procedures set forth in the
Indenture directly to holders of Definitive Notes in whose names the Definitive
Notes were registered at the close of business on the applicable Record Date.
Such distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the Trustee. The final payment on any
such Security, however, will be made only upon presentation and surrender of
such Security at the office or agency specified in the notice of final
distribution to the applicable Noteholders.
Definitive Notes will be transferable and exchangeable at the offices of
the Trustee, or of a certificate registrar named in a notice delivered to
holders of such Definitive Notes. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
Withholding
The Trustee is required to comply with all applicable federal income tax
withholding requirements respecting payments to Noteholders of interest with
respect to the Notes. The consent of Noteholders is not required for such
withholding. In the event the Noteholder is other than DTC, then in the event
that the Trustee does withhold or causes to be withheld any amount from interest
payments or advances thereof to any Noteholders pursuant to federal income tax
withholding requirements, the Trustee shall indicate the amount withheld
annually to such Noteholders.
Reports to Noteholders
On each Payment Date the Trustee will furnish or cause to be furnished with
each payment to Noteholders, a statement prepared by the Servicer setting forth
the following information (as well as expressed per $1,000 of Initial
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 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;
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(f) the amount of residual receipts and recoveries on Defaulted Leases
for the related Collection Period and the Aggregate Discounted Lease
Balances for all Leases that became Defaulted Leases during the related
Collection Period, calculated immediately prior to the time such Leases
became Defaulted Leases; and
(g) the total number of Leases and the Discounted Lease Balances
thereof, together with the number and Discounted Lease Balances of all
Leases as to which the Lessees, as of the related Calculation Date, were
one, two, three or four Lease Payments delinquent, and Delinquent Leases
reconveyed.
Further, on the Reporting Date, the Servicer shall be required to deliver a
monthly Servicer Report to (i) each Rating Agency and (ii) the Underwriter (as
defined below) detailing amounts received on the Leases in respect of the
immediately preceding Collection Period and available for distribution on the
Payment Date.
The "Pool Factor" is the seven digit decimal number that the Servicer will
compute or cause to be computed for each Collection Period and will make
available on the related Calculation Date representing the ratio of (x) the
Aggregate Discounted Lease Balance as of the end of the immediately preceding
Collection Period to (y) the Aggregate Discounted Lease Balance as of the
Cut-Off Date.
In addition, by January 31 of each calendar year following any year during
which the Notes are outstanding, commencing January 31, [ ], the Trustee will
furnish to each Noteholder of record at any time during such preceding calendar
year, information as to the aggregate of amounts reported pursuant to items (a)
and (b) above for such calendar year to enable Noteholders to prepare their
federal income tax returns.
Optional Redemption
The Issuer will have the option, subject to certain conditions, to redeem
all, but not less than all, of the Notes as of any Payment Date on which the
Aggregate Discounted Lease Balance as of the related Calculation Date is less
than or equal to 10% of the Aggregate Discounted Lease Balance as of the Cut-Off
Date.
POOL FACTORS
The "Pool Factor" for 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 balance of the applicable Class of Notes. A
Noteholder's portion of the aggregate outstanding principal balance of the
related Class of Notes is the product of (i) the Initial Outstanding Principal
Amount (as defined herein) of such Noteholder's Notes and (ii) the applicable
Pool Factor.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes 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 qualified in its entirety by reference to the
provisions of the respective Transaction Documents.
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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 will be assigned to
the Issuer or the Trustee on behalf of Noteholders as collateral for the Notes
issued by the Issuer pursuant to the Indenture. The obligations of the
Transferor and the Servicer under such Transaction Documents include those
specified below.
The Transferor and/or the Seller will be obligated to acquire from the
Issuer its interest in any Lease Receivable transferred to the Issuer or pledged
to the Issuer or the Trustee on behalf of the Noteholders if the interest of the
Noteholders therein is materially adversely affected by a breach of any
representation or warranty made by the Transferor or the Seller with respect to
such Lease, which breach has not been cured following the discovery by or notice
to the Transferor of the breach. To the extent that the Transferor so acquires
any Lease Receivables, the Seller will be obligated to acquire such Lease
Receivables from the Transferor pursuant to the Seller Contribution and Sale
Agreement contemporaneously with the Transferor's acquisition of its interest in
such Lease Receivables. The obligation of the Transferor to acquire any such
Lease Receivables with respect to which a Seller has breached a representation
or warranty is subject to such Seller's acquisition of such Lease Receivables
from the Transferor. In addition, the Transferor may from time to time reacquire
certain Lease Receivables or substitute other Lease Receivables for such Lease
Receivable held by the Issuer subject to specified conditions set forth in the
related Transaction Document.
Accounts
The Servicer will establish and maintain with the Trustee one or more
accounts, in the name of such Trustee on behalf of the Noteholders, into which
all payments made on or with respect to the related Lease Receivables will be
deposited (the "Lockbox Account"). The Servicer will also establish and maintain
with the Trustee separate accounts, in the name of the Trustee on behalf of the
Noteholders, in which amounts released from the Lockbox Account for distribution
to the Noteholders will be deposited and from which distributions to the
Noteholders will be made (the "Distribution Account").
Funds in the Lockbox Account, the Reserve Account and the Distribution
Account (collectively, the "Trust Accounts") shall be invested as provided in
the related Transaction Document and Indenture in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Notes. Subject to
certain conditions, Eligible Investments may include Notes issued by the Issuer,
the Seller, the Servicer or their respective affiliates. Except as described
below, Eligible Investments are limited to obligations that mature not later
than the Business Day immediately preceding the related Payment Date. Investment
earnings on funds deposited in the applicable Trust Accounts, net of losses and
investment expenses (collectively, "Investment Earnings"), shall be payable to
the Servicer on each Payment Date and shall be treated as additional servicing
compensation.
The Trust Accounts will be maintained as Eligible Deposit 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 (w) a long-term unsecured debt rating acceptable
to the Rating Agencies or (x) a short-term unsecured debt rating or certificate
of deposit rating acceptable to the Rating Agencies or (B) the parent
corporation of which has either (y) a
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long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
The Servicer
The Servicer will service the Lease Receivables which comprise the Pool of
Assets. The Servicer may delegate its servicing responsibilities to one or more
Sub-Servicers, but will not be relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Servicing Agreement. An uncured breach of such a representation or warranty that
in any respect materially and adversely affects the interests of the Noteholders
will constitute an Event of Termination by the Servicer under the Servicing
Agreement.
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.
Remittance and Other Servicing Procedures
The Servicer 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 Lockbox Account and 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.
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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 or the Lockbox 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 Repurchase Amount. The
Servicer may waive, modify or vary any term of a Lease if the Servicer, in its
reasonable and prudent judgment, determines that it will not be materially
adverse to the Noteholders. However, the Servicer will covenant in the Servicing
Agreement that (i) it will not forgive any payment of rent, principal or
interest, (ii) unless a Lessee is in default, it will not permit any
modification with respect to a Lease which would defer the payment of any
principal or interest or any Scheduled Payment or change the final maturity date
on any Lease; provided, however, that no change in the final maturity date of
any Lease shall be permitted under any circumstances if such new maturity date
is later than the latest maturity date of any other Lease then held by the
Issuer, and (iii) the Servicer may accept Prepayment in part or in full;
provided, further, that (1) in the event of Prepayment in full, the Servicer may
consent to such Prepayment only in an amount not less than the amounts
outstanding under such Lease and (2) in the event of a partial Prepayment, the
Servicer may consent to such partial Prepayment only if (x) following such
partial Prepayment there are no delinquent amounts then due from the Lessee and
(y) such partial Prepayment will not reduce the Aggregate Discount Lease Balance
by more than an amount equal to (I) the amount of such partial Prepayment, minus
(II) unpaid interest at the Discount Rate, accrued through the end of the
Collection Period immediately 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 (2)]
Business Days of receipt thereof into the Lockbox Account . Pending deposit into
the Lockbox Account , collections in such collection facility may be invested by
the Servicer at its own risk and for its own benefit, and will not be segregated
from funds of the Servicer. On or before the Business Day prior to the Payment
Day on each month, the Servicer shall transfer funds on deposit in the Lockbox
Account with respect to the related Lease Receivables for the related Collection
Period to the Distribution Account.
Distributions
Beginning on the July 26, 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")
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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, 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
Prior to each Payment Date with respect to each series of Notes, the
Servicer will provide to the Trustee as of the close of business on the last day
of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Noteholders described under "Description of the Notes
- --Reports to Noteholders."
Compliance Certification
The Servicing Agreement will provide for annual delivery of a report (the
"Supplementary Report") by the Servicer to the Trustee not later than 120 days
after the end of each fiscal year, signed by an authorized officer of the
Servicer (a "Servicing Officer") on behalf of the Servicer and dated as of the
last day of such fiscal year, stating that (a) a review of the activities of the
Servicer and the Servicer's performance under the Servicing Agreement for the
previous 12-month period has been made under such Servicing Officer's
supervision and (b) nothing has come to such Servicing Officer's attention to
indicate that an Event of Servicing Termination (as defined below) has occurred,
or, if such Event of Servicing Termination has so occurred and is continuing,
specifying each such event known to the officer, the nature and status thereof
and the steps necessary to remedy such event.
Copies of such certificates may be obtained by Noteholders by a request in
writing addressed to the Trustee.
The Servicing Agreement will provide that the Servicer, upon request of the
Trustee, will furnish to the Trustee such underlying data necessary for
administration of the Indenture or enforcement actions as can be generated by
the Servicer's existing data processing system.
Certain Matters Relating to the Servicer
The Servicing Agreement will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon a determination
that the Servicer's performance of such duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Servicing Agreement (the "Successor Servicer"). The Servicer can only
be removed pursuant to an Event of Servicing Termination as discussed below.
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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 (3) Business Days of when required to do
so; (b) if the Servicer fails to submit a Servicer's certificate, within three
(3) 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; (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; or (g) a final judgment or
order shall be rendered against the Servicer for payment in excess of $[_______]
and continues for 90 days without a stay.
Rights Upon an Event of Servicing Termination
If an Event of Servicing Termination has occurred and is continuing, the
Trustee shall with the consent of the majority 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 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.
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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 unpaid principal balances and (ii)
repayment in full of the accrued interest on and unpaid principal balances of
the Notes will be made prior to any further payment to the Issuer of any
residual interest.
Termination of the Indenture
The Indenture will terminate, (i) at any time which is [ ] days after the
payment to the Noteholders of all amounts required to be paid to them pursuant
to the Indenture, reducing the aggregate Outstanding Principal Amount to zero or
(ii) after the [ ]th day following the final Stated Maturity Date of any Class
of the Notes. In order to avoid excessive administrative expense, the Servicer
will be permitted, at its option, to purchase from the Pool of Assets, as of the
end of any Collection Period immediately preceding a Payment Date, if the
Discounted Lease Balance of the Leases is less than ten percent (10%) of the
Initial Aggregate Discounted Lease Balance in respect of the Lease Receivables,
all such remaining Lease Receivables at a price stated which shall in no event
be less than the aggregate of the amounts owed on the Notes as of the such
Payment Date. The Notes will be redeemed following such purchase. Upon
termination of the Indenture and the reduction of the aggregate Outstanding
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Principal Amount, to zero and payment of any amounts then owing to the Trustee,
the Issuer shall return any remaining property
The respective representations, warranties and indemnities of Charter, the
Seller, the Servicer and the Transferor will survive any termination of the
Indenture.
Amendment
The Transaction Documents may be amended by agreement of the parties
thereto, the Trustee, and the Issuer at any time, without consent of the
Noteholders, to cure any ambiguity, upon receipt of an opinion of counsel to the
Servicer that such amendment will not adversely affect in any respect the
interests of any Noteholder.
The Transaction Documents may also be amended from time to time by the
parties thereto, the Trustee, the Issuer, and a specified percentage of the
Noteholders for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Transaction Documents or of
modifying in any manner the rights of the Noteholders; provided, however, that
no such amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on the Lease
Receivables or distributions which are required to be made on any Note without
the consent of the holder of such Note or (b) reduce the aforesaid percentage of
Noteholders required to consent to any amendment, without unanimous consent of
the Noteholders.
The Trustee is required under the Indenture to furnish Noteholders and the
Rating Agencies with written notice of the substance of any such amendment to
the Indenture promptly upon execution of such amendment.
THE TRUSTEE
General
The Trustee, [_________] is a banking corporation organized under the laws
of ________. The Trustee may resign, subject to the conditions set forth below,
at any time upon written notice to the Transferor and the Servicer, in which
event the Servicer will be obligated to appoint a successor Trustee. If no
successor Trustee shall have been so appointed and have accepted such
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition a court of competent jurisdiction for the
appointment of a successor Trustee. Any successor Trustee shall meet the
financial and other standards for qualifying as a successor Trustee under the
Indenture. The Servicer may and shall at the direction of the Noteholders
evidencing more than 25% of the aggregate Outstanding Principal Amount of all
Classes of Notes (the "Percentage Interests"), also remove the Trustee if the
Trustee ceases to be eligible to continue as such under the Indenture and fails
to resign after written request therefor, or is legally unable to act, or if the
Trustee is adjudicated to be insolvent. In such circumstances, the Servicer or
such Noteholders will also be obligated to appoint a successor Trustee. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of the Servicing Agreement, the Notes (other than the authentication thereof) or
of any Lease Receivable or related document and will not be accountable for the
use or application by Charter or the Transferor of any funds paid to the
Transferor in consideration of the sale of any Notes. If no Event of Servicing
Termination has occurred, then the Trustee will be required to perform only
those duties specifically required of it under the Servicing Agreement. However,
upon receipt of the various resolutions, certificates, statements, opinions,
reports, documents, orders or other instruments required to be furnished to it,
the Trustee will be required to examine them to determine whether they conform
as to form to the requirements of the Servicing Agreement.
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No recourse is available based on any provision of the Servicing Agreement,
the Notes or any Lease Receivable or assignment thereof against [_________], in
its individual capacity, and [_________] shall not have any personal obligation,
liability or duty whatsoever to any Noteholder or any other person with respect
to any such claim and such claim shall be asserted solely against the Lease
Receivables or any indemnitor, except for such liability as is determined to
have resulted from the Trustee's own negligence or willful misconduct.
The Trustee will be entitled to receive, pursuant to the priority set forth
in the Indenture, (a) reasonable compensation for its services (the "Trustee
Fee"), (b) reimbursement for its reasonable expenses and (c) indemnification for
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of performance of its duties thereunder ((b) and (c) collectively,
the "Trustee Expenses").
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on, and the weighted average life of, the
Notes will be directly related to the rate of principal payments on the
underlying Leases. If purchased at a price other than par, the yield to maturity
will also be affected by the rate of such principal payments. The principal
payments on such Leases may be in the form of scheduled principal payments or
liquidations due to default, casualty, repurchases for breach and the like. Any
such payments will result in distributions to Noteholders of amounts which would
otherwise have been distributed over the remaining term of the Leases. In
general, the rate of such payments may be influenced by a number of other
factors, including general economic conditions. The rate of payment of principal
may also be affected by any removal of the Leases from the pool and the deposit
of the related Prepayment Amount or Repurchase Amount into the 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 no Prepayment of a Lease will
be allowed unless all current amounts owed on such Lease have been paid.
The Scheduled Final Payment Date for the Notes is [ ]. This date is the
date on which the Note Principal Balance would be reduced to zero, assuming,
among other things, (i) Prepayments with respect to the Leases are received at a
rate of [ ]% CPR and (ii) the Modeling Assumptions (as defined below) apply. The
weighted average life of the Notes is likely to be shorter than would be the
case if payments actually made on the Leases conformed to the foregoing
assumptions, and the final Payment Date with respect to the Notes could occur
significantly earlier than such final scheduled Payment Dates due to defaults,
and because Charter is obligated to repurchase Leases in the event of breaches
of representations and warranties.
The "Weighted Average Life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Notes will be
influenced by the rate at which principal payments (including Lease payments and
prepayments) on the Leases are made. Principal payments on Leases may be in the
form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments and liquidations due to a default or other
dispositions of the Leases). The weighted average lives of the Notes will also
be influenced by delays associated with realizing on Defaulted Leases. 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 [ ], (ii) distributions on
the Notes are made on the [ ] day of each month regardless of the day on which
the Payment Date actually occurs, commencing in [ ] in accordance with the
priorities described herein, (iii) no delinquencies or defaults in the payment
of principal and interest on the Leases are experienced, (iv) no Lease is
repurchased for breach of a representation and warranty or otherwise, (v) the
Discount Rate is [ ]% per annum, (vi) Prepayments with respect to the Leases are
received on the last day of each Collection Period, commencing on [ ], (vii) the
Initial Outstanding Principal Amount is ____ for the Class A-1 Notes, ___ for
the Class A-2 Notes, ____ for the Class A-3 Notes, ____ for the Class A-4 Notes,
____ for the Class B Notes, ____ for the Class C Notes and _____ for the Class D
Notes, (viii) the Note Interest Rate is [ ]% per annum for the Class A-1 Notes,
[ ]% per annum for the Class A-2 Notes, [ ]% per annum for the Class A-3 Notes,
[ ]% per annum for the Class A-4 Notes, [ ] % per annum for the Class B Notes, [
]% per annum for the Class C Notes and [ ]% per annum for the Class D Notes,
(ix) the Servicing Fee is 0.50% per annum, (x) the Lease pool consists of a
single Lease with an Aggregate Discounted Lease Balance equal to $ [ ] and (xi)
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 for Russia would be outstanding after each of the dates
shown, assuming a CPR of [ ]%, ___%, ___%, and ___%.
PERCENTAGE OF INITIAL AGGREGATE
OUTSTANDING PRINCIPAL AMOUNT
Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
----------------------
Payment
Date
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date
- ------------------------------------------------------------------------------------------
Weighted Average
Life (years)
to Call ____ ____ ____ ____ ____ ____ ____ ____
to Maturity ____ ____ ____ ____ ____ ____ ____ ____
</TABLE>
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The Leases will not have the characteristics assumed above, and there can
be no assurance that (i) the Leases will prepay at any of the rates shown in the
tables or at any other particular rate or will prepay proportionately or (ii)
the weighted average lives of the Notes will be as calculated above. Because the
rate of distributions of principal of the Notes will be a result of the actual
amortization (including prepayments) of the Leases, which will include Leases
that have remaining terms to stated maturity shorter or longer than those
assumed, the weighted average lives of the Notes will differ from those set
forth above, even if all of the Leases prepay at the indicated constant
prepayment rates.
The effective yield to Noteholders will depend upon, among other things,
the price at which such Notes are purchased, and the amount of and rate at which
principal, including both scheduled and Lease Payments thereof, is paid to the
Noteholders. See "Risk Factors -- Maturity and Prepayment Considerations."
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.
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In addition, because the market value of the equipment of the type financed
pursuant to the Leases generally declines with age and because of obsolescence,
the net disposition proceeds of Equipment at any time during the term of the
Lease may be less than the outstanding balance on the Lease which it secures.
Because of this, and because other creditors may have rights in the related
Equipment superior to those of the Issuer, the Servicer 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.
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The Taxpayer Relief Act of 1997 adds provisions to the Internal Revenue
Code of 1986, as amended, (the "Tax Code") that require the recognition of gain
upon the "constructive sale of an appreciated financial position." A
constructive sale of an appreciated financial position occurs if a taxpayer
enters into certain transactions or series of such transactions with respect to
a financial instrument that have the effect of substantially eliminating the
taxpayer's risk of loss and opportunity for gain with respect to the financial
instrument. These provisions apply only to classes of Notes that do not have a
principal balance.
Dewey Ballantine LLP, special tax counsel to the Transferor ("Tax
Counsel"), will deliver its opinion to the Transferor that the Notes will be
classified as debt secured by the related Lease Receivables. Consequently, the
Notes will not be treated as ownership interests in the Lease Receivables or the
Issuer. Beneficial owners will be required to report income received with
respect to the Notes in accordance with their normal method of accounting. For
additional tax consequences relating to Notes purchased at a discount or with
premium, see "Discount and Premium," below.
Sale or Exchange. If a beneficial owner of a Note sells or exchanges such
Note, the beneficial owner will recognize gain or loss equal to the difference,
if any, between the amount received and the beneficial owner's adjusted basis in
the Note. The adjusted basis in the Note generally will equal its initial cost,
increased by any original issue discount or market discount previously included
in the seller's gross income with respect to the Note and reduced by the
payments previously received on the Note, other than payments of qualified
stated interest, and by any amortized premium.
In general (except as described in "Discount and Premium--Market Discount,"
below), except for certain financial institutions subject to section 582(c) of
the Tax Code, any gain or loss on the sale or exchange of a Note recognized by
an investor who holds the Note as a capital asset (within the meaning of Section
1221 of the Tax Code), will be capital gain or loss and will be long-term or
short-term depending on whether the Note has been held for more than one year.
Alternative Characterization of the Notes
Although, as described above, it is the opinion of Tax Counsel that the
Notes are properly characterized as debt for federal income tax purposes, the
opinion of Tax Counsel is not binding on the courts or the IRS and no assurance
can be given that this characterization will prevail. It is possible that the
IRS could assess that, for purposes of the Tax Code, the transaction
contemplated by this Prospectus with respect to the Notes constitutes a sale of
the Lease Receivables (or an interest therein) to the Noteholders and that the
proper classification of the legal relationship between the Transferor and the
Noteholders resulting from the transaction is that of a partnership.
Taxation of Beneficial Owners of Partnership Interests. If the Issuer is
treated as a partnership for federal income tax purposes, the Issuer will not be
subject to federal income tax and the holders of beneficial ownership interests
in the Trust may be regarded as holding partnership interests in the Issuer
(each a "Partnership Interest"). Instead, each beneficial owner of a Partnership
Interest will be required to separately take into account an allocable share of
income, gains, losses, deductions, credits and other tax items of the Issuer.
These partnership allocations are made in accordance with the Tax Code, Treasury
regulations and the partnership agreement (here, the LLC Agreement and related
documents).
The Issuer's assets will be the assets of the partnership. The Issuer's
income will consist primarily of interest and finance charges earned on the
underlying Lease Receivables. The Issuer's deductions will consist primarily of
interest accruing with respect to any indebtedness issued by the Issuer,
servicing and other fees, and losses or deductions upon collection or
disposition of the Issuer's assets.
In certain instances, the LLC could have an obligation to make payments of
withholding tax on behalf of a beneficial owner of a Partnership Interest. (See
"Backup Withholding" and "Foreign Investors" below).
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Substantially all of the taxable income allocated to a beneficial owner of
a Partnership Interest that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Tax Code.
Under Section 708 of the Tax Code, the Issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Issuer are sold or exchanged within a 12-month period. Under
the final regulations issued on May 9, 1997 if such a termination occurs, the
Issuer is deemed to contribute all of its assets and liabilities to a newly
formed partnership in exchange for a Partnership Interest. Immediately
thereafter, the terminated partnership distributes interests in the new
partnership to the purchasing partner and remaining partners in proportion to
their interests in liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests. Generally, capital gain or loss
will be recognized on a sale or exchange of Partnership Interests in an amount
equal to the difference between the amount realized and the seller's tax basis
in the Partnership Interests sold. A beneficial owner of a Partnership
Interest's tax basis in a Partnership Interest will generally equal the
beneficial owner's cost increased by the beneficial owner's share of Issuer
includible income and decreased by any distributions received with respect to
such Partnership Interest. In addition, both the tax basis in the Partnership
Interest and the amount realized on a sale of a Partnership Interest would take
into account the beneficial owner's share of any indebtedness of the Issuer. A
beneficial owner acquiring Partnership Interests at different prices may be
required to maintain a single aggregate adjusted tax basis in such Partnership
Interest, and upon sale or other disposition of some of the Partnership
Interests, allocate a portion of such aggregate tax basis to the Partnership
Interests sold (rather than maintaining a separate tax basis in each Partnership
Interest for purposes of computing gain or loss on a sale of that Partnership
Interest).
Any gain on the sale of a Partnership Interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the Issuer would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a Partnership Interest is required to recognize an aggregate amount of income
over the life of the Partnership Interest that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Partnership Interest. If a beneficial
owner sells its Partnership Interest at a profit or loss, the transferee will
have a higher or lower basis in the Partnership Interests than the transferor
had. The tax basis of the Issuer's assets will not be adjusted to reflect that
higher or lower basis unless the Issuer files an election under section 754 of
the Tax Code.
Partnership Reporting Matters. A partnership is required to (i) keep
complete and accurate books of the Issuer, (ii) file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Issuer and
(iii) report each beneficial owner of a Partnership Interest's allocable share
of items of Issuer income and expense to beneficial owners and the IRS on
Schedule K-1. The Transferor will not attempt to comply with U.S. federal income
tax reporting requirements applicable to partnerships as such requirements would
apply if the Notes were not treated as indebtedness.
Discount and Premium
A Note purchased for an amount other than its outstanding principal amount
will be subject to the rules governing original issue discount, market discount
or premium. In very general terms, (i) original issue discount is treated as a
form of interest and must be included in a beneficial owner's income as it
accrues (regardless of the beneficial owner's regular method of accounting)
using a constant yield method; (ii) market discount is treated as ordinary
income and must be included in a beneficial owner's income as principal payments
are made on the Note (or upon a sale of a Note); and (iii) if a beneficial owner
so elects, premium may be amortized over the life of the Note and offset against
inclusions of interest income. These tax consequences are discussed in greater
detail below.
Original Issue Discount. In general, a Note will be considered to be issued
with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a Note
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial number of the Notes were sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the first Remittance Period and the closing date relating to such series of
Notes (the "Closing
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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.
Section 1272(a)(6) of the Tax Code contains special original issue discount
rules applicable to prepayable securities. Under these rules (described in
greater detail below), (i) the amount and rate of accrual of original issue
discount on each series of Notes will be based on (x) the Prepayment Assumption,
and (y) in the case of a Note calling for a variable rate of interest, an
assumption that the value of the index upon which such variable rate is based
remains equal to the value of that rate on the Closing Date, and (ii)
adjustments will be made in the amount of discount accruing in each taxable year
in which the actual prepayment rate differs from the Prepayment Assumption.
Section 1272(a)(6)(B)(iii) of the Tax Code requires that the Prepayment
Assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Tax Code provision indicates that
the assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Transferor anticipates that the Prepayment
Assumption for each series of Notes will be consistent with this standard. The
Transferor makes no representation, however, that the Lease Receivables for a
given series will prepay at the rate reflected in the Prepayment Assumption for
that series or at any other rate. Each investor must make its own decision as to
the appropriate Prepayment Assumption to be used in deciding whether or not to
purchase any of the Notes.
Each beneficial owner must include in gross income the sum of the "daily
portions" of original issue discount on its Note for each day during its taxable
year on which it held such Note. For this purpose, in the case of an original
beneficial owner, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." Original
issue discount calculations must be based on accrual periods of no longer than
one year either (i) beginning on a payment date (or, in the case of the first
such period, the Closing Date) and ending on the day before the next payment
date or (ii) beginning on the next day following a payment date and ending on
the next payment date.
Under Section 1272(a)(6) of the Tax Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Note, if any, as of the end of the accrual period and (B) the
distribution made on such Note during the accrual period of amounts included in
the stated redemption price at maturity, over (ii) the adjusted issue price of
such Note at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
based on (i) the yield to maturity of the Note, calculated as of the Closing
Date, giving effect to the Prepayment Assumption, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period, (iii)
the Prepayment Assumption, and (iv) in the case of a Note calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains the same as its value on the Closing Date over
the entire life of such Note. The adjusted issue price of a Note at any time
will equal the issue price of such Note, increased by the aggregate amount
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of previously accrued original issue discount with respect to such Note, and
reduced by the amount of any distributions made on such Note as of that time of
amounts included in the stated redemption price at maturity. The original issue
discount accruing during any accrual period will then be allocated ratably to
each day during the period to determine the daily portion of original issue
discount.
A subsequent purchaser of a Note that purchases such Note at a cost less
than its remaining stated redemption price at maturity also will be required to
include in gross income for each day on which it holds such Note, the daily
portion of original issue discount with respect to such Note (but reduced, if
the cost of such Note to such purchaser exceeds its adjusted issue price, by an
amount equal to the product of (i) such daily portion and (ii) a constant
fraction, the numerator of which is such excess and the denominator of which is
the sum of the daily portions of original issue discount on such Note for all
days on or after the day of purchase).
Market Discount. A beneficial owner that purchases a Note at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of such Note (or, in the case of a Note with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Note, and recognize
ordinary income to the extent such distribution does not exceed the aggregate
amount of accrued market discount on such Note not previously included in
income. With respect to Notes that have unaccrued original issue discount, such
market discount must be included in income in addition to any original issue
discount. A beneficial owner that incurs or continues indebtedness to acquire a
Note at a market discount may also be required to defer the deduction of all or
a portion of the interest on such indebtedness until the corresponding amount of
market discount is included in income. In general terms, market discount on a
Note may be treated as accruing either (i) under a constant yield method or (ii)
in proportion to remaining accruals of original issue discount, if any, or if
none, in proportion to remaining distributions of interest on the Note, in any
case taking into account the Prepayment Assumption. The Trustee will make
available, as required by the IRS, to beneficial owners of Notes information
necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Note multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the Note by
the subsequent purchaser. If market discount on a Note is treated as zero under
this rule, the actual amount of market discount must be allocated to the
remaining principal distributions on the Note and, when each such distribution
is received, gain equal to the discount allocated to such distribution will be
recognized.
Premium. A purchaser of a Note that purchases such Note at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such Note (a "Premium Note") at a premium. Such a purchaser need
not include in income any remaining original issue discount and may elect, under
section 171(c)(2) of the Tax Code, to treat such premium as "amortizable bond
premium." If a beneficial owner makes such an election, the amount of any
interest payment that must be included in such beneficial owner's income for
each period ending on a Payment Date will be reduced by the portion of the
premium allocable to such period based on the Premium Note's yield to maturity.
Such premium amortization should be made using constant yield principles. If
such election is made by the beneficial owner, the election will also apply to
all bonds the interest on which is not excludible from gross income ("fully
taxable bonds") held by the beneficial owner at the beginning of the first
taxable year to which the election applies and to all such fully taxable bonds
thereafter acquired by it, and is irrevocable without the consent of the IRS. If
such an election is not made, (i) such a beneficial owner must include the full
amount of each interest payment in income as it accrues, and (ii) the premium
must be allocated to the principal distributions on the Premium Note and when
each such distribution is received, a loss equal to the premium allocated to
such distribution will be recognized. Any tax benefit from the premium not
previously recognized will be taken into account in computing gain or loss upon
the sale or disposition of the Premium Note.
Some Notes may provide for only nominal distributions of principal in
comparison to the distributions of interest thereon. It is possible that the IRS
or the Treasury Department may issue guidance excluding such Notes from the
rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Note will be treated as having original
issue discount equal to the excess of the total payments to be received thereon
over its issue price. In such event, section 1272(a)(6) of the Tax Code would
govern the accrual of such original issue discount, but a beneficial owner would
recognize substantially the same income in any given
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period as would be recognized if an election were made under section 171(c)(2)
of the Tax Code. Unless and until the Treasury Department or the IRS publishes
specific guidance relating to the tax treatment of such Notes, the Trustee
intends to furnish tax information to beneficial owners of such Notes in
accordance with the rules described in the preceding paragraph.
Special Election. For any Note acquired on or after April 4, 1994, a
beneficial owner may elect to include in gross income all "interest" that
accrues on the Note by using a constant yield method. For purposes of the
election, the term "interest" includes stated interest, acquisition discount,
original issue discount, de minimis original issue discount, market discount, de
minimis market discount and unstated interest as adjusted by any amortizable
bond premium or acquisition premium. A beneficial owner should consult its own
tax advisor regarding the time and manner of making and the scope of the
election and the implementation of the constant yield method.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Notes, may be subject to the "backup withholding tax"
under Section 3406 of the Tax Code at a rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The Internal Revenue Service recently issued final regulations (the
"Withholding Regulations"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective January 1, 2001, although valid
withholding certificates that are held on December 31, 1998 remain valid 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 Withholding Regulations would require, in the case of Notes held by a
foreign partnership, that (x) the certification described above be provided by
the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. See "Backup Withholding" above. A look-through rule would apply in the
case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors regarding the application to them of the Withholding Regulations.
The Notes. Distributions made on a Note to, or on behalf of, a beneficial
owner that is not a U.S. Person generally will be exempt from U.S. federal
income and withholding taxes. The term "U.S. Person" means a citizen or resident
of the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate that is subject to U.S. federal income tax regardless of the
source of its income, or a trust if a court within the United States can
exercise primary supervision over its administration and at least one United
States person has the authority to control all substantial decisions of the
trust. This exemption is applicable provided (a) the beneficial owner is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of the Note, (b) the beneficial owner signs a statement under
penalties of perjury that certifies that such beneficial owner is not a U.S.
Person, and provides the name and address of such beneficial owner, and (c) the
last U.S. Person in the chain of payment to the beneficial owner receives such
statement from such beneficial owner or a financial institution holding on its
behalf and does not have actual knowledge that such statement is false.
Beneficial owners should be aware that the IRS might take the position that this
exemption does not apply to a beneficial owner that is a "controlled foreign
corporation" described in Section 881(c)(3)(C) of the Tax Code.
Partnership Interests. Depending upon the particular terms of the LLC
Agreement and the Indenture, the Issuer may be considered to be engaged in a
trade or business in the United States for purposes of federal withholding taxes
with respect to non-U.S. persons. If the Issuer is considered to be engaged in a
trade or
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business in the United States for such purposes and the Issuer is treated as a
partnership, the income of the Issuer distributable to a non-U.S. person would
be subject to federal withholding tax. Also, in such cases, a non-U.S.
beneficial owner of a Partnership Interest that is a corporation may be subject
to the branch profits tax. If the Issuer is notified that a beneficial owner of
a Partnership Interest is a foreign person, the Issuer may withhold as if it
were engaged in a trade or business in the United States in order to protect the
Issuer from possible adverse consequences of a failure to withhold. A foreign
holder generally would be entitled to file with the IRS a claim for refund with
respect to withheld taxes, taking the position that no taxes were due because
the Issuer was not in a U.S. trade or business.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential Noteholders should
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Tax Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Tax Code with respect to the
plan. ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA and prohibits certain transactions between a plan and parties
in interest with respect to such plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Tax Code
for such persons.
In addition to the matters described below, purchasers of Notes that are
insurance companies should consult with their counsel with respect to the United
States Supreme Court case interpreting the fiduciary responsibility rules of
ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank,
114 S. Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets held
in an insurance company's general account may be deemed to be "plan assets" for
ERISA purposes under certain circumstances. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
Notes.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Tax Code if assets of the Issuer
were deemed to be "plan assets" of an employee benefit plan subject to ERISA or
the Tax Code, or an individual retirement account (an "IRA"), or any entity
whose underlying assets are deemed to be assets of an employee benefit plan or
an IRA by reason of such employee benefit plan's or such IRA's investment in
such entity (each a "Benefit Plan"). Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Issuer would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Tax Code only if the Benefit Plan acquires an "equity interest" in
the Issuer and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are treated as an
equity interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuer or any of its affiliates is or becomes, a party in
interest or disqualified person with respect to such Benefit Plan. In such case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the
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type and circumstances of the plan fiduciary making the decision to acquire a
Note. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 96-23, regarding transactions by in-house asset managers;
and PTCE 84-14, regarding transactions by "qualified professional assets
managers." Each investor using the assets of a Benefit Plan which acquires the
Notes, or to whom the Notes are transferred, will be deemed to have represented
that the acquisition and continued holding of the Notes will be covered by a
Department of Labor class exemption.
Employee plans that are government plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(53) of ERISA, are not
subject to ERISA; however, such plans may be subject to comparable state law
restrictions.
Any Benefit Plan fiduciary considering the purchase of a Note should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Benefit Plan fiduciary should
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Notes is appropriate for the Benefit
Plan, taking into account the overall investment policy of the Benefit Plan and
the composition of the Benefit Plan's investment portfolio.
USE OF PROCEEDS
The proceeds from the sale of the Notes will be applied by the Transferor
to the acquisition of the related Lease Receivables from the Seller.
RATINGS
It is a condition to the issuance of the Offered Notes that the Class A-1
Notes be rated [ ] by [ ] and [ ] by [ ], the Class A-2 Notes be rated [ ] by [
] and [ ] by [ ], the Class A-3 Notes be rated [ ] by [ ] and [ ] by [ ], the
Class A-4 Notes be rated [ ] by [ ] and [ ] by [ ], the Class B Notes be rated [
] by [ ] by [ ] by [ ], the Class C Notes be rated [ ] by [ ] and [ ] by [ ],
and the Class D Notes be rated [ ] by [ ] and [ ] by [ ]. The ratings are not a
recommendation to purchase, hold or sell the Notes, inasmuch as such ratings do
not comment as to market price or suitability for a particular investor. Each
rating may be subject to revision or withdrawal at any time by the assigning
Rating Agency. There is not assurance that any such rating will continue for any
period of time or that it 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 June __,
1999 the Transferor 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" 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 Transferor is affiliated with Charter.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions therein, to purchase all the Notes offered hereby if any of
such Notes are purchased. The Underwriting Agreement
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pertaining to the sale of the Notes will provide that the obligations of the
Underwriter will be subject to certain conditions precedent.
The Underwriter has advised the Transferor that it proposes to offer the
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 Transferor or from purchasers of the Notes in the form of
discounts, concessions or commissions. The Underwriter may effect such
transactions by selling such Notes to or through a dealer, and such dealer may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters or purchasers of the Notes for whom they may
act as agent. Any dealers that participate with the Underwriter in the
distribution of the Notes purchased by the Underwriter may be deemed to be
underwriters, and any discounts or commissions received by them or the
Underwriter, and any profit on the resale of Notes by them or the Underwriter
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933, as amended (the "Securities Act").
The Transaction Documents and the Underwriting Agreement provide that
Charter and the Transferor under certain circumstances will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriter may be required to
make in respect thereof.
Purchasers of Notes, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Holders of Notes should consult with their legal advisors in this regard
prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Issuer by Dewey Ballantine LLP, New York, New York and for the Underwriter by
Cadwalader, Wickersham & Taft, New York, New York. Certain Federal income tax
matters will be passed upon for the Issuer by Dewey Ballantine LLP, New York,
New York.
ADDITIONAL INFORMATION
This Prospectus contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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Index To Financial Statements
Page
----
Independent Auditors' Report 72
Balance Sheet of the Issuer as of [ ], 1999 73
Notes to Balance Sheet 74
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Independent Auditors' Report
The Board of Directors
Charter Equipment Lease 1999-1 LLC:
We have audited the accompanying balance sheet of Charter Equipment Lease 1999-1
LLC (an indirect wholly- owned subsidiary of Charter Financial, Inc.) as of June
___, 1999. This financial 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 of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Charter Equipment Lease 1999-1 LLC
as of June __, 1999, in conformity with generally accepted accounting
principles.
[ ]
June ___, 1999
New York, New York
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CHARTER EQUIPMENT LEASE 1999-1 LLC
(an indirect wholly-owned subsidiary of Charter Financial, Inc.)
Balance Sheet
June ___, 1999
Assets
Cash $100
----
$100
====
Liabilities and Members' Equity
Liabilities $0
Members' Equity $100
----
$100
====
See accompanying notes to balance sheet.
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CHARTER EQUIPMENT LEASE 1999-1 LLC
(an indirect wholly-owned subsidiary of Charter Financial, Inc.)
Notes to Balance Sheet
June ___, 1999
(1) Organization
Charter Equipment Lease 1999-1 LLC, an indirect wholly-owned subsidiary of
Charter Financial, Inc. ("Charter Financial"), was incorporated in the
State of Delaware.
Charter Equipment Lease 1999-1 LLC was organized to engage exclusively in
the following business and financial activities: to acquire equipment
described in the related equipment lease contracts and to purchase
equipment leases and lease receivables from Charter Financial and any of
its affiliates; to issue and sell notes collateralized by any or all of its
assets pursuant to one or more indentures between Charter Equipment Lease
1999-1 LLC and an indenture trustee; and to engage in any lawful act or
activity and to exercise any power that is incidental and is necessary or
convenient to the foregoing and permitted under Delaware law.
(2) Capital Contribution
Charter Financial has made an initial capital contribution of $100 to
Charter Equipment Lease 1999-1 LLC.
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INDEX OF PRINCIPAL DEFINED TERMS
Page
----
Acceptable Payment Status........................ 28
Aggregate Discounted Lease Balance............... 17
Article 2A....................................... 25
Available Funds.............................. 11, 43
Bankruptcy Code.................................. 63
Benefit Plan..................................... 69
Calculation Date.................................. 5
Casualty Loss.................................... 42
Casualty Payment................................. 42
Cede...............................................4
CFC................................................3
Charter........................................ 3, 5
Class..............................................1
Class A Notes..................................... 6
Class A Percentage........................... 14, 46
Class A Principal Payment.................... 13, 45
Class A Target Investor Principal Amount..... 14, 46
Class B Floor................................ 14, 46
Class B Notes..................................... 6
Class B Percentage........................... 14, 46
Class B Principal Payment................ 13, 14, 46
Class B Target Investor Principal Amount..... 14, 46
Class C Floor................................ 15, 47
Class C Notes..................................... 6
Class C Percentage........................... 14, 46
Class C Principal Payment.................... 14, 46
Class C Target Investor Principal Amount..... 14, 46
Class D Floor................................ 15, 47
Class D Notes..................................... 6
Class D Percentage........................... 14, 46
Class D Target Investor Principal Amount..... 14, 46
Class Target Investor Principal Amount....... 14, 46
Closing Date...................................5, 65
Collection Period................................. 5
Commission........................................ 4
Conditional Prepayment Rate...................... 59
CPR.............................................. 59
Cumulative Loss Amount....................... 16, 48
Cut-Off Date.......................................5
Debtors.......................................... 23
Defaulted Leases................................. 42
Definitive Notes................................. 50
Delinquency Amounts.............................. 19
Delinquent Lease................................. 19
Discount Rate.................................... 16
Discounted Lease Balance...................... 9, 16
Distribution Account......................... 19, 52
DTC........................................... 4, 18
Early Termination Lease.......................... 42
Eligible Deposit Account......................... 52
Eligible Institution............................. 52
Eligible Investments............................. 52
Eligible Lease.................................. 27
Equipment................................... 3, 6, 7
ERISA............................................ 21
Event of Default................................. 18
Event of Servicing Termination................... 55
Event of Termination............................. 53
Events of Default................................ 57
Exchange Act...................................... 4
Excluded Amounts................................. 42
FASB 13........................................... 8
Finance Lease..................................... 8
fully taxable bonds.............................. 67
Indenture...................................... 3, 7
Initial Outstanding Principal Amount.............. 1
Insolvency Laws.................................. 23
Interest Accrual Period...................... 12, 45
Interest Payments............................ 12, 44
IRA.............................................. 69
Issuer.............................................1
Lease Files...................................... 41
Lease Payment.................................... 42
Lease Payments................................... 29
Lease Receivables................................. 3
Leases............................................ 3
Legal Aspects of the Leases...................... 22
Lessee............................................ 8
Lessor............................................ 8
LLC Agreement............................... 3,6, 27
Lockbox Account.................................. 19
Maximum Contract Term............................ 28
Note Interest Rate................................ 1
Noteholders....................................... 3
Notes............................................. 6
Offered Notes..................................... 6
Operating Leases.................................. 8
Optional Redemption.............................. 20
Outstanding Principal Amount...................... 1
Outstanding Principal Amounts................ 12, 45
Overcollateralization Balance................ 16, 48
Partnership Interest............................. 64
Payment Date................................... 3, 5
Percentage Interests............................. 58
Plan............................................. 21
Plan Assets Regulation........................... 69
Pool Factor...................................... 51
Pool of Assets.............................6, 7, 26
Premium Note..................................... 67
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Prepayment....................................... 24
Prepayment Assumption............................ 66
PTCE............................................. 70
Purchase Leases................................... 8
Rating Agencies.................................. 21
Receivables....................................... 6
Record Date....................................... 6
Reporting Date................................... 20
Repurchase Amount................................ 30
Rules............................................ 49
Sale Date........................................ 41
Securities Act................................... 71
Seller............................................ 3
Seller Contribution and Sale Agreement............ 3
Servicer.......................................... 5
Servicer Advance............................. 19, 53
Servicing Agreement............................ 4, 7
Servicing Charges................................ 19
Servicing Fee................................ 19, 55
Servicing Fee Rate........................... 19, 55
Servicing Officer................................ 55
Soft Items....................................... 25
Stated Maturity Date.............................. 3
Sub-Servicer...................................... 5
Substitute Lease................................. 30
Substituted Receivable........................... 20
Successor Servicer............................... 19
Supplementary Report............................. 55
Tax Code..................................... 21, 64
Tax Counsel...................................... 64
Termination Payment.............................. 42
Transaction Document.............................. 7
Transferor........................................ 5
Transferor Contribution and Sale Agreement..... 3, 7
Trust Accounts................................... 52
Trustee........................................ 3, 7
Trustee Expenses................................. 59
Trustee Fee...................................... 59
U.S. Person...................................... 68
Underwriter...................................... 70
Underwriting Agreement........................... 70
Weighted Average Life............................ 59
Withholding Regulations.......................... 68
74
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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
THE POOL OF ASSETS......................................................... 24
THE ISSUER................................................................. 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION............................................................. 25
THE LEASES................................................................. 25
CHARTER'S LEASING BUSINESS [Need to Update]................................ 34
TRANSFEROR................................................................. 38
DESCRIPTION OF THE NOTES................................................... 38
POOL FACTORS............................................................... 49
DESCRIPTION OF THE TRANSACTION DOCUMENTS................................... 49
THE TRUSTEE................................................................ 56
PREPAYMENT AND YIELD CONSIDERATIONS........................................ 57
PERCENTAGE OF INITIAL AGGREGATE OUTSTANDING
PRINCIPAL AMOUNT...................................................... 58
LEGAL ASPECTS OF THE LEASES................................................ 59
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................... 60
STATE AND LOCAL TAX CONSIDERATIONS......................................... 66
ERISA CONSIDERATIONS....................................................... 66
USE OF PROCEEDS............................................................ 67
RATINGS.................................................................... 67
PLAN OF DISTRIBUTION....................................................... 67
LEGAL MATTERS.............................................................. 68
ADDITIONAL INFORMATION..................................................... 68
INDEX OF PRINCIPAL DEFINED TERMS........................................... 73
Until ____________, 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.
================================================================================
================================================================================
$_________
Charter Equipment Lease 1999-1 LLC
$___________ ____% Lease-Backed Notes, Class A-1
$___________ ____% Lease-Backed Notes, Class A-2
$___________ ____% Lease-Backed Notes, Class A-3
$___________ ____% Lease-Backed Notes, Class A-4
$_________ _____% Lease-Backed Notes, Class B
___________________
P R O S P E C T U S
___________________
________________________________
FIRST UNION CAPITAL MARKETS
Dated ______ ___, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
SEC Filing Fee....................................................... $
Trustee's Fees and Expenses..........................................
Legal Fees and Expenses..............................................
Accounting Fees and Expenses.........................................
Printing and Engraving Expenses......................................
Blue Sky Qualification and Legal Investment Fees and Expenses........
Rating Agency Fees...................................................
Miscellaneous........................................................
- --------------------------------------------------------------------- ----------
TOTAL $
==========
- ----------
Item 14. Indemnification of Directors and Officers.
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Section [ ] of the Certificate of Incorporation of Charter Funding
Corporation V provides that all officers and directors of the corporation shall
be indemnified by the corporation from and against all expenses, liabilities or
other matters arising out of their status as an officer or director for their
acts, omissions or services rendered in such capacities. Charter Financial,
Inc., the ultimate corporate parent of Charter Funding Corporation V, maintains
certain policies of liability insurance coverage for the officers and directors
of Charter Financial, Inc. and certain of its subsidiaries, including Charter
Funding Corporation V.
The form of the Underwriting Agreement, filed as Exhibit [ ] to this
Registration Statement, provides that Charter Funding Corporation V will
indemnify and reimburse the underwriter(s) and each controlling person of the
underwriter(s) with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement provides that the underwriter(s) will similarly indemnify
and reimburse Charter Funding Corporation V in with respect to certain material
misstatements or omissions in the Registration Statement which are based on
certain written information furnished by the underwriter(s) for use in
connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of the
registrant, the registrant's By-laws permit the board of directors to purchase
and maintain insurance on behalf of the registrant's agents, including its
officers and directors, against any liability asserted against them in such
capacity or arising out of such agents' status as such, whether or not such
registrant would have the power to indemnify them against such liability under
applicable law.
Item 15. Recent Sales of Unregistered Securities.
Not applicable
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
[ ] Form of Underwriting Agreement.*
[ ] Certificate of Incorporation of Charter Funding Corporation V.*
[ ] By-Laws of Charter Funding Corporation V.*
[ ] Form of Indenture between the Issuer and the Trustee.*
[ ] Form of LLC Agreement.*
[ ] Opinion of Dewey Ballantine LLP with respect to legality.*
[ ] Opinion of Dewey Ballantine LLP with respect to tax matters.*
[ ] Consents of Dewey Ballantine (included in Exhibits 5.1 and 8.1 hereto).*
[ ] Form of Seller Contribution and Sale Agreement.*
[ ] Form of Transferor Contribution and Sale Agreement.*
[ ] Form of Servicing Agreement.*
[ ] Form of Statement of Eligibility of Trustee.*
[ ] Financial Statement Schedules.*
- ----------
* To be Filed by Amendment.
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described above in Item 15, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by them is
against public policy as expressed in the 1933 Act and will be governed by
the final adjudication of such issue.
B. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on the 13th day of May, 1999.
CHARTER EQUIPMENT LEASE 1999-1 LLC
By: CHARTER FUNDING CORPORATION V
By: /s/ Gary Corr
------------------------------
Name: Gary Corr
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary Corr* Director and Vice Chairman May 13 , 1999
- -------------------------------------
Henry Frommer
/s/ Gary Corr* Director and Principal Executive May 13, 1999
- ------------------------------------- Officer
Alan A. Fischer
/s/ Gary Corr* Director May 13, 1999
- -------------------------------------
David Paris
/s/ Gary Corr Director, President, Chief Financial May 13, 1999
- ------------------------------------- Officer and Comptroller
Gary Corr
*By: /s/ Gary Corr
--------------------------------
Gary Corr
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
[ ] Form of Underwriting Agreement.*
[ ] Certificate of Incorporation of Charter Funding Corporation V.*
[ ] By-Laws of Charter Funding Corporation V.*
[ ] Form of Indenture between the Issuer and the Trustee.*
[ ] Form of LLC Agreement.*
[ ] Opinion of Dewey Ballantine LLP with respect to legality.*
[ ] Opinion of Dewey Ballantine LLP with respect to tax matters.*
[ ] Consents of Dewey Ballantine LLP (included in Exhibits 5.1 and 8.1
hereto).*
[ ] Form of Seller Contribution and Sale Agreement.*
[ ] Form of Transferor Contribution and Sale Agreement.*
[ ] Form of Servicing Agreement.*
[ ] Form of Statement of Eligibility of Trustee.*
[ ] Financial Statement Schedules.*
- ----------------------------
* To be Filed by Amendment.
II-4
