<PAGE>
As filed with the Securities and Exchange Commission on January 12, 1999
Registration No. 333-
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
HELLER EQUIPMENT RECEIVABLES TRUST 1999-1
(Issuer with respect to the Securities)
HELLER FUNDING CORPORATION II
(Depositor of the Trust described herein)
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6799 36-4165546
(State or other jurisdiction (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
Heller Funding Corporation II
[500 West Monroe Street
Chicago, Illinois 60661
(312) 441-7246
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Debra H. Snider, Esq.
Heller Funding Corporation II
c/o Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
(312) 441-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
M. David Galainena, Esq. [ ]
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600
_________________________________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
Title of Each Class of Amount to Be Proposed Maximum Offering Price Proposed Maximum Amount of
Securities Registered(1) Per Unit (2) Aggregate Registration Fee
to Be Registered Offering Price (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 Receivable- $1,000,000 100% $1,000,000 $278
Backed Notes
- -------------------------------------------------------------------------------------------------------------------------
Class A-2 Receivable- $1,000,000 100% $1,000,000 $278
Backed Notes
- -------------------------------------------------------------------------------------------------------------------------
Class B $1,000,000 100% $1,000,000 $278
Receivable-Backed
Notes
- -------------------------------------------------------------------------------------------------------------------------
Class C $1,000,000 100% $1,000,000 $278
Receivable-
Backed Notes
==========================================================================================================================
</TABLE>
(1) The amount of Securities being registered represents the maximum aggregate
principal amount of Securities currently expected to be offered for sale.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a).
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any State where the offer or sale is not permitted.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated , 1999
PRELIMINARY PROSPECTUS
- ----------------------
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1999-1
$ [ ]% CLASS A-1 RECEIVABLE-BACKED NOTES, SERIES 1999-1
$ [ ]% CLASS A-2 RECEIVABLE-BACKED NOTES, SERIES 1999-1
$ [ ]% CLASS B RECEIVABLE-BACKED NOTES, SERIES 1999-1
$ [ ]% CLASS C RECEIVABLE-BACKED NOTES, SERIES 1999-1
HELLER FUNDING CORPORATION II,
Trust Depositor
HELLER FINANCIAL, INC.,
Servicer
_______________
We are offering four classes of Notes: Class A-1 Notes, Class A-2 Notes,
Class B Notes and Class C Notes. The Notes are debt obligations of the Trust
and will be paid only from the Trust's assets. The Trust's assets include
undivided ownership interests in contracts relating to end-user financing of a
variety of new and used equipment; software and related support and consulting
services; and limited recourse loan or repayment obligations payable by vendors
of equipment or software and related support and consulting services.
YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS" ON
PAGE 7 OF THIS PROSPECTUS.
THE NOTES WILL REPRESENT OBLIGATIONS OF THE TRUST ONLY AND WILL NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY,
THE TRUST DEPOSITOR, THE OWNER TRUSTEE, HELLER FINANCIAL OR ANY OF THEIR
RESPECTIVE AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
_______________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_______________
<TABLE>
<CAPTION>
Price to Public(1) Underwriting Discounts Proceeds to Issuer (2)
and Commissions
<S> <C> <C> <C>
Per Class A-1 Note % % %
Per Class A-2 Note % % %
Per Class B Note % % %
Per Class C Note % % %
Total $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1999.
(2) Before deducting expenses of this offering estimated to be $ .
UNDERWRITERS OF THE CLASS A-1 NOTES AND THE CLASS A-2 NOTES
UNDERWRITER OF THE CLASS B NOTES AND THE CLASS C NOTES
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.............................................. 1
SUMMARY............................................................ 2
RISK FACTORS....................................................... 7
USE OF PROCEEDS.................................................... 15
COMPOSITION OF THE CONTRACTS....................................... 15
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE......................... 16
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED... 17
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE........................ 18
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY...................... 19
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT BALANCE............. 20
DISTRIBUTION OF CONTRACTS BY REMAINING CONTRACT BALANCE............ 21
DISTRIBUTIONS OF CONTRACTS BY ORIGINAL CONTRACT TERM............... 21
DISTRIBUTION OF CONTRACTS BY REMAINING MONTHS TO STATED MATURITY... 22
DELINQUENCY AND LOAN LOSS INFORMATION.............................. 23
THE CONTRACTS GENERALLY............................................ 26
PREPAYMENT AND YIELD CONSIDERATIONS................................ 30
HELLER FINANCIAL, INC. AND HELLER FINANCIAL LEASING, INC........... 34
THE TRUST ......................................................... 36
THE TRUST DEPOSITOR................................................ 36
DESCRIPTION OF THE NOTES........................................... 38
THE SUBORDINATED NOTES............................................. 48
THE CERTIFICATES................................................... 48
THE SALE AND SERVICING AGREEMENT GENERALLY......................... 48
THE INDENTURE...................................................... 57
CERTAIN LEGAL ASPECTS OF THE CONTRACTS............................. 60
FEDERAL INCOME TAX CONSEQUENCES.................................... 65
CERTAIN STATE TAX CONSEQUENCES..................................... 69
ERISA CONSIDERATIONS............................................... 69
PLAN OF DISTRIBUTION............................................... 70
RATING OF THE NOTES................................................ 71
LEGAL MATTERS...................................................... 72
GLOSSARY OF TERMS.................................................. 73
i
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
You can find a glossary of the principal capitalized terms used in this
prospectus beginning on page [ ].
Within the period during which there is an obligation to deliver a
prospectus, the underwriters will, at your request, promptly deliver, or cause
to be delivered, without charge, to you a paper copy of this prospectus.
In addition to the Notes, the Trust is issuing certain other notes and
certificates which will be subordinated in right of payment of principal and
interest to the Notes. Such other notes and certificates are not being offered
by this prospectus.
No dealer, salesman or other person is authorized to give any information
or to make any representation not contained in this prospectus and if given or
made, you should not rely on such information. This prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any security
other than the Notes offered by this prospectus, nor does it constitute an offer
to sell or a solicitation of any offer to by any of the Notes to any person in
any jurisdiction in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such an offer or
solicitation to such person.
You should not assume that the information in this prospectus is correct as
of any date subsequent to the date hereof.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN
TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE NOTES OFFERED HEREBY SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE
PURCHASE OF NOTES TO COVER SYNDICATE SHORT POSITIONS. SEE "PLAN OF
DISTRIBUTION".
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, periodic and
annual unaudited reports, containing information concerning the Trust, the
Contracts, the Notes, the Subordinated Notes and the Certificates, will be
prepared by the Servicer and sent on behalf of the Trust to Cede & Co., as
nominee of The Depository Trust Company, and the Euroclear System or Cedel Bank,
S.A. as registered holders of the Notes. Such reports will be made available by
DTC, Euroclear or CEDEL and its participants to holders of interests in the
Notes in accordance with the rules, regulations and procedures creating and
affecting DTC, Euroclear and CEDEL, respectively. See "Description of the
Notes--Book Entry Registration" and "--Reports" below. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles or that have been examined and reported upon by, with an
opinion expressed by, an independent or certified public accountant. Upon the
issuance of fully registered, certificated Notes, such reports will be sent to
each registered Noteholder.
AVAILABLE INFORMATION
The Trust Depositor, as originator of the Trust, has filed with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, as amended, with respect to the Notes offered pursuant to this
prospectus and described herein. For further information, you should read the
registration statement which may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549; Citicorp Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048. You may obtain copies of the registration
statement for a fee from the Public Reference Branch of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Securities and Exchange Commission also maintains a public access site on the
Internet through the World Wide Web at which you may view reports, information
statements and other information, including all electronic filings, regarding
the Trust Depositor and the Trust. The Internet address of such World Wide Web
site is http://www.sec.gov. The Servicer, on behalf of the Trust, will also file
or cause to be filed with the Securities and Exchange Commission such periodic
reports as are required under the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
thereunder. Copies of such reports can be obtained as described above.
1
<PAGE>
SUMMARY
In this prospectus, the "Notes" refer to the [_]% Class A-1 Receivable-Backed
Notes, Series 1999-1, [_]% Class A-2 Receivable-Backed Notes, Series 1999-1,
[_]% Class B Receivable-Backed Notes, Series 1999-1 and [_]% Class C Receivable-
Backed Notes, Series 1999-1. "We", "us" and "our" refer to the Trust.
The following is a summary of the terms of the Notes and therefore, it does not
contain all the information that may be important to you. You should read this
entire prospectus. In addition, you may wish to read principal documents
governing the sale of Asset Interests in the Contracts, the formation of the
Trust and the issuance of Notes which have been filed as exhibits to the
registration statement of which this prospectus is a part. You can find a
glossary of the capitalized terms used in this prospectus on page [_].
There are material risks associated with an investment in the Notes. See "Risk
Factors" on page [_] for a discussion of certain factors you should consider
before making an investment in the Notes.
The Trust.............. Heller Equipment Asset Receivables Trust 1999-1. The
Trust's principal offices will be in care of [ ],
as Owner Trustee, at [ ], Wilmington, Delaware
[ ], telephone (302) [ ].
The Originators........ Heller Financial, Inc. and Heller Financial Leasing,
Inc.
The Trust Depositor.... Heller Funding Corporation II. The Trust Depositor is a
wholly owned, limited purpose subsidiary of Heller
Financial, Inc. The Trust Depositor's principal
executive offices are located at 500 West Monroe
Street, Chicago, Illinois 60661, telephone (312) 441-
7246.
The Servicer........... Heller Financial, Inc. (with Heller Financial Leasing,
Inc. acting as a sub-servicer).
The Notes.............. The Trust is offering the following Notes which
represent an interest in the assets of the Trust:
<TABLE>
<CAPTION>
% of initial ADCB
Initial Note Interest of
Class Principal Balance Rate the Contracts
----- ----------------- ---- -------------
<S> <C> <C> <C>
Class A-1 Notes $ % %
Class A-2 Notes $ % %
Class B Notes $ % %
Class C Notes $ % %
</TABLE>
The Notes will be available for purchase in minimum
denominations of $1,000 and in integral multiples
thereof in book-entry form.
The Subordinated
Securities............ The Trust will also issue the following Subordinated
Securities, neither of which will be offered by this
prospectus:
. $[ ] aggregate principal amount of Subordinated
Notes --
-- The initial principal balance of the
Subordinated Notes is equal to approximately
[ ]% of the initial ADCB.
-- The Subordinated Notes are expected to be sold
concurrently with the Notes in a private
placement.
. Certificates with an aggregate $[ ] certificate
principal balance --
-- The Certificates will not bear interest.
-- The Certificates will represent fractional
undivided beneficial equity interests in the
Trust and residual interests in amounts in the
Reserve
2
<PAGE>
Fund (after the payment of all outstanding
interest and principal on the Notes and
Subordinated Notes)
-- The Trust Depositor is expected initially to
retain the Certificates, although the
Certificates could be subsequently conveyed in
a separate transaction subject to certain
restrictions to ensure the Trust is not
treated as a taxable entity for federal income
tax purposes.
The rights of the holders of the Subordinated
Securities to receive distributions will be
subordinated to your rights to receive distributions
with respect to the Notes to the extent described
herein. See "Description of the Notes -Allocations"
herein.
The Trust's Assets
A. The Asset
Interests........ The Trust's assets include undivided ownership
interests in the Contracts.
B. The Contracts..... The Contracts consist of:
. conditional sale agreements
. leases
. secured promissory notes
. installment payment agreements
. financing agreements
. Vendor Loans
Each Contract other than Vendor Loans relates to the
financing by end-users of Equipment or software and
related support and consulting services. Vendor Loans
are repayment obligations of Vendors which are secured
by End-User Contracts.
The Contracts have been originated by the Originators
or by the Vendors and assigned to the Originators
pursuant to Program Agreements. The Originators have
sold the Contracts to the Trust Depositor. On the
Closing Date, the Trust Depositor will transfer
undivided ownership interests in the Contracts to the
Trust (including security interests in the related
Equipment). The Contracts have been selected based on
criteria specified in the Sale and Servicing Agreement.
See "The Sale and Servicing Agreement Generally -
Representations and Warranties; Definition of Eligible
Contract" and "The Contracts Pool" herein.
As of the initial Cutoff Date, the Contracts had the
following characteristics (calculated utilizing the
Statistical Discount Rate):
Number of Contracts....................................
ADCB...................................................
Average Discounted Contract Balance....................
Weighted Average Original Term to Maturity
Range................................................
Weighted Average Remaining Term to Maturity
Range................................................
The statistical distribution of the Contracts, the
Discounted Contract Balances and the ADCB calculated at
the Statistical Discount Rate as of the initial Cutoff
Date will vary from the such characteristics calculated
as of the Closing Date; however, such variance will not
be material.
For further information regarding the Contracts, see
"The Contracts Pool" and "The Contracts Generally", as
well as "The Sale and Security Agreement Generally--
Representations and Warranties; Definition of Eligible
Contract" and "--Concentration Amounts; Definition of
Excess Contract" herein.
Under certain limited circumstances, more fully
specified in the Sale and Servicing Agreement, the
Trust Depositor may select a contract originated by the
Originators to be substituted for a Contract.
Additionally, under certain circumstances, the
Trust
3
<PAGE>
may reinvest the proceeds of a Contract which has
terminated early. See "The Sale and Service Agreement
Generally--Substitute Contracts and Additional
Contracts."
B. Reserve Fund...... The Trust Depositor has established a trust account in
the name of, and maintained by, the Indenture Trustee.
The Reserve Fund is intended to provide you with
limited protection against losses in respect of the
Contracts. On the Closing Date, the Trust Depositor
will deposit $[ ] in the Reserve Fund which is
equal to 1.00% of the ADCB of the Contracts Pool as of
the Cutoff Date. If on any Distribution Date Available
Amounts are less than the amount needed to pay
interest, or principal in certain limited
circumstances, on the Notes and Subordinated Notes,
funds will be withdrawn from the Reserve Fund to pay
such interest or principal, as applicable. See
"Description of the Notes--Allocations" and "--Reserve
Fund." On each Distribution Date amounts on deposit in
the Reserve Fund in excess of the Reserve Fund Amount
will be paid to the Certificateholder.
Terms of the Notes..... The principal terms of the Notes will be as described
below. See "Description of the Notes--General" and "The
Indenture--Payments of Principal and Interest" herein.
Payments of principal and interest will be made from
Available Amounts. Available Amounts represent
primarily collections of payments due under the
Contracts (including realization of amounts from Vendor
recourse, if applicable), late charges relating to a
Contract (provided such late charges were included in
the Contract's terms as of the applicable Cutoff Date),
certain amounts received upon the prepayment or
purchase of Contracts or liquidation of such Contracts
and disposition of the related Equipment upon defaults
thereunder, and proceeds of Servicer Advances, if any,
as well as earnings on amounts held in the Collection
Account.
The Class A-1 Notes will be senior in right of payment
to the Class A-2 Notes (except as to interest in
certain circumstances), Class B Notes, Class C Notes
and the Subordinated Securities; the Class A-2 Notes
will be senior in right of payment to the Class B
Notes, the Class C Notes and the Subordinated
Securities. The Class B Notes will be senior in right
of payment to the Class C Notes and the Subordinated
Securities; and the Class C Notes will be senior in
right of payment to the Subordinated Securities; in
each case to the extent described herein.
A. Interest.......... . Interest on the Class A-1 Notes is payable on a
Distribution Date from Available Amounts available
on such date (and after application of such
Available Amounts to repay any outstanding
Servicer Advances and to pay the Servicer's fee).
. Interest on the Class A-2 Notes is payable on a
Distribution Date from Available Amounts on such
date, but after application of such Available
Amounts to repay any outstanding Servicer
Advances, to pay the Servicer's fee and to pay
interest on the Class A-1 Notes; provided,
however, in the event a Restricting Event has
occurred and is continuing or an Event of Default
has occurred, interest on the Class A-1 Notes and
the Class A-2 Notes (to the extent Available
Amounts are insufficient to pay the entire amount
of accrued interest on both the Class A-1 Notes
and the Class A-2 Notes) will be paid from
Available Amounts pro rata based on the then
outstanding Principal Amounts of such Class A-1
Notes and Class A-2 Notes.
. Interest on the Class B Notes is payable on a
Distribution Date from Available Amounts on such
date, but after application of such Available
Amounts to repay any outstanding Servicer
Advances, to pay the Servicer's fee, and to pay
interest on the Class A-1 Notes and Class A-2
Notes.
. Interest on the Class C Notes is payable on a
Distribution Date from Available Amounts on such
date, but after application of such Available
Amounts to repay any outstanding Servicer
Advances, to pay the Servicer's fee, and to pay
interest on the Class A-1 Notes, the Class A-2
Notes and the Class B Notes.
See "Description of the Notes--Allocations" herein.
4
<PAGE>
Interest with respect to the Class A-1 Notes is
calculated on the basis of actual days elapsed over a
year of 360 days; interest with respect to all other
Notes will be calculated on the basis of a year of 360
days consisting of twelve 30 day months.
B. Principal......... . Principal of the Class A-1 Notes will be payable
on each Distribution Date in an amount equal to
the Class A-1 Principal Payment Amount for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicer's fee,
interest payments on the Notes and the
Subordinated Notes.
. Principal of the Class A-2 Notes will be payable
on each Distribution Date in an amount equal to
the Class A-2 Principal Payment Amount for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicer's fee,
interest payments on the Notes and Subordinated
Notes and the Class A-1 Principal Payment Amount.
. Principal of the Class B Notes will be payable on
each Distribution Date in an amount equal to the
Class B Principal Payment Amount for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicer's fee,
interest payments on the Notes, interest payments
on the Subordinated Notes, and the payment of the
Class A-1 Principal Payment Amount and the Class
A-2 Principal Payment Amount.
. Principal of the Class C Notes will be payable on
each Distribution Date in an amount equal to the
Class C Principal Payment Amount for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicer's fee,
interest payments on the Notes, and Subordinated
Notes, and the payment of the Class A-1 Principal
Payment Amount, the Class A-2 Principal Payment
Amount and Class B Principal Payment Amount.
The Class A-1 Principal Payment Amount, the Class A-2
Principal Payment Amount, Class B Principal Payment
Amount and Class C Principal Payment Amount represent,
in each case, a calculation of the fractional
percentage of the amount that the ADCB of the Contracts
has declined or been deemed to decline (whether through
payment, prepayment, default and writeoff,
determination of ineligibility or other mechanism as
described further herein) during the most recent full
calendar month; provided, however, the Class A-1 Notes
will receive 100% of Available Amounts with respect
their principal prior to the payment of any principal
on the Class A-2 Notes, Class B Notes, Class C Notes
and Subordinated Notes. Upon the occurrence of an Event
of Default, or upon the occurrence and during the
continuance of a Restricting Event, however, the
formula for determining such principal payment amount,
after payment in full of the Class A-1 Notes, will
change. See "Description of the Notes--Allocations"
herein.
C. Distribution
Date............. Distributions of interest and principal will be made on
the 15th day of each month, or if that day is not a
business day, the next business day. The first
Distribution Date is [ ], 1999.
D. Stated Maturity
Date............. The stated maturity date of the Class A-1 Notes is the
[ ] Distribution Date and the stated maturity
date for the other Notes and the Subordinated
Securities is the [ ] Distribution Date.
E. Optional
Redemption....... On any Distribution Date, the Trust Depositor may
redeem any outstanding Notes in whole, but not in part,
if the ADCB of the Contracts at such time is less than
10% of the initial ADCB of the Contracts as of the
initial Cutoff Date. If any outstanding Notes are
redeemed, the redemption price will be equal to the
unpaid principal amount of the Notes plus accrued and
unpaid interest thereon through the date of redemption.
Servicing; Servicing
Fee; Servicer
Advances............... The Servicer will be responsible for servicing,
managing and administering the Contracts and related
interests, and enforcing and making collections on the
Contracts.
5
<PAGE>
The Servicer has appointed Heller Financial Leasing,
Inc. as a subservicer. Additionally, the Originators
have in some cases delegated servicing and collection
functions to an applicable Vendor (or, in certain
limited instances, to a subservicer acceptable to the
Originator) with respect to end-user Contracts
originated through such Vendor, but in such instances
the Servicer (on behalf of the Trust, in the Trust's
capacity as assignee of the Originator through the
Trust Depositor) retains through provisions in
agreements with such Vendor (or agreement with such
subservicer) the right to determine or veto certain
servicing decisions and/or to replace or take over
servicing and collection functions from the Vendor in
the event of the Vendor's default or non-compliance
with its servicing or other obligations. See "The Sale
and Servicing Agreement Generally--Collection and Other
Servicing Procedures" herein.
The Servicer will be entitled to receive (a) a monthly
fee equal to the product of (i) one-twelfth of [ ]%
and (ii) the ADCB of the Contracts in as of the
beginning of the immediately preceding Collection
Period, payable out of (a) the Collection Account and
(b) certain other fees paid by the Obligors, as
compensation for acting as Servicer.
See "The Sale and Servicing Agreement Generally--
Certain Other Matters Regarding the Servicer" and
"--Servicer Default" herein.
Federal Income Tax
Considerations......... In the opinion of Winston & Strawn, federal tax counsel
to the Trust Depositor, for federal income tax
purposes, the Notes will be characterized as debt, and
the Trust will not be characterized as an association
(or a publicly traded partnership) taxable as a
corporation. The Noteholders, by the acceptance of a
Note, will agree to treat the Notes as indebtedness.
See "Federal Income Tax Considerations" herein.
ERISA Considerations... Subject to the considerations discussed under "ERISA
Considerations" herein, the Notes will be eligible for
purchase by certain employee benefit plans. Any benefit
plan fiduciary considering purchase of the Notes
should, however, consult with its counsel regarding the
consequences of such purchase under ERISA and the
Internal Revenue Code. See "ERISA Considerations"
herein.
Rating................. The Notes must, prior to their issuance, receive
ratings from [ ] as set forth below:
Class [ ] [ ]
----- --------------- ----------------
Class A-1 Notes
Class A-2 Notes
Class B Notes
Class C Notes
A rating is not a recommendation to purchase, hold or
sell Notes since a rating does not comment as to market
price or suitability for a particular investor. See
"Rating of the Notes" herein.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before investing
in the Notes.
LIMITED ABILITY TO RESELL THE NOTES
There is currently no public market for the Notes and there is no assurance
that one will develop. The underwriters may assist in resales of the Notes but
they are not obligated to do so. We do not intend to apply for listing of the
Notes on any securities exchange or for the inclusion of the Notes on any
automated quotation system. A secondary market for the Notes may never develop.
If a secondary market does develop, it may not continue. As a result, you may
not be able to resell your Notes prior to maturity.
TIMING OF PRINCIPAL PAYMENTS ON THE CONTRACTS AFFECTS THE YIELD OF THE NOTES
The rate of payment of principal on the Notes cannot be assured because the
rate of payment of principal on the Notes will depend, among other things, on
the rate of payment on the Contracts. In addition to Scheduled Payments,
payments on the Contracts will include Prepayments. Upon the occurrence of an
Event of Default or a Restricting Event, you may also receive principal payments
on the Notes in excess of the expected principal payment amount which results in
earlier than anticipated repayment of the Notes. You may not be able to
reinvest distributions of principal at yields equivalent to the yield on the
Notes. See "Description of the Notes--Principal", "--Additions of Trust Assets"
and "--Restricting Events" herein. Further, the Servicer may permit the Obligor
under a Contract to make an optional prepayment in an amount which is less than
the amount sufficient to repay the portion of such Contract financed by you
(together with accrued interest thereon) so long as the Trust is indemnified for
any such insufficiency by the Vendor or the Originator. See "Prepayment and
Yield Consideration".
The rate of early terminations of Contracts due to prepayments, including
defaults, is influenced by various factors including: (i) technological change;
(ii) changes in customer requirements; (iii) the level of interest rates; (iv)
the level of casualty losses; and (v) and the overall economic environment.
Many prepayments occur at the request of customers, whose motivations may not be
known to the Originators, the Trust Depositor or the Trust. No assurance can be
given that prepayments (including optional prepayments) on the Contracts will
conform to any historical experience, and no prediction can be made as to the
actual rate of prepayments which will be experienced on the Contracts. You will
bear all reinvestment risk resulting from the rate of prepayments on the
Contracts. See "Prepayment and Yield Considerations."
THE RATINGS OF THE NOTES MAY CHANGE
[ ] are the rating agencies rating the Notes. A rating is not a
recommendation to purchase, hold or sell Notes since a rating does not comment
as to market price or suitability for a particular investor. Ratings of Notes
will address the likelihood of the payment of principal and interest thereon
pursuant to their terms. The ratings of Notes will not address the likelihood of
an early return of invested principal. In addition, any such rating will not
address the possibility of the occurrence of an Event of Default or Restricting
Event. At any given time, a rating may be lowered or withdrawn entirely by a
Rating Agency. In the event that the rating initially assigned to any Note is
subsequently lowered for any reason, no person or entity is obligated to provide
any additional credit support for any Note. For more detailed information
regarding the ratings assigned to any class of the Notes, see "Rating of the
Notes."
SUBORDINATION OF THE CLASS A-2 NOTES, CLASS B NOTES, THE CLASS C NOTES AND THE
SUBORDINATED SECURITIES
Certain classes of Notes are subordinated to other classes of Notes.
Consequently, principal and interest payments on the subordinated class or
classes of Notes generally will not begin until the senior class or classes of
Notes are repaid. To the extent described herein under "Description of the
Notes--Allocations":
(i) interest and principal payments on the Class A-2 Notes, Class B
Notes, Class C Notes and the Subordinated Securities will be
subordinated in priority to interest and principal payments,
respectively, on the Class A-1 Notes;
(ii) interest and principal payments on the Class B Notes, Class C Notes
and the Subordinated Securities will be subordinated in priority to
interest and principal payments, respectively, on the Class A-2
Notes;
(iii) interest and principal payments on the Class C Notes and the
Subordinated Securities, will be subordinated in priority to interest
and principal payments, respectively, on the Class B Notes; and
(iv) interest and principal payments on the Subordinated Securities will
be subordinated in priority to interest and principal payments,
respectively, on the Class C Notes.
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The Subordinated Notes initially will represent the right to receive principal
in an amount equal to [ ]% of the initial ADCB, but such amount will be
reduced as a result of principal payments made on the Subordinated Notes prior
to an Event of Default or Restricting Event (see "Description of the Notes--
Principal"), which will reduce the benefit to the Notes of the subordination of
the Subordinated Notes.
Delinquencies and defaults on the Contracts could eliminate your protection
as a result of the subordination of the Subordinated Notes and the Reserve Fund,
and the Class C Noteholders could incur losses on their investment as a result.
Further delinquencies and defaults on the Contracts could eliminate the
protection offered to the Class B Noteholders by the subordination of the Class
C Notes, the Subordinated Notes and the Reserve Fund, and such Noteholders could
also incur losses on their investment as a result. Additionally, delinquencies
and defaults on the Contracts could eliminate the protection offered the Class
A-2 Noteholders by the subordination of the Class B Notes, the Class C Notes,
the Subordinated Notes and the Reserve Fund, and such Noteholders could also
incur losses on their interest as a result. Furthermore, delinquencies and
defaults on the Contracts could eliminate the protection offered to the Class A-
1 Noteholders by the subordination of the Class A-2 Notes, the Class B Notes,
the Class C Notes, the Subordinated Notes and the Reserve Fund.
CERTAIN RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATIONS OF CONTRACTS
As of the initial Cutoff Date, approximately [ ]% of the ADCB of the
Contracts related to Obligors located in California and [ ]% in New York,
[ ]% in Florida, [ ]% in Massachusetts and [ ]% in Illinois. No
other State accounts for more than [ ]% of the Contracts. The aggregate
Contracts in such states represent [ ]% of the ADCB of the Contracts.
If adverse events or economic conditions were particularly severe in such
geographic region or if Obligors under a large amount of Contracts within such
region were to experience financial difficulties, the delinquency and default
experience of the Contracts could be adversely impacted resulting in negative
implications for the timing and amount of collections on the Contracts and
possible delays or insufficiencies in payments due to you or Certificateholders.
The Trust Depositor, however, cannot determine and has no basis to predict, with
respect to any state or region, whether any such events have occurred or may
occur, or if any such events may affect the Contracts or the payment of the
Notes and Subordinated Notes.
CERTAIN RISKS ASSOCIATED WITH CONCENTRATION OF CONTRACTS RELATING TO THE
PRINTING INDUSTRY
Contracts constituting approximately [ ]% of the Contracts Pool ADCB
as of the Closing Date relate to Equipment used in the printing industry. No
other industry accounts for more than [ ]% of the Contracts. If the
printing industry were to experience adverse events or economic conditions, the
delinquency and default experience of the Contracts could be adversely impacted
and, accordingly, the timing and amount of collections on the Contracts may be
adversely affected. This could result in delays or reduced payments to you.
RATE AT WHICH EQUIPMENT OR SOFTWARE BECOMES OBSOLETE AFFECTS PREPAYMENT RATE OF
THE CONTRACTS AND THE NOTES; REINVESTMENT RISK
Technological change could affect your investment in the Notes. For
example, technological change may result in increased prepayment activity that
may increase Prepayments of the Contracts. Such Prepayments may result in
distributions to you of amounts which would otherwise have been distributed over
the remaining term of the Contracts and such distributions may require you to
reinvest such Prepayments in a less attractive interest rate environment. See
"--Maturity and Prepayment Considerations" and "The Contracts Generally--End-
User Contracts".
DECLINES IN MARKET VALUE OF EQUIPMENT; SHORTFALLS WITH RESPECT TO AVAILABLE
AMOUNTS TO PAY THE NOTES
If a Contract becomes a Defaulted Contract, the only source of payment for
amounts expected to be paid on such Contract will be the income and proceeds
from the sale of any related Equipment and a deficiency judgment, if any,
against the Obligor under the Defaulted Contract. Since the market value of the
Equipment may decline faster than the Discounted Contract Balance, the Servicer
may not recover the entire amount due on the Contract and might not receive any
Recoveries on the Equipment. To the extent such deficiencies deplete the
Reserve Fund and the protection afforded by the Subordinated Notes, such
deficiencies may create a shortfall with respect to payments on the Notes.
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CERTAIN LEGAL RISKS
Legal Risks Associated With Servicer's or Vendor's Retention of Contract
Files. To facilitate servicing and reduce administrative costs, the Servicer
will retain possession of the documents evidencing the Contracts (including but
not limited to originally executed agreements and promissory notes). Such
documents will not be deposited with the Indenture Trustee or any other agent or
custodian for your benefit (except for a limited number of end-user Contracts
evidenced by, in addition to a related financing agreement, "instruments" not
constituting chattel paper within the meaning of the UCC, which instruments will
be delivered to the custody and possession of the Indenture Trustee as pledgee
of the Trust). The Servicer will, however, stamp or mark such documents to
reflect the transfer of Asset Interests in the Contracts to the related Trust.
Also, UCC financing statements have been filed reflecting the sale and
assignment of the Contracts and related interests by the Originators to the
Trust Depositor, UCC financing statements will be filed reflecting the sale and
assignment of Asset Interests in the Contracts and related other interests by
the Trust Depositor to the Trust, and the Servicer's accounting records and
computer files will be marked to reflect such sales and assignments. Because
the documents evidencing the Contracts will remain in the Servicer's possession,
if a subsequent purchaser were able to take physical possession of such
documents without knowledge of such assignment, the Indenture Trustee's priority
interest in the Contracts (as assignee of the Trust Depositor's and the Trust's
interest) could be defeated. In the event that the Trust must rely upon
repossession and sale of the related Equipment and other assets securing
Defaulted Contracts to recover principal and interest due thereon, the Trust's
ability to realize upon such assets may be limited due to the existence of a
senior security interest in the Contracts. In such event, distributions to you
could be adversely affected.
Similarly, with respect to End-User Contracts securing Vendor Loans, in
some instances the Vendor will retain the original documents associated with
such End-User Contracts. Although UCC financing statements are filed reflecting
the pledge of such Contracts to the applicable Originator as security for the
Vendor Loans, because the related documents will remain in the Vendor's
possession, if a subsequent purchaser were able to take physical possession of
such documents without knowledge of the pledge to the Originator, the Indenture
Trustee's priority security interest in the such End-User Contracts (as assignee
of the Originator's, Trust Depositor's and the Trust's interest) could be
defeated. In such event, distributions to you could be adversely affected.
Each Vendor represents, warrants and covenants in the applicable agreement
evidencing a Vendor Loan, however, that it has not and will not sell, pledge or
otherwise assign or convey to any other party (other than the applicable
Originator) any interest in the End-User Contracts securing such Vendor Loan,
and agrees that it will maintain possession of the related documents as
custodian for the benefit of the Originator as secured party with respect to
such End-User Contracts.
Legal Risks Associated With Transfers of Interests in Financed Equipment.
In connection with the conveyance of Asset Interests in the Contracts to the
Trust, security interests in the related financed Equipment securing such
Contracts (or, in connection with leases, the Originator's ownership interest in
or title to such Equipment) will be assigned by the applicable Originator to the
Trust Depositor and by the Trust Depositor to the Trust. It has been the general
policy of the Originators to file or cause to be filed UCC financing statements
with respect to the Equipment relating to the Contracts. Due to the
administrative burden and expense associated with amending and paying the filing
fee for the assignment of approximately [ ] UCC financing statements in 50
states where Equipment is located, no assignments of the UCC financing
statements evidencing the security interest of the Originators in the Equipment
will be filed to reflect the Trust Depositor's, the Trust's or the Indenture
Trustee's interests therein. While failure to file such assignments does not
affect the Trust's interest in the Contracts (including the related Originator's
security interest in the related Equipment) or perfection of the Indenture
Trustee's interest in such Contracts and related Equipment, it does expose the
Trust (and thus you) to the risk that the Servicer could inadvertently release
its security interest in the Equipment, and it could complicate the Trust's
enforcement, as assignee, of the Originator's security interest in the
Equipment. While these risks should not affect the perfection or priority of the
interest of the Indenture Trustee in the Contracts or rights to payment
thereunder, they may adversely affect the right of the Indenture Trustee to
receive proceeds of a disposition of the Equipment related to a Defaulted
Contract. Additionally, statutory liens for repairs or unpaid taxes and other
liens arising by operation of law may have priority even over prior perfected
security interests in the Equipment assigned to the Indenture Trustee.
Also, the transfer to the Trust Depositor of the applicable Originator's
security interest in aircraft securing certain Contracts, or its ownership
interest in aircraft subject to Leases, and the transfer of such interests by
the Trust Depositor to the Trust, is subject to certain federal title
registration statutes, regulations and procedures. Due to the significant
administrative burden and expense associated with re-registering security
interests with respect to such aircraft, the registrations of title with respect
to aircraft securing Contracts, and to aircraft subject to Leases, will not
identify the Trust as secured party or owner, as the case may be, of such
Equipment. By not so identifying the Trust as the new secured party or owner
that, through fraud or negligence, there is a risk that a third party could
acquire an interest in the aircraft superior to that of the Trust. In addition,
statutory liens for repairs or unpaid taxes may have priority even over a
perfected security interest in the aircraft. The Originators will jointly and
severally represent that as of the Cutoff Date, in the Originators' reasonable
judgment, the ADCB of the Contracts that are secured by aircraft, does not
exceed [ ]% of the ADCB of the Contracts.
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In addition, some of the Equipment related to the Contracts may constitute
"fixtures" under the real estate or UCC provisions of the jurisdiction in which
such Equipment is located. In order to perfect a security interest in such
Equipment, the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage under the real
estate laws of the state where the Equipment is located. These filings must be
made in the real estate records office of the county in which such Equipment is
located. So long as the Obligor does not permanently attach the Equipment to
the real estate, a security interest in the Equipment will be governed by the
UCC, and the filing of a UCC-1 financing statement will be effective to maintain
the priority of the applicable Originator's security interest in such Equipment.
Except for a small portion of such Equipment, the Trust Depositor does not
believe that any of the Equipment will be permanently affixed to the related
real estate. If, however, any Equipment is permanently attached to the real
estate in which it is located, other parties could obtain an interest in the
Equipment which is prior to the security interest originally obtained by the
applicable Originator and transferred to the Trust Depositor. Based on the
representation of the Originators, the Trust Depositor, however, believes that
with respect to Equipment which constitutes a "fixture", it has obtained a
perfected first priority security interest, through assignment of such security
interest by the Originator, by virtue of the Originator's proper filing of UCC-1
financing statements naming the Originator as secured party in the real estate
records office of the county in which the Equipment is located. Also, the
Originators will jointly and severally represent that as of the Cutoff Date, in
the Originators' reasonable judgment, the ADCB of the Contracts that are secured
by fixtures, does not exceed [ ]% of the ADCB of the Contracts.
In certain cases, the Trust Depositor will be obligated to reacquire Asset
Interests in any Contract transferred to the Trust (subject to the Originator's
reacquisition thereof) in the event it is determined that a first priority
perfected security interest (or ownership interest in the case of Leases) in the
name of the Trustee in the Equipment related to such Contract did not exist as
of the date Assets Interests in such Contract were conveyed to the Trust. See
"Certain Legal Aspects of the Contracts--Transfers of Interests in Financial
Equipment".
Legal Risks Associated With Transfer of Asset Interests in the Contracts.
There are certain limited circumstances under federal or state law in which
prior or subsequent transferees of Contracts could have an interest in such
Contracts with priority over the Trust's interest. See "Certain Legal Aspects of
the Contracts--Transfer of Contracts." Under each agreement between a Originator
and a Vendor, the Vendor (i) has or will warrant to such Originator that the
Contracts transferred to the Originator thereunder will be transferred free and
clear of the lien of any third party and (ii) has or will also covenant that it
will not sell, pledge, assign, transfer or grant any lien on any Contract
transferred thereunder to the Originator. Under the Sale and Servicing
Agreement, the Originators will jointly and severally warrant to the Trust
Depositor and the Trust Depositor will warrant to the Trust, that Asset
Interests in the Contracts transferred thereunder will be transferred free and
clear of the lien of any third party. Also, under the Sale and Servicing
Agreement, the Originators will jointly and severally covenant to the Trust
Depositor and the Trust Depositor will also covenant to the Trust, that it will
not sell, pledge, assign, transfer or grant any lien on the Contracts.
Risk of Ineffective Sale in Vendor Bankruptcy. The Originators will either
(i) originate Contracts or (ii) acquire End-User Contracts from a Vendor, which
Contracts will be transferred to the Trust Depositor. If the acquisition of an
End-User Contract by a Originator is treated as a sale of such Contract from the
applicable Vendor to such Originator, except in certain limited circumstances,
such Contract would not be part of such Vendor's bankruptcy estate and would not
be available to such Vendor's creditors. If a Vendor became a debtor in a
bankruptcy case and, in the case of End-User Contracts acquired as described in
clause (ii) above, if an unpaid creditor of such Vendor or a representative of
creditors of such Vendor, such as a trustee in bankruptcy, or such Vendor acting
as a debtor-in-possession, were to take the position that the sale of such
Contracts to a Originator was ineffective to remove such Contracts from such
Vendor's estate (for instance, that such sale should be recharacterized as a
pledge of Contracts to secure borrowings of such Vendor), then delays in
payments under the Contracts to the Trust could occur. Additionally, should
the court rule in favor of such creditor, representative or Vendor, reductions
in the amount of such payments could result. If the transfer of End-User
Contracts to a Originator as described in clause (ii) above is recharacterized
as a pledge, a tax or government lien on the property of the pledging Vendor
arising before the Contracts came into existence may have priority over such
Originator's (and hence the Trust Depositor's, the Trust's and the Indenture
Trustee's) interest in the Contracts. In such case, reductions in the amount
of payments under the Contracts could result. See "Certain Legal Aspects of the
Contracts--Certain Matters Relating to Bankruptcy".
Risk of Ineffective Sale in Originator Bankruptcy. In the Sale and
Servicing Agreement, the Originators will jointly and severally warrant to the
Trust Depositor that the conveyance of the Contracts to the Trust Depositor
thereunder is a valid sale and transfer of such Contracts to the Trust
Depositor. In addition, the Originators and the Trust Depositor have agreed that
they will each treat the transactions described herein as a sale of the
Contracts to the Trust Depositor, and the Originators will take all actions that
are required under applicable law to perfect the Trust Depositor's ownership
interest in the Contracts sold by the Originators and the Trust Depositor's
security interest (as assignee of the Originator's security interest) in the
End-User Contracts (and Equipment, if any) securing Vendor Loans sold by the
Originators. See "Certain Legal Aspects of the Contracts--Transfer of
Contracts".
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If, however, a Originator became a debtor in a bankruptcy case and the
transfer of the Contracts from a Originator to the Trust Depositor were treated
as a pledge to secure borrowings by such Originator, the distribution of
proceeds of the Contracts to the Trust might be subject to the automatic stay
provisions of the United States Bankruptcy Code, which would delay the
distribution of such proceeds for an uncertain period of time. In addition, a
bankruptcy trustee would have the power to sell the Contracts if the proceeds of
such sale could satisfy the amount of the debt deemed owed by the Originator, or
the bankruptcy trustee could substitute other collateral in lieu of the
Contracts to secure such debt, or such debt could be subject to adjustment by
the bankruptcy court if the Originator were to file for reorganization under
Chapter 11 of the Bankruptcy Code. A case decided by the United States Court of
Appeals for the Tenth Circuit contains language to the effect that accounts sold
by a debtor under Article 9 of the UCC would remain property of the debtor's
bankruptcy estate. If, following a bankruptcy of the Originator, a court were to
follow the reasoning of the Tenth Circuit and apply such reasoning to chattel
paper, then similar reductions or delays in payments of collections on or in
respect of the Contracts could occur. Additionally, because the Originators have
purchased Contracts from Vendors located in the Tenth Circuit which could become
debtors in a bankruptcy proceeding, the rationale of such case could be
applicable to such Vendors' sales of Contracts to the Originators. Consequently,
payments with respect to such Contracts may be reduced or delayed.
Risks Associated with Insolvency of the Trust Depositor or the Trust.
Certain restrictions have been imposed on the Trust Depositor and the Trust and
certain other parties to the transactions described herein which are intended to
reduce the risk of an insolvency proceeding involving the Trust Depositor or the
Trust. See "Certain Legal Aspects of the Contracts--Certain Matters Relating to
Bankruptcy". In addition, the Trust Depositor has no intent to file, and the
Originators have represented that they have no intent to cause the filing of, a
voluntary application under the insolvency laws with respect to the Trust
Depositor, as long as the Trust Depositor is solvent and does not reasonably
foresee becoming insolvent. However, no assurance can be given that insolvency
proceedings involving either the Trust Depositor or the Trust will not occur. In
the event the Trust Depositor becomes subject to insolvency proceedings, the
Trust, the Trust's interest in the Trust's assets and the Trust's obligation to
make payments on the Notes might also become subject to such insolvency
proceedings. In the event of insolvency proceedings involving the Trust, the
Trust's interest in the Trust's assets and the Trust's obligation to make
payments on the Notes would become subject to such insolvency proceedings. No
assurance can be given that insolvency proceedings involving the Originator
would not lead to insolvency proceedings of either, or both, of the Trust
Depositor or the Trust. In either such event, or if an attempt were made to
litigate any of the foregoing issues, delays of distributions on the Notes,
possible reductions in the amount of payment of principal of and interest on the
Notes and limitations (including a stay) on the exercise of remedies under the
Indenture and the Sale and Servicing Agreement could occur, although you would
continue to have the benefit of the Indenture Trustee's security interest in the
Trust's assets under the Indenture.
The right of the Indenture Trustee, as secured party under the Indenture
for your benefit, to foreclose upon and sell the Trust's assets is likely to be
significantly impaired by applicable bankruptcy laws, including the automatic
stay pursuant to Section 362 of the Bankruptcy Code, if a bankruptcy proceeding
were to be commenced by or against the Trust, and possibly the Trust Depositor,
before or possibly even after the Indenture Trustee has foreclosed upon and sold
the Trust's assets. Under the bankruptcy laws, payments on debts are not made
and secured creditors are prohibited from repossessing their security from a
debtor in a bankruptcy case or from disposing of security repossessed from such
a debtor without bankruptcy court approval. Moreover, the bankruptcy laws
generally permit the debtor to continue to retain and to use collateral even
though the debtor is in default under the applicable debt instruments, provided
generally that the secured creditor has the right to seek "adequate protection".
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the
security from any diminution in the value of the collateral as a result of the
use of the collateral by the debtor during the pendency of the bankruptcy case.
In view of the lack of a precise definition of the term "adequate protection"
and the broad discretionary powers of a bankruptcy court, it is impossible to
predict whether or to what extent the holders of the Notes would be compensated
for any diminution in value of the Trust's assets. Furthermore, in the event a
bankruptcy court determines that the value of the Trust's assets is not
sufficient to repay all amounts due on the Notes, you would hold secured claims
only to the extent of the value of the Trust's assets to which the holders are
entitled, and unsecured claims with respect to such shortfall. See "Certain
Legal Aspects of the Contracts--Certain Matters Relating to Bankruptcy".
Risks Associated with Insolvency of the Vendors. In the event a Vendor
under a Vendor Loan becomes subject to insolvency proceedings, the End-User
Contracts and Equipment securing such Vendor Loan as well as such Vendor's
obligation to make payments thereon would also become subject to such insolvency
proceedings. In such event, delays of distributions on the Notes, possible
reductions in the amount of payment of principal of and interest on the Notes
and limitations (including a stay) on the exercise of remedies under the
Indenture and the Sale and Servicing Agreement could occur, although you would
continue to have the benefit of the Indenture Trustee's security interest in the
Vendor Loans (and the End-User Contracts and Equipment securing such Vendor
Loans) therefor under the Indenture.
The right of the Indenture Trustee, as secured party under the Indenture
for your benefit, to foreclose upon and sell any End-User Contracts securing
such Vendor Loans is likely to be significantly impaired by applicable
bankruptcy
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laws, including the automatic stay pursuant to Section 362 of the Bankruptcy
Code, if a bankruptcy proceeding were to be commenced by or against a Vendor
obligated on a Vendor Loan, before or possibly even after the Indenture Trustee
has foreclosed upon and sold the End-User Contracts and Equipment securing such
Vendor Loan. Under the bankruptcy laws, payments on debts are not made and
secured creditors are prohibited from repossessing their security from a debtor
in a bankruptcy case or from disposing of security repossessed from such a
debtor, without bankruptcy court approval. Moreover, the bankruptcy laws
generally permit the debtor to continue to retain and to use collateral even
though the debtor is in default under the applicable debt instruments, provided
generally that the secured creditor has the right to seek "adequate protection".
See "--Risks Associated with Insolvency of the Trust Depositor or the Trust". In
view of the lack of a precise definition of the term "adequate protection" and
the broad discretionary powers of a bankruptcy court, it is impossible to
predict whether or to what extent the holders of the Notes would be compensated
for any diminution in value of the End-User Contracts securing the Vendor Loans.
Furthermore, in the event a bankruptcy court determines that the value of the
End-User Contracts securing the Vendor Loans is not sufficient to repay all
amounts due on the related Vendor Loans, you would hold secured claims in a
Vendor bankruptcy only to the extent of the value of such End-User Contracts to
which you are entitled, and unsecured claims with respect to such shortfall.
Certain assignments executed under various Program Agreements and
individual assignments of End-User Contracts by Vendors provide that the
applicable Originator has recourse to the related Vendor for all or a portion of
the losses such Originator may incur as a result of a default under the End-User
Contracts sold under such Vendor assignment. In the event of a Vendor's
bankruptcy, a bankruptcy trustee, a creditor or the Vendor as debtor in
possession might attempt to characterize sales to a Originator pursuant to such
Vendor assignments as loans to the related Vendor from such Originator secured
by the End-User Contracts (and Equipment, if any) sold thereunder. If such an
attempt is successful, such assignments from Vendors would be subject to the
risks described herein for Vendor Loans. In such case the Contracts sold under
such Vendor assignments would constitute security for loans to the related
Vendor under the recharacterized Vendor assignment.
Risks Associated with Required Sale of Interests in the Contracts Resulting
from Trust Depositor Bankruptcy. If an Insolvency Event were to occur with
respect to the Trust Depositor, then an Event of Default would occur with
respect to the Notes and, pursuant to the terms of the Indenture and the Sale
and Servicing Agreement, and assuming the Trust was not then a debtor in a
bankruptcy case, the Indenture Trustee would be required to sell the interests
in the Contracts, thereby causing early termination of the Trust and a possible
loss to you if the sum of (i) the proceeds of the sale allocable to you and (ii)
the proceeds of any collections on the Contracts in the Collection Account
allocable to you, is insufficient to pay you in full. See "Certain Legal Aspects
of the Contracts--Transfer of Contracts" and "--Certain Matters Relating to
Bankruptcy".
Risk of Loss Associated with End-User and Vendor Bankruptcy. Application of
federal and state bankruptcy and insolvency laws in the event of bankruptcy of
end-users could affect your interests in the End-User Contracts if such laws
result in any such contracts being written off as uncollectible or result in
delay in payments due on any Contracts. See "Description of the Notes--Defaulted
Contracts" and "Certain Legal Aspects of the Contracts--Certain Matters Relating
to Bankruptcy". In addition, application of federal and state bankruptcy and
insolvency laws in the event of bankruptcy of Vendors could affect your
interests in the Vendor Loans and the End-User Contracts securing such Vendor
Loans if such laws result in any such Vendor Loans or related End-User Contracts
being written off as uncollectible or result in delay in payments due on any
such Vendor Loans or related End-User Contracts. See "--Risks Associated With
Insolvency of the Vendors". State laws impose requirements and restrictions
relating to foreclosure sales and obtaining deficiency judgments following such
sales. In the event that you must rely on repossession and disposition of
Equipment to recover amounts due on Defaulted Contracts, such amounts may not be
realized because of the application of these requirements and restrictions.
Other factors that may affect your ability to realize the full amount due on a
Contract include the failure to file financing statements to perfect the
Originator's, Trust Depositor's, Trust's or the Indenture Trustee's security
interest, as applicable, in the Equipment or other security for such Contract
and the depreciation, obsolescence, damage or loss of any item of Equipment. As
a result, you may be subject to delays in receiving payments and losses if the
over collateralization represented by the Subordinated Securities is
insufficient to absorb such losses.
Certain States may Limit the Enforceability of Certain Lease Provisions.
Certain states have adopted a version of Article 2A of the UCC ("Article 2A"),
which purports to codify many provisions of existing common law. Although there
is little precedent regarding how Article 2A will be interpreted, it may, among
other things, limit enforceability of any "unconscionable" lease or
"unconscionable" provision in a lease, provide a lessee with remedies, including
the right to cancel the lease contract, for certain lessor breaches or defaults,
and may add to or modify the terms of "consumer leases" and leases in which the
lessee is a "merchant lessee". However, in the Sale and Servicing Agreement, the
Originators will jointly and severally represent that (i) no End-User Contract
is a "consumer lease" as defined in Section 2A-103(1)(e) of the UCC; and (ii) to
the best of the Originators' knowledge, each end-user has accepted the Equipment
leased to it and, after reasonable opportunity to inspect and test the
Equipment, has not notified the Originator of any defects therein. See "Certain
Legal Aspects of the Contracts --Certain Matters Relating to Bankruptcy".
12
<PAGE>
CERTAIN CONTRACTS RELATING TO SOFTWARE OR RELATED SUPPORT AND CONSULTING
SERVICES ARE NOT SECURED BY SUCH SOFTWARE OR RELATED SERVICES
Certain Contracts will relate to software or related support and consulting
services (rather than Equipment) that are not owned by the Originator (the
Vendor or a licensor traditionally owns the same) and in which no related
interest will be transferred to the Trust (i.e. the Trust owns solely the
associated Contracts' cash flow). See "The Contracts Generally". Accordingly, if
any such Contract becomes a Defaulted Contract, the Trust will not realize any
proceeds from the related software or related services from which to satisfy any
related outstanding Scheduled Payments.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF THE OFFERED NOTES - NO RECOURSE TO
THE ORIGINATOR, SERVICER OR ITS AFFILIATES; LIMITED VENDOR RECOURSE
Neither the Originators, the Servicer nor any of their affiliates is
generally obligated to make any payments in respect of the Notes or the
Contracts. However, in connection with the sale of Contracts by a Originator to
the Trust Depositor, and the conveyance of Asset Interests in such Contracts by
the Trust Depositor to the Trust, the Originators will jointly and severally
make representations and warranties with respect to the characteristics of such
Contracts and, in certain circumstances, the Trust Depositor may be required to
repurchase Asset Interests in the Contracts from the Trust (and the Originators
may concurrently repurchase such Contracts from the Trust Depositor) with
respect to which such representations and warranties have been breached. See
"The Sale and Servicing Agreement Generally--Representations and Warranties;
Definition of Eligible Contract" herein. Moreover, if Heller Financial were to
cease acting as Servicer, delays in processing payments on the Contracts and
information in respect thereof could occur and result in delays in payments to
you. Because the Trust is a limited purpose trust with limited assets, you must
rely solely upon the Contracts, the Equipment and related security described
herein for payment of principal of and interest on the Notes. Moreover, in
respect of Vendor Loans, you must generally rely solely upon the End-User
Contracts securing such Vendor Loans (together with the Equipment and related
security securing such End-User Contracts, should the end-user default in its
obligation to pay such End-User Contracts), since Vendor Loans are generally
non-recourse to the Vendors (i.e., the holder of such Vendor Loan is limited to
recovering amounts solely from the End-User Contracts and related security
therefor) except for certain Vendor Loans which are covered by a form of limited
Vendor recourse. If payments made or realized from the Contracts (including End-
User Contracts securing Vendor Loans) and the disposition proceeds of the
Equipment are insufficient to make payments on the Notes, no other assets will
be available for the payment of the deficiency.
RISK OF REJECTION OF "TRUE LEASES"
Any End-User Contract which is a "true lease" originated by a Vendor will
be subject to rejection by such Vendor, as debtor in possession, or by such
Vendor's bankruptcy trustee. Upon any such rejection Scheduled Payments under
such rejected End-User Contract may terminate and you may be subject to losses
if the remaining unaffected Contract, and security interests in the related
Equipment, are insufficient to cover the losses. See "Certain Legal Aspects of
the Contracts -- Vendor Loans and Vendor Recourse Contracts".
BOOK-ENTRY REGISTRATION-NOTEHOLDERS LIMITED TO EXERCISING THEIR RIGHTS THROUGH
DTC, EUROCLEAR SYSTEM OR CEDEL BANK, S.A.
The Notes offered hereby initially will be represented by one or more Notes
registered in the name of Cede & Co. and will not be registered in the names of
the beneficial owners or their nominees. As a result of this, unless and until
Notes are issued in fully registered, certificated form, beneficial owners will
not be recognized by the Issuer or the Indenture Trustee as Noteholders, as that
term is used in the Indenture. Hence, until such time, beneficial owners will
only be able to exercise the rights of Noteholders indirectly, through DTC,
Euroclear System or CEDEL Bank, S.A. and their respective participating
organizations, and will receive reports and other information provided for under
the Indenture only if, when and to the extent provided by DTC, Euroclear System
or CEDEL Bank, S.A., as the case may be, and its participating organizations.
See "Description of the Notes--Book-Entry Registration".
RISKS RELATING TO YEAR 2000 ISSUES
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits to
identify a year in the date field rather than four. These programs could fail or
produce erroneous results during the transition from the Year 1999 to the Year
2000.
Heller Financial as Servicer, and as the parent of the Trust Depositor and
Heller Financial Leasing, Inc. as sub-servicer, has adopted a phasesd approach
to assessing and, where necessary, remediating or otherwise addressing Year 2000
issues. Phases include: awareness, which, while ongoing, is substantially
complete; assessment, which is substantially complete with respect to
information technology systems and potential issues relating to borrowers,
vendors, international
13
<PAGE>
affiliates and environmental factors; remediation or implementation of
contingency solutions, which is substantially complete for all but one of the
information technology systems deemed mission-critical, and will be completed
for that system in the second quarter of 1999, and is scheduled for completion
in the first quarter of 1999 for all other matters; and finally validation,
which is scheduled for completion on the final mission-critical information
technology system and certain information technology infrastructure in the
second quarter of 1999 and will continue throughout 1999 for all other matters.
Heller Financial has made, and will continue to make, certain investments
in its software applications and systems to ensure that its systems function
properly through and beyond the Year 2000. Heller has three loan processing
systems, a lease processing system, a factoring system and systems for general
ledger processing, payroll, accounts payable, fixed assets, treasury and other
smaller applications. Heller Financial has established plans to modify, upgrade
or replace each of these systems for compliance with Year 200 and has
established an overall plan to bring all of these systems into compliance by the
end of 1999. Heller Financial continues to assess the impact of Year 2000 issues
on its consolidated international subsidiaries, which includes the performance
of risk assessments and the evaluation of the extent of programming and other
changes required to address the issue. Heller Financial is also in the process
of performing a risk assessment of its joint venture companies' plans for Year
2000 compliance and of the resulting potential impact on its investments in
international joint ventures. This assessment has been substantially completed.
In addition to information technology systems, Heller Financial is
assessing potential Year 200 impacts on its material vendors and borrowers, as
well as Year 2000 issues relating to environmental factors such as facilities
and general utilities. With respect to vendors, Heller Financial has categorized
vendors with reference to materiality and availability of other sources for the
provided services and supplies, and is making inquiry of those vendors deemed
material. Responses are reviewed to assess the need for any follow-up action.
This assessment and any resulting remediation or contingency solutions are
scheduled for completion during 1999. With respect to borrowers, a Year 2000
risk assessment has been incorporated into Heller Financial's underwriting and
portfolio management activities in order to evaluate exposure due to any lack of
compliance on the part of borrowers. Heller Financial categorizes prospective
and existing borrowers by level of Year 200 risk, and is underwriting new
transactions and managing portfolio accounts accordingly. Finally, Heller
Financial is incorporating Year 2000 contingency planning into its overall
business resumption program in consideration of facilities and other
environmental factors.
To date, Heller Financial has incurred approximately $6 million of expenses
related to the Year 2000 issue and estimates that an additional amount, not to
exceed $10 million, will be incurred through the end of 1999. Remediation,
compliance, maintenance and modification costs will be expensed as incurred.
Heller Financial continues to bear some risk related to the Year 2000 issue
and could be materially adversely affected if its own remediation and
contingency planning efforts fall behind schedule or if other entities not
affiliated with it (e.g., vendors, including those providing contingency plans
or outsourced technology services such as mainframe and application support,
borrowers and power companies) do not appropriately address their own Year 2000
compliance issues. Due to uncertainty, Heller Financial is unable to represent
that there will be no material adverse consequences related to the Year 2000
issue, however, it believes that it is doing what is reasonably necessary to
provide the expertise, resources, assessments and corrective procedures for the
Year 2000 issues which could have a material adverse impact on its operations or
financial condition.
If Heller Financial, as Servicer (and Heller Financial Leasing, Inc. as
sub-servicer), the Owner Trustee or the Indenture Trustee do not have
computerized systems that are Year 2000 compliant by the Year 2000, the ability
to service the Contracts (in the case of the Servicer), to make distributions to
you (in the case of the Indenture Trustee) may be materially and adversely
affected.
RISKS ASSOCIATED WITH DTC AND THE YEAR 2000
With respect to Year 2000 issues, DTC has informed members of the financial
community that it has developed and is implementing a program so that its
systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC continue to function appropriately on and after
January 1, 2000. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to, its participating organizations
(through which noteholders will hold their offered notes), as well as the
computer systems of third party service providers. DTC has informed the
financial community that it is contacting (and will continue to contact) third
party vendors from whom DTC acquires services to: (i) impress upon them the
importance of such services being Year 2000 compliant and (ii) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, DTC has stated that it is in the process of
developing such contingency plans as it deems appropriate.
14
<PAGE>
If problems associated with the Year 2000 issue were to occur with respect
to DTC and the services described above, distributions to noteholders could be
delayed or otherwise adversely affected.
USE OF PROCEEDS
In consideration of the Trust Depositor's transfer of Asset Interests in
the Contracts to the Trust, the Trust will transfer the net proceeds from the
sale of the Notes and Subordinated Notes to the Trust Depositor. The Trust
Depositor purchased the Contracts from time to time from the Originators
pursuant to a purchase agreement. The Trust Depositor previously sold undivided
variable percentage ownership interests in the Contracts to various purchasers.
On the Closing Date, the Trust Depositor will apply the net proceeds from the
sale of the Notes and Subordinated Notes to the repurchase of such undivided
variable percentage ownership interests. The Originators have used the proceeds
from the sale of the Contracts to repay existing debt and for other general
corporate purposes.
COMPOSITION OF THE CONTRACTS
On the Closing Date, the Trust Depositor will transfer to the Trust Asset
Interests in the Contracts as of the initial Cutoff Date and from time to time
Asset Interests in Additional Contracts or Substitute Contracts as of the
applicable Cutoff Dates under the Sale and Servicing Agreement. The Originators
selected the Contracts from their portfolio of Contracts based on the criteria
described in the Sale and Servicing Agreement. See "The Sale and Servicing
Agreement Generally--Representations and Warranties; Definition of Eligible
Contract" and "--Concentration Amounts; Definition of Excess Contract". The
Originators represent that no adverse selection with respect to the Contracts
has occurred. The Originators will jointly and severally represent that all of
the Contracts are commercial, rather than consumer, leases or loans/financings,
and that no adverse selection process was employed in the Originators' selection
of Contracts for sale under the Sale and Servicing Agreement. As of the initial
Cutoff Date, the ADCB of the Contracts was $[ ] (calculated at the
Discount Rate) the weighted average remaining term to maturity for the
Contracts was approximately [ ] months, the final scheduled payment date
of the Contract with the latest maturity or expiration was [ ] and the
average Discounted Contract Balance was approximately $[ ] (calculated at
the Discount Rate). As of the Cutoff Date, there are [ ] Contracts, with
an ADCB (calculated at the Discount Rate) of $[ ]. Approximately [ ]%
of the ADCB of the Contracts provide for payments by the Obligor thereunder on
a basis other than monthly payments. The Discount Rate for the Contracts is
[ ]% per annum. For further information regarding the Contracts, see "The
Contracts Generally".
The composition and distribution of the Contracts by remaining term,
original term, Discounted Contract Balance, End-User industry, geographic
distribution, type of equipment and type of End-User Contract are set forth in
the following tables and are reported as of the Cutoff Date. In the event that
the documents evidencing a Contract require amounts to be billed to multiple
billing locations, such Contract is not treated as a single Contract, but rather
multiple Contracts corresponding in number to the number of billing locations.
Classification by industry is based on Heller Financial's customary procedures
for determining obligor industry. Percentages and amounts set forth in the
following tables may not total due to rounding. The largest end-user industry
concentration (including end-user Obligors on Contracts originated by the
Originators directly, as well as Contracts originated through Vendors with or
without Vendor recourse, and End-User Contracts securing Vendor Loans), which
represents an ADCB of approximately [ ]% as of the initial Cutoff Date
(calculated at the Statistical Discount Rate), relates to printing equipment.
See "Risk Factors--Certain Risks Associated with Geographic or Industry
Concentrations of Contracts" herein, and "The Contracts Pool - Contract Loss
Experience" below.
The statistical information concerning the Contracts set forth below is
based upon information as of the opening of business on the initial Cutoff Date
and the Statistical Discount Rate. Certain Contracts with respect to which Asset
Interests are intended, as of the initial Cutoff Date, to be transferred to the
Trust may be determined not to meet the eligibility requirements and Asset
Interests in such Contracts may not be transferred to the Trust on the Closing
Date. While the statistical distribution of the characteristics as of the
Closing Date for the final pool of Contracts and calculated at the actual
Discount Rate will vary somewhat from the statistical distribution of such
characteristics as of the initial Cutoff Date and calculated at the Statistical
Discount Rate as presented in this prospectus, such variance will not be
material. The percentages and balances set forth in each of the following tables
may not total due to rounding.
15
<PAGE>
ADCB $
Number of Contracts [ ]
Weighted Average Original Term [ ]
(Range) (in months) [ ] - [ ]
Weighted Average Remaining Term [ ]
(Range) (in months) [ ] - [ ]
Average Discounted Contract Balance $
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
DATA AS OF INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
Percentage of Number of Discounted Contract
Type Number of Contracts Contracts Balance Percentage of ADCB
<S> <C> <C> <C> <C>
End-User Loans % $ %
Vendor Loans % $ %
Finance Leases ------ -----% $------ -----%
Total: % $ %
</TABLE>
16
<PAGE>
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED
As of the Initial Cutoff Date
(ordered by percentage of ADCB)
<TABLE>
<CAPTION>
Number of Percentage of Number Percentage of
State Contracts of Contracts Discounted Contract Balance ADCB
<S> <C> <C> <C> <C>
California % $ %
New York
Massachusetts
Illinois
Florida
Pennsylvania
North Carolina
Texas
Tennessee
Wisconsin
Georgia
Oregon
New Jersey
Arizona
Washington
Missouri
Ohio
Michigan
Idaho
Minnesota
Colorado
Connecticut
Kentucky
Indiana
South Carolina
Virginia
New Hampshire
Utah
Maryland
Arkansas
Alabama
Iowa
Nebraska
Vermont
Louisiana
Delaware
Rhode Island
Oklahoma
South Dakota
Kansas
District of Columbia
Nevada
New Mexico
West Virginia
Wyoming
Mississippi
Alaska
Montana
------- ------ ------------ ------
Total: 100.00% $ 100.00%
</TABLE>
17
<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
As of the Initial Cutoff Date
(ordered by percentage of ADCB)
<TABLE>
<CAPTION>
Percentage of Number Discounted Contract
Equipment Type Number of Contracts of Contracts Balance Percentage of ADCB
<S> <C> <C> <C> <C>
Printing % $ %
Machine Tool
Computer Hardware
Industrial Equipment
Plastics
Furniture and Fixtures
Computer
Software/Services
Pre-Press
Food Processing
Other/Miscellaneous ------ ------% ----------- -------%
Total: 100.00% $ 100.00%
</TABLE>
18
<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
Data as of Initial Cutoff Date
(ordered by percentage of ADCB)
<TABLE>
<CAPTION>
Percentage of Number of Discounted Contract
Industry Number of Contracts Contracts Balance Percentage of ADCB
<S> <C> <C> <C> <C>
Commercial Printing % $ %
Industrial Machinery
Plastic Products
Semiconductors and
related devices
Eating places
Grocery stores
Medical / Surgical Hospitals
Data Processing /
Preparation
Special Dies, Tools,
Jigs & Fixtures
Fabricated Metal Products
Other ------- ------% ------------- ------%
Total: 100.00% $ 100.00%
</TABLE>
19
<PAGE>
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT BALANCE
Data as of Initial Cutoff Date
<TABLE>
<CAPTION>
Original Percentage of Discounted
Contract Number of Number of Contract Percentage of
Balance Contracts Contracts Balance ADCB
<S> <S> <C> <C> <C>
0 - $249,999 % $ %
$ 250,000 - $499,999
$ 500,000 - $749,999
$ 750,000 - $999,999
$1,000,000 - $1,249,999
$1,250,000 - $1,499,999
$1,500,000 - $1,749,999
$1,750,000 - $1,999,999
$2,000,000 - $2,249,999
$2,250,000 - $2,499,999
$2,500,000 - $2,749,999
$2,750,000 - $2,999,999
$3,000,000 - $3,249,999
$3,250,000 - $3,499,999
$3,500,000 - $3,749,999
$3,750,000 - $3,999,999
$4,000,000 - $4,249,999
$4,250,000 - $4,499,999
$4,500,000 - $4,749,999
$4,750,000 - $4,999,999
$5,000,000 - $5,249,999
$5,250,000 - $5,499,999
$5,500,000 - $5,749,999
$5,750,000 - $5,999,999
$6,000,000 - $6,249,999
$6,250,000 - $6,499,999
$6,500,000 - $6,749,999
$6,750,000 - $6,999,999
$7,000,000 - $7,249,999
$7,250,000 greater than ------- -------% ---------- -------%
Total: 100.00% $ 100.00%
</TABLE>
20
<PAGE>
DISTRIBUTION OF CONTRACTS BY REMAINING CONTRACT BALANCE
Data as of Initial Cutoff Date
<TABLE>
<CAPTION>
REMAINING PERCENTAGE OF DISCOUNTED
Contract Number of Number of Contract Percentage of
Balance Contracts Contracts Balance ADCB
<S> <C> <C> <C> <C>
0 - $249,999 % $ %
$ 250,000 - $499,999
$ 500,000 - $749,999
$ 750,000 - $999,999
$1,000,000 - $1,249,999
$1,250,000 - $1,499,999
$1,500,000 - $1,749,999
$1,750,000 - $1,999,999
$2,000,000 - $2,249,999
$2,250,000 - $2,499,999
$2,500,000 - $2,749,999
$2,750,000 - $2,999,999
$3,000,000 - $3,249,999
$3,250,000 - $3,499,999
$3,500,000 - $3,749,999
$3,750,000 - $3,999,999
$4,000,000 - $4,249,999
$4,250,000 - $4,499,999
$4,500,000 - $4,749,999
$4,750,000 - $4,999,999
$5,000,000 - $5,249,999
$5,250,000 - $5,499,999
$5,500,000 Greater than --------% -------%
Total: 100.00% $ 100.00%
</TABLE>
DISTRIBUTIONS OF CONTRACTS BY
ORIGINAL CONTRACT TERM
Data as of Initial Cutoff Date
<TABLE>
<CAPTION>
ORIGINAL TERM NUMBER PERCENTAGE OF
(Months) of Numbers of Discounted Percentage of
Contracts Contracts Contract Balance ADCB
<S> <C> <C> <C> <C>
15 - 19 % $ %
20 - 24
25 - 29
30 - 34
35 - 39
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65 - 69
70 - 74
75 - 79
80 - 84
85 - 89
Greater than 90 ------ ------% --------- -----%
Total: 0 100.00% $ 100.00%
</TABLE>
21
<PAGE>
DISTRIBUTION OF CONTRACTS BY REMAINING MONTHS TO STATED MATURITY
Data as of the Initial Cutoff Date
<TABLE>
<CAPTION>
REMAINING TERM NUMBER PERCENTAGE OF AGGREGATE DISCOUNTED PERCENTAGE OF
(MONTHS) OF NUMBERS OF CONTRACT BALANCE AGGREGATE DISCOUNTED
CONTRACTS CONTRACTS CONTRACT BALANCE
<S> <C> <C> <C> <C>
Less than = 5 % $ %
5 - 9
10 - 14
15 - 19
20 - 24
25 - 29
30 - 34
35 - 39
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65 - 69
70 - 74
75 - 79
Greater than 80 -------- -----% ---------- ------%
Total: 0 100.00% $ 100.00%
</TABLE>
22
<PAGE>
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth the Originators' delinquency and loss
experience on their aggregate portfolio of owned Contracts for the below
described periods. For purposes of this table such experience is described in
terms of the Originators' funds deployed for the acquisition of the related
Contracts less associated unearned finance charges (hereinafter "Adjusted
Deployed Funds").
The Originators define Contract delinquency as a payment which is not made
consistent with the Contract terms and a Defaulted Contract as a Contract for
which a full contractual payment as not been received from the Obligor (or the
Vendor, if Vendor recourse is applicable) for 120 days or such shorter period as
the Originators may determine consistent with their respective collection
policy. Contract terms require payment by the Obligor within thirty (30) days
from the "due date" provided in the associated invoice.
NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1997
The amounts classified as delinquent [decreased] as a percentage of
Adjusted Deployed Funds as a result of [ ]. Net losses as a percentage of
Adjusted Deployed Funds [decreased] due to [ ].
TWELVE MONTHS ENDED DECEMBER 31, 1997 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1996
The amounts classified as delinquent as a percentage of Adjusted Deployed
Funds [decreased] as of result of [ ]. Net losses as a percentage of
Adjusted Deployed Funds [decreased] due to [ ].
TWELVE MONTHS ENDED DECEMBER 31, 1996 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1995
The amounts classified as delinquent as a percentage of Adjusted Deployed
Funds decreased due to continued generally favorable economic conditions and
consistent application of credit underwriting standards. The overall net loss
performance improved as a result of [ ].
23
<PAGE>
CONTRACT PORTFOLIO
Delinquency Experience (1)
(Dollars in Millions)
At
___________________________________________________________________
<TABLE>
<CAPTION>
Nine Months Nine Months Twelve Months Twelve Months Twelve Months
----------- ---------- ------------- ------------- -------------
Ended Ended Ended Ended Ended
----- ----- ----- ----- -----
September 30, September 30, December 31, December 31, December 31,
------------ ------------ ------------ ------------ ------------
1998(2) 1997(2) 1997 1996 1995
------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ending Adjusted
Deployed Funds... $ 100.00% $ 100.00% $ 100.00% $1,584.00 100.00% $1,193.00 100.00%
No. of Delinquent
Days (% of Ending
Adjusted Deployed
Funds)...........
31-60 days....... % % % 21.80 1.38% 22.40 1.88%
61-90 days....... % % 3.50 0.22% 11.60 0.97%
Over 90 days..... % % % 18.70 1.18% 12.20 1.02%
----- ------ ------ ------ --------- ------ --------- ------
Total % % % 44.00 2.78% 46.20 3.87%
</TABLE>
(1) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30 day months). A contract is considered
delinquent when payments are not received according to Contract terms
notwithstanding the existence of Vendor recourse; see the "Contract
Portfolio -Contract Loss Experience" for the impact of Vendor recourse on
the Contracts' loss experience.
(2) Not Annualized.
24
<PAGE>
Contract Portfolio
Contract Loss Experience
(Dollars in Millions)
At
___________________________________________________________________________
<TABLE>
<CAPTION>
Nine Months Nine Months Twelve Months Twelve Months Twelve Months
------------ ------------ -------------- ------------- ---------------
Ended Ended Ended Ended Ended
------------ ------------ --------- --------- --------
September 30, September 30, December 31 December 31 December 31,
------------ ------------ ------------- ----------- ------------
1998(1) 1997(1) 1997 1996 1995
------------ ------------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
Average
Adjusted
Deployed
Funds
(of all
Contracts
Serviced) .... $1,193.00 100% $889.00 100%
Gross Losses
(as % of
Average
Adjusted
Deployed
Funds)(2)..... 0.89 0.07% 1.08 0.12%
Gross
Recoveries (as
% of Average
Adjusted
Deployed
Funds)....... 0.32 0.03% 0.36 0.04%
Net Losses (as
% of Average
Adjusted
Deployed
Funds (3)...... 0.58 0.05% 0.72 0.08%
</TABLE>
(1) Annualized.
(2) With respect to Contracts representing over [ ]% of the Adjusted Deployed
Funds for Contracts secured by printing equipment, defaults would have been
approximately $ million in the twelve months ended December 31, 1997 and $
million for the twelve months ended December 31, 1996; after vendor recourse
actual losses aggregated $ over the period.
(3) The calculation of net loss includes actual charge-offs, deficiency balances
remaining after liquidation of repossessed Equipment and expenses of
repossession and liquidation, net of recoveries inclusive of Vendor
recourse.
The data presented in the foregoing tables are for illustrative purposes only
and there is no assurance that the delinquency or loss experience of the
Contracts will be similar to that set forth above.
25
<PAGE>
THE CONTRACTS GENERALLY
The Trust will be entitled to all collections on account of the Contracts
and related Equipment (including Equipment and End-User Contracts securing
Vendor Loans), except for Excluded Amounts.
END-USER CONTRACTS
The following discussion describes the End-User Contracts (including End-
User Contracts securing Vendor Loans). All of the End-User Contracts in respect
of Equipment, software and related support and consulting services to be
included from time to time in the Trust are one of the following types:
(i) conditional sale agreements;
(ii) leases;
(iii) secured promissory notes;
(iv) installment payment agreements; and
(v) financing agreements.
There is no limit on the number of Contracts which may consist of any of the
foregoing types. Each Contract must be an Eligible Contract as of the
applicable Cutoff Date.
Conditional Sale Agreements. The Originators offer financing for
Equipment under conditional sale agreements assigned to the Originators by
Vendors. It is expected that most of the conditional sale agreements in the
pool of Contracts will consist of either the Originators' standard pre-printed
form, or of the Vendors' standard, pre-printed forms (which in each case have
been reviewed and approved for use by the applicable Originator). The
conditional sale agreement sets forth the description of each item financed
thereunder and the schedule of installment payments. Generally, loans under
conditional sale agreements are fixed rate and are for a one to seven year term.
Payments under conditional sale agreements generally are due monthly.
Conditional sale agreement terms (i) provide for a grant by the end-user
thereunder of a security interest in any related Equipment (which security
interest is assigned by the Vendor to the applicable Originator), (ii) may allow
prepayment of the obligation upon payment, where allowed by applicable state
law, of an additional prepayment fee, (iii) require the end-user to maintain the
Equipment, keep it free and clear of liens and encumbrances and pay all taxes
related to the Equipment, (iv) restrict the modification or disposal of the
Equipment without the Originator's, or its assignee's, consent, (v) include a
disclaimer of warranties, (vi) include the end-user's indemnity against
liabilities arising from the use, possession or ownership of the Equipment,
(vii) include the end-user's absolute (except as provided in clause (ii)) and
unconditional obligation to pay the installment payments thereunder and (viii)
include specifically identifiable events of default and remedies therefor. The
conditional sale agreement also requires each end-user to maintain insurance,
the terms of which may vary. The terms of a conditional sale agreement may be
modified at its inception at the end-user's request. Such modifications must
either be approved by the Originator's legal department and certain levels of
management before the Originator will agree to accept an assignment of the
conditional sale agreement from a Vendor, or the Vendor must indemnify the
Originator against any losses or damages it may suffer as a result of such
modifications.
Leases. The Originators, either directly or by assignment from Vendors,
offer financing of Equipment under leases. Leases may consist of individual
lease agreements each relating to a single, separate transaction or may consist
of individual transactions written under and governed by a master lease
agreement which contains the general terms and conditions of the transaction.
Specific terms and conditions, such as descriptions of the specific Equipment
being leased or financed and the schedule of related rental payments, are
contained in a supplement or schedule to the master lease agreement, which is
signed by the end-user, as lessee, and either the Vendor or the Originator, as
lessor. Such supplement or schedule incorporates the master lease agreement by
reference and is treated by the Originator as a separate lease. Each lease is
originated in the ordinary course of business by either the Originator or a
Vendor (and assigned to the Originator pursuant to a Program Agreement or Vendor
assignment).
The initial terms of the leases in the pool of Contracts generally range
from one to seven years. Each lease provides for the periodic payment by the
end-user of rent in advance or arrears, generally monthly or quarterly. Such
periodic payments represent the amortization, generally on a level basis, of the
total amount that an end-user is required to pay throughout the term of a lease.
The leases to be included in the pool of Contracts are "net leases" under
which the end-user assumes responsibility for the items financed thereunder,
including operation, maintenance, repair, insurance or self-insurance, return of
any Equipment at the expiration or termination of the lease and the payment of
all sales and use and property taxes relating to such financed item during the
lease term. The end-user further agrees to indemnify the lessor for any
liabilities arising out of the use or operation of the item financed by such
end-user. In most cases, the lessor is also authorized to perform the end-
user's obligations under the lease at the end-user's expense, if it so elects,
in cases where the end-user has failed to perform. In addition, the leases
generally contain "hell or high water" clauses unconditionally obligating the
end-user to make periodic payments, without setoff, at the times and in the
amounts specified in the lease. If the Originator is the lessor, the lease
contains no express or implied warranties with respect to the items financed
thereunder other than a warranty of quiet enjoyment. If a Vendor is the lessor,
the lease or a
26
<PAGE>
related agreement may contain certain representations and warranties with
respect to the items financed thereunder in addition to a warranty of quiet
enjoyment; however, the end-user agrees not to assert any warranty claims
against any assignee of the Vendor (which would include the Originator) by way
of setoff, counterclaim or otherwise, and further agrees that it may only bring
such claims against the Vendor. All leases of Equipment require the end-user to
maintain, at its expense, casualty insurance covering damage to or loss of the
Equipment during the lease term or to self-insure against such risks, if
approved in advance by the Originator.
The leases include both "true leases" and leases intended for security as
defined in Section 1-201(37) of the UCC. Under a "true lease," the lessor bears
the risk of ownership (although the risk of loss of the Equipment is passed to
the end-user under the Leases), takes any tax benefits associated with the
ownership of depreciable property under applicable law and no title is conferred
upon the lessee. The lessee under a "true lease" has the right to the temporary
use of property for a term shorter than the economic life of such property in
exchange for payments at scheduled intervals during the lease term and the
lessor retains a significant "residual" economic interest in the leased
property. End of lease options for "true leases" include purchase or renewal at
fair market value. Under leases intended for security, the lessor in effect
finances the "purchase" of the leased property by the lessee and retains a
security interest in the leased property. The lessee retains the leased property
for substantially all its economic life and the lessor retains no significant
residual interest. Such leases are considered conditional sales type leases for
federal income tax purposes and, accordingly, the lessor does not take any
federal tax benefits associated with the ownership of depreciable property. End
of lease options for such leases depend on the terms of the related individual
lease agreement or master lease agreement supplement or schedule, but generally
such terms provide for the purchase of the Equipment at a restated price, which
may be nominal.
End-users under a lease are either prohibited from altering or modifying
the Equipment or may alter or modify the Equipment only to the extent the
alterations or modifications are readily removable without damage to the
Equipment. Under certain master lease agreements, the end-user may assign its
rights and obligations under the lease, but only upon receiving the prior
written consent of the lessor, or may relocate the Equipment upon giving the
lessor prompt written notice of such relocation. The right to grant or deny
such consent or to receive such written notice will be exercised by the Servicer
pursuant to the authority delegated to it in the Sale and Servicing Agreement.
Certain leases permit the end-user to substitute substantially identical leased
Equipment for leased Equipment scheduled to be returned to the lessor under the
lease.
While the terms and conditions of the leases do not generally permit
cancellation by the end-user, certain leases may be modified or terminated
before the end of the lease term. Modifications to a lease term or early lease
terminations may be permitted by the Originator (or by a Vendor with the consent
of the Originator) and are generally associated with additional financing
opportunities from the same end-user. In some circumstances, early termination
of a lease may be permitted in connection with the acquisition of new technology
requiring replacement of the Equipment. In such cases, the related Equipment
is returned to the Vendor or Originator and an amount generally equal to the
present value of the remaining rental payments under the lease plus an early
termination fee is paid by the end-user to the Originator. Modifications
usually involve repricing a lease or modification of the lease term.
Occasionally a lease may be modified in connection with an increase in the
capacity or performance of Equipment by adding additional Equipment that
includes new technology. Coincident with the financing of an upgrade to such
Equipment, the Originator may reprice and extend the related base lease term to
be coterminous with the desired term of the lease relating to the upgrade. In
certain cases, subject to certain conditions, such base lease extensions may
remain in the pool of Contracts. Heller Financial, as Servicer, expects to
continue to permit these modifications and terminations with respect to leases
included in the Contracts pursuant to the authority delegated to it in the Sale
and Servicing Agreement, subject to certain conditions and covenants of the
Servicer described under "The Sale and Servicing Agreement Generally -- Material
Modifications to Contracts."
In certain circumstances, the standard terms and conditions of a master
lease agreement are modified at the inception of a lease at the request of the
end-user. Such modifications must either be approved by the Originator's legal
department and certain levels of management before the Originator will agree to
enter into the lease or accept an assignment of the lease from a Vendor, or the
Vendor must indemnify the Originator against any losses or damages it may suffer
as a result of such modifications. Common permitted modifications include, but
are not limited to, the following:
(i) a one dollar purchase option at the end of the lease term;
(ii) prearranged mid-lease purchase options, early termination options
and lease extension options as described above;
(iii) modifications to the lessor's equipment inspection rights;
(iv) modifications to the end-user's insurance requirements permitting
the end-user to self-insure against casualty to the Equipment;
(v) the end-user's right to assign the lease or sub-lease the items
financed pursuant to such lease to an affiliated entity, so long as
the end-user remains liable under the lease and promptly notifies
the lessor or its assignee of such assignment or sublease; and
(vi) extended grace periods for late payments of rent.
Secured Promissory Notes. The Originators also provides direct initial
financing or refinancing of Equipment under secured promissory notes, which
consist of an installment note and a separate security agreement. In an initial
financing
27
<PAGE>
transaction, the applicable Originator pays to the Vendor the purchase
price for the Equipment and in a refinancing transaction, the Originator pays
off an end-user's existing financing source. In either case, the transaction is
documented as a direct loan by the Originator to the end-user of the Equipment
using a secured promissory note. In the case of a refinancing transaction, upon
payment to the existing financing source, the Originator obtains a release of
such party's lien on the financed Equipment. In either case, the Originator
records its own lien against the financed Equipment and takes possession of the
secured promissory note, which constitutes chattel paper under the UCC. Except
for the lack of references to "sale" or "purchase" of Equipment, the terms and
conditions contained in a secured promissory note are substantially similar to
those contained in a conditional sale agreement.
Installment Payment Agreements and Financing Agreements. The Originators
provide financing for certain software license fees and related support and
consulting services under installment payment supplements to software license
agreements, separate installment payment agreements or other forms of financing
agreements assigned to the applicable Originator by Vendors of software. Each
such financing agreement is an unsecured obligation of the end-user; generally
provides for a fixed schedule of payments with no end-user right of prepayment;
is noncancellable for its term and generally contains a "hell or high water"
clause unconditionally obligating the end-user to make periodic payments,
without setoff, at the times and in the amounts specified therein; permits the
Vendor to assign the payment agreement to a third party (including the
Originator) and include the end-user's agreement, upon such assignment, not to
assert against such assignee any claims or defenses the end-user may have
against the Vendor; and contains default and remedy provisions that generally
include acceleration of amounts due and to become due and, in certain cases, the
right of the Vendor, or the Originator by assignment, to terminate the
underlying software license and all related support and consulting activities.
EQUIPMENT
The End-User Contracts (including End-User Contracts securing Vendor Loans)
cover a wide variety of new and used equipment, including, but not limited to,
the following: aircraft, printing, pre-press, machine tool, plastics, computer
hardware, computer software, restaurant, transportation, energy related,
medical, and industrial equipment. All of the interests of the applicable
Originator in the Equipment subject to each related End-User Contract (which
consists or will consist of either title to the Equipment or a security interest
in the Equipment) will be transferred to the Trust.
SOFTWARE AND RELATED SERVICES
Certain of the End-User Contracts (in the form of financing agreements)
cover license fees and other fees owed by the end-users under either perpetual
or term software license agreements and other related agreements in connection
with the use by such end-users of computer software programs, and such End-User
Contracts may also cover related support and consulting services which are
provided by the Vendor, an affiliate thereof or a third party contract party and
which facilitate the Obligors use of such software. No interest in the
software, the software license agreement (other than the right to collect the
payment of software license fees and, in certain cases, to exercise certain
rights and remedies under the software license agreement or other agreements
related thereto) or the related services has been or will be conveyed to the
Originators by either the Vendors or licensors of the software or by the End-
Users under the related End-User Contracts. Consequently, the Trust will not
have title to or a security interest in such software, nor will it own such
related services, and would not be able to realize any value therefrom under a
related End-User Contract upon a default by the End-User. It is a condition to
the issuance of the Notes that as of the Closing Date, no more than [ ]% of the
ADCB of the Contracts will relate to the financing of software and related
services.
VENDOR LOANS
The Contracts may include limited recourse [or non-recourse] loan or
repayment obligations (which may take the form of promissory notes with related
security agreements) (referred to as "Vendor Loans") each of which is payable by
a Vendor and secured by all of the Vendor's interest in an individual End-User
Contract originated by such Vendor and by the Equipment related to such End-User
Contract.
Vendor Loans may be originated under, and incorporate terms and conditions
of, a Program Agreement (including a Program Agreement under which End-User
Contracts also are or may be originated by the Originator directly, or purchased
by the Originator from the Vendor, in separate transactions not giving rise to
Vendor Loans). Vendor Loans generally are non-recourse to the Vendor, i.e., the
applicable Originator may obtain repayment solely from the proceeds of the End-
User Contracts and related Equipment securing the Vendor Loan. In a few
instances, however, recourse to a Vendor for nonpayment of a Vendor Loan may be
available through a limited recourse arrangement included in the related Program
Agreement. The repayment terms under a Vendor Loan, including periodic amounts
payable and schedule of payments, correspond to the payment terms of the End-
User under the End-User Contract collaterally assigned under such Vendor Loan.
Each Vendor Loan either includes most, if not all, of the representations and
warranties regarding the End-User Contract and related Equipment typically
included in a Vendor Agreement, or incorporates such representations and
warranties included in any related Program Agreement by reference.
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<PAGE>
PROGRAM AGREEMENTS WITH VENDORS
It is expected that a substantial portion of the End-User Contracts with
respect to which Asset Interests will be included in the Trust will consist of
End-User Contracts originated by Vendors and assigned or pledged to the
Originator pursuant to Program Agreements. Also, as described above, Vendor
Loans may be originated through Program Agreements with the related Vendor. All
rights (but not obligations) of the Originators under the Program Agreements
with respect to the Contracts are generally assignable and will be so assigned
by the Originators to the Trust Depositor and in turn conveyed by the Trust
Depositor to the Trust. The Program Agreements are agreements with Vendors which
provide the Originators with the opportunity to finance transactions relating to
the acquisition or use by an end-user of a Vendor's Equipment, software and
related services or other products. Vendor finance arrangements provide the
Originators with a steady, sustainable flow of new business, generally with
lower costs of origination than asset-based financings marketed directly to end-
users. Many of the Program Agreements provide various forms of support to the
applicable Originator, including representations and warranties by the Vendor in
respect of the End-User Contracts assigned by the Vendor to the Originator and
related Equipment or software and related services, credit support with respect
to defaults by end-users and equipment repurchase and remarketing arrangements
upon early termination of End-User Contracts upon a default by the related end-
users. Some of the Program Agreements take the form of a referral relationship
which is less formal, and may or may not include credit or remarketing support
to the Originator from the Vendor.
Each Program Agreement (other than Program Agreements that only establish a
referral relationship) generally includes the following provisions, among
others:
1. Vendor representations, warranties and covenants regarding
each End-User Contract assigned to the Originator, including among other
things that: the obligations of the end-user under the assigned End-User
Contract are absolute, unconditional, noncancellable, enforceable in
accordance with its terms and free from any rights of offset, counterclaim
or defense; the Originator holds the sole original of the End-User Contract
and has either title to or a first priority perfected security interest in
the Equipment; the Equipment and the End-User Contract are free and clear
of all liens, claims or encumbrances; the Equipment or the software has
been irrevocably accepted by the end-user and will perform as warranted to
the end-user; and the assigned End-User Contract was duly authorized and
signed by the end-user.
2. Remedies in the event of a misrepresentation or breach of a
warranty or covenant by the Vendor regarding an assigned End-User Contract,
which usually require the Vendor to repurchase the affected End-User
Contract for the Originator's investment balance in the End-User Contract
plus costs incurred by the Originator in breaking any underlying funding
arrangement (which may or may not be calculated in accordance with a
specified formula).
3. In the case of End-User Contracts covering Equipment,
remarketing support from the Vendor in the event of an end-user default and
subsequent repossession or return of the Equipment under the End-User
Contract (to assist the Originator in realizing proceeds from the Equipment
assigned as collateral security to support the obligations of the end-user
under the End-User Contract).
4. The right of the Originator to further assign its interests
in assigned End-User Contracts, all payments thereunder and any related
interest in Equipment.
5. With respect to End-User Contracts for which the Vendor (or,
in certain limited instances a subservicer acceptable to the Originator)
will perform ongoing administrative duties on behalf of and for the benefit
of the applicable Originator relating to servicing, processing of
collections and actual substantive collection remedies, as such duties are
delegated by the Originator to the Vendor (or, in certain limited instances
a subservicer acceptable to the Originator) pursuant to the Program
Agreement, provisions governing the Vendor's (or subservicer's) performance
of such duties, and providing the Originator with the right to assume such
duties in the event of breach or inadequate performance by the Vendor (or
subservicer, if applicable).
In addition to the foregoing, a Program Agreement may include recourse
against the Vendor with respect to end-user defaults under certain identified
End-User Contracts, either by specifying that the assignment of the End-User
Contract from the Vendor to the Originator is with full recourse against the
Vendor, by specifying that the Vendor will absorb a limited fixed dollar or
percentage amount of "first losses" on the Contract, or by inclusion of the End-
User Contract in an "ultimate net loss pool" created under the Program
Agreement. In the event of an end-user default under an End-User Contract which
was assigned by the Vendor to the Originator subject to the ultimate net loss
pool, the Originator may draw against the ultimate net loss pool up to the
amount of the Originator's remaining unpaid investment balance in the defaulted
End-User Contract, but not in excess of the ultimate net loss pool balance then
available. Drawings may also be made against the ultimate net loss pool with
respect to End-User Contracts that are not included in the pool of Contracts
and, accordingly, there can be no assurance that any amounts contributed by a
Vendor to the ultimate net loss pool will be available in the event of an end-
user default under a End-User Contract included in the pool of Contracts.
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<PAGE>
The manner in which End-User Contracts are assigned to the Originator by
the Vendors differs under each Program Agreement, depending upon the nature of
the financed by such Contracts, the form of the End-User Contract, the
accounting treatment sought by the Vendor and the end-user, and certain tax
considerations.
For example, the Originator might either accept a Vendor Loan and
collateral assignment of the End-User Contract and related Equipment (or
security interest therein) from the Vendor, or accept a full assignment of such
End-User Contract and either (i) a collateral assignment of the related
Equipment (or security interest therein) from the Vendor, which collateral
assignment secures the end-user's obligations under the End-User Contract or
(ii) in the case of leases, title to the Equipment. The Originator also may
receive, from a Vendor with respect to software, a full assignment of leases,
installment payment agreements, installment payment supplements to license
agreements, and other types of financing agreements used in financing software
license payments and related support and consulting services. Such assignments
may include an assignment of the software Vendor's or licensor's right, or the
agreement of the Vendor or licensor (at the Originator's instructions), to
terminate the software license covered by the End-User Contract and suspend
related support in the event of an end-user default under the End-User Contract.
In some cases, the software Vendor also agrees not to relicense the same or
similar software to a defaulted end-user for some period of time (e.g., one
year) unless the end-user cures its default.
It is also expected that some portion of the End-User Contracts included in
the pool of Contracts, especially in the case of conditional sale agreements,
will consist of End-User Contracts originated by Vendors and assigned to the
Originator pursuant to assignment agreements from time to time with Vendors,
each of which relates to an individual End-User Contract, rather than pursuant
to a Program Agreement. Each Vendor assignment of a Contract or Contracts will
either be made with or without recourse against the Vendor for end-user defaults
and will generally contain many, if not all, of the representations, warranties
and covenants typically contained in Program Agreements, as well as a Vendor
repurchase requirement in the event of a breach by the Vendor of such
representations, warranties or covenants. Such Vendor assignments may or may
not provide for any Vendor remarketing support in the event of an end-user
default.
CONTRACT FILES
The applicable Originator will indicate in its books and records, including
the appropriate computer files relating to the Contracts, that Asset Interests
in such Contracts have been transferred to the Trust for the benefit of the
holders of the Notes and Subordinated Securities, and will stamp, or permit the
Servicer to stamp, the documents relating to such Contracts or otherwise mark
such Contracts with a legend to the effect that Asset Interests in such
Contracts have been transferred to the Trust for the benefit of the holders of
the Notes and Subordinated Securities. The Originators will also deliver to the
Indenture Trustee a computer file or microfiche or written list containing a
true and complete list of all Contracts with respect to which Asset Interests
have been transferred to the Trust, identified by account number and by the
Discounted Contract Balance as of the applicable Cutoff Date.
COLLECTIONS ON CONTRACTS
All collections received with respect to the Contracts will be allocated as
described herein. See "Description of the Notes -- Allocations". Prepayments
will be given effect as of the last day of the calendar month in which they are
received for purposes of calculating Available Amounts. Scheduled Payments of
principal made in advance of their due date will be given effect at the end of
the calendar month in which such principal payments were received.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of each
interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Contracts. The
payments on such Contracts may be in the form of Scheduled Payments, Prepayments
or liquidations due to default, casualty and other events, which cannot be
specified at present. Any such payments may result in distributions to you of
amounts which would otherwise have been distributed over the remaining term of
the Contracts. Each prepayment on a Contract, if such Contract is not replaced
by the Trust with Asset Interests in a comparable Additional Contract as
described herein (see "The Sale and Servicing Agreement Generally"), will
shorten the weighted average remaining term of the Contracts and the weighted
average life of the Notes. Prepayments of principal will be included in the
Available Amounts and will be payable to you on the Distribution Date following
the calendar month in which such prepayment was received, as set forth in
"Description of the Notes --Allocations". A higher than anticipated rate of
prepayment will reduce the ADCB of the Contracts more quickly than expected and
thereby reduce anticipated aggregate interest payments on the Notes.
In general, the rate of such payments may be influenced by a number of
other factors, including general economic conditions. The rate of principal
payments with respect to any class of Notes may also be affected by any
repurchase by the Trust Depositor of Asset Interests pursuant to the Sale and
Servicing Agreement as a result of (i) a breach of representation or warranty as
to such Contract (such Contract having been identified as an Ineligible Contract
or Excess Contract), such Contract becoming a Defaulted Contract or Adjusted
Contract or (ii) the exercise by the Trust Depositor of its repurchase option
when the ADCB of the Contracts is less than 10% of the ADCB of the Contracts as
of the initial Cutoff Date. In the case of Ineligible Contracts or Excess
Contracts, such rate of prepayment would also be influenced by the Trust
Depositor's decision not to repurchase Assets Interests in such
30
<PAGE>
Contracts and instead, to accept Asset Interests in a Substitute Contract (see
"The Sale and Servicing Agreement Generally -- Substitute Contracts and
Additional Contracts"). In the event of a repurchase, the repurchase price will
decrease the ADCB of the Contracts, leading to a principal repayment and causing
the corresponding weighted average life of the Notes to decrease. See "Risk
Factors -- Maturity and Prepayment Considerations."
The effective yield to holders of the Notes and Subordinated Notes will
depend upon, among other things, the amount of and rate at which principal is
paid to you. Any reinvestment risks resulting from a faster or slower incidence
of prepayment of Contracts will be borne entirely by you. Such reinvestment
risks include the risk that interest rates may be lower at the time you receive
payments from the Trust than interest rates would otherwise have been had such
prepayments not been made or had such prepayments been made at a different time.
Your after-tax yield may be affected by lags between the time interest income
accrues to you and the time the related interest income is received by you.
The following chart sets forth the percentage of the Initial Principal
Amount of the Class A-1 Notes, Class A-2 Notes, Class B Notes and Class C Notes
which would be outstanding on the Distribution Dates set forth below assuming a
conditional payment rate (a "Conditional Payment Rate" or "CPR") of 0.00% and
5.00%, respectively. Such information is hypothetical and is set forth for
illustrative purposes only. The CPR assumes that a fraction of the outstanding
Contracts is prepaid on each Distribution Date, which implies that each Contract
in the pool of Contracts is equally likely to prepay. This fraction, expressed
as a percentage, is annualized to arrive at the Conditional Payment Rate for the
Contracts. The CPR measures prepayments based on the outstanding Discounted
Contract Balances of the Contracts, after the payment of all Scheduled Payments
on the Contracts during each calendar month. The CPR further assumes that all
Contracts are the same size and amortize at the same rate and that each Contract
will be either paid as scheduled or prepaid in full. The amounts set forth below
are based upon the timely receipt of scheduled monthly Contract payments as of
the initial Cutoff Date, assumes that the Trust Depositor does not exercise its
option to cause a redemption of the Notes when the ADCB of the Contracts is less
than 10% of the ADCB of the Contracts as of the initial Cutoff Date, and assumes
the Closing Date is [ ], 1999.
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PERCENTAGE OF THE
INITIAL CLASS A-1 PRINCIPAL AMOUNT,
INITIAL CLASS A-2 PRINCIPAL AMOUNT,
INITIAL CLASS B PRINCIPAL AMOUNT,
AND INITIAL CLASS C PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
0.00% CPR 5.00% CPR
----------- ---------
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS A-1 CLASS A-2 CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
January 25, 1999
February 25, 1999
March 25, 1999
April 25, 1999
May 25, 1999
June 25, 1999
July 25, 1999
August 25, 1999
September 25, 1999
October 25, 1999
November 25, 1999
December 25, 1999
January 25, 2000
February 25, 2000
March 25, 2000
April 25, 2000
May 25, 2000
June 25, 2000
July 25, 2000
August 25, 2000
September 25, 2000
October 25, 2000
November 25, 2000
December 25, 2000
January 25, 2001
February 25, 2001
March 25, 2001
April 25, 2001
May 25, 2001
June 25, 2001
July 25, 2001
August 25, 2001
September 25, 2001
October 25, 2001
November 25, 2001
December 25, 2001
January 25, 2002
February 25, 2002
March 25, 2002
April 25, 2002
May 25, 2002
June 25, 2002
July 25, 2002
August 25, 2002
September 25, 2002
October 25, 2002
November 25, 2002
December 25, 2002
January 25, 2003
February 25, 2003
March 25, 2003
April 25, 2003
May 25, 2003
June 25, 2003
July 25, 2003
August 25, 2003
September 25, 2003
October 25, 2003
November 25, 2003
December 25, 2003
</TABLE>
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<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS A-1 CLASS A-2 CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 25, 2004
February 25, 2004
March 25, 2004
April 25, 2004
May 25, 2004
Weighted Average Life
</TABLE>
WEIGHTED AVERAGE LIFE (YEARS)
If the Trust Depositor exercises its option to cause a redemption of the Notes
when the ADCB of the Contracts is less than 10% of the ADCB of the Contracts as
of the initial Cutoff Date, the average life of the each Class of Notes would be
as follows:
<TABLE>
<CAPTION>
Weighted Average Life Weighted Average Life
Class Assuming 0.00% CPR Assuming 5.00% CPR
----- ------------------ ------------------
<S> <C> <C>
Class A-1 Notes
Class A-2 Notes
Class B Notes
Class C Notes
</TABLE>
The weighted average life of a Class A-1 Note, Class A-2 Note, a Class B Note or
a Class C Note is determined by (a) multiplying the amount of cash distributions
in reduction of the outstanding Class A-1 Principal Amount, outstanding Class A-
2 Principal Amount, outstanding Class B Principal Amount or outstanding Class C
Principal Amount, as the case may be, by the number of years from the Closing
Date to the respective Distribution Date on which each such Class of Notes is
repaid in full, (b) adding the results, and (c) dividing the sum by the Initial
Class A-1 Principal Amount, Initial Class A-2 Principal Amount, Initial Class B
Principal Amount or Initial Class C Principal Amount, as the case may be.
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<PAGE>
HELLER FINANCIAL, INC.
AND
HELLER FINANCIAL LEASING, INC.
GENERAL
Heller Financial, as Originator/Servicer, is a Delaware corporation formed
in 1919 and is engaged in various aspects of the commercial finance business.
The Originator/Servicer and its consolidated subsidiaries employ approximately
[ ] people; its executive offices are located at 500 West Monroe Street,
Chicago, Illinois 60661 (telephone: (312) 441-7000). In May 1998, Heller
Financial issued 38,525,000 shares of Class A Common Stock in an initial public
offering. Fuji American Holdings, a wholly owned subsidiary of The Fuji Bank,
Limited, owns 79% of the voting interest and 57% of the economic interest in
Heller Financial's issued and outstanding common stock. All of the outstanding
common stock of the Heller Financial Leasing, Inc. is owned by Heller Financial.
Heller Financial is a diversified financial services company which provides a
broad array of commercial financial products and services primarily to middle-
market companies in the United States and internationally and provides its
products and services through five product categories: (1) asset-based finance,
(2) cash flow lending, (3) real estate finance, (4) international asset-based
finance and factoring and (5) specialized finance. The middle-market segment
served includes entities primarily in the manufacturing and service sectors with
annual sales in the range of $15 million to $200 million and in the real estate
sector with property values generally in the range of $5 million to $40 million.
Heller Financial Leasing, Inc. is a non-operating subsidiary which through the
Commercial Equipment Finance and the Vendor Finance (both as described below)
originates Contracts.
As of September 30, 1998, the Originator/Servicer had total assets of $
compared with $ as of December 31, 1997, total liabilities of $ compared
with $ as of December 31, 1997, shareholder's equity of $ compared with
$ as of December 31, 1997 and total revenues and net income of $ and
$ , respectively, for the period ended September 30, 1998, compared with
$ and $ , respectively, for the period ended September 30, 1997. For the
fiscal year ended December 31, 1997, the Originator/Servicer had total assets of
$ compared with $ as of December 31, 1996, total liabilities of $
compared with $ as of December 31, 1996, shareholder's equity of
$1,467,000,000 compared with $ as of December 31, 1996 and total revenues
and net income of $ and $ , respectively, for the fiscal
year ended December 31, 1997 compared with $ and $ , respectively, for the
fiscal year ended December 31, 1996.
The Originator/Servicer and Heller Financial Leasing, Inc. originated the
Contracts under two separate operating divisions: Commercial Equipment Finance
and Vendor Finance. Originations from either Commercial Equipment Finance or
Vendor Finance must meet Heller Financial's Credit Risk Management System as
hereinafter described.
CREDIT RISK MANAGEMENT SYSTEM
Heller's Financial's Credit Risk Management System provides credit
functions within the Originators' origination groups (including Commercial
Equipment Finance and Vendor Finance) as well as credit oversight at the
Originator's/Servicer's corporate level. The system provides established,
consistent and documented credit policies at both the corporate and group level.
The first line of credit risk management is the origination groups where
substantially all originations, due diligence and primary credit analysis are
performed. Credit determinations are separate from origination and are staffed
with experienced credit and portfolio officers in the origination groups.
Headed by the Originator's Chief Credit Officer, oversight over the credit
process is maintained at the Originator's/Servicer's corporate level. Corporate
Credit is responsible for ensuring that the credit risk management system is
appropriately implemented. The Originator's/Servicer's Chief Executive Officer
approves all new transactions and modifications that exceed origination group
authority. Additionally, the Originator/Servicer Credit Committee approves new
lending programs and performs ongoing reviews of existing lending programs and
strategies as well as identifies strategic credit issues (including review of
the portfolio mix) and the credit policies and procedures throughout the
Originator/Servicer.
The Credit Risk Management System emphasizes active portfolio management in
an effort to ensure: (1) individual accounts are appropriately managed; (2)
portfolio reporting to management is accurate and timely; and (3) problem
accounts are identified and reported on a timely basis to ensure prompt
corrective action. Each origination group has portfolio practices which enhance
in early identification of account issues through account performance analysis,
risk rating systems and regular group portfolio reviews. Management of risk
accounts is transferred to corporate workout specialists where appropriate.
Quarterly or semi-annual portfolio reviews are held with the Chairman and Chief
Credit Officer. The Originator's Internal Audit Department performs extensive
loan reviews on an independent basis to ensure (1) compliance with group and
corporate credit policies and procedures, (2) the integrity of the risk ratings,
(3) the effectiveness of problem loan identification, and (4) the adequacy of
loan loss reserves.
VENDOR FINANCE
General Description. Vendor Finance provides customized equipment finance
programs to manufacturers and distributors of a wide variety of commercial,
industrial and technology-based products. These programs are generally made
with partial, or in
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<PAGE>
some cases, full recourse to the Vendor. The Vendor Finance portfolio is well
diversified with an average transaction size of $150,000. With respect to
originations, transactions generally range in size from $50,000 to approximately
$3 million. Vendor Finance's annual originations increased [ ]% in 1997 to
over $400 million.
Vendor Finance's Credit Analysis. The primary factors involved in credit
extensions by Vendor Finance are developed by determining the appropriate
balance between the following facts (in order of importance): (1) Vendor
support and the Originator's reliance on such support, (2) the credit strength
of the underlying End-User, and (3) the value of the Equipment.
Notwithstanding the type of program (i.e. Vendor credit extension or Vendor
End-User transactions) and their respective credit analysis, the following
discipline is applied to all Vendor Finance originations: (1) a complete
underwriting is required for each new Vendor program evaluating financial
information, equipment value, quality of Obligor customer base, review of
relevant industry data and the value of recourse, (2) tiered credit approval
authorities have been implemented for each Vendor Program and the transactions
originated under such programs, (3) a comprehensive credit policies and
procedures manual is maintained to ensure consistent compliance with the
Originator's credit standards, (4) an independent internal audit function exists
within Vendor Finance to conduct due diligence on new client relationships and
which conducts ongoing audits of the client relationship, (5) financial
performance of each Vendor is periodically reviewed, (6) Vendor Finance's
portfolio is reviewed semiannually with the Originator's Chairman and Chief
Credit Officer, and (7) there is an independent internal audit function.
Collection Process/Vendor Recourse. Vendor recourse ranges from limited
remarketing assistance to full recourse programs. Vendor credit support includes
direct recourse, holdbacks, funded reserves, remarketing agreements as well as
representations and warranties provided in the Contract documentation. Direct
Vendor recourse may be provided with respect to a "pool" of numerous underlying
transactions or on an individual, transaction-by-transaction basis. In certain
circumstances the Vendor and/or another leasing company originates, documents
and performs servicing while in other circumstances the Originator/Servicer
originates, documents and performs servicing with respect to the Contracts. From
a servicing perspective, a Vendor Program may be structured with the Vendor
generating documents and the bills as well as collecting payments from the End-
User and remitting payment to the Servicer. In such instances the Servicer's
involvement is transparent to the End-User and is motivated by a variety of
Vendor marketing considerations. In other situations, the Vendor simply sources
the origination and the Servicer performs the servicing with respect to the
Vendor. In general, the servicing function of the Vendor is an important factor
in the pricing characteristics for the respective Vendor program. A write-down
or write-off of a loan or lease receivable is governed by Heller Financial
policy, with the amount of the write-off or write-down based on the principal
amount outstanding; plus unpaid service charges which have not been suspended;
less the fair market value of collateral or the amount of dealer/vendor
recourse. Accounts are reviewed and appropriate write-offs made when an Obligor
is past due or when an Obligor is in bankruptcy.
In those situations in which the Vendor is providing a substantial portion
of the servicing functions, the Servicer undertakes extensive due diligence with
respect to the Vendor's internal operating procedures with additional emphasis
on billing, collection, reporting and remittance. The due diligence analysis
will take on various levels of scrutiny depending on the degree of servicing
handled by the Vendor, the Vendor's credit strength, the volume generated by the
Program, and the history and relationship with the Vendor.
COMMERCIAL EQUIPMENT FINANCE
General Description. Commercial Equipment Finance offers expansion,
replacement and modernization equipment financing directly to a broad range of
industries where the financing is primarily collateralized by the financed
equipment. The portfolio is well diversified with financings that generally
range from $500,000 to $15 million. As of December 31, 1997 the average
transaction size was approximately $4 million. New business volume in 1997 was
approximately $500 million representing a [ ]% increase over 1996.
Commercial Equipment Finance Credit Analysis. Commercial Equipment
Finance's approach to lending concentrates on three critical factors: (1) cash
flow of the Obligor (i.e. evaluate the quality of the underlying obligor's cash
flow by analyzing the related industry dynamics, the Obligor's competitive
strengths and weaknesses, the role of external factors in the obligor's business
as well as the financial profile of the Obligor), (2) the importance/value of
the Equipment to the obligor's overall operations (i.e. in a downside/workout
scenario, the more important/valuable the Equipment, the more likely it is that
the Originator will be paid), and (3) the Originator's position in the overall
capital structure of the company (i.e. the smaller the role that Commercial
Equipment Finance plays in a company's overall capital structure, the more
likely it is that the Originator will be paid in a negative economic
environment).
Notwithstanding the type of program or related credit analysis, the
following discipline is applied to all Commercial Equipment Finance
originations: (1) the Commercial Equipment Finance credit approval process
requires complete financial due diligence, collateral review,
management/strategy evaluation, review of all industry relevant data as well as
review of all legal aspects of the credit, (2) reliance on the Commercial
Equipment Finance Policy Manual, (3) approval authority tiered to provide prompt
responses to the customer at lower exposure levels and ensure divisional
involvement at higher exposure levels; (i.e. for all regional office
origination, approval by both the region manager and the area region credit
manager is required), (4) quarterly/annual financial reviews of each account are
prepared by Commercial Equipment Finance credit staff, (5) quarterly reviews of
the portfolio are conducted with the Chairman and Chief Credit Officer of the
Originator, (6) monthly distribution of key reports (delinquency,
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<PAGE>
flash reports, risk ratings changes, etc.) to the Originator's senior management
(this helps ensure prompt communication of material credit issues), and (6)
industry and geographic diversity is maintained with respect to Commercial
Equipment Finance's originations.
Collection/Servicing. A delinquency report for each region must be
prepared by the Region Credit Manager on a monthly basis. The
Originator's/Servicer's key to successful resolution of a problem contract is
early recognition. Each region is responsible for detecting signs of potential
problem contracts through proactive portfolio management, including review of
delinquency reports, the Financial Statement and Covenant Compliance Checklist
for each account, Account Risk Rating Memos, Flash Reports, Annual Reviews, and
the quarterly portfolio reviews held in Chicago. Within ten business days of the
point in time at which an account is both 60 days past due or delinquent and is
put on a "watch list", an in-person collateral inspection must be performed. If
an in-person inspection is impractical, an updated UCC search must be performed
within the same ten day period.
Commercial Equipment Finance transactions are required to contain a
provision for assessing late charges in the event that an Obligor fails to make
a payment on the Contract on the related due date. The charge is generally
between 1% and 5% of the amount due and is incurred within one to fifteen days
after the due date depending upon the documentation (at times calculated on a
per diem basis). An account is delinquent when a payment is not made according
to Contract terms. A write-down or write-off of a loan or lease receivable is
governed by Heller Financial policy, with the amount of the write-off or write-
down based on the principal amount outstanding; plus unpaid service charges
which have not been suspended; less the fair market value of collateral or the
amount of dealer/vendor recourse. Accounts are reviewed and appropriate write-
offs made when an Obligor is past due or when an obligor is in bankruptcy.
All Obligors are required by the terms of the Contracts to maintain the
Equipment and install the Equipment at a place of business approved by
Commercial Equipment Finance personnel. Delivery, transportation, repairs and
maintenance are obligations of obligors, and obligors are required to carry, at
their own expense, liability and replacement cost insurance under terms
acceptable to Commercial Equipment Finance. Any lease payment defaults permit
Commercial Equipment Finance to declare immediately due and payable all
remaining lease payments. At the end of a lease term, Lessees must return the
leased equipment to the Originator in good working order unless the lease is
renewed or the leased equipment is purchased by the Obligor.
THE TRUST
The Trust will be organized as a business trust to be formed in accordance
with the laws of the State of Delaware pursuant to the Trust Agreement, solely
for the purpose of effectuating the transactions described herein. Prior to
formation, the Trust will have had no assets or obligations and no operating
history. Upon formation, the Trust will not engage in any business activity
other than (a) acquiring, managing and holding Asset Interests in the Contracts
and related interests described herein, (b) issuing the Notes, the Subordinated
Notes and Certificates, (c) making distributions and payments thereon and (d)
engaging in those activities, including entering into agreements, that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith. As a consequence, the Trust is not expected to
have any source of capital resources other than the assets transferred to the
Trust pursuant to the Sale and Servicing Agreement. As of the date of this
prospectus, neither the Trust Depositor nor the Trust is subject to any legal
proceedings.
The following table illustrates the capitalization of the Trust as of the
initial Cutoff Date, as if the issuance and sale of the Notes had taken place on
the initial Cutoff Date:
<TABLE>
<CAPTION>
<S> <C>
Class A-1 Receivable-Backed Notes................................. $
Class A-2 Receivable-Backed Notes.................................
Class B Receivable-Backed Notes...................................
Class C Receivable-Backed Notes...................................
----------
Total........................................................ $
</TABLE>
THE TRUST DEPOSITOR
The Trust Depositor is a wholly-owned bankruptcy-remote subsidiary of
Heller Financial, formed solely for the purpose of acquiring from the
Originators Contracts and Equipment as well as certain other financial assets
from time to time and either issuing debt securities secured by identifiable
fixed or revolving pools of such assets, or conveying or depositing the same
(or Asset Interests in such assets) into trusts or other securitization
vehicles. As a bankruptcy-remote entity, the Trust Depositor's operations will
be restricted so that (a) it does not engage in business with, or incur
liabilities to, any other entity (other than the Indenture Trustee on your
behalf and the trustees or collateral agents on behalf of other securityholders
under indentures, security agreements, pooling agreements or similar agreements
or undertakings which provide for essentially nonrecourse, asset-backed
financings) which may bring bankruptcy proceedings against the Trust Depositor
and (b) the risk that it will be consolidated into the bankruptcy proceedings of
any other entity is diminished. The Trust Depositor will have no other assets
available to pay amounts owing under the Indenture except the Trust's assets,
including Asset Interests in the Contracts and the interests in the Equipment,
the proceeds thereof and the amounts on deposit in the Collection Account. The
Trust Depositor's address is 500 West Monroe Street, Chicago, Illinois 60661,
and its phone number is (312) 441-7246.
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<PAGE>
DESCRIPTION OF THE NOTES
The statements under this caption are summaries of the terms of the Sale
and Servicing Agreement and Indenture and is therefore not complete. You should
read the Sale and Servicing Agreement and the Indenture, the forms of which have
been filed as exhibits to the registration statement of which this prospectus is
a part.
GENERAL
The Notes will consist of four classes, the Class A-1 Notes, the Class A-2
Notes, the Class B Notes and the Class C Notes. The Notes will be issued
pursuant to the Indenture between the Trust and the Indenture Trustee.
The Notes will be available for purchase in minimum denominations of $1,000
and in integral multiples thereof in book-entry form. The Class A-1 Notes, Class
A-2 Notes, Class B Notes and Class C Notes will initially be represented by one
or more certificates registered in the name of the nominee of The Depository
Trust Company, except as set forth below. Payments on the Notes will be made as
described herein to the Noteholders in whose names the Notes were registered at
the close of business on the Record Date. However, the final payment on the
Notes offered hereby will be made only upon presentation and surrender of such
Notes. All payments with respect to the principal of and interest on the Notes
will be made in immediately available funds. See "Description of the
Notes--Book-Entry Registration".
The Indenture Trustee will be granted a first priority lien on the Trust's
assets to secure the Notes; provided, that distributions on the Notes (and each
class thereof) will be allocated as provided herein. The Notes are nonrecourse
obligations of the Trust only and do not represent interests in or obligations
of the Originators, the Servicer or the Trust Depositor, or any affiliate
thereof.
INTEREST
Interest on the Notes will be payable on each Distribution Dates until the
Notes have been paid in full or have matured. Interest on each class of Notes
will accrue at the interest rate specified for such class, for the period from
and including the most recent Distribution Date on which interest has been paid
(or, in the case of the initial Distribution Date, from and including the
Closing Date) to but excluding the following Distribution Date on the
outstanding principal amount of such Notes as of the first day of such period.
Interest will be paid as follows:
(i) Interest on the Class A-1 Notes is payable on a Distribution Date
from Available Amounts on such date (and after application of such
Available Amounts to repay any outstanding Servicer Advances and to
pay the Servicer's fee). Such Available Amounts represent primarily
collections of payments due under the Contracts, certain amounts
received upon the prepayment or purchase of Contracts or liquidation
of the Contracts and disposition of the related Equipment upon
defaults thereunder, and proceeds of Servicer Advances, if any.
(ii) Interest on the Class A-2 Notes is payable on a Distribution Date
from Available Amounts on such date, but after the application of
such Available Amounts to repay any outstanding Servicer Advances,
to pay the Servicer's fee, and to pay interest on the Class A-1
Notes.
(iii) Interest on the Class B Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such
Available Amounts to repay any outstanding Servicer Advances, to pay
the Servicer's fee, and to pay interest on the Class A-1 Notes and
Class A-2 Notes.
(iv) Interest on the Class C Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such
Available Amounts to repay any outstanding Servicer Advances, to pay
the Servicer's fee, and to pay interest on the Class A-1 Notes, the
Class A-2 and the Class B Notes.
PRINCIPAL
The stated maturity of the Class A-1 Notes is the [ ] Distribution Date.
The Class A-2 Notes, the Class B Notes and the Class C Notes will have a stated
maturity which is the [ ] Distribution Date. However, if all payments on
the Contracts are made as scheduled, final payment with respect to the Notes
would occur prior to stated maturity.
Principal will be paid as follows:
(i) Principal of the Class A-1 Notes will be payable on each
Distribution Date in an amount equal to the Class A-1 Principal
Payment Amount for such Distribution Date to the extent Available
Amounts are available therefor, but after payment from such
Available Amounts of unpaid Servicer Advances, the Servicer's fee
and interest payments on the Notes and the Subordinated Notes.
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<PAGE>
(ii) Principal of the Class A-2 Notes will be payable on each
Distribution Date in an amount equal to the Class A-2 Principal
Payment Amount for such Distribution Date to the extent Available
Amounts are available therefor, but after payment from such
Available Amounts of unpaid Servicer Advances, the Servicer's fee,
interest payments on the Notes and the Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount.
(iii) Principal of the Class B Notes will be payable on each Distribution
Date in an amount equal to the Class B Principal Payment Amount for
such Distribution Date to the extent Available Amounts are available
therefor, but after payment from such Available Amounts of unpaid
Servicer Advances, the Servicer's fee, interest payments on the
Notes and the Subordinated Notes, and the payment of the Class A-1
Principal Payment Amount and the Class A-2 Principal Payment Amount.
(iv) Principal of the Class C Notes will be payable on each Distribution
Date in an amount equal to the Class C Principal Payment Amount for
such Distribution Date to the extent Available Amounts are available
therefor, but after payment from such Available Amounts of unpaid
Servicer Advances, the Servicer's fee, interest payments on the
Notes and the Subordinated Notes, and the payment of the Class A-1
Principal Payment Amount, the Class A-2 Principal Payment Amount,
and the Class B Principal Payment Amount.
See "Description of the Notes--Allocations" herein.
The Notes will mature and be due and payable on their respective maturity
dates. Prior thereto, amounts to be applied in reduction of the outstanding
principal amount of any Note, including the payment of the Class A-1 Principal
Payment Amount, Class A-2 Principal Payment Amount, Class B Principal Payment
Amount or Class C Principal Payment Amount payable on any Distribution Date,
will not be due and payable, although the failure of the Trust Depositor or
Servicer to remit any Available Amounts (including Available Amounts to be used
to make a Class A-1 Principal Payment Amount, a Class A-2 Principal Payment
Amount, a Class B Principal Payment Amount or a Class C Principal Payment
Amount) will, after the applicable grace period, constitute an Event of Default
under the Indenture. See "Description of the Notes--Events of Default".
ALLOCATIONS
Prior to an Event of Default or Restricting Event. On each Determination
Date, prior to the occurrence of an Event of Default or the occurrence and
continuance of a Restricting Event, the Servicer shall instruct the Indenture
Trustee to withdraw, and on the succeeding Distribution Date the Indenture
Trustee acting in accordance with such instructions shall withdraw, the amounts
required to be withdrawn from the Collection Account in order to make the
following payments or allocations from the Available Amounts for the related
Distribution Date (in each case, such payment or transfer to be made only to the
extent funds remain available therefor after all prior payments and transfers
for such Distribution Date have been made), in the following order of priority:
(A) pay to the Servicer, the amount of any unreimbursed Servicer
Advances;
(B) pay to the Servicer, its monthly Servicing fee for the preceding
monthly period together with any amounts in respect of the
Servicer's fee that were due in respect of prior monthly periods
that remain unpaid; provided, however, that upon the occurrence
and during the continuance of an Obligor Event as defined below
(see "Description of the Notes - Servicing Compensation and
Payment of Expenses"), the Servicer's fee shall instead be paid
after the allocation described in clause (M) hereof;
(C) pay to the Indenture Trustee, on behalf of the Class A-1 Notes,
an amount equal to interest accrued thereon for the Accrual
Period immediately preceding such Distribution Date, together
with any such amounts that accrued in respect of prior Accrual
Periods for which no allocation was previously made;
(D) pay to the Indenture Trustee, on behalf of the Class A-2 Notes,
an amount equal to interest accrued thereon for the Accrual
Period immediately preceding such Distribution Date, together
with any such amounts that accrued in respect of prior Accrual
Periods for which no allocation was previously made;
(E) pay to the Indenture Trustee, on behalf of the Class B Notes, an
amount equal to the interest accrued thereon for the Accrual
Period immediately preceding such Distribution Date, together
with any such amounts that accrued in respect of prior Accrual
Periods for which no allocation was previously made;
(F) pay to the Indenture Trustee, on behalf of the Class C Notes, an
amount equal to the interest accrued thereon for the Accrual
Period immediately preceding such Distribution Date, together
with any such amounts that accrued in respect of prior Accrual
Periods for which no allocation was previously made;
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<PAGE>
(G) pay to the holders of the Subordinated Notes an amount equal to
the interest accrued in respect of the Subordinated Notes for the
Accrued Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect of prior
Accrual Periods for which no allocation was previously made;
(H) pay to the Indenture Trustee, on behalf of the Class A-1 Notes
the Class A-1 Principal Payment Amount for such Distribution
Date; provided (i) that if the Available Amounts remaining to be
allocated pursuant to this clause is less than the full amount
required to be so paid, such remaining Available Amounts shall be
allocated to each Class A-1 Note pro rata based on the
outstanding principal amount thereof, and (ii) if the amount to
be allocated pursuant to this clause exceeds the amount needed to
repay outstanding Class A-1 Note principal in full, then such
excess shall be applied in repayment of principal on the Class A-
2 Notes;
(I) pay to the Indenture Trustee, on behalf of the Class A-2 Notes
the Class A-2 Principal Payment Amount for such Distribution
Date; provided (i) that if the Available Amounts remaining to be
allocated pursuant to this clause is less than the full amount
required to be so paid, such remaining Available Amounts shall be
allocated to each Class A-2 Note pro rata based on the
outstanding principal amount thereof, and (ii) if the amount to
be allocated pursuant to this clause exceeds the amount needed to
repay outstanding Class A-2 Note principal in full, then such
excess shall be applied in repayment of principal on the Class B
Notes;
(J) pay to the Indenture Trustee, on behalf of the holders of the
Class B Notes the Class B Principal Payment Amount for such
Distribution Date; provided (i) that if the Available Amounts
remaining to be allocated pursuant to this clause is less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class B Note pro rata based on
the outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount needed
to repay outstanding Class B Note principal in full, then such
excess shall be applied in repayment of principal on the Class C
Notes;
(K) pay to the Indenture Trustee, on behalf of the holders of the
Class C Notes the Class C Principal Payment Amount for such
Distribution Date; provided (i) that if the Available Amounts
remaining to be allocated pursuant to this clause is less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class C Note pro rata based on
the outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount needed
to repay outstanding Class C Note principal in full, then such
excess shall be applied in repayment of principal on the
Subordinated Notes;
(L) pay to the holders of the Subordinated Notes the Class D
Principal Payment Amount for such Distribution Date; provided (i)
that if the Available Amounts remaining to be allocated pursuant
to this clause is less than the full amount required to be so
paid, such remaining Available Amounts shall be allocated to each
Subordinated Notes pro rata based on the outstanding principal
amount thereof, and (ii) if the amount to be allocated pursuant
to this clause exceeds the amount needed to repay outstanding
Subordinated Notes principal in full;
(M) pay to the Indenture Trustee for deposit into the Reserve Fund
from any Available Amounts not necessary to make the payments
described in paragraph (A) through (L) above, such amount as is
necessary to meet the Reserve Fund Amount; and
(N) any excess shall be paid to the holder of the Certificates.
Pursuant to the Indenture, the Indenture Trustee will distribute amounts
received from the Indenture Trustee in accordance with the foregoing to you and
the holders of the Subordinated Notes represented thereby pro rata in accordance
with the respective amounts owed thereto.
Following an Event of Default or Restricting Event. On each Determination
Date after the occurrence of an Event of Default, or after the occurrence of,
and during the continuance of, a Restricting Event, the Servicer shall instruct
the Indenture Trustee to withdraw, and on the succeeding Distribution Date the
Indenture Trustee acting in accordance with such instructions shall withdraw,
the amounts required to be withdrawn from the Collection Account in order to
make the following payments or allocations from the Available Amounts for the
related Distribution Date (in each case, such payment or transfer to be made
only to the extent funds remain available therefor after all prior payments and
transfers for such Distribution Date have been made), in the following order of
priority:
(A) pay to the Indenture Trustee, the amount of any unpaid fees,
expenses, late charges or other losses;
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<PAGE>
(B) pay to the Servicer, the amount of any unreimbursed Servicer
Advance;
(C) pay to the Servicer, its monthly fee for the preceding monthly
period together with any amounts in respect of the Servicer's fee
that were due in respect of prior monthly periods that remain
unpaid; provided, however, that upon the occurrence and during
the continuance of an Obligor Event such Servicer's fee shall be
paid after the allocation described in clause (L) hereof;
(D) pay to the Indenture Trustee, on behalf of the Class A-1 Notes
and the Class A-2 Notes, an amount equal to interest accrued in
respect of such Class A-1 Notes and the Class A-2 Notes for the
Accrual Period immediately preceding such Distribution Date;
provided, that if the Available Amounts remaining to be allocated
pursuant to this clause is less than the full amount required to
be so paid, such remaining Available Amounts shall be allocated
to each Class A-1 Note and the Class A-2 Note pro rata based on
the then outstanding principal amount thereof;
(E) pay to the Indenture Trustee, on behalf of the Class B Notes, an
amount equal to the interest accrued thereon for the Accrual
Period immediately preceding such Distribution Date; provided,
that if the Available Amount remaining to be allocated pursuant
to this clause is less than the full amount required to be so
paid, such remaining Available Amounts shall be allocated to each
Class B Note pro rata based on the outstanding principal amount
thereof;
(F) pay to the Indenture Trustee, on behalf of the Class C Notes, an
amount equal to interest accrued in respect of the Class C Notes
for the Accrual Period immediately preceding such Distribution
Date; provided, that if the Available Amounts remaining to be
allocated pursuant to this clause is less than the full amount
required to be so paid, such remaining Available Amounts shall be
allocated to each Class C Note pro rata based on the outstanding
principal amount thereof;
(G) pay to the Indenture Trustee, on behalf of the Subordinated
Notes, an amount equal to interest accrued in respect of the
Subordinated Notes for the Accrual Period immediately preceding
such Distribution Date; provided, that if the Available Amounts
remaining to be allocated pursuant to this clause is less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Subordinated Note pro rata
based on the outstanding principal amount thereof;
(H) pay to the Indenture Trustee, on behalf of the Class A-1 Notes,
the Class A-1 Principal Payment Amount for such Distribution
Date; provided (i) that if the Available Amounts remaining to be
allocated pursuant to this clause is less than the full amount
required to be so allocated, such remaining Available Amounts
shall be allocated to each Class A-1 Note pro rata based on the
outstanding principal amount thereof, and (ii) if the amount to
be allocated pursuant to this clause exceeds the amount needed to
repay the outstanding Class A-1 Note principal in full, then such
excess shall be applied in repayment of principal on the Class A-
2 Notes;
(I) pay to the Indenture Trustee, on behalf of the Class A-2 Notes,
the Class A-2 Principal Payment Amount for such Distribution
Date; provided (i) that if the Available Amounts remaining to be
allocated pursuant to this clause is less than the full amount
required to be so allocated, such remaining Available Amounts
shall be allocated to the Class A-2 Note, respectively pro rata
based on the outstanding principal amount thereof, and (ii) if
the amount to be allocated pursuant to this clause exceeds the
amount needed to repay the outstanding Class A-2 Note principal
in full, then such excess shall be applied in repayment of
principal on the Class B Notes;
(J) pay to the Indenture Trustee, on behalf of the holders of the
Class B Notes, the Class B Principal Payment Amount for such
Distribution Date; provided (i) that if the Available Amounts
remaining to be allocated pursuant to this clause is less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class B Note pro rata based on
the outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount needed
to repay outstanding Class B Note principal in full, then such
excess shall be applied in repayment of principal on the Class C
Notes;
(K) pay to the Indenture Trustee, on behalf of the holders of the
Class C Notes, the Class C Principal Payment Amount for such
Distribution Date; provided (i) that if the Available Amounts
remaining to be allocated pursuant to this clause is less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class C Note pro rata based on
the outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount needed
to repay outstanding Class C Note principal in full, then such
excess shall be applied in repayment of principal on the Prior
Certificates; and
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(L) pay to the holders of the Subordinated Notes the lesser of (i)
the Class D Principal Payment Amount for such Distribution Date
and (ii) the remaining outstanding Principal Amount of the
Subordinated Notes; provided (i) that if the Available Amounts
remaining to be allocated pursuant to this clause is less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Subordinated Notes pro rata
based on the outstanding principal amount thereof, and (ii) if
the amount to be allocated pursuant to this clause exceeds the
amount needed to repay outstanding Subordinated Notes principal
in full, then such excess shall be paid to the holder of the
Certificates.
Pursuant to the Indenture, the Indenture Trustee will distribute amounts
received from the Indenture Trustee in accordance with the foregoing to the
Noteholders represented thereby pro rata in accordance with the respective
amounts owed thereto.
RESERVE FUND
General. The Reserve Fund will be an account held in the name of the
Indenture Trustee on your behalf and on behalf of the holders of the
Subordinated Notes. The Reserve Fund will be created with an initial deposit by
the Trust Depositor on the Closing Date of an amount equal to the Reserve Fund
Amount.
If the amount on deposit in the Reserve Fund on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Reserve Fund Amount, the Indenture
Trustee will distribute any excess to the holder of the Certificates. Upon any
such distributions to the holder of the Certificates, you and the holders of the
Subordinated Notes will have no further rights in, or claims to, such amounts.
If on any Distribution Date the principal balance of the Subordinated Notes
equals zero and amounts on deposit in the Reserve Fund have been depleted as a
result of losses in respect of the Contracts, the protection afforded to you by
the Subordinated Notes and by the Reserve Fund will be exhausted and you will
bear directly the risks associated with the ownership of Asset Interests in the
Contracts.
None of you, the Indenture Trustee, the Owner Trustee, the Originator nor
the Trust Depositor will be required to refund any amounts properly distributed
or paid to them whether or not there are sufficient funds on any subsequent
Distribution Date to make full distributions to you.
The Servicer may, from time to time after the date of this prospectus
request each rating agency that rated the Notes to, at the request of the Trust
Depositor, approve a formula for determining the Reserve Fund Amount that is
different from the formula described above and would result in a decrease in the
amount of the Reserve Fund Amount or the manner by which the Reserve Fund is
funded. If each such rating agency delivers a letter to the Indenture Trustee
and the Owner Trustee to the effect that the use of any such new formulation
will not in and of itself result in a qualification, reduction or withdrawal of
its then-current rating of any class of Notes then the Reserve Fund Amount will
be determined in accordance with such new formula. The Sale and Servicing
Agreement will accordingly be amended to reflect such new calculation without
the consent of any of you.
Withdrawals from the Reserve Fund. Amounts held from time to time in the
Reserve Fund will continue to be held for the benefit of you and the holders of
the Subordinated Notes. On each Distribution Date, funds will be withdrawn from
the Reserve Fund to the extent that Available Amounts with respect to any
Distribution Date are less than the amount necessary to pay interest on the
Notes and the Subordinated Notes; provided, however, upon the occurrence of an
Event of Default or upon the occurrence and continuance of Restricting Event
amounts in the Reserve Fund shall be available to pay the principal on the most
senior outstanding class of Notes or if no Notes are outstanding the
Subordinated Notes; provided further, in the event the Available Amounts are
insufficient to pay outstanding principal on the Class A-1 Notes on the maturity
date of the Class A-1 Notes, amounts in the Reserve Fund may be utilized to make
principal payments on the Class A-1 Notes. Additionally, to the extent monies
are present in the Reserve Fund, to the extent necessary, such monies shall be
applied to pay the principal of the most senior outstanding class of Notes, or
if no Notes are outstanding, the Subordinated Notes on the applicable maturity
date.
DEFAULTED CONTRACTS
A Contract will automatically be deemed to be in default (a "Defaulted
Contract") if (i) a full contractual payment has not been received from the
Obligor (or the Vendor, if Vendor recourse is applicable for 120 days or such
shorter period as the Sellers may determine consistent with their respective
collection policy; or (ii) if at any time the Servicer determines, in accordance
with its customary and usual practices, that such Contract is not collectible
(and taking into account any available Vendor recourse). The current policy of
the Servicer with respect to writing off Contracts is described in "Heller
Financial, Inc. and Heller Financial Leasing, Inc. --- Vendor Finance ---
Collection Process/Vendor Recourse" and "Heller Financial, Inc. and Heller
Financial Leasing, Inc. --Commercial Equipment Finance -- Collection/Servicing"
above.
Upon classification as a Defaulted Contract, the Servicer shall accelerate
all payments due thereunder or take such other action as the Servicer reasonably
believes will maximize the amount of Recoveries in respect thereof and shall
otherwise follow its
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customary and usual collection procedures, which may include the repossession
and sale of any related Equipment or other security on behalf of the Trust. Any
Recoveries shall be deemed to be Available Amounts.
COLLECTION ACCOUNT
The Servicer, for the Noteholders' benefit, shall cause to be established
and maintained in the name of the Indenture Trustee, with an office or branch of
a depository institution or trust company (which may include the Indenture
Trustee) organized under the laws of the United States of America or any one of
the states thereof and located in the state designated by the Servicer, a non-
interest bearing segregated corporate trust account bearing a designation
clearly indicating that the funds deposited therein are held in trust for the
benefit of the Noteholders and holders of the Subordinated Notes; provided,
however, that at all times such depository institution or trust company shall be
(a) the corporate trust department of the Indenture Trustee or, (b) a 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), (i)(A) which has either (1) a long-term unsecured debt rating
acceptable to the rating agencies rating the Notes or (2) a short-term unsecured
debt rating or certificate of deposit rating acceptable to such rating agencies,
(B) the parent corporation of which has either (1) a long-term unsecured debt
rating acceptable to the rating agencies rating the Notes or (2) a short-term
unsecured debt rating or certificate of deposit rating acceptable to such rating
agencies or (C) is otherwise acceptable to the rating agencies rating the Notes
and (ii) whose deposits are insured by the Federal Deposit Insurance Corporation
(the "FDIC"; any such depository institution or trust company, a "Qualified
Institution"). Funds in the Collection Account generally will be invested in (i)
obligations fully guaranteed by the United States of America, (ii) demand
deposits, time deposits or certificates of deposit of depository institutions or
trust companies having commercial paper with the highest rating from each rating
agency rating the Notes, (iii) commercial paper (or other short-term
obligations) having, at the time of the Trust's investment therein, the highest
rating from each rating agency rating the Notes, (iv) demand deposits, time
deposits and certificates of deposit which are fully insured by the FDIC, (v)
notes or bankers' acceptances issued by any depository institution or trust
company described in (ii) above, (vi) money market funds which have the highest
rating from, or have otherwise been approved in writing by, each rating agency
rating the Notes, (vii) time deposits with an entity, the commercial paper of
which has the highest rating from the rating agency rating the Notes, (viii)
eligible repurchase agreements, and (ix) any other investments approved in
writing by such rating agencies (collectively, "Eligible Investments"). Such
funds may be invested in debt obligations of Heller Financial or its affiliates
so long as such obligations qualify as Eligible Investments. Any earnings (net
of losses and investment expenses) on funds in the Collection Account will be
held therein and be treated as Available Amounts. The Servicer will have the
revocable power to instruct the Indenture Trustee to make withdrawals and
payments from the Collection Account for the purpose of carrying out its duties
under the Sale and Servicing Agreement.
If any institution with which any of the accounts established pursuant to
the Sale and Servicing Agreement or the Indenture are established ceases to be a
Qualified Institution, the Servicer or the Owner Trustee (as the case may be)
shall within ten business days establish a replacement account at a Qualified
Institution after notice thereof.
EVENTS OF DEFAULT
Allocations of Available Amounts will be made as described above under
"--Allocations; Prior to an Event of Default or Restricting Event" unless and
until an Event of Default or Restricting Event has occurred, in which case
allocations of Available Amounts will be made as described above under "--
Allocations; Following an Event of Default or Restricting Event". An "Event of
Default" refers to any of the following events:
(a) failure to pay on each Distribution Date the full amount of
accrued interest on any Note;
(b) failure to pay the then outstanding principal amount of any Note,
if any, on its related maturity date of such Note;
(c) (i) failure on the part of any Originator to make any payment or
deposit required under the Sale and Servicing Agreement within
three business days after the date the payment or deposit is
required to be made, or (ii) failure on the part of any
Originator, the Trust Depositor, the Trust or the Owner Trustee
to observe or perform any other covenants or agreements of such
entity set forth in the Sale and Servicing Agreement or the
Indenture, which failure has a material adverse effect on the
Noteholders and which continues unremedied for a period of 60
days after written notice; provided, that no such 60-day cure
period shall apply in the case of a failure by the Originators to
perform their joint and several agreement to accept reassignment
of Asset Interests in Ineligible Contracts, and further provided,
that only a five day cure period shall apply in the case of a
failure by any Originator, the Trustee or the Owner Trustee to
observe their respective covenants not to grant a security
interest in or otherwise intentionally create a lien on the
Contracts;
(d) any representation or warranty made by any Originator, the Trust
Depositor, the Trustee or the Owner Trustee in the Sale and
Servicing Agreement or the Indenture or any information required
to be given by any Originator or the Trust Depositor to the
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Indenture Trustee to identify the Contracts proves to have been
incorrect in any material respect when made and continues to be
incorrect in any material respect for a period of 60 days after
written notice and as a result of which the Noteholders'
interests are materially and adversely affected; provided,
however, that an Event of Default shall not be deemed to occur
thereunder if the Originator has repurchased Asset Interests in
the related Contracts through the Trust Depositor during such
period in accordance with the provisions of the Sale and
Servicing Agreement;
(e) the occurrence of an Insolvency Event relating to any Originator,
the Trust Depositor, the Trust or the Servicer; or
(f) the Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In the case of any event described in clause (a), (b), (c), (d), (e) or (f)
above, an Event of Default with respect to the Notes will be deemed to have
occurred; provided such Event of Default may be waived if the Required Holders
provide written notice to the Trust Depositor and the Servicer of such waiver.
In the event the Indenture Trustee has actual knowledge of an Event of Default,
it will be required to notify, among others, the Trust Depositor, each
Originator, the Servicer and the Owner Trustee.
If an Insolvency Event relating to the Trust Depositor occurs, pursuant to
the Sale and Servicing Agreement, on the day of such Insolvency Event, the Trust
Depositor will promptly give notice to the Indenture Trustee of the Insolvency
Event, and the Indenture Trustee will, unless notified to the contrary by the
Required Holders, promptly act to sell, dispose of or otherwise liquidate the
Contracts in a commercially reasonable manner and on commercially reasonable
terms. The proceeds from any such sale, disposition or liquidation of Contracts
will be deposited in the Collection Account and allocated as described in the
Sale and Servicing Agreement and herein. If the proceeds of any collections on
Contracts in the Collection Account allocated to Noteholders of any class is not
sufficient to pay the Principal Amount of the Notes of such Class in full, such
Noteholders will incur a loss.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation with respect to its servicing activities and
reimbursement for its expenses for any calendar month will be a servicing fee
calculated monthly, and payable on each Distribution Date, in an amount equal to
the product of (i) one-twelfth, (ii) [ ]% and (iii) the ADCB of all of the
Contracts as of the beginning of the related calendar month. The Servicer's fee
will be funded from Available Amounts and will be paid on the Distribution
Date with respect to each calendar month from the Collection Account. See
"Description of the Notes -- Allocations" above.
After the occurrence and during the continuance of an Obligor Event, the
servicing fee will be subordinated in priority of payment from Available Amounts
as described in "Description of Notes -- Allocations" above.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Contracts including, without
limitation, expenses related to the enforcement of the Contracts, payment of the
fees and disbursements of the Indenture Trustee and Owner Trustee and
independent accountants, casualty insurance on Equipment (to the extent the
Contracts provide for the Originator to pay such insurance) and other fees which
are not expressly stated in the Sale and Servicing Agreement to be payable by
the Trust, you or the Trust Depositor (other than federal, state, local and
foreign income, franchise or other taxes based on income, if any, or any
interest or penalties with respect thereto, imposed upon the Trust). In the
event that Heller Financial is acting as Servicer and fails to pay the fees and
disbursements of the Indenture Trustee or Owner Trustee, such trustee will be
entitled to receive the portion of the Servicing Fee that is equal to such
unpaid amounts. In no event will you be liable to the Indenture Trustee or Owner
Trustee for the Servicer's failure to pay such amounts, and any such amounts so
paid to such trustees will be treated as paid to the Servicer for all other
purposes of the Sale and Servicing Agreement.
OPTIONAL TERMINATION
On any Distribution Date occurring on or after the date on which the ADCB
of the Contracts is less than 10% of the initial ADCB of the Contracts as of the
initial Cutoff Date, the Trust Depositor will have the option to cause the Trust
to purchase (without penalty) all, but not less than all, of the remaining
outstanding Notes, Subordinated Notes and Certificates. The redemption price
will be equal to the sum of the outstanding principal amount of the Notes,
Subordinated Notes and Certificates, together with accrued interest thereon
through the date of redemption, and shall be payable to the holders of the
Notes, Subordinated Notes and Certificates on such Distribution Date from the
proceeds of the Trust's sale to the Trust Depositor of Asset Interests in the
Contracts (and the Trust Depositor's concurrent resale of the Contracts to the
applicable Originators), for a repurchase price equal to such redemption price,
of the remaining Asset Interests in the Contracts and other assets held by the
Trust. Following any redemption, you will have no further rights with respect to
the Trust's assets.
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REPORTS
No later than the third business day prior to each Distribution Date, the
Servicer will forward to the Indenture Trustee and each rating agency rating the
Notes a statement (the "Monthly Report") prepared by the Servicer setting forth
certain information with respect to the Trust and the Notes, Subordinated Notes
and Certificates, including: (i) the ADCB (A) as of the end of the related
calendar month and (B) as of the end of the second calendar month preceding such
Distribution Date (or, in the case of Asset Interests in Contracts that were
first acquired by the Trust during the related calendar month, as of the Cutoff
Date for such Contracts); (ii) the Class A Principal Payment Amount, Class B
Principal Payment Amount, Class C Principal Payment Amount and Class D Principal
Payment Amount (including the calculations utilized in the determination
thereof); (iii) the ADCB of Contracts with respect to which Asset Interests are
held by the Trust which were 30, 60 and 90 days or more delinquent as of the end
of such calendar month; (iv) the Discounted Contract Balance of each Contract
that became a Defaulted Contract during such calendar month and cumulatively for
each preceding calendar month; (v) the monthly servicing fee for such calendar
month; and (vi) the Available Amounts with respect to the related calendar month
(including the calculation utilized in the determination thereof).
With respect to each Distribution Date, the Monthly Report also will
include the following information with respect to the Notes and Subordinated
Notes: (i) the total amount distributed; (ii) the amount allocable to principal
on each class of the Notes and Subordinated Notes; (iii) the amount allocable to
interest on each class of the Notes and Subordinated Notes; and (iv) the amount,
if any, by which the unpaid principal amount of the Notes of each class exceeds
the Principal Amount of such class as of the Record Date with respect to such
Distribution Date. On each Distribution Date, the Indenture Trustee (or an agent
on its behalf), will forward to each Noteholder of record a copy of the Monthly
Report.
On or before [ ] of each calendar year, commencing [ ], 1999, the
Indenture Trustee (or an agent on its behalf) will furnish (or cause to be
furnished) to each person who at any time during the preceding calendar year was
a Noteholder of record, a statement containing the information required to be
provided by an issuer of indebtedness under the Code for such preceding calendar
year or the applicable portion thereof during which you were a Noteholder,
together with such other customary information as is necessary to enable you to
prepare your tax returns. See "Certain Federal Income Tax Matters".
LIST OF NOTEHOLDERS
At such time, if any, as Notes have been issued in fully registered,
certificated form, upon written request of any Noteholder or group of
Noteholders of record holding Notes evidencing not less than 10% of the
aggregate unpaid principal amount of the Notes, the Indenture Trustee will
afford you access during normal business hours to the current list of
Noteholders for purpose of communicating with other Noteholders with respect to
their rights under the Indenture, the Sale and Servicing Agreement or the Notes.
While the Notes are held in book-entry form, holders of beneficial interests in
the Notes will not have access to a list of other holders of beneficial
interests in the Notes, which may impede the ability of such holders of
beneficial interests to communicate with each other. See "--Book-Entry
Registration" below.
ADMINISTRATION AGREEMENT
Heller Financial, in its capacity as administrator (in such capacity, the
"Administrator" ), will enter into the Administration Agreement pursuant to
which the Administrator will agree, to the extent provided in the Administration
Agreement, to provide the notices and to perform other administrative
obligations required to be provided or performed by the Trust or the Owner
Trustee under the Indenture. The Administrator in the Administration Agreement
agrees to perform certain accounting functions of the Trust which the Owner
Trustee is required to perform pursuant to the Trust Agreement, including but
not limited to maintaining the books of the trust, filing tax returns for the
trust, and delivering tax related reports to you (except the Owner Trustee shall
retain responsibility for distributing the Schedule K-1s). As compensation for
the performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly administration fee, which fee will
be paid by the Servicer.
BOOK-ENTRY REGISTRATION
You may hold your Notes through The Depository Trust Company ("DTC ")(in
the United States) or Cedel Bank, societe anonyme ("Cedel") or Euroclear System
("Euroclear") (in Europe) if you are a participant of such systems, or
indirectly through organizations that are participants in such systems.
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 Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations ("Direct
Participants") and to facilitate the clearance and settlement of securities
transactions between Direct Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. Direct
Participants include the underwriters offering the Notes to you, securities
brokers and dealers, banks, trust companies and clearing corporations, and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants" and, together with Direct
Participants, "DTC Participants").
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To facilitate subsequent transfers, all Notes deposited with DTC will be
registered in the name of DTC's nominee, Cede & Co. You will maintain beneficial
ownership of the Notes despite the deposit of Notes with DTC and their
registration in the name of Cede. DTC has no knowledge of the actual
Noteholders; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Notes are credited, which may or may not be the
Noteholders. The DTC Participants will remain responsible for keeping account of
their holdings on behalf of their customers.
No Noteholder will be entitled to receive a certificate representing such
person's interest in a class of Notes. As long as the Notes are registered in
the name of Cede & Co., any action to be taken by Noteholders will be taken by
DTC upon instructions from DTC Participants, and all distributions, notices,
reports and statements to Noteholders will be delivered to Cede, as the
registered holder of the Notes, for distribution to Noteholders in accordance
with DTC procedures.
Noteholders will receive all payments of principal and interest on the
Notes through Direct Participants or Indirect Participants. DTC will forward
such payments to its Direct Participants which thereafter will forward them to
Indirect Participants or Noteholders. Under a book-entry format, Noteholders may
experience some delay in their receipt of payments, since such payments will be
forwarded to Cede as nominee of DTC. Noteholders will not be recognized by the
Indenture Trustee as Noteholders, as such term is used in the Indenture.
Noteholders will be permitted to exercise the rights of Noteholders only
indirectly through DTC and its Direct Participants and Indirect Participants.
Because DTC can act only on behalf of Direct Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, trust companies
and other persons approved by it, the ability of a Noteholder to pledge the
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 absence of
physical notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Noteholders will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payments by DTC Participants to Noteholders
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such DTC
Participant and not of DTC, the Indenture Trustee, the Owner Trustee, the
Originator or the Servicer, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal and interest to DTC
is the responsibility of the Indenture Trustee, disbursement of such payments to
Direct Participants shall be the responsibility of DTC and disbursement of such
payments to Noteholders shall be the responsibility of Direct Participants and
Indirect Participants.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual Noteholder is in turn to be recorded on the
Direct Participants' and Indirect Participants' records. Noteholder will not
receive written confirmation from DTC of their purchase, but Noteholders are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holders, from the Direct Participant or
Indirect Participant through which the Noteholder entered into the transaction.
Transfers of ownership interests in the Notes are to be accomplished by entries
made on the books of DTC Participants acting on behalf of Noteholders.
Noteholders will not receive physical notes representing their ownership
interest in Notes, except in the event that use of the book-entry system for the
Notes is discontinued.
DTC will not comment or vote with respect to the Notes. DTC has advised the
Originator that it will take any action permitted to be taken by a Noteholder
under the Indenture only at the direction of one or more Direct Participants to
whose accounts with DTC the Notes are credited. Additionally, DTC has advised
the Originator that to the extent that the Indenture requires that any action
may be taken only by holders of Notes representing a specified percentage of the
aggregate outstanding principal amount thereof, DTC will take such action only
at the direction of and on behalf of Direct Participants whose holdings include
undivided interests that satisfy such specified percentage.
DTC may discontinue providing its services as securities depositary with
respect to the Notes at any time by giving reasonable notice to the Indenture
Trustee. Under such circumstances, in the event that a successor securities
depositary is not obtained, fully registered, certificated Notes are required to
be printed and delivered. The Originator may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor securities
depositary). In that event, fully registered, certificated Notes will be
delivered to Noteholders. See "--Issuance of Definitive Notes Upon the
Occurrence of Certain Circumstances."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Originator believes to be reliable, but
the Originator takes no responsibility for the accuracy thereof.
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries (each, a "Depositary" and collectively, the
"Depositaries") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
Cedel is incorporated under the laws of Luxembourg as a professional
depositary. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of
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certificates. Transactions may be settled in Cedel in any of 28 currencies,
including United States dollars. Cedel provides to Cedel Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depositary, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and may include the
Underwriter. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriter.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Transfers between Direct Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel or Euroclear, on the other, will be effected in DTC in accordance
with DTC rules through the relevant European international clearing system
through its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing day will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Except as required by law, none of the Servicer, any Originator, the Owner
Trustee, the Trust Depositor or the Indenture Trustee will have any liability
for any aspect of the records relating to, actions taken or implemented by, or
payments made on account of, beneficial ownership interests in the Notes held
through DTC, or for maintaining, supervising or reviewing any records or actions
relating to such beneficial ownership interests.
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ISSUANCE OF DEFINITIVE NOTES UPON THE OCCURRENCE OF CERTAIN CIRCUMSTANCES
The Notes will be issued in fully registered, certificated form to
beneficial owners or their nominees (the "Definitive Notes"), rather than to DTC
or its nominee, only if (a) the Trust advises the Indenture Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Depository with respect to such Notes, and the Indenture Trustee or the
Issuer is unable to locate a qualified successor or (b) the Issuer at its option
elects to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all beneficial
owners for each class of Notes held through DTC of the availability of
Definitive Notes for such class. Upon surrender by DTC of the global Note
representing the Notes and instructions for reregistration, the Indenture
Trustee will issue such Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Noteholders under the
Indenture (the "Holders"). The Indenture Trustee will also notify the Holders of
any adjustment to the ADCB with respect to the Notes necessary to enable the
Indenture Trustee to make distributions to Holders of the Definitive Notes for
such class of record as of each Distribution Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check, mailed
to the address of such Holder as it appears on the Note register. Upon at least
10 days' notice to Noteholders for such class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such class registered in the
name of Cede & Co. representing the Notes of such class) will be made only upon
presentation and surrender of such Note at the office or agency specified in the
notice of final distribution to Noteholders.
Definitive Notes of each class will be transferable and exchangeable at the
offices of the Indenture Trustee or its agent in New York, New York, which the
Indenture Trustee shall designate on or prior to the issuance of any Definitive
Notes with respect to such class. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
THE SUBORDINATED NOTES
On the Closing Date, the Trust will also issue the [ ]% Class D
Receivables-Backed Notes (the "Subordinated Notes") with an aggregate principal
balance of $ . The Subordinated Notes will be issued pursuant to the
Indenture.
The Subordinated Notes are not being offered and sold by this prospectus.
Distributions with respect to the Subordinated Notes will be subordinated to
your rights and the rights of holders of the Subordinated Notes to the extent
described herein. See "Description of the Notes--Allocations" herein.
THE CERTIFICATES
On the Closing Date, the Trust will also issue the Certificates with an
initial certificate balance of $ (the "Certificates"); the Certificates
will not bear interest and shall have the right to monies in the Reserve Fund
and to certain other excess funds (after the payment of all principal and
interest on the Notes and the Subordinated Notes). The Certificates will
represent fractional undivided beneficial equity interests in the Trust and will
be issued pursuant to the Trust Agreement.
The Certificates are not being offered and sold by this prospectus. The
Trust Depositor is expected initially to retain the Certificates, although the
Certificates could be transferred at some later date in a transaction separate
from this offering provided the Owner Trustee and Indenture Trustee receive an
opinion of Independent Counsel that such transfer will not cause the Trust to
become a taxable entity or otherwise adversely affect you or the holders of the
Subordinated Notes. Distributions with respect to the Certificates will be
subordinated to your rights and the rights of holders of the Subordinated Notes
to the extent described herein. See "Description of the Notes--Allocations"
herein.
THE SALE AND SERVICING AGREEMENT GENERALLY
The following is a summary of the terms of the Sale and Servicing Agreement
and is therefore not complete. You should read the Sale and Servicing Agreement,
the forms of which were filed as exhibits to the Registration Statement of which
this prospectus is a part.
TERMINATION OF TRUST
Unless the Trust Depositor instructs the Owner Trustee otherwise, the Trust
will terminate only on the earliest to occur of (i) the day following the day on
which the Aggregate Principal Amount of all Notes and Subordinated Notes is zero
(provided, that the Trust Depositor shall have delivered a written notice to the
Owner Trustee electing to terminate the Trust), (ii) December 25, 20[ ], or
(iii) if the Contracts are sold, disposed of or liquidated following the
occurrence of an Insolvency Event as described under
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"Description of the Notes--Events of Default", immediately following such sale,
disposition or liquidation. Upon termination of the Trust, all right, title and
interest in the Trust's assets (other than amounts in accounts maintained by the
Trust for the final payment of principal and interest to you and the holders of
the Subordinated Securities) will be conveyed and transferred to the holder of
the Certificate and any permitted assignee.
CONVEYANCE OF ASSET INTERESTS IN THE CONTRACTS
Asset Interests in the Contracts, and security interests in the Equipment
(and security interests in End-User Contracts and Equipment securing Vendor
Loans) for the Contracts, will be sold or contributed to the Trust by the Trust
Depositor pursuant to the Sale and Servicing Agreement. The Originators have
sold, transferred, assigned, set over and otherwise conveyed to the Trust
Depositor, without recourse (except as expressly set forth in the related
purchase agreement) all of such Originators' right, title and interest in and
to:
(i) the Contracts, including any Substitute Contracts and Additional
Contracts, and all monies due or to become due in payment of such
Contracts on or after the related Cutoff Date, including all
Scheduled Payments thereunder due on or after such Cutoff Date, any
Prepayment Amounts, any payments in respect of a casualty or early
termination, and any Recoveries received with respect thereto but
excluding any Scheduled Payments due prior to the related Cutoff
Date, any Scheduled Payments due after the Cutoff Date but received
on or prior to the Cutoff Date and any Excluded Amounts;
(ii) the related Equipment (and, in the case of any Vendor Loan, any End-
User Contracts or Equipment securing such Vendor Loan), including
all proceeds from any sale or other disposition of such Equipment or
Applicable Security;
(iii) any documents delivered to the Trust Depositor or held by the
Servicer on its behalf with respect to each such Contract;
(iv) all payments made or to be made in the future with respect to each
such Contract and the obligor thereunder and under any other
guarantee or similar credit enhancement with respect to such
Contracts;
(v) all payments made with respect to each such Contract under any
insurance policy covering physical damage to the related Equipment;
and
(vi) all income and proceeds of the foregoing.
As of the Cutoff Date, the Trust Depositor will transfer and assign Asset
Interests in, among other things, (i) through (vi) above to the Trust for the
benefit of you and holders of the Subordinated Notes and the Trust will grant a
lien on the same in favor of the Indenture Trustee, pursuant to the Sale and
Servicing Agreement and the Indenture.
Heller Financial Leasing, Inc., as a sub-servicer appointed by the Servicer
under the Sale and Servicing Agreement, will retain custody of (but not title
to) the Contracts, the documents relating to the Contracts and any related
evidence of insurance payments, Scheduled Payments and any other similar
payments under the Contracts. Prior to the conveyance of any Contracts to the
Trust Depositor, Heller Financial caused or will cause the Originator's computer
accounting systems to be marked to show that the Contracts transferred
thereunder have been conveyed to the Trust Depositor, and prior to each transfer
of any assets to the Trust pursuant to the Sale and Servicing Agreement, Heller
Financial or the Trust Depositor, as appropriate, will file UCC financing
statements reflecting the conveyance of the assets described in (i) through (vi)
above to the Trust Depositor; each sale of Asset Interests in the same to the
Trust pursuant to the Sale and Servicing Agreement; and the grant of a lien
thereon in favor of the Indenture Trustee [(except that financing statements
will be filed with respect to each conveyance of an interest in Equipment to the
Trust Depositor by Heller Financial and each sale of an interest in Equipment to
the Trust by the Trust Depositor, and each transfer of an interest in Equipment
to the Indenture Trustee by the Trust, in each case, only to the extent the same
may be viewed as inventory of a Originator, the Trust Depositor and the Trust,
respectively)]. The Trust Depositor will mark its books and records, including
the appropriate computer files relating to the Contracts, to indicate that all
Asset Interests in the Contracts have been conveyed to the Trust. See "Certain
Legal Aspects of the Contracts".
REPRESENTATIONS AND WARRANTIES; DEFINITION OF ELIGIBLE CONTRACT
The Originators will, jointly and severally, make certain representations
and warranties in the Sale and Servicing Agreement with respect to the Contracts
with respect to which Asset Interests will be transferred thereunder as of the
Cutoff Date, and the Originators will similarly make or be deemed to have made
certain representations and warranties with respect to each Additional Contract
or Substitute Contract with respect to which Asset Interests may be transferred
by either of them as of its related Cutoff Date, including that:
(i) the information with respect to the Contract, any End-User Contract
securing the obligations under such Contract, and the Equipment, if
any, subject to the Contract with respect to which Asset Interests
are delivered under the Sale and Servicing Agreement is true and
correct in all material respects;
(ii) immediately prior to the transfer of a Contract or Asset Interests
in such Contract and a security interest in any related Equipment or
security interest in an End-User Contract or Equipment relating to a
Vendor Loan to the Trust Depositor, such Contract was owned by the
applicable Originator free and clear of any adverse claim;
(iii) the Contract did not have a Scheduled Payment that was a delinquent
payment for more than 30 days, and the Contract is not otherwise a
Defaulted Contract;
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(iv) no provision of the Contract has been waived, altered or modified
in any respect, except by instruments or documents contained in
the files relating to such Contract (other than payment
delinquencies permitted under clause (iii) above);
(v) the Contract is a valid and binding payment obligation of the
Obligor and is enforceable in accordance with its terms (except as
may be limited by applicable insolvency, bankruptcy, moratorium,
reorganization, or other similar laws affecting enforceability of
creditors' rights generally and the availability of equitable
(vi) the Contract is not and will not be subject to rights of
rescission, setoff, counterclaim or defense and, to the
Originators' knowledge, no such rights have been asserted or
threatened with respect to the Contract;
(vii) the Contract, at the time it was made, did not violate the laws of
the United States or any state, except for any such violations
which do not materially and adversely affect the collectibility of
the Contracts taken as a whole;
(viii) (a) the Contract and any related Equipment have not been sold,
transferred, assigned or pledged by the applicable Originator to
any other person (other than the sale of the Equipment to the End-
User in connection with conditional sale agreements, secured
promissory notes and finance leases) and any Equipment related to
such Contract is free and clear of any liens and encumbrances of
any third parties other than liens in favor of the applicable
Originator and Permitted Liens (as defined below), and (b) either
(1) such Contract is secured by a fully perfected lien of the
first priority on the related Equipment or, in the case of any
Vendor Loan, related End-User Contract or Equipment or (2) in the
case of a Contract secured by aircraft, within 30 calendar days of
the origination or acquisition of such Contract by the Originator
all applicable federal registration or recording procedures were
initiated, and such interest will be so noted or recorded within
180 days of such acquisition or origination;
(ix) if the Contract constitutes either an "instrument" or "chattel
paper" for purposes of the UCC, there is not more than one
"secured party's original" counterpart of the Contract;
(x) all filings necessary to evidence the conveyance or transfer of
the Contract to the Trust Depositor have been made in all
appropriate jurisdictions;
(xi) the Obligor is not to the Originators' knowledge, subject to
bankruptcy or other insolvency proceedings;
(xii) the Contract is a U.S. dollar-denominated obligation and the
associated Equipment is located in the United States;
(xiii) the Contract does not require the prior written consent of an
Obligor or contain any other restriction on the transfer or
assignment of the Contract (other than a consent or waiver of such
restriction that has been obtained prior to the date of such
Contract's conveyance to the Trust);
(xiv) either (A) the obligations of the related Obligor under such
Contract are irrevocable and unconditional and non-cancelable (or,
if prepayable by its terms, such Contract meets the criteria
described in clause (xxiv) below) or (B) with respect to certain
Leases with Lessees that are governmental entities or
municipalities, if such Lease is cancelled in accordance with its
terms, either (1) the Vendor which assigned such Lease to the
Originator is unconditionally obligated to repurchase such Lease
from the Originator for a purchase price not less than the
Discounted Contract Balance of such Lease (as of the date of
purchase) plus interest thereon at the Discount Rate through the
Distribution Date following such date of repurchase or (2)
pursuant to the Sale and Servicing Agreement, the Originators have
indemnified the Trust Depositor against such cancellation in an
amount equal to the Discounted Contract Balance of such Lease (as
of the date of purchase) plus interest thereon at the Discount
Rate through the Distribution Date following such cancellation
less any amounts paid by the Vendor pursuant to clause (1);
(xv) the Contract has an original maturity of not greater than the term
specified in the Sale and Servicing Agreement;
(xvi) no adverse selection procedure was used in selecting the Contract
for transfer;
(xvii) the Obligor under the Contract is required to maintain casualty
insurance with respect to the related Equipment or to self-insure
against casualty with respect to the related Equipment in
accordance with the Servicer's normal requirements;
(xviii) the Contract constitutes chattel paper, an account, an instrument
or a general intangible as defined under the UCC;
(xix) no Lease is a "consumer lease" as defined in Section 2A-103(1)(e)
of the UCC and each Lease is a Lease intended for security as
defined in Section 1-201(39) of the UCC; (xx) each Lessee has
represented to the Originator or the Vendor that it has accepted
the related Equipment and that it has had a reasonable opportunity
to inspect and test such Equipment and the Originator has not been
notified of any defects therein;
(xxi) the Contract is not subject to any guarantee by any Originator nor
has the Originator established any specific credit reserve with
respect to the related Obligor;
(xxii) each Lease is a "triple net lease" under which the Obligor is
responsible for the maintenance of the related Equipment in
accordance with general industry standards applicable to such item
of Equipment;
(xxiii) each Vendor Loan is secured by Eligible Contract(s) having an
aggregate Discounted Contract Balance for such Eligible
Contract(s) equal to the outstanding principal amount of such
Vendor Loan (and assuming the interest rate specified in such
Vendor Loan is the "Discount Rate" for purposes of calculating
such Discounted Contract Balance);
(xxiv) no provision of such Contract provides for a Prepayment Amount
less than the amount calculated in accordance with the definition
thereof (unless otherwise indemnified by the Vendor or the
Originators in an amount equal to the excess of the "Prepayment
Amount" as calculated in accordance with the definition thereof
over the amount otherwise payable upon a prepayment under such
Contract).
The foregoing representations and warranties, as appropriate, will be
reaffirmed by the Originators with respect to any Additional Contract or
Substitute Contract
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above representations and warranties shall be termed an "Eligible Contract" and
Contracts with respect to which the representations in clauses (iii), (xv) and
(xxiv) are not true shall also be Eligible Contracts if the Trust Depositor
shall have received confirmation from each rating agency rating the Notes that
the discrepancy will not result in a downgrading of the existing ratings on the
Notes. In addition, the Originators will jointly and severally represent and
warrant to the Trust Depositor that they have validly sold and assigned to the
Trust Depositor of all right, title and interest of the applicable Originator in
the related Contracts, whether then existing or thereafter created, and the
proceeds thereof.
In addition to the foregoing, the Originators will jointly and severally
represent and warrant in the Sale and Servicing Agreement with respect to each
End-User Contract securing a Vendor Loan transferred by either Originator that
as of the related Cutoff Date (unless otherwise indicated), among other things,
(i) that each such End-User Contract satisfies the representations set forth in
the second preceding paragraph (other than the representations set forth in
clauses (ii), (viii) (with respect to ownership by the Originator of the
Contract) and (xxiii), and except that the term "Obligor" shall be deemed to be
"end-user" in all such representations), (ii) that the Originator holds a duly
perfected lien of the first priority on such End-User Contract and (iii) that
the transfer of the Originator's security interest in such End-User Contract and
the proceeds thereof to the Trust Depositor is effective to create in favor of
the Trust Depositor a lien thereon and that such lien has been duly perfected
(such End-User Contracts which satisfy all of the foregoing representations
shall be termed "Eligible Contracts").
As used above, "Permitted Liens" shall mean:
(a) with respect to Contracts:
(i) liens for state, municipal or other local taxes if such taxes
shall not at the time be due and payable or if the Trust
Depositor shall currently be contesting the validity thereof in
good faith by appropriate proceedings and shall have set aside
on its books adequate reserves with respect thereto;
(ii) liens in favor of the Trust Depositor created pursuant to the
Sale and Servicing Agreement and transferred to the Trust
pursuant to the Sale and Servicing Agreement;
(iii) liens in favor of the Trust created pursuant to the Sale and
Servicing Agreement; and
(iv) liens in favor of the Indenture Trustee created pursuant to the
Sale and Servicing Agreement and the Indenture; and
(b) with respect to the related Equipment:
(i) materialmen's, warehousemen's, mechanics' and other liens
arising by operation of law in the ordinary course of business
for sums not due;
(ii) liens for state, municipal or other local taxes if such taxes
shall not at the time be due and payable or if the Trust
Depositor shall currently be contesting the validity thereof in
good faith by appropriate proceedings and shall have set aside
on its books adequate reserves with respect thereto;
(iii) liens in favor of the Trust Depositor created pursuant to the
Sale and Servicing Agreement and transferred to the Trust
pursuant to the Sale and Servicing Agreement;
(iv) liens in favor of the Trust created pursuant to the Sale and
Servicing Agreement;
(v) liens in favor of the Indenture Trustee created pursuant to the
Sale and Servicing Agreement and the Indenture;
(vi) other subordinated liens which are subordinated to the prior
payment of the Notes and Subordinated Notes on terms described
in the Sale and Servicing Agreement; and
(vii) liens granted by the End-Users or Vendors which are
subordinated to the interest of the Trust in such Equipment.
The Trust Depositor will represent and warrant in the Sale and Servicing
Agreement, among other things:
(i) that the transfer of Asset Interests in the Contracts, whether then
existing or thereafter created, and the proceeds thereof is a valid
sale, transfer and assignment to the Trust of all right, title and
interest of the Trust Depositor in such Asset Interests and that all
filings necessary to evidence the conveyance or transfer of Asset
Interests in the Contracts to the Trust have been made in all
appropriate jurisdictions;
(ii) that each Contract with respect to which an Asset Interest has been
transferred to the Trust is an Eligible Contract;
(iii) that each End-User Contract (or interest therein) securing a Vendor
Loan with respect to which an Asset Interest has been transferred to
the Trust is an Eligible Contract;
(iv) that the security interest granted on the related Contracts, whether
then existing or thereafter created, and the proceeds thereof by the
Trust to the Indenture Trustee is effective to create in favor of
the Indenture Trustee a lien thereon and that such lien has been
duly perfected;
(v) that the Trust Depositor holds a duly perfected lien of the first
priority on each End-User Contract securing a Vendor Loan; and
(vi) that the transfer of the Trust Depositor's security interest in each
End-User Contract and the proceeds thereof by the Trust to the
Indenture Trustee is effective to create in favor of the Indenture
Trustee a lien thereon and that such lien has been duly perfected.
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None of the Indenture Trustee, the Trust, the Owner Trustee or any of them
in their individual capacities, shall make or be deemed to have made any
representations or warranties, express or implied, regarding the Trust's assets
or the transfers thereof by the Originators, the Trust Depositor or the Trust.
REMEDIES FOR BREACHES OF REPRESENTATIONS AND WARRANTIES; DEFINITION OF
INELIGIBLE CONTRACT
Under the terms of the Sale and Servicing Agreement, each Contract must be
an Eligible Contract as of the date Asset Interests in such Contract are
transferred to the Trust. The Indenture Trustee shall reassign Asset Interests
to the Trust Depositor, and the Originators will be concurrently obligated,
jointly and severally, to purchase from the Trust Depositor, any related
Contract transferred by a Originator and any interest in Equipment transferred
that is subject to such Contract no later than 90 days after any Originator
becomes aware, or receives written notice from the Servicer or the Trust
Depositor, of the breach of any representation or warranty made by the
Originator in the Sale and Servicing Agreement that materially adversely affects
the interests of the Trust Depositor or the Trust or their successors or assigns
in any Contract or the documents relating to such Contract, which breach has not
been cured or waived in all material respects (an "Ineligible Contract"). This
purchase obligation will constitute the sole remedy against the Originators
available to the Trust Depositor, the Indenture Trustee and you, the other
Noteholders or holders of the Subordinated Notes for a breach of a
representation or warranty under the Sale and Servicing Agreement made by the
Originators with respect to such a Contract. This purchase obligation also will
constitute the sole remedy against the Trust Depositor available to the
Indenture Trustee and you, the other Noteholders or holders of the Subordinated
Notes for a breach of a representation or warranty under the Sale and Servicing
Agreement made by the Trust Depositor with respect to such a Contract.
Pursuant to the Sale and Servicing Agreement, Asset Interests in an
Ineligible Contract shall be reassigned to the Trust Depositor and the Trust
Depositor shall make a deposit in the Collection Account in immediately
available funds in an amount equal to the sum of the Discounted Contract Balance
of the Ineligible Contract (utilizing, for purposes of calculating the
Discounted Contract Balance, the Discount Rate at the time such Ineligible
Contract was transferred to the Trust) and any outstanding Servicer Advances
thereon. Any amount deposited into the Collection Account in connection with the
reassignment of Asset Interests in an Ineligible Contract shall be considered
payment in full of the Ineligible Contract, and any such amount shall be treated
as an Available Amount. In the alternative, the Trust Depositor may instead
obtain a Substitute Contract and convey Asset Interests in such Substitute
Contract to the Trust (provided such transfer satisfies the terms and conditions
generally applicable to Substitute Contracts in other situations described
herein) in replacement for Asset Interests in the affected Ineligible Contract,
which shall thereupon be deemed released by the Trust (and Indenture Trustee)
and reconveyed through the Trust Depositor to the Originator thereof. See
"Substitute Contracts and Additional Contracts".
CONCENTRATION AMOUNTS; DEFINITION OF EXCESS CONTRACT
In addition to the representations and warranties made by the Originators
and the Trust Depositor with respect to the Contracts as described above under
"--Representations and Warranties; Definition of Eligible Contract", the Trust
Depositor will represent and warrant as of the initial Cutoff Date as follows:
(i) the ADCB of all End-User Contracts with Obligors that are
governmental entities or municipalities does not exceed [_]% of the
ACDB of the Contracts
(ii) the ADCB of all End-User Contracts which finance, lease or are
related to software will not exceed [ ]% of the ADCB of the
Contracts;
(iii) the ADCB of all End-User Obligors who comprise the [ ] largest
Obligors (measured by ADCB) does not exceed [ ]% of the ADCB of
the Contracts; and
(iv) the ADCB of all End-User Contracts with Obligors or affiliates
thereof located in a single State of the United States does not
exceed [ ]% of the ADCB of the Contracts.
On the date an Additional Contract or Substitute Contract is added to the
Trust's assets the Trust Depositor will make the foregoing representations and
warranties as of the initial Closing Date; provided, that for purposes thereof
(i) the Contracts on the initial Closing Date shall be deemed to include such
Additional Contract or Substitute Contract in lieu of the Contract being
replaced or substituted and (ii) the Discounted Contract Balance of such
Additional Contract or Substitute Contract shall be equal to the Discounted
Contract Balance thereof as of the related Cutoff Date.
At such time as there is a breach of any of the foregoing representations
or warranties (an "Excess Contract"), which breach has not been cured or waived
in all material respects, the removal of which shall remedy such breach, the
Servicer will select a Contract, and the Indenture Trustee shall reassign Asset
Interests in such Contract to the Trust Depositor, and the Originators will be
jointly and severally obligated to purchase such Contract (and any related
Equipment or other assets securing the Contract) from the Trust Depositor.
Such purchase shall occur no later than 90 days after the Trust Depositor or any
Originator becomes aware, or receives written notice from the Servicer or the
Trust Depositor, of such breach. This purchase obligation will constitute the
sole remedy against the Originators available to the Trust Depositor, the
Indenture Trustee and you or Certificateholders for a breach of one of the
foregoing representations or warranties.
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Pursuant to the Sale and Servicing Agreement, Asset Interests in an Excess
Contract shall be reassigned to the Trust Depositor and the Trust Depositor
shall make a deposit in the Collection Account in immediately available funds in
an amount equal to the sum of the Discounted Contract Balance of the Excess
Contract (together with accrued interest thereon at the Discount Rate) and any
outstanding Servicer Advances thereon. Any amount deposited into the Collection
Account in connection with the reassignment of Asset Interests in an Excess
Contract shall be considered payment in full of the Excess Contract and shall be
treated as an Available Amount. In the alternative, the Trust Depositor may
instead cause the Originators, or either of them, to convey to the Trust
Depositor, with respect to which Asset Interests would be conveyed to the Trust,
a Substitute Contract (otherwise satisfying the terms and conditions generally
applicable to Substitute Contracts in other situations described herein) in
replacement for Asset Interests in the affected Excess Contract, which shall
thereupon be deemed released by the Trust (and Indenture Trustee) and reconveyed
through the Trust Depositor to the Originator thereof. See "--Substitute
Contracts and Additional Contracts".
MATERIAL MODIFICATIONS TO CONTRACTS
Under the terms of the Sale and Servicing Agreement, the Servicer may
terminate, release, amend, modify or waive certain provisions of a Contract
(such Contract as modified is referred to as an "Adjusted Contact"). Such
material modifications may result in adjustments to the Contract commencement
date, the stated periodic payment date for payments due, the amount of the
periodic payment or the equipment subject to the Contract. There may also
occasionally be non-material adjustments or modifications in Contract terms
which may be effected by the Servicer on behalf of the Trust without the
Noteholders' consent and without affecting the status of the related Asset
Interests as part of the Trust. In the event material modifications are made to
a Contract, the Originator will have the option to substitute for the Adjusted
Contract a Substitute Contract, subject to the conditions set forth in "--
Substitute Contracts and Additional Contracts".
SUBSTITUTE CONTRACTS AND ADDITIONAL CONTRACTS
In the event a Contract becomes a Defaulted Contract, an Adjusted Contract,
an Ineligible Contract or an Excess Contract, the Originator will have the
option to substitute for such Contract another of similar characteristics (a
"Substitute Contract"), subject to an overall limitation, in respect of
Defaulted Contracts or Adjusted Contracts only, of an aggregate amount not to
exceed 10% of the ADCB of the Contracts as of the Cutoff Date.
The Originators have from time to time, and the Servicer may, under the
terms of the Sale and Servicing Agreement, permit or agree to the early
termination or full prepayment of any Contract in certain circumstances, and on
the terms and subject to the conditions more fully specified in the Sale and
Servicing Agreement. Such circumstances may include, without limitation, a full
or partial buyout of the Equipment which is the subject of the Contract, or an
equipment upgrade. In the event of an early termination of a Contract which has
been prepaid in full, the Trust Depositor will have the option to cause the
Trust to reinvest the proceeds of such Contract in Asset Interests in one or
more Contracts having similar characteristics to such terminated Contract (each
an "Additional Contract") The Servicer is not authorized to permit an early
termination of a Contract, without the addition to the Trust of a related
Additional Contract, unless the amount to be prepaid (whether by the related
Obligor, or through a combination of payments from the related Obligor and from
the Originator/Servicer) on such terminated Contract is equal at least to the
then Discounted Contract Balance of the Contract, plus any delinquent payments
thereon.
The Substitute Contracts and Additional Contracts will have a Discounted
Contract Balance equal to or greater than that of the Contracts being modified
and/or replaced and the monthly payments on the Substitute Contracts or
Additional Contracts will be at least equal to those of the replaced Contracts
through the term of such replaced Contracts. In no event will the aggregate
scheduled payments of the Contracts, after the inclusion in the Trust of Asset
Interests in the Substitute Contracts and reinvestment in Asset Interests in
Additional Contracts, be materially less than the aggregate scheduled payments
of the Contracts prior to such substitution or reinvestment. In addition, either
the final payment on such Substitute Contract or Additional Contract will be on
or prior to [_], or, to the extent the final payment on such Contract is due
after [ ], only scheduled payments due on or prior to such date may be included
in the Discounted Contract Balance of such Contract for the purpose of making
any calculation under the Indenture or the Sale and Servicing Agreement.
INDEMNIFICATION
The Sale and Servicing Agreement provides that the Servicer will indemnify
the Trust Depositor, the Trust, the Owner Trustee, and the Indenture Trustee
from and against any loss, liability, expense, damage or injury suffered or
sustained arising out of the Servicer's actions or omissions with respect to the
Trust pursuant to the Sale and Servicing Agreement. Pursuant to the Sale and
Servicing Agreement, the Servicer, irrevocably and unconditionally, (i) submits
for itself and its property in any legal action arising out of the Sale and
Servicing Agreement and the Indenture, to the nonexclusive general jurisdiction
of the courts of the United States of America for the Northern District of
Illinois, and appellate courts therefrom and (ii) waives any objection it may
have that any action therein was brought in an inconvenient court.
Notwithstanding the foregoing, a court may determine, on its own motion, that an
action brought against the Servicer in any such court was brought in an
inconvenient forum.
Under the Sale and Servicing Agreement, the Trust Depositor has agreed to
be liable directly to an injured party for the entire amount of any losses,
claims, damages or liabilities (other than those incurred by you or a
Certificateholder in the capacity of an investor in the Notes or Subordinated
Notes) arising out of or based on the arrangement created by the Sale and
Servicing Agreement as though such agreement created a partnership under the
Illinois Uniform Limited Partnership Act in which the Trust
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Depositor was a general partner. In the event a successor Servicer is appointed,
the successor Servicer will indemnify and hold harmless the Trust Depositor for
any losses, claims, damages and liabilities of the Trust Depositor as described
in this paragraph arising from the actions or omissions of such successor
Servicer. Except as provided in the preceding paragraph, the Sale and Servicing
Agreement provides that none of the Trust Depositor, the Servicer or any of
their directors, officers, employees or agents will be under any other liability
to the Trust, the Owner Trustee, the Indenture Trustee, the holders of Notes or
Subordinated Notes or any other person for any action taken, or for refraining
from taking any action, in good faith pursuant to the Sale and Servicing
Agreement. However, none of the Trust Depositor, the Servicer or any of their
directors, officers, employees or agents will be protected against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence of any such person in the performance of their duties or by
reason of reckless disregard of their obligations and duties thereunder.
In addition, the Sale and Servicing Agreement provides that the Servicer is
not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the Sale and
Servicing Agreement. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
holders of Notes or Subordinated Notes with respect to the Sale and Servicing
Agreement and the rights and duties of the parties thereto and your interest or
the interest of holders of the Subordinated Notes thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Sale and Servicing Agreement, the Servicer is responsible
for servicing, collecting, enforcing and administering the Contracts in
accordance with its customary and usual procedures for servicing contracts
comparable to the Contracts.
The Servicer also may advance Scheduled Payments with respect to any
Contract (a "Servicer Advance") which were due in a Collection Period and were
not received and identified to a Contract by the close of business on the
Determination Date, to the extent that the Servicer, in its sole discretion,
expects to recover the Servicer Advance from subsequent payments on or with
respect to the Contract. The Servicer shall be entitled to reimbursement of
Servicer Advances from subsequent payments on or with respect to the Contract,
including collections of any Prepayment Amount, amounts deposited in the
Collection Account for the repurchase of Ineligible Contracts or Recoveries with
respect to such Contract, and, if the Servicer determines that Servicer Advances
will not be recovered from the Contracts to which the Servicer Advances were
related, from other Contracts with respect to which Asset Interests are included
in the Trust.
CERTAIN OTHER MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the Sale
and Servicing Agreement, except upon determination that such duties are no
longer permissible under applicable law. No such resignation will become
effective until the Indenture Trustee (or a successor to the Servicer) has
assumed the Servicer's responsibilities and obligations under the Sale and
Servicing Agreement.
Any person into which, in accordance with the Sale and Servicing Agreement,
Heller Financial or the Servicer may be merged or consolidated or any person
resulting from any merger or consolidation to which Heller Financial or the
Servicer is a party, or any person succeeding to the business of Heller
Financial or the Servicer, will be the successor to Heller Financial, as the
Servicer, under the Sale and Servicing Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, either the Indenture Trustee or the
Required Holders, by written notice to the Servicer and the Owner Trustee (and
to the Indenture Trustee, if given by the Noteholders), may terminate all of the
rights and obligations of the Servicer, as servicer, under the Sale and
Servicing Agreement. If the Indenture Trustee within 60 days of receipt of a
Termination Notice is unable to obtain any bids from eligible Servicers and the
Servicer delivers an officer's certificate to the effect that the Servicer
cannot in good faith cure the Servicer Default which gave rise to such
termination notice, then the Indenture Trustee shall offer the Trust Depositor
the right at its option to accept retransfer of the Trust's assets. The
purchase price for such a retransfer shall be equal to the sum of the Aggregate
Principal Amount of all Notes and Subordinated Securities on such Distribution
Date plus accrued and unpaid interest thereon at the applicable interest rate
(together with, if applicable, interest on interest amounts that were due and
not paid on a prior date), through the date of such retransfer.
The Indenture Trustee shall, as promptly as possible after giving a
termination notice, appoint a successor Servicer and if no successor Servicer
has been appointed by the Indenture Trustee and has accepted such appointment by
the time the Servicer ceases to act as Servicer, all rights, authority, power
and obligations of the Servicer under the Sale and Servicing Agreement shall
pass to and be vested in the Indenture Trustee. Prior to any appointment of
such successor, the Indenture Trustee will seek to obtain bids from potential
Servicers meeting certain eligibility requirements set forth in the Sale and
Servicing Agreement to serve as a successor Servicer for servicing compensation
not in excess of the servicing fee set forth herein. The rights and interest of
the Trust Depositor under the Sale and Servicing Agreement as holder of the
Certificate will not be affected by any such termination or appointment of a
successor to the Servicer.
A "Servicer Default" refers to any of the following events:
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(a) any failure by the Servicer to make any payment, transfer or deposit
or to give instructions or notice to the Owner Trustee or the
Indenture Trustee pursuant to the Sale and Servicing Agreement on or
before the date occurring three business days after the date such
payment, transfer, deposit, or such instruction or notice or report is
required to be made or given, as the case may be, under the terms of
the Sale and Servicing Agreement; or
(b) failure on the part of the Servicer duly to observe or perform in any
material respect any other covenants or agreements of the Servicer set
forth in the Sale and Servicing Agreement which has a material adverse
effect on the Noteholders or holders of the Subordinated Notes, which
continues unremedied for a period of 30 days after the first to occur
of (i) the date on which written notice of such failure requiring the
same to be remedied shall have been given to the Servicer by the
Indenture Trustee or to the Servicer and the Indenture Trustee by the
Noteholders or holders of the Subordinated Notes or the Indenture
Trustee on behalf of such Noteholders of Notes aggregating not less
than 25% of the Principal Amount of any Class adversely affected
thereby and (ii) the date on which the Servicer becomes aware thereof
and such failure continues to materially adversely affect the
Noteholders or holders of the Subordinated Notes for such period; or
(c) any representation, warranty or certification made by the Servicer in
the Sale and Servicing Agreement or in any certificate delivered
pursuant to the Sale and Servicing Agreement shall prove to have been
incorrect when made, which has a material adverse effect on the
Noteholders or the holders of the Subordinated Notes and which
continues to be incorrect in any material respect for a period of 30
days after the first to occur of (i) the date on which written notice
of such incorrectness requiring the same to be remedied shall have
been given to the Servicer and the Owner Trustee by the Indenture
Trustee, or to the Servicer, the Owner Trustee and the Indenture
Trustee by Noteholders or the holders of the Subordinated Notes or by
the Indenture Trustee on behalf of Noteholders of Notes aggregating
not less than 25% of the Principal Amount of any Class adversely
affected thereby and (ii) the date on which the Servicer becomes aware
thereof, and such incorrectness continues to materially adversely
affect such Holders for such period; or
(d) an Insolvency Event shall occur with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of five business days or
referred to under clause (b) or (c) for a period of 60 days (in addition to any
period provided in (a), (b) or (c)) shall not constitute a Servicer Default
until the expiration of such additional five business days or 60 days,
respectively, if such delay or failure could not be prevented by the exercise of
reasonable diligence by the Servicer and such delay or failure was caused by an
act of God or other similar occurrences. Upon the occurrence of any such event
the Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Sale and
Servicing Agreement and the Servicer shall provide the Owner Trustee, the
Indenture Trustee and the Trust Depositor prompt notice of such failure or delay
by it, together with a description of its efforts to so perform its obligations.
The Servicer shall immediately notify the Indenture Trustee in writing of any
Servicer Default.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement provides that on or before June 30 of each
calendar year the Servicer will cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer or the Trust Depositor) to furnish a report to the effect that such
firm has applied certain procedures agreed upon with the Servicer and examined
certain documents and records relating to the servicing of the related Contracts
and that, on the basis of such procedures, nothing came to the attention of such
firm that caused them to believe that such servicing was not conducted in
compliance with the Sale and Servicing Agreement except for such exceptions or
errors as such firm shall believe to be immaterial and such other exceptions as
shall be set forth in such statement.
The Sale and Servicing Agreement provides for delivery to the Indenture
Trustee and each rating agency rating the Notes on or before June 30 of each
calendar year of a statement signed by an officer of the Servicer to the effect
that, to the best of such officer's knowledge, the Servicer has performed its
obligations in all material respects under the Sale and Servicing Agreement
throughout the preceding year or, if there has been a default in the performance
of any such obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the
Indenture Trustee may be obtained by a request in writing delivered to the
Indenture Trustee.
AMENDMENTS
The Sale and Servicing Agreement may be amended from time to time by
agreement of the Owner Trustee, the Indenture Trustee and the Trust Depositor
without your consent or the consent of the Certificateholders (or the Indenture
Trustee) (i) to cure
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any ambiguity or (ii) to add any consistent provisions; provided, that such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Noteholder or holder of Subordinated
Securities.
The Sale and Servicing Agreement may also be amended from time to time by
the Trust Depositor, the Servicer, the Indenture Trustee and the Owner Trustee
with the consent of the Noteholders holding Notes evidencing not less than 66
2/3% of the Principal Amount of the Notes and the Subordinated Notes for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Sale and Servicing Agreement or of modifying in any
manner your rights. No such amendment, however, may
(i) reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Note without the
consent of each Noteholder affected thereby;
(ii) change the definition of (or that of any definition included within
the definition of) or the manner of calculating the "Applicable Class
Percentage", the "Required Holders", the "Class A-1 Principal Payment
Amount", the "Class A-2 Principal Payment Amount", the "Class B
Principal Payment Amount", the "Class C Principal Payment Amount",
the "Subordinated Note Principal Payment Amount", the "Discounted
Contract Balance", the "Principal Amount", or the "Available Amount"
without the consent of each Noteholder and Prior Certificateholder;
or
(iii) reduce the aforesaid percentage required to consent to any such
amendment without the consent of each Noteholder affected thereby; or
(iv) modify, amend or supplement the provisions of the Sale and Servicing
Agreement relating to the allocation of Available Amounts (see
"Description of the Notes--Allocations") without the consent of each
Noteholder; or
(v) make any Note or Certificate payable in money other than U.S. dollars
without the consent of each Noteholder affected thereby.
Promptly following the execution of any such amendment (other than an
amendment described in the preceding paragraph), the Owner Trustee will furnish
written notice of the substance of such amendment to each affected Noteholder
and Certificateholder.
THE OWNER TRUSTEE
[ ] will be the Owner Trustee under the Sale and Servicing
Agreement. Heller Financial and its affiliates may from time to time enter into
banking and trustee relationships with the Owner Trustee and its affiliates.
Heller Financial and its affiliates may hold Notes in their own names; however,
any Notes so held shall not be entitled to participate in any decisions made or
instructions given to the Owner Trustee by the Noteholders as a group.
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust's assets may at the time be located, the Owner
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust's assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Owner Trustee will
be conferred or imposed upon and exercised or performed by the Owner Trustee and
such separate trustee or co-trustee jointly, or, in any jurisdiction in which
the Owner Trustee will be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties and obligations solely at the direction of the Owner
Trustee.
The Owner Trustee may resign at any time, in which event a successor Owner
Trustee will be appointed as provided in the Sale and Servicing Agreement. The
Servicer may also remove the Owner Trustee if such Owner Trustee ceases to be
eligible to continue as such under the Sale and Servicing Agreement. In such
circumstances, a successor Owner Trustee will be appointed as provided in the
Sale and Servicing Agreement. Any resignation or removal of the Owner Trustee
and appointment of a successor Owner Trustee does not become effective until
acceptance of the appointment by the successor Owner Trustee.
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THE INDENTURE
GENERAL
The Notes will be issued pursuant to an Indenture between the Trust and the
Indenture Trustee. Pursuant to the Sale and Servicing Agreement the Indenture
Trustee will obtain the benefits of the Sale and Servicing Agreement for itself
and on your behalf.
PAYMENTS OF PRINCIPAL AND INTEREST
Pursuant to the Indenture, each payment received by the Indenture Trustee
as described above under "Description of the Notes--Allocations; Prior to an
Event of Default or Restricting Event" shall be promptly distributed in the
following order of priority:
first, so much of such installment or payment as shall be required to
pay in full the aggregate amount of interest then due on or in respect
of the Class A-1 Notes shall be distributed to the Class A-1
Noteholders ratably, without priority of any one Class A-1 Note over
any other Class A-1 Note, in the proportion that the aggregate amount
of all accrued but unpaid interest to the date of distribution on each
Class A-1 Note bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Class A-1 Notes;
second, so much of such installment or payment as shall be required to
pay in full the aggregate amount of interest then due on or in respect
of the Class A-2 Notes shall be distributed to the Class A-2
Noteholders ratably, without priority of any one Class A-2 Note over
any other Class A-2 Note, in the proportion that the aggregate amount
of all accrued but unpaid interest to the date of distribution on each
Class A-2 Note bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Class A-2 Notes;
third, so much of such installment or payment as shall be required to
pay in full the aggregate amount of interest then due on or in respect
of the Class B Notes shall be distributed to the Class B Noteholders
ratably, without priority of any one Class B Note over any other Class
B Note, in the proportion that the aggregate amount of all accrued but
unpaid interest to the date of distribution on each Class B Note bears
to the aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class B Notes;
fourth, so much of such installment or payment as shall be required to
pay in full the aggregate amount of interest then due on or in respect
of the Class C Notes shall be distributed to the Class C Noteholders
ratably, without priority of any one Class C Note over any other Class
C Note, in the proportion that the aggregate amount of all accrued but
unpaid interest to the date of distribution on each Class C Note bears
to the aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class C Notes;
fifth, so much of such installment or payment as shall be required to
pay in full the aggregate amount of interest then due on or in respect
of the Subordinated Notes shall be distributed to the Subordinated
Noteholders ratably, without priority of any one Subordinated Note
over any other Subordinated Note, in the proportion that the aggregate
amount of all accrued but unpaid interest to the date of distribution
on each Subordinated Note bears to the aggregate amount of all accrued
but unpaid interest to the date of distribution on all Subordinated
Notes;
sixth, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the Class A-1 Noteholders
to pay in full the aggregate amount of the Class A-1 Principal Payment
Amount then due pursuant to or in respect of the Class A-1 Notes,
without priority of any one Class A-1 Note over any other Class A-1
Note, in the proportion that the aggregate unpaid principal amount of
each Class A-1 Note bears to the aggregate unpaid principal amount of
all Class A-1 Notes;
seventh, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the Class A-2 Noteholders
to pay in full the aggregate amount of the Class A-2 Principal Payment
Amount then due pursuant to or in respect of the Class A-2 Notes,
without priority of any one Class A-2 Note over any other Class A-2
Note, in the proportion that the aggregate unpaid principal amount of
each Class A-2 Note bears to the aggregate unpaid principal amount of
all Class A-2 Notes;
eighth, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the Class B Noteholders to
pay in full the aggregate amount of the Class B Principal Payment
Amount then due pursuant to or in respect of the Class B Notes,
without priority of any one Class B Note over any other Class B Note,
in the proportion that the aggregate unpaid principal amount of each
Class B Note bears to the aggregate unpaid principal amount of all
Class B Notes; and
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ninth, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the Class C Noteholders to
pay in full the aggregate amount of the Class C Principal Payment
Amount then due pursuant to or in respect of the Class C Notes,
without priority of any one Class C Note over any other Class C Note,
in the proportion that the aggregate unpaid principal amount of each
Class C Note bears to the aggregate unpaid principal amount of all
Class C Notes.
tenth, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the holders of the
Subordinated Notes to pay in full the aggregate amount of the
Subordinated Principal Payment Amount then due pursuant to or in
respect of the Subordinated Notes, without priority of any one
Subordinated Note over any other Subordinated Note, in the proportion
that the aggregate unpaid principal amount of each Subordinated Note
bears to the aggregate unpaid principal amount of all Subordinated
Notes.
Pursuant to the Indenture, each payment received by the Indenture Trustee
as described above under "Description of the Notes--Allocations; Following an
Event of Default or Restricting Event" shall be promptly distributed in the
following order of priority:
first, so much of such payment as shall be required to reimburse the
Indenture Trustee for any tax, expense, unpaid fees, charge or other
loss incurred by the Indenture Trustee (to the extent not previously
reimbursed), (including, without limitation, the expense of sale,
taking or other proceeding, attorneys' fees and expenses, court costs,
and any other expenditures incurred or expenditures or advances made
by the Indenture Trustee in the protection, exercise or enforcement of
any right, power or remedy or any damages sustained by the Indenture
Trustee, liquidated or otherwise, upon the occurrence of the Event of
Default giving rise to such expenditures or advances) shall be applied
by the Indenture Trustee in reimbursement of such expenses;
second, so much of such payment remaining as shall be required to
reimburse the Noteholders and holders of the Subordinated Notes in
full for certain indemnity payments, if any, made by such holders to
the Indenture Trustee (to the extent not previously reimbursed) shall
be distributed to such holders, and, if the aggregate amount remaining
shall be insufficient to reimburse all such payments in full, it shall
be distributed ratably, without priority of any such holder over any
other, in the proportion that the aggregate amount of such
unreimbursed indemnity payments made by each such holder bears to the
aggregate amount of such unreimbursed indemnity payments made by all
Noteholders and holders of the Subordinated Notes;
third, so much of such payment remaining as shall be required to pay
in full the aggregate amount of all accrued but unpaid interest to the
date of distribution on the Class A-1 Notes and the Class A-2 Notes
shall be distributed to the Class A-1 Noteholders and the Class A-2
Noteholders, and, if the aggregate amount remaining shall be
insufficient to pay all such amounts in full, it shall be distributed
ratably, without priority of any one Class A-1 Note and one Class A-2
Note over any other Class A-1 Note or over any other Class A-2 Note,
in the proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class A-1 Note or Class
A-2 Note bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Class A-1 Notes and Class
A-2 Notes;
fourth, so much of such payment remaining as shall be required to pay
in full the aggregate amount of all accrued but unpaid interest to the
date of distribution on the Class B Notes shall be distributed to the
Class B Noteholders, and, if the aggregate amount remaining shall be
insufficient to pay all such amounts in full, it shall be distributed
ratably, without priority of any one Class B Note over any other Class
B Note, in the proportion that the aggregate amount of all accrued but
unpaid interest to the date of distribution on each Class B Note bears
to the aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class B Notes;
fifth, so much of such payment remaining as shall be required to pay
in full the aggregate amount of all accrued but unpaid interest to the
date of distribution on the Class C Notes shall be distributed to the
Class C Noteholders, and, if the aggregate amount remaining shall be
insufficient to pay all such amounts in full, it shall be distributed
ratably, without priority of any one Class C Note over any other Class
C Note, in the proportion that the aggregate amount of all accrued but
unpaid interest to the date of distribution on each Class C Note bears
to the aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class C Notes;
sixth, so much of such payment remaining as shall be required to pay
in full the aggregate amount of all accrued but unpaid interest to the
date of distribution on the Subordinated Notes shall be distributed to
the holders of the Subordinated Notes, and, if the aggregate amount
remaining shall be insufficient to pay all such amounts in full, it
shall be distributed ratably, without priority of any one Subordinated
Note over any
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other Subordinated Note, in the proportion that the aggregate amount
of all accrued but unpaid interest to the date of distribution on each
Subordinated Note bears to the aggregate amount of all accrued but
unpaid interest to the date of distribution on all Subordinated Notes;
seventh, the balance, if any, of such payment remaining thereafter
shall be distributed to the Class A-1 Noteholders in order to pay in
full the outstanding aggregate amount of principal of the Class A-1
Notes, and if the aggregate amount remaining shall be insufficient to
pay all such amounts in full, it shall be distributed ratably, without
priority of any one Class A-1 Note over any other Class A-1 Note, in
the proportion that the aggregate unpaid principal amount of each
Class A-1 Note bears to the aggregate unpaid principal amount of all
Class A-1 Notes;
eighth, the balance, if any, of such payment remaining thereafter
shall be distributed to the Class A-2 Noteholders in order to pay in
full the outstanding aggregate amount of principal of the Class A-2
Notes, and if the aggregate amount remaining shall be insufficient to
pay all such amounts in full, it shall be distributed ratably, without
priority of any one Class A-2 Note over any other Class A-2 Note, in
the proportion that the aggregate unpaid principal amount of each
Class A-2 Note bears to the aggregate unpaid principal amount of all
Class A-2 Notes;
ninth, the balance, if any, of such payment remaining thereafter shall
be distributed ratably to the Class B Noteholders to pay in full the
aggregate amount of principal of the Class B Notes, then due pursuant
to or in respect of the Class B Notes, and if the aggregate amount
remaining shall be insufficient to pay all such amounts in full, it
shall be distributed ratably, without priority of any one Class B Note
over any other Class B Note, in the proportion that the aggregate
unpaid principal amount of each Class B Note bears to the aggregate
unpaid principal amount of all Class B Notes ;
tenth, the balance, if any, of such payment remaining thereafter shall
be distributed ratably to the Class C Noteholders to pay in full the
aggregate amount of principal of the Class C Notes, then due pursuant
to or in respect of the Class C Notes, and if the aggregate amount
remaining shall be insufficient to pay all such amounts in full, it
shall be distributed ratably, without priority of any one Class C Note
over any other Class C Note, in the proportion that the aggregate
unpaid principal amount of each Class C Note bears to the aggregate
unpaid principal amount of all Class C Notes; and
eleventh, the balance, if any, of such payment remaining thereafter
shall be distributed ratably to the holders of the Subordinated Notes
to pay in full the aggregate amount of principal of the Subordinated
Notes, then due pursuant to or in respect of the Subordinated Notes,
and if the aggregate amount remaining shall be insufficient to pay all
such amounts in full, it shall be distributed ratably, without
priority of any one Subordinated Note over any other Subordinated
Note, in the proportion that the aggregate unpaid principal amount of
each Subordinated Note bears to the aggregate unpaid principal amount
of all Subordinated Notes.
EVENTS OF DEFAULT AND RESTRICTING EVENTS; REMEDIES
If an Event of Default referred to in subparagraphs (d) or (e) under the
heading "Description of the Notes--Events of Default" in this prospectus has
occurred, then and in every such case the unpaid principal of the Notes,
together with interest accrued but unpaid thereon, and all other amounts due to
you under the Indenture, shall immediately and without further act become due
and payable.
If any other Event of Default shall have occurred and be continuing, then
and in every such case, the Notes shall be accelerated with accrued but unpaid
interest thereon; provided, however, such Event of Default may be waived if the
Required Holders may provide the Trustee and the Trust Depositor written notice
of such waiver.
THE INDENTURE TRUSTEE
The Indenture Trustee with respect to the Notes is [ ]. Heller
Financial and its affiliates may from time to time enter into banking and
trustee relationships with the Indenture Trustee and its affiliates. Heller
Financial and its affiliates may hold Notes in their own names; however, any
Notes so held shall not be entitled to participate in any decisions made or
instructions given to the Indenture Trustee by the Noteholders as a group.
The Indenture Trustee's responsibilities will be generally ministerial in
nature, consisting principally of the distribution of monies received pursuant
to the Sale and Servicing Agreement, the authentication and registration of
transfer of Notes under the Indenture, and the delivery of certain information
received from the Trust Depositor. The Indenture Trustee also, as pledgee of
the Trust under the Indenture, will take and maintain possession of any
Contracts constituting "instruments" (for purposes of the UCC) not otherwise
part of chattel paper.
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For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust's assets may at the time be located, the Indenture
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust's assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Indenture Trustee
will be conferred or imposed upon and exercised or performed by the Indenture
Trustee and such separate trustee or co-trustee jointly, or, in any jurisdiction
in which the Indenture Trustee will be incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall exercise
and perform such rights, powers, duties and obligations solely at the direction
of the Indenture Trustee.
The Indenture Trustee may resign at any time, in which event a successor
Indenture Trustee which meets the requirements of Section 310(a) of the Trust
Indenture Act of 1939, as amended (the "TIA"), will be appointed by the
Servicer. The Servicer may also remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to continue as such under the Indenture. In such
circumstances, a successor Indenture Trustee which meets the requirements of
Section 310(a) of the TIA will be appointed by the Servicer. Any resignation or
removal of the Indenture Trustee and appointment of a successor Indenture
Trustee does not become effective until acceptance of the appointment by the
successor Indenture Trustee.
GOVERNING LAW
The Indenture will be governed by the laws of the State of New York.
AMENDMENTS
At any time and from time to time, (i) the Owner Trustee, the Trust
Depositor, and the Indenture Trustee, with the written consent of the Required
Holders represented thereby, may execute a supplement to the Indenture for the
purpose of adding provisions to, or changing or eliminating provisions of, the
Indenture (including any appendix or schedule hereto) and (ii) the Indenture
Trustee, with the written consent of the Required Holders represented thereby,
may consent to or execute a written amendment of or supplement to, or waiver or
consent under, the Sale and Servicing Agreement; provided, however, that without
the consent of each Noteholder and holder of Subordinated Notes under the
Indenture, no such amendment, supplement, waiver or consent shall
(i) reduce the amount or extend the time of payment of any
amount owing or payable under any Note or Subordinated Note or (except as
provided in the Indenture) increase or reduce the interest payable on any
Note or Subordinated Note (except that only the consent of the affected
holder shall be required for any decrease in an amount of or the rate of
interest payable on such Note or Subordinated Note or any extension for the
time of payment of any amount payable under such Note), or alter or modify
the provisions of the Sale and Servicing Agreement with respect to the
order of priorities in which distributions thereunder shall be made or with
respect to the amount or time of payment of any such distribution,
(ii) reduce, modify or amend any indemnities in favor of any
Noteholder or holder of a Subordinated Note or in favor of or to be paid by
the Trust Depositor, or alter the definition of "Indemnitees" to exclude
any Noteholder or holder of a Subordinated Note (except as consented to by
each Person adversely affected thereby),
(iii) make any Note or Subordinated Note payable in money other
than U.S. dollars,
(iv) modify, amend or supplement the provisions of the Sale and
Servicing Agreement relating to amendments, waivers and supplements to the
Indenture, the Sale and Servicing Agreement or any other document, or
(v) modify the definition of Required Holders or the percentage
of Noteholders or holders of Subordinated Notes required to effect any
modification of the Indenture.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
Transfer of Contracts. As of the Cutoff Date, the Originators will sell the
Contracts to the Trust Depositor. On the Closing Date, Asset Interests in the
Contracts will be conveyed to the Trust pursuant to the Sale and Servicing
Agreement. Under commercial law, the transfer of Asset Interests in the
Contracts to the Trust is either a sale of Asset Interests in the Contracts to
the Trust or a grant of a security interest in such property to the Trust. The
Trust Depositor has taken and will take all actions that are required under
applicable law to perfect the Trust's interest in the Contracts in the event the
transfer by the Trust Depositor to the Trust is deemed to be a grant of a
security interest for commercial law purposes, and it is the intent of the Trust
Depositor that the Trust will at all times have a first priority perfected
security interest in the Contracts and in the proceeds thereof, with certain
exceptions. The Trust Depositor will represent and warrant upon the execution of
the Sale and Servicing Agreement and as of the Closing Date and, with respect to
Additional Contracts or Substitute Contracts, as of each date of conveyance of
Asset Interests relating thereto, that such sale to the Trust constitutes a
valid sale to the Trust of all right, title and interest of the Trust Depositor
in and to the Asset Interests in such Contracts. The Trust Depositor will also
represent and warrant to the Trust that, in the
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event the sale of Asset Interests in such Contracts by the Trust Depositor to
the Trust is deemed to create a security interest under the UCC, there will
exist a valid, subsisting and enforceable first priority perfected security
interest in the Contracts, in existence at the time of the formation of the
Trust with respect to the related Asset Interests conveyed on the Closing Date
or at the date of conveyance of the related Asset Interests in any Additional
Contracts or Substitute Contracts, in favor of the Trust. For a discussion of
the Trust's rights arising from these representations and warranties not being
satisfied, see "The Sale and Servicing Agreement Generally--Representations and
Warranties; Definition of Eligible Contract".
Financing statements covering Asset Interests and/or the Contracts will be
filed under the UCC by the Trust Depositor, the Trust and the Indenture Trustee
to perfect their respective interests in Asset Interests and/or the Contracts
and continuation statements will be filed as required to continue the perfection
of such interests. In addition, each Originator will indicate in its books and
records, including the appropriate computer files relating to the Contracts,
that such Contracts have been transferred by such Originator to the Trust
Depositor, and that Asset Interests in such Contracts have been transferred by
the Trust Depositor to the Trust and by the Trust to the Indenture Trustee, and
each Originator will physically separate from its general files relating to
similar Contracts, and stamp the related documents or otherwise mark such
Contracts with a legend to the effect that Asset Interests in such Contracts
have been transferred to the Trust and assigned to the Indenture Trustee, and
deliver to the Indenture Trustee a computer file or microfiche or written list
containing a true and complete list of all Contracts with respect to which Asset
Interests are then being transferred to the Trust and all End-User Contracts in
which a security interest is then being transferred to the Trust, identified by
account number and by the Discounted Contract Balance as of the related Cutoff
Date. To facilitate servicing and reduce administrative costs, however, the
documents and files relating to the Contracts will be retained in the possession
of the Servicer and not deposited with the Indenture Trustee or any other agent
or custodian for your benefit (except for a limited number of End-User Contracts
evidenced by, in addition to a related financing agreement, "instruments" not
constituting part of chattel paper within the meaning of the UCC, which
instruments will be delivered to the custody and possession of the Indenture
Trustee as pledgee of the Trust). Because the Contract files will remain in the
Servicer's possession, if a subsequent purchaser were able to take physical
possession of the Contract files without knowledge of such assignment, the
Indenture Trustee's priority interest in the Contracts (as assignee of the
Originator's, Trust Depositor's and the Trust's interest) could be defeated. In
such event, distributions to you could be adversely affected. The segregation
and stamping of Contract files should, however, mitigate this risk.
Similarly, with respect to End-User Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with such End-User Contracts. Although UCC financing statements are filed
reflecting the pledge of such Contracts to the applicable Originator as security
for the Vendor Loans, because these contract files will remain in the Vendor's
possession, if a subsequent purchaser were able to take physical possession of
such contract files without knowledge of the pledge to the Originator, the
Indenture Trustee's priority security interest (as assignee of the Originator's,
Trust Depositor's and the Trust's interest) in the such End-User Contracts, as
security for the related Vendor Loan, could be defeated. In such event,
distributions to you could be adversely affected. Each Vendor represents,
warrants and covenants in the applicable agreement evidencing a Vendor Loan,
however, that it has not and will not sell, pledge or otherwise assign or convey
to any other party (other than the applicable Originator) any interest in the
End-User Contracts securing such Vendor Loan, and agrees that it will maintain
possession of the related contract files as custodian for the benefit of the
Originator as secured party with respect to such End-User Contracts.
There are also certain limited circumstances under federal or state law in
which prior transferees of Contracts could have an interest in such contracts
with priority over the Indenture Trustee's interest. A tax or other government
lien on property of the Originator or the Trust Depositor arising prior to the
time Asset Interests in a Contract are conveyed to the Trust may also have
priority over the interest of the Trust and the Indenture Trustee in such
Contract. Under the Sale and Servicing Agreement, the Originators will jointly
and severally warrant to the Trust Depositor and the Trust Depositor will
warrant to the Indenture Trustee, that Asset Interests in the Contracts have
been transferred free and clear of the lien of any third party. Each Originator,
the Trust Depositor, the Owner Trustee and the Trust will also covenant that it
will not sell, pledge, assign, transfer or grant any lien on any Contract with
respect to which Asset Interests are included in the Trust including End-User
Contracts securing Vendor Loans, other than transfers to the Trust and by the
Trust to the Indenture Trustee. In addition, as described above under the
heading "The Trust Depositor", the Trust Depositor has been organized as a
"bankruptcy-remote" entity which is not engaged in any business or activities
unrelated to the transactions described herein.
Transfers of Interests in Financed Equipment. In connection with the
conveyance of Asset Interests in the Contracts to the Trust, security interests
in the related financed Equipment securing such Contracts (or, in connection
with leases, the Originator's ownership interest in or title to such Equipment)
will be assigned by the applicable Originator to the Trust Depositor and by the
Trust Depositor to the Trust. It has been the general policy of the Originators
to file or cause to be filed UCC financing statements with respect to the
Equipment relating to the Contracts. Due to the administrative burden and
expense associated with amending many filings in numerous states where Equipment
is located, no assignments of the UCC financing statements evidencing the
security interest of the Originators in the Equipment securing such Contracts
will be filed to reflect the Trust Depositor's, the Trust's or the Indenture
Trustee's interests therein. While failure to file such assignments does not
affect the Trust's interest in the Contracts or perfection of the Indenture
Trustee's interest in such Contracts (including the related Originator's
security interest in the related Equipment), it does expose the Trust (and thus
you) to the risk that the Servicer could inadvertently release its security
interest in the Equipment of record, and it could complicate the Trust's
enforcement, as assignee, of the Originator's security interest in the
Equipment. While these risks should not affect the perfection or priority of the
interest of the Indenture Trustee in the Contracts or rights to payment
thereunder, they may adversely affect the right of the Indenture Trustee to
receive proceeds of a disposition of the Equipment related to a Defaulted
Contract. Additionally, statutory liens for repairs or unpaid taxes and other
liens arising by operation of law may have priority even over prior perfected
security interests in the Equipment assigned to the Indenture Trustee.
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Also, the transfer to the Trust Depositor of the applicable Originator's
security interest in aircraft securing certain Contracts, or its ownership
interest in aircraft subject to leases, and the transfer of such interests by
the Trust Depositor to the Trust, is subject to certain federal title
registration statutes, regulations and procedures. Due to the significant
administrative burden and expense associated with reregistering transfers of
titles and of security interests with respect to such aircraft, the
registrations of title with respect to aircraft securing Contracts, and to
aircraft subject to leases, will not identify the Trust as secured party or
owner, as the case may be, of such Equipment. There exists a risk in not so
identifying the Trust as the new secured party or owner that, through fraud or
negligence, a third party could acquire an interest in the aircraft superior to
that of the Trust. In addition, statutory liens for repairs or unpaid taxes may
have priority even over a perfected security interest in the aircraft.
In addition, some of the Equipment related to the Contracts may constitute
"fixtures" under the real estate or UCC provisions of the jurisdiction in which
such Equipment is located. In order to perfect a security interest in such
Equipment, the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage under the real
estate laws of the state where the Equipment is located. These filings must be
made in the real estate records office of the county in which such Equipment is
located. So long as the Obligor does not permanently attach the Equipment to the
real estate, a security interest in the Equipment will be governed by the UCC,
and the filing of a UCC-1 financing statement will be effective to maintain the
priority of the applicable Originator's security interest in such Equipment.
Except for a small portion of such Equipment, the Trust Depositor does not
believe that any of the Equipment will be permanently affixed to the related
real estate. If, however, any Equipment is permanently attached to the real
estate in which it is located, other parties could obtain an interest in the
Equipment which is prior to the security interest originally obtained by the
applicable Originator and transferred to the Trust Depositor. Based on the
representation of the Originators, the Trust Depositor, however, believes that
with respect to Equipment which constitutes a "fixture", it has obtained a
perfected first priority security interest, through assignment of such security
interest by the Originator, by virtue of the Originator's proper filing of UCC-1
financing statements naming the Originator as secured party in the real estate
records office of the county in which the Equipment is located.
The Trust Depositor will be obligated to reacquire from the Trust Asset
Interests relating to a Contract (subject to the Originator's reacquisition
thereof) in the event it is determined that a first priority perfected security
interest, or ownership interest in the case of leases, in the name of the
Originator in the Equipment related to such Contract did not exist as of the
date the related Asset Interests were conveyed to the Trust, if (i) such breach
shall materially adversely affect such Contract and (ii) such failure or breach
shall not have been cured by the last day of the second (or, if the Trust
Depositor elects, the first) month following the discovery by or notice to the
Trust Depositor of such breach, and the Originators will be jointly and
severally obligated to reacquire such Contract from the Trust Depositor
contemporaneously with the Trust Depositor's reacquisition from the Trust. If
there is any Equipment as to which the applicable Originator failed to perfect
its security interest, such Originator's security interest, and the security
interests of the Trust Depositor and the related Trust (and the Indenture
Trustee as assignee), would be subordinated to, among others, subsequent
purchasers of the Equipment and holders of perfected security interests with
respect thereto. To the extent the security interest of the Originator in the
related Equipment is perfected, subject to the exceptions set forth in the
following sentence, the Trust will have a prior claim over subsequent purchasers
from the Obligor of such Equipment and holders of subsequently perfected
security interests granted by Obligors. However, as against mechanics' liens or
liens for taxes and other non-consensual liens unpaid by an Obligor under a
Contract, or in the event of fraud or negligence of the Originator or Servicer,
the Trust could lose the priority of its interest or its interest in such
Equipment following the conveyance of Asset Interests in such Contract to the
Trust. Neither the Trust Depositor nor the Servicer nor any Originator will have
any obligation to reacquire a Contract or Asset Interests therein (as
applicable) if any of the occurrences described in the foregoing sentence (other
than fraud or negligence of the Originator) result in the Trust's losing the
priority of its security interest or its security interest in such Equipment
after the date Asset Interests in such Contract are conveyed to the Trust.
Certain other federal and state statutory provisions, including bankruptcy
law, insolvency laws, and other laws affecting the rights of creditors and
debtors generally as well as general equitable principles may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Certain Matters Relating to Bankruptcy. The Originators will either (i)
originate Contracts or (ii) acquire End-User Contracts from a Vendor, which
Contracts will be transferred to the Trust Depositor. If the acquisition of an
End-User Contract by a Originator is treated as a sale of such Contract from the
applicable Vendor to such Originator, such Contract generally would not be part
of such Vendor's bankruptcy estate and would not be available to such Vendor's
creditors. If a Vendor became a debtor in a bankruptcy case then, in the case of
End-User Contracts acquired as described in clause (ii) above, if an unpaid
creditor of such Vendor or a representative of creditors of such Vendor, such as
a trustee in bankruptcy, or such Vendor acting as a debtor-in-possession, were
to take the position that the sale of such Contracts to the Originator was
ineffective to remove such Contracts from such Vendor's estate (for instance,
that such sale should be recharacterized as a pledge of Contracts to secure
borrowings of such Vendor), then delays in payments under the Contracts to the
Trust could occur or, should the court rule in favor of such creditor,
representative or Vendor, reductions in the amount of such payments could
result. Further, if the transfer of End-User Contracts to the Originator as
described in clause (ii) above is recharacterized as a pledge, a tax or
government lien on the property of the pledging Vendor arising before the
Contracts came into existence may have priority over the respective Originator's
(and its assignee's) interest in the Contracts. No law firm will, in connection
with any offering of the Notes, express any opinion as to the issues discussed
above.
In the Sale and Servicing Agreement, the Originators will jointly and
severally warrant to the Trust Depositor that the conveyance of the Contracts by
a Originator to the Trust Depositor is a valid sale and transfer of such
Contracts to the Trust
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Depositor. In addition, each Originator and the Trust Depositor will treat the
transactions described herein as a sale of the Contracts to the Trust Depositor
and the Originator will take all actions that are required under applicable law
to perfect the Trust Depositor's ownership interest in the Contracts sold by it
and the Trust Depositor's security interest in the End-User Contracts securing
Vendor Loans sold by it. Moreover, Winston & Strawn, special counsel to the
Originators and the Trust Depositor, will render a reasoned opinion to the
effect that in the event a Originator became a debtor under the United States
Bankruptcy Code, the transfer of the Contracts from the Originators to the Trust
Depositor would be treated as a sale and not as a pledge to secure borrowings.
Notwithstanding the foregoing, if the Originator became a debtor in a bankruptcy
case and an unpaid creditor of the Originator or a representative of creditors
of the Originator, such as a trustee in bankruptcy, or the Originator acting as
a debtor-in-possession, were to take the position that the sale of Contracts to
the Trust Depositor was ineffective to remove such Contracts from the
Originator's estate (for instance, that such sale should be recharacterized as a
pledge of Contracts to secure borrowings of the Originator), then delays in
payments under the Contracts to the Trust could occur or, should the court rule
in favor of such creditor, representative or Originator, reductions in the
amount of such payments could result. If the transfer of Contracts to the Trust
Depositor is recharacterized as a pledge, a tax or government lien on the
property of the Originator arising before the Contracts came into existence may
have priority over the Trust Depositor's interest in the Contracts. If the
transactions contemplated herein are treated as a sale of Contracts to the Trust
Depositor, generally the Contracts would not be part of the Originator's
bankruptcy estate and would not be available to the Originator's creditors.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993), the
United States Court of Appeals for the Tenth Circuit held that, under the UCC,
accounts sold by a debtor remain property of the debtor's estate under Section
541 of the Bankruptcy Code. In the event of a bankruptcy of a Originator (or, in
the case of Contracts originated by a Vendor and purchased by a Originator, a
bankruptcy of a Vendor) and if a court determines that the sale of the Contracts
to the Trust Depositor or to the Originator, respectively, should be
recharacterized as a pledge of such Contracts to secure a borrowing, and not as
a "true sale," or applies the Octagon court's reasoning to the Originator's sale
of Contracts to the Trust Depositor (or to a Vendor's sale of Contracts to the
Originator), delays in distributions on Notes, and possible reductions in the
amount of distributions, could occur.
The Trust Depositor will warrant in the Sale and Servicing Agreement (i)
that the conveyance of Asset Interests in the Contracts to the Trust is a valid
sale of such Asset Interests to the Trust and (ii) that the security interest
thereon granted by the Trust in favor of the Indenture Trustee is a valid and
duly perfected security interest, and will take all actions that are required
under applicable law to perfect the Trust's and the Indenture Trustee's
respective interests in the Contracts and the End-User Contracts securing Vendor
Loans sold by it. Nevertheless, if the Trust Depositor were to become a debtor
in a bankruptcy case and an unpaid creditor of the Trust Depositor or a
representative of creditors of the Trust Depositor, such as a trustee in
bankruptcy, or the Trust Depositor acting as a debtor-in-possession, were to
take the position that the sale of Asset Interests in the Contracts to the Trust
was ineffective to remove such Asset Interests from the Trust Depositor's estate
(for instance, that such sale should be recharacterized as a pledge of Asset
Interests in the Contracts to secure borrowings of the Trust Depositor), then
delays in payments under the Contracts to the Trust could occur or, should the
court rule in favor of such creditor, representative or Trust Depositor,
reductions in the amount of such payments could result. If the transfer of Asset
Interests in the Contracts to the Trust is recharacterized as a pledge, a tax or
government lien on the property of the Trust Depositor arising before the
Contracts came into existence may have priority over your interest in the
Contracts. If the transactions are treated as a sale of Asset Interests in the
Contracts, generally, such Asset Interests would not be part of the Trust
Depositor's estate and would not be available to the Trust Depositor's
creditors.
Certain restrictions have been imposed on the Trust Depositor and the Trust
and certain other parties to the transactions described herein which are
intended to reduce the risk of an insolvency proceeding involving the Trust
Depositor or the Trust. These restrictions include incorporating the Trust
Depositor as a separate, special purpose company pursuant to a certificate of
incorporation containing certain restrictions on the nature of its business.
Additionally, the Trust Depositor may commence a voluntary case or proceeding
under any bankruptcy or insolvency law, or cause the Trust to commence a
voluntary case or proceeding under any bankruptcy or insolvency law, only upon
the affirmative vote of all its directors, including its independent directors,
as long as the Trust Depositor is solvent and does not reasonably foresee
becoming insolvent. The Trust Depositor's certificate of incorporation requires
that the Trust Depositor have at all times at least two independent directors.
In addition, the Trust Depositor has no intent to file, and Heller Financial has
represented that it has no intent to cause the filing of, a voluntary
application under the insolvency laws with respect to the Trust Depositor, as
long as the Trust Depositor is solvent and does not reasonably foresee becoming
insolvent. However, no assurance can be given that insolvency proceedings
involving either the Trust Depositor or the Trust will not occur. In the event
the Trust Depositor becomes subject to insolvency proceedings, the Trust, the
Trust's interest in the Contracts and related assets, and the Trust's obligation
to make payments on the Notes might also become subject to such insolvency
proceedings. In the event of insolvency proceedings involving the Trust, the
Trust's interest in the Contracts and related assets and the Trust's obligation
to make payments on the Notes would become subject to such insolvency
proceedings. No assurance can be given that insolvency proceedings involving
Heller Financial would not lead to insolvency proceedings of either, or both, of
the Trust Depositor or the Trust. In either such event, or if an attempt were
made to litigate any of the foregoing issues, delays of distributions on the
Notes, possible reductions in the amount of payment of principal of and interest
on the Notes and limitations (including a stay) on the exercise of remedies
under the Indenture and the Sale and Servicing Agreement could occur, although
you would continue to have the benefit of the Indenture Trustee's security
interest in the Trust's assets under the Sale and Servicing Agreement.
The right of the Indenture Trustee, as secured party under the Sale and
Servicing Agreement for your benefit, to foreclose upon and sell the Trust's
assets is likely to be significantly impaired by applicable bankruptcy laws,
including the automatic stay
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pursuant to Section 362 of the Bankruptcy Code, if a bankruptcy proceeding were
to be commenced by or against the Trust, and possibly the Trust Depositor,
before or possibly even after the Indenture Trustee has foreclosed upon and sold
the Trust's assets. Under the bankruptcy laws, payments on debts are not made
and secured creditors are prohibited from repossessing their security from a
debtor in a bankruptcy case or from disposing of security repossessed from such
a debtor, without bankruptcy court approval. Moreover, the bankruptcy laws
generally permit the debtor to continue to retain and to use collateral even
though the debtor is in default under the applicable debt instruments, provided
generally that the secured creditor has the right to seek "adequate protection".
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the
security from any diminution in the value of the collateral as a result of the
use of the collateral by the debtor during the pendency of the bankruptcy case.
In view of the lack of a precise definition of the term "adequate protection"
and the broad discretionary powers of a bankruptcy court, it is impossible to
predict whether or to what extent the holders of the Notes would be compensated
for any diminution in value of the Trust's assets. Furthermore, in the event a
bankruptcy court determines that the value of the Trust's assets is not
sufficient to repay all amounts due on the Notes, you would hold secured claims
only to the extent of the value of the Trust's assets to which the holders are
entitled, and unsecured claims with respect to such shortfall. The bankruptcy
laws do not permit the payment or accrual of post-petition interest, costs and
attorneys' fees during a debtor's bankruptcy case unless, and then only to the
extent, the claims are oversecured.
If an Insolvency Event with respect to the Trust Depositor were to occur,
then an Event of Default would occur with respect to the Notes and pursuant to
the terms of the Sale and Servicing Agreement, and assuming the Trust's assets
were not then subject to being involved in a bankruptcy case, the Indenture
Trustee would sell the Contracts, thereby causing early termination of the Trust
and would use the proceeds of such sale to pay the outstanding principal of and
accrued interest on the Notes to the extent and in the order of priority
described under "Description of the Notes--Allocations; Following an Event of
Default or Restricting Event". You would suffer a loss if the sum of (i) the
proceeds of the sale allocable to you and (ii) the proceeds of any collections
on the Contracts in the Collection Account allocable to you is insufficient to
pay you in full.
The occurrence of certain events of bankruptcy, insolvency or receivership
with respect to the Servicer will result in a Servicer Default. If no other
Servicer Default other than the occurrence of an Insolvency Event with respect
to the Servicer exists, an unpaid creditor of the Servicer or a representative
of creditors of the Servicer, such as a trustee in bankruptcy, or the Servicer
acting as a debtor-in-possession, would have the power to prevent either the
Indenture Trustee or the Noteholders from appointing a successor Servicer.
State laws impose requirements and restrictions relating to foreclosure
sales and obtaining deficiency judgments following such sales. In the event that
you must rely on repossession and disposition of any Equipment to recover
amounts due on Defaulted Contracts, such amounts may not be realized because of
the application of these requirements and restrictions. Other factors that may
affect your ability to realize the full amount due on a Contract include the
failure to file financing statements to perfect the applicable Originator's, the
Trust Depositor's, the Trust's or Indenture Trustee's security interest, as
applicable, in the Equipment (or the End-User Contracts securing Vendor Loans),
depreciation, obsolescence, damage or loss of any item of Equipment, and the
application of federal and state bankruptcy and insolvency laws. As a result,
you may be subject to delays in receiving payments and losses if the remaining
unaffected Contracts are insufficient to cover such losses.
If a court, in a lawsuit by an unpaid creditor of a Originator or by a
representative of creditors of such Originator, such as a trustee in bankruptcy,
or by the Originator acting as a debtor-in-possession, were to find that, at the
time of or as a result of any transfer by such Originator of Contracts to the
Trust Depositor, (i) (A) the Originator entered into such transaction with the
intent of hindering, delaying or defrauding creditors or (B) the Originator
received less than a reasonably equivalent value or fair consideration as a
result of such transfer and (ii) the Originator (A) was insolvent or would be
rendered insolvent by such transfer, (B) was engaged in a business or
transaction for which its assets constituted unreasonably small capital after
such transfer or (C) intended to incur, or believed that it would incur,
indebtedness beyond its ability to pay as the obligations under such
indebtedness matured (as the foregoing terms are defined in or interpreted under
the relevant fraudulent conveyance statutes), such court could invalidate such
transfer to the Trust Depositor or to the Trust, or substantively consolidate
the Trust Depositor, the Trust and the Originator, or subordinate your rights to
the rights of unsecured creditors of the Originator, or take other actions that
would be adverse to you.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction that is being applied. Generally, however, an
entity would be considered insolvent if the fair saleable value of its assets is
less than the amount of its liabilities (including contingent liabilities) or
the amount that will be required to pay its probable liabilities on its existing
debts as they become absolute and matured. The Originators believe that they are
entering into these transactions for proper purposes and in good faith and that
the purchase price paid by the Trust Depositor for the Contracts represent
reasonably equivalent value or fair consideration for the transfers of such
Contracts by the Originators to the Trust Depositor.
The Trust Depositor will receive, on the Closing Date, a certificate from
each Originator to the effect that (i) the Originator did not intend, in
entering into the Sale and Servicing Agreement and consummating the transactions
contemplated thereby, to hinder, delay or defraud either then present or future
creditors or any other person to which such Originator was or would thereafter
become, as of or after the consummation of such transactions, indebted and (ii)
the purchase price for the Contracts sold to the Trust Depositor
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represented reasonably equivalent value or fair consideration for such
Contracts. There can be no assurance, however, that a court would reach the same
conclusion.
No law firm will, in connection with any offering of the Notes, express any
opinion as to federal or state laws relating to fraudulent transfers.
Certain states have adopted a version of Article 2A of the UCC ("Article
2A"), which purports to codify many provisions of existing common law. Although
there is little precedent regarding how Article 2A will be interpreted, it may,
among other things, limit enforceability of any "unconscionable" lease or
"unconscionable" provision in a lease, provide a lessee with remedies, including
the right to cancel the lease contract, for certain lessor breaches or defaults,
and may add to or modify the terms of "consumer leases" and leases where the
lessee is a "merchant lessee". However, in the Sale and Servicing Agreement, the
Originators will jointly and severally represent that (i) no Contract is a
"consumer lease" and (ii) each Obligor has accepted the Equipment leased to it
and, after reasonable opportunity to inspect and test the Equipment, has not
notified Heller Financial of any defects therein. Article 2A, moreover,
recognizes typical commercial lease "hell or high water" rental payment clauses
and validates reasonable liquidated damages provisions in the event of lessor or
lessee defaults. Article 2A also recognizes the concept of freedom of contract
and permits the parties in a commercial context wide degree of latitude to vary
provisions of the law.
Vendor Loans and Vendor Recourse Contracts. The Vendor Loans are, by their
terms, payable solely from the proceeds of the End-User Contracts securing such
Vendor Loans, and do not generally represent obligations of the Vendor (except
that End-User Contracts may be covered by such Vendor's UNL Pool or other forms
of Vendor recourse). Consequently, you must rely solely upon such End-User
Contracts and any other assets securing the Vendor Loans, if any, for the
payment of principal of, and interest on, the related Vendor Loans. As noted
above, any End-User Contract which is a "true lease" originated by a Vendor will
be subject to rejection by such Vendor, as debtor in possession, or by such
Vendor's bankruptcy trustee. Upon any such rejection Scheduled Payments under
such rejected End-User Contract may terminate and you may be subject to losses
if the remaining unaffected Contract, and security interests in the related
Equipment, are insufficient to cover the losses. Further, as noted under above,
a tax or government lien on the property of the pledging Vendor arising before
an End-User Contract came into existence may have priority over the applicable
Originator's (and hence its assignee's) interest in such End-User Contract.
Certain Vendor assignments and certain Program Agreements provide that the
applicable Originator has recourse to the related Vendor for all or a portion of
the losses the Originator may incur as a result of a default under the End-User
Contracts sold under such Vendor assignment or Program Agreement. In the event
of a Vendor's bankruptcy, a bankruptcy trustee, a creditor or the Vendor as
debtor-in-possession might attempt to characterize sales to the Originator
pursuant to such Vendor assignments or Program Agreements as loans to the Vendor
from the Originator secured by the Contracts sold thereunder. If such an attempt
is successful, such Vendor assignment or Program Agreement would be subject to
the risks described herein for Vendor Loans. In such case the Contracts sold
under such Vendor assignment or Program Agreement would constitute End-User
Contracts under the recharacterized Vendor assignment or Program Agreement.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general and brief discussion of material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes. The discussion that follows, and the opinion set forth below of
Winston & Strawn, special tax counsel to the Trust Depositor ("Tax Counsel"),
are based upon current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated thereunder, current
administrative rulings, judicial decisions and other applicable authorities in
effect as of the date hereof, all of which are subject to change, possibly with
retroactive effect. There are no cases, regulations, or Internal Revenue Service
("IRS") rulings on comparable transactions or instruments to those described
herein. As a result, there can be no assurance that the IRS will not challenge
the conclusions reached herein, and no ruling from the IRS has been or will be
sought on any of the issues discussed below. Furthermore, legislative, judicial
or administrative changes may occur, perhaps with retroactive effect, which
could affect the accuracy of the statements and conclusions set forth herein as
well as the tax consequences to you.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to you in light of your personal investment or tax
circumstances nor to certain types of holders who may be subject to special
treatment under the federal income tax laws (including, without limitation,
financial institutions, broker-dealers, insurance companies, foreign persons,
tax-exempt organizations, and persons who hold the Notes as part of a straddle,
hedging, or conversion transaction). The discussion is generally directed to
prospective purchasers who purchase Notes at the time of original issue, who are
citizens or residents of the United States, and who hold the Notes as "capital
assets" within the meaning of Section 1221 of the Code. Taxpayers and preparers
of tax returns (including those filed by any partnership or other issuer) should
be aware that under applicable Treasury Regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice is (i) given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their own tax
advisors and tax return preparers regarding the preparation of any item on a tax
return, even where the anticipated tax treatment
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has been discussed herein. PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES.
OPINION
In the opinion of Tax Counsel, for federal income tax purposes, although no
transaction closely comparable to that contemplated herein has been the subject
of any Treasury Regulation, revenue ruling, or judicial decision, based on the
application of existing law to the facts as set forth in the applicable
agreements, (i) the Trust will not be treated as an association (or publicly
traded partnership) taxable as a corporation and (ii) the Notes will be treated
as indebtedness. Such opinion assumes that the Servicer, the Trust Depositor,
the Certificateholders and all the Noteholders will consistently treat the Notes
for all tax purposes as indebtedness secured by the assets of the Trust and that
the Trust will be disregarded as a separate entity for federal income tax
purposes pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii). An
opinion of counsel does not foreclose the possibility of a contrary
determination by the IRS or by a court of competent jurisdiction, or of a
contrary position by the IRS or Treasury Department in regulations or rulings
issued in the future.
Although it is the opinion of Tax Counsel that the Trust will not be
treated as an association (or publicly traded partnership) taxable as a
corporation and the Notes will be characterized as indebtedness for federal
income tax purposes, no assurance can be given that such characterization of the
Trust and the Notes will prevail. If the Trust were taxable as a corporation for
federal income tax purposes, it would be subject to corporate income tax on its
taxable income. The Trust's taxable income would include all its income on the
related Contracts and other assets, which may be reduced by its interest expense
on the Notes if the Notes are respected as debt of such corporation. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes. If, contrary to the opinion of Tax Counsel, the IRS also successfully
asserted that one or more of the Notes did not represent debt for federal income
tax purposes, the Notes might be treated as equity interests in the Trust. If so
treated, the Trust might be taxable as corporation with the adverse tax
consequences described above (and the resulting taxable corporation would not be
able to reduce its taxable income by deductions for interest expense on the
Notes recharacterized as equity). Alternatively, if the IRS treated the Notes as
equity, it is also possible that the Trust might by treated as a publicly traded
partnership that would not be taxable as a corporation because the Trust would
meet certain qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in such publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) may constitute "unrelated business taxable
income," income to foreign holders generally would be subject to U.S. tax and
U.S. tax return filing and withholding requirements, individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses, and income from the Trust's assets would be taxable to you without
regard to whether cash distributions are made from the Trust or your method of
tax accounting.
The discussion that follows assumes that the Notes will be treated as
indebtedness for federal income tax purposes. The following discussion is also
based in part upon Treasury Regulations interpreting the original issue discount
("OID") provisions of the Code. The OID regulations, however, are subject to
varying interpretations and do not address all issues that would affect you.
TAXATION OF INTEREST INCOME TO NOTEHOLDERS
Based upon Tax Counsel's interpretation of (i) the definition of "qualified
stated interest" and (ii) other provisions of the OID Code sections and
regulations, it is not expected that the Notes will be issued with OID (i.e.,
any excess of the stated redemption price at maturity over their issue price),
other than perhaps with a de minimis amount (i.e., 1/4 of the Notes stated
redemption price at maturity multiplied by the number of full years to
maturity). In such case, the stated interest on each class of Notes should be
treated as qualified stated interest and will be taxable as ordinary income for
federal income tax purposes when received or accrued in accordance with your
general method of tax accounting.
OID
If Notes were issued at a discount from their principal amounts or if the
stated interest were not treated as "qualified stated interest," the Notes would
be treated as having OID. Under the OID regulations currently in effect, in
order to have qualified stated interest, the stated interest must be
"unconditionally payable" in cash or property at least once annually. Interest
is unconditionally payable only if reasonable legal remedies exist to compel
timely payment or the debt instrument otherwise provides terms and conditions
that make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment a remote contingency. Tax
Counsel believes that the likelihood of late payment or nonpayment of the stated
interest on the Notes should constitute a remote contingency; the IRS, however,
may disagree. In such case, the stated interest on the Notes would not be
qualified stated interest and the Notes would be considered to have been issued
with OID.
If the Notes are in fact issued with a greater than de minimis amount of
OID or are otherwise treated as having been issued with OID, the following rules
should apply. The excess of the "stated redemption price at maturity" of a Note
(generally equal to its principal amount as of the date of issuance plus all
interest other than "qualified stated interest" payable prior to or at maturity)
over the original issue price (in this case, the initial offering price at which
a substantial amount of the Notes are sold to the public) will constitute OID.
You must include OID in income as interest over the term of the Note under a
constant yield method. OID must be included in income in advance of the receipt
of cash representing that income. In general, the amount of OID included in
income is
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the sum of the "daily portions" of the OID with respect to the Note for each day
during the taxable year you held the Note. The daily portion generally is
determined by allocating to each day in an accrual period a ratable portion of
the OID allocable to such accrual period. The "accrual period" for an OID Note
may be of any length and may vary in length over the term of the Note, provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to an accrual period is generally equal to
the difference between (i) the product of the Note's adjusted issue price and
its yield to maturity and (ii) the amount of qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of an OID Note at
the beginning of any accrual period is the sum of its issue price plus the
amount of OID allocable to prior accrual periods minus the amount of prior
payments that were not qualified stated interest.
Alternatively, because the payments on the Notes may be accelerated by
reason of prepayments on the Contracts, OID, other than de minimis OID, on the
Notes, if any, may have to be accrued under Code section 1272(a)(6), which
allocates OID to each day in an accrual period by taking the ratable portion of
the excess of (i) the sum of the present value of the remaining payments on a
Note as of the close of the accrual period and the payments made during the
accrual period that were included in stated redemption price at maturity, over
(ii) the adjusted issue price of the Note at the beginning of the accrual
period. No regulations have been issued under Code section 1272(a)(6) so it is
not clear if such section would apply to the Notes if they are treated as having
OID. Legislation has been proposed which if enacted, would require any OID (or
interest) on the Notes to be computed in accordance with the rules of Section
1272(a)(6) and certain prepayment assumptions.
A holder of a Note issued with de minimis OID must include such OID in
income proportionately as principal payments are made on such Note.
Acquisition Premium
A holder that purchases a Note for an amount less than or equal to the sum
of all amounts payable on the Note after the purchase date other than payments
of qualified stated interest but in excess of its adjusted issue price (any such
excess being "acquisition premium") and that does not make the election
described below under "Election to Treat All Interest as Original Issue
Discount" is permitted to reduce the daily portions of OID, if any, by a
fraction, the numerator of which is the excess of the holder's adjusted basis in
the Note immediately after its purchase over the adjusted issue price of the
Note, and the denominator of which is the excess of the sum of all amounts
payable on the Note after the purchase date, other than payments of qualified
stated interest, over the Note's adjusted issue price.
Market Discount
Whether or not the Notes are issued with OID, a subsequent purchaser (i.e.,
a purchaser who acquires a Note not at the time of original issue) of a Note at
a discount will be subject to the "market discount rules" of Sections 1276
through 1278 of the Code. In general, these rules provide that if the holder of
a Note purchases the Note at a market discount (i.e., a discount from its
original issue price plus any accrued OID that exceeds a de minimis amount
specified in the Code) and thereafter recognizes gain upon a disposition (or
receives a principal payment), the lesser of (i) such gain (or the principal
payment) or (ii) the accrued market discount (not previously included in income)
will be taxed as ordinary income. Generally, the accrued market discount will be
the total market discount on the Note multiplied by a fraction, the numerator of
which is the number of days the holder held the Note and the denominator of
which is the number of days from the date the holder acquired the Note until its
maturity date. The holder may elect, however, to determine accrued market
discount under the constant yield method. The adjusted basis of a Note subject
to such election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a subsequent sale or
taxable disposition. Holders should consult with their own tax advisors as to
the effect of making this election.
Limitations imposed by the Code, which are intended to match deductions
with the taxation of income, may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. If you elect to include market discount in
gross income as it accrues, however, you are exempt from this rule.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is .25% of
the remaining principal balance of the Note multiplied by its expected weighted
average remaining life. If market discount is de minimis, the actual amount of
discount must be allocated to the remaining principal distributions on the Note,
and when such distribution is received, capital gain will be recognized equal to
discount allocated to such distribution.
Amortizable Bond Premium
In general, if a subsequent purchaser acquires a Note at a premium (i.e.,
an amount in excess of the amount payable upon the maturity thereof), such
Noteholder will be considered to have purchased the Note with "amortizable bond
premium" equal to the amount of such excess. A Noteholder may elect to deduct
the amortizable bond premium as it accrues under a constant yield method over
the remaining term of the Note. Under proposed regulations, if finalized,
accrued amortized bond premium may only be used as an offset against qualified
stated interest income when such income is included in the holder's gross income
under the holder's normal accounting system.
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Election to Treat All Interest as Original Issue Discount
A holder may elect to include in gross income all interest that accrues on
a Note using the constant yield method described above under the heading "OID,"
with modifications described below. For purposes of this election, interest
includes stated interest, OID, de minimis OID, market discount, de minimis
market discount and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium. In applying the constant yield method to a Note
with respect to which this election has been made, the issue price of the Note
will equal the electing holder's adjusted basis in the Note immediately after
its acquisition, the issue date of the Note will be the date of its acquisition
by the electing holder, and no payments on the Note will be treated as payments
of qualified stated interest. This election, if made, may not be revoked without
the consent of the IRS. Holders should consult with their own tax advisors as to
the effect of making this election in light of their individual circumstances.
DISPOSITION OF NOTES
Generally, capital gain or loss will be recognized on a sale or other
taxable disposition of the Notes in an amount equal to the difference between
the amount realized (other than amounts attributable to, and taxable as, accrued
interest) and the Originator's tax basis in the Notes. Your tax basis in a Note
will generally equal his or her cost increased by any OID and market discount,
with respect to the Note and decreased by any bond premium previously amortized
and any principal payments previously received by you with respect to the Note.
Subject to the market discount rules of the Code, any such gain or loss will be
capital gain or loss if the Note was held as a capital asset. Capital gain or
loss will be long-term if the Note was held by the holder for more than one year
and otherwise will be short-term. Any capital losses realized generally may be
used by a corporate taxpayer only to offset capital gains, and by an individual
taxpayer only to the extent of capital gains plus $3,000 of other income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS, and
to you, the amount of interest paid on the Notes (and the amount withheld for
federal income taxes, if any) for each calendar year, except as to exempt
recipients (generally, corporations, tax-exempt organizations, qualified pension
and profit-sharing trusts, individual retirement accounts, or nonresident aliens
who provide certification as to their status). Each holder (other than holders
who are not subject to the reporting requirements) will be required to provide,
under penalties of perjury, a certificate (Form W-9) containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a non-exempt
Noteholder fail to provide the required certification, the Trustee will be
required to withhold (or cause to be withheld) 31% of the interest otherwise
payable to the holder, and remit the withheld amounts to the IRS as a credit
against the holder's federal income tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
Based upon Tax Counsel's opinion that the Notes will be treated as
indebtedness for federal income tax purposes, the following information
describes the general U.S. federal income tax treatment of investors that are
not U.S. persons (each a "Foreign Person"). The term "Foreign Person" means any
person other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or the
income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust:
(a) Interest paid or accrued to a Foreign Person that is not effectively
connected with the conduct of a trade or business within the United
States by the Foreign Person, will generally be considered "portfolio
interest" and generally will not be subject to United States federal
income tax and withholding tax, as long as the Foreign Person (i) is
not actually or constructively a "10 percent shareholder" of the
Trust, Trust Depositor or Heller Financial or a "controlled foreign
corporation" with respect to which the Trust Depositor is a "related
person" within the meaning of the Code, and (ii) provides an
appropriate statement (Form W-8) to the Trustee or paying agent
(generally the clearing agency, financial intermediary, or broker)
that is signed under penalties of perjury, certifying that the
beneficial owner of the Note is a Foreign Person and providing that
Foreign Person's name and address. If the information provided in this
statement changes, the Foreign Person must provide a new Form W-8
within 30 days. The Form W-8 is generally effective for three years.
If such interest were not portfolio interest, then it would be subject
to United States federal income and withholding tax at a rate of 30
percent unless reduced or eliminated pursuant to an applicable income
tax treaty. To qualify for any reduction as the result of an income
tax treaty, the Foreign Person must provide the paying agent with Form
1001. This form is also effective for three years.
(b) Any capital gain realized on the sale or other taxable disposition of
a Note by a Foreign Person will be exempt from United States federal
income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the
United States by the Foreign Person, and (ii) in the case of an
individual Foreign Person, the Foreign Person is not present in the
United States for 183 days or more in the taxable year. If an
individual Foreign Person is present in the U.S. for 183 days or more
during
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the taxable year, the gain on the disposition of the Notes could be
subject to a 30% withholding tax unless reduced by treaty.
(c) If the interest, gain or income on a Note held by a Foreign Person is
effectively connected with the conduct of a trade or business in the
United States by the Foreign Person, the holder (although exempt from
the withholding tax previously discussed if an appropriate statement
(Form 4224) is furnished to the paying agent) generally will be
subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. Form 4224 is effective for
only one calendar year. In addition, if the Foreign Person is a
foreign corporation, it may be subject to a branch profits tax equal
to 30 percent of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Notes. ACCORDINGLY, PURCHASERS OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISERS REGARDING THE STATE TAX CONSEQUENCES OF
PURCHASING ANY NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
Plans") and prohibits certain transactions between ERISA Plans and persons who
are "parties in interest" (as defined under ERISA) with respect to assets of
such Plans. Section 4975 of the Code prohibits a similar set of transactions
between certain plans or individual retirement accounts ("Code Plans," and
together with ERISA Plans, "Plans") and persons who are "disqualified persons"
(as defined in the Code) with respect to Code Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under Section 410(d) of the Code), are not subject to the requirements of ERISA
or Section 4975 of the Code, and assets of such plans may be invested in the
Notes, subject to the provisions of other applicable federal and state law. Any
such plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is, however, subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in the Notes, an ERISA
Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan.
PROHIBITED TRANSACTIONS
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to ERISA Plans and
Code Plans from engaging in certain transactions involving such Plans or "plan
assets" of such Plans, unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code and Sections 502(i) and 502(1) of
ERISA provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions. The
Trust Depositor, the Underwriter, the Servicer, the Indenture Trustee or the
Owner Trustee or certain affiliates thereof may be considered or may become
parties in interest or disqualified persons with respect to a Plan. If so, the
acquisition or holding of the Notes by, on behalf of or with "plan assets" of
such Plan may be considered to give rise to a "prohibited transaction" within
the meaning of ERISA and/or Section 4975 of the Code, unless an administrative
exemption described below or some other exemption is available.
The Notes may not be purchased with the assets of a Plan if the Trust
Depositor, the Underwriter, the Servicer, the Indenture Trustee, or the Owner
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets; or (b) has
authority or responsibility to give, or regularly gives, investment advice with
respect to such assets pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular needs of the
Plan; or (c) is an employer of employees covered under the Plan unless such
investment is made through an insurance company general or pooled separate
account or a bank collective investment fund and an exemption is available.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the Notes - for
example, Prohibited Transaction Class Exemption ("PTCE") 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager;" PTCE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest; PTCE 91-38, which exempts
certain transactions between bank collective investment funds and parties in
interest; PTCE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager." There can be no assurance that any of these
exemptions will apply with respect to any
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Plan's investment in the Notes or, even if an exemption were deemed to apply,
that any exemption would apply to all prohibited transactions that may occur in
connection with such investment.
Due to the complexity of these rules and the penalties imposed, any
fiduciary or other Plan investor who proposes to invest assets of a Plan in the
Notes should consult with its counsel with respect to the potential consequences
under ERISA and Section 4975 of the Code of doing so.
PLAN OF DISTRIBUTION
GENERAL
Subject to the terms and conditions set forth in an (i) underwriting
agreement dated , 1999 for the sale of the Class A-1 Notes and the Class
A-2 Notes, the Trust Depositor has agreed to sell to [ ], [
], and [ ] (the "Class A-1 and Class A-2 Underwriters") and
each of the Class A-1 and the Class A-2 Underwriters has separately agreed to
purchase from the Trust Depositor, the principal amount of the Class A-1 Notes
and the Class A-2 Notes set forth opposite its name below and (ii) an
underwriting agreement dated , 1999 for the sale of the Class B Notes
and the Class C Notes, the Trust Depositor has agreed to sell to [ ]
the Class B Notes and the Class C Notes (the "Class B and the Class C
Underwriter") and the Class B and Class C Underwriter to purchase from the Trust
Depositor, the principal Amounts of the Class B Notes and the Class C Notes set
forth opposite its name below:
<TABLE>
<CAPTION>
Aggregate Principal Amount
to be Purchased
--------------------------
Class A-1 Receivable-Backed Notes, Series 1999-1
------------------------------------------------
<S> <C>
[ ] $
[ ] $
[ ] $
<CAPTION>
Aggregate Principal Amount
to be Purchased
--------------------------
Class A-2 Receivable-Backed Notes, Series 1999-1
------------------------------------------------
<S> <C>
[ ] $
[ ] $
[ ] $
<CAPTION>
Aggregate Principal Amount
to be Purchased
--------------------------
Class B Receivable-Backed Notes, Series 1999-1
----------------------------------------------
<S> <C>
[ ] $
<CAPTION>
Aggregate Principal Amount
to be Purchased
--------------------------
Class C Receivable-Backed Notes, Series 1999-1
----------------------------------------------
<S> <C>
[ ] $
</TABLE>
In the respective underwriting agreements, the Class A-1 and the Class A-2
Underwriters and the Class B and the Class C Underwriter, respectively have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Notes offered hereby if any of such Notes are purchased.
The Class A-1 and the Class A-2 Underwriters have advised the Issuer that
the Class A-1 and Class A-2 Underwriters propose initially to offer the Class
A-1 Notes and the Class A-2 Notes to the public at the price set forth on the
cover page hereof and to
69
<PAGE>
certain dealers at such price less a selling concession not in excess of [ ]%
of the initial principal amount of the Class A-1 Notes and the Class A-2 Notes.
The Class A-1 and the Class A-2 Underwriters may reallow a concession not in
excess of [ ]% of the initial principal amount of the Notes.
The Class B and the Class C Underwriter has advised the Issuer that the
Class B and Class C Underwriter propose initially to offer the Class B Notes and
the Class C Notes to the public at the price set forth on the cover page hereof
and to certain dealers at such price less a selling concession not in excess of
[ ]% of the initial principal amount of the Class B Notes and the Class C
Notes. The Class B and the Class C Underwriter may allow and such dealers may
reallow a concession not in excess of [ ]% of the initial principal amount of
the Notes.
The respective underwriting agreements provide that Heller Financial and
the Trust Depositor, jointly and severally, will indemnify the Class A-1 and
Class A-2 Underwriters and Class B and Class C Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or contribute to payments the respective Underwriters may be required to make in
respect thereof.
Until the distribution of the Notes is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and certain
selling group members to bid for and purchase the Notes. As an exception to
these rules, the underwriters are permitted to engage in certain transactions
that stabilize the price of the Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
There is currently no secondary market for the Notes and you should not
assume that one will develop. The underwriters currently expect, but are not
obligated to make a market in the Notes. You should not assume that any such
market will develop, or if one does develop, that it will continue or provide
sufficient liquidity.
Certain persons participating in this offering may engage in transactions
that affect the price of the Notes. Such transactions may include the purchase
of Notes to cover syndicate short positions. If the underwriters create a short
position in the Notes in connection with the offering, i.e., if it sells more
Notes than are set forth on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing Notes in the open market. In
general, purchases of a security to reduce a short position could cause the
price of the security to be higher than it might be in the absence of such
purchases.
Neither the Originator nor the underwriters make any representations or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the Notes and
Certificates. In addition, neither the Originator nor the underwriters make any
representation that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
In addition, [ ] will act as the private placement agent for
the Trust Depositor in connection with the sale of the Subordinated Notes and
will receive compensation therefor.
In the ordinary course of its business, the Underwriters and their
affiliates have engaged and may engage in commercial banking and investment
banking transactions with Heller Financial and its affiliates, including the
Trust Depositor and Heller Financial Leasing, Inc.
RATING OF THE NOTES
It is a condition to the issuance of the Notes that the Class A-1 Notes be
rated at least [ ] , that the Class A-2 Notes be noted at least [ ]
that the Class B Notes be rated at least [ ] , and that the Class C
Notes be rated at least [ ], by [ ], respectively.
Such rating will reflect only the views of the rating agencies and will be
based primarily on the subordination of the Class A-2 Notes, Class B Notes,
Class C Notes and the Subordinated Securities (in the case of the Class A-1
Notes), the subordination of the Class B Notes, Class C Notes and the
Subordinated Securities (in the case of the Class A-2 Notes), the subordination
of the Class C Notes and the Subordinated Securities (in the case of the Class B
Notes) and the subordination of the Subordinated Securities (in the case of the
Class C Notes), as well as the value and creditworthiness of the Contracts and
Equipment. The ratings are not a recommendation to purchase, hold or sell the
Notes, since such ratings do not comment as to market price or suitability for a
particular investor. Each rating may be subject to revision or withdrawal at any
time by the assigning rating agency. There is no assurance that any such rating
will continue for any period of time or that it will not be lowered or withdrawn
entirely by the rating agency if, in its judgment, circumstances so warrant. A
revision or withdrawal of such rating may have an adverse affect on the market
price of the Notes. The rating of the Notes addresses the likelihood of the
timely payment of interest and the ultimate payment of principal on the Notes
pursuant to their terms. The rating does not address the rate of Prepayments
that may be experienced on the Contracts and, therefore, does not address the
effect of the rate of Prepayments on the return of principal to you.
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<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Notes, including certain federal income
tax matters, as well as other matters, will be passed upon for the Trust, the
Trust Depositor, the Originator/Servicer and the Administrator by Winston &
Strawn, Chicago, Illinois. Certain legal matters for the Underwriters will be
passed upon by [ ].
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<PAGE>
GLOSSARY OF TERMS
"Accrual Period" means the period from and including the most recent
Distribution Date on which interest has been paid (or in the case of the initial
Distribution Date, from and including the Closing Date) to but excluding the
following Distribution Date.
"ADCB" means the sum of the Discounted Contract Balances of each Contract
included in the group of Contracts for which an ADCB determination is being
made.
"Additional Contract" means a Contract which is being substituted for a contract
which has been terminated prior to its maturity date subject to the conditions
specified in the Sale and Servicing Agreement. See "The Sale and Servicing
Agreement Generally -- Substitute Contracts and Additional Contracts".
"Adjusted Contract" means a Contract which has been materially modified by the
Servicer under the terms of the Sale and Servicing Agreement. See "The Sale and
Servicing Agreement Generally -- Material Modifications to Contracts".
"Aggregate Principal Amount" means, for any group of Notes at any date of
determination, the sum of the Principal Amounts of such Notes at such date.
"Applicable Class Percentage" means (a) prior to the occurrence of an Event of
Default, or prior to the occurrence and during the continuance of a Restricting
Event, for any outstanding class of Notes for which a determination of
Applicable Class Percentage is required to be made hereunder (i) prior to the
payment in full of the Class A-1 Notes, 0%; and (ii) thereafter, the ratio
(expressed as a percentage) that the initial Principal Amount of such class of
Notes or Subordinated Notes bears to the sum of the initial Principal Amount of
all classes of Notes and Subordinated Notes (other than the Class A-1 Notes);
and (b) following the occurrence of an Event of Default, or following the
occurrence and during the continuance of a Restricting Event (i) for the Class
A-2 Notes, 0% until all outstanding principal of the Class A-1 Notes has been
paid in full, then 100% until all outstanding principal of the Class A-2 Notes
has been paid in full and thereafter 0%; (ii) for the Class B Notes, 0% until
all outstanding principal of the Class A-1 Notes and Class A-2 Notes has been
paid in full, then 100% until all outstanding principal of the Class B Notes
has been paid in full, and thereafter 0%; (iii) for the Class C Notes, 0%
until all outstanding principal of the Class A-1 Notes, Class A-2 Notes and
Class B Notes has been paid in full, then 100% until all outstanding principal
of the Class C Notes has been paid in full, and thereafter 0%; and (iv) for the
Subordinated Notes, 0% until all outstanding principal of the Class A-1 Notes,
Class A-2 Notes, Class B Notes and Class C Notes has been paid in full, then
100% until all outstanding principal of the Subordinated Notes has been paid in
full, and thereafter 0%.
"Asset Interests" means undivided ownership interests in the Contracts.
"Available Amounts" means, as of any Distribution Date, the sum of (i) all
amounts on deposit in the Collection Account as of the immediately preceding
Determination Date on account of Scheduled Payments due on or before, and
Prepayments received on or before, the last day of the Collection Period
immediately preceding such Distribution Date (other than Excluded Amounts), (ii)
Recoveries on account of previously Defaulted Contracts received as of the
immediately preceding Determination Date as well as Expired Lease Proceeds,
(iii) amounts held from time to time in the Collection Account, together with
investment earnings credited to the Collection Account, (iv) late charges
relating to a Contract (provided such late charges were included in the
Contract's terms as of the applicable Cutoff Date) received on or before the
last day of such Collection Period and (v) proceeds of any of the foregoing.
Available Amounts will not include any amounts (such as residual economic
interests in Equipment subject to "true leases") payable on an account of the
Equipment which exceeds the sum of the Scheduled Payments and late charges (as
described above) payable under the related Contract.
"Average Cumulative Net Loss Ratio" means, for any date of determination
following the conclusion of the three full calendar months occurring since the
Closing Date, the average of the sum of the Cumulative Net Loss Ratios
determined for each of the three most recent full calendar months occurring
prior to such date of determination.
"Certificates" means the Certificates having an initial certificate balance of
$[ ] representing fractional undivided beneficial equity interests in the
Trust and issued pursuant to the Trust Agreement.
"Class A-1 Notes" means the [ ]% Class A-1 Receivable-Backed Notes, Series
1999-1 described in this prospectus.
"Class A-2 Notes" means the [ ]% Class A-2 Receivable-Backed Notes, Series
1999-1 described in this prospectus.
"Class A-1 Noteholders" means the holders of record of the Class A-1 Notes as
of the related Record Date.
"Class A-2 Noteholders" means the holders of record of the Class A-2 Notes as of
the related Record Date.
"Class A-1 Principal Payment Amount" means, with respect to any Distribution
Date and the Class A-1 Notes, the lesser of (i) the outstanding Principal Amount
of the Class A-1 Notes, and (ii) the sum of (A) the excess of (x) the ADCB for
all Contracts held by
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<PAGE>
the Trust as of the last day of the second calendar month preceding such
Distribution Date (or, in the case of Contracts that were first acquired by the
Trust during the calendar month immediately preceding such Distribution Date, as
of the applicable Cutoff Date for such Contracts) over (y) the ADCB for all
Contracts held by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date (such amount described in this
clause (A) being, the "Expected Class A-1 Payment"), plus (B) the aggregate
amount of expected Class A-1 Payments which were not paid on each preceding
Distribution Date.
"Class A-2 Principal Payment Amount" means, with respect to any Distribution
Date and the Class A-2 Notes, the lesser of (i) the outstanding Principal Amount
of the Class A-2 Notes, and (ii) the difference between (A) the Principal Amount
of the Class A-2 Notes immediately prior to such Distribution Date, and (B) the
product of (x) the Applicable Class Percentage for such Notes and (y) the ADCB
for all Contracts held by the Trust as of the last day of the calendar month
immediately preceding such Distribution Date.
"Class B Notes" means the [ ]% Class B Receivable-Backed Notes, Series 1999-1
described in this prospectus.
"Class B Noteholders" means the holders of record of the Class B Notes as of the
related Record Date.
"Class B Principal Payment Amount" means, with respect to any Distribution Date
and the Class B Notes, the lesser of (i) the outstanding Principal Amount of the
Class B Notes, and (ii) the difference between (A) the Principal Amount of the
Class B Notes immediately prior to such Distribution Date, and (B) the product
of (x) the Applicable Class Percentage for such Notes and (y) the ADCB for all
Contracts held by the Trust as of the last day of the calendar month immediately
preceding such Distribution Date.
"Class C Notes" means the [ ]% Class C Receivable-Backed Notes, Series 1999-1
described in this prospectus.
"Class C Noteholders" means the holders of record of the Class C Notes as of the
related Record Date.
"Class C Principal Payment Amount" means, with respect to any Distribution Date
and the Class C Notes, the lesser of (i) the outstanding Principal Amount of the
Class C Notes, and (ii) the difference between (A) the Principal Amount of the
Class C Notes immediately prior to such Distribution Date, and (B) the product
of (x) the Applicable Class Percentage for such Notes and (y) the ADCB for all
Contracts held by the Trust as of the last day of the calendar month immediately
preceding such Distribution Date.
"Class D Principal Payment Amount" means, with respect to any Distribution Date
and the Class D Notes, the lesser of (i) the outstanding Principal Amount of the
Class D Notes, and (ii) the difference between (A) the Principal Amount of the
Class D Notes immediately prior to such Distribution Date, and (B) the product
of (x) the Applicable Class Percentage for such Notes and (y) the ADCB for all
Contracts held by the Trust as of the last day of the calendar month immediately
preceding such Distribution Date.
"Closing Date" means [ ], 1999.
"Collection Account" means an account held in the name of the Indenture Trustee
for the benefit of the Noteholders and the holders of the Subordinated Notes as
more fully described in "Description of the Notes -- Collection Account".
"Contract" means each contract that has been transferred by the Originators to
the Trust Depositor and with respect to which Assets Interests will be
transferred by the Trust Depositor to the Trust pursuant to the Sale and
Servicing Agreement but, unless otherwise specified herein, shall not refer to
any End-User Contract securing a Vendor Loan.
"Cumulative Net Loss Ratio" means, for any date of determination, the fraction
(expressed as a percentage) determined by dividing (i) the ADCB of all Contracts
in the Trust which have become Defaulted Contracts since the initial Cutoff
Date, net of aggregate Recoveries received by the Trust during such same period,
by (ii) the ADCB of all Contracts as of the initial Cutoff Date.
"Cutoff Date" means [ ], 1999 with respect to the initial Cutoff Date and
with respect to Contracts transferred to the Trust after the initial Cutoff Date
pursuant to the Sale and Servicing Agreement, the date specified for such
Contracts.
"Defaulted Contract" means a Contract for which a full contractual payment as
not been received from the Obligor (or the Vendor, if Vendor recourse is
applicable) for 120 days or such shorter period as the Originators may determine
consistent with their respective collection policy, as more fully described in
"Description of the Notes -- Defaulted Contracts".
"Determination Date" means the third business day prior to each Distribution
Date.
"Discount Rate" means, at any date of determination, [ ]% which is equal
to the sum of (i) the weighted average of the stated interest rate of the Class
A-2 Notes (weighted at the sum of the initial principal balance of the Class A-1
Notes and the initial principal balance of the Class A-2 Notes), the Class B
Notes, the Class C Notes, and the Subordinated Notes, and (ii) the [ ]% (the
percentage used to calculate the Servicer's fees).
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<PAGE>
"Discounted Contract Balance" means with respect to any Contract, (A) as of the
related Cutoff Date, the present value of all of the remaining Scheduled
Payments becoming due under such Contract after the applicable Cutoff Date
discounted monthly at the Discount Rate, and (B) as of any other date of
determination, the sum of (1) the present value of all of the remaining
Scheduled Payments becoming due under such Contract after such date of
determination discounted monthly at the Discount Rate, and (2) the aggregate
amount of all Scheduled Payments due and payable under such Contract after the
applicable Cutoff Date and prior to such date of determination (other than
Scheduled Payments related to Defaulted Contracts and Early Termination
Contracts) that have not then been received by the Servicer. The Discounted
Contract Balance for each Contract shall be calculated assuming:
(a) All payments due in any calendar month are due on the last day of such
calendar month;
(b) Payments are discounted on a monthly basis using a 30 day month and a
360 day year; and
(c) All security deposits and drawings under letters of credit, if any,
issued in support of a Contract are applied to reduce Scheduled
Payments in inverse order of the due date thereof.
"Distribution Date" means the 25th day of each calendar month. The first
Distribution Date is [ ], 1999.
"DTC" means The Depository Trust Company.
"Eligible Contract" means a Contract which is, based on its characteristics,
eligible to be transferred by the Originators to the Trust Depositor pursuant to
the Sale and Servicing Agreement and by the Trust Depositor to the Trust
pursuant to the Sale and Servicing Agreement. See "The Sale and Servicing
Agreement Generally -- Representations and Warranties".
"End-User Contract" means any Contract with respect to which the Obligor is the
end-user of the item financed pursuant to such Contract.
"Equipment" means new and used equipment financed by the Contracts, including
but not limited to, the following: aircraft, printing, pre-press, machine tool,
plastics, computer hardware, restaurant, transportation, energy related, medical
and industrial equipment.
"Excess Contract" means a Contract the removal of which from the Trust's assets
will cure a breach of certain representations and warranties made by the
Originators with respect to the concentrations of certain types of Contracts in
the pool of Contracts transferred by the Originators to the Trust Depositor
pursuant to the Sale and Servicing Agreement. See "The Sale and Servicing
Agreement Generally--Concentration Amounts; Definition of Excess Contract."
"Excluded Amounts" means (i) collections on deposit in the Collection Account or
otherwise received by the Servicer on or with respect to the Contracts or
related Equipment, which collections are attributable to any taxes, fees or
other charges imposed by any governmental authority; (ii) collections
representing reimbursements of insurance premiums or payments for certain
services that were not financed by the Originator; and (iii) any proceeds from
the sale or other disposition of Equipment in excess of the difference between
(x) the Discounted Contract Balance of the related Contract as of the applicable
Cutoff Date, over (y) the present value as of the applicable Cutoff Date of all
amounts (other than Excluded Amounts) actually received by the Trust in respect
of such Contract, discounted monthly at the Discount Rate due on or after the
applicable Cutoff Date for such Contracts.
"Expired Lease Proceeds" means any and all cash proceeds or rents realized from
the sale or re-lease of Equipment under an expired lease (net of out-of-pocket
costs of the Servicer related to the liquidation of any such Equipment).
"Heller Financial" -- Heller Financial, Inc., a Delaware corporation.
"Indenture" -- the Indenture dated as of [ ], 1999 between the Trust and
the Indenture Trustee.
"Ineligible Contract" has the meaning given to such term in "The Sale and
Servicing Agreement Generally -- Remedies for Breaches of Representations and
Warranties; Definition of Ineligible Contract".
"Indenture Trustee" means [ ].
"Insolvency Event" shall occur with respect to any person, if a conservator,
receiver or liquidator for such person is appointed or if certain other events
relating to the bankruptcy, insolvency or receivership of person occurs.
"Noteholders" means collectively, the Class A-1 Noteholders, the Class A-2
Noteholders, Class B Noteholders and the Class C Noteholders.
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"Obligor" means, with respect to any Contract, the person or persons obligated
to make payments with respect to such Contract, including any guarantor thereof.
"Obligor Event" shall occur if a Contract associated with one of the five (5)
largest Obligors (as measured by the respective Obligor's percentage of the ADCB
of the Contracts as of the initial Cutoff Date) becomes a Defaulted Contract
within sixteen (16) months from the Closing Date; provided, however, an Obligor
Event shall be deemed no longer continuing in the event (i) the Originators have
replaced the Defaulted Contract with a Substitute Contract consistent with the
terms and conditions described herein, (ii) a Recovery has been received with
respect to the Defaulted Contract, and the Servicer, in its reasonable judgment,
has determined that no further Recoveries are obtainable, or (iii) a successor
Servicer has been appointed.
"Owner Trustee" means [ ], as owner trustee under the Trust.
"Prepayments" means (i) optional prepayments which are partial and full
prepayments (including any Scheduled Payment (or portion thereof) which the
Servicer has received, and expressly permitted the related Obligor to make, in
advance of its scheduled due date); (ii) any and all cash proceeds or rents
realized from the sale, lease, re-lease or re-financing of Equipment under a
Contract which has been terminated or paid in full prior to its maturity date or
(net of liquidation expenses); (iii) payments upon the liquidation of Defaulted
Contracts; (iv) payments upon repurchases by the applicable Originator through
the Trust Depositor as a result of the breach of certain representations and
warranties or covenants in the Sale and Servicing Agreement and the Sale and
Servicing Agreement; (v) payments upon an optional termination of the Trust.
"Principal Amount" means, with respect to a class of Notes or Certificates, as
applicable, the aggregate initial Principal Amount thereof reduced by (i) the
aggregate amount of any distributions applied in reduction of such principal
amount and (ii) the aggregate amount of any distributions then on deposit in the
Note Distribution Account, if any, for such class of Notes established in
accordance with the Indenture or, as applicable, the Certificate Distribution
Account, if any, for the Certificates established in accordance with the Trust
Agreement, and to be applied in reduction of such principal amount in accordance
with such Indenture or Trust Agreement.
"Program Agreements" means agreements between the Originators and Vendors which
provide the Originators with the opportunity to finance transactions relating to
the acquisition or use by an end-user of a Vendor's Equipment, software and
related services or other products. See "The Contracts Generally -- Program
Agreements with Vendors".
"Record Date" means the calendar day immediately preceding a Distribution Date
or, with respect to any Notes issued in physical form, the last calendar day of
the month preceding the month in which such Distribution Date occurs.
"Recoveries" means any recoveries on account of a previously Defaulted Contract
(including proceeds of repossessed Equipment or other security or other
property, insurance proceeds, amounts representing late fees and penalties and
amounts subsequently received pursuant to a Program Agreement with a Vendor,
but net of amounts representing costs and expenses of liquidation incurred by
the Servicer.
"Required Holders" means (i) prior to the payment in full of the Class A-1
Notes and Class A-2 Notes outstanding, Class A-1 Noteholders and Class A-2
Noteholders holding Class A-1 Notes and Class A-2 Notes, respectively,
evidencing more than 66 2/3% of the Aggregate Principal Amount of the Class A-1
Notes and Class A-2 Notes voting as a single class, and (ii) from and after the
payment in full of the Class A-1 Notes and Class A-2 Notes outstanding, Class B
Noteholders holding Class B Notes evidencing more than 66 2/3% of the Aggregate
Principal Amount of the Class B Notes outstanding, and (iii) from and after the
payment in full of the Class B Notes outstanding, Class C Noteholders holding
Class C Notes evidencing more than 66 2/3% of the Aggregate Principal Amount of
the Class C Notes outstanding.
"Reserve Fund" means an account held in the name of the Indenture Trustee on
behalf of the Noteholders and holders of the Subordinated Notes. Amounts held
in the Reserve Fund shall be distributed as described in "Description of the
Notes--Reserve Fund".
"Reserve Fund Amount" means, initially as of the Closing Date, $[ ] and
thereafter, at any date of determination, means an amount equal to the lesser of
(a) $[ ], and (b) the Aggregate Principal Amount of the Notes and
Subordinated Notes as of such date of determination.
"Restricting Event" refers to any of the following events: (i) as of any
Calculation Date, the Average Cumulative Net Loss Ratio exceeds [ ]%; or (ii)
a Servicer Default or an Event of Default has occurred and is continuing.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement, dated as
of [ ], 1999 among the Trust Depositor, the Originators, the Trust and the
Indenture Trustee.
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"Scheduled Payments" means, with respect to any Contract, the monthly or
quarterly or semi-annual or annual rent or financing (whether principal or
principal and interest) payment scheduled to be made by the related Obligor
under the terms of such Contract after the related Cutoff Date (it being
understood that Scheduled Payments do not include any Excluded Amounts).
"Originator" means Heller Financial, in its capacity as Originator under the
Sale and Servicing Agreement, or Heller Financial Leasing, Inc.
"Servicer" means Heller Financial, in its capacity as Servicer under the Sale
and Servicing Agreement.
"Servicer Advances" means Scheduled Payments advanced by the Servicer which
Scheduled Payments were not received during the calendar month in which they
were due. See "The Sale and Servicing Agreement Generally -- Collection and
Other Servicing Procedures".
"Servicer Default" has the meaning given to it in "The Sale and Servicing
Agreement Generally -- Servicer Default".
"Statistical Discount Rate" means [ ]%.
"Subordinated Notes" means the $[ ] aggregate principal amount [ ]% Class
D Receivable-Backed Notes, Series 1999-1 issued by the Trust pursuant to the
Indenture.
"Subordinated Principal Payment Amount" means, with respect to any Distribution
Date and the Subordinated Notes, the lesser of (i) the outstanding Principal
Amount of the Subordinated Notes immediately prior to such Distribution Date,
and (ii) the difference between (A) the Principal Amount of the Subordinated
Notes immediately prior to such Distribution Date, and (B) the product of (x)
the Applicable Class Percentage for such Notes, and (y) the ADCB for all
Contracts held by the Trust as of the last day of the calendar month immediately
preceding such Distribution Date.
"Subordinated Securities" means the Subordinated Notes and the Certificates.
"Substitute Contract" means a Contract that is substituted for, and has similar
characteristics as, a Defaulted Contract, an Adjusted Contract, an Ineligible
Contract or an Excess Contract. See "Prepayment and Yield Considerations".
"Trust" means Heller Equipment Asset Receivables Trust 1999-1 (the "Issuer" or
the "Trust").
"Trust Agreement" means the Trust Agreement dated as of [ ], 1999 between the
Trust Depositor and the Owner Trustee
"Trust Depositor" means Heller Funding Corporation II, a Delaware corporation.
"Vendor" means a equipment manufacturer, dealer or distributor or a computer
software licensor or distributor or other persons located in the United States.
"Vendor Loans" means those Contracts which are limited recourse loan or
repayment obligations (which may take the form of promissory notes with related
security agreements), each of which is payable by a Vendor and secured by all of
the Vendor's interest in an individual End-User Contract originated by such
Vendor and by the Equipment related to such End-User Contract. See "The
Contracts Generally - Vendor Loans".
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UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER THIS PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$[ ]
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1999-1
$ [_]% Class A-1 Receivable-Backed Notes, Series 1999-1
$ [_]% Class A-2 Receivable-Backed Notes, Series 1999-1
$ [_]% Class B Receivable-Backed Notes, Series 1999-1
$ [_]% Class C Receivable-Backed Notes, Series 1999-1
HELLER FUNDING CORPORATION II,
Trust Depositor
HELLER FINANCIAL, INC.,
Servicer
------------------------------------
PROSPECTUS
------------------------------------
[UNDERWRITERS]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee $ 1,112
Printing and Engraving Expenses 45,000
Trustee's Fees and Expenses 20,000
Legal Fees and Expenses 200,000
Blue Sky Fees and Expenses 8,000
Accountants' Fees and Expenses 45,000
Rating Agency Fees 107,000
Miscellaneous Fees 32,500
Total $458,612
___________________________
* All amounts except the SEC Registration Fee are estimates of expenses incurred
or to be incurred in connection with the issuance and distribution of the
Offered Notes in an aggregate principal amount assumed for these purposes to
be equal to $4,000,000 of Securities registered hereby.
Item 14. Indemnification of Directors and Officers
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes said corporation to buy director's
and officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
Heller Financial has also purchased liability policies which indemnify the
Registrant's officers and directors against loss arising from claims by reason
of their legal liability for acts as officers and directors, subject to
limitations and conditions as set forth in the policies.
Pursuant to agreements which the Registrant may enter into with underwriters or
agents (forms of which will be included as exhibits to this registration
statement), officers and directors of the Registrant, and affiliates thereof,
may be entitled to indemnification by such underwriters or agents against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, arising from information which has been or will be furnished to the
Registrant by such underwriters or agents that appears in the registration
statement or any prospectus.
Item 15. Recent Sales of Unregistered Securities
Item 16. Exhibits and Financial Statements
Exhibits
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Trust Depositor*
3.2 Bylaws of theTrust Depositor*
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Indenture (including form of Notes)*
5.1 Opinion of Winston & Strawn with respect to legality*
8.1 Opinion of Winston & Strawn with respect to tax matters*
10.1 Form of Sale and Servicing Agreement*
10.2 Form of Administration Agreement*
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust Indenture Act
of 1939 of Indenture Trustee*
__________________________________
*To be filed by amendment
II-1
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 14
above, 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 Securities Act of 1933 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 its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(c) That, 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.
(d) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(e) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on January 7, 1999.
Heller Funding Corporation II
By: /s/ Lauralee E. Martin
-------------------------------
Name: Lauralee E. Martin
Title: President
POWER OF ATTORNEY
The undersigned directors and officers of Heller Funding Corporation II do
hereby constitute and appoint Deepak Rai and David Schmuck and each of them,
with full power of substitution, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments for
us and in our names in the capacities indicated below which such person may deem
necessary or advisable to enable the Registrant and Heller Funding Corporation
II to comply with the Securities Act of 1933 (the "Act"), as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this registration statement, including specifically, but not
limited to, power and authority to sign for us, or any of us, in the capacities
indicated below and any and all amendments (including pre-effective and post-
effective amendments or any other registration statement filed pursuant to the
provisions of Rule 462(b) under the Act) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
---------- ------ ----
<S> <C> <C>
/s/ Lauralee E. Martin Chief Executive Officer and Director (Principal January 7, 1999
- ---------------------------------
Name: Lauralee E. Martin Executive Officer)
/s/ Lawrence G. Hund Chief Financial Officer (Principal Financial and January 7, 1999
- ---------------------------------
Name: Lawrence G. Hund Accounting Officer)
/s/ Deepak Rai Director January 7, 1999
- ---------------------------------
Name: Deepak Rai
/s/ Peter Sorenson Director January 7, 1999
- ---------------------------------
Name Peter Sorenson
</TABLE>
II-3
<PAGE>
Registration No. 333 -_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
HELLER FUNDING CORPORATION II
(Exact name of Registrant as specified in its charter)
_____________________
EXHIBIT VOLUME
================================================================================
<PAGE>
EXHIBIT INDEX
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Trust Depositor*
3.2 Bylaws of the Company*
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Indenture (including form of Notes)*
5.1 Opinion of Winston & Strawn with respect to legality*
8.1 Opinion of Winston & Strawn with respect to tax matters*
10.1 Form of Sale and Servicing Agreement*
10.2 Form of Administration Agreement*
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust Indenture Act
of 1939 of Indenture Trustee*
_______________________________
*To be filed by amendment
