<PAGE>
Registration No. 333-70507
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1 REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
HELLER EQUIPMENT ASSET 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>
<CAPTION>
<S> <C> <C>
Delaware 6189 36-4165546
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</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:
<TABLE>
<CAPTION>
<S> <C>
M. David Galainena, Esq. James J. Croke, Jr., Esq.
Winston & Strawn Cadwalader, Wickersham & Taft
35 West Wacker Drive 100 Maiden Lane
Chicago, Illinois 60601 New York, New York 10038
(312) 558-5600 (212) 504-6139
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement be comes 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. [X]
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 Securities Amount to Be Proposed Maximum Offering Proposed Maximum Amount of
to Be Registered Registered(1) Price Per Unit (2) Aggregate Offering Price (2) Registration Fee (3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 Receivable-Backed Note $1,000,000 100% $1,000,000 $278
Class A-2 Receivable-Backed Note $1,000,000 100% $1,000,000 $278
Class A-3 Receivable-Backed Note $1,000,000 100% $1,000,000 $278
Class A-4 Receivable-Backed Note $1,000,000 100% $1,000,000 $278
Class B Receivable-Backed Notes $1,000,000 100% $1,000,000 $278
- -------------------------------------------------------------------------------------------------------------------------------
</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).
(3) Registration Fee was paid with initial filing of this registration
statement.
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>
Subject to Completion, dated , 1999
PRELIMINARY PROSPECTUS
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration state ment 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.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1999-1
Receivable-Backed Notes, Series 1999-1
Heller Funding Corporation II,
Trust Depositor
Heller Financial, Inc.,
Servicer
----------------------
We are offering the following five classes of Receivable-Backed Notes,
Series 1999-1:
<TABLE>
<CAPTION>
Class of Initial Aggregate Interest Rate First Payment Stated Maturity Price to Public Underwriting Discount
Notes Principal Amount (per annum) Date (1) Date per Note (2) per Note (3)
<S> <C> <C> <C> <C> <C> <C>
A-1 $ % / /99 % %
A-2 $ % / /99 % %
A-3 $ % / /99 % %
A-4 $ % / /99 % %
B $ % / /99 % %
</TABLE>
(1) Payment dates thereafter until maturity will be the 15th day of each
month.
(2) The total price to the public is $ .
(3) The total underwriting discount is $ .
(4) The total proceeds to the issuer is $ .
The Notes are debt obligations of Heller Equipment Asset Receivables
Trust 1999-1 and will be paid only from the trust's assets. The trust's assets
include contracts that provide financing for end-users of a variety of new and
used equipment, as well as software and related support and consulting services.
The trust's assets also include limited recourse loans 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 11 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.
_________________
Underwriters of the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes
Underwriter of the Class B Notes
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEX OF TERMS--IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS..................................................1
REPORTS TO NOTEHOLDERS...........................................................................................................1
AVAILABLE INFORMATION............................................................................................................1
SUMMARY..........................................................................................................................2
RISK FACTORS....................................................................................................................10
Absence of Prior Market for the Notes May Limit Your Ability to Resell the Notes................................................10
The Price at Which You Can Resell Your Notes May Decrease if the Ratings of Your Notes Change...................................10
Subordination of the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class B Notes, the Class C Notes and the Class D
Notes and Certificates Means Some Notes Will Receive Payments Sooner than Others................................................10
Limited Assets Secure the Notes; Noteholders Will Have No Recourse to the Originators, Servicer or its Affiliates in the
Event Delinquencies and Losses Deplete the Trust's Assets.......................................................................11
Geographic Concentrations of Contracts; Adverse Events in Certain Regions May Result in Increased Defaults and
Delinquencies...................................................................................................................11
Concentration of Contracts relating to the Certain Industries; Adverse Events in Such Industries May Result in Increased
Defaults and Delinquencies......................................................................................................11
Rate at which Equipment or Software Becomes Obsolete Affects Prepayment Rate of the Contracts and the Notes; Reinvestment
Risk............................................................................................................................12
Declines in Market Value of Equipment; Shortfalls With Respect to Amounts Available for Payment on the Notes....................12
Certain Legal Risks.............................................................................................................12
Certain Contracts Relating to Software or Related Support and Consulting Services are not Secured by Such Software or
Related Services................................................................................................................17
Risk of Rejection of "True Leases"..............................................................................................17
Risks Associated with DTC and the Year 2000.....................................................................................18
USE OF PROCEEDS.................................................................................................................18
COMPOSITION OF THE CONTRACTS....................................................................................................19
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE......................................................................................20
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED................................................................21
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE.....................................................................................22
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY...................................................................................23
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT BALANCE..........................................................................24
DISTRIBUTION OF CONTRACTS BY REMAINING CONTRACT BALANCE.........................................................................24
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT TERM.............................................................................25
DISTRIBUTION OF CONTRACTS BY REMAINING MONTHS TO STATED MATURITY................................................................25
DELINQUENCY AND LOSS INFORMATION................................................................................................26
THE CONTRACTS GENERALLY.........................................................................................................29
PREPAYMENT AND YIELD CONSIDERATIONS.............................................................................................33
HELLER FINANCIAL, INC. AND HELLER FINANCIAL LEASING, INC........................................................................42
THE TRUST.......................................................................................................................45
THE TRUST DEPOSITOR.............................................................................................................46
DESCRIPTION OF THE NOTES AND INDENTURE..........................................................................................46
THE CERTIFICATES................................................................................................................59
THE SALE AND SERVICING AGREEMENT................................................................................................59
FEDERAL INCOME TAX CONSEQUENCES.................................................................................................68
ERISA CONSIDERATIONS............................................................................................................72
PLAN OF DISTRIBUTION............................................................................................................73
RATING OF THE NOTES.............................................................................................................74
LEGAL MATTERS...................................................................................................................75
INDEX OF TERMS..................................................................................................................76
</TABLE>
i
<PAGE>
INDEX OF TERMS--IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
You can find an index of terms used in this prospectus beginning on
page 77.
Within the period during which there is an obligation to deliver a
prospectus, the underwriters will, at your request, promptly deliver to you, or
cause to be delivered to you, without charge, 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.
The information contained in this prospectus is accurate only as of the
date of the prospectus, regardless of when this prospectus is delivered or of
when the Notes are sold to you.
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
As long as the Notes remain in book-entry form, periodic and annual
unaudited reports, containing information concerning the Trust, the contracts,
the offered 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 offered Notes. Such reports will be made available by DTC, Euroclear or
CEDEL and its participants to holders of interests in the offered Notes in
accordance with the rules, regulations and procedures creating and affecting
DTC, Euroclear and CEDEL, respectively. See "Description of the Notes and
Indenture--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. The registration statement may be inspected and copied
at the public reference facilities maintained by the Securities and Exchange
Commission at the following locations:
<TABLE>
<CAPTION>
<S> <C> <C>
450 Fifth Street, N.W Citicorp Center Seven World Trade Center
Room 1024 500 West Madison, Suite 1400 Suite 1300
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York 10048
</TABLE>
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,
2
<PAGE>
and the rules and regulations of the Securities and Exchange Commission
thereunder. Copies of such reports can be obtained as described above.
3
<PAGE>
SUMMARY
In this prospectus,"Notes" refers to the [ ]% Class A-1 Receivable-Backed Notes,
Series 1999-1, [ ]% Class A-2 Receivable-Backed Notes, Series 1999-1, [ ]%
Class A-3 Receivable-Backed Notes, Series 1999-1, [ ]% Class A-4 Receivable-
Backed Notes, Series 1999-1, [ ]% Class B Receivable-Backed Notes, Series 1999-
1, [ ]% Class C Receivable-Backed Notes, Series 1999-1 and [ ]% Class D
Receivable-Backed Notes, Series 1999-1. The "offered Notes" refer only to those
Notes set forth in the cover page of this prospectus. "We", "us", "our" and the
"Trust" refer to the Heller Equipment Asset Receivables Trust 1999-1. Whenever
we refer to the "contracts" or "contract" in this prospectus we are referring to
the aggregate pool of contracts and each contract, respectively, that we will
purchase and which will constitute a part of the Trust's assets.
The following is only a summary of the terms of the Notes. It does not contain
all the information that may be important to you. You should therefore read this
entire prospectus. In addition, you may wish to read principal documents
governing the sale of the contracts, the formation of the Trust and the issuance
of Notes. Such documents have been filed as exhibits to the registration
statement of which this prospectus is a part. You can find an index of terms
used in this prospectus on page 77.
There are material risks associated with an investment in the Notes. See "Risk
Factors" on page 11 for a discussion of 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 Wilmington Trust Company, as Owner Trustee, at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, telephone number
(302) 651-1000.
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. Within [ ] of the closing of the sale of the
contracts to the Trust, Heller Funding Corporation II will be liquidated and all
of its assets and liabilities, including without limitation its obligations as
Trust Depositor under the agreement forming the Trust and the Sale and Servicing
Agreement will be assumed by its successor, Heller Funding Corporation. When we
refer to the Trust Depositor in this prospectus we are referring to Heller
Funding Corporation II prior to the closing and Heller Funding Corporation as
the successor to Heller Funding Corporation II after the closing.
The Servicer...................................................................
Heller Financial, Inc. (with Heller Financial Leasing, Inc. acting as a sub-
servicer).
The Indenture Trustee..........................................................
Norwest Bank Minnesota, National Association
The Notes......................................................................
We are offering the following Notes, which represent an interest in the assets
of the Trust:
<TABLE>
<CAPTION>
% of Aggregate
Discounted
Contract
Balance of
Note Principal Interest the Contracts as
Class Balance as of [ ] Rate of [ ]
<S> <C> <C> <C>
Class A-1 Notes $ % %
Class A-2 Notes $ % %
Class A-3 Notes $ % %
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
% of Aggregate
Discounted
Contract
Balance of
Note Principal Interest the Contracts as
Class Balance as of [ ] Rate of [ ]
<S> <C> <C> <C>
Class A-4 Notes $ % %
Class B Notes $ % %
</TABLE>
In certain instances in this prospectus, including the table above, we used a
statistical discount rate of [ ]% to calculate the discounted contract balances.
The statistical discount rate is based on a weighted average of the estimated
interest rates of the Notes (weighted by estimated maturity date and initial
principal amounts).
The discounted contract balance of a contract is the present value of scheduled
payments to be paid on such contract calculated at a discount rate of [ ]%. For
a more specific description of how the discounted contract balance is calculated
see the definition of "Discounted Contract Balance" in the "Index of Terms."
You may purchase the offered Notes in minimum denominations of $1,000 and in
integral multiples thereof in book-entry form.
The Notes and Certificates Not Offered Pursuant to this Prospectus.............
We will also issue the following securities, neither of which are offered by
this prospectus:
* $[ ] aggregate principal amount of Class C [ ]% Receivable-Backed
Notes, Series 1999-1 --
-- The initial principal balance of the Class C Notes is equal to
approximately [ ]% of the initial aggregate discounted
contract balance.
-- We expect to sell the Class C Notes concurrently with the
Notes in a private placement.
-- We will pay interest on the Class C Notes after we pay
interest on the offered Notes. We will pay interest on all of
the Notes before we pay principal on any of the Notes. We will
pay principal on the Class C Notes after we pay principal on
the offered Notes.
* $[ ] aggregate principal amount of Class D [ ]% Receivable-Backed Notes,
Series 1999-1 --
-- The initial principal balance of the Class D Notes is equal to
approximately [ ]% of the initial aggregate discounted contract
balance.
-- We expect to sell the Class D Notes concurrently with the Notes
in a private placement.
-- We will pay interest on the Class D Notes after we pay interest
on the offered Notes. We will pay interest on all of the Notes
before we pay principal on any of the Notes. We will pay
principal on the Class D Notes after we pay principal on the
offered Notes and the Class C Notes.
* Certificates with an aggregate $[ ] certificate principal balance --
-- The Certificates will not bear interest.
5
<PAGE>
-- The Certificates will represent fractional undivided beneficial
equity interests in the Trust and residual interests in amounts
in a reserve fund which provides credit enhancement for the
Notes (after the payment of all outstanding interest and
principal on the Notes and Class D Notes).
-- We expect the Trust Depositor initially to retain the
Certificates. However, the Certificates could later be conveyed
subject to certain restrictions on transferability in order to
ensure the Trust is not treated as a taxable entity for federal
income tax purposes.
See "Description of the Notes and Indenture - Allocations" herein.
The Trust's Assets
A. The Contracts........................................................
The Trust's assets will primarily consist of contracts.
The contracts consist of :
* conditional sale agreements
* leases
* secured promissory notes
* installment payment agreements
* financing agreements
Each type of contract relates to the financing by end-users of equipment or
software and related support and consulting services. In certain cases, the
obligor on a contract is the end-user of the financed equipment or software and
related support and consulting services. Such contracts are referred to as end-
user contracts. In other cases, a contract is a limited recourse loan obligation
of an equipment manufacturer, dealer or distributor or computer software
distributor which is secured by one or more end-user contracts. Such other
contracts are referred to as vendor loans.
The contracts have been originated by Heller Financial, Inc. or Heller Financial
Leasing, Inc. Alternatively, the vendors of equipment or software have
originated certain of the contracts and assigned them to Heller Financial, Inc.
or Heller Financial Leasing, Inc. Heller Financial, Inc. and Heller Financial
Leasing, Inc. have sold the contracts to the Trust Depositor. On or about
[closing date], the Trust Depositor will transfer 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. None
of the obligors on the contracts are located outside of the United States and
its territories. No more than 21.13% of the aggregate discounted contract
balance of the contracts relates to obligors located in the same state. All of
the contracts are commercial contracts and as of the date hereof, no contract
has any scheduled payments which are more than 60 days delinquent. See "The Sale
and Servicing Agreement - Representations and Warranties; Definition of Eligible
Contract" and "The Contracts Pool" herein.
As of January 1, 1999, the contracts had the following characteristics
(calculated utilizing a statistical discount rate of 6.245%:
Number of Contracts...................................................1,639
Aggregate Discounted Contract Balance..........................$428,332,192
Average Discounted Contract Balance of a Contract..................$261,338
Weighted Average Original Term to Maturity.....................56.26 months
Range.....................................................18-114 months
Weighted Average Remaining Term to Maturity....................43.03 months
6
<PAGE>
Range..........................................................5-84 months
The distribution of the contracts, the discounted contract balances and the
aggregate discounted contract balance calculated at the statistical discount
rate specified above will vary from the such characteristics calculated as of
the closing date for the sale of the contracts to the Trust. See "Composition of
the Contracts".
As the obligors pay amounts owed by them under the contracts, the aggregate
discounted contract balance of all of the contracts held by the Trust will
decrease. The rate at which the discounted contract balance of each contract is
reduced may vary from contract to contract (depending on the contract terms and
the manner in which the obligor makes its payments). As a result, the
statistical distribution of the contracts held by the Trust, including the
concentration of obligors in any one state or of the contracts with respect to
any one equipment type will vary as the contract balances amortize.
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.
Subject to certain limits, we may replace a contract that is part of the Trust's
assets with another contract if:
* such contract which is subsequently identified as not having been eligible
to be sold to the Trust at the time of such sale;
* such contract, if not removed and replaced, would cause obligor or equipment
concentrations of contracts to exceed certain levels;
* such contract becomes a defaulted contract; or
* such contract is materially modified (including a contract which is prepaid
but whose terms do not permit prepayment).
See "The Sale and Service Agreement Generally--Substitute Contracts and
Additional Contracts" herein. The substitute contracts will have been originated
pursuant to the same credit criteria and policies under which the contracts have
been originated.
B. Reserve Fund................................................................
The Trust Depositor has established a trust account called the Reserve Fund in
the name of, and maintained by, the Indenture Trustee. The Reserve Fund is
intended to provide you with limited protection in the event collections from
obligors on the contracts are insufficient to make payments on the Notes. On or
about [closing date], the Trust Depositor will deposit $[ ] in the Reserve Fund,
which is equal to 1.00% of the aggregate discounted contract balance of the
contracts in the Trust as of [cut-off date]. If on any date payments are to be
made on the Notes, amounts received with respect to the contracts (see "Terms of
the Notes" below) are less than the amount needed to pay interest or principal
on the Notes, the Indenture Trustee will, in certain limited circumstances,
withdraw funds from the Reserve Fund to pay such interest or principal, as
applicable. See "Description of the Notes and Indenture--Allocations" and "--
Reserve Fund" herein.
Terms of the Notes.............................................................
The principal terms of the Notes will be as described below. See "Description of
the Notes and Indenture". We pay principal and interest due on the Notes using:
* collections of payments due under the contracts held by the Trust,
* late charges relating to a contract (provided such late charges were
included in the contract's terms as of the date the contract was purchased
by the Trust), and
7
<PAGE>
* certain amounts received upon the prepayment or purchase of contracts or
liquidation of such contracts and disposition of the related equipment upon
defaults under such contracts.
See "Amounts Available for Payments on the Notes" herein.
A. Interest....................................................................
On the 15th day of each month (or if that day is not a business day, the next
business day), after we repay any outstanding Servicer advances and pay the
Servicer's monthly servicing fee, we will pay interest on the Notes (at the
rates specified on the cover of this prospectus) in the following order:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Class of Securities Receiving Interest Payment
Notes Prior to Specified Class
- -------------------------------------------------------------------------------------
<C> <S>
A-1, A-2, None
A-3, A-4
B Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes
C Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes,
Class B Notes
D Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes,
Class B Notes, Class C Notes
- -------------------------------------------------------------------------------------
</TABLE>
See "Description of the Notes and Indenture--Allocations" herein.
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...................................................................
On the 15th day of each month (or if that day is not a business day, the next
business day), after we pay interest on the Notes, prior to an event of default
with respect to the Notes, we will pay principal on the Notes in the following
order:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Class of Securities Receiving Principal Payment
Notes Prior to Specified Class
- -------------------------------------------------------------------------------------
<C> <S>
A-1 None
A-2 Class A-1 Notes
A-3 Class A-1 Notes
On the payment date on which the principal amount of the
Class A-1 Notes is reduced to $0 and on any payment date on
or prior to the payment date on which the outstanding principal
amount on the Class A-2 Notes is reduced to $0, Class A-2
Notes, Class B Notes, Class C Notes, Class D Notes and
Certificates
- -------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Class of Securities Receiving Principal Payment
Notes Prior to Specified Class
- -------------------------------------------------------------------------------------
<C> <S>
A-4 Class A-1 Notes
On the payment date on which the principal amount of the
Class A-1 Notes is reduced to $0 and on any payment date on
or prior to the payment date on which the outstanding principal
amount on the Class A-2 Notes is reduced to $0, Class A-2
Notes, Class B Notes, Class C Notes, Class D Notes and
Certificates
On the payment date on which the principal amount of Class A-
2 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-3 Notes is reduced to $0, Class A-3 Notes, Class B
Notes, Class C Notes, Class D Notes and Certificates
- -------------------------------------------------------------------------------------
B Class A-1 Notes, Class A-2 Notes
On the payment date on which the principal amount of Class A-
2 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-3 Notes is reduced to $0, Class A-3 Notes
On the payment date on which the principal amount of Class A-
3 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-4 Notes is reduced to $0, Class A-4 Notes
- -------------------------------------------------------------------------------------
C Class A-1 Notes, Class A-2 Notes, Class B Notes
On the payment date on which the principal amount of Class A-
2 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-3 Notes is reduced to $0, Class A-3 Notes
On the payment date on which the principal amount of Class A-
3 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-4 Notes is reduced to $0, Class A-4 Notes
- -------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Class of Securities Receiving Principal Payment
Notes Prior to Specified Class
- -------------------------------------------------------------------------------------
<C> <S>
D Class A-1 Notes, Class A-2 Notes, Class B Notes, Class C
Notes
On the payment date on which the principal amount of Class A-
2 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-3 Notes is reduced to $0, Class A-3 Notes
On the payment date on which the principal amount of Class A-
3 Notes is reduced to $0 and on any payment date on or prior to
the payment date on which the outstanding principal amount on
the Class A-4 Notes is reduced to $0, Class A-4 Notes
- -------------------------------------------------------------------------------------
</TABLE>
See "Description of the Notes and Indenture--Allocations" herein.
The amount of principal paid on a Class A-1 Note prior to its stated maturity
date will be based on the amount that the aggregate discounted contract balance
of the contracts has declined during the most recent full collection period
(each collection period begins on the second day of a calendar month and ends on
and includes the first day of the immediately following calendar month).
After the Class A-1 Notes have been paid in full, the amount of principal paid
on a Class A-2 Note, Class A-3 Note or Class A-4 Note, as applicable, and Class
B Note, Class C Note and Class D Note will be the amount necessary to reduce the
outstanding principal of the respective class of Notes to the greater of:
(i) a specified percentage of the aggregate discounted contract balance
of the contracts as of the last day of the most recent full
collection period (such percentage shall be based on the ratio of
the initial principal amount of such class of Notes to the
aggregate initial principal amount of all classes of Notes other
than the Class A-1 Notes) or
(ii) a floor payment which is based on a number which is intended to
maintain 20% of the credit enhancement provided by the classes of
Notes subordinate to such class after taking into account
cumulative losses on the contracts.
Following an event of default with respect to the Notes (see "Description of the
Notes and Indenture -- Events of Default"), all outstanding principal on the
respective classes of Notes will be paid in the following order of priority:
* outstanding principal of Class A-1 Notes
* outstanding principal of Class A-2 Notes, Class A-3 Notes and Class A-4
Notes
* outstanding principal of Class B Notes
* outstanding principal of Class C Notes
* outstanding principal of Class D Notes
See "Description of the Notes and Indenture--Allocations" herein.
C. Payment Dates...............................................................
You will receive distributions of interest and principal on the 15th day of each
month, or if that day is not a business day, the next business day. The first
interest and principal payment date is [ ], 1999.
D. Stated Maturity Date....................................................
<TABLE>
<CAPTION>
<S> <C> <C> <C>
* Class A-1 Notes...........................................................................[ ] 15, [ ]
* Class A-2 Notes...........................................................................[ ] 15, [ ]
* Class A-3 Notes...........................................................................[ ] 15, [ ]
* Class A-4 Notes...........................................................................[ ] 15, [ ]
* Class B Notes.............................................................................[ ] 15, [ ]
* Class C Notes.............................................................................[ ] 15, [ ]
</TABLE>
10
<PAGE>
* Class D Notes.............................................[ ] 15, [ ]
Except that if such day is not a business day, then the stated maturity date
will be the next business day.
E. Optional Redemption..........................................................
On any date on which interest and principal is to be paid on the Notes, the
Trust Depositor may redeem any outstanding Notes in whole, but not in part, if
the aggregate discounted contract balance of the contracts in the Trust at such
time is less than 10% of the initial aggregate discounted contract balance of
the contracts as of [cut-off 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.
F. Events of Default...........................................................
Events of default with respect to the Notes include failure to pay accrued
interest on an interest and principal payment date, breach of representations
and warranties with respect to the contracts which are materially incorrect and
which have material adverse effect on the Noteholders and the occurrence of
insolvency events with respect to the Originators, the Trust Depositor, the
Trust or the Servicer.
Servicing; Servicing Fee.......................................................
The Servicer will be responsible for servicing, managing and administering the
contracts and related interests, and enforcing and making collections on the
contracts. The Servicer has appointed Heller Financial Leasing, Inc. as a sub-
servicer. Additionally, Heller Financial, Inc. and Heller Financial Leasing,
Inc. have in some cases delegated servicing and collection functions to a vendor
(or, in certain limited instances, to a sub-servicer acceptable to them) with
respect to end-user contracts originated through such vendor, but in such
instances the Servicer retains through provisions in agreements with such vendor
(or agreement with such sub-servicer) 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--
Collection and Other Servicing Procedures" herein.
The Servicer will be entitled to receive a monthly fee equal to the product of
(i) one-twelfth of [ ]% and (ii) the aggregate discounted contract balance of
the contracts in the Trust as of the beginning of payable out of amounts we
receive with respect to the contracts. Any servicing fees to be paid to any sub-
servicers (including vendor sub-servicers) will be paid by the Servicer from its
monthly servicing fee.
See "The Sale and Servicing Agreement--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. You, by accepting a Note, 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.........................................................................
We will not issue the Notes unless they receive ratings from the following
rating agencies as set forth below:
11
<PAGE>
<TABLE>
<CAPTION>
Class [ ] [ ]
<S> <C> <C>
Class A-1 Notes
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class B Notes
</TABLE>
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.
12
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before
investing in the Notes.
Absence of Prior Market for the Notes May Limit Your 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. Thus,
you may not be able to resell your Notes without a substantial discount.
Moreover, you may not be able to liquidate your investment in the Notes prior
to their maturity in order to reinvest in other investments that you have
subsequently identified as being more attractive than the Notes.
Timing of Principal Payments on the Contracts May Change Your Expected Yield on
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 held by the Trust. In addition
to making the scheduled periodic payments, obligors on the contracts held by the
Trust may prepay their obligations. 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. Ma ny 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 held by the Trust will conform to any
historical experience, and no prediction can be made as to the actual rate of
prepayments which will be experienced on such contracts. A higher than
anticipated level of prepayments may cause us to pay principal on the Notes
sooner than you expected. Upon the occurrence of an event of default, 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.
See "Description of the Notes and Indenture --Events of Default" and "Prepayment
and Yield Consideration". You may not be able to reinvest such distributions of
principal at yields equivalent to the yield on the Notes. Therefore, the
ultimate return you receive on your investment in the Notes may differ from what
you may have expected.
The Price at Which You Can Resell Your Notes May Decrease if the Ratings of Your
Notes 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 with respect to
the Notes. At any time, a rating may be lowered or withdrawn entirely by a
rating agency rating the Notes. In the event that the rating initially assigned
to any Note is subsequently lowered or withdrawn for any reason, you may not be
able to resell your Notes without a substantial discount. 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 A-3 Notes, Class A-4 Notes, Class B
Notes, the Class C Notes and the Class D Notes and Certificates Means Some Notes
Will Receive Payments Sooner than Others
We will pay interest and principal on certain classes of Notes
prior to paying interest and principal on other classes of Notes. See
"Description of the Notes and Indenture--Allocations".
Such subordination of interest and principal payments means that:
* the Class D Notes are more likely to suffer the consequences of
delinquent payments and defaults on the contracts held by the
Trust than are Class C Notes;
* the Class C Notes are more likely to suffer the consequences of
delinquent payments and defaults on the contracts held by the
Trust than the Class B Notes;
* the Class B Notes are more likely to suffer the consequences of
delinquent payments and defaults on the contracts held by the
Trust than the Class A-1 Notes and Class A-2 Notes;
* the Class A-4 Notes are more likely to suffer the consequences of
delinquent payments and defaults on the contracts held by the Trust
than the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes;
* the Class A-3 Notes are more likely to suffer the consequences of
delinquent payments and defaults on the contracts held by the Trust
than the Class A-1 Notes and Class A-2 Notes;
* the Class A-2 Notes are more likely to suffer the consequences of
delinquent payments and defaults on the contracts held by the Trust
than the Class A-1 Notes.
13
<PAGE>
Moreover, the more senior classes of Notes could lose the credit
enhancement provided by the more subordinate classes an d the Reserve Fund if
delinquencies and defaults on such contracts increase and the collections on
such contracts and amounts in the Reserve Fund are insufficient to pay even the
more senior classes of Notes.
Limited Assets Secure the Notes; Noteholders Will Have No Recourse to the
Originators, Servicer or its Affiliates in the Event Delinquencies and Losses
Deplete the Trust's Assets
None of the Originators, the Servicer or any of their affiliates is
generally obligated to make any payments in respect of the Notes or the
contracts held by the Trust. However, in connection with the conveyance of the
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 con tracts and, in certain circumstances, the Trust
Depositor may be required to repurchase certain 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--Representations and Warranties;
Definition of Eligible Contract".
Because the Trust is a limited purpose trust with limited assets,
you must rely solely upon the contracts 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, 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). If payments on the contracts (including end-user
contracts securing Vendor Loans) are delinquent or are insufficient to make
payments on the Notes, no other assets (other than the Reserve Fund) will be
available to make payments on the Notes. Similarly, in the event that contracts
becomes defaulted contracts, the disposition proceeds of the equipment securing
such contracts may be insufficient to make payments on the Notes and no other
assets will be available for the payment of the deficiency. There can be no
assurance that the delinquency and loss experience of the contracts will
comparable to the information set forth in "Delinquency and Loss Information".
Geographic Concentrations of Contracts; Adverse Events in Certain Regions May
Result in Increased Defaults and Delinquencies
As of January 1, 1999, approximately 21.13% of the aggregate
Discounted Contract Balance (calculated using the statistic al discount rate) of
the contracts held by the Trust related to obligors located in California and
6.71% in New York, 6.22% in Illinois and 5.05% in New Jersey. No other state
accounts for more than 5.00% of the contracts. The aggregate contracts in such
states represent 39.11% of the aggregate Discounted Contract Balance (calculated
using the statistical discount rate) of the contracts held by the Trust. We are
not able to determine and have no basis to predict whether any events have
occurred or may occur, or economic conditions, laws or regulations exist or will
exist, that would cause a material increase in delinquencies and defaults on
contracts in an individual state or region (including California, New York,
Illinois and New Jersey). There can be no assurance that any adverse events or
conditions which materially affect contracts in certain regions will not occur.
If adverse events or economic conditions were particularly severe in certain
geographic regions or if obligors under a large amount of such contracts within
such regions were to experience financial difficulties, the amount of delinquent
payments and defaults on such contracts may increase. As a result, the overall
timing and amount of collections on the contracts held by the Trust may differ
from what you may have expected, and you may experience delays or reductions in
payments you expected to receive.
Concentration of Contracts relating to the Certain Industries; Adverse Events in
Such Industries May Result in Increased Defaults and Delinquencies
As of January 1, 1999, contracts constituting approximately 16.67%
of the aggregate Discounted Contract Balance (calculated using the statistical
discount rate) the contracts held by the Trust relate to equipment used in the
printing industry and 5.23% relate to the business credit institutions and
5.09% related to the plastic products industry. No other industry accounts for
more than 5.00% of the aggregate Discounted Contract Balance (calculated using
the statistical discount rate) of the contracts held by the Trust. We are not
able to determine and have no basis to predict whether any economic conditions,
laws or regulations or practices specific to any industry or line of business
(including the printing industry , business credit institutions and plastic
products industry) that would cause the amount of delinquencies and defaults on
contracts relating to equipment used in such industry or line of business to be
higher than those relating to other types of industries or equipment securing
the contracts. There can be no assurance that events or conditions which
materially affect the such industries or lines of business will not occur. If
such industries or lines of business were to experience adverse events or
economic conditions, the amount of delinquent payments and defaults on such
contracts may increase and, accordingly, the overall timing and amount of
collections on the contracts held by the Trust may differ from what you may have
expected. This could result in delays or reduced payments to you.
If any Group of Obligors, Including Obligors under Contracts Originated by the
Same Vendor, is Affected by Adverse Events or Economic Conditions, Defaults and
Delinquencies May Increase
14
<PAGE>
Approximately 14% of the aggregate Discounted Contract Balance
(calculated using the statistical discount rate) of the contracts was
originated by a single Vendor. Approximately 5% of the aggregated Discounted
Contract Balance (calculated using the statistical discount rate) of the
contracts to be sold to the Trust were originated by such single Vendor. Those
contracts are located in California and no more than 1% of the contracts
originated by that single Vendor are located in any other single state. No other
single Vendor originated more than 10% of the aggregate Discounted Contract
Balance (calculated using the statistical discount rate) of the contracts. We
are not able to determine and have no basis to predict whether any events have
occurred or may occur, or economic conditions, laws or regulations exist or will
exist, that would cause a material increase in delinquencies and defaults on
contracts originated by an individual Vendor or group of Vendors. There can be
no assurance that any adverse events or conditions which materially affect
contracts originated by an individual Vendor or a group of Vendors will not
occur. If any group of obligors, including obligors under contracts originated
by a single Vendor, were to experience financial difficulties, the amount of
delinquent payments and defaults on such contracts may increase. As a result,
the overall timing and amount of collections on the contracts held by the Trust
may differ from what you may have expected, and you may experience delays or
reductions in payments you expected to receive. See also "--Certain Legal
Risks--Ineffective Sale in Vendor Bankruptcy Could Delay or Reduce Payments
Under the Contracts".
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 an increase in prepayments of the
contracts held by the Trust. An increase in prepayments on such contracts may
result in an increase in the rate at which principal on the Notes is paid. As a
result, you may need to reinvest your Note principal sooner than you expected
and 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 Amounts
Available for Payment on the Notes
If a contract held by the Trust becomes a defaulted contract (see
"The Sale and Servicing Agreement-- Definition of Defaulted Contracts"), 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 over-
collaterization factored into the calculation of the aggregate discounted
contract balance of the contracts and subordination of interest and principal
payments on the Class D Notes, collections on the contracts held by the Trust
may be insufficient to make all interest and principal payments on the offered
Notes.
Certain Legal Risks
Servicer's or Vendor's Retention of Contract Files May Hinder Our
Ability to Realize the Value of Equipment Securing the Contracts. To facilitate
servicing and reduce administrative costs, the Servicer will retain possession
of the documents evidencing the contracts held by the Trust (including, but not
limited to, originally executed agreements and promissory notes). We will not
deposit such documents with the Indenture Trustee or any other agent or
custodian for your benefit. The Servicer will, however, stamp or mark such
documents to reflect the transfer of the contracts to the Trust. Also, Uniform
Commercial Code financing statements have been filed reflecting the sale and
assignment of the contracts by the Originators to the Trust Depositor. Uniform
Commercial Code financing statements will be filed reflecting the sale and
assignment of the contracts 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, such
purchaser could have a security interest in the contracts senior to the
Indenture Trustee's security interest (as assignee of the Trust Depositor's and
the Trust's interest). In the event that we must rely upon repossession and
sale of the related equipment securing defaulted contracts to recover principal
and interest due thereon, our ability to realize upon such assets may be
limited due to the existence of a third party's senior security interest in such
contracts. In such event, distributions to you could be adversely affected.
Similarly, with respect to contracts securing Vendor Loans, in some
instances the Vendor will retain the original documents associated with such
contracts. Although Uniform Commercial Code 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 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, 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 contracts securing such
15
<PAGE>
Vendor Loan, and that it will maintain possession of the related documents as
custodian for the benefit of the Originator as secured party with respect to
such contracts.
Failure to Record Assignment of Perfected Security Interest May
Hinder Our Ability to Realize the Value of Equipment Securing the Contracts. In
connection with the conveyance of the contracts to the Trust, security interests
in the related financed equipment securing such contracts have been assigned by
the applicable Originator to the Trust Depositor and will be assigned by the
Trust Depositor to the Trust. It has been the general policy of the Originators
to file or cause to be filed Uniform Commercial Code 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 [ ] Uniform Commercial Code financing statements in
50 states where equipment relating to the contracts is located, we will not file
any assignments of the Uniform Commercial Code financing statements evidencing
the security interest of the Originators in the equipment to reflect the Trust
Depositor's, the Trust's or the Indenture Trustee's interests therein. Failure
to file such assignments does not affect either the Trust's perfected security
interest in the contracts (assigned to it by an Originator) or the Indenture
Trustee's perfected security interest in such contracts (assigned to it by the
Trust). Because neither the Trust Depositor's, Trust's, Owner Trustee or
Indenture Trustee's name appears on the UCC financing statements, an Originator
or the Servicer could inadvertently release the security interest in the
equipment securing a contract. In such event, we would not have a perfected
security interest in such equipment. Without a perfected security interest, we
may not be able to fully realize the value of such equipment if the related
contract becomes a defaulted contract.
Also, the transfer to the Trust Depositor of the applicable
Originator's security interest in aircraft securing certain contracts, 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 will not identify the Trust as the
secured party for such aircraft. By not so identifying the Trust as the new
secured party, there is a risk that, through fraud or negligence, a third party
could acquire an interest in the aircraft superior to that of the Trust. The
Originators will jointly and severally represent that as of [cutoff date], in
the Originators' reasonable judgment, the aggregate Discounted Contract Balance
of the contracts to be transferred to the Trust that are secured by aircraft
does not exceed 1.33% of the aggregate Discounted Contract Balance of such
contracts.
In addition, some of the equipment related to the contracts may
constitute "fixtures" under the real estate laws or Uniform Commercial Code
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 Uniform
Commercial Code or a real estate mortgage under the real estate laws of the
state where such 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 under the contract does not permanently attach the equipment to
the real estate, a security interest in the equipment will be governed by the
Uniform Commercial Code, 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 representations 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 such equipment is located.
Also, the Originators will jointly and severally represent that as of the
[Cutoff Date], in the Originators' reasonable judgment, the aggregate Discounted
Contract Balance of the contracts to be transferred to the Trust that are
secured by fixtures, does not exceed 2.91% of the aggregate Discounted Contract
Balance of such contracts.
In certain cases, the Trust Depositor will be obligated to
reacquire any contract transferred to the Trust (subject to the Originator's
reacquisition thereof) if a first priority perfected security interest in the
name of the Trustee in the equipment related to such contract did not exist as
of the date such contract was conveyed to the Trust. See "The Sale and Servicing
Agreement--Remedies for Breaches of Representations and Warranties; Definition
of Ineligible Contract" herein. 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
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 to the equipment. 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 of such equipment from the obligor under the related
contract and holders of subsequently perfected security interests granted by the
obligors. However, statutory liens for repairs or unpaid taxes and other liens
arising by operation of law on the equipment have priority over even the
Indenture Trustee's prior perfected security interests in the equipment.
Moreover, due to fraud or negligence of the Originator or Servicer, the Trust
could lose the priority of its interest or its interest in such equipment
16
<PAGE>
following the conveyance of such contract to the Trust. Neither the Trust
Depositor nor the Servicer nor any Originator will have any obligation to
reacquire a contract if the statutory liens described above, or liens resulting
from Servicer fraud or negligence, result in the Trust's losing the priority of
its security interest in the related equipment after the date such contract is
conveyed to the Trust. However, the Servicer will indemnify you for losses you
incur as a result of the Servicer's inadvertent release of the Indenture
Trustee's security interest in the equipment securing the contracts.
Repurchase Obligation of Trust Depositor and Originators Provides
You Only Limited Protection Against Prior Liens on the Contracts. There are
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. For instance, a tax or other government lien on
property of the Originator or the Trust Depositor arising prior to the time a
contract is conveyed to the Trust may also have priority over the interest of
the Trust and the Indenture Trustee in such contract. Under each agreement
between an Originator and a Vendor, the Vendor has or will (i) warrant to such
Originator that the contracts transferred to the Originator such agreement will
be transferred free and clear of the lien of any third party and (ii) 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 the contracts
transferred thereunder will be transferred free and clear of the lien of any
third party. The Originators also will jointly and severally warrant to the
Trust Depositor, and the Trust Depositor also will warrant to the Trust, that
it will not sell, pledge, assign, transfer or grant any lien on the contracts.
In the event that such warranties are not true with respect to any contract,
the Trust Depositor and the Originators are required under the Sale and
Servicing Agreement to repurchase such contract. There can be no assurance that
the Trust Depositor or Originators will be able to repurchase such contract at
the time we request it. If so, the value of such contract as a Trust asset will
be less than you expected due to the existence of a prior lien.
Ineffective Sale in Vendor Bankruptcy Could Delay or Reduce
Payments Under the Contracts. The Originators will either (i) originate
contracts or (ii) acquire contracts from a Vendor, which contracts will in
either case be transferred to the Trust Depositor. If the acquisition of an
contract by an Originator is treated as a sale of such contract from the 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 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 an
Originator was ineffective to remove such contracts from such Vendor's estate
then delays in payments under the contracts to the Trust could occur. For
example, such persons might argue that such sale should be recharacterized as a
pledge of the contracts to secure borrowings by such Vendor. 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
contracts to an 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, then the holders of such
other interests 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 cases, reductions in the amount of payments under the
contracts could result.
Ineffective Sale in Originator Bankruptcy Could Delay or Reduce
Payments Under the Contracts. 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 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 in this prospectus as a sale of the contracts to the Trust Depositor.
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 contracts (and the equipment, if any)
securing Vendor Loans sold by the Originators.
If, however, an Originator became a debtor in a bankruptcy case and
creditors of the Originator, or the Originator acting as a debtor-in-
possession, were to assert that the transfer of the contracts from an Originator
to the Trust Depositor was as a pledge to secure borrowings by such Originator
(or otherwise ineffective to remove such contracts from the Originator's
estate), the distribution of proceeds of the contracts to the Trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code.
This would delay the distribution of such proceeds for an uncertain period of
time. Furthermore, if the bankruptcy court rules in favor of such creditor or
Originator, reductions in payments under the contracts to the Trust could occur.
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 the bankruptcy court could adjust
such debt 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 Uniform Commercial Code 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
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the Tenth Circuit, if such Vendors 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.
If a court, in a lawsuit by an unpaid creditor of an 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 Trust Depositor will receive, on the closing date for the sale
of the contracts to the Trust, a certificate from each Originator to the effect
that (i) the Originator did not intend, in selling the contracts to the Trust
Depositor, 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 represented
reasonably equivalent value or fair consideration for such contracts. There can
be no assurance, however, that a court would reach the same conclusion.
Insolvency of the Trust Depositor or the Trust Could Delay or
Reduce Payments to You. The Trust Depositor will warrant in the Sale and
Servicing Agreement that (i) the conveyance of the contracts to the Trust is a
valid sale of such contracts to the Trust and (ii) the security interest thereon
granted by the Trust in favor of the Indenture Trustee is a valid and duly
perfected security interest. The Trust Depositor will also agree to take all
actions that are required under applicable law to perfect the Trust's and the
Indenture Trustee's respective interests in such contracts. Nevertheless, if
the Trust Depositor were to become a debtor in a bankruptcy case and creditors
of the Trust Depositor, or the Trust Depositor acting as a debtor-in-possession,
were to assert that the sale of the contracts to the Trust was a pledge of the
contracts to secure borrowings of the Trust Depositor (or otherwise ineffective
to remove such contracts from the Trust Depositor's estate), then delays in
payments under the contracts to the Trust could occur or, should the court rule
in favor of such creditor or Trust Depositor, reductions in the amount of such
payments could result.
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. We believe that the Trust will be considered bankruptcy remote from
the Originators. However, no law firm will render an opinion to that effect.
Certain restrictions have been imposed on the Trust Depositor and
the Trust and certain other parties to the transaction s 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 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, we cannot assure you that insolvency proceedings involving
either the Trust Depositor or the Trust will not occur. We also cannot assure
you that insolvency proceedings involving the Originator would not lead to
insolvency proceedings of either, or both, o f 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
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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 claims are oversecured.
Insolvency of the Vendors Could Delay or Reduce Payments to You. 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) 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 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 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 contracts to which you
are entitled, and unsecured claims with respect to such shortfall.
Certain assignments executed under various Vendor finance
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 an Originator pursuant to
such Vendor assignments as loans to the related Vendor from such Originator
secured by the end-user contracts 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.
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 for limited recourse to
the Vendor). 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. 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.
Proceeds From Required Sale of the Contracts Resulting from Trust
Depositor Bankruptcy May Not Be Sufficient to Repay the Notes in Full. If
certain events relating to bankruptcy or insolvency 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
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of (i) the proceeds of the sale allocable to you and (ii) the proceeds of any
collections on the contracts allocable to you, is insufficient to pay you in
full.
End-User and Vendor Bankruptcy May Reduce or Delay Collections on
the Contracts. 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. 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. Factors that may affect whether you receive 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 Indenture Trustee's
security interest, as applicable, in the equipment or other security for such
contract. The depreciation, obsolescence, damage or loss of any item of
equipment will also affect whether you receive the full amount due on a
contract. As a result, you may be subject to delays in receiving payments, and
you may also suffer losses if collections from the remaining unaffected
contracts are insufficient to cover such losses.
Certain States may Limit the Enforceability of Certain Lease
Provisions. Certain states have adopted a version of Article 2A of the Uniform
Commercial Code ("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 the 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 Uniform Commercial Code; and (ii) to the
best of the Originators' knowledge, each end-user has accepted the equipment
leased to it and, after having a reasonable opportunity to inspect and test the
equipment, has not notified the Originator of any defects therein.
Certain Contracts Relating to Software or Related Support and Consulting
Services are not Secured by Such Software or Related Services
Certain contracts held by the Trust will relate to software or
related support and consulting services (rather than equipment) that are not
owned by an Originator (the Vendor or a licensor traditionally owns the same).
The software and related support and consulting services do not serve as
collateral for the contracts. Thus, we will not have an interest in such
software or related sup port and consulting services (i.e. we own solely the
associated contracts' cash flow). See "The Contracts Generally" herein.
Accordingly, if any such contract becomes a defaulted contract, we will not be
able to foreclose on the software or related support and consulting services.
Because there will be no proceeds from the software or related support and
consulting services which could be used to make payments to you, we must look
solely to the obligor to collect amounts due on such contract. There can be no
assurance that such obligor will be able to pay in full amounts due under such
contract. The Discounted Contract Balance of the contracts to be transferred to
the Trust that relate to software or relating support and consulting services,
does not exceed 11.38% of the aggregate Discounted Contract Balance (calculated
using the statistical discount rate) of the contracts.
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.
Transfer of Servicing May Delay Payments to Noteholders
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.
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.
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Heller Financial as Servicer, and as the parent of the Trust
Depositor and Heller Financial Leasing, Inc. as sub-servicer, has adopted a
phased approach to assessing and, where necessary, remediating or otherwise
addressing Year 2000 issues. Phases include:
* awareness, which, while ongoing, is substantially complete;
* assessment, which was substantially completed in 1998 with
respect to information technology systems and potential
issues relating to borrowers, vendors, international
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,
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
* 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.
As part of the validation process, Heller Financial is also
assessing the need for any re-verification of client server hardware and
software represented as compliant by the vendor. In late 1998, the Heller
Financial acquired certain leasing assets and, in connection with the
acquisition, completed an assessment of related Year 2000 risk. Heller Financial
has engaged a third party to complete remediation and validation activities,
which are underway and scheduled for completion in 1999.
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 Financial 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 and has
established an overall plan to bring all of these systems into compliance by the
end of 1999. Heller Financial continues to address the impact of Year 2000
issues on its consolidated international subsidiaries and its international
joint venture companies. As a result of the risk assessment substantially
completed with respect to these international companies in 1998, significant
remediation activity and additional readiness validation are underway for
completion in 1999.
In addition to information technology systems, Heller Financial is
assessing potential Year 2000 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,
Heller Financial has incorporated a Year 2000 risk assessment has been
incorporated into its 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 2000 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. The planning
component of this effort is scheduled for completion in the first quarter of
1999, with implementation to occur throughout the year.
To date, Heller Financial has incurred approximately $10 million of
expenses related to the Year 2000 issue and estimates that an additional
amount, of approximately $6 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 this 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 and sub-servicer) and 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
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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 you may hold your 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.
If problems associated with the Year 2000 issue were to occur with
respect to DTC and the services described above, distributions to you could be
delayed or otherwise adversely affected.
USE OF PROCEEDS
In consideration of the Trust Depositor's transfer of the contracts to
the Trust, the Trust will transfer the net proceeds from the sale of the Notes
to the Trust Depositor. The Trust Depositor purchased such 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. The Trust Depositor will apply the net
proceeds from the sale of the 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 or about [Closing Date], the Trust Depositor will transfer to the
Trust the contracts as of January 1, 1999 and from tim e to time 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--Representations and
Warranties; Definition of Eligible Contract" and "--Concentration Amounts;
Definition of Excess Contract". The Originators will jointly and severally
represent that all of the contracts transferred to the Trust 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 to the
Trust Depositor and to the Trust under the Sale and Servicing Agreement. As of
January 1, 1999 and using the statistical discount rate of 6.245% per annum.
* the aggregate Discounted Contract Balance of the contracts
was $[ ];
* 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 [ ]
* the average Discounted Contract Balance was approximately
$[ ];
* there are [ ] contracts with an aggregate Discounted
Contract Balance; and
* approximately 7.97% of the aggregate Discounted Contract
Balance of the contracts provide for payments by the obligor
thereunder on a basis other than monthly payments.
For further information regarding the contracts, see "The Contracts
Generally". The statistical discount rate is based on a weighted average of the
estimated interest rates of the Notes (weighted by estimated maturity date and
initial principal amounts).
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 January 1, 1999 using the
statistical discount rate. While reading the tables you should note that:
* 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 aggregate
Discounted Contract Balance of approximately [ ]% as of
January 1, 1999 (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.
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Certain contracts intended, as of January 1, 1999, to be transferred
to the Trust may be determined not to meet the eligibility requirements and
such contracts may not be transferred to the Trust on the closing date for the
sale of the contracts to the Trust. While the statistical distribution of the
characteristics as of the closing date for the final pool of contracts and
calculated at the discount rate will vary somewhat from the statistical
distribution of such characteristics as of January 1, 1999 and calculated at the
statistical discount rate as presented in this prospectus, such variance will
not be material. With respect to notes issued in a separate offering by the
Heller Equipment Asset Receivables Trust 1997-1, the variance between the
aggregate discounted contract balance calculated at the statistical discount
rate and the discount rate was .36%. There can be no assurance that the variance
between the statistical discount rate and the discount rate with respect to the
Notes issued by the Trust will be substantially similar. The percentages and
balances set forth in each of the following tables may not total due to
rounding.
Aggregate Discounted Contract Balance $428,332,192
Number of Contracts 1,639
Weighted Average Original Term 56.26
(Range) (in months) 18 - 114
Weighted Average Remaining Term 43.03
(Range) (in months) 5 - 84
Average Discounted Contract Balance $261,338
23
<PAGE>
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
Data as of January 1, 1999
<TABLE>
<CAPTION>
Percentage of Aggregate
Percentage of Number of Discounted Contract Discounted Contract
Type Number of Contracts Contracts Balance Balance
<S> <C> <C> <C> <C>
End-User Loans % $ %
Vendor Loans % $ %
Finance Leases % $ %
Total: % $ %
</TABLE>
24
<PAGE>
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED
As of January 1, 1999
(ordered by percentage of Aggregate Discounted Contract Balance)
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Number Aggregate Discounted
State Contracts of Contracts Discounted Contract Balance Contract Balance
<S> <C> <C> <C> <C>
CA 277 16.90% $90,491,286 21.13%
NY 156 9.52% $28,736,519 6.71%
IL 110 6.71% $26,659,119 6.22%
NJ 75 4.58% $21,632,083 5.05%
VA 15 0.92% $20,802,060 4.86%
TX 66 4.03% $19,820,900 4.63%
MA 81 4.94% $19,152,622 4.47%
MN 78 4.76% $17,472,670 4.08%
PA 93 5.67% $16,995,303 3.97%
FL 69 4.21% $16,224,502 3.79%
OH 51 3.11% $14,405,016 3.36%
CT 48 2.93% $12,909,137 3.01%
WA 39 2.38% $12,626,300 2.95%
AZ 31 1.89% $9,608,089 2.24%
WI 21 1.28% $8,118,990 1.90%
GA 35 2.14% $7,768,809 1.81%
MO 20 1.22% $7,571,289 1.77%
OR 18 1.10% $7,504,809 1.75%
TN 25 1.53% $6,678,100 1.56%
NC 42 2.56% $6,610,472 1.54%
SD 2 0.12% $6,574,570 1.53%
MI 37 2.26% $5,972,814 1.39%
ID 2 0.12% $5,260,028 1.23%
CO 21 1.28% $3,497,509 0.82%
IN 26 1.59% $3,474,240 0.81%
KY 20 1.22% $3,449,552 0.81%
UT 12 0.73% $3,055,946 0.71%
KS 14 0.85% $2,484,335 0.58%
AL 8 0.49% $2,381,367 0.56%
NH 18 1.10% $2,419,225 0.56%
RI 20 1.22% $2,406,209 0.56%
MD 20 1.22% $2,255,037 0.53%
AR 7 0.43% $2,193,731 0.51%
IA 14 0.85% $2,079,443 0.49%
NV 10 0.61% $1,671,099 0.39%
SC 10 0.61% $1,537,918 0.36%
WV 12 0.73% $1,439,143 0.34%
MS 11 0.67% $1,218,451 0.28%
LA 9 0.55% $1,031,196 0.24%
NE 2 0.12% $727,229 0.17%
ME 4 0.24% $540,645 0.13%
DE 1 0.06% $259,574 0.06%
NM 1 0.06% $150,410 0.04%
VT 3 0.18% $178,535 0.04%
DC 3 0.18% $137,566 0.03%
MT 1 0.06% $97,102 0.02%
AK 1 0.06% $51,243 0.01%
Total: 1,639 100.00% $428,332,192 100.00%
</TABLE>
25
<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
As of January 1, 1999
(ordered by percentage of Aggregate Discounted Contract Balance)
<TABLE>
<CAPTION>
Percentage of Number Discounted Contract Percentage of Aggregate
Equipment Type Number of Contracts of Contracts Balance Discounted Contract Balance
<S> <C> <C> <C> <C>
Computer Hardware 274 16.72% $73,894,775 17.25%
Printing 185 11.29% $72,180,159 16.85%
Computer Software 107 6.53% $48,726,963 11.38%
Machine Tool 342 20.87% $45,336,229 10.58%
Plastics 267 16.29% $34,527,580 8.06%
General Equipment 19 1.16% $22,211,924 5.19%
High Tech Manufacturing 9 0.55% $20,254,739 4.73%
Entertainment 17 1.04% $16,198,642 3.78%
Construction 86 5.25% $14,841,573 3.46%
Furniture and Fixture 29 1.77% $12,447,482 2.91%
Industrial Equipment 16 0.98% $8,588,546 2.01%
Telecommunications 8 0.49% $7,107,803 1.66%
Medical - Hospital 41 2.50% $6,776,634 1.58%
Transportation 3 0.18% $6,201,023 1.45%
Dry Cleaning 32 1.95% $5,419,592 1.27%
Pre-Press 22 1.34% $4,883,639 1.14%
Vehicles 10 0.61% $4,775,774 1.11%
Agriculture 15 0.92% $4,387,700 1.02%
Medical - Clinic 11 0.67% $4,266,825 1.00%
Dental 1 0.06% $3,191,654 0.75%
Textile 46 2.81% $2,588,897 0.60%
Retail 38 2.32% $2,212,303 0.52%
Oil & Gas Extraction 23 1.40% $1,563,447 0.37%
Embroidery Equipment 6 0.37% $1,481,649 0.35%
Communication 9 0.55% $1,433,687 0.33%
Franchising 7 0.43% $1,022,476 0.24%
Medical 3 0.18% $828,858 0.19%
Film Processing 8 0.49% $446,706 0.10%
Environmental Control 1 0.06% $172,677 0.04%
Food Processing 1 0.06% $148,521 0.03%
Miscellaneous House 1 0.06% $125,049 0.03%
Material Handling 1 0.06% $47,373 0.01%
Petroleum Equipment 1 0.06% $41,294 0.01%
Total: 1,639 100.00% $428,332,192 100.00%
</TABLE>
26
<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
Data as of January 1, 1999
(ordered by percentage of Aggregate Discounted Contract Balance)
<TABLE>
<CAPTION>
Percentage of Number of Discounted Contract Percentage of Aggregate
Industry Number of Contracts Contracts Balance Discounted Contract Balance
<S> <C> <C> <C> <C>
Printing/Publishing 183 11.17% $71,394,608 16.67%
Misc. bus credit institution 181 11.04% $22,387,155 5.23%
Plastics Products NEC 150 9.15% $21,815,850 5.09%
Industrial Machinery NEC 53 3.23% $17,392,563 4.06%
Semiconductors/Related 44 2.68% $13,451,222 3.14%
Devices
Gen Med/Surgical Hospitals 44 2.68% $11,013,190 2.57%
Computer Storage Devices 35 2.14% $10,146,425 2.37%
Radiotelephone 32 1.95% $9,646,858 2.25%
Communications
Eating Places 30 1.83% $8,029,390 1.87%
Equipment Rental/Leasing 30 1.83% $7,961,496 1.86%
NEC
Nonclassifiable estabs NEC 29 1.77% $6,705,639 1.57%
Commercial Equipment NEC 26 1.59% $6,468,685 1.51%
Truck Rental/Leasing/No 25 1.53% $6,120,873 1.43%
drivers
Concrete Work 22 1.34% $6,054,939 1.41%
Computer Integrated Sys 21 1.28% $6,028,955 1.41%
Design
Misc. Personal Services 21 1.28% $6,024,913 1.41%
Computer Storage Devices 20 1.22% $5,896,440 1.38%
Air Transport 19 1.16% $5,698,658 1.33%
Loans Brokers 15 0.92% $5,296,548 1.24%
Non-depository Loan 14 0.85% $5,239,133 1.22%
Companies
Spec Dies/Tools/Jigs/Fixtures 13 0.79% $4,986,747 1.16%
Television Broadcasting 13 0.79% $4,688,763 1.09%
Stations
Management Services 11 0.67% $4,547,114 1.06%
Ready-Mixed Concrete 11 0.67% $4,513,110 1.05%
Farm Machinery/Equipment 11 0.67% $3,887,797 0.91%
Total 1053 64.25% $275,397,074 64.30%
All others 586 35.75% $152,935,119 35.70%
Total: 1,639 100.00% $428,332,192 100.00%
</TABLE>
27
<PAGE>
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT BALANCE
Data as of January 1, 1999
<TABLE>
<CAPTION>
Original Percentage of Discounted Percentage of
Contract Number of Number of Contract Aggregate Discounted
Balance Contracts Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
- 100,000 366 22.33% $17,078,691 3.99%
100,001 - 200,000 477 29.10% $43,891,656 10.25%
200,001 - 300,000 270 16.47% $42,471,573 9.92%
300,001 - 400,000 135 8.24% $29,799,781 6.96%
400,001 - 500,000 85 5.19% $22,433,407 5.24%
500,001 - 600,000 74 4.51% $24,236,496 5.66%
600,001 - 700,000 37 2.26% $14,790,209 3.45%
700,001 - 800,000 29 1.77% $13,019,130 3.04%
800,001 - 900,000 14 0.85% $7,502,509 1.75%
900,001 - 1,000,000 14 0.85% $7,476,528 1.75%
1,000,001 - 138 8.42% $205,632,213 48.01%
Total: 1,639 100.00% 100.00%
</TABLE>
DISTRIBUTION OF CONTRACTS BY REMAINING CONTRACT BALANCE
Data as of January 1, 1999
<TABLE>
<CAPTION>
Remaining Percentage of Discounted Percentage of
Contract Number of Number of Contract Aggregate Discounted
Balance Contracts Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
- 100,000 688 41.98% $40,879,967 9.54%
100,001 - 200,000 464 28.31% $66,591,394 15.55%
200,001 - 300,000 191 11.65% $46,969,730 10.97%
300,001 - 400,000 80 4.88% $27,307,158 6.38%
400,001 - 500,000 49 2.99% $22,128,611 5.17%
500,001 - 600,000 32 1.95% $17,580,873 4.10%
600,001 - 700,000 18 1.10% $11,489,895 2.68%
700,001 - 800,000 19 1.16% $14,308,502 3.34%
800,001 - 900,000 13 0.79% $10,969,618 2.56%
900,001 - 1,000,000 13 0.79% $12,199,085 2.85%
1,000,001 - 72 4.39% $157,907,359 36.87%
Total: 1,639 100.00% 100.00%
</TABLE>
28
<PAGE>
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT TERM
Data as of January 1, 1999
<TABLE>
<CAPTION>
Number Percentage of Percentage of
Original Term of Numbers of Discounted Aggregate Discounted Contract
(Months) Contracts Contracts Contract Balance Balance
<S> <C> <C> <C> <C>
13 - 24 40 2.44% $17,631,275 4.12%
25 - 36 268 16.35% $68,096,417 15.90%
37 - 48 157 9.58% $58,843,417 13.74%
49 - 60 862 52.59% $169,431,195 39.56%
61 - 72 169 10.31% $37,751,694 8.81%
73 - 84 108 6.59% $52,122,014 12.17%
85 - 35 2.14% $24,456,181 5.71%
Total: 1,639 100.00% $428,332,192 100.00%
</TABLE>
DISTRIBUTION OF CONTRACTS BY REMAINING MONTHS TO STATED MATURITY
Data as of January 1, 1999
<TABLE>
<CAPTION>
Number Percentage of Percentage of
Remaining Term of Numbers of Aggregate Discounted Aggregate Discounted
(Months) Contracts Contracts Contract Balance Contract Balance
<S> <C> <C> <C> <C>
0 - 12 34 2.07% $5,472,035 1.28%
13 - 24 301 18.36% $57,269,074 13.37%
25 - 36 392 23.92% $109,823,291 25.64%
37 - 48 438 26.72% $86,637,268 20.23%
49 - 60 367 22.39% $109,891,706 25.66%
61 - 72 60 3.66% $29,491,203 6.89%
73 - 84 47 2.87% $29,747,617 6.94%
Total: 1,639 100.00% $428,332,192 100.00%
</TABLE>
29
<PAGE>
DELINQUENCY AND 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. Not all of the contracts in the Originator's aggregate
portfolio will be transferred to the Trust. For purposes of this table such
experience is described in terms of the"Lending Assets". Lending Assets are
receivables and repossessed assets.
The Originators define contract delinquency as a payment which is not
made consistent with the contract terms and a default ed 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.
As of January 1, 1999 no contract sold to the Trust has a scheduled
payment which is more than 60 days delinquent.
The data presented in the following tables and discussion thereof
reflect historical results and there is no assurance that the delinquency or
loss experience of the contracts will be similar to that set forth below.
Twelve Months Ended December 31, 1998 versus Twelve Months Ended December 31,
1997
The amounts classified as delinquent as a percentage of Lending Assets
[ ] between December 31, 1997 and December 31, 1998. Net losses as a percentage
of Average Lending Assets decreased slightly in 1998 as compared to 1997. The
slight decrease is not attributable to any one factor and we have no basis to
predict, and offer no assurances as to, whether net losses as a percentage of
Lending Assets will continue to decrease in subsequent periods. Average Lending
Assets decreased approximately 18% from December 31, 1997 to December 31, 1998
due to normal fluctuations in the amount of contracts originated. We believe
that stability in delinquency and loss experience is a result of continued
generally favorable economic conditions and consistent application of credit
standards on the part of the originators of such assets.
Twelve Months Ended December 31, 1997 versus Twelve Months Ended December 31,
1996
The amounts classified as delinquent as a percentage of Lending Assets
[ ] between December 31, 1996 and December 31, 1997. Net losses as a percentage
of Average Lending Assets increased slightly in 1997 as compared to 1996. Such
increase is not attributable to any one factor and we believe that it is
partially attributable to the increase in Average Lending Assets. Average
Lending Assets increased approximately 24% from December 31, 1996 to December
31, 1997 due to an increase in financing activity. As noted above, we believe
that stability in delinquency and loss experience is a result of continued
generally favorable economic conditions and consistent application of credit
standards on the part of the originators of such assets.
Twelve Months Ended December 31, 1996 versus Twelve Months Ended December 31,
1995
The amounts classified as delinquent as a percentage of Lending Assets
[ ] between December 31, 1995 and December 31, 1996. Net losses as a percentage
of Average Lending Assets decreased slightly during the same period while
Average Lending Assets increased approximately 32%. As noted above, we believe
that stability in delinquency and loss experience is a result of continued
generally favorable economic conditions and consistent application of credit
standards on the part of the originators of such assets.
30
<PAGE>
<TABLE>
<CAPTION>
Contract Portfolio
Delinquency Experience (1)(2)
(Dollars in Millions)
At
________________________________________________________________________________________________
Twelve Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ending Lending
Assets (3)........... $1,479.00 100.00% $1,516.00 100.00% $1,353.00 100.00% $1,193.0 100.00%
No. of Delinquent Days
(% of Ending Lending
Assets)..............
31-60 days........... % % % %
61-90 days........... $5.50 0.37% $4.20 0.28% $3.50 0.26% $11.90 1.17%
Over 90 days......... $14.9 1.01% $19.5 1.29% $18.70 1.38% 11.7 1.15%
Total % % %
</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) Delinquent amounts are reported gross of unearned finance charges.
(3) Lending Assets are defined as receivables and repossessed assets.
31
<PAGE>
<TABLE>
<CAPTION>
Contract Portfolio
Contract Loss Experience
(Dollars in Millions)
At
_____________________________________________________________________________________________________
Twelve Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1998(1) 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Lending
Assets (1).............. $1,615.00 100% $1,416.00 100% $1,144.00 100% $964.00 100%
Gross Losses (as % of
Lending Assets) (2)..... $1.35 0.08% $1.92 0.14% $0.65 0.06% $0.89 0.09%
Gross Recoveries (as % of
Lending Assets)......... $0.60 0.03% $0.42 0.03% 0.36 0.03% 0.31 0.03%
Net Losses (as % of
Lending Assets) (3)..... $0.75 0.05% $1.50 0.11% 0.29 0.03% $0.58 0.06%
</TABLE>
(1) Lending Assets are defined as receivables and repossessed assets.
(2) With respect to contracts representing over [ ]% of the average
Lending Assets for contracts secured by printing equipment, defaults
would have been approximately $8.4 million in the twelve months ended
December 31, 1998 and $4.1 million for the twelve months ended
December 31, 1997; 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.
32
<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. All of the contracts are
commercial contracts.
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 of 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. In order for a contract to be eligible to be transferred to the
Trust and to a Trust asset it must have certain characteristics which are more
fully described in "The Sale and Servicing Agreement -- Representations and
Warranties; Definition of Eligible Contract".
Conditional Sale Agreements. The Originators offer financing for
equipment under conditional sale agreements assigned to the Originators by
Vendors. Most of the conditional sale agreements transferred to the Trust 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 o f business by either the Originator or a
Vendor (and assigned to the Originator pursuant to a Vendor finance agreement or
Vendor assignment).
The initial terms of the leases transferred to the Trust 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 transferred to the Trust are "net leases" under which
the end-user assumes responsibility for the items financed thereunder, including
operation, maintenance, repair, insurance (the Originator or Vendor is named as
loss payee) 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
33
<PAGE>
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 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 Uniform Commercial Code. Under a "true
lease," the lessor bears the risk of ownership (although the risk of loss of the
related 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 -- 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;
34
<PAGE>
(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 provide 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 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 Uniform
Commercial Code. 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: printing, pre-press, machine tool, plastics, computer
hardware, computer software, restaurant, transportation, energy related,
medical, industrial equipment and aircraft. 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
or the Trust Depositor. 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 aggregate
Discounted Contract Balance 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 Vendor finance program (including a Vendor finance program
under which end-user contracts also are or may be originated by the
35
<PAGE>
Originator directly, or purchased by the Originator from the Vendor, in separate
transactions not giving rise to Vendor Loans). See "--Vendor Finance Programs".
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 Vendor finance
program. 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.
Vendor Finance Programs
It is expected that a substantial portion of the end-user contracts
included in the Trust will have been originated by Vendors and assigned or
pledged to the Originator pursuant to Vendor finance programs. Also, as
described above, Vendor Loans may be originated through Vendor finance programs
with the related Vendor. All rights (but not obligations) of the Originators
with respect to the contracts under the agreements governing Vendor finance
programs 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 Vendor finance programs with Vendors 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 programs 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 Vendor
finance programs 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 Vendor finance programs 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 agreement governing a Vendor finance program (other than
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); and
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.
The Originator may delegate to the Vendor (or, in certain limited
circumstances, a sub-servicer acceptable to the Originator) pursuant to the
Vendor finance program agreement, ongoing administrative duties relating to
servicing, processing of collections and actual substantive collection
remedies.
In addition to the foregoing, a Vendor finance program agreement may
include recourse against the Vendor with respect to end-user defaults under
certain identified end-user contracts, either (i) by specifying that the
assignment of the end-user contract from the Vendor to the Originator is with
full recourse against the Vendor, (ii) by specifying that
36
<PAGE>
the Vendor will absorb a limited fixed dollar or percentage amount of "first
losses" on the contract, or (iii) by inclusion of the end-user contract in an
"ultimate net loss pool" created under the Vendor finance program. 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.
The manner in which end-user contracts are assigned to the Originator
by the Vendors differs under each Vendor finance program, depending upon the
nature of the financed equipment 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 the security interest in the
related equipment from the Vendor, or accept a full assignment of such end-user
contract and collateral assignment of related equipment from the Vendor, which
collateral assignment secures the end-user's obligations under the end-user
contract. The Originator also may receive, from a Vendor with respect to
software, a full assignment of leases, installment payment programs, installment
payment supplements to license programs, and other types of financing programs
used in financing software license payments and related support and consulting
services.
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
programs, will consist of end-user contracts originated by Vendors and assigned
to the Originator pursuant to assignment programs from time to time with
Vendors, each of which relates to an individual end-user contract, rather than
pursuant to a Vendor finance program. 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 Vendor finance
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 the
contracts have been transferred to the Trust for the benefit of the holders of
the Notes and Certificates, 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 such contracts have been transferred to the Trust for
the benefit of the holders of the Notes and Certificates. 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
have been transferred to the Trust, identified by account number and by the
Discounted Contract Balance as of the applicable cutoff date.
How Collections on the Contracts are Treated
All collections received with respect to the contracts will be
allocated as described herein. See "Description of the Notes and Indenture --
Allocations". Prepayments will be treated as though they were received on the
last day of the collection period in which they are actually received for
purposes of calculating amounts available for distribution to you. Payments of
principal on the contracts made in advance of their due date will be treated as
though they were received on the last day of the collection period in which such
principal payments were actually 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 payments scheduled to be made
under the terms of the contracts, 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 a comparable
Additional Contract as described herein (see "The Sale and Servicing
Agreement"), will shorten the weighted average remaining term of the contracts
and the weighted average life of the Notes.
37
<PAGE>
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 contracts pursuant to the Sale and
Servicing Agreement as a result of (i) a breach of representation or warranty as
to such contracts (such contracts having been identified as contracts which are
not eligible to be Trust assets or Excess Contracts), such contracts becoming
defaulted contracts or materially modified contracts or (ii) the exercise by the
Trust Depositor of its repurchase option when the aggregate Discounted Contract
Balance of the contracts is less than 10% of the aggregate Discounted Contract
Balance of the contracts as of January 1, 1999, the initial cutoff date.
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 (together with accrued interest thereon) so
long as the Trust is indemnified for any such insufficiency by the Vendor or the
Originator. In the case of contracts which must be removed from the Trust assets
due to their failure to have the characteristics set forth in the Sale and
Servicing Agreement or which are Excess Contracts, such rate of prepayment would
also be influenced by the Trust Depositor's decision not to repurchase such
contracts and instead, to accept Substitute Contracts (see "The Sale and
Servicing Agreement -- Substitute Contracts and Additional Contracts"). In the
event of a repurchase, the repurchase price will decrease the aggregate
Discounted Contract Balance 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."
A higher than anticipated rate of prepayment will reduce the aggregate
Discounted Contract Balance of the contracts more quickly than expected and
thereby result in an increase in the rate at which principal is paid to you and
reduce the aggregate interest payments you may have expected to receive on the
Notes.
The effective yield to holders of the 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 A-3 Notes, Class A-4 Notes
and Class B Notes which would be outstanding on the distribution dates set forth
below assuming a conditional payment rate of 0.00%, 6.00%, 12.00% 17.00% and
24.00%, respectively. Such information is hypothetical and is set forth for
illustrative purposes only. The conditional payment rate 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 conditional payment rate measures
prepayments based on the outstanding Discounted Contract Balances of the
contracts, after the payment of all payments scheduled to be made under the
terms of the contracts during each collection period. Each collection period
begins on the second day of a calendar month and ends on and includes the first
day of the immediately following calendar month. The conditional payment rate
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 January 1, 1999, assumes that the Trust
Depositor does not exercise its option to cause a redemption of the Notes when
the aggregate Discounted Contract Balance of the contracts is less than 10% of
the aggregate Discounted Contract Balance of the contracts as of January 1, 1999
(the initial cutoff date), and assumes the closing date for the sale of the
contracts to the Trust is [ ], 1999.
38
<PAGE>
PERCENTAGE OF THE
INITIAL CLASS A-1 PRINCIPAL AMOUNT,
INITIAL CLASS A-2 PRINCIPAL AMOUNT,
INITIAL CLASS A-3 PRINCIPAL AMOUNT,
INITIAL CLASS A-4 PRINCIPAL AMOUNT AND
INITIAL CLASS B PRINCIPAL AMOUNT
AT THE RESPECTIVE CONDITIONAL
PAYMENT RATE SET FORTH BELOW
0.00% CONDITIONAL PAYMENT RATE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Distribution Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
[Closing Date] 100.00% 100.00% 100.00% 100.00% 100.00%
March 15, 1999
April 15, 1999
May 15, 1999
June 15, 1999
July 15, 1999
August 15, 1999
September 15, 1999
October 15, 1999
November 15, 1999
December 15, 1999
January 15, 2000
February 15, 2000
March 15, 2000
April 15, 2000
May 15, 2000
June 15, 2000
July 15, 2000
August 15, 2000
September 15, 2000
October 15, 2000
November 15, 2000
December 15, 2000
January 15, 2001
February 15, 2001
March 15, 2001
April 15, 2001
May 15, 2001
June 15, 2001
July 15, 2001
August 15, 2001
September 15, 2001
October 15, 2001
November 15, 2001
December 15, 2001
January 15, 2002
February 15, 2002
March 15, 2002
April 15, 2002
May 15, 2002
June 15, 2002
July 15, 2002
August 15, 2002
September 15, 2002
October 15, 2002
November 15, 2002
December 15, 2002
January 15, 2003
February 15, 2003
March 15, 2003
April 15, 2003
May 15, 2003
June 15, 2003
July 15, 2003
August 15, 2003
September 15, 2003
October 15, 2003
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Distribution Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
November 15, 2003
December 15, 2003
January 15, 2004
February 15, 2004
March 15, 2004
April 15, 2004
May 15, 2004
Weighted Average Life
</TABLE>
40
<PAGE>
6.00% CONDITIONAL PAYMENT RATE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Distribution Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
[Closing Date] 100.00% 100.00% 100.00% 100.00% 100.00%
March 15, 1999
April 15, 1999
May 15, 1999
June 15, 1999
July 15, 1999
August 15, 1999
September 15, 1999
October 15, 1999
November 15, 1999
December 15, 1999
January 15, 2000
February 15, 2000
March 15, 2000
April 15, 2000
May 15, 2000
June 15, 2000
July 15, 2000
August 15, 2000
September 15, 2000
October 15, 2000
November 15, 2000
December 15, 2000
January 15, 2001
February 15, 2001
March 15, 2001
April 15, 2001
May 15, 2001
June 15, 2001
July 15, 2001
August 15, 2001
September 15, 2001
October 15, 2001
November 15, 2001
December 15, 2001
January 15, 2002
February 15, 2002
March 15, 2002
April 15, 2002
May 15, 2002
June 15, 2002
July 15, 2002
August 15, 2002
September 15, 2002
October 15, 2002
November 15, 2002
December 15, 2002
January 15, 2003
February 15, 2003
March 15, 2003
April 15, 2003
May 15, 2003
June 15, 2003
July 15, 2003
August 15, 2003
September 15, 2003
October 15, 2003
November 15, 2003
December 15, 2003
January 15, 2004
February 15, 2004
March 15, 2004
April 15, 2004
May 15, 2004
Weighted Average
</TABLE>
41
<PAGE>
12% CONDITIONAL PAYMENT RATE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Distribution Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
[Closing Date] 100.00% 100.00% 100.00% 100.00% 100.00%
March 15, 1999
April 15, 1999
May 15, 1999
June 15, 1999
July 15, 1999
August 15, 1999
September 15, 1999
October 15, 1999
November 15, 1999
December 15, 1999
January 15, 2000
February 15, 2000
March 15, 2000
April 15, 2000
May 15, 2000
June 15, 2000
July 15, 2000
August 15, 2000
September 15, 2000
October 15, 2000
November 15, 2000
December 15, 2000
January 15, 2001
February 15, 2001
March 15, 2001
April 15, 2001
May 15, 2001
June 15, 2001
July 15, 2001
August 15, 2001
September 15, 2001
October 15, 2001
November 15, 2001
December 15, 2001
January 15, 2002
February 15, 2002
March 15, 2002
April 15, 2002
May 15, 2002
June 15, 2002
July 15, 2002
August 15, 2002
September 15, 2002
October 15, 2002
November 15, 2002
December 15, 2002
January 15, 2003
February 15, 2003
March 15, 2003
April 15, 2003
May 15, 2003
June 15, 2003
July 15, 2003
August 15, 2003
September 15, 2003
October 15, 2003
November 15, 2003
December 15, 2003
January 15, 2004
February 15, 2004
March 15, 2004
April 15, 2004
May 15, 2004
Weighted Average
</TABLE>
42
<PAGE>
17% CONDITIONAL PAYMENT RATE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Distribution Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
[Closing Date] 100.00% 100.00% 100.00% 100.00% 100.00%
March 15, 1999
April 15, 1999
May 15, 1999
June 15, 1999
July 15, 1999
August 15, 1999
September 15, 1999
October 15, 1999
November 15, 1999
December 15, 1999
January 15, 2000
February 15, 2000
March 15, 2000
April 15, 2000
May 15, 2000
June 15, 2000
July 15, 2000
August 15, 2000
September 15, 2000
October 15, 2000
November 15, 2000
December 15, 2000
January 15, 2001
February 15, 2001
March 15, 2001
April 15, 2001
May 15, 2001
June 15, 2001
July 15, 2001
August 15, 2001
September 15, 2001
October 15, 2001
November 15, 2001
December 15, 2001
January 15, 2002
February 15, 2002
March 15, 2002
April 15, 2002
May 15, 2002
June 15, 2002
July 15, 2002
August 15, 2002
September 15, 2002
October 15, 2002
November 15, 2002
December 15, 2002
January 15, 2003
February 15, 2003
March 15, 2003
April 15, 2003
May 15, 2003
June 15, 2003
July 15, 2003
August 15, 2003
September 15, 2003
October 15, 2003
November 15, 2003
December 15, 2003
January 15, 2004
February 15, 2004
March 15, 2004
April 15, 2004
May 15, 2004
Weighted Average
</TABLE>
[CAPTION]
43
<PAGE>
24% CONDITIONAL PAYMENT RATE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Distribution Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
[Closing Date] 100.00% 100.00% 100.00% 100.00% 100.00%
March 15, 1999
April 15, 1999
May 15, 1999
June 15, 1999
July 15, 1999
August 15, 1999
September 15, 1999
October 15, 1999
November 15, 1999
December 15, 1999
January 15, 2000
February 15, 2000
March 15, 2000
April 15, 2000
May 15, 2000
June 15, 2000
July 15, 1999
August 15, 2000
September 15, 2000
October 15, 2000
November 15, 2000
December 15, 2000
January 15, 2001
February 15, 2001
March 15, 2001
April 15, 2001
May 15, 2001
June 15, 2001
July 15, 2001
August 15, 2001
September 15, 2001
October 15, 2001
November 15, 2001
December 15, 2001
January 15, 2002
February 15, 2002
March 15, 2002
April 15, 2002
May 15, 2002
June 15, 2002
July 15, 2002
August 15, 2002
September 15, 2002
October 15, 2002
November 15, 2002
December 15, 2002
January 15, 2003
February 15, 2003
March 15, 2003
April 15, 2003
May 15, 2003
June 15, 2003
July 15, 2003
August 15, 2003
September 15, 2003
October 15, 2003
November 15, 2003
December 15, 2003
January 15, 2004
February 15, 2004
March 15, 2004
April 15, 2004
May 15, 2004
Weighted Average
</TABLE>
44
<PAGE>
WEIGHTED AVERAGE LIFE (YEARS)
If the Trust Depositor exercises its option to cause a redemption of
the Notes when the aggregate Discounted Contract Balance of the contracts is
less than 10% of the aggregate Discounted Contract Balance of the contracts as
of January 1, 1999 (the initial cutoff date), the average life of the each class
of Notes would be as follows:
<TABLE>
<CAPTION>
Weighted Average Weighted Average Weighted Average Weighted Average Weighted Average
Life Assuming Life Assuming Life Assuming Life Assuming Life Assuming
Class 0.00% Conditional 6.00% Conditional 12% Conditional 17% Conditional 24% Conditional
Payment Rate Payment Rate Payment Rate Payment Rate Payment Rate
<S> <C> <C> <C> <C> <C>
Class A-1 Notes
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class B Notes
Class C Notes
Class D Notes
</TABLE>
The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-
3 Note, Class A-4 Note, Class B Note, Class C Note or Class D Note is determined
by
(a) multiplying the amount of cash distributions in reduction of the
outstanding principal amount of such class of Notes, by the
number of years from the closing date of the sale of the
contracts to the Trust to the respective Note payment date on
which such class of Notes is repaid in full,
(b) adding the results, and
(c) dividing the sum by the initial principal amount of such class of
Notes.
45
<PAGE>
HELLER FINANCIAL, INC. AND HELLER FINANCIAL LEASING, INC.
General
Heller Financial is a Delaware corporation formed in 1919 and is
engaged in various aspects of the commercial finance business. Heller Financial
and its consolidated subsidiaries employ approximately 2,500 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 56% 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 Leasing,
Inc. is a non-operating subsidiary which through the Commercial Equipment
Finance and the Global Vendor Finance business units (both as described below)
originates contracts.
Heller Financial is a leading diversified commercial financial services
company which provides a broad array of financial products and services to mid-
sized and small businesses in the United States and selected international
markets. Heller financial provides its products and services principally through
two business segments namely, Domestic Commercial Finance and International
Corporate Finance. The Domestic Commercial Finance segment is made up of five
business units: (i) Heller Corporate Finance, which provides collateralized cash
flow and asset based lending, (ii) Heller Real Estate Financial Services, which
provides secured real estate financing, (iii) Heller Leasing Services, which
provides debt and lease financing of small and large ticket equipment and
commercial aircraft, (iv) Heller Small Business Finance, which provides
financing to small businesses, primarily under U.S. Small Business
Administration loan programs, (v) Heller Commercial Services, which provides
factoring and receivables management services. Heller Financial's International
Factoring and Asset Based Finance segment provides factoring services and loans
secured primarily by receivables, inventory and equipment through its wholly-
owned subsidiaries and joint ventures. Heller Financial Leasing, Inc. is made
up of three distinct units: Global Vendor Finance, Commercial Equipment Finance
and Capital Finance.
Heller Financial primarly serves the middle-market businesses. 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.
<TABLE>
<CAPTION>
As of December 31,
1998 1997 1996
(in billions)
<S> <C> <C> <C>
Total Assets $12.9 $9.9
Total Liabilities $11.1 $8.4
Total Shareholder's Equity $1.7 $1.5
</TABLE>
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
1998 1997 1996
(in millions)
<S> <C> <C> <C>
Total Revenues $754 $533
Net Income $158 $133
</TABLE>
Heller Financial and Heller Financial Leasing, Inc. originated the
contracts under two separate operating units: Commercial Equipment Finance and
Global Vendor Finance. Originations from either Commercial Equipment Finance or
Global Vendor Finance must meet Heller Financial's Credit Risk Management System
as hereinafter described.
Credit Risk Management System
Heller Financial's Credit Risk Management System provides credit
functions within the Originators' origination groups (including Commercial
Equipment Finance and Global Vendor Finance) as well as credit oversight at
Heller
46
<PAGE>
Financial'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 a re performed. Credit
determinations are separate from origination and are staffed with experienced
credit and portfolio officers in the origination groups.
Oversight over the credit process at Heller Financial's corporate level
is headed by Heller Financial's Chief Credit Officer. The Chief Credit Officer
is responsible for ensuring that the credit risk management system is
appropriately implemented. Heller Financial's Chief Credit Officer approves all
new transactions and modifications that exceed origination group authority.
Additionally, Heller Financial's 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 Heller Financial.
The Credit Risk Management System emphasizes active portfolio
management in an effort to ensure:
* individual accounts are appropriately managed;
* portfolio reporting to management is accurate and timely; and
* problem accounts are identified and reported on a timely basis to
ensure prompt corrective action.
Each origination group has portfolio practices which enhance 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 Chief Executive Officer and
Chief Credit Officer. Heller Financial'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.
As Servicer, Heller Financial will continue to apply its Credit Risk
Management System to the management of the contracts that have been sold to the
Trust.
Global Vendor Finance
General Description. Global Vendor Finance was formed in 1998 by the
combination of the existing Vendor Finance unit and U.S. assets of the Dealer
Products Group of Dana Commercial Credit Corporation and the stock of Dealer
Products Group's international subsidiaries which were acquired by Heller
Financial on November 30, 1998. Global Vendor Finance provides customized sales
financing programs that enable vendors and manufacturers in commercial,
industrial, medical, information and technology markets to offer financing and
leasing options to their customers. These programs are generally made with
partial, or in some cases, full recourse from the vendor. This unit also
provides a wide range of financing options to independent leasing companies,
including term financing, residual financing and private securitization
structures. The Global Vendor Finance portfolio is well diversified with an
average transaction size of $350,000 excluding newly acquired Dealer Products
Group which has an average transaction size of $10,000. In 1998, Global Vendor
Finance generated approximately $792 million in new business volume.
Global Vendor Finance's Credit Analysis. The primary factors used by
Global Vendor Finance in its credit analysis are the following (in order of
importance): (i) Vendor support and the Originator's reliance on such support,
(ii) the credit strength of the underlying end-user of the equipment or
software, and (iii) the value of the equipment.
The credit analysis involves finding an appropriate balance between these
factors.
The following discipline is applied to all Global Vendor Finance
originations:
* a complete underwriting is required for each new Vendor finance
program evaluating financial information, equipment value, quality of
obligor customer base, review of relevant industry data and the value
of recourse,
* tiered credit approval authorities have been implemented for each
Vendor program and the transactions originated under such
programs,
* a comprehensive credit policies and procedures manual is maintained
to ensure consistent compliance with the Originator's credit
standards,
* an independent internal audit function exists within Global Vendor
Finance to conduct due diligence on new client relationships
and which conducts ongoing audits of the client relationship,
47
<PAGE>
. financial performance of each Vendor is periodically reviewed,
. Global Vendor Finance's portfolio is reviewed semiannually with the
Originator's Chief Executive Officer and Chief Credit Officer, and
. there is an independent internal audit function.
Collection Process/Vendor Recourse. The Vendor finance programs generally
provide for some form of credit support or recourse to the Vendor. 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 Originators originate, document and perform servicing with
respect to the contracts. The Vendor may generate documents and the bills as
well as collect payments from the end-user and remit 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 originates the contract and the Servicer performs the
servicing with respect to such contract. In general, the servicing function
of the Vendor is an important factor in the pricing characteristics for the
respective Vendor finance 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
Vendor, 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. In addition to direct origination, Commercial Equipment Finance
generates business through traditional broker and intermediary channels. 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 1998 was approximately $600
million representing a 11% increase over 1997.
Commercial Equipment Finance Credit Analysis. Commercial Equipment
Finance's approach to lending concentrates on three critical factors:
. cash flow of the obligor (i.e. evaluate the quality of the underlying
obligor's cash flow by analyzing the related industry dynamics, such
obligor's competitive strengths and weaknesses, the role of external
factors in such obligor's business as well as the financial profile of the
obligor),
. 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
. the Originator's position in the overall capital structure of the obligor
(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:
. 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,
. reliance on the Commercial Equipment Finance Policy Manual,
48
<PAGE>
. 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),
. quarterly/annual financial reviews of each account are prepared by
Commercial Equipment Finance credit staff,
. quarterly reviews of the portfolio are conducted with the Chief Executive
Officer and Chief Credit Officer of the Originator,
. monthly distribution of key reports (delinquency, flash reports, risk
ratings changes, etc.) to the Originator's senior management (this helps
ensure prompt communication of material credit issues), and
. 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 a region credit manager on a monthly basis. Heller Financial'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 Uniform Commercial Code 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.
Legal Proceedings
Heller Financial is not subject to any legal proceedings that could have a
material adverse impact on its operations or its consolidated financial
condition
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, we will have had no assets or obligations and no operating history.
Upon formation, we will not engage in any business activity other than (a)
acquiring , managing and holding the contracts and related interests described
herein, (b) issuing the Notes and Certificates, (c) making distributions and
payments thereon and (d) engaging in those activities, including entering into
agreements, that are necessary, suit able or convenient to accomplish the
foregoing or are incidental thereto or connected therewith. As a consequence, we
do not expect 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
January 1, 1999 as if the issuance and sale of the Notes had taken place on
January 1, 1999:
Class A-1 Receivable-Backed Notes.....................$
Class A-2 Receivable-Backed Notes....................._________
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Class A-3 Receivable-Backed Notes................................
-----
Class A-4 Receivable-Backed Notes................................
Class B Receivable-Backed Notes..................................
Class C Receivable-Backed Notes..................................
Class D 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 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 into trusts
or other securitization vehicles. As a bankruptcy-remote entity, the Trust
Depositors' 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 the
Contracts and the security 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.
Within [ ] of the closing of the sale of the contracts to the
Trust, Heller Funding Corporation II will be liquidated ed and all of its assets
and liabilities, including without limitation its obligations as Trust Depositor
under the agreement forming the Trust and the Sale and Servicing Agreement will
be assumed by its successor, Heller Funding Corporation. When we refer to the
Trust Depositor in this prospectus we are referring to Heller Funding
Corporation II prior to the closing and Heller Funding Corporation as the
successor to Heller Funding Corporation II after the closing.
DESCRIPTION OF THE NOTES AND INDENTURE
The statements under this caption describe all of the material terms of
the Notes and Indenture, dated as of March 1, 1999, between the Trust and the
Indenture Trustee. However, such statements are summaries. For a more detailed
description of the terms of the Notes, 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 offered Notes will consist of five classes, the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, and the Class B
Notes. The Class C Notes and Class D Notes are not being offered and sold
pursuant to this prospectus. 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 A-3 Notes, Class A-4 Notes and Class B 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 last day of the month
preceding the month in which such payments will be made. 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 and Indenture--Book-Entry Registration".
The Indenture Trustee will be granted a first priority lien on the
Trust's assets to secure the Notes; provided, that distribution ions 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 and Principal
Interest on the Notes will be payable on the 15th day of each calendar
month (or if that day is not a business day, the next business day), beginning
on [ ], 1999 until the Notes have been paid in full or have matured. Interest on
the offered Notes will be paid at the respective rates specified on the cover of
this prospectus. Interest on each class of Notes will accrue at the
50
<PAGE>
interest rate specified for such class, for the period from and including the
most recent date on which interest has been paid (or, in the case of the initial
interest payment date, from and including the closing date for the initial
transfer of the Contracts to the Trust) to but excluding the following interest
and principal payment date. The interest will accrue on the outstanding
principal amount of the Notes as of the first day of such period.
The stated maturity dates of the offered Notes are specified on the cover
of this prospectus. The Class C Notes will have a stated maturity date of [ ]
and the Class D Notes will have a stated maturity date of [ ]. However, if all
payments on the contracts are made as scheduled, final payment with respect to
the Notes would occur prior to stated maturity. Prior to the respective stated
maturity dates, amounts to be applied in reduction of the outstanding principal
amount of any Note, including the payment of the Class A Principal Payment
Amount, Class B Principal Payment Amount, Class C Principal Payment Amount or
Class D Principal Payment Amount payable on any interest and principal payment
date, will not be due and payable, although the failure of the Trust Depositor
or Servicer to remit any amounts available for payment on the Notes will, after
the applicable grace period, constitute an event of default under the Indenture.
See "Description of the Notes and Indenture--Events of Default".
We will pay interest and principal on the Notes on an interest and
principal payment date using amounts representing primarily collections of
payments due under the contracts and certain amounts received upon prepayment or
purchase of the contracts or liquidation of the contracts and disposition of the
related equipment upon defaults thereunder, but only after we use such amounts
to repay Servicer advances (see "The Sale and Servicing Agreement--Collection
and Other Servicing Procedures"), the Servicer's monthly servicing fee. See
"Amounts Available for Payments on the Notes".
Amounts Available for Payments on the Notes
As of any interest and principal payment date which shall be the 15th day
of each calendar month, the amounts available for payment of interest and/or
principal consist of:
. all amounts on deposit in the Collection Account as of the third business
day immediately preceding such payment date on account of scheduled
payments due on or before, and prepayments received on or before, the
preceding collection period (other than Excluded Amounts);
. recoveries on account of previously defaulted contracts received during
the preceding collection period (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 agreement with a Vendor, net of collection and liquidation
expenses);
. amounts held from time to time in the Collection Account, together with
investment earnings credited to the Collection Account;
. late charges relating to a contract (provided such late charges were
included in the contract's terms as of the applicable cutoff date)
received during the preceding collection period; and
. proceeds of any of the foregoing.
Each collection period for purposes of determining the amounts available
for distribution on the Notes is a monthly period that begins on the second day
of each calendar month and ends on and includes the first day of the next
following calendar month.
Amounts available for distribution to the Noteholders 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.
Prepayments on the contracts which are treated as available amounts
are:
. 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);
. 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);
. payments upon the liquidation of defaulted contracts;
51
<PAGE>
. 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
. payments upon an optional termination of the Trust.
Allocations
Prior to an Event of Default. On the third business day prior to each date
on which interest and principal on the Notes is to be paid, prior to the
occurrence of an event of default under the Indenture (see"--Events of
Default"), the Servicer shall instruct the Indenture Trustee to withdraw, and on
the payment date the Indenture Trustee shall withdraw, from the Collection
Account the amounts needed to make the following payments. See "-- Amounts
Available for Payment on the Notes." The payments listed below will be made only
to the extent there are sufficient amounts available on such payment date. We
will make payments on the 15th day of each calendar month (or if such day is not
a business day, the next business day) in the following order of priority:
FIRST, to the Servicer, reimbursement for the amount of any scheduled
payments on the contracts which were not received when due and which the
Servicer advanced for deposit in the Collection Account;
SECOND, 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;
52
<PAGE>
THIRD, to the holders of the Notes, the amounts specified in the following
table and in the order set forth in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class of Note
Receiving Payment Amount to be Paid
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
A-1, A-2, A-3 and Interest accrued on the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4
A-4 Notes at their respective interest rates for the period from and including the most recent date
on which interest has been paid to, but excluding, the current interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
B Interest accrued on the Class B Notes at the Class B Note interest rate for the period from and
including the most recent date on which interest has been paid to, but excluding, the current
interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
C Interest accrued on the Class C Notes at the Class C Note interest rate for the period from and
including the most recent date on which interest has been paid to, but excluding, the current
interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
D Interest accrued on the Class D Notes at the Class D Note interest rate for the period from and
including the most recent date on which interest has been paid to, but excluding, the current
interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
A-1 The Class A Principal Payment Amount, until the outstanding principal of the Class A-1
Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
A-2 . $0, until the payment date on which the outstanding principal of the Class A-1 Notes is
reduced to $0.
. Class A Principal Amount, on subsequent payment dates until the outstanding principal of
the Class A-2 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
A-3 . $0, until the payment date on which the outstanding principal of the Class A-1 Notes and
Class A-2 Notes is reduced to $0.
. Class A Principal Amount, on subsequent payment dates until the outstanding principal of
the Class A-3 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
A-4 . $0, until the payment date on which the outstanding principal of the Class A-1 Notes, Class
A-2 Notes and Class A-3 Notes is reduced to $0.
. Class A Principal Amount, on subsequent payment dates until the outstanding principal of
the Class A-4 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
B . $0, until the payment date on which the outstanding principal of the Class A-1 Notes is
reduced to $0.
. Class B Principal Amount, on subsequent payment dates until the outstanding principal of
the Class B Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
C . $0, until the payment date on which the outstanding principal of the Class A-1 Notes is
reduced to $0.
. Class C Principal Amount, on subsequent payment dates until the outstanding principal of
the Class C Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
D . $0, until the outstanding principal of the Class A-1 Notes is reduced to $0.
. Class D Principal Amount, on subsequent payment dates until the outstanding principal of
the Class D Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
A-1 Additional Principal, until the outstanding principal of the Class A-1 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class of Note
Receiving Payment Amount to be Paid
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
A-2 . $0, until the outstanding principal of the Class A-1 Notes is reduced to $0.
. The excess of Additional Principal over the amount needed to reduce the outstanding
principal of the Class A-1 Notes to $0, on the payment date on which the outstanding
principal of the Class A-1 Notes is reduced to $0.
. Additional Principal, on subsequent payment dates until the outstanding principal of the
Class A-2 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
A-3 . $0, until the outstanding principal of the Class A-1 Notes and Class A-2 Notes is reduced to
$0.
. The excess of Additional Principal over the amount needed to reduce the outstanding
principal of the Class A-2 Notes to $0, on the payment date on which the outstanding
principal of the Class A-2 Notes is reduced to $0.
. Additional Principal, on subsequent payment dates until the outstanding principal of the
Class A-3 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
A-4 . $0, until the outstanding principal of the Class A-1 Notes, Class A-2 Notes and Class A-3
Notes is reduced to $0.
. The excess of Additional Principal over the amount needed to reduce the outstanding
principal of the Class A-3 Notes to $0, on the payment date on which the outstanding
principal of the Class A-3 Notes is reduced to $0.
. Additional Principal, on subsequent payment dates until the outstanding principal of the
Class A-4 Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
B . $0, until the outstanding principal of the Class A-4 Notes is reduced to $0.
. The excess of Additional Principal over the amount needed to reduce the outstanding
principal of the Class A-4 Notes to $0, on the payment date on which the outstanding
principal of the Class A-4 Notes is reduced to $0.
. Additional Principal, on subsequent payment dates until the outstanding principal of the
Class B Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
C . $0, until the outstanding principal of the Class B Notes is reduced to $0.
. The excess of Additional Principal over the amount needed to reduce the outstanding
principal of the Class B Notes to $0, on the payment date on which the outstanding principal
of the Class B Notes is reduced to $0.
. Additional Principal, on subsequent payment dates until the outstanding principal of the
Class C Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
D . $0, until the outstanding principal of the Class C Notes is reduced to $0.
. The excess of Additional Principal over the amount needed to reduce the outstanding
principal of the Class C Notes to $0, on the payment date on which the outstanding principal
of the Class C Notes is reduced to $0.
. Additional Principal, on subsequent payment dates until the outstanding principal of the
Class D Notes is reduced to $0.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOURTH, to the extent that any amounts remain after allocating the amounts
available for distribution on the Notes, the Indenture Trustee will deposit into
the Reserve Fund an amount, if any, which, when so deposited, causes the balance
in the Reserve Fund to equal the Reserve Fund Amount. Any amounts remaining
after making a deposit into the Reserve Fund, if any, will be paid to the holder
of the Certificates.
FIFTH, any excess shall be paid to the holder of the Certificates.
Pursuant to the Indenture, the Indenture Trustee will distribute
available amounts within each class of Notes in accordance with the foregoing
pro rata in accordance with the outstanding principal amount thereof.
Following an Event of Default. On the third business day prior to each
date on which interest and principal is to be paid, after the occurrence of an
event of default under the Indenture (see"--Events of Default"), the Servicer
shall instruct the Indenture Trustee to withdraw, and on the payment date the
Indenture Trustee acting in accordance with such instructions
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shall withdraw, from the Collection Account the amounts needed to make the
following payments. See "-- Amounts Available for Payment on the Notes." The
payments listed below will be made only to the extent there are sufficient
amounts available on such payment date. We will make payments on the 15th day of
each calendar month (or if such day is not a business day, the next business
day) in the following order of priority:
FIRST, pay to the Indenture Trustee, the amount of any unpaid fees,
expenses, late charges or other losses;
SECOND, pay to the Noteholders, reimbursement for any indemnity payments
made by them to the Indenture Trustee;
THIRD, to the holders of the Notes the amounts specified in the following
table and in the order set forth in the following table:
<TABLE>
<CAPTION>
Class of Note
Receiving Payment Amount to be Paid
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
A-1, A-2, A-3 and Interest accrued on the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4
A-4 Notes at their respective interest rates for the period from and including the most recent date
on which interest has been paid to, but excluding, the current interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
B Interest accrued on the Class B Notes at the Class B Note interest rate for the period from and
including the most recent date on which interest has been paid to, but excluding, the current
interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
C Interest accrued on the Class C Notes at the Class C Note interest rate for the period from and
including the most recent date on which interest has been paid to, but excluding, the current
interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
D Interest accrued on the Class D Notes at the Class D Note interest rate for the period from and
including the most recent date on which interest has been paid to, but excluding, the current
interest payment date.
- ------------------------------------------------------------------------------------------------------------------------------------
A-1 Outstanding principal of the Class A-1 Notes.
- ------------------------------------------------------------------------------------------------------------------------------------
A-2, A-3 and Outstanding principal of the Class A-2 Notes, Class A-3 Notes and Class A-4 Notes, pro rata
A-4 according to the outstanding principal for each such class of Notes.
- ------------------------------------------------------------------------------------------------------------------------------------
B Outstanding principal of the Class B Notes.
- ------------------------------------------------------------------------------------------------------------------------------------
C Outstanding principal of the Class C Notes.
- ------------------------------------------------------------------------------------------------------------------------------------
D Outstanding principal of the Class D Notes.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FIFTH, any excess shall be paid to the holders of the Certificates.
Reserve Fund
General. The Reserve Fund will be an account held in the name of the
Indenture Trustee on behalf of the Noteholders. The Reserve Fund will be created
with an initial deposit by the Trust Depositor on the closing date for the sale
of the contracts to the Trust. Such initial deposit shall be an amount equal to
the Reserve Fund Amount.
If the amount on deposit in the Reserve Fund on any interest and principal
payment date (after giving effect to all deposits thereto or withdrawals
therefrom on such 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 will have no further
rights in, or claims to, such amounts.
If on any payment date the principal balance of the Class D 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 credit enhancement afforded to you by
the Class D Notes and by the Reserve Fund will be exhausted and will not be
restored.
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<PAGE>
None of you, the Indenture Trustee, the Owner Trustee, the Originators 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 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 your consent.
Withdrawals from the Reserve Fund. Amounts held from time to time in the
Reserve Fund will continue to be held for your benefit. On each interest and
principal payment date, funds will be withdrawn from the Reserve Fund to the
extent that available amounts with respect to such date are less than the amount
necessary to pay interest on the Notes. See "-- Amounts Available for Payments
on the Notes". However, if an event of default under the Indenture has occurred
and the available amounts in the Collection Account 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 (as described in
"--Allocations--Following an Event of Default").
Collection Account
The Servicer, for your benefit, shall cause to be established an
account referred to as the "Collection Account" 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. This account will be 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.
At all times such depository institution or trust company shall have the
following characteristics and the amounts in the Collection Account will be
invested in the following eligible investments:
<TABLE>
<CAPTION>
<S> <C>
Eligible Depository Institution or Trust Company Eligible Investments
. the corporate trust department of the Indenture Trustee or . obligations fully guaranteed by the United States of America;
. a depository institution organized under the laws of the
United States of America or any one of the states thereof or . demand deposits, time deposits or certificates of deposit of
the District of Columbia (or any domestic branch of a foreign depository institutions or trust companies having commercial
bank), paper and short-term unsecured debt obligations (other than
(i)(A) which has either (1) a long-term unsecured debt such obligation whose rating is based on the credit of another
rating acceptable to the rating agencies rating the Notes person) with the highest rating from each rating agency rating
or (2) a short-term unsecured debt rating or certificate the Notes;
of deposit rating acceptable to such rating agencies,
(B) the parent corporation of which has either (1) a . commercial paper (or other short-term obligations) having, at
long-term unsecured debt rating acceptable to the rating the time of the Trust's investment therein, the highest rating
agencies rating the Notes or (2) a short-term unsecured from each rating agency rating the Notes;
debt rating or certificate of deposit rating acceptable
to such rating agencies or . demand deposits, time deposits and certificates of deposit
(C) is otherwise acceptable to the rating agencies rating which are fully insured by the FDIC;
the Notes and
(ii) whose deposits are insured by the Federal Deposit
Insurance Corporation.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
. notes or bankers' acceptances issued by any depository
institution or trust company having commercial paper and
short-term unsecured debt obligations (other than such
obligation whose rating is based on the credit of another
person) with the highest rating from each rating agency rating
the Notes;
. money market funds which have the highest rating from, or
have otherwise been approved in writing by, each rating
agency rating the Notes;
. time deposits with an entity, the commercial paper of which
has the highest rating from the rating agency rating the Notes;
. eligible repurchase agreements; and
. any other investments approved in writing by such rating
agencies.
</TABLE>
Funds in the Collection Account may be invested in debt obligations of
Heller Financial or its affiliates so long as such obligations qualify as the
above described eligible investments.
Any earnings (net of losses and investment expenses) on funds in the
Collection Account will be held therein and be treated as amounts available for
distribution to you. 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
an eligible institution as described above, the Servicer or the Owner Trustee
(as the case may be) shall within ten business days establish a replacement
account at another institution meeting the above eligibility requirements after
notice thereof.
Events of Default
Allocations of amounts to payments to you will be made as described above
under "--Allocations; Prior to an Event of Default" unless and until an event of
default has occurred, in which case allocations of amounts will be made as
described above under "--Allocations; Following an Event of Default".
An "event of default" refers to any of the following events:
(a) failure to pay on an interest payment 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 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;
57
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
(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 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
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 any of the following events with respect to the Originator, the
Trust Depositor, the Trust or the Servicer: (i) the filing of a decree or order for
relief by a court having appropriate jurisdiction with respect to such party or any
substantial part of its property in an involuntary case under the Bankruptcy Code of
the United States or any other liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension of
payments, or similar debtor relief laws from time to time in effect affecting the
rights of creditors generally ("Insolvency Laws") or (b) the commencement by such
party of a voluntary case under any applicable Insolvency Law, now or hereafter in
effect, or the consent by such person to the entry of an order for relief in an
involuntary case under such law, taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such party or for any
substantial part of its property, or the making by such party of any general
assignment for the benefit of creditors, or the failure by such party generally to pay
its debts as such debts become due, or the taking of action by such party in
furtherance of any of the foregoing; or
(f) the Trust becomes an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
</TABLE>
In the case of any event described 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 certain events relating to the bankruptcy or insolvency of the Trust
Depositor occurs, pursuant to the Sale and Servicing Agreement, on the day of
such event, the Trust Depositor will promptly give notice to the Indenture
Trustee of such 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.
Events of Default; Remedies
If an event of default referred to in paragraph (e) under the heading "--
Events of Default" in this prospectus has occurred, then 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 an event of default other than the event of default referred to in
paragraph (e) under the heading "--Events of Default" occurs, the Required
Holders may waive such event of default by sending a written notice of such
waiver to the Indenture Trustee, the Servicer and the Trust Depositor. If the
Required Holders do not waive such event of default then 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.
The Indenture Trustee
The Indenture Trustee with respect to the Notes is Norwest Bank Minnesota,
National Association. 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.
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<PAGE>
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 Uniform Commercial Code) not
otherwise part of chattel paper.
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 Trusts 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, 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 Trust Indenture Act 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, no such amendment, supplement, waiver or consent
shall
(i) reduce the amount or extend the time of payment of
any amount owing or payable under any Note or (except as provided
in the Indenture), increase or reduce the interest payable on any
Note (except that only the consent of the affected holder shall
be required for any decrease in an amount of or the rate of
interest payable on such Note or any extension for the time of
payment of any amount payable under such Note), or alter or
modify the provisions 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 in favor of or to be paid by the Trust
Depositor, or alter the definition of "Indemnitees" to exclude
any Noteholder (except as consented to by each person adversely
affected thereby),
(iii) make any interest or principal payable in a
currency 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 required to effect any modification of
the Indenture.
Servicing Compensation and Payment of Expenses
The Servicer's compensation with respect to its servicing activities and
reimbursement for its expenses will be a servicing fee calculated monthly (for
periods corresponding to the collection period used to calculate the amounts
available for distribution on the Notes), in an amount equal to the product
of
(i) one-twelfth,
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<PAGE>
(ii) [ ]% and
(iii) the aggregate Discounted Contract Balance of all of the contracts as
of the beginning of the second day of the immediately preceding calendar month.
The Servicer's fee will be funded from payments due under the contracts
and certain amounts received upon the prepayment or purchase of contracts or
liquidation of the contracts and disposition of the related equipment upon
defaults thereunder. See "--Amounts Available for Payments on the Notes". The
Servicer's monthly fee will be paid on the 15th day of each calendar month from
the Collection Account. See "Description of the Notes and Indenture --
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). The
servicing fees of any sub-servicers (including vendor sub-servicers) will be
paid by the Servicer out of its monthly servicing fee. 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 Servicer's monthly 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.
Optional Termination
On any interest and principal payment date occurring on or after the date
on which the aggregate Discounted Contract Balance of the contracts is less than
10% of the initial aggregate Discounted Contract Balance of the contracts as of
January 1, 1999 (the i nitial 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 and Certificates. The redemption price
will be equal to the sum of the outstanding principal amount of the Notes and
Certificates, together with accrued interest thereon through the date of
redemption, and shall be payable to the holders of the Notes and Certificates on
such interest and principal payment date from the proceeds of the Trust's sale
to the Trust Depositor of 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 contracts and other assets held
by the Trust. Following any redemption, you will have no further rights with
respect to the Trust's assets.
Reports
No later than the third business day prior to each interest and principal
payment date, the Servicer will forward to the Indenture Trustee and each rating
agency rating the Notes a monthly report prepared by the Servicer setting forth
certain information with respect to the Trust and the Notes and Certificates,
including:
(i) the aggregate Discounted Contract Balance (A) as of the end of the
related collection period and (B) as of the end of the second collection period
preceding such interest and principal payment date (or, in the case of contracts
that were first acquired by the Trust during the related collection period, 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 aggregate Discounted Contract Balance of contracts held by the
Trust which were 30, 60 and 90 days or more delinquent as of the end of such
collection period;
(iv) the Discounted Contract Balance of each contract that became a
defaulted contract during such collection period and cumulatively for each
preceding collection period;
(v) the monthly servicing fee for such collection period;
(vi) the amounts available for distribution to the holders of the Notes
with respect to the related collection period (including the calculation
utilized in the determination thereof);
(vii) the total amount distributed on the Notes;
(viii) the amount allocable to principal on each class of the Notes;
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(ix) the amount allocable to interest on each class of the Notes;
(x) 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 interest and principal payment date.
On each interest and principal payment date, the Indenture Trustee (or an
agent on its behalf), will forward to each Noteholder of record a copy of the
monthly report.
On or before [ ] 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 Internal Revenue Code of 1986,
as amended 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, will enter into an
Administration Agreement pursuant to which Heller Financial 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. Heller Financial, as the
administrator 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,
Heller Financial, as 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, society 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").
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.
You will not 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 you or any other Noteholders
will be taken by DTC upon
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<PAGE>
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.
You 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, you may
experience some delay in their receipt of payments, since such payments will be
forwarded to Cede as nominee of DTC. You will not be recognized by the Indenture
Trustee as a Noteholder, as such term is used in the Indenture. You 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, your ability 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
Originators 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
Dire ct 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 us
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 us 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 we believe to be reliable, but neither we
nor the Trust Depositor take any 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 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
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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 a nd 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 it s 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 Certificated Notes Upon the Occurrence of Certain Circumstances
The Notes will be issued in fully registered, certificated form to
beneficial owners or their nominees rather than to The Depository Trust Company
or its nominee, only if (a) we advise the Indenture Trustee in writing that The
Depository Trust Company is no longer willing or able to discharge properly its
responsibilities as Depository with respect to such Notes, and we or the
Indenture Trustee are unable to locate a qualified successor or (b) we elect to
terminate the book-entry system.
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 The Depository Trust Company of the
availability of Notes in fully registered, certificated form. Upon surrender by
The Depository Trust Company of the global Note representing the Notes and
instructions for reregistration, the Indenture Trustee will issue such fully
registered, certificated Notes, and thereafter the Indenture Trustee will
recognize the holders of such fully registered, certificated Notes as
Noteholders under the Indenture.
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 you in accordance with the procedures set forth
herein and in the Indenture. Distributions will be made by check, mailed to
your address 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 fully registered, certificated 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.
Fully registered, certificated 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 fully registered, certificated 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 CERTIFICATES
On the closing date for the sale of the Notes, we will also issue the
Certificates with an initial certificate balance of $[ ]; 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). The Certificates will represent fractional undivided beneficial
equity interest s 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 we
may transfer the Certificates 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 the Noteholders.
Distributions with respect to the Certificates will be subordinated to the
rights of the Noteholders to the extent described herein. See "Description of
the Notes and Indenture--Allocations" herein.
THE SALE AND SERVICING AGREEMENT
The following is a summary of all of the material terms of the Sale and
Servicing Agreement dated as of March 1, 1999 among the Trust Depositor, the
Originators, the Trust and the Indenture Trustee. You should read the Sale and
Servicing Agreement, the form of which was filed as an exhibit 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 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
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(iii) if the contracts are sold, disposed of or liquidated following the
occurrence of certain events relating to bankruptcy or insolvency, 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 the holders of the Notes and Certificates) will be conveyed and transferred
to the holder of the Certificate and any permitted assignee.
Conveyance of the Contracts
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;
(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 initial cutoff date or any subsequent cutoff date for Substitute
Contracts or Additional Contracts, the Trust Depositor will transfer and assign
among other things, (i) through (vi) above to the Trust for the benefit of the
Noteholders 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.
To facilitate servicing and reduce administrative costs, 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, each Originator
indicated in its books and records, including the computer files relating to the
contracts, that the contracts have been transferred to the Trust Depositor.
Prior to each transfer of any assets to the Trust pursuant to the Sale and
Servicing Agreement, the Trust Depositor will file UCC financing statements
reflecting the conveyance of the assets described in (i) through (vi) above to
the Trust 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 an
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 the contracts have been
conveyed to the Trust. The Trust will give the Indenture Trustee a list of the
contracts transferred to Trust, identified by account number and by the
Discounted Contract Balance as of the related cutoff date. 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. UCC
financing statements have been filed to reflect the pledge of such contracts to
the applicable Originator as security for the Vendor Loans.
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
as of January 1, 1999 (the initial 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 which may be
transferred by either of them as of its related cutoff date, including
that:
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<TABLE>
<CAPTION>
<C> <S>
(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 is true and correct in
all material respects;
(ii) immediately prior to the transfer of a contract, 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 60 days, and the contract is not
otherwise a defaulted contract;
(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 thereunder 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 remedies);
(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 Uniform Commercial Code, 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 canceled 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 of [ ]% 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 of [ ]% 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 Uniform Commercial
Code;
(xix) no lease is a "consumer lease" as defined in Section 2A-103(1)(e)
of the Uniform Commercial Code and each lease is a lease intended
for security as defined in Section 1-201(39) of the Uniform
Commercial Code;
</TABLE>
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<CAPTION>
<C> <S>
(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 an end-user contract(s) having an
aggregate Discounted Contract Balance 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); and
(xxiv) no provision of such contract provides for a prepayment amount
less than the amount the Discounted Contract Balance on the date
of such prepayment plus any accrued, unpaid interest (at the
discount rate) and any outstanding Servicer's advances thereon
(unless otherwise the Vendor or the Originators pay to the Trust
the difference between the prepayment amount actually paid and
such required prepayment amount).
</TABLE>
The foregoing representations and warranties, as appropriate, will be
reaffirmed by the Originators with respect to any Additional Contract or
Substitute Contract. A contract which satisfies all of the above representations
and warranties shall be deem ed 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 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 is an eligible contract (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;
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(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 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 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 contracts and that all
filings necessary to evidence the conveyance or transfer of the
contracts to the Trust have been made in all appropriate
jurisdictions;
(ii) that each contract is an eligible contract;
(iii) that each end-user contract (or interest therein) securing a
Vendor Loan 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.
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 its date of transfer to the Trust. The Indenture
Trustee shall reassign any contract to the Trust Depositor, and the Originators
will be concurrently obligated, jointly and severally, to purchase from the
Trust Depositor, such contract transferred by an Originator 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 such contract or the documents relating to such
contract, which breach has not been cured or waived in all material respects.
This purchase obligation will constitute the sole remedy against the Originators
and the Trust Depositor available to you for a breach of a representation or
warranty under the Sale and Servicing Agreement made by the Originators with
respect to such a contract.
Pursuant to the Sale and Servicing Agreement, 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
and accrued interest thereon and any outstanding Servicer advances thereon. Any
amount deposited into the Collection Account in connection with the reassignment
of an ineligible contract shall be considered payment in full of the ineligible
contract, and any such amount shall be treated as an amount available for
distribution to you. In the alternative, the Trust Depositor may instead obtain
a Substitute Contract and convey 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
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 January 1, 1999 (the initial cutoff
date) as follows:
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(i) the aggregate Discounted Contract Balance of all end-user
contracts with obligors that are governmental entities or
municipalities does not exceed [ ]% of the aggregate Discounted
Contract Balance of the contracts;
(ii) the aggregate Discounted Contract Balance of all end-user
contracts which finance, lease or are related to software will
not exceed [ ]% of the aggregate Discounted Contract Balance of
the contracts;
(iii) the aggregate Discounted Contract Balance of all end-user
contracts with obligors who comprise the [ ] largest obligors
(measured by aggregate Discounted Contract Balance) does not
exceed [ ]% of the aggregate Discounted Contract Balance of the
contracts; and
(iv) the aggregate Discounted Contract Balance of all end-user
contracts with obligors or affiliates thereof located in a single
State of the United States does not exceed [ ]% of the aggregate
Discounted Contract Balance 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 such
contract to the Trust Depositor, and the Originators will be jointly and
severally obligated to purchase such 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 and Trust Depositor available to you for a
breach of one of the foregoing representations or warranties.
Pursuant to the Sale and Servicing Agreement, 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 and any outstanding Servicer advances thereon. Any
amount deposited into the Collection Account in connection with the reassignment
of an Excess Contract shall be considered payment in full of the Excess Contract
and shall be treated as an amount available for distribution to you. In the
alternative, the Trust Depositor may instead cause the Originators, or either
of them, to convey to the Trust Depositor, a Substitute Contract (otherwise
satisfying the terms and conditions generally applicable to Substitute Contracts
in other situations described herein) in replacement for the 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 vary
the provisions of a contract, some of which constitute material modifications.
Under the Sale and Servicing Agreement, only the following modifications are
permitted:
* waivers and other modifications that are: (i) made in accordance with the
Servicer's customary and usual practices and (ii) do not have the effect
of accelerating, delaying, reducing or extending the dates for scheduled
payments for such contract (the rating agencies rating the Notes may
waive this requirement);
* to the extent consistent with the Servicer's past practices, the Servicer
may reduce one to three scheduled payments for a contract if additional
payments are added to the scheduled payments subsequently due and the
discounted contract balance of such contract as modified equals or exceeds
the discounted contract balance prior to such modification; provided, that
the Discounted Contract Balances of all contracts which have similarly
reduced scheduled payments does not exceed 5% of the aggregate Discounted
Contract Balance of the contracts as of the initial cutoff date and no
payments are deferred beyond the stated maturity date for the Class B
Notes;
* waiver of any late payment charge and other service fees that may be
collected in the ordinary course of servicing such contract; or
* permit prepayment of a contract that is not otherwise prepayable by its
terms; provided, that the Servicer will not permit early termination or
full prepayment unless the Trust receives an amount at least equal to the
Discounted Contract Balance of the contract on the date of such prepayment
plus accrued and unpaid interest thereon.
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Non-material adjustments or modifications in contract terms may be effected by
the Servicer on behalf of the Trust without your consent and without affecting
the status of the contract as part of the Trust. In the event material
modifications are made to a con tract, the Originators and the Trust Depositor
will have the option to substitute for such materially modified contract a
Substitute Contract, subject to the conditions set forth in "-- Substitute
Contracts and Additional Contracts". The aggregate Discounted Contract Balance
for all Substitute Contracts which replace materially modified contracts cannot
exceed 10% of the aggregate Discounted Contract Balance of all of the contracts
as of the initial cutoff date.
Definition of 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 Originators 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 Lea sing, Inc. --- Global 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 customary and usual collection procedures, which
may include the repossession and sale of any related equipment or other security
on behalf of the Trust.
Substitute Contracts and Additional Contracts
In the event a contract becomes a defaulted contract, a materially
modified 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 materially modified Contracts only, of an
aggregate amount not to exceed 10% of the aggregate Discounted Contract Balance
of the contracts as of January 1, 1999, the initial cutoff date. See "--Material
Modifications to Contracts" and "Definition of Defaulted Contracts".
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 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 the
Substitute Contracts and reinvestment in Additional Contracts, be 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.
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 in the capacity
of an investor in the Notes) a rising 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 Depositor was a general partner. In the
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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 Noteholders 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
the Noteholders with respect to the Sale and Servicing Agreement and the rights
and duties of the parties 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.
For each collection period (which period begins on the second day of a
calendar month and ends on and includes the first day of the immediately
following calendar month), if the Servicer determines that any scheduled payment
with respect to any contract which was due during such collection period was not
received in full prior to the end of such collection period, the Servicer may
advances uch unpaid scheduled payment. However, the Servicer is not obligated
to do so. Furthermore, the Servicer will not advance such payment unless it, in
its sole discretion, determines that it can recover its advance from subsequent
payments on or with respect to the contract. The Servicer shall be entitled to
reimbursement of the 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 its advances will not be recovered from the contracts to which its
advances were related, from other contracts 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 (as described below), 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 such 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 on the following Note interest and principal payment date. The
purchase price for such a retransfer shall be equal to the sum of the aggregate
principal amount of all Notes and Certificates on such payment 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
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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:
(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, 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 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
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 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 by the Indenture Trustee on
behalf of holders 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) any event relating to bankruptcy, insolvency or receivership
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.
If an event relating to bankruptcy, insolvency or receivership occurs with
respect to the Servicer and no other event which would result in a servicer
default has occurred, 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.
Evidence as to Compliance
The Sale and Servicing Agreement provides that on or before March 31 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 March 31 of each
calendar year of a statement signed by an officer of the Servicer to the effect
that, to the best of such
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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 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 Certificates.
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 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 "Class
A-1 Principal Payment Amount", the "Class A-2 Principal Payment
Amount", the "Class A-3 Principal Payment Amount", the "Class A-4
Principal Payment Amount", the "Class B Principal Payment
Amount", the "Class C Principal Payment Amount", the "Class D
Principal Payment Amount", the "Discounted Contract Balance", the
"Required Holders", the amounts available for distribution to
Noteholders or the principal amount of the Notes without the
consent of each Noteholder and holder of the Certificates; or
(iii) reduce the aforesaid percentage required to consent to any such
amendment without the consent of each holder of the security
affected thereby; or
(iv) modify, amend or supplement the provisions of the Sale and
Servicing Agreement relating to the allocation of collections on
the contracts (see "Description of the Notes and Indenture--
Amounts Available for Payments on the Notes") without the consent
of each Noteholder; or
(v) make any security issued by the Trust payable in money other than
U.S. dollars without the consent of each holder of the security
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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FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general and brief discussion of the material United
States federal income tax consequences of the purchase, ownership and
disposition of the Notes. The discussion that follows, and the opinion described
below of 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"), existing and proposed Treasury Regulations,
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 in this Prospectus. As a results, there can be no assurance that
the IRS will not challenge the conclusions reached in this description of
Material Federal Income Tax Consequences, 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 t he accuracy of the statements set forth below.
This summary of material Federal Income Tax Consequences has been prepared
in compliance with the directive of the SEC that "plain English" be used. As a
result, certain of the complex technical rules which would not be applicable to
most investors but may apply to some specific types of investors (e.g. dealers
in securities) have not been included. Also, the descriptions of the relevant
tax rules are intended to explain the general application of the rules. This
summary does not attempt to explain fully every relevant technical aspect of
the applicable tax provisions. BECAUSE THIS SUMMARY OF MATERIAL FEDERAL INCOME
TAX CONSEQUENCES IS INTENDED TO BE GENERAL IN NATURE, IT IS RECOMMENDED THAT
PROSPECTIVE INVESTORS CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL,
STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NOTES.
This summary material federal income tax matters is divided into two
parts. The first part describes the classification of the Notes as debt and the
treatment of the Trust as a pass-thru entity (i.e., rather than as a corporation
or other entity subject to tax at the entity level). The second part describes
the taxation of an investor in the Notes. Under the caption "General Tax
Treatment of Noteholders" is a description of the tax consequences for what is
expected to be the typical investment situation. The description of General Tax
Treatment of Noteholders provides a summary of federal income tax consequences
for investors who are citizens or residents of the United States who purchase
U.S. dollar denominated Notes for investment (rather than acting as a dealer in
securities) at a purchase price equal to the principal amount of the Notes
(plus accrued interest, if any). There are a variety of technical tax rules
which can be expected to apply only to certain types of investors or in certain
special circumstances. Those rules are separately described under the caption
"Special Tax Rules". Those special rules apply, for example, to investors who
are foreign persons or who purchase a Note at a price which is higher or lower
than a Note's principal amount. IT IS RECOMMENDED THAT EACH PROSPECTIVE INVESTOR
CONSULT A TAX ADVISOR TO DETERMINE WHETHER ANY OF THE SPECIAL TAX RULES ARE
APPLICABLE.
Classification of the Notes and the Trust
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In connection with the issuance of the Notes, Tax Counsel will deliver its
opinion that, for federal income tax purposes, under existing law (1) the Trust
will not be treated as an association (or publicly traded partnership) taxable
as a corporation and (2) the Notes will be treated as indebtedness. In
rendering these opinions, Tax Counsel has assumed that the terms of the various
documents relating to the issuance of the Notes will be complied with by all of
the parties to the transaction. Those terms include a requirement, which each
investor agrees to by virtue of acquiring ownership of any beneficial interest
in a Note, that the Trust and the investors in th e Notes treat the Notes a
indebtedness for federal income tax purposes. The opinion of Tax 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 or the Notes will prevail. If, contrary to the opinion of Tax Counsel,
the IRS successfully asserted that one or more of the Notes did not represent
debt for federal income tax purposes, such Notes might be treated as equity
interests in the Trust. As a result, the Trust might be classified as a publicly
traded partnership taxable as a corporation. If the Trust were classified as a
publicly traded partnership taxable as a corporation, the Trust would be subject
to United Stated federal income tax on its net income. An imposition of such
corporate-level income tax could materially reduce the amount of cash that would
be available to make payments of principal and interest on the Notes.
Alternatively, if the Trust were classified as a partnership (other than a
publicly traded partnership taxable as a corporation), the Trust itself would
not be subject to United States federal income tax. Instead, holders of Notes
that were determined to be equity interests in such partnership would be
required to take into account their allocable share of the Trust's income and
deductions. Such treatment may have adverse federal income tax consequences for
certain Noteholders. For example: (1) income to certain tax-exempt entities
(including pension funds) may constitute "unrelated business taxable income,"
(2) income to foreign holders generally would be subject to U.S. tax and U.S.
tax return filing and withholding requirements, (3) individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses , and (4) income from the Trust's assets would be taxable to
Noteholders without regard to whether cash distributions are actually made by
the Trust or any particular Noteholder's method of tax accounting.
The discussion that follows assumes that the Notes will be treated as
indebtedness for federal income tax purposes.
General Tax Treatment of Noteholders
Payments of Interest. An investor will be taxed on the amount of payments
of interest on a Note as ordinary interest income at the time it accrues or is
received in accordance with the investor's regular method of accounting for
United States federal income tax purposes.
Sale or Other Disposition of a Note. An investor who disposes of a Note,
whether by sale, exchange for other property, or payment by the Trust, will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale or other disposition (not including any amount attributable
to accrued by unpaid interest) and the investor's adjusted tax basis in the
Note. In general, an investor's adjusted tax basis in a Note will be equal to
the initial purchase price. Any gain or loss recognized upon the sale or other
disposition of a Note will be capital gain or loss. For non-corporate investors,
capital gain recognized on the sale or other disposition of a Note held by the
investor for more than one year will be taxed at a maximum rate of 20%. Capital
gain for a Note held for one year or less is taxed at the rates applicable to
ordinary income (i.e., up to 39.6%). Taxpayers must aggregate capital gains and
losses for each taxable year. In the event a taxpayer realizes a net capital
loss for any year there are limits on the amount of such capital losses which
can be deducted.
Information Reporting and Backup Withholding. The Trust (or an agent
acting on its behalf) will be required to report annually to the IRS, and to
each non-corporate Noteholder, the amount of interest paid on the Notes for each
calendar year. Each non-corporate Noteholder (other than Noteholders who are not
subject to the reporting requirements) will be required to provide, under
penalties of perjury, a certificate (Form W-9) containing the Noteholder's name,
address, correct federal taxpayer identification number and a statement that
the Noteholder is not subject to backup withholding. Should a non-exempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold (or cause to be withheld) 31% of the interest otherwise
payable to the Noteholder and remit the withheld amounts to the IRS as a redact
against the Noteholder's federal income tax liability.
Special Tax Rules
Special Types of Investors. The reference to United States citizens or
residents in the description of General Tax Treatment of Noteholders set forth
above applies not only to individuals but also to any investor who is: (1) a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, (2) an estate the income
of which is subject to the United States federal income taxation regardless of
its sources, or (3) a trust if a court within the United States is able to
exercise primary jurisdiction over the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. Any investor which is not a United States
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citizen or resident should review the summary below for investment in Notes by
foreign persons. Also, neither the description of General Tax Treatment of
Noteholders above nor this discussion of Special Tax Rules describes tax
consequences to special classes of investors, including investors who are
dealers in securities or currencies, persons holding Notes as a part of a
hedging transaction, certain financial institutions or insurance companies.
Those particular types of investors are subject to specific federal income tax
treatment which is not generally applicable to other investors. This summary of
Material Federal Income Tax Consequences does not describe tax consequences for
those types of investors.
Purchase at a Discount. An investor who purchases a Note as part of the
initial offering by the Trust for an issue price that is less than its "stated
redemption price at maturity" will generally be considered to have purchased the
Note at an original issue discount for United States federal income tax
purposes (generally referred to as "OID"). In general, the stated redemption
price at maturity for a Note is equal to the principal amount. If a Note is
acquired with OID the investor will be required to include in income each year,
taxable as ordinary income in the same manner as cash interest payments, a
portion of the OID. For each basis investors, such as individuals, the
requirement that OID be accrued as income each year means the investor
recognizes taxable income even though the investor does not receive cash
corresponding to that income. The amount of OID accrued as income each year is
based upon a formula which looks at the constant yield on the Notes and the term
to maturity so as to annually allocate a proportionate share of OID. Under
these rules, investors generally will be required to include in income
increasingly greater amounts of OID in successive accrual periods.
In determining whether a Note has OID, the issue price of the Note may not
necessarily equal the investor's purchase price (although they generally should
be the same). The issue price of a Note will equal the initial offering price to
the public (not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters or wholesalers) at which
price a substantial amount of the Notes is sold.
If an investor acquires a Note in a secondary market transaction for a
purchase price which is less than the principal amount or other amount payable
at maturity of the Note, the difference is referred to for tax purposes as
market discount. Similarly to OID, an investor must accrue a portion of the
market discount each year. The amount of market discount which accrues annually
will be calculated on a straight-line basis over the remaining term to maturity
of the Note unless the investor elects to accrue market discount using the
constant yield method (i.e., the OID method). Unlike OID, however, an investor
does not include accrued market discount in ordinary income each year. Rather,
the aggregate amount of accrued market discount is included in income when an
investor sells or otherwise disposes of the Note. At that time, the portion of
the amount realized by the investor on the sale or other disposition of the Note
equal to accrued market discount is taxed as ordinary income (maximum tax rate
of 39.6%) rather than long term capital gain (maximum tax rate of 20%).
If an investor would prefer to be taxed on the annual accrual of market
discount each year rather than being taxed on the aggregate amount of all
accrued market discount when the Note is sold or otherwise disposed of, the
investor can file an election to do so. Such an election would apply to all of
the investor's debt investments acquired in or after the taxable year in which
the Notes are acquired and not just to the Notes.
Whenever an investor accrues and includes in income an amount of OID or
market discount, the investor's adjusted basis in the corresponding Note is
increased by that same amount. As a result, the investor would recognize a lower
capital gain (or greater capital loss) on the sale or other disposition of the
Note.
In general, if the amount of OID or market discount would be less than
1/4th of one percent of the Note's principal or other stated redemption price at
maturity, the investor can disregard the OID or market discount rules.
Purchase at a Premium. If an investor purchases a Note for a price that
exceeds the principal amount or other amount payable at maturity, the investor
will be considered to have an amortizable bond premium. An investor can elect to
accrue a portion of the premium each year as a deduction to offset interest
income on the corresponding Note. The amount of premium which can be amortized
and deducted each year is calculated using a constant yield method over the
remaining term to maturity of the Note. The deduction is available only to
offset interest income on the corresponding Note; it cannot be used as a
deduction to the extent it exceeds taxable Note interest. The adjusted tax
basis which an investor has in a Note must be reduced by the amount of premium
for which a deduction is claimed. Because the basis is reduced, the investor
would recognize a larger taxable capital gain (or a smaller capital loss) on the
sale or other disposition of the Note. If an investor elects to amortize and
deduct premium, the election will apply to all of the investor's debt
investments and not just to the Notes.
Non-Standard Interest Rates. The description of General Tax treatment of
Noteholders assumes that the investor's Notes provide for payment of interest at
a fixed rate or a variable rate which is tied to LIBOR, U.S. Treasury rates,
bank prime rates or similar benchmark rates. Interest payable pursuant to those
types of fixed and variable rates is referred to for certain federal income tax
purposes as qualified stated interest.
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If a Note provides for interest other than qualified stated interest, the
tax consequences to an investor may differ from those described previously in
this summary. If the Trust issues Notes which provide for interest other than
qualified stated interest, the tax consequences will be described in the
applicable Pricing Supplement.
Foreign Currency Notes. The description of General Tax Treatment of
Noteholders assumes the Notes are denominated in U.S. dollars. Special rules
apply to Notes which are denominated in or determined by reference to the value
of currency units other than the U.S. dollar.
An interest payment on a foreign currency Note will includible in income
by the investor based on the U.S. dollar value of the foreign currency payment
determined on the date the payment is received, regardless of whether the
payment is in fact converted to U.S. dollars at that time.
In the case of interest income on a foreign currency Note that is required
to be included in income by the investor prior to receipt of payment (e.g., OID
accrual) the investor will be required to include in income the U.S. dollar
value of the amount of interest income that has accrued. Unless the investor
makes the election discussed in the next paragraph, the U.S. dollar value of
such accrued income will be determined by translating such income at the
average rate of exchange for the accrual period. Subsequently, when the investor
actually receives cash corresponding to the accrued income, the investor will
recognize, as ordinary gain or loss, foreign currency exchange gain or loss
reflecting fluctuations in currency exchange rates between the last day of the
relevant accrual period and the date of payment.
Under the so-called "spot rate convention election", an investor may elect
to translate accrued interest income into U.S. dollars at the exchange rate in
effect on the last day of the relevant accrual period. Additionally, if a
payment of such income is actually received within five business days of the
last day of the accrual period or taxable year, an electing investor may instead
translate such income into U.S. dollars at the exchange rate in effect on the
day of actual receipt. Any such election will apply to all debt instruments held
by the investor at the beginning of the first taxable year to which the election
applies or thereafter acquired by the investor.
In order for an investor to calculate the amount of gain or loss
recognized on the sale or other disposition of a Note denominated in (or by
reference to) a foreign currency, the investor must know the adjusted tax basis
in U.S. dollars. In general, if an investor pays for a Note with foreign
currency, the investor's basis in the Note is equal to the U.S. dollar value of
the foreign currency on the purchase date. An investor that purchases a foreign
currency Note will recognize ordinary income or loss in an amount equal to the
difference, if any, between the investor's tax basis in the foreign currency and
the U.S. dollar market value of the foreign currency Note on the date of
purchase.
For purposes of determining the amount of any gain or loss recognized by
the investor on the sale or other disposition of a foreign currency Note, the
amount realized by the investor from the sale or other disposition generally
will be the U.S. dollar value of the foreign currency received determined on the
date of disposition in the case of an accrual basis investor and on the date
payment is received in the case of a cash basis investor.
The portion of any gain or loss realized upon the sale or other
disposition of a foreign currency Note that is attributable to fluctuations in
currency exchange rates will be ordinary income or loss. Such portion will equal
the difference between (1) the U.S. dollar value of the foreign currency
principal amount of the Note determined on the date the Note is disposed of an
(2) the U.S. dollar value of the foreign currency principal amount of the Note
determined at the exchange rate on the date the investor acquired such Note.
Such foreign currency gain or loss will be recognized only to the extent of the
total gain or loss realized by an investor on the sale or other disposition of
the foreign currency Note. Any gain or loss recognized in excess of such foreign
currency gain or loss will be capital gain or loss.
Discount and premium calculations with respect to foreign currency Note
are determined in the relevant foreign currency. The amount of discount or
premium that is included in or reduces income currently is determined for any
accrual period in the relevant foreign currency and then translated into U.S.
dollars on the basis of the average exchange rate in effect during such accrual
period or with reference to the spot rate convention election as described
above. Exchange gain or loss realized with respect to such accrued discount or
premium is determined and recognized in accordance with the rules described
above.
Foreign Investors. Special tax rules apply to the purchase of notes by
foreign persons. For U.S. tax purposes, foreign investors include any person who
is not (1) a citizen or resident of the United States, (2) a corporation,
partnership or other entity organized in or under the laws of the United States
or any political subdivision thereof, (3) an estate the income of which is
includible in gross income for U.S. federal income tax purposes, regardless of
its sources, or (4) 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.
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Interest paid or accrued to a foreign investor that is not effectively
connected with the conduct of a trade or business within the United States by
the investor will generally be considered "portfolio interest" and generally
will not be subject to United States federal income tax or withholding tax as
long as the foreign investor (1) is not actually or constructively a 10 percent
shareholder of the Trust or a controlled foreign corporation related to the
Trust through stock ownership and (2) provides (or has a financial institution
provide on its behalf) an appropriate statement (Form W-8) to the Trust or
paying agent 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 investor must provide a new Form W-8 within 30 days. The
Form @-8 is generally effective for three years. If the foreign investor fails
to satisfy these requirements so that interest on the investor's Notes was not
portfolio interest, interest payments would be subject to United States federal
income and withholding tax treaty, the foreign investor must provide the paying
agent with Form 1001. This form is also effective for three years.
Any capital gain realized on the sale or other taxable disposition of a
Note by a foreign investor will be exempt from United States federal income and
withholding tax, provided that (1) the gain is not effectively connected with
the conduct of a trade or business in the Unites States by the investor and (2)
in the case of an individual foreign investor, the investor is not present in
the United States for 183 days or more during the taxable year. If an individual
foreign investor is present in the U.S. for 183 days or more during the taxable
year, the gain on the sale or other disposition of the Notes could be subject to
a 30% withholding tax unless reduced by treaty.
If the interest, gain or income on a Note held by a foreign investor is
effectively connected with the conduct of a trade or business in the United
Stated by the investor, the Noteholder (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 investor is a
foreign corporation, it may be subject to a branch profits tax equal to 30% of
its "effectively connected earnings and profits" for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
Treasury Regulations which will become effective for Note payments made
after December 31, 1999 (regardless of when a foreign investor acquired Note)
may change reporting requirements for certain withholding agents.
If a foreign investor fails to provide necessary documentation to the
Trust or its paying agent regarding the investor's taxpayer identification
number of certification of exempt status, a 31% backup withholding tax may be
applied to Note payments to that investor. Any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against the foreign
investor's U.S. federal income tax liability provided the required information
is furnished to the Internal Revenue Service.
State and Local Tax Consequences
Because of the differences in state and local tax laws and their
applicability to different investors, it is not possible to summarize the
potential, state and local tax consequences of purchasing, holding or disposing
of the Notes and no opinions of counsel have been obtained regarding state tax
matters. ACCORDINGLY, IT IS RECOMMENDED THAT EACH PROSPECTIVE INVESTOR CONSULT A
TAX ADVISOR REGARDING THE STATE AND LOCAL TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF 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.
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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 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, Class A-2 Notes,
Class A-3 Notes and the Class A-4 Notes, the Trust Depositor has agreed to sell
to [ ], [ ], and [ ] and each of such underwriters has separately
agreed to purchase from the Trust Depositor, the principal amount of the Class
A-1 Notes, Class A-2 Notes, Class A-3 Notes and the Class A-4 Notes set forth
opposite its name below and (ii) an underwriting agreement dated , 1999 for the
sale of the Class B Notes, the Trust Depositor has agreed to sell to [ ] the
Class B Notes and such underwriter has agreed to purchase from the Trust
Depositor, the principal amount of the Class B Notes set forth opposite its name
below:
Aggregate Principal Amount to be Purchased
Class A-1 Receivable-Backed Notes, Series 1999-1
[ ] $
[ ] $
[ ] $
Aggregate Principal Amount to be Purchased
Class A-2 Receivable-Backed Notes, Series 1999-1
Class A-3 Receivable-Backed Notes, Series 1999-1
Class A-4 Receivable-Backed Notes, Series 1999-1
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[ ] $
[ ] $
[ ] $
Aggregate Principal Amount to be Purchased
Class B Receivable-Backed Notes, Series 1999-1
[ ] $
In the respective underwriting agreements, the underwriters respectively have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Notes offered pursuant to this prospectus hereby if any of such Notes are
purchased.
The underwriters of the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes
and Class A-4 Notes have advised the Trust and the Trust Depositor that such
underwriters propose initially to offer the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes and Class A-4 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 A-1 Notes,
Class A-2 Notes, Class A-3 Notes and Class A-4 Notes. Such underwriters may
allow and such dealers may reallow a concession not in excess of [ ]% of the
initial principal amount of such classes of Notes.
The underwriter of the Class B Notes has advised the Trust and the Trust
Depositor that such underwriter proposes initially to offer the Class B 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. Such underwriter may allow and
such dealers may reallow a concession not in excess of [ ]% of the initial
principal amount of the Class B Notes.
The respective underwriting agreements provide that Heller Financial and
the Trust Depositor, jointly and severally, will indemnify the underwriters of
the offered Notes 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.
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 offered Notes. You should not assume that any
such market will develop, or if one does develop, that it will continue or
provide sufficient liquidity.
Until the distribution of the offered 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 offered Notes. As an
exception to these rules, the underwriters are permitted to engage in certain
transactions that stabilize the price of the offered Notes. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the offered Notes.
Certain persons participating in this offering may engage in transactions
that affect the price of the offered Notes. Such transactions may include the
purchase of the offered Notes to cover syndicate short positions. If the
underwriters create a short position in the offered 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
such classes of 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 Originators 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 offered Notes. In
addition, neither the Originators 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 Class C Notes and Class D
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.
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RATING OF THE NOTES
It is a condition to the issuance of the Notes that they receive the
following ratings from the following rating agencies:
Class
Class A-1 Notes
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class B Notes
Class C Notes
Class D Notes
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 A-3 Notes,
Class A-4 Notes, Class B Notes, Class C Notes and the Class D Notes and
Certificates (in the case of the Class A-1 Notes), the subordination of the
Class A-3 Notes, Class A-4 Notes, Class B Notes, Class C Notes and the Class D
Notes and Certificates (in the case of the Class A-2 Notes), the subordination
of the Class A-4 Notes, Class B Notes, Class C Notes and the Class D Notes and
Certificates (in the case of the Class A-3 Notes), the subordination of the
Class B Notes, Class C Notes and the Class D Notes and Certificates (in the case
of the Class A-4 Notes), the subordination of the Class C Notes and the Class D
Notes and Certificates (in the case of the Class B Notes) and the subordination
of the Class D Notes and Certificates (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.
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 Cadwalader, Wickersham & Taft, New York, New York.
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INDEX OF TERMS
"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 -- Substitute Contracts and Additional Contracts".
"Additional Principal" means, with respect to a principal payment date,
(i) $0, if the Class B Target Investor Principal Amount, Class C
Target Investor Principal Amount and Class D Target Investor
Principal Amount exceed the Class B Floor, Class C Floor and
Class D Floor, respectively; or
(ii) the excess, if any, of
(A) the aggregated Discounted Contract Balance as of the last
day of the immediately preceding collection period over
(B) the sum of the Class A Principal Payment Amount, Class B
Principal Payment Amount, Class C Principal Payment
Amount and Class D Principal Payment Amount on such
payment date.
"Certificates" means the Certificates having an initial certificate balance of
$[ ] representing fractional undivided beneficial equity interests in the Heller
Equipment Asset Receivables Trust 1999-1 and issued pursuant to the Trust
Agreement dated as of March 1, 1999 between the Owner Trustee and the Trust
Depositor.
"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 Percentage" means [ ]%, which is the ratio of (i) the sum of the
initial principal amount of the Class A-2 Notes, Class A-3 Notes and Class A-4
Notes to (ii) the aggregate Discounted Contract Balance as of [ ] minus the
initial principal amount of the Class A-1 Notes.
"Class A Principal Payment Amount" means, with respect to a date on which
principal is to be paid,
(i) while there is outstanding principal on the Class A-1 Notes, the
lesser of :
(A) the amount necessary to reduce such outstanding principal
to $0 and
(B) the difference between (1) the aggregate Discounted
Contract Balance of the contracts as of the last day of
the second preceding completed collection period and (2)
the aggregate Discounted Contract Balance of the
contracts as of the last day of the immediately preceding
completed collection period;
(ii) if such payment date is the stated maturity date of the Class A-1
Notes, the entire outstanding principal amount of the Class A-1
Notes; or
(iii) after the outstanding principal amount of the Class A-1 Notes is
reduced to $0 and while there is outstanding principal on the
Class A-2 Notes, the amount necessary to reduce the aggregate
outstanding principal amount of the Class A-2 Notes, Class A-3
Notes and Class A-4 Notes to the Class A Target Investor
Principal Amount; or
(iv) after the outstanding principal amount of the Class A-1 Notes and
Class A-2 Notes is reduced to $0 and while there is outstanding
principal on the Class A-3 Notes, the amount necessary to reduce
the aggregate outstanding principal amount of the Class A-3 Notes
and Class A-4 Notes to the Class A Target Investor Principal
Amount; or
(v) after the outstanding principal amount of the Class A-1 Notes,
Class A-2 Notes and Class A-3 Notes is reduced to $0, the amount
necessary to reduce the outstanding principal amount of the Class
A-4 Notes to the Class A Target Investor Principal Amount.
"Class A Target Investor Principal Amount" means, with respect to a date on
which principal is to be paid, an amount equal to the product of (i) the Class A
Percentage and (ii) the aggregate Discounted Contract Balance as of the last day
of immediately preceding completed collection period.
"Class B Floor" means, with respect to a date on which principal is to be paid,
(i) [ ]% of the initial aggregate Discounted Contract Balance
plus
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(ii) the Cumulative Loss Amount as of such payment date minus
(iii) the sum of the outstanding principal amount of the Class C Notes
and Class D notes as of the immediately preceding payment date
after giving effect to all principal payments made on such prior
payment date minus
(iv) the amount on deposit in the Reserve Fund after giving effect to
any withdrawals to be made on such payment date.
"Class B Notes" means the [ ]% Class B Receivable-Backed Notes, Series 1999-1
described in this prospectus.
"Class B Percentage" means [ ]%, which is the ratio of (i) the initial principal
amount of the Class B Notes to (ii) the aggregate Discounted Contract Balance as
of [ ] minus the initial principal amount of the Class A-1 Notes.
"Class B Principal Payment Amount" means, with respect to a date on which
principal is to be paid,
(i) while there is outstanding principal on the Class A-1 Notes, $0;
and
(ii) after the outstanding principal amount of the Class A-1 Notes is
reduced to $0, the amount necessary to reduce the outstanding
principal amount of the Class B Notes to the greater of:
(A) the Class B Target Investor Principal Amount; or
(B) the Class B Floor.
"Class B Target Investor Principal Amount" means, with respect to a date on
which principal is to be paid, an amount equal to the product of (i) the Class B
Percentage and (ii) the aggregate Discounted Contract Balance as of the last day
of immediately preceding completed collection period.
"Class C Floor" means, with respect to a date on which principal is to be paid,
(i) [ ]% of the initial aggregate Discounted Contract Balance plus
(ii) the Cumulative Loss Amount as of such payment date minus
(iii) the sum of the outstanding principal amount of the Class D Notes
as of the immediately preceding payment date after giving effect
to all principal payments made on such prior payment date minus
(iv) the amount on deposit in the Reserve Fund after giving effect to
any withdrawals to be made on such payment date;
provided, however, that if the outstanding principal amount of the Class B Notes
is less than or equal to the Class B Floor on such payment date, the Class C
Floor will equal the outstanding principal amount of the Class C Notes as of the
immediately preceding payment date after giving effect to all principal payments
made on such prior payment date.
"Class C Notes" means the [ ]% Class C Receivable-Backed Notes, Series 1999-1
described in this prospectus.
"Class C Percentage" means [ ]%, which is the ratio of (i) the initial principal
amount of the Class C Notes to (ii) the aggregate Discounted Contract Balance
as of [ ] minus the initial principal amount of the Class A-1 Notes.
"Class C Principal Payment Amount" means, with respect to a date on which
principal is to be paid,
(i) while there is outstanding principal on the Class A-1 Notes, $0;
and
(ii) after the outstanding principal amount of the Class A-1 Notes is
reduced to $0, the amount necessary to reduce the outstanding
principal amount of the Class C Notes to the greater of:
(A) the Class C Target Investor Principal Amount; or
(B) the Class C Floor.
"Class C Target Investor Principal Amount" means, with respect to a date on
which principal is to be paid, an amount equal to the product of (i) the Class C
Percentage and (ii) the aggregate Discounted Contract Balance as of the last day
of immediately preceding completed collection period.
"Class D Floor" means, with respect to a date on which principal is to be paid,
(i) [ ]% of the initial aggregate Discounted Contract Balance plus
(ii) the Cumulative Loss Amount as of such payment date minus
(iii) the amount on deposit in the Reserve Fund after giving effect to
any withdrawals to be made on such payment date;
provided, however, that if the outstanding principal amount of the Class C Notes
is less than or equal to the Class C Floor on such payment date, the Class D
Floor will equal the outstanding principal amount of the Class D Notes as of the
immediately preceding payment date after giving effect to all principal payments
made on such prior payment date.
"Class D Notes" means the [ ]% Class D Receivable-Backed Notes, Series
1999-1.
83
<PAGE>
"Class D Percentage" means [ ]%, which is the ratio of (i) the initial principal
amount of the Class D Notes to (ii) the aggregate Discounted Contract Balance
as of [ ] minus the initial principal amount of the Class A-1 Notes.
"Class D Principal Payment Amount" means, with respect to a date on which
principal is to be paid,
(i) while there is outstanding principal on the Class A-1 Notes, $0;
and
(ii) after the outstanding principal amount of the Class A-1 Notes is
reduced to $0, the amount necessary to reduce the outstanding
principal amount of the Class D Notes to the greater of:
(A) the Class D Target Investor Principal Amount; or
(B) the Class D Floor.
"Class D Target Investor Principal Amount" means, with respect to a date on
which principal is to be paid, an amount equal to the product of (i) the Class D
Percentage and (ii) the aggregate Discounted Contract Balance as of the last day
of immediately preceding completed collection period.
"Collection Account" means an account held in the name of the Indenture Trustee
for the benefit of the holders of the Class A-1 Notes, Class A-2 Notes, Class A-
3 Notes, Class A-4 Notes, Class B Notes, Class C Notes and Class D Notes as more
fully described in "Description of the Notes and Indenture -- Collection
Account".
"Cumulative Loss Amount" means, with respect to a date on which principal is to
be paid, an amount equal to the excess of (i) the total of:
(A) the outstanding principal amounts of the Notes as of the
immediately preceding payment date after giving effect to all
principal payments made on such date plus
(B) the Over collateralization Balance as of the immediately
preceding payment date minus
(C) the lesser of (1) the aggregate Discounted Contract Balance as of
the last day of the second preceding completed collection period
and (2) the amounts available for distribution on the Notes after
paying all amounts owing to the Servicer and all interest due on
the Notes on such payment date over (ii) the aggregate Discounted
Contract Balance as of the last day of the immediately preceding
completed collection period.
"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 or statistical discount rate, as
applicable, 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 or statistical discount rate, as applicable, 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 contracts which have
terminated prior to their scheduled maturity date) 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 collection period are due on the
last day of such collection period;
(b) Payments are discounted on a monthly basis using a 30 day
month and a 360 day year; and
(c) All security deposits and drawings under letters of
credit, if any, issued in support of a contract are
applied to reduce scheduled payments in inverse order of
the due date thereof.
The discount rate is calculated as the sum of (i) the weighted average of the
interest rate of the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-
4 Notes, Class B Notes, Class C Notes and Class D Notes and (ii) [ ]%.
"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 transfer red by the Originators to the Trust Depositor
pursuant to the Sale and Servicing Agreement. See "The Sale and Servicing
Agreement--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 of [ ]% due on or
after the applicable cutoff date for such contracts.
84
<PAGE>
"Heller Financial" -- Heller Financial, Inc., a Delaware corporation.
"Noteholders" means the holders of the [ ]% Class A-1 Receivable-Backed
Notes, Series 1999-1, [ ]% Class A-2 Receivable-Backed Notes, Series 1999-1,
[ ]% Class A-3 Receivable-Backed Notes, Series 1999-1, [ ]% Class A-4
Receivable-Backed Notes, Series 1999-1, [ ]% Class B Receivable-Backed Notes,
Series 1999-1, [ ]% Class C Receivable-Backed Notes, Series 1999-1 and [ ]%
Class D Receivable-Backed Notes, Series 1999-1.
"Notes" means the [ ]% Class A-1 Receivable-Backed Notes, Series 1999-1, [ ]%
Class A-2 Receivable-Backed Notes, Series 1999-1, [ ]% Class A-3 Receivable-
Backed Notes, Series 1999-1, [ ]% Class A-4 Receivable-Backed Notes, Series
1999-1, [ ]% Class B Receivable-Backed Notes, Series 1999-1, [ ]% Class C
Receivable-Backed Notes, Series 1999-1 and [ ]% Class D Receivable-Backed Notes,
Series 1999-1.
"Owner Trustee" means Wilmington Trust Company, as owner trustee under the
Trust.
"Required Holders" means (i) prior to the payment in full of the Class A-1
Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes outstanding, holders
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes,
respectively, evidencing more than 66 2/3% of the aggregate of principal amount
of the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes
voting as a single class, and (ii) from and after the payment in full of the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes
outstanding, holders of 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, holders of 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. 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 [closing date], $[ ] and
thereafter, at any date of determination, means an amount equal to [ ]% of the
aggregate outstanding principal amount of the Notes as of such date of
determination.
"Over collateralization Balance" means [ ].
"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.
"Substitute Contract" means a contract that is substituted for, and has similar
characteristics as, a defaulted contract, a materially modified contract, an
ineligible contract or an Excess Contract. See "The Sale and Servicing
Agreement--Representations and Warranties; Definition of Eligible Contract".
"Trust" means Heller Equipment Asset Receivables Trust 1999-1 (the "Issuer" or
the "Trust").
"Trust Depositor" means Heller Funding Corporation II, a Delaware corporation or
Heller Funding Corporation as its successor.
"Vendor" means a equipment manufacturer, dealer or distributor or a computer
software 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".
85
<PAGE>
[AUDITED FINANCIAL STATEMENTS OF THE TRUST TO BE INSERTED]
86
<PAGE>
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
<TABLE>
<CAPTION>
<C> <S>
$ [ ]% Class A-1 Receivable-Backed Notes, Series 1999-1
$ [ ]% Class A-2 Receivable-Backed Notes, Series 1999-1
$ [ ]% Class A-3 Receivable-Backed Notes, Series 1999-1
$ [ ]% Class A-4 Receivable-Backed Notes, Series 1999-1
$ [ ]% Class B Receivable-Backed Notes, Series 1999-1
</TABLE>
Heller Funding Corporation II,
Trust Depositor
Heller Financial, Inc.,
Servicer
------------------------------------
PROSPECTUS
------------------------------------
[UNDERWRITERS]
87
<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.
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
___________________________
* 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
<TABLE>
<CAPTION>
Exhibits
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Trust Depositor*
3.2 Bylaws of the Trust 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*
</TABLE>
__________________________________
*To be filed by amendment
II-1
<PAGE>
**Previously filed.
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 for m 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.
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 March 1, 1999.
Heller Funding Corporation II, as the Trust Depositor
By: /s/ Lauralee E. Martin
------------------------
Name: Lauralee E. Martin
Title: President
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
<C> <S> <C>
/s/ Lauralee E. Martin Chief Executive Officer and Director (Principal March 1, 1999
Name: Lauralee E. Martin Executive Officer)
*** Chief Financial Officer (Principal Financial and March 1, 1999
Name: Lawrence G. Hund Accounting Officer)
*** Director March 1, 1999
Name: Deepak Rai
*** Director March 1, 1999
Name Peter Sorensen
***/s/ David R. Schmuck
David R. Schmuck
Attorney-in-Fact
</TABLE>
<PAGE>
Registration No. 333 -70507
- ------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
<C> <S>
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*
</TABLE>
__________________________________
*To be filed by amendment
**Previously filed
i
<PAGE>
EXHIBIT 5.1
February 26, 1999
Heller Funding Corporation II
c/o Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinios 60661
Re: Class A-1, Class A-2, Class A-3, Class A-4 and Class B Receivable-
-----------------------------------------------------------------
Backed Notes
------------
Ladies and Gentlemen:
We have acted as special counsel to the Heller Equipment Asset
Receivables Trust 1999-1 (the "Trust") in connection with the filing by Heller
-----
Funding Corporation II (the "Company"), as trust depositor of the Trust, of the
-------
registration statement on Form S-1 (File No. 333-70507) (such registration
statement, together with the exhibits and any amendments thereto, the
"Registration Statement"), registering $___________ aggregate principal amount
- -----------------------
of receivable-backed notes (the "Notes"). The Registration Statement has been
-----
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act"). As described in the Registration
--------------
Statement, the Notes will be issued under and pursuant to the terms of a Sale
and Servicing Agreement, Trust Agreement and Indenture (collectively, the
"Agreements" and each, individually, an "Agreement"). Capitalized terms used
- ----------- ---------
but not defined herein have the meanings given to them in the Registration
Statement.
This opinion letter is being delivered to you pursuant to the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
We are familiar with the proceedings to date with respect to the
proposed issuance and delivery of the Notes and have examined copies of the
Certificate of Incorporation and By-Laws of the Company, the Registration
Statement and the Prospectus included therein, the form of each Agreement and
such other documents, records and questions of law, and satisfied ourselves as
to such matters of fact, as we have considered relevant and necessary as a basis
for this opinion letter.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents that will be executed in connection with the issuance
of the Notes, we have assumed that
<PAGE>
February 26, 1999
Page 2
the parties to such documents will have at the time of execution of such
documents, the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect of such documents. As to
any facts material to the opinions expressed herein which we did not
independently establish or verify, we have relied upon oral and written
statements and representations of officers and other representatives of the
Company and others. In addition, we have also relied upon the accuracy and
completeness of all certificates and other statements, representations,
documents, records, financial statements and papers reviewed by us, and the
accuracy and completeness of all representations, warranties, schedules and
exhibits contained in such documents, with respect to the factual matters set
forth therein.
Based on the foregoing, we are of the opinion that when (i) the
Registration Statement, as finally amended, has become effective under the
Securities Act, (ii) the amount, price, interest rate and other principal terms
of the Notes have been duly approved by Board of Directors of the Company, (iii)
the applicable Agreements relating to such Notes have been duly executed and
delivered by the parties thereto in substantially the form filed as exhibits to
the Registration Statement, (iv) with respect to the Trust, the Certificate of
Trust has been duly executed and filed by the Owner Trustee with the Secretary
of State of the State of Delaware, (v) the Indenture has been qualified under
the Trust Indenture Act of 1939, as amended, and (vi) the Notes have been duly
executed and authenticated in accordance with the applicable Agreements, the
Notes will constitute legally valid and binding obligations of the Trust as
issuer thereof enforceable in accordance with their terms, and entitled to the
benefits of the applicable Agreements (subject to the effect of bankruptcy,
fraudulent conveyance or transfer, insolvency, reorganization, arrangement,
liquidation, conservatorship and moratorium laws and subject to the limitations
imposed by other laws and judicial decisions relating to or affecting the rights
of creditors generally, to general principles of equity, regardless of whether
enforcement is considered in proceedings in equity or at law, and to an implied
covenant of good faith and fair dealing).
We do not find it necessary for the purposes of this opinion letter to
cover, and accordingly we express no opinion as to, the application of the
securities or blue sky laws of the various states to the offering of the Notes.
This opinion letter is limited to the laws of the United States of
America, the State of Illinois and Title 12, Chapter 38 of the Delaware Code,
and we express no opinion with respect to the laws of any state or other
jurisdiction.
Our opinions set forth in this letter are based on the facts in
existence and the laws in effect on the date hereof and we expressly disclaim
any obligation to update our opinions herein, regardless of whether changes in
such facts or laws come to our attention after the delivery hereof.
<PAGE>
February 26, 1999
Page 3
We hereby consent to the filing of this opinion letter as an Exhibit
to the Registration Statement and to all references to our firm included in or
made a part of the Registration Statement. In giving such consent, we do not
concede that we are experts within the meaning of the Securities Act or the
rules and regulations thereunder or that this consent is required by Section 7
of the Securities Act.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
Exhibit 8.1
Form of Opinion of Winston & Strawn
with respect to Tax Matters
__________, 1999
Re: Heller Funding Corporation
Registration Statement on Form S-1(Reg. No. 333-70507)
------------------------------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel to Heller Funding
Corporation, a Delaware corporation (the "Registrant"), in connection with the
proposed issuance and sale of its Class A-1 Receivable-Backed Notes, Series
1999-1, Class A-2 Receivable-Backed Notes, Series 1999-1, Class A-3 Receivable-
Backed Notes, Series 1999-1, Class A-4 Receivable-Backed Notes, Series 1999-1,
Class B Receivable-Backed Notes, Series 1999-1, and Class C Receivable-Backed
Notes, Series 1999-1 (collectively the "Notes") to be issued from the Heller
Equipment Asset Receivables Trust, 1999-1, a limited purpose Delaware business
trust (the "Trust"). The property of the Trust will include certain conditional
sale agreements, finance leases, installment payment agreements with respect to
business equipment and computer software and other property. The Notes will be
issued pursuant to an indenture (the "Indenture") between the Trust and an
indenture trustee.
We have advised the Registrant with respect to the material federal
income tax consequences of the proposed issuance of the Notes to the holders
thereof. This advice is described under the headings "Summary of Terms--Federal
Income Tax Considerations" and "Federal Income Tax Consequences" in the
prospectus relating to the Notes (the "Prospectus"), which is a part of the
Registration Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") initially on January 12,
1999, under the Securities Act of 1933, as amended (the "Act"), for the
registration of the
<PAGE>
Notes under the Act. Such description does not purport to discuss all possible
federal income tax ramifications of the proposed issuance of the Notes to the
holders thereof in light of their own investment or tax circumstances, but with
respect to those tax consequences that are discussed, in our opinion, the
description fairly summarizes the federal income tax considerations that are
likely to be material to a holder of Notes. Furthermore, we hereby confirm, as
specified in the Prospectus, that for federal income tax purposes (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.
Our opinion is based upon the current provisions of the Code, Treasury
Regulations promulgated thereunder, current administrative rulings, judicial
decisions, and other applicable authorities, all as in effect on the date of
such opinions. All of the foregoing authorities are subject to change or new
interpretation, both prospectively and retroactively, and such changes or
interpretation, as well as the changes in the facts as they have been
represented to us or assumed by us, could affect our opinions. Our opinion does
not foreclose the possibility of a contrary determination by the Internal
Revenue Service (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. Furthermore, our opinion assumes that all the
transactions contemplated by the Prospectus will be consummated in accordance
with the terms of the Prospectus, including without limitation, that holders of
Notes will treat such Notes as indebtedness.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Registrant) under the headings "Summary of Terms --Federal Income Tax
Considerations," "Federal Income Tax Consequences," and "Legal Matters" in the
Prospectus forming a part of the Registration Statement, without implying or
admitting that we are "experts" within the meaning of the Act or the rules and
regulations of the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
/s/ Winston & Strawn
