<PAGE>
As filed with the Securities and Exchange Commission on September 15, 1999
Registration No. 333-82237
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Fidelity Leasing, Inc.
(Exact Name of Registrant as Specified in its Charter)
---------------------
Pennsylvania 6159 23-2842671
(Primary Standard Industrial (I.R.S. Employer
Identification No.)
(State or Other Jurisdiction
Classification Code Number)
of Incorporation or Organization)
1255 Wrights Lane
West Chester, Pennsylvania 19380
(610) 719-4500
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Abraham Bernstein
Fidelity Leasing, Inc.
1255 Wrights Lane
West Chester, Pennsylvania 19380
(610) 719-4500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
J. Baur Whittlesey, Esq. Paul K. Risko, Esq.
Ledgewood Law Firm, P.C. Sidley & Austin
1521 Locust Street 875 Third Avenue
Philadelphia, PA 19102 New York, NY 10022
(215) 735-0663 (212) 906-2244
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the registration statement becomes effective.
If any of the securities being registered in this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box an 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
Proposed Proposed
Title of Each Class of Maximum Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Share Offering Price Registration Fee
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Common Stock, no par value .. 12,778 $ 19.00 $242,782 $ 67.50(1)
=====================================================================================================
</TABLE>
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(1) The Registrant has previously paid the registration fee for and registered
4,472,222 shares.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We
cannot sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1999
[GRAPHIC OMITTED]
3,900,000 Shares
Common Stock
We are offering 3,900,000 shares of our common stock. This is our initial
public offering and no public market currently exists for our shares. We
estimate that the initial public offering price will be between $17.00 and
$19.00 per share. Our common stock has been approved for listing on the Nasdaq
National Market under the symbol "FLCO." Shares may be reserved for sale at the
initial public offering price to our employees, officers and directors. These
employees, officers and directors may purchase, in the aggregate, not more than
5% of the shares in this offering. See "Underwriting."
---------------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page ___.
---------------------
Per Share Total
----------- ------
Public Offering Price ........................... $ $
Underwriting Discounts and Commissions .......... $ $
Total Proceeds to Fidelity Leasing .............. $ $
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 585,000 shares of common stock to cover over-allotments. The
underwriters expect to deliver the shares of common stock to purchasers on
_______ __, 1999.
---------------------
BancBoston Robertson Stephens
Friedman Billings Ramsey
U.S. Bancorp Piper Jaffray
First Union Capital Markets Corp.
The date of this prospectus is _______________, 1999
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligations to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ....................................................................... 3
Risk Factors ............................................................................. 9
Information Regarding Forward Looking Statements ......................................... 18
Use of Proceeds .......................................................................... 19
Dividend Policy .......................................................................... 19
Capitalization ........................................................................... 20
Dilution ................................................................................. 21
Selected Consolidated Financial, Pro Forma and Operating Information ..................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations .... 29
Business ................................................................................. 43
Management ............................................................................... 59
Certain Transactions ..................................................................... 65
Principal Shareholders ................................................................... 65
Description of Capital Stock ............................................................. 66
Shares Eligible for Future Sale .......................................................... 67
Underwriting ............................................................................. 69
Legal Matters ............................................................................ 71
Experts .................................................................................. 71
Where You Can Find More Information ...................................................... 71
Financial Statements ..................................................................... F-1
</TABLE>
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2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock being sold in this offering
and our financial statements and notes to the financial statements appearing
elsewhere in this prospectus.
Fidelity Leasing
We are an equipment finance company which leases technology equipment to
the small business market. We originate and complete lease transactions using
the Internet, telephone and facsimile. We specialize in financing equipment
within a price range of $5,000 to $250,000. The equipment we finance includes
communications technology, industrial technology, information technology and
office automation equipment.
We reach the small business market by forming strategic marketing
alliances and other program relationships with equipment vendors. Equipment
vendors may be manufacturers, distributors or resellers of technology
equipment. We classify a vendor program as a strategic alliance when the
marketing of our financing is integrated into the vendor's marketing process
and either the program literature and documentation is private labeled in the
vendor's name or co-branded with both the name of the vendor and our name.
The equipment vendors in our strategic marketing alliances and in our
other vendor relationships offer small businesses a total solution for their
equipment acquisition needs by providing equipment and financing in one
package. We provide the vendors in our programs with the ability to offer our
financing as part of their equipment marketing package. We also provide small
business leasing programs to commercial banks that want to offer a lease
financing product to their small business customers but do not want to invest
in a leasing infrastructure. Participants in our strategic marketing alliances
and banking programs include:
<TABLE>
<S> <C> <C>
o Cisco Systems, Inc. o Huntington Leasing Corporation o Minolta Business Systems
o Convergent Capital Corporation o IBM Credit Corporation o Mitsui Machine Technology, Inc.
o Emtec, Inc. o Ingram Micro, Inc. o Quincy Compressor
o FISI Madison Financial Corporation o Lucent Technologies, Inc. o Systemax, Inc.
o Green Pages, Inc. o Midwest Micro Corporation o Tech Data Corporation
o GTE Leasing Corporation o Telrad Telecommunications, Inc.
</TABLE>
Our technology systems allow vendors and banks to integrate their
e-commerce process with ours through hyperlinks from their web sites.
Currently, three of our strategic marketing alliance participants are building
hyperlinks so that they can access our web site and refer their customers to us
for financing. They are Emtec, Ingram Micro and Tech Data. Another strategic
marketing alliance participant, IBM, is establishing a separate web site
address under its own name that provides a window for its equipment vendors to
access our lease process. As more equipment vendors and banks develop web
sites, we will seek to link them to our web site and, thus, to the lease
financing we offer.
Our leases are full payout leases with the lease payments returning 100%
of the equipment cost plus an interest charge over the lease term. As of June
30, 1999, we serviced a portfolio of 33,546 equipment leases with an original
equipment cost of $825.3 million. The average equipment cost for leases
originated during the nine months ended June 30, 1999 was approximately $14,800
and the average lease term was 46.8 months with a weighted average yield of
11.75%. For the nine months ended June 30, 1999, 14 of our strategic marketing
alliances accounted for approximately 35% of our lease originations, measured
by equipment cost, and three of them accounted for 23% of our lease
originations, measured by equipment cost. For the fiscal year ended September
30, 1998, we originated 8,832 leases involving equipment with an aggregate cost
of $88.7 million. For the nine months ended June 30, 1999, we originated 13,033
leases involving equipment with an aggregate cost of $192.5 million.
3
<PAGE>
Our Strategy
Our objective is to become the leading technology equipment lease finance
provider for small businesses. Key elements of our strategy include:
o developing additional strategic marketing alliances with leading
technology equipment vendors and commercial banks to expand our share of
our targeted small business market;
o enhancing our lease origination and lease management systems and
integrating them through Internet connections with the marketing processes
of vendor and bank participants in our strategic marketing alliances;
o giving our vendors and their customers outstanding service through the
use of our E-FastFunds business process;
o maintaining a singular competitive focus -- one product, the small ticket
lease, for one market, small business, thus optimizing utilization of our
resources and skills;
o increasing national recognition of our corporate identity as a small
business lessor with a comprehensive e-commerce capability; and
o expanding our market beyond the United States.
Corporate Information
We were incorporated as a Pennsylvania corporation on March 4, 1996 and
commenced lease underwriting in August 1996. In February 1999, we acquired JLA
Credit Corporation, the U.S. small ticket leasing subsidiary of Japan Leasing
Corporation. JLA Credit, which is now our wholly-owned subsidiary, serves
several technology sectors that are similar to ours and also uses strategic and
other marketing alliances with vendors as a marketing strategy.
We are a wholly-owned subsidiary of Resource Leasing, Inc., which is a
wholly-owned subsidiary of Resource America, Inc. Following the closing of the
offering and the exercise of vested options to purchase common stock by our
executive officers, we will be a majority-owned subsidiary of Resource Leasing,
which will own between 55.9% and 58.8% of our outstanding common stock (or
between 55.8% and 58.7% on a fully-diluted basis) depending upon the
underwriters' exercise of their over-allotment option.
We maintain the following business relationships with Resource America and
Resource Leasing:
o As of June 30, 1999, we owed $65.3 million to Resource Leasing for loans
and advances it made to us. Resource Leasing has agreed to contribute
$30.0 million of this amount to our capital, exchange the balance for an
unsecured note and receive 280,496 shares of our common stock. This
additional common stock has been included in the calculations discussed
above to determine Resource Leasing's percentage ownership of us following
the offering.
o As of June 30, 1999, Resource America has provided guarantees for
approximately $36.1 million of our third party financing and approximately
$1.9 million of lease receivables sold to third parties. The guarantees
will not be terminated following the offering.
Our headquarters are located at 1255 Wrights Lane, West Chester,
Pennsylvania 19380. Our telephone number at that location is (610) 719-4500, or
toll free at (800) 400-4766. Our web site address is www.fidelityleasing.com.
The information contained in our web site is not part of this prospectus.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered .................... 3,900,000 shares
Common stock to be outstanding after this
offering ............................... 11,217,448 shares
Use of proceeds ......................... For the continued growth of our leasing business, including
lease originations and repayment of related subordinated debt,
enhancement and expansion of our technology infrastructure,
start-up costs for international operations, working capital and
for general corporate purposes. In addition, we will reimburse
Resource America for its costs and expenses incurred in
connection with this offering and our acquisition of JLA Credit,
including an allocation of employee compensation. Such costs
and expenses are estimated to be approximately $1,000,000.
Nasdaq National Market symbol ........... FLCO
</TABLE>
Shares Available for Future Sale
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to common stock to be outstanding
after this offering. If and when we issue these shares, the percentage of
common stock you own may be diluted. The following is a summary of these
additional shares of common stock:
o 319,765 shares of common stock will be issued upon exercise of
outstanding options for these shares, with a weighted average exercise
price of $0.95 per share;
o 6,311 shares of common stock that have been reserved for future issuance
under our 1996-2 Key Employee Stock Option Plan; and
o 750,000 shares of common stock will be reserved for future issuance under
our 1999 Key Employee Stock Option Plan which will be adopted before the
closing of this offering.
General Assumptions
Unless otherwise indicated, all information in this prospectus:
o includes the performance of JLA Credit only since we acquired it on
February 4, 1999;
o reflects a 0.6992 for 1 reverse stock split of our common stock that was
effected June 25, 1999 and a 1.002857 for 1 stock split effected on August
26, 1999. These stock splits will not impact the number of shares being
offered and will not have any impact on the purchasers of shares in this
offering;
o assumes exercise by our executive officers of options to acquire 725,785
shares of our common stock before the closing of this offering at a price
of $0.32 per share;
o assumes the underwriters do not exercise their option to purchase
additional shares after the closing of this offering;
o except where the context otherwise requires, refers to Resource America,
Inc. on a consolidated basis with its wholly-owned subsidiary, Resource
Leasing, our direct parent; and
o assumes that Resource America receives 280,496 shares of our common stock
before the closing of this offering,
5
<PAGE>
Summary Consolidated Financial, Pro Forma and Operating Data
The summary consolidated financial data set forth below has been derived
from the consolidated financial statements, selected financial information and
pro forma financial information relating to the acquisition of JLA Credit which
appear elsewhere in this prospectus. This data should be read in conjunction
with our consolidated financial statements and the related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through
September 30, Year Ended September 30,
--------------- ---------------------------------------------
1998
1996 1997 1998 Pro Forma(1)(2)
--------------- ------------ ------------ -----------------
(in thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C>
Revenues:
Interest and fee income .................. $ 7 $ 1,080 $ 3,481 $ 45,277
Gains on sales of leases and
terminations(3) ......................... -- 3,710 7,598 7,598
-------- -------- -------- ---------
Total revenues .......................... 7 4,790 11,079 52,875
-------- -------- -------- ---------
Costs and expenses:
Operating expenses ....................... 454 2,535 5,184 17,032
Interest expense ......................... -- 690 1,689 24,633
-------- -------- -------- ---------
Total expenses .......................... 454 3,225 6,873 41,665
-------- -------- -------- ---------
Income (loss) before provision for income
taxes and cumulative effect of a change in
accounting principle(4) .................. (447) 1,565 4,206 11,210
Net income (loss) ......................... $ (295) $ 960 $ 2,406 $ 6,326
======== ======== ======== =========
Net income (loss) per common shares-
basic(5) ................................. $ (0.05) $ 0.15 $ 0.38 $ 1.00
========= ======== ======== =========
Net income (loss) per common share-
diluted(6) ............................... $ (0.05) $ 0.14 $ 0.33 $ 0.87
========= ======== ======== =========
<PAGE>
<CAPTION>
Nine Months Ended
------------------------------------------
June 30,
------------------------------------------
1999 Pro
1998 1999(1) Forma(1)(2)
------------- ------------- ------------
(in thousands, except per share data)
Statement of Operations Data:
<S> <C> <C> <C>
Revenues:
Interest and fee income .................. $ 2,368 $ 20,653 $ 34,623
Gains on sales of leases and
terminations(3) ......................... 5,519 5,609 5,609
-------- --------- ---------
Total revenues .......................... 7,887 26,262 40,232
-------- --------- ---------
Costs and expenses:
Operating expenses ....................... 3,477 12,473 16,065
Interest expense ......................... 1,231 11,047 18,907
-------- --------- ---------
Total expenses .......................... 4,708 23,520 34,972
-------- --------- ---------
Income (loss) before provision for income
taxes and cumulative effect of a change in
accounting principle(4) .................. 3,179 2,742 5,260
Net income (loss) ......................... $ 1,819 $ 1,085 $ 2,480
======== ========= =========
Net income (loss) per common shares-
basic(5) ................................. $ 0.29 $ 0.17 $ 0.39
======== ========= =========
Net income (loss) per common share-
diluted(6) ............................... $ 0.25 $ 0.15 $ 0.34
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
September 30,
----------------------- June 30,
1997 1998 1999(1)
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Net investment in leases and notes receivable ......... $ 8,153 $24,978 $356,446
Other assets(7) ....................................... 3,396 7,291 45,773
Total assets .......................................... 11,549 32,269 402,219
Total debt(8) ......................................... 7,418 23,982 378,919
Other liabilities ..................................... 1,466 3,216 17,108
Total liabilities ..................................... 8,884 27,198 396,027
Shareholder's equity .................................. 2,665 5,071 6,192
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Period from March
4, 1996 (Inception) Year Ended as of Nine Months Ended
through and as of September 30, June 30,
September 30, -------------------------- ---------------------------
1996 1997 1998 1998 1999
-------------------- ------------ ------------ ------------ -------------
(in thousands, except for average equipment cost and percentages)
<S> <C> <C> <C> <C> <C>
Operating Data:
Leases originated:
Total number of leases(1) ............ 41 3,241 8,832 5,927 13,033
Total equipment cost(1) .............. $ 715 $ 33,985 $ 88,740 $ 57,346 $ 192,487
Weighted average yield (all
sectors)(1)(9) ...................... 12.7% 13.6% 13.2% 13.4% 11.75%
Average equipment cost (all
sectors)(1) ......................... $17,439 $ 10,486 $ 10,048 $ 9,675 $ 14,769
Total managed portfolio:
Total gross receivables(1)(15)........ $ 847 $ 36,094 $117,025 $ 88,800 $ 611,975
Managed Portfolio Quality Data:
Delinquencies at end of period as a
percentage total outstanding
managed receivables:
Current receivables .................... 100.0% 96.0% 97.9% 97.8% 97.2%
31-60 days ............................. -- 2.8 1.2 1.6 1.4
61-90 days ............................. -- 0.8 0.4 0.2 0.5
Over 90 days ........................... -- 0.4 0.5 0.4 0.9
Total delinquencies .................... -- 4.0 2.1 2.2 2.8
Allowance for possible losses as a
percentage of total outstanding
managed receivables(1)(10) ............. 0.8% 0.7% 1.4% 0.9% 1.7%
Operating Ratios:
Return on equity(5)(11) ................ (34.6%) 43.9% 62.2% 58.4% 25.6%
Return on assets(1)(12) ................ (32.6%) 14.4% 11.0% 12.6% 0.7%
Ratio of total debt to shareholder's
equity(1)(13) ........................ -- 2.8x 4.7x 3.3x 61.2 x
Ratio of net write-offs to average
managed receivables(14) .............. -- 0.1% 0.1% 0.1% 0.6%
</TABLE>
- ------------
(1) On February 4, 1999, we acquired all of the common stock of JLA Credit. We
accounted for this transaction as a purchase and, consequently, allocated
the purchase price to assets acquired and liabilities assumed based upon
their fair value at the date of acquisition. JLA Credit accounts for a
substantial amount of the assets and debt included in our June 30, 1999
consolidated balance sheet, resulting from JLA Credit's practice of
structuring its securitizations as on balance sheet transactions, as well
as our on balance sheet securitization of JLA Credit's leases. As a
consequence of the JLA Credit acquisition, our results of operations for
the nine months ended June 30, 1999 may not be comparable to the results of
operations for the nine months ended June 30, 1998. In particular, the JLA
Credit portfolio has a larger average equipment cost and longer lease
terms, resulting in a lower yield than ours.
(2) These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments to:
o equipment leasing revenue as a result of the purchase price allocation of
JLA Credit;
o depreciation and amortization expense attributable to allocation of the
purchase price of JLA Credit;
7
<PAGE>
o selling, general and administrative expenses for certain cost reductions
expected to be realized from the combining of operations;
o interest expense for additional borrowings; and
o provision of income taxes to reflect the above adjustments.
The unaudited pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the
combination been consummated on October 1, 1997, or of future results of
operations of the consolidated entities.
(3) Gains on sales of equipment leases are recorded at the date of sale in the
amount by which the sales price exceeds the carrying value of the
underlying lease interest sold.
(4) In fiscal 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. We elected to
adopt the provisions of SOP 98-5 effective October 1, 1998, and
accordingly, start up costs of $753,000 ($413,000 net of income tax) which
had been capitalized at September 30, 1998 were charged to operations on
October 1, 1998 and are reflected in the consolidated statement of
operations for the nine months ended June 30, 1999 as a cumulative effect
of a change in accounting principle.
(5) Basic earnings per share are determined by dividing net income by the
weighted average number of common shares outstanding during the period.
(6) Diluted earnings per share are computed by dividing net income by the sum
of the weighted average number of shares outstanding and dilutive potential
common shares issuable during the period. Dilutive potential common shares
consist of the excess of common shares issuable under the terms of various
stock option agreements over the number of such shares that could have been
acquired with the proceeds received from the exercise of the options.
(7) Included in other assets is cash of $2.0 million, $3.7 million and $16.5
million as of September 30, 1997 and 1998 and June 30, 1999, respectively,
and goodwill of $18.1 million as of June 30, 1999, which arose as a result
of the acquisition of JLA Credit.
(8) Total debt as of June 30, 1999 consists of warehouse debt of $6.9 million,
nonrecourse debt of $294.1 million, affiliate debt of $65.3 million and
other debt of $12.7 million.
(9) Weighted average yields on individual leases are weighted by original
equipment cost. Yields on individual leases are calculated by computing the
internal rate of return based on the scheduled cash flows at lease
inception date.
(10) We maintain an allowance for possible losses for all leases for which we
have an ongoing at risk position. The allowance is determined by our
estimate of future uncollectable lease contracts based upon our historic
loss experience, industry trends and equipment characteristics. Our policy
is to charge off to the allowance those leases which are in default and
for which we believe the probability of collection is remote. Recoveries
on leases previously charged off are restored to the allowance.
(11) Calculated as annualized net income divided by average shareholder's
equity.
(12) Calculated as annualized net income divided by average total assets.
(13) Calculated as total debt divided by ending shareholder's equity.
(14) Calculated as annualized net write-offs divided by averaged managed
receivables.
(15) Included in total gross receivables is $52.4 million of leases not
underwritten by us but which we manage.
8
<PAGE>
RISK FACTORS
You should consider carefully the factors discussed below among others
before investing in our common stock. The risks and uncertainties described
below are not the only ones we face. If any of the following risks actually
occur, our business, financial condition and results of operations would likely
suffer. In this case, the market price of our common stock could decline, and
you may lose all or part of your investment.
Risks Related to Our Operations
We have a limited operating history upon which you can evaluate our business
We commenced operations in 1996, and therefore have a limited history of
operations upon which you can evaluate our business. While we have had two
consecutive years of increasing profitability, there can be no assurance that
we will remain profitable in future periods, nor can we offer investors any
assurance that we will successfully implement our growth strategy.
Our lease origination volume could decline if one or more of the principal
equipment vendors with whom we have strategic marketing alliances ceases or
cuts back on referring leasing transactions to us
We market our leasing programs through strategic marketing alliances and
other vendor program relationships with manufacturers, distributors, dealers,
resellers and other vendors of equipment and commercial banks as described in
"Business--Marketing and Originations." For the nine months ended June 30,
1999, three of our strategic marketing alliances accounted for approximately
23% of our lease originations, measured by equipment cost, and 14 of our
strategic marketing alliances accounted for approximately 35% of our lease
originations. Termination of one or more of our principal relationships, a
material adverse change in the financial condition or the operations of a
vendor or bank in one of these relationships or a decision by one or more of
the vendors or banks not to refer business to us could have a material adverse
impact on our ability to originate leases.
Many of these relationships are not formalized in written agreements.
Moreover, most of the relationships that are formalized by written agreements
are terminable at will. None of our strategic marketing alliances or other
relationships commits a vendor or bank to provide a minimum number of lease
transactions to us nor, with the exception of one agreement which terminates in
September 1999, do our relationships require the vendors or banks to direct all
of their lease transactions to us.
Our strategic marketing alliances with IBM Credit Corporation, IBM Canada
Ltd. and Ingram Micro, Inc. are not terminable at will, but are terminable upon
specified events of default. These events include our bankruptcy and, in the
case of IBM Credit and IBM Canada, the departure of Abraham Bernstein, our
Chairman and Chief Executive Officer, and Crit S. DeMent, our President and
Chief Operating Officer. The alliances with IBM Credit, IBM Canada and Ingram
Micro, in the aggregate, accounted for less than 3% of our lease originations
in the nine months ended June 30, 1999.
We will not be able to maintain or grow our business if funding necessary to
conduct our business is not available on acceptable terms
Our business requires a substantial amount of cash to fund equipment
leases. These cash requirements will increase if our lease originations
increase. If any or all of our funding sources become unavailable on acceptable
terms, we may not have access to the funding necessary to conduct our business.
For a description of our funding sources, you should read "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." We historically have obtained
significant amounts of cash through loans from Resource America. After this
offering, we do not expect to obtain further loans from Resource America. We are
and will continue to be dependent upon the availability of funding from our
remaining sources to continue to originate leases and to satisfy our other
working capital needs.
9
<PAGE>
We cannot fund a significant amount of leases without the short-term funding
provided by warehouse lines of credit
We fund a significant portion of our lease originations on a short-term
basis through warehouse revolving lines of credit secured by the underlying
equipment and our interest in the leases. A warehouse revolving line of credit
provides temporary funding pending the accumulation of sufficient pools of
leases for financing through a commercial paper ("CP") conduit securitization
or a term note securitization. The lender's commitment to provide funds under a
warehouse facility generally has a short duration and typically must be
replaced or renewed annually. Failure to renew or replace our warehouse
facilities will have an immediate and material adverse effect on our ability to
originate leases.
Borrowings under our warehouse facilities are primarily repaid with the
proceeds from sales or financing of leases in CP conduit facilities and term
note securitizations. Our ability to obtain new warehouse facilities, maintain
or renew our existing warehouse facilities, or reduce indebtedness under our
warehouse facilities could be compromised if we cannot securitize lease
receivables through our CP conduit facilities or through term note
securitizations. Resource America, which has guaranteed our warehouse
facilities, has informed us that it does not anticipate guaranteeing future
warehouse facilities. The absence of Resource America's guarantee could
adversely affect the pricing and other terms of future warehouse facilities.
Further, a failure to obtain or maintain a warehouse facility with
acceptable pricing, advance rates and other terms could have a material adverse
effect on our liquidity and cash flow.
Changing market conditions and the credit quality of our leases may affect our
ability to obtain medium- and long-term financing
We depend in part on CP conduit securitizations to repay amounts
outstanding under our warehouse facilities and to generate cash for funding new
leases. Our CP conduit facilities are structured as revolving facilities in
which funding availability may be restored through term note securitizations,
normal amortization of leases and asset sales. A failure to renew our existing
CP conduit facilities, increase the funding commitment under existing CP
conduit facilities or to add new CP conduit facilities and to complete term
note securitizations could have a material adverse effect on our ability to
refinance leases originated through our warehouse facilities and, accordingly,
on our ability to originate leases. In addition, because our $300.0 million CP
conduit facility requires us to maintain revolving credit facilities
aggregating at least $400.0 million, the occurrence of any of these events
could result in an event of default under that facility. You should see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Other Accounting Considerations--Securitizations and Other Lease
Sales" for a description of CP conduit and term note securitizations.
Our ability to complete CP conduit transactions, obtain renewals of
lenders' commitments and complete term note securitizations is affected by a
number of factors, including:
o conditions in the securities markets generally;
o conditions in the asset-backed securities markets;
o conditions in the market for commercial bank liquidity support for
commercial paper programs;
o the regulatory treatment of liquidity and credit enhancement facilities
provided by commercial banks for CP conduit securitizations;
o the credit quality of our lease originations;
o the level of lease defaults in prior securitizations;
o compliance of our leases with the eligibility requirements established in
connection with our CP conduit facilities; and
o our ability to service the leases securitized.
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Our ability to obtain financing in the future may be affected by our ability to
obtain equity capital
Many lenders have internal policies under which they will not lend funds
to an entity if the entity's outstanding indebtedness exceeds a certain
multiple of its equity capital. In addition, as discussed in the next two
paragraphs, our warehouse and CP conduit facilities require us to maintain
specified tangible net worth levels in order to maintain further funds
availability under those facilities. We have no current plans for another
offering of our securities. If, because of market conditions or our then
existing financial condition, we are unable to issue additional common stock or
convertible securities when we believe it appropriate to do so, such an
inability may seriously hamper our ability to finance the growth of our
operations.
The financial covenants contained in our warehouse facilities may restrict our
ability to incur additional indebtedness; a breach of these or other
restrictions in the facilities could lead to acceleration of the debt
Our warehouse facilities require us to maintain a specified level of
tangible net worth and restrict us from exceeding specified debt to tangible
net worth and operating cash flow to fixed charges ratios. These restrictions
may limit our ability to obtain additional funds. Furthermore, our warehouse
facilities contain change of control provisions that require Resource America,
our ultimate corporate parent, to own, directly or indirectly, a majority of
our voting stock and, in the case of our $20.0 million facility, also require
that Abraham Bernstein continue to act as our Chief Executive Officer. Failure
to comply with these restrictions may result in the occurrence of an event of
default. Upon occurrence of an event of default, a lender may terminate the
warehouse facility and demand immediate payment of all amounts borrowed by us
under that facility.
The occurrence of an event of default under a CP conduit facility could lead to
termination of that facility
Our CP conduit facilities contain customary default provisions for
asset-backed securities relating to, among other things, lease delinquency and
lease default levels. In addition, a change in our Chairman and Chief Executive
Officer, President or Senior Vice President, or a merger or consolidation with
another company in which we are not the surviving entity, is an event of
default. Our $300.0 million CP conduit facility requires us to maintain a
specified level of tangible net worth and ratio of earnings to interest
expense, and to maintain revolving credit facilities aggregating at least
$400.0 million. An event of default under a CP conduit facility could result in
termination of further funds availability under the facility, an accelerated
payment schedule for amounts outstanding under the facility, foreclosure on all
or a portion of the leases financed by the facility or our removal as a
servicer of the leases financed by the facility. This would reduce our revenues
from servicing and, by delaying any cash payment allowed to us under the
facility until the lenders have been paid in full, reduce our liquidity and
cash flow. For a more detailed description of our CP conduit facilities, please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--CP Conduit Securitizations."
An event of default under any of our recourse indebtedness could cause an event
of default under our warehouse lines of credit and CP conduit facilities
Our warehouse lines of credit and CP conduit facilities contain "cross
default" provisions under which, among other things, our failure to timely pay
aggregate recourse indebtedness of $250,000, in the case of the warehouse
facilities, or $1.0 to $5.0 million, in the case of the CP conduit facilities,
would be an event of default. An event of default under our warehouse
facilities could result in termination of our warehouse facilities and a demand
for immediate payment of all amounts borrowed by us. An event of default under
a CP conduit facility could lead to foreclosure on all or a portion of the
leases financed by the facility and to termination of the facility or our
removal as servicer of the leases.
Small business lessees may be more likely to default than larger, more
creditworthy lessees and these defaults could reduce our earnings and trigger
defaults under, or limit our ability to obtain, third party financing
We specialize in leasing equipment to small businesses. Small businesses
may be more vulnerable to economic downturns and often need substantial
additional capital to expand or compete. Moreover, the
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success of a small business and its ability to make lease payments typically
depends upon the management talents and efforts of one person or a small group
of persons at the business. The death, disability or resignation of one or more
of these persons could have an adverse impact on the operations of that
business. Small business leases, therefore, may entail a greater risk of
non-performance and more delinquencies and losses than leases entered into with
larger, more creditworthy lessees. In addition, there is typically only limited
publicly available financial and other information about small businesses and
they often do not have audited financial statements. Accordingly, in making
credit decisions, our small business underwriting relies upon the accuracy of
information about these small businesses obtained from third party sources,
primarily credit agencies. If the information we obtain from these sources is
incorrect, our underwriting will not be effective and our ability to make
appropriate credit decisions will be impaired.
Delinquent and defaulted leases do not qualify as collateral against which
advances may be made under our warehouse or CP conduit facilities and we cannot
include them in term note securitizations. This can reduce the funding
available to us under our warehouse or CP conduit facilities and amounts we can
obtain through term note securitizations. Higher than expected lease
delinquencies or defaults will result in additional charges to operations,
which will adversely affect our earnings, possibly materially. In addition,
increasing rates of delinquencies or charge-offs could result in adverse
changes in the structure of our future warehouse facilities, CP conduit
securitizations and term note securitizations, including increased interest
rates payable to investors and the imposition of more burdensome credit
enhancement requirements. Any of these occurrences could have a material
adverse effect on our business, financial condition and results of operations.
Losses from leases could exceed our reserve coverage, which would require us to
increase our provision for credit losses and reduce our earnings
In connection with our financing of leases, we record an allowance for
credit losses to provide for estimated losses. Our allowance for credit losses
is based on past collection experience, industry data, lease delinquency data
and our assessment of prospective risks. Although we consider the allowance for
credit losses reflected in our consolidated balance sheet at June 30, 1999 to
be adequate, we can offer no assurance that this allowance will be adequate to
cover losses in connection with our portfolio of leases. Losses in excess of
this allowance would cause us to increase our provision for credit losses,
reducing our operating income. This allowance may prove to be inadequate due to
unanticipated adverse changes in the economy or discrete events adversely
affecting specific lessees or industries.
If we do not manage our business cost-efficiently we will not be able to grow
We have grown significantly since we commenced operations. Our ability to
sustain continued growth depends on our ability to originate, evaluate, finance
and service increasing volumes of leases of suitable yield and credit quality.
Accomplishing such a result on a cost-effective basis is largely a function of
our marketing capabilities, our management of the leasing process, our ability
to provide competent, attentive and efficient servicing, our access to
financing sources on acceptable terms and the capabilities of our technology
systems. As we grow, we will also be required to hire, train, supervise and
manage new employees. Failure to manage effectively any future growth could
have a material adverse effect on our business, financial condition and results
of operations.
Failure to realize the projected value of residual interests in equipment we
finance could lead to a charge to operations, which would reduce our earnings
An equipment lease may be separated into two financial components:
o rental payments required under the lease, which are sometimes referred to
as "lease receivables," and
o the estimated amount to be received at lease termination from lease
extensions, remarketing or other disposition of the leased equipment,
which is sometimes referred to as the "residual" or "residual interest."
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Our recorded residual values are estimates based on industry data about
lease extensions, lessee purchases of equipment at the end of the lease term
and resale of used equipment in the open market. Because we have a relatively
short operating history, our current experience with respect to realization of
residual interests may not be indicative of what realizations may be in the
future. We review our estimates of the value of our residual interests from
time to time to determine whether they are above the fair market value of the
residual interests. If the fair market values are less than our estimates, the
difference would be charged to operations. If, upon sale or re-lease of the
underlying equipment, the amount obtained is less than our recorded estimate,
the difference also would be charged to operations. These charges will reduce
our operating income.
We may incur significant losses in the future in seeking to realize our
residual interests.
Realization of residual values depends on numerous factors, most of which
are outside of our control, including:
o the general market conditions at the time of expiration of the lease;
o the cost of comparable new equipment;
o the obsolescence of the leased equipment;
o any unusual or excessive wear and tear on the equipment;
o the effect of any additional or amended government regulations; and
o the foreclosure by a secured party of our interest in a defaulted lease.
Increases in interest rates could adversely affect our operating margin on
leases financed with floating-rate funding
Because we generally fund our leases through warehouse lines of credit, CP
conduit facilities and term note securitizations, our operating margins could
be adversely affected by an increase in interest rates. Each of our leases is
structured so that the sum of all scheduled lease payments will equal the cost
of the equipment to us plus a return on the amount of our investment. This
return is known as an "implicit yield." The implicit yield on our leases is
fixed because the scheduled payments are fixed at the time of lease
origination. When we originate or acquire leases, we base our pricing in part
on the "spread" we expect to achieve between the implicit yield rate on each
lease and the effective interest rate we will pay when we finance the lease. To
the extent that a lease is financed with floating-rate funding, increases in
interest rates during the term of a lease could narrow or eliminate the spread,
or result in a negative spread. A negative spread is an interest cost greater
than the lease's implicit yield. Currently, all of our warehouse lines of
credit and CP facilities have floating rates. We typically enter into interest
rate swap agreements to hedge against the risk of interest rate increases in
our CP conduit securitizations. You should read "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Interest
Operations--Interest Rate Risk and Hedging" for a more detailed explanation of
our hedging practices. Such hedging activities limit our ability to participate
in the benefits of lower interest rates with respect to the hedged portfolio.
In addition, our hedging activities may not protect us from interest
rate-related risks in all interest rate environments, including interest rate
increases after a lease origination but before CP conduit securitization.
We may not be able to compete successfully in the highly competitive small
ticket leasing business with the increasing participation of large finance
companies
The business of small ticket equipment lease financing is highly
fragmented and competitive. We compete with:
o a large number of national, regional and local finance companies;
o captive finance and leasing companies affiliated with major equipment
manufacturers; and
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o other sources of financing, including traditional financial services
companies such as commercial banks, savings and loan associations and
credit unions.
Many of our competitors are substantially larger and have considerably
greater financial, technical and marketing resources than we do. For example,
some competitors may have a lower cost of funds and access to funding sources
that are not available to us. A lower cost of funds could enable a competitor
to offer leases with implicit yields which are less than those we use to price
our leases, potentially forcing us to lower our implicit yields or lose
origination volume. In addition, certain of our competitors may have higher
risk tolerances or different risk assessments, which could allow them to
establish more vendor and lessee relationships and build their market share. We
can offer you no assurance that we will continue to be able to compete
effectively.
Our quarterly operating results may fluctuate significantly
Our operating results may differ from fiscal quarter to fiscal quarter.
These differences may be significant and, therefore, the results of any one
fiscal quarter may not indicate what our performance in the future may be.
Factors that may cause these differences include changes in the volume of lease
applications, acceptances and originations, changes in interest rates, the
timing of securitizations, availability of capital, competition and other
factors.
An economic downturn could adversely affect the demand for our leasing
products, our ability to obtain financing, and the incidence of lease defaults
An economic downturn may adversely affect small businesses, which are our
primary market. This could result in a decline in the demand for some or all of
the types of equipment we finance and a decline in our lease origination
volume. A downturn could also adversely affect our ability to obtain capital to
fund leases or to complete securitizations. In addition, a downturn could
result in an increase in delinquencies and defaults by our lessees beyond the
levels forecasted by us, which could have an adverse effect on our cash flow
and earnings as well as on our ability to securitize leases. As of June 30,
1999, approximately 31% of the outstanding receivables in our managed portfolio
was represented by leases originated in California, primarily as a result of
our acquisition of JLA Credit, and an aggregate of approximately 23% of the
outstanding receivables in our portfolio was represented by leases originated
in Florida, New Jersey, New York and Texas. Economic conditions in these
states, and in California in particular, may affect the level of collections
from, as well as delinquencies and defaults by, these lessees.
We may encounter unforseen difficulties in the integration of JLA Credit into
our business operations, which could adversely affect our financial results
Before our acquisition of JLA Credit in February 1999, JLA Credit was an
independent operating subsidiary of another company, and had developed its own
operating, underwriting, processing and servicing policies and procedures.
While the process of integrating JLA Credit's operations into ours has begun,
this process may result in unforeseen operating difficulties and expenditures,
which could adversely affect our financial results and may absorb significant
management attention that would otherwise be available for the implementation
of our business strategy.
The departure of our key management personnel could adversely affect the
implementation of our business strategy
Our future success depends to a significant extent on the continued
service and coordination of our management team, particularly Abraham
Bernstein, our Chairman and Chief Executive Officer, and Crit S. DeMent, our
President and Chief Operating Officer. We do not currently have employment
agreements with members of management other than our Chief Executive Officer,
President and Senior Vice President of
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Operations. For a description of those agreements, including rights of the
respective officers to terminate their agreements, you should read
"Management--Employment Agreements." The departure of any of our executive
officers or key employees could materially adversely affect our ability to
implement our business strategy.
Regulatory and legal uncertainties could affect our strategy
Laws or regulations may be adopted with respect to our equipment leases,
the equipment leasing process or the Internet. For example, laws or regulations
could be adopted seeking to apply usury laws to implicit yields under our
leases, impose new taxes, impose liability on us for information retrieved from
or transmitted over the Internet, or to regulate domain name registration,
online content, user privacy, and quality of products and services. Any new
legislation or regulation, or changes in the interpretation of existing laws
which affect the equipment leasing industry or our strategy of using e-commerce
technologies to conduct our business, could have a material adverse effect on
our business, financial condition and results of operations.
Risks Associated with Our Technology
Our operating systems are not protected by patent or copyright and a competitor
could develop similar systems
We believe that one of our competitive advantages is our operating systems
that allow us to automate substantial portions of our lease application, credit
evaluation, documentation and servicing processes. These systems are not
protected by patents, copyrights or other means and, accordingly, there are no
legal barriers preventing persons from developing similar systems and competing
with us to provide small ticket leasing to small businesses.
We may lose customers if our computer and telecommunications equipment fail
Our operations depend on our ability to protect our technology systems,
particularly our computer and telecommunications equipment, against damage from
fire and water, power loss, telecommunications failure or a similar unexpected
adverse event. Moreover, if the capacity of our software or hardware is
exceeded due to an increase in the volume of products and services delivered
through our servers, we may have slower response times and, possibly, system
failures. Vendors with whom we have relationships, and their customers, may
become dissatisfied as a result of any system failure that interrupts our
ability to provide our lease financing. Sustained or repeated system failures
would reduce the attractiveness of our financing process. To the extent that we
do not effectively address any system failures or capacity constraints, vendors
could seek other lease finance providers.
We could face losses and potential liability if intrusions, viruses or similar
disruptions to our operating systems impede our service or jeopardize our
confidential information or that of our customers
Although we have implemented, and will continue to implement, security
measures, our technology systems are vulnerable to intrusion, computer viruses
or similar disruptive problems caused by or transmitted through Internet users.
Computer viruses or similar disruptions could lead to interruptions, delays or
cessation in our leasing processes. It is possible that lessees or others could
assert claims of liability against us as a result of any failure. In addition,
the misappropriation of proprietary personal information or the purchase or
lease of products through fraud could also expose us to a risk of loss or
litigation. Furthermore, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential
customers may inhibit the growth of Internet commerce, which would adversely
affect our business strategy.
We may not be able to compete successfully if we fail to adapt as technologies
and customer demands evolve
To be successful, we must continue to develop our technology systems to
address the changing needs of our business, participants in our strategic
marketing alliances, their distributors, dealers or resellers and the end users
of their equipment. If we fail to adapt our technology in a timely manner in
response to changing market conditions or customer requirements, our ability to
successfully compete could be materially adversely affected.
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We may not be able to execute our business strategy if use of the Internet for
equipment lease financing does not develop
While our lease originations from vendors and resellers using the Internet
were less than 3%, measured by equipment cost, of lease originations in July
1999, our business strategy assumes that use of the Internet to originate
leases will account for a growing and ultimately significant portion of our
revenues. However, the use of the Internet for leasing transactions may not
develop or become economically sustainable.
If our assessment of our state of readiness for Year 2000 is wrong or we
encounter unforseen difficulties, we may experience computer system failures
that could restrict our ability to transact new business
The year 2000 issue is the result of computer programs and embedded
hardware systems having been developed using two digits rather than four to
define the applicable year. These computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions or failure of our operations including,
among other things, a temporary inability to transact new business or
communicate with our customers online. We have substantially completed our year
2000 compliance review, which included obtaining certifications from third
party software vendors regarding the year 2000 compliance of their software
applications, testing our core operating systems and identifying and repairing
any problems, and we believe that we are year 2000 compliant. However, we may
experience degradation in the performance of our systems or complete systems
failure if our assessment is erroneous or if we encounter unforeseen
difficulties. Any of these events, whether occurring in our systems, the
systems of participants in our strategic marketing alliances or the systems of
others, including equipment lessees, could have a material adverse effect on
our business, financial condition and results of operations. You should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" for a more detailed explanation of our state of
readiness and potential risks regarding year 2000 compliance.
Risks Relating to this Offering
After the completion of this offering, we will continue to be controlled by
Resource America with whom we may have conflicts of interest
We are currently an indirect wholly-owned subsidiary of Resource America.
After this offering, 58.8% of our common stock, 55.9% if the underwriters
exercise their over-allotment option in full, will be owned indirectly by
Resource America through its wholly-owned subsidiary, Resource Leasing.
Resource America will thus have voting control over all matters upon which
shareholders vote, including election or removal of directors, amendment of our
articles of incorporation and bylaws, mergers, sale of substantially all of our
assets, increase of the common stock we are authorized to issue, issuance of
"blank check" preferred stock which may have an anti-takeover effect and
dissolution.
Conflicts of interest with Resource America may arise. For example,
Resource America may have a conflict with us if we seek to issue more common
stock which might dilute Resource America's ownership percentage. In addition,
as of June 30, 1999, Resource America had loaned us approximately $65.3 million
in connection with our acquisition of JLA Credit and to fund our lease
origination needs. Resource America has agreed that, immediately before the
closing of this offering:
o it will contribute $30.0 million of this debt to our capital;
o it will exchange the balance of this debt for an amended and restated
unsecured note; and
o it will receive 280,496 shares of our common stock.
Neither the terms of the original funding nor the terms of the capital
contribution, the note or the number of shares of common stock Resource America
will receive were negotiated on an arm's-length basis. In addition, we will
reimburse Resource America for its costs and expenses incurred in connection
with this offering and our acquisition of JLA Credit, including an allocation
of employee compensation. Such costs and
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expenses are estimated to be approximately $1,000,000. For a description of the
capital contribution, the note and share issuance, you should read
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital Resources."
We do not anticipate paying cash dividends on our shares in the foreseeable
future
We have never declared or paid any cash dividends on our shares. We intend
to retain any future earnings to fund the operation and expansion of our
business and, therefore, we do not anticipate paying cash dividends on our
shares in the foreseeable future.
Purchasers in this offering will immediately experience substantial dilution in
net tangible book value
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately
before this offering. As a result, purchasers of shares of our common stock in
this offering will experience immediate and substantial dilution of $10.75 in
net tangible book value per share, or approximately 59.7% of the assumed
offering price of $18.00 per share. The assumed per share offering price
represents the midpoint of the range set forth on the cover of this prospectus.
In contrast, existing shareholders paid an average price of $4.40 per share and
employees have options to purchase 319,765 shares of common stock after this
offering at prices ranging from $0.32 to $3.81 per share. You should read
"Dilution" for a more detailed explanation of the dilution purchasers in this
offering will experience.
Common stock available for future sale by our shareholders may adversely affect
our stock price
If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. These sales could also make it more difficult for us to sell equity
or equity related securities in the future at the time and place that we deem
appropriate. You should read "Shares Eligible for Future Sale" for a more
detailed discussion of when and how many additional shares of our common stock
may be sold after this offering.
Shares of our common stock may be difficult to resell; you may not be able to
resell shares of our common stock at or for more than the price you paid
Before this offering, you could not buy or sell our common stock publicly.
We cannot assure investors that any trading market for our common stock will
exist following this offering, or that investors will be able to resell shares
of our common stock at or above the offering price. The offering price for
shares of our common stock will be determined through negotiations between us
and the underwriters and may not be indicative of the market price of the
common stock after the offering. Prices for shares of our common stock after
the offering may be influenced by a number of factors, including:
o the liquidity of the market for our common stock;
o investor perceptions of the equipment financing industry in general and
our company in particular;
o actual or anticipated fluctuations in our operating results;
o changes in expectations as to our future financial performance, or
changes in financial estimates of securities analysts;
o technological innovations by our existing or future competitors;
o departures of key personnel;
o the operating and stock price performance of comparable companies; and
o general economic and other conditions.
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The stock markets in general have experienced volatility which has often
been unrelated to the operating performance of particular companies. If these
fluctuations continue, they may adversely affect the market price of our common
stock regardless of our actual operating performance.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The discussion in this prospectus contains certain forward looking
statements that involve risks and uncertainties such as statements of our
plans, objectives, expectations and intentions. Forward looking statements
typically are identified by use of terms such as "may," "will," "expect,"
"anticipate," "estimate" and similar words, although some forward looking
statements are expressed differently. The cautionary statements made in this
prospectus, including the risk factors discussed above, should be read as being
applicable to all related forward looking statements wherever they appear in
this prospectus. Our actual results may differ materially from those discussed
in this prospectus. Factors that could cause or contribute to such differences
include those discussed above, as well as those discussed elsewhere in this
prospectus.
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USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be $63.2
million at an assumed initial public offering price of $18.00 per share, which
is the midpoint of the range set forth on the cover of this prospectus, after
deducting the underwriting discounts and estimated offering expenses payable by
us. The net proceeds will be $72.7 million if the underwriters' over-allotment
option is exercised in full.
We intend to use these proceeds for the continued growth of our leasing
business, including lease originations, enhancement and expansion of our
technology infrastructure, start-up costs for international operations, working
capital and for general corporate purposes. We currently estimate that we will
apply the net proceeds as follows:
o 70% for lease originations, including the repayment of the subordinated
credit facilities we maintain with First Union National Bank, with which
we have financed leases since July 1999. These facilities mature upon the
closing of this offering. As of July 31, 1999, an aggregate of $2.8
million was outstanding under these facilities, which bear interest at
LIBOR plus 2%. For a more detailed description of these facilities,
please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Term Loans and Other Credit Facilities."
o 10% to technology enhancements, including upgrading our network server,
which will increase the capacity of our information processing and
database management systems; upgrading our accounting, lease management
and sales software; upgrading our communications systems; and expanding
our computer network capabilities.
o 10% to start-up costs for international operations, which we expect will
involve the establishment of a European business development office,
modeled on our Canadian operation, which will be responsible for
developing strategic marketing alliances with vendors that service
Europe.
o 10% to working capital and other general corporate purposes.
In addition, we will reimburse Resource America for its costs and expenses
incurred in connection with this offering and our acquisition of JLA Credit,
including an allocation of employee compensation. Such costs and expenses are
estimated to be approximately $1,000,000. Other than the repayment of the
subordinated credit facilities and the reimbursement to Resource America, we
have not allocated specific dollar amounts for the above mentioned uses.
Accordingly, we will have significant flexibility in applying the net proceeds
of this offering.
Pending use for the above purposes, the net proceeds will be invested in
bank certificates of deposit and other short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our common stock. We
currently intend to retain any earnings to fund the development and growth of
our business. Therefore, we do not anticipate paying any cash dividends for the
foreseeable future. Our board of directors will determine whether to pay cash
dividends based upon our results of operations, cash flows, financial condition
and liquidity.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 and:
o our capitalization as adjusted to give effect to: (a) the contribution to
capital of a portion of the intercompany debt held by Resource America
immediately before the close of this offering; (b) the issuance to
Resource America of 280,496 shares of our common stock in connection with
that contribution; and (c) the exercise of options by four of our
executive officers to acquire an aggregate of 725,785 shares of our common
stock immediately before the close of this offering; and
o our capitalization as further adjusted to give effect to the sale of
3,900,000 shares of our common stock in the offering at an assumed
offering price of $18.00 per share, after deducting the underwriting
discounts and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------------------
Actual As Adjusted As Further Adjusted
---------- ------------- --------------------
(in thousands)
<S> <C> <C> <C>
Debt:
Warehouse debt ........................................ $ 6,900 $ 6,900 $ 6,900
Nonrecourse debt ...................................... 294,056 294,056 294,056
Affiliate debt ........................................ 65,270 35,270 35,270
Other debt ............................................ 12,693 12,693 12,693
-------- -------- --------
Total debt ............................................ 378,919 348,919 348,919
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares
authorized; no shares issued and outstanding
actual, and as adjusted, and as further adjusted -- -- --
Common stock, no par value; 40,000,000 shares
authorized; 6,311,167 shares issued and
outstanding; 7,317,448 shares issued and
outstanding, as adjusted 11,217,448 shares
issued and outstanding, as further adjusted ......... 2,000 32,230 95,230
Accumulated other comprehensive income ................. 36 36 36
Retained earning ....................................... 4,156 4,156 4,156
-------- -------- --------
Total shareholders' equity .......................... 6,192 36,422 99,422
-------- -------- --------
Total capitalization ................................ $385,111 $385,341 $448,341
======== ======== ========
</TABLE>
20
<PAGE>
DILUTION
The difference between the initial public offering price per share of our
common stock and the net tangible book value per share of our common stock
after this offering constitutes the dilution to investors in this offering. Net
tangible book value (deficit) per share is determined by dividing our net
tangible book value (deficit) by the number of outstanding shares of common
stock. Our net tangible book value is our total assets less our intangible
assets and total liabilities.
At June 30, 1999, we had an actual net tangible book (deficit) of $(11.9
million) or $(1.88) per share. At June 30, 1999, after giving effect to the
contribution to capital by Resource America and sale of the common stock in
this offering at an assumed offering price of $18.00 per share, less
underwriting discounts and commissions of $4,900,000 and estimated expenses of
this offering $2,100,000 (including $1,000,000 of expense reimbursement to
Resource America), our net tangible book value would be $7.25 per share. This
represents an immediate increase in our net tangible book value of $9.13 per
share to existing shareholders and an immediate dilution of $10.75 per share to
new investors. Our new investors will therefore experience dilution of
approximately 60% of the offering price of $18.00 per share.
The following table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share ........................................ $ 18.00
Pro forma net tangible book value (deficit) per share as of June 30, 1999 ..... ($ 1.88)
Pro forma increase per share attributable to new investors .................... 9.13
-------
Pro forma net tangible book value per share after this offering ............... 7.25
-------
Dilution per share ............................................................ $ 10.75
=======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1999,
the number of shares of common stock purchased, the total consideration paid to
us and the average price per share paid to us by existing shareholders and by
investors purchasing shares of common stock in this offering, before deducting
estimated underwriting discounts and commissions and estimated offering
expenses of this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
-------------------------- -------------------------- --------------
Number(1)(2) Percent Amount Percent Per Share
-------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ......... 7,317,448 65.2% $ 32,229,977 31.5% $ 4.40
New investors ................. 3,900,000 34.8 $ 70,200,000 68.5 18.00
--------- ----- ------------ ----- ------
Total ...................... 11,217,448 100.0% $102,429,977 100.0% $ 9.13
========== ===== ============ ===== ======
</TABLE>
- ------------
(1) If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by new investors will increase to 4,485,000
shares, or 38% of the total shares of common stock outstanding after this
offering and the percentage of total shares outstanding held by existing
shareholders will be reduced to 62%.
(2) As of June 30, 1999, options to purchase a total of 1,045,550 shares at a
weighted average exercise price of $0.51 per share were outstanding. The
above table reflects the exercise of options to purchase 725,785 shares
before completion of this offering. After the contemplated exercise,
options to purchase a total of 319,765 shares at a weighted average
exercise price of $0.95 per share would be outstanding. To the extent all
of these options are exercised, there will be further dilution to new
investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL, PRO FORMA AND OPERATING INFORMATION
Set forth below is selected consolidated financial and operating
information from March 4, 1996 (inception) to September 30, 1998 and for the
nine months ended June 30, 1998 (unaudited) and 1999 (unaudited). Also set
forth is pro forma financial information for the year ended September 30, 1998
and the nine months ended June 30, 1999 relating to the acquisition of JLA
Credit, which assumes that the acquisition took place at the beginning of the
respective periods. The selected consolidated financial information has been
derived from the consolidated financial statements which appear elsewhere in
this prospectus. This data should be read in conjunction with our consolidated
financial statements and the related notes and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" which are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through
September 30, Year Ended September 30,
--------------- --------------------------------------
1998 Pro
1996 1997 1998 Forma(1)(2)
--------------- ---------- ----------- -------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Interest income ......................... $ 7 $ 859 $ 2,525 $ 39,717
Other income ............................ -- 221 956 5,561
Gains on sales of leases and
terminations(3) ....................... -- 3,710 7,598 7,598
------- ------- -------- --------
Total revenues ........................ 7 4,790 11,079 52,876
Costs and expenses:
Provision for possible losses ........... 7 253 1,422 4,691
Depreciation and amortization ........... 36 232 425 1,874
Selling, general and administrative 411 2,050 3,337 10,467
Interest expense(4) ..................... -- 690 1,689 24,634
------- ------- -------- --------
Total expenses ........................ 454 3,225 6,873 41,666
Income (loss) before provision
(benefit) for income taxes and
cumulative effect of a change in
accounting principle .................... (447) 1,565 4,206 11,210
Provision (benefit) for income taxes ..... (152) 605 1,800 4,885
------- ------- -------- --------
Income (loss) before cumulative
effect of a change in accounting
principle ............................... $ (295) $ 960 $ 2,406 $ 6,325
Cumulative effect of a change in
accounting principle(5) ................. -- -- -- --
------- ------- -------- --------
Net income (loss) ........................ $ (295) $ 960 $ 2,406 $ 6,325
======= ======= ======== ========
Income (loss) per common share
before cumulative effect of a
change in accounting principle--
basic(6) ................................ $ (0.05) $ 0.15 $ 0.38 $ 1.00
======= ======= ======== ========
Net income (loss) per common
share--basic(6) ......................... $ (0.05) $ 0.15 $ 0.38 $ 1.00
======= ======= ======== ========
Weighted average shares outstanding 6,311 6,311 6,311 6,311
======= ======= ======== ========
Income (loss) per common share
before cumulative effect of a
change in accounting principle--
diluted(7) .............................. $ (0.05) $ 0.14 $ 0.33 $ 0.87
======= ======= ======== ========
Net income (loss) per common
share--diluted(7) ....................... $ (0.05) $ 0.14 $ 0.33 $ 0.87
======= ======= ======== ========
Weighted average shares .................. 6,356 6,672 7,242 7,242
======= ======= ======== ========
<PAGE>
<CAPTION>
Nine Months Ended June 30,
------------------------------------------
1999 Pro
1998 1999(1) Forma(1)(2)
------------- ------------- ------------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Interest income ......................... $ 1,766 $18,195 $30,956
Other income ............................ 602 2,458 3,667
Gains on sales of leases and
terminations(3) ....................... 5,519 5,609 5,609
------- ------- -------
Total revenues ........................ 7,887 26,262 40,232
Costs and expenses:
Provision for possible losses ........... 791 2,497 3,510
Depreciation and amortization ........... 307 1,486 1,968
Selling, general and administrative 2,379 8,435 10,587
Interest expense(4) ..................... 1,231 11,102 18,907
------- ------- -------
Total expenses ........................ 4,708 23,520 34,972
Income (loss) before provision
(benefit) for income taxes and
cumulative effect of a change in
accounting principle .................... 3,179 2,742 5,260
Provision (benefit) for income taxes ..... 1,360 1,244 2,367
------- ------- -------
Income (loss) before cumulative
effect of a change in accounting
principle ............................... $ 1,819 $ 1,498 $ 2,893
Cumulative effect of a change in
accounting principle(5) ................. -- (413) (413)
------- ------- -------
Net income (loss) ........................ $ 1,819 $ 1,085 $ 2,480
======= ======= =======
Income (loss) per common share
before cumulative effect of a
change in accounting principle--
basic(6) ................................ $ 0.29 $ 0.24 $ 0.46
======= ======= =======
Net income (loss) per common
share--basic(6) ......................... $ 0.29 $ 0.17 $ 0.39
======= ======= =======
Weighted average shares outstanding 6,311 6,311 6,311
======= ======= =======
Income (loss) per common share
before cumulative effect of a
change in accounting principle--
diluted(7) .............................. $ 0.25 $ 0.21 $ 0.40
======= ======= =======
Net income (loss) per common
share--diluted(7) ....................... $ 0.25 $ 0.15 $ 0.34
======= ======= =======
Weighted average shares .................. 7,240 7,236 7,236
======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
September 30,
------------------------ June 30,
1997 1998 1999(1)
----------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Assets:
Gross investment in leases and notes receivable(8) ......... $ 9,334 $ 30,641 $ 438,164
Unearned lease income(9) ................................... (933) (4,061) (72,018)
Allowance for possible losses(10) .......................... (248) (1,602) (9,700)
------- -------- ---------
Investment in leases and notes receivable .................. 8,153 24,978 $ 356,446
------- -------- ---------
Cash and cash equivalents ................................... 1,970 3,680 16,510
Other assets(11) ............................................ 1,426 3,611 11,191
Goodwill(12) ................................................ -- -- 18,072
------- -------- ---------
Total assets ............................................. $11,549 $ 32,269 $ 402,219
======= ======== =========
Liabilities and shareholder's equity:
Liabilities:
Warehouse debt ............................................. $ -- $ -- $ 6,900
Nonrecourse debt ........................................... -- -- 294,056
Affiliate debt(4) .......................................... 7,418 23,982 65,270
Other debt ................................................. -- -- 12,693
Other liabilities .......................................... 1,466 3,216 17,108
------- -------- ---------
Total liabilities ........................................ 8,884 27,198 396,027
------- -------- ---------
Shareholder's equity: ....................................... 2,665 5,071 6,192
------- -------- ---------
Total liabilities and shareholder's equity ............... $11,549 $ 32,269 $ 402,219
======= ======== =========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception) Year Ended Nine Months Ended
through September 30, June 30,
September 30, --------------------------- ----------------------------
1996 1997 1998 1998(1) 1999(1)
--------------- ------------ ------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Leases originated, by equipment type:
Number of leases:
Communications ............................ 13 1,156 2,965 2,131 2,848
Industrial ................................ 1 3 31 15 1,081
Information ............................... 3 182 918 526 3,313
Office .................................... 18 1,744 3,905 2,719 4,852
Other ..................................... 6 156 1,013 536 939
------- ----- ----- ----- -----
Total number of leases .................. 41 3,241 8,832 5,927 13,033
======= ===== ===== ===== ======
Equipment cost:
Communications ............................ $ 122 $ 12,052 $ 28,480 $ 20,661 $ 29,901
Industrial ................................ 15 41 523 501 44,608
Information ............................... 28 2,542 12,806 7,062 49,993
Office .................................... 306 17,713 36,108 23,791 53,247
Other ..................................... 244 1,637 10,823 5,331 14,737
------- -------- -------- -------- ---------
Total equipment cost .................... $ 715 $ 33,985 $ 88,740 $ 57,346 $ 192,486
======= ======== ======== ======== =========
Weighted average yield(13):
Communications ............................ 12.6% 13.7% 13.5% 13.6% 12.6%
Industrial ................................ 11.1 14.5 12.6 14.1 9.8
Information ............................... 18.3 14.3 13.8 14.3 12.7
Office .................................... 11.9 13.4 13.0 13.2 12.1
Other ..................................... 13.3 13.2 12.6 12.8 11.6
Average yield (all sectors) ............... 12.7% 13.6% 13.2% 13.4 11.8%
Leases originated, by purchase option:
Number of leases:
Fair market value purchase option ......... 21 1,649 4,514 3,064 5,960
Fixed price purchase option ............... 6 259 572 431 782
Nominal cost purchase option .............. 14 1,333 3,746 2,432 6,291
------- -------- -------- -------- ---------
Total number of leases .................. 41 3,241 8,832 5,927 13,033
======= ======== ======== ======== =========
Equipment cost:
Fair market value purchase option ......... $ 370 $ 18,886 $ 50,201 $ 32,991 $ 75,840
Fixed price purchase option ............... 171 2,125 4,844 3,558 9,435
Nominal cost purchase option .............. 174 12,974 33,695 20,797 107,211
------- -------- -------- -------- ---------
Total equipment cost .................... $ 715 $ 33,985 $ 88,740 $ 57,346 $ 192,486
======= ======== ======== ======== =========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception) Year Ended and as of Nine Months Ended and as of
through and as of September 30, June 30,
September 30, ------------------------------ -----------------------------
1996 1997 1998 1998 1999
------------------- ------------- -------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Weighted average yield(13)
Fair market value ...................... 12.2% 13.7% 13.1% 13.24% 12.48%
Fixed price purchase option ............ 13.9 14.4 14.2 14.41 12.84
Average yield (all sectors) ............ 12.7 13.6 13.2 13.41 11.75
Total managed portfolio:
Total gross receivables(19)............ $ 847 $36,094 $117,025 $88,800 $611,975
Managed portfolio quality data:
Delinquencies at end of period
as a percentage of total
outstanding managed
receivables:
Current receivables .................... 100.0% 96.0% 97.9% 97.8% 97.2%
31-60 days ............................. -- 2.8 1.2 1.6 1.4
61-90 days ............................. -- 0.8 0.4 0.2 0.5
Over 90 days ........................... -- 0.4 0.5 0.4 0.9
Total delinquencies .................. -- 4.0 2.1 2.2 2.8
Allowance for possible losses as a
percentage of total managed
receivables(10) ........................ 0.8% 0.7% 1.4% 0.9% 1.7%
Net write-offs .......................... -- ($ 12) ($ 68) ($ 68) ($ 1,599)
Operating Ratios:
Return on equity(1)(14) ................ (34.6%) 43.9% 62.2% 58.4% 25.6%
Return on assets (1)(15) ............... (32.6%) 14.4% 11.0% 12.6% 0.7%
Ratio of total debt to
shareholder's equity(1)(16) .......... -- 2.8x 4.7x 3.3 x 61.2 x
Ratio of allowance for possible
losses to net write-offs(17) ......... -- 20.7x 23.6x 12.4 x 5.7 x
Ratio of net write-offs to
average managed
receivables(18) ...................... -- 0.1% 0.1% 0.1% 0.6%
</TABLE>
- ------------
(1) On February 4, 1999, we acquired all of the common stock of JLA Credit. We
accounted for this transaction as a purchase and, consequently, allocated
the purchase price to assets acquired and liabilities assumed based upon
their fair value at the date of acquisition. JLA Credit accounts for a
substantial amount of the assets and debt included in our June 30, 1999
consolidated balance sheet, resulting from JLA Credit's practice of
structuring its securitizations as on balance sheet transactions, as well
as our on balance sheet securitization of JLA Credit leases. As a
consequence of the JLA Credit acquisition, our results of operations for
the nine months ended June 30, 1999 may not be comparable to the results
of operations for the nine months ended June 30, 1998. In particular, the
JLA Credit portfolio has a larger average equipment cost and longer lease
terms, resulting in a lower yield than ours.
(2) These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments to:
(a) depreciation and amortization expense attributable to allocation of the
purchase price of JLA Credit;
(b) selling, general and administrative expenses for certain cost
reductions realized from the combining of operations;
(c) interest expense for additional borrowings;
(d) equipment leasing revenue as a result of the purchase price allocation
of JLA Credit; and
(e) provision for income taxes to reflect the above adjustments at our tax
rate.
25
<PAGE>
The unaudited pro forma results were derived as follows:
Years Ended September 30, 1998 and December 31, 1998*
<TABLE>
<CAPTION>
Historical Historical Pro Forma
Fidelity Leasing JLA Credit Adjustments Pro Forma
------------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Interest income .............................. $ 2,525 $32,055 $ 5,137(a) $ 39,717
Other income ................................. 956 3,436 1,169 5,561
Gains on sales and leases and
Terminations ................................ 7,598 -- -- 7,598
-------- ------- --------- --------
Total revenues ............................ $ 11,079 $35,491 $ 6,306 $ 52,876
Costs and expenses:
Provision for possible losses ................ 1,422 3,269 -- 4,691
Depreciation and amortization ................ 425 343 1,106 (b) 1,874
Selling, general and administrative .......... 3,337 8,919 (1,789)(c) 10,467
Interest expense ............................. 1,689 20,610 2,335 (d) 24,634
-------- ------- --------- --------
Total expenses ............................ $ 6,873 $33,141 $ 1,652 $ 41,666
Income (loss) before provision for income
taxes and cumulative effect of a change in
accounting principle ......................... 4,206 2,350 4,654 11,210
Provision (benefit) for income taxes ........... $ 1,800 $ 1,037 $ 2,048(e) $ 4,885
Income (loss) before cumulative effect of a
change in accounting principle ............... -- -- -- --
Cumulative effect of a change in accounting
principle .................................... -- -- -- --
Net income (loss) .............................. $ 2,406 $ 1,313 $ 2,606 $ 6,325
Income (loss) per common share before
cumulative effect of a change in accounting
principle-basic .............................. $ 0.38 $ 1.00
Net income (loss) per common share-basic ....... $ 0.38 $ 1.00
Weighted average share outstanding ............. 6,311 6,311
Net income (loss) per common share before
cumulative effect of a change in accounting
principle-diluted ............................ $ 0.33 $ 0.87
Net income (loss) per common share-diluted ..... $ 0.33 $ 0.87
Weighted average shares ........................ 7,242 7,242
</TABLE>
------------
* Our fiscal year end is September 30 and JLA Credit's is December 31.
26
<PAGE>
Nine Months Ended June 30, 1999 and the Period from October 1, 1998 to
February 1, 1999*
<TABLE>
<CAPTION>
Historical Historical Pro Forma
Fidelity Leasing JLA Credit Adjustments Pro Forma
------------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Interest income .............................. $18,195 $10,686 $ 2,075(a) $ 30,956
Other income ................................. 2,458 1,209 -- 3,667
Gains on sales and leases and
terminations ................................ 5,609 -- -- 5,609
------- ------- --------- --------
Total revenues ............................ $26,262 $11,895 $ 2,075 $ 40,232
Costs and expenses:
Provision for possible losses ................ 2,497 1,013 -- 3,510
Depreciation and amortization ................ 1,486 112 370 (b) 1,968
Selling, general and administrative .......... 8,435 3,266 (1,114)(c) 10,587
Interest expense ............................. 11,102 7,303 502 (d) 18,907
------- ------- --------- --------
Total expenses ............................ $23,520 $11,694 $ (242) $ 34,972
Income (loss) before provision for income
taxes and cumulative effect of a change in
accounting principle ......................... 2,742 201 2,317 5,260
Provision (benefit) for income taxes ........... $ 1,244 $ 44 $ 1,079(e) $ 2,367
Income (loss) before cumulative effect of a
change in accounting principle ............... 1,498 157 1,238 2,893
Cumulative effect on change in accounting
principle .................................... (413) -- -- (413)
Net income (loss) .............................. $ 1,085 $ 157 $ 1,238 $ 2,480
Income (loss) per common share before
cumulative effect of a change in accounting
principle-basic .............................. $ 0.24 $ 0.46
Net income (loss) per common share-basic ....... $ 0.17 $ 0.39
Weighted average share outstanding ............. 6,311 6,311
Net income (loss) per common share before
cumulative effect of a change in accounting
principle-diluted ............................ $ 0.21 $ 0.40
Net income (loss) per common share-diluted ..... $ 0.15 $ 0.34
Weighted average shares ........................ 7,236 7,236
</TABLE>
------------
* The periods are the nine months ended June 30, 1999 for Fidelity Leasing
and the period from October 1, 1998 to February 1, 1999 for JLA Credit.
The unaudited pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the
combination been consummated on October 1, 1997, or of future results
of operations of the consolidated entities.
(3) Gain on sales of equipment leases are recorded at the date of sale in the
amount by which the sales price exceeds the carrying value of the
underlying lease interest sold.
(4) As of June 30, 1999, we had $65.3 million of affiliate debt: $48.1 million
of the affiliated debt is subordinated and bears interest at a rate of 10%
per annum; $15.2 million bears interest at a rate of one month LIBOR plus
1.50%; the balance of $2.0 million is a tax liability that bears no
interest. Affiliate interest expense was $922,000 for the nine months
ended June 30, 1998 and $3.0 million for the nine months ended June 30,
1999. For the year ended September 30, 1997, the interest expense was
$457,000, and for 1998, the interest expense was $1.3 million.
27
<PAGE>
(5) In fiscal 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. We elected
to adopt the provisions of SOP 98-5 effective October 1, 1998, and
accordingly, start up costs of $753,000 ($413,000 net of income tax) which
had been capitalized at September 30, 1998 were charged to operations on
October 1, 1998 and are reflected in the consolidated statement of
operations for the nine months ended June 30, 1999 as a cumulative effect
of a change in accounting principle.
(6) Basic earnings per share are determined by dividing net income by the
weighted average number of common shares outstanding during the period.
(7) Diluted earnings per share are computed by dividing net income by the sum
of the weighted average number of shares outstanding and dilutive
potential common shares issuable during the period. Dilutive potential
common shares consist of the excess of common shares issuable under the
terms of various stock option agreements over the number of such shares
that could have been acquired with the proceeds received from the exercise
of the options.
(8) Gross investments in leases and notes receivables consist of the sum of
the total future minimum lease payments receivable, the estimated
unguaranteed residual value of leased equipment, initial direct costs
incurred in consummating a lease and interest bearing notes receivable
from a purchaser of leases.
(9) Unearned lease income is recognized as interest income over the term of
the lease by the effective interest method and represents the excess of
the total future minimum lease payments plus the estimated unguaranteed
residual value to be received at the end of the lease term over the cost
of the related equipment.
(10) We maintain an allowance for possible losses for all leases for which we
have an ongoing at risk position. The allowance is determined by our
estimate of future uncollectable lease contracts based upon our historic
loss experience, industry trends and equipment characteristics. Our policy
is to charge off to the allowance those leases, which are in default and
for which we believe the probability of collection is remote. Recoveries
on leases previously charged off are restored to the allowance.
(11) Included in other assets are repossessed equipment held for resale, which
is stated at the lower of cost or market, deferred financing costs, which
are being amortized on a straight line basis over the lives of the related
debt and furniture and equipment at cost less.
(12) Goodwill, which arose through the acquisition of JLA Credit, represents the
excess of the acquisition cost over the fair value of the net assets of the
business acquired and is being amortized over a period of 15 years, using
the straight line method.
(13) Weighted average yields on individual leases are weighted by original
equipment cost. Yields on individual leases are calculated by computing the
internal rate of return based on the scheduled cash flows at lease
inception date.
(14) Calculated as annualized net income divided by average shareholder's
equity.
(15) Calculated as annualized net income divided by average total assets.
(16) Calculated as total debt divided by ending shareholder's equity.
(17) Calculated as allowance for possible losses (ending balance) as a
percentage of net write-offs incurred during the period.
(18) Calculated as net write-offs divided by average managed receivables.
(19) Included in total gross receivables is $52.4 million of leases not
underwritten by us but which we manage.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements, which are subject
to risks and uncertainties. Our actual results could differ materially from
those discussed. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below, as well as those
discussed elsewhere in this prospectus. We undertake no obligation to disclose
publicly the result of any revisions to those forward-looking statements that
may be made to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events. The following
discussion and analysis should be read in conjunction with "Selected
Consolidated Financial, Pro Forma and Operating Information" and our
consolidated financial statements and the related notes, which are included
elsewhere in this prospectus.
Overview
General. We are an equipment finance company which leases technology
equipment to the small business market. We originate and complete lease
transactions using the Internet, telephone and the facsimile. We specialize in
financing equipment within a price range of $5,000 to $250,000. The equipment
we finance includes communications technology, information technology,
industrial technology and office automation equipment.
We have experienced continued growth in our business since our inception
on March 4, 1996. In February 1999, we acquired JLA Credit, the U.S. small
ticket leasing subsidiary of Japan Leasing Corporation. See "--Acquisition of
JLA Credit." The JLA Credit acquisition accelerated our growth. The results of
operations of JLA Credit are included in our consolidated results of operations
from February 4, 1999. Our growth has been characterized by substantial
increases in lease originations. On a consolidated basis, we entered into
13,033 lease transactions involving equipment with an aggregate cost of $192.5
million during the nine months ended June 30, 1999. This included 11,872 lease
transactions for an aggregate cost of $137.1 million attributable to Fidelity
Leasing and 1,161 lease transactions involving equipment with an aggregate cost
of $55.3 million attributable to JLA Credit. This compares to 5,927 lease
transactions involving equipment with an aggregate cost of $57.3 million that
are entered into during the nine months ended June 30, 1998. In fiscal 1998, we
entered into 8,832 transactions involving equipment with an aggregate cost of
$88.7 million, in fiscal 1997 we entered into 3,241 transactions involving
equipment with an aggregate cost of $34.0 million, and in fiscal 1996 we
entered into 41 transactions involving equipment with an aggregate cost of
$715,000.
We use a variety of funding techniques to acquire our leases. We use
warehouse facilities and working capital to fund leases on a short term basis.
Our medium term financing needs are met through our CP conduits. Our long term
financing strategy entails securitizing our leases in the term market.
We initially fund our lease originations through our warehouse facilities
and working capital. We generally repay borrowings under warehouse facilities
with the proceeds from lease sales or refinancing provided through CP conduit
securitizations. When one of our CP conduit facilities reaches its capacity, we
will seek either to obtain additional CP conduit facilities or to reduce the
amount outstanding under the existing facilities by securitizing lease
receivables in a term note securitization. Our lease sales and CP conduit
securitizations historically have been structured to qualify for treatment as
sales under generally accepted accounting principles. As a consequence of this
structure, our CP conduit securitizations were deemed to be "off balance
sheet," that is, for accounting purposes, the leases sold were no longer deemed
to be our assets and the related securitization obligations were no longer
deemed to be our indebtedness. This treatment was partially modified effective
April 1, 1998 when we elected to retain the right to receive residual proceeds
from our securitized lease pools. The residual interests retained were deemed
to be our assets for accounting purposes and thus remained "on balance sheet."
On April 1, 1999, we elected to further modify the structure of our future
securization transactions. These modifications will result in future
securitizations no longer qualifying for treatment as sales under generally
accepted accounting principles. Accordingly, our
29
<PAGE>
leases and the related securitization indebtedness in securitizations after
April 1, 1999 will be retained on balance sheet as assets and debt,
respectively. These changes do not, however, apply to the sales facilities
relating to our strategic marketing alliances with IBM Credit and IBM Canada.
See "--Gains on Sales of Leases."
Acquisition of JLA Credit. On February 4, 1999, we acquired all of the
common stock of JLA Credit for its book value of $38.0 million. In addition, we
assumed $147.5 million in liabilities, refinanced $154.0 million of long term
debt and incurred $1.3 million in costs. This resulted in a total acquisition
cost of $340.8 million. We accounted for this transaction as a purchase and
consequently, allocated the purchase price to assets acquired and liabilities
assumed based upon their fair value at the date of acquisition. The fair value
of the non-cash assets acquired was $315.5 million. Funds used for the equity
acquisition, long term debt repayment and related expenses were provided
through a CP conduit securitization of $143.0 million, a seller's note of $6.7
million, a loan of $43.6 million from Resource America and the assumption of
$147.5 million in liabilities, for a total of $340.8 million.
As of June 30, 1999, $300.7 million of our total assets and $262.5 million
of our total liabilities, excluding debt from Resource America, were
attributable to JLA Credit. The substantial amount of assets and debt
attributable to JLA Credit results, in part, from JLA Credit's practice of
structuring its securitizations as on balance sheet transactions, as well as
our on balance sheet securitization of JLA Credit leases. As a consequence of
the JLA Credit acquisition, our results of operations for the nine months ended
June 30, 1999 may not be comparable to the results of operations for the nine
months ended June 30, 1998.
As part of the acquisition process, we performed a due diligence
examination of JLA Credit's books and records before the closing and conducted
a post-closing audit. After the closing, we discovered that 79 leases, with a
net book value of $5.5 million, had been restructured in the three months
before closing. Although most of the affected leases are currently performing
in accordance with their restructured terms, 14 of them were 60 days or more
past due on lease payments as of July 31, 1999. We are evaluating whether there
is an incremental risk that the lessees will default. We believe that our
allowance in connection with these leases is adequate to cover any potential
incremental loss. We are also exploring any claims we may have against the
seller of JLA Credit in connection with the restructured leases.
Gains on Sales of Leases and Terminations
Through March 31, 1999, we structured a substantial part of our lease
financing transactions, other than our warehouse revolving lines of credit and
certain financings relating to JLA Credit (see "--Liquidity and Capital
Resources--CP Conduit "Securitizations" and "--Term Note Securitizations"), to
meet the criteria for treatment as sales under generally accepted accounting
principles. Pursuant to these criteria:
o we obtained legal opinions from counsel that these transactions included
"true sales" of lease assets to special purpose entities and that the
lease assets so transferred would be beyond the reach of Fidelity Leasing
or its creditors, even in the event of Fidelity Leasing's bankruptcy;
o the transferee of the assets obtained the right to pledge or exchange the
transferred assets; and
o we did not have the option to repurchase and maintain effective control
over the transferred assets.
Thus, for all such transactions completed through March 31, 1999, we recorded
gains on sales and terminations. These gains have been material: $3.7 million
in fiscal 1997, $7.6 million in fiscal 1998, $5.5 million for the nine months
ended June 30, 1998 and 5.6 million for the nine months ended June 30, 1999.
On April 1, 1999, as referred to in "--Overview--General," we elected to
alter the structure of our future securitizations so that we retain leases that
we securitize as long-term investments on our balance sheet and record the
related securitization indebtedness as on balance sheet debt for accounting
purposes. We also modified our $100.0 million CP conduit facility so that we
would retain leases as investments and record related securitization
indebtedness as debt on our balance sheet. We effected these modifications by
adding provisions to the transfer agreements which permit us to repurchase the
transferred assets. The primary effect of these modifications is that we will
recognize income over the lives of the lease receivables rather than recognize
an immediate gain upon the sale of the lease receivables. Our cash flow, which
is influenced by the advance rates and discount rates provided for by the CP
conduit facilities, was unaffected by these modifications.
30
<PAGE>
We currently have two sales facilities, one with IBM Credit and one with
IBM Canada, that, as a result of the requirements of IBM Credit and IBM Canada
in connection with those facilities, continue to be structured in a way that
requires us to treat transactions under the facilities as sales for accounting
purposes. All leases generated through our alliances with IBM Credit and IBM
Canada must be sold under these facilities.
Other Accounting Considerations
Direct Financing Leases. Leases are classified under accounting rules as
either capital or operating leases. For lessors, capital leases are further
subclassified as sales-type leases, leveraged leases or direct financing
leases. Our leases meet the criteria for classification as direct financing
leases. Direct financing leases transfer substantially all of the benefits and
risks of equipment ownership to the lessee. A lease is a direct financing lease
if the creditworthiness of the lessee and the collectibility of lease payments
are reasonably certain and the lease meets one of the following criteria:
o it transfers ownership of the equipment to the lessee by the end of the
lease term;
o it contains a bargain purchase option;
o the term at inception is at least 75% of the estimated economic life of
the leased equipment; or
o the present value of the minimum lease payments is at least 90% of the
fair market value of the leased equipment at inception of the lease.
Our investment in leases consists of the sum of the total future minimum
lease payments receivable, the estimated unguaranteed residual value of leased
equipment and initial direct costs, less unearned lease income. Unearned lease
income consists of the excess of the total future minimum lease payments
receivable plus the estimated unguaranteed residual value expected to be
realized at the end of the lease term over the cost of the related equipment.
We typically structure a lease so that the present value of the minimum lease
payments exceeds the fair market value of the equipment at lease inception and
the lessee has an option at lease termination to purchase the equipment at its
fair market value or at a stated percentage of the cost of the equipment.
However, as a result of our acquisition of JLA Credit, a substantial portion of
our managed leases provide the lessee with the option to purchase the
underlying equipment for a nominal amount.
Residual Value. Unguaranteed residual value in leases that do not have
bargain purchase options represents the estimated amount to be received at
lease termination from lease extensions or disposition of the leased equipment.
We base these estimates on available industry data and on our senior
management's experience with respect to comparable equipment. Current estimates
of residual values may vary from the original recorded estimates. We review
residual values from time to time to determine if the fair market value of the
equipment is below the recorded estimate of the residual value. If required, we
adjust residual values downward to reflect adjusted estimates of fair market
value; generally accepted accounting principles do not permit upward
adjustments to residual values.
Securitizations and Other Lease Sales. We initially fund lease
originations through warehouse revolving lines of credit and through working
capital. We thereafter refinance the leases through securitization transactions
as follows:
o Sales by Assignment. From December 1996 through September 1997, we sold
leases and interests in the related equipment and residuals to
unaffiliated bankruptcy remote, special purpose entities, which in turn
sold these assets to institutional purchasers.
o CP Conduit Securitizations. In these transactions, we sell lease
receivables and interests in the related equipment to special purpose,
bankruptcy remote entities. Beginning in April 1998, these entities have
been our wholly-owned subsidiaries. The special purpose entity, in turn,
securitizes the leases by selling or pledging its interest in the lease
receivables and equipment to a CP conduit. The CP conduit funds the
securitization by issuing commercial paper secured, in part, by the
leases.
31
<PAGE>
o Term Note Securitizations. In these transactions, our special purpose,
wholly-owned subsidiary obtains the lease receivables previously sold or
pledged to a CP conduit. Interests in these leases are ultimately sold or
pledged to a trust that issues notes to investors secured by payments
under the leases and the related equipment.
To date, we have retained the right to service all of the leases we have
securitized.
In each securitization transaction, we receive, as consideration for
transferring the leases, cash equal to a substantial percentage of the
aggregate present value of the adjusted future cash flows from such leases. In
addition, where we account for securitizations as sales, we retain a
non-certificated undivided interest in the remaining future cash flow from
securitized leases after all obligations to securitization lenders have been
paid, including the equipment residual values. Our balance sheet includes, as
part of our investment in leases and notes receivable, the retained interest
from our securitizations. To date, the retained interest has been approximately
10% to 12% of the present value of the aggregate future cash flows due under
the pools of leases securitized in CP conduit securitizations and no more than
6% of the present value of the aggregate future cash flows due under the pools
of leases securitized in term note securitizations. However, where we account
for securitizations as financings, both the securitized leases and the related
securitization indebtedness are recorded on our balance sheet. Securitization
indebtedness is recorded as the remaining balance due to the noteholders.
Over the life of a securitized lease pool, we are eligible to receive the
excess cash flow attributable to the retained interest resulting from the
excess, if any, of the lease payments and collections on equipment residuals
received, net of defaults, over the sum of:
o servicing, backup servicing, trustee, custodial and insurance and credit
enhancement fees, if any, and other securitization and sale expenses and
o either (a) the portion of the lease payments and collections in equipment
residuals due to the purchaser of the securitized leases or (b) amounts
of principal and interest due to the noteholders to whom securitized
leases have been pledged as collateral.
As a result, our retained interest in our securitized lease pools, including
equipment residual values, if any, is effectively subordinated. Consequently,
all credit losses incurred on the entire portfolio of leases transferred in a
particular securitization or sale transaction are borne by us to the extent of
our retained interest. Accordingly, relatively small fluctuations between
estimated and actual charge-off rates could be material in relation to our
retained interest and could have an adverse effect on our ability to realize
our recorded basis in the retained interest. In the event of an increase in
anticipated charge-offs, we would be required to reduce the carrying amount of
the retained interest and record a charge to earnings in the period in which
the event occurred or became known to us.
Revenues
Interest Income. We recognize unearned lease income as interest income
over the term of the lease using the effective interest method. The effective
interest method of income recognition is applied by using a discount rate that
reflects a constant rate of interest recognized over the life of the lease. We
capitalize initial direct costs incurred in originating a lease and amortize
them over the lease term as a reduction in yield.
Other Income. Other income primarily consists of income we derive from the
fees we receive for servicing our portfolio of managed leases. Fee income also
includes payments under leases other than lease rentals, such as late payment
fees. We anticipate that our fee income will increase as our portfolio of owned
and managed leases increases.
Sales of Leases. We continue to generate gain on sale income from sales of
our leases to third party financing sources in connection with our strategic
marketing alliances with IBM Credit and IBM Canada as a result of their
requirements. See "--Gains on Sales of Leases."
32
<PAGE>
Significant Costs and Expenses
Selling, General and Administrative. As a result of our growth, including
the JLA Credit acquisition, the dollar amount of salaries and overhead expense
has increased significantly. We believe that our core management team,
facilities and systems are sufficient to support additional growth during the
remainder of fiscal 1999 and in fiscal 2000. We believe that staff growth
during the period will occur with respect to those activities which are volume
related, such as client service, while remaining relatively stable in support
activities, such as accounting. We also expect selling, general and
administrative expenses attributable to JLA Credit to decline during the
remainder of fiscal 1999 and fiscal 2000 as we complete the integration of JLA
Credit's operations and the resultant reduction in office facilities and
personnel.
Provision for Possible Losses. We maintain an allowance for possible
losses in connection with payments due under leases held in our portfolio and
our retained interest in leases securitized or sold. The allowance constitutes
our estimate of future uncollectible leases based on our historical loss
experience, including that of JLA Credit, an analysis of delinquencies,
economic conditions and trends and our expectations of future trends, industry
statistics, lease portfolio characteristics and assumptions of future losses.
Our policy is to charge off those leases which are delinquent and for which we
have made a determination that the probability of collection is remote. We
restore to the allowance recoveries on leases previously charged off. Our
provision for possible losses and, as a consequence, our allowance for possible
losses, has increased significantly since 1996 as a result of the growth in our
portfolio of owned and managed leases, including growth resulting from the
acquisition of JLA Credit. In addition, as a result of our short operating
history, leases in our portfolio, excluding leases acquired in the JLA Credit
acquisition, have generally not reached the expiration of their initial terms.
As a consequence, our historical losses and delinquencies have been low
relative to industry averages. We expect that our recorded losses and
delinquencies as a percentage of our aggregate lease receivables will increase
as our portfolio matures.
33
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the dollar
amount and the percentage of revenues represented by each of the items in our
statement of operations:
<TABLE>
<CAPTION>
Period from
March 4, 1996
(inception)
through Year Ended September 30,
September 30, ------------------------------------------------
1996 1997 1998
----------------------- ---------------------- ------------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1)
--------- ------------ -------- ------------ ---------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Interest income ...... $ 7 100.0 $ 859 17.9% $ 2,525 22.8%
Other income ......... -- -- 221 4.6 956 8.6
Gains on sales of
leases and
terminations ........ -- -- 3,710 77.5 7,598 68.6
------- ----- ------ ----- ------- -----
Total revenues ...... 7 100.0% 4,790 100.0 11,079 100.0
Cost and Expenses:
Provision for
possible
losses ............. 7 --(2) 253 5.3 1,422 12.8
Depreciation and
amortization ....... 36 --(2) 232 4.8 425 3.8
Selling, general
and
administrative ..... 411 --(2) 2,050 42.8 3,337 30.1
Interest expense .... -- -- 690 14.4 1,689 15.2
------- ------- ------ ----- ------- -----
Total expenses ..... 454 --(2) 3,225 67.3 6,873 62.0
Income (loss) before
provision (benefit)
for income taxes
and cumulative
effect of a change
in accounting
principle ........... (447) --(2) 1,565 32.7 4,206 38.0
Provision (benefit)
for income
taxes ............... (152) --(2) 605 12.7 1,800 16.3
Income (loss) before
cumulative effect
of a change in
account
principle ........... (295) --(2) 960 20.0 2,406 21.7
Cumulative effect of
a change in
accounting
principle ........... $ -- -- -- -- -- --
------- ------- ------ ----- ------- -----
Net income (loss) .... (295) --(2) $ 960 20.0% $ 2,406 21.7%
======= ======= ====== ===== ======= =====
<PAGE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------------------------
1998 1999
---------------------- -----------------------
Amount Percent(1) Amount Percent(1)
-------- ------------ ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Interest income ...... $1,766 22.4% $18,195 69.3%
Other income ......... 602 7.6 2,458 9.4
Gains on sales of
leases and
terminations ........ 5,519 70.0 5,609 21.3
------ ----- ------- -----
Total revenues ...... 7,887 100.0 26,262 100.0
Cost and Expenses:
Provision for
possible
losses ............. 791 10.0 2,497 9.5
Depreciation and
amortization ....... 307 3.9 1,486 5.7
Selling, general
and
administrative ..... 2,379 30.2 8,435 32.1
Interest expense .... 1,231 15.6 11,102 42.3
------ ----- ------- -----
Total expenses ..... 4,708 59.7 23,520 89.6
Income (loss) before
provision (benefit)
for income taxes
and cumulative
effect of a change
in accounting
principle ........... 3,179 40.3 2,742 10.4
Provision (benefit)
for income
taxes ............... 1,360 17.2 1,244 4.7
Income (loss) before
cumulative effect
of a change in
account
principle ........... 1,819 23.1 1,498 5.7
Cumulative effect of
a change in
accounting
principle ........... -- -- (413) 1.6
------ ----- ------- -----
Net income (loss) .... $1,819 23.1% $ 1,085 4.1%
====== ===== ======= ======
</TABLE>
- ------------
(1) Expressed as a percent of total revenues.
(2) Our revenues in this period were de minimus. Accordingly, expressing
expenses as a percent of revenues is not meaningful.
34
<PAGE>
Nine Months Ended June 30, 1999 Compared to the Nine Months Ended June 30, 1998
Interest and Other Income. Interest and other income increased 773% to
$20.7 million in the nine months ended June 30, 1999 from $2.4 million in the
nine months ended June 30, 1998. This increase was attributable primarily to an
increase in our portfolio of managed leases resulting from the acquisition of
JLA Credit and its seasoned on balance sheet portfolio. To a lesser extent, the
increase is attributable to our election to retain securitized leases on our
balance sheet beginning April 1, 1999 and to the increased volume of lease
originations, which resulted in increased servicing fees, late fees and other
fee income. JLA Credit recognized interest and other income of $14.9 million
from the date we acquired it through June 30, 1999.
Gains on Sales of Leases and Terminations. Gains on sales of leases and
terminations increased by 2% to $5.6 million in the nine months ended June 30,
1999 from $5.5 million in the nine months ended June 30, 1998. The sale
proceeds for the 1998 period included a note with a face value of $8.0 million.
Payment on the note is subject to the level of lease delinquencies and
realization of residuals on sold leases. Although gains on sales were
relatively unchanged, the gains reflect an increased volume of leases sold
during the first six months of the period, offset by our election, beginning
April 1, 1999, to retain securitized leases on our balance sheet. Substantially
all of the gains on sales of leases for the nine months ended June 30, 1999
related to the six month period that ended March 31, 1999, prior to the
election. Gains on sales of leases from our strategic marketing alliances with
IBM Credit and IBM Canada during the period were not significant because the
programs with IBM Credit and IBM Canada had just recently begun.
Interest Expense. Our interest expense increased 802% to $11.1 million in
the nine months ended June 30, 1999 from $1.2 million in the nine months ended
June 30, 1998. The increase was attributable primarily to the financing we
obtained for the acquisition of JLA Credit and $7.4 million of interest expense
attributable to JLA Credit's leasing operations from February 4, 1999 through
June 30, 1999 as a result of the on balance sheet structure of JLA Credit's
prior securitizations. See "--Overview--Acquisition of JLA Credit." To a lesser
extent, interest expense increased as a result of our election, beginning April
1, 1999, to record indebtedness relating to our on-balance sheet lease
securitizations as on balance sheet debt for accounting purposes.
Provision for Possible Losses. Our provision for possible losses increased
216% to $2.5 million in the nine months ended June 30, 1999 from $791,000 in
the nine months ended June 30, 1998. The increase was attributable primarily to
the growth in our lease originations and in our managed lease portfolios,
including the increase in our managed lease portfolios attributable to the
acquisition of JLA Credit.
Depreciation and Amortization. Our depreciation and amortization increased
384% to $1.5 million in the nine months ended June 30, 1999 from $307,000 in
the nine months ended June 30, 1998. The increase was due primarily to the
increase in our on balance sheet lease portfolio resulting from our acquisition
of JLA Credit and our election, beginning April 1, 1999, to retain securitized
leases on our balance sheet. JLA Credit incurred approximately $795,000 in
depreciation and amortization expenses from the date we acquired it through
June 30, 1999.
Selling, General and Administrative Expense. Our selling, general and
administrative expense increased 255% to $8.4 million in the nine months ended
June 30, 1999 from $2.4 in the nine months ended June 30, 1998. The increase
was due primarily to the increase in lease originations and applications, an
increase in the number of our employees resulting from the increased volume and
the acquisition of JLA Credit, which incurred $2.6 million in selling, general
and administrative expense from the date we acquired it through June 30, 1999.
The increase was also due to start-up costs of $607,800 which were expensed
during the nine months ended June 30, 1999.
Provision for Income Taxes. Our provision for income taxes decreased 9% to
$1.2 million, before the benefit of a cumulative effect of a change in
accounting principle, in the nine months ended June 30, 1999 from $1.4 million
in the nine months ended June 30, 1998. The effective tax rate increased to
45.4% in the nine months ended June 30, 1999 from 42.8% in the nine months
ended June 30, 1998. Through September 30, 1998, we filed a consolidated
federal income tax return with our ultimate parent, Resource America. We
recorded a current provision for, or benefit from, federal income taxes in the
amount that would have been payable or refundable at Resource America's
incremental rate on our book income or loss.
35
<PAGE>
Cumulative Effect of a Change in Accounting Principle. We elected to adopt
the provisions of the AICPA's Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," effective October 1, 1998. As a result, $753,000
of start up costs, or $413,000 net of income tax, which had been capitalized at
September 30, 1998, were charged to operations on October 1, 1998. These
charges are reflected in the consolidated statement of operations for the nine
months ended June 30, 1999 as a cumulative effect of a change in accounting
principle.
Year Ended September 30, 1998 Compared to Year Ended September 30, 1997
Interest and Other Income. Interest and other income increased 222% to
$3.5 million in fiscal 1998 from $1.1 million in fiscal 1997. This increase was
attributable primarily to the increased volume of lease originations.
Gains on Sales of Leases and Terminations. Gains on sales of leases and
terminations increased 105% to $7.6 million for fiscal 1998 from $3.7 million
in fiscal 1997. Sales proceeds in fiscal 1998 included a note with a face value
of $8.0 million, while the sales proceeds in fiscal 1997 included a note with a
face value of $13.3 million. Payments on the notes are subject to the level of
lease delinquencies and realization of residuals on the sold leases. The
increase in our gains on sales of leases and terminations was due to the
increased volume of lease originations.
Interest Expense. Interest expense increased 145% to $1.7 million in
fiscal 1998 from $690,000 in fiscal 1997. The increase was attributable
primarily to our increased borrowings from Resource America to fund lease
originations. These borrowings increased 224% to $24.0 million at September 30,
1998 from $7.4 million at September 30, 1997.
Provision for Possible Losses. Our provision for possible losses increased
462% to $1.4 million during fiscal 1998 from $253,000 in fiscal 1997. The
increase was fully attributable to the increased volume of lease originations.
Depreciation and Amortization. Depreciation and amortization increased 83%
to $425,000 during fiscal 1998 from $232,000 in fiscal 1997. The increase was
due primarily to the expansion of our leasing business and the volume of leases
included on our balance sheet, and to the purchase of equipment to manage this
flow.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 63% to $3.3 million during fiscal 1998 from
$2.1 million in fiscal 1997. The increase was primarily due to the increased
volume of lease applications and originations, and the addition of 42 employees
during fiscal 1998 as our volume of lease originations increased.
Provision for Income Taxes. Our provision for income tax increased 198% to
$1.8 million in fiscal 1998 from $605,000 in fiscal 1997. The effective tax
rate increased to 42.8% in fiscal 1998 from 38.7% in fiscal 1997. Through
fiscal 1998, we filed a consolidated federal income tax return with our
ultimate parent, Resource America. A current provision for, or benefit from,
federal income taxes was recorded in the amount that would have been payable at
Resource America's incremental rate on our book income had we remitted the
provision to or received the benefit from Resource America.
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
We were incorporated as a Pennsylvania corporation on March 4, 1996 and
began underwriting small ticket leases in August 1996. During the short 1996
fiscal year, we originated an immaterial amount of leases as compared to fiscal
1997, when we had a full year of operations. See "--Overview--General." As a
consequence, the results of operations for fiscal 1997 are not comparable to
those of fiscal 1996.
Liquidity and Capital Resources
General. Our primary liquidity needs are for the continued expansion of
our business. Equipment leasing is capital intensive and requires access to
short-term, medium-term and long-term financing to fund new
36
<PAGE>
equipment leases. Historically, we have financed our business through warehouse
facilities, CP conduit facilities, intercompany borrowings from Resource
America and term note securitizations. Although Resource America does not
expect to provide further loans to us, we will continue to require access to
substantial amounts of capital from third-party sources to maintain and grow
our business.
Our uses of cash include the origination of equipment leases, expansion
and investment in technology, repayment of principal and interest under our
warehouse facilities and intercompany debt, operating and administration
expenses and income taxes.
As of June 30, 1999, we have used 15 funding sources with commitments in
the aggregate amount of $598.4 million. Our borrowings and sales under these
sources totaled approximately $524.4 million as of that date. The following
table sets forth information concerning our sources of funding as of June 30,
1999.
<TABLE>
<CAPTION>
Aggregate
Total Amounts
Number Amount of Aggregate Available for
of Commitment/ Amounts Funding at
Sources Funded Outstanding June 30, 1999 Maturities
--------- --------------------- ------------------ -------------------- --------------
<S> <C> <C> <C> <C> <C>
Sales by assignment ............... 1 $ 11,863,031 $ 11,863,031 -- --
Facilities:
Warehouse facilities ............. 2 23,387,500(3) 6,900,000 $ 16,487,500(3) 3/00
CP conduits ...................... 4 238,675,231 178,682,877 59,992,354 6/99 -- 12/99
Sales facilities ................. 2 --(1) 2,467,390(3) --(1) --
Term note securitizations ......... 3 249,611,159 249,611,159 -- --
Term loans ........................ 2 11,205,954 11,205,954 -- 3/02 -- 2/06
Intercompany debt ................. 1 63,700,000 63,700,000 --
-- ---------------- -------------- ---------------
Total ............................ 15 $ 598,442,875(2) $524,430,411 $ 76,479,854(2)
== ================ ============== ===============
</TABLE>
- ------------
(1) Subject to certain conditions, we are required to finance all leases
originated under the IBM Credit and IBM Canada alliances with these
facilities. There is no stated limit to either of these facilities.
(2) Excludes facilities with IBM Credit and IBM Canada, neither of which have a
stated limit.
(3) U.S. dollar equivalent as of June 30, 1999 where C$1.00 equals U.S.$.6775.
Warehouse Facilities. In December 1996, we entered into a line of credit
for $20.0 million of warehouse financing with First Union National Bank. We use
this facility to fund our daily lease originations. In September 1998, the
parties amended the facility to add European American Bank as an additional
lender. First Union has committed $12.5 million and European American Bank has
committed $7.5 million under the facility. Their commitments expire March 31,
2000. Borrowings under the facility are at variable interest rates equal to, at
our election, either the LIBOR market index rate or LIBOR plus 150 basis
points. We pledged as collateral all of the receivables of, and the equipment
subject to leases funded through, the facility and the outstanding stock of JLA
Credit. The facility requires that Resource America or Abraham Bernstein, our
Chairman and Chief Executive Officer, own a majority of our outstanding voting
stock and that Mr. Bernstein continue to act as our Chief Executive Officer,
and restricts us from incurring or guaranteeing further indebtedness other than
subordinated indebtedness, trade debt in the ordinary course of business,
non-recourse debt and unsecured intercompany debt that does not exceed 300% of
the outstanding principal of our subordinated indebtedness. These restrictions
on indebtedness do not restrict our ability to securitize our leases through
special purpose subsidiaries. In addition, the facility requires us to maintain
a certain level of tangible net worth, and restricts us from exceeding certain
debt to tangible net worth and operating cash flow to fixed charges ratios. It
also requires us to continue to engage in substantially the same line of
business, among other covenants. Our failure to comply with these requirements
or to make payments due under the facility or certain other recourse
indebtedness on a timely basis, among other defaults, could result in
termination of the facility and acceleration of the then outstanding
indebtedness. Resource America guaranteed the performance of our obligations
under this facility.
In May 1999, Fidelity Leasing Canada, Inc., our operating subsidiary in
Canada, established a C$5.0 million (equivalent to $3.4 million based on the
value of the Canadian dollar on June 30, 1999) line of credit with the Bank of
Montreal to finance leases originated in Canada under our strategic marketing
alliance with
37
<PAGE>
IBM Canada. The interest rate under this facility is a variable rate equal to
the Banker's Acceptance Rate plus 2% or the lender's prime rate plus 0.75%. The
facility expires on May 31, 2000. This facility contains covenants and
restrictions similar to those described in the preceding paragraph, including
change of control provisions. In addition, termination of or amendment to our
vendor program agreement with IBM Canada constitutes an event of default absent
the lender's prior written consent to such termination or amendment. Together
with Resource America, we are guaranteeing Fidelity Canada's obligations under
the facility. Fidelity Canada will sell leases financed under this facility to
IBM Canada on a periodic basis.
Sales by Assignment. Beginning in December 1996 and in each quarter
thereafter through September 1997, we entered into sales transactions where we
sold lease receivables and interests in the related equipment and residuals to
an unaffiliated special purpose entity, for an amount equal to 100% of the
present value of the lease receivables and a note equal to the present value of
the residual interests. The special purpose entity resold the lease receivables
to unrelated third parties. Resource America provided to these third parties a
guaranty of payment of a portion of the lease receivables due under any
defaulted leases and of our performance as servicer. These transactions were
accounted for as sales for financial reporting purposes.
CP Conduit Securitizations. In December 1997, we again sold lease
receivables and interests in the related equipment and residual interests to an
unaffiliated entity on terms similar to those of the sales by assignment,
except that we received from the special purpose entity cash equal to a
substantial portion of the present value of the lease receivables and a
promissory note in an amount equal to the balance of the present value of the
lease receivables and the residual interests. The special purpose entity resold
the receivables to a CP conduit administered by First Union. The transaction
was accounted for as a sale for financial reporting purposes. The lenders'
commitment on this facility terminated in April 1999.
In June 1998, we established a revolving CP conduit facility having a
funding commitment of $100.0 million with a conduit administered by First
Union. This facility was later amended to increase the funding commitment to
$125.0 million. With this facility, we began retaining the residual interests
in the securitized lease pools on our balance sheet for accounting purposes and
the purchaser under this facility is our special purpose subsidiary. This
facility contains events of default which are triggered when lease
delinquencies or defaults in the securitized portfolio exceed specified
thresholds. In addition, an event of default would occur if there is a change
in our Chairman and Chief Executive Officer, President or Senior Vice President
or if we merge or consolidate with another company and are not the survivor.
The lenders' commitment on this facility expired in June 1999. Because assets
transferred under this facility are treated as sales for financial reporting
purposes, we did not renew this facility.
In December 1998, we entered into a revolving CP conduit facility,
administered by PNC Bank, that has a funding commitment of $100.0 million. The
commitment period expires in December 1999, but is subject to annual renewal at
the option of the CP conduit and its liquidity banks. This facility contains
provisions regarding events of default which are substantially similar to our
$125.0 million facility described in the immediately preceding paragraph. This
facility was recently amended to permit us to treat additional securitizations
we make under it as financings for financial reporting purposes.
In February 1999, we established a $143.0 million CP conduit facility
administered by First Union in order to finance our acquisition of JLA Credit.
In connection with this facility, we sold a portfolio of JLA Credit originated
lease receivables to a special purpose subsidiary, which pledged the
receivables to the CP conduit. This facility contains default provisions
substantially similar to our $125.0 million and $100.0 million facilities. We
treated this transaction as a financing for financial reporting purposes. As of
July 31, 1999, we have paid this facility in full.
In July 1999, we established a revolving multi-conduit facility
administered by First Union. As of July 31, 1999, one CP conduit lender had
committed $300.0 million of funding. We intend to solicit other CP conduits for
up to an additional $200.0 million of funding. The commitment period expires in
July 2000, but is subject to annual renewal at the option of the lenders. This
facility contains default provisions substantially similar to our $125.0
million, $100.0 million and $143.0 million facilities. In addition, we are
required to maintain a specified level of tangible net worth and ratio of
earnings to interest expense. We must also
38
<PAGE>
maintain revolving credit facilities aggregating at least $400.0 million. Only
facilities whose funding commitments have not terminated are considered in
determining whether the latter requirement is satisfied. Thus, for example, our
$125.0 million CP conduit facility is not considered for purposes of satisfying
this requirement, but our $100.0 million CP conduit facility combined with the
$300.0 million committed under this facility does satisfy the requirement. We
treat this facility as financing for financial reporting purposes.
Sales Facilities. In December 1998, we entered into agreements with IBM
Credit and IBM Canada that allow us to finance, on a monthly basis, all of the
leases we originate under our strategic marketing alliances with them. We
formed two special purpose subsidiaries for purposes of these sales, one for
lease originations in the U.S. and the other for lease originations in Canada.
IBM Credit and IBM Canada require us to account for these transfers as sales
for financial reporting purposes.
Term Note Securitizations. In June 1997, JLA Credit securitized leases in
a $75.0 million private placement of floating rate notes. The transaction has a
20% optional repurchase feature, allowing us to treat the securitization as a
financing for tax and accounting purposes. In February 1998, JLA Credit
securitized leases in a $125.0 million private placement of fixed and floating
rate notes. This transaction also has a repurchase option which permits us to
treat the securitization as a financing for financial reporting purposes.
In June 1999, we privately placed $158.8 million of fixed rate notes
through First Union Capital Markets Corp. This transaction effectively
refinanced a substantial portion of the $143.0 million CP conduit facility we
established at the time of our acquisition of JLA Credit. See "--CP Conduit
Securitizations." As servicer, we have the right to prepay the outstanding
notes when the remaining balance of the leases is approximately $23.8 million.
The transaction was accounted for as a financing for financial reporting
purposes.
Term Loans and Other Credit Facilities. As part of the consideration for
our acquisition of JLA Credit, we gave the seller a promissory note with an
original principal amount of $6.7 million, which bears interest at the Treasury
Rate plus 2.5% for the first two years and at the Treasury Rate plus 4.0% until
maturity in February 2004. The note is payable in quarterly installments and is
subordinate to all of our other indebtedness, including our intercompany debt.
At the closing of the JLA Credit acquisition, the seller was unable to deliver
complete lease files on certain of JLA Credit's assets. As a consequence, the
originally bargained for $8.8 million note was reduced by $2.1 million to $6.7
million. To the extent that any lease files are subsequently completed, we must
add a portion of the lease's net investment value to the outstanding principal
balance on the note, up to an aggregate of $2.1 million. As of June 30, 1999,
the principal balance of the note has been increased by $1.5 million as a
result of lease files having been completed.
In addition, as part of the JLA Credit acquisition, we acquired a small
pool of automobile leases. To finance this portfolio, we entered into a 36
month term loan with First Union for $5.7 million which bears interest at LIBOR
plus 1.0%.
In conjunction with our $300.0 million CP conduit facility, in July 1999
two of our special purpose subsidiaries each entered into credit facilities
with First Union that permit a maximum aggregate borrowing of $10.0 million.
Amounts outstanding under the facilities bear interest equal to LIBOR plus 2%
and are secured by a second priority interest in the lease receivables securing
our $125.0 million and $300.0 million CP conduit facilities. The commitment
period for each facility expires in July 2000, but is subject to annual renewal
at First Union's option. The facilities have default provisions substantially
similar to our $125.0 million and $500.0 million CP conduit facilities. We
intended these facilities to provide us with subordinated financing in the
event we do not complete this offering. We must prepay each facility if we
raise $20.0 million of additional equity (including through this offering),
other than from Resource America, or subordinated debt, upon which event the
facilities will terminate.
Intercompany Debt. As of June 30, 1999, we had $65.3 million of unsecured
indebtedness to Resource America. Of this amount, $48.1 million is classified
as subordinated debt and carries an interest rate of 10%. The indebtedness is
subordinated to repayment of our First Union warehouse facility and the
December 1997, June 1998 and February 1999 First Union CP conduit facilities.
Of the remaining $17.2 million of intercompany debt, $15.2 million carries an
interest rate of one month LIBOR plus 1.5% and the remaining
39
<PAGE>
$2.0 million is an intercompany tax liability that bears no interest. The
proceeds of these loans were used for the acquisition of JLA Credit and for
general corporate purposes, including funding lease originations. We currently
add accrued interest to the outstanding principal of the note. Immediately
before the closing of this offering, Resource America will contribute $30.0
million of the indebtedness to our capital. The balance of the indebtedness
will be exchanged for a note, bearing interest at the rate of 8% per year and
due after one year. We will have eight six-month renewal options. A fee of 2%
of the outstanding balance and accrued interest of the note at the end of the
expiring term must be paid to Resource America for each extension. The note
will be unsecured and will not be subordinated.
Market Risk
Interest Rate Risk and Hedging. Our CP conduit facilities, which are at
variable rates of interest, require us to enter into interest rate swap
agreements for the benefit of the purchaser of the leases. Because the cost of
funding under the CP conduit facility is floating and the rental stream is
fixed, an interest rate swap is needed to hedge the resulting risk. Under an
interest rate swap, the related special purpose entity agrees to pay a fixed
rate of interest and receive payment of a floating rate from a counterparty. If
short-term interest rates increase, then the fixed rate of interest the special
purpose entity is paying under the swap will be less than the short-term rate
it is receiving, resulting in a payment to the special purpose entity. This
payment will be used to offset the higher borrowing costs under the commercial
paper borrowings. If short-term rates fall, then the fixed rate of interest the
special purpose entity is paying under the swap will be higher than the
short-term rate it is receiving, resulting in a payment to the counterparty.
Therefore, the interest rate swap has the effect of fixing the interest rate of
the borrowings during the securitization period.
We also use interest rate swaps from our CP conduit facilities to manage
interest rate risk resulting from our term note securitizations. This risk
arises because benchmark fixed rates of interest, including yields on treasury
bonds and asset-backed bonds, are subject to normal market fluctuations.
Consequently, it is possible that fixed interest rates payable on asset-backed
securities may have increased since the time a lease was originated, and that
the prevailing market rate, and thus the rate paid on our term note
securitizations, may approach or exceed the implicit interest rate of the
leases securitized. Interest rate swaps can mitigate this risk.
An interest rate swap permits a special purpose entity to terminate a swap
in connection with the transfer of leases from a CP conduit facility to a term
note securitization. Upon termination, the swap counterparty determines the
amount due from or owed to the special purpose entity in order to terminate the
swap. The amount of such payment is based on the prevailing market rates for
interest rate swaps. For example, if benchmark fixed rates of interest have
increased significantly since the commencement of the terminated swap, and all
other relevant factors have remained constant, the counterparty would most
likely be required to make a payment to the special purpose entity upon
termination. This payment would, in part, offset the negative impact of
securitizing the lease in a term note securitization at a time when fixed
interest rates for asset-backed securities have increased when compared to
benchmark fixed interest rates prevailing at the time the lease was originated.
In contrast, if benchmark fixed rates of interest have decreased significantly
since the commencement of the terminated swap, and all other relevant factors
have remained constant, the special purpose entity would most likely be
required to make a payment to the counterparty upon termination. This payment
by the special purpose entity would have the effect of offsetting the otherwise
positive impact of securitizing the lease in a lower fixed interest rate
environment.
Interest rate hedge agreements outstanding at June 30, 1999 for our CP
conduit securitizations had an aggregate notional value of approximately $208.4
million, required payments based on fixed rates ranging from 5.2% to 5.8% and
had a positive estimated fair market value of approximately $804,000.
Interest Rate Sensitivity. The table below provides information about our
derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates, including interest rate swaps and debt
obligations. For debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional amounts and weighted average
interest rates by expected (contractual) maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the contract.
Weighted average variable rates are based on LIBOR as of June 30, 1999.
40
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------
7/99-6/00 7/00-6/01 7/01-6/02
------------- ------------- -------------
Liabilities: (dollars in thousands)
<S> <C> <C> <C>
Long-term debt:
Fixed rate .................... $ 134,542 $ 101,301 $ 57,999
Average interest rate ......... 6.91% 7.29% 6.96%
Variable (commercial
paper) ....................... 71,964 $ 53,008 $ 36,648
Average interest rate ......... 6.83% 6.90% 6.94%
Interest Rate Derivatives:
Interest rate swaps:
Variable to fixed ............. $ 67,622 $ 61,590 $ 42,744
Average pay rate .............. 5.43% 5.44% 5.45%
Average receive rate
(LIBOR) ...................... 5.17% 5.17% 5.17%
<CAPTION>
Expected Maturity Date
----------------------------------------------------------
7/02-6/03 7/03-6/04 Thereafter Total
------------- ------------- ------------ --------------
Liabilities: (dollars in thousands)
<S> <C> <C> <C> <C>
Long-term debt:
Fixed rate .................... $ 23,576 $ 12,885 $ 4,407 $ 334,810
Average interest rate ......... 6.39% 6.63% 7.26% 6.89%
Variable (commercial
paper) ....................... $ 20,252 $ 8,694 $ 1,955 $ 192,522
Average interest rate ......... 6.90% 6.93% 7.23% 6.81%
Interest Rate Derivatives:
Interest rate swaps:
Variable to fixed ............. $ 24,274 $ 10,616 $ 1,534 $ 208,381
Average pay rate .............. 5.44% 5.47% 5.42% 5.44%
Average receive rate
(LIBOR) ...................... 5.17% 5.17% 5.17% 5.17%
</TABLE>
Foreign Exchange Rate Sensitivity. The table below provides information
about our financial instruments by functional currency and presents such
information in U.S. dollar equivalents. The table summarizes information on
instruments that are sensitive to foreign currency exchange rates and
denominated debt obligation, which is currently our only foreign exchange
exposure. This obligation, which we guarantee, is discussed in "--Liquidity and
Capital Resources--Warehouse Facilities" above. For this debt obligation, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates.
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
------------------------------------------------------------------------
7/99-6/00 7/00-6/01 7/01-6/02 7/02-6/03 7/03-6/04
------------- ------------- ------------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Liabilities:
Long term debt:
Fixed rate .................... $ 520,145 $ 502,597 $ 320,257 $ 71,286 $ 5,635
Average interest rate ......... 7.73% 7.73% 7.77% 7.82% 7.84%
</TABLE>
Year 2000
The year 2000 issue is the result of computer programs and embedded
hardware systems having been developed using two digits rather than four to
define the applicable year. Those computer programs or hardware systems that
have date-sensitive software or embedded chips may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions or failure of our operations
including, among other things, a temporary inability to receive new business or
communicate with our customers through our technology systems. Failure of our
internal operating systems or third party software, or of any systems
maintained by third parties that interface with our systems, to operate
properly with regard to the year 2000 and thereafter could cause system
interruptions and loss of data. Any of these events could have a material
adverse effect on our business, financial condition and results of operations.
Our business is very dependent on computer and telecommunications systems.
See "Risk Factors--We may lose customers if our computer system and
telecommunications equipment fail." Our year 2000 compliance review included
assessing where problems may occur, contacting third party software vendors to
obtain certifications regarding the year 2000 compliance of their software
applications, testing our core operating systems and remediating any problems.
In December 1998, we purchased a new telephone system and a building security
system which were developed to be year 2000 compliant. Because all of our
computer systems and software applications have been purchased from third
parties, we have obtained certifications from all of our major software vendors
as to the year 2000 compliance of their products. We have also tested all of
our servers and core operating systems. We have booked leases that expire in
and after the year 2000 into the system with no unresolved problems in our
booking system. As a result, we believe that our servers and operating systems
are year 2000 compliant. To date, the costs we have incurred in connection with
year 2000 compliance have not been material.
Although we are not aware of any material year 2000 compliance problems
with our systems and software applications that have not already been
addressed, we can offer no assurance that we will not
41
<PAGE>
discover year 2000 compliance problems that will require substantial revisions
or replacements. Further, we can offer no assurance that governmental agencies,
utility companies, Internet access providers, smaller third party providers
that interface with us and others outside our control will be year 2000
compliant. We have attempted to mitigate the risks of outside entity failures
by contracting with large, established companies such as Sprint for Internet
access and Bell Atlantic for phone service. This is, however, no guarantee that
our Internet and telephone access will not fail due to these companies having
unforeseen year 2000 problems.
We are continuing to assess and test our year 2000 readiness but have not
adopted a formal contingency plan. We have back up servers and alternative
credit agencies available in the event that one is unreachable. Access to our
services is always available either by telephone or Internet. If our computer
systems are unable to process data, we will have to enter data manually. We
will hire temporary employees, if necessary, to enter such data.
42
<PAGE>
BUSINESS
Overview
We are an equipment finance company which leases technology equipment to
the small business market We originate and complete lease transactions using
the Internet, telephone and facsimile. We specialize in financing equipment
within a price range of $5,000 to $250,000. The equipment we finance includes
communications technology, industrial technology, information technology and
office automation equipment.
We reach the small business market by forming strategic marketing
alliances and other program relationships with equipment vendors. Equipment
vendors may be manufacturers, distributors or resellers of technology
equipment. We classify a vendor program as a strategic alliance when the
marketing of our financing is integrated into the vendor's marketing process
and the program literature and documentation is private labeled with the name
of the vendor or co-branded with both the name of the vendor and our name.
The equipment vendors in our strategic marketing alliances and in our
other vendor relationships offer small businesses a total solution for their
equipment acquisition needs by providing equipment and financing in one
package. We provide the vendors in our programs with the ability to offer our
financing as part of their equipment marketing package. We also provide small
business leasing programs to commercial banks that want to offer a lease
financing product to their small business customers but do not want to invest
in a leasing infrastructure. Participants in our strategic marketing alliances
and bank programs include:
<TABLE>
<S> <C> <C>
o Cisco Systems, Inc. o Huntington Leasing Corporation o Mitsui Machine Technology, Inc.
o Convergent Capital Corporation o IBM Credit Corporation o Quincy Compressor
o Emtec, Inc. o Ingram Micro, Inc. o Systemax, Inc.
o FISI Madison Financial Corporation o Lucent Technologies, Inc. o Tech Data Corporation
o Green Pages, Inc. o Midwest Micro Corporation o Telrad Telecommunications, Inc.
o GTE Leasing Corporation o Minolta Business Systems
</TABLE>
We facilitate the equipment vendors' sales processes by offering them a
choice of three ways to complete a financing transaction:
o using our web site, equipment vendors can submit a credit application,
receive a credit decision or a request for additional information, receive
a lease document and receive a purchase and shipping authorization, all
within minutes of submission of the credit application;
o using facsimile equipment vendors can submit a credit application which
we then enter into our system for processing; we complete our processing
through the Internet and our technology systems, that is, make a credit
decision or a request for additional information, produce a lease document
and produce a purchase and shipping authorization, all in less than one
hour; or
o using our Call Center facility, equipment vendors can telephonically
submit a credit application which we then enter into our system for
processing; the processing is completed as explained in the immediately
preceding bullet point.
JLA Credit's response times are currently not as fast as those of Fidelity
Leasing. JLA Credit's e-commerce capability is being modified so that it will
have the same response times as Fidelity Leasing. Modifications are scheduled
for completion by the end of September 1999.
Our technology systems allow vendors and banks to integrate their
e-commerce process with ours through hyperlinks from their web sites.
Currently, three of our strategic marketing alliance participants are building
hyperlinks so that they can access our web site and refer their customers to us
for financing. They are Emtec, Ingram Micro and Tech Data. Another strategic
marketing alliance participant, IBM, is establishing a separate web site
address under its own name that provides a window for its equipment vendors to
access our lease process. As more equipment vendors and banks develop web
sites, we will seek to link them to our web site and, thus, to the lease
financing we offer.
43
<PAGE>
As of June 30, 1999, we serviced a portfolio of 33,546 equipment leases
with an original equipment cost of $825.3 million. The average equipment cost
for our leases during 1999 was approximately $14,800 and the average lease term
was 46.8 months with a weighted average yield of 11.75%. All of our leases are
full payout leases with the rentals returning 100% of the equipment cost plus
an interest charge. For the fiscal year ended September 30, 1998, we originated
8,832 leases involving equipment with an aggregate cost of $88.7 million. For
the nine months ended June 30, 1999, we originated 13,033 leases involving
equipment with an aggregate cost of $192.5 million.
We were incorporated as a Pennsylvania corporation on March 4, 1996 and
commenced lease underwriting in August 1996. In February 1999, we acquired JLA
Credit, the U.S. small ticket leasing subsidiary of Japan Leasing Corporation,
which has contributed significantly to our growth. JLA Credit, which is now a
wholly-owned subsidiary of Fidelity Leasing, serves several technology sectors
that are similar to ours and also uses strategic and other marketing alliances
with vendors as a marketing strategy. The processes to complete a financing
transaction currently in use by Fidelity Leasing are being adopted for use by
JLA Credit; we anticipate that the transition will be completed by the end of
September 1999. We recently formed a new, wholly-owned subsidiary, Reseller
Finance Corporation, that will establish co-branded programs with vendors.
Fidelity Leasing will service all leases originated under Reseller Finance
programs.
Industry Overview
Market Size. According to the Department of Commerce and the Department of
Labor, in 1996, small businesses, defined as enterprises with fewer than 500
employees, employed 53% of the non-farm private work force and contributed 47%
of all sales in the country. Small business-dominated industries produced an
estimated 64% of the new jobs in 1996 according to a 1997 report of the Small
Business Administration. As of 1996, there were approximately 23 million
enterprises classified as small businesses by the Small Business
Administration. According to the 1998 National Small Business United/Arthur
Andersen's Enterprise Group Survey of small and medium size business owners'
conduct, 94% of small and medium size businesses had computers. Of those
businesses with computers, 65% use the Internet, up from 49% in 1997. At the
same time, business to business e-commerce continues to grow. In the United
States, according to data published by Forrester Research in November 1998,
business to business e-commerce reached an estimated $43.0 billion in 1998 and
is projected to reach $109 billion in 1999.
The 1993 National Survey of Small Business Finances, sponsored jointly by
the Small Business Administration and the Federal Reserve Board, found that a
total of $668.0 billion in small business credit was outstanding in 1993 from
traditional sources, such as commercial banks and finance companies. The Small
Business Administration has reported that the number of loans in amounts less
than $100,000 grew by 26.8% from 1996 to 1997. The 1994 National Survey of
Small Business Finances found that, in 1994, 56% of all small businesses used
credit lines, mortgage loans or equipment leases. In addition, according to a
survey conducted jointly by Arthur Andersen's Enterprise Group and National
Small Business United, the percentage of owners of small and mid-sized
businesses who cited leasing as a source of financing more than doubled from
16% in 1997 to 36% in 1998.
Equipment lease financing in the United States represents a large market.
The Equipment Leasing Association of America, using Department of Commerce
data, estimates that approximately $183.4 billion of the $593.0 billion spent
on equipment purchases by businesses in 1998 was financed through leasing.
Market Characteristics. The equipment leasing market is traditionally
segmented by the cost of the leased equipment:
o small ticket equipment involves equipment with costs ranging from $5,000
to $250,000;
o middle ticket equipment involves equipment with costs ranging from
$250,000 to $5,000,000; and
o large ticket equipment involves equipment with costs over $5,000,000.
44
<PAGE>
The small ticket equipment segment in which we operate has unique
characteristics that influence our strategy. The marketing of small ticket
equipment typically occurs through independent distribution channels which are
highly fragmented and localized. Dealers and resellers for such equipment are
typically independently owned. While they may be "factory authorized," they are
usually multi-brand dealers.
Few banks, commercial lenders or equipment lessors have developed a
marketing and servicing program able to reach and serve the equipment financing
needs of small businesses on a national basis. We believe that the relative
absence of national coverage of this business sector results from the following
two factors:
o Marketing directly to small businesses through traditional marketing
techniques, such as field sales representatives, direct mail and
advertising, can be expensive. Small businesses are widely dispersed in
the United States. There are no national media directly accessing large
portions of the small business market.
o Few small businesses have audited or standardized financial statements.
Few banks and other traditional lenders have developed commercial credit
scoring systems permitting them to evaluate credit capacity when financial
statements are unavailable.
Our Solution
We have developed a marketing program and technology systems that we
believe establishes a cost-effective solution for providing small ticket
equipment financing to small businesses throughout the United States. The key
aspects of our solution are:
Marketing Our Financing Services Through Vendor and Bank Programs. We
market our lease products by entering into strategic marketing alliances and
other relationships with technology equipment vendors and commercial banks. By
developing and maintaining these vendor programs, we are able to use the sales
forces of alliance participants and their distributors, dealers and resellers
to market our leasing products and services to the highly dispersed population
of small businesses. When coupled with our e-commerce and Internet
capabilities, our vendor programs allow us to provide equipment financing to
small businesses without the need to maintain a large field sales force.
Using Our Credit Evaluation Systems. Both Fidelity Leasing and JLA Credit
have developed credit evaluation systems designed to address the inability of
most small businesses to provide audited or standardized financial statements.
Key elements of our systems include:
o automatic extraction of credit information from online data bases such as
those maintained by TRW, Dun & Bradstreet, Equifax and Trans Union;
o credit scoring for smaller transactions; and
o credit analyst review only of larger transactions and transactions where
credit scoring does not provide a clear acceptance or rejection.
Our credit scoring systems operate by assigning point values to various
factors such as business longevity, type of business, payment history, bank
account balances, lawsuits, judgments, liens and credit ratings. These point
values are weighted based upon their correlation to default predictiveness, and
then added to arrive at a credit score for the applicant. The scoring system
either grants or declines approval, or refers the application to a credit
analyst, based upon thresholds established from statistical correlations
between scores and payment performance derived from proprietary algorithms
using industry and other data. Approximately 70% of the credit decisions made
by Fidelity Leasing, measured by number of applications, are made through
credit scoring.
In addition to its own credit scoring system, JLA Credit, whose lease
originations typically involve equipment costs substantially in excess of the
equipment costs for Fidelity Leasing-originated leases, has also developed a
proprietary system of specific underwriting criteria for its larger
transactions, called "risk acceptance criteria" or "RACs," that an application
must meet for credit approval. RACs are modified slightly
45
<PAGE>
for each equipment type and for various transaction size categories. Applicants
not meeting a particular criterion may provide a credit analyst with additional
information to explain the non-compliance. The analyst may thereafter approve
the application if the explanation is satisfactory. Substantially all of JLA
Credit's credit decisions are made through credit scoring or RACs.
Our Business Strategy
Our objective is to become the leading technology equipment lease finance
provider for small businesses. Key elements of our strategy include:
Developing New Strategic Marketing Alliances. We have developed strategic
marketing alliances with leading technology equipment manufacturers and vendors
and commercial banks. For the nine months ended June 30, 1999, approximately
35% of our lease originations, measured by equipment costs, came from our
strategic marketing alliances. These relationships enable us to reach our
targeted small business market as a designated lease financing source of these
companies and as a lease financing provider to which they refer their
distribution networks. We intend to build on that marketing position by
expanding the formation of strategic marketing alliances with other leading
technology providers.
Expanding Our Lease Financing Technology and Integrating it with the
Marketing Processes of Participants in Our Strategic Marketing Alliances. We
have developed sophisticated lease financing technology systems to deliver our
lease finance services. Currently, our Internet application enables us to
establish a hyperlink between a manufacturer's or distributor's web site and
our web site to permit them, or their authorized dealers and resellers, to do
the following:
o complete a leasing application;
o receive credit approval and equipment purchase authorization or,
alternatively, a request for further information;
o request a computer generated lease or a priced financial proposal; and
o print out the lease documents online.
It also enables us to establish a separate web address that links an equipment
vendor to a customized window with an alliance participant's name or co-branded
with the participant's name and our name. This customized window allows the
equipment vendors to access our technology systems. We intend to expand our
technology systems by offering additional services to participants in our
strategic marketing alliances such as customer data mining, lessee asset
management and lease products in which lease payments are based upon use, as,
for example, copier lease payments based upon the number of copies made. We
intend to enhance our Internet capabilities by adding such products as a master
lease line of credit in which a previously approved lessee can directly draw
down on a lease line of credit for additional equipment acquisitions.
Serving the Customer through Technology. We have developed a
computer-based lease processing and accounting system which automates a
substantial portion of the leasing process, giving us the capability of
underwriting and servicing high volumes of small ticket leases. We intend to
continue our development of this system to maintain and enhance our ability to
service the lease financing needs of our vendors and their customers rapidly
and efficiently. For leases involving equipment costs of under $50,000, we have
developed our E-FastFunds rapid response process. E-Fast Funds features
include:
o one hour guaranteed credit response;
o one page, plain language form of lease;
o electronic preparation and transmission of lease documents;
o rapid funding to the vendor upon verification of equipment installation
and lessee acceptance; and
o single company contact for the vendor.
46
<PAGE>
Under E-FastFunds, Fidelity Leasing provides a credit response--an
acceptance, decline or solicitation for additional information--within one
hour. During fiscal 1998, Fidelity Leasing responded to approximately 58% of
the 20,615 credit requests it received within 30 minutes. The form of lease
used by Fidelity Leasing is written in easily understood language designed not
to intimidate small business lessees. The administrative process of Fidelity
Leasing has been designed to avoid the difficulties a small business lessee or
its vendor may encounter in obtaining responses to its inquiries from a
multi-department financial institution by providing a single client manager as
the sole point of contact throughout the lease term. We believe that our
E-FastFunds program gives us a significant competitive advantage over other
financing companies which target the small business market.
Maintaining a Singular Competitive Focus--One Product for One Market. We
intend to maintain our singular competitive focus on small ticket leasing of
technology equipment to small businesses. We believe that this focus
distinguishes us from many of our competitors and results in significant
competitive advantages. It allows for:
o one set of operating systems;
o one skill set for our employees; and
o consistent credit underwriting processes, operating policies and
transaction documents.
This focus is directed at serving the lease financing needs of small businesses
without the distraction of dealing with other products, services and markets.
As a result, we believe that we can reach a larger share of the small business
lease financing market by offering better service to vendors and lessees at a
lower cost to us and underwrite lease financings with greater predictability of
lease receivables performance. Moreover, the small size of a typical
transaction relative to our total lease portfolio reduces our credit risk
exposure from any particular transaction.
Increasing Recognition of Our Corporate Identity. We intend to actively
develop our presence at the dealer and reseller level by establishing national
name recognition for Fidelity Leasing as a premier provider of lease financing
to the small business customers of technology equipment manufacturers and
vendors. We intend to establish our name recognition through an emphasis on
co-branding our lease finance services with the names of leading technology
equipment manufacturers and vendors, thus positioning ourselves with these
manufacturers and vendors, and their products, as a designated financial
services provider. We will also seek to link our financial services with these
manufacturers and vendors through our technology systems and web site
hyperlinks. We believe that establishing national name recognition with
manufacturers and vendors in the small business sector will enable us to
increase our market share.
Expanding Our Market Beyond the United States. We believe that the
Internet enables us to access substantial opportunities for small ticket lease
financing in non-U.S. markets. In 1998, we commenced operations in Canada
through Fidelity Canada. We intend to develop our presence internationally by
developing international strategic marketing alliances, by expanding domestic
strategic marketing alliances internationally and by establishing international
sales offices.
The Growth of Our Business
General. Our small ticket leasing activities have grown substantially
since the inception of our leasing operations. The number of our leases funded
rose 161%, as measured by equipment cost, or 173%, as measured by the number of
leases, from fiscal 1997 to fiscal 1998. As of June 30, 1999, we had formed
strategic marketing alliances with 15 leading manufacturers and resellers of
technology equipment and financial institutions, had formal and informal
arrangements with approximately 2,000 other vendors and had underwritten leases
in all 50 states and the District of Columbia. In October 1998, we commenced
operations in Canada through our subsidiary, Fidelity Canada. As part of our
alliance with IBM Canada, Fidelity Canada assumed the management of a $39.4
million small business lease portfolio formerly serviced by Newcourt
47
<PAGE>
Credit Group. At the request of one our strategic marketing alliance
participants, we plan to originate leases in Puerto Rico. To that end, in April
1999 we obtained a license from the Commissioner of Financial Institutions of
Puerto Rico which permits us to provide lease financing there.
Acquisition of JLA Credit. On February 4, 1999, we acquired JLA Credit,
which significantly added to our growth and lease origination capabilities. As
of June 30, 1999, $301.4 million, of leases in our portfolio were attributable
to JLA Credit. From the date of acquisition through June 30, 1999, JLA Credit
originated 1,161 leases with an equipment cost of $55.3 million which accounted
for 29% of our lease originations, as measured by original equipment costs, for
the period.
JLA Credit, which is our wholly-owned subsidiary, is engaged principally
in small ticket lease financing throughout the United States. Before February
4, 1999, JLA Credit was the United States small ticket leasing subsidiary of
Japan Leasing (U.S.A.), Inc., a wholly-owned subsidiary of Japan Leasing
Corporation. JLA Credit's principal office is located in Torrance, California.
Before we acquired it, JLA Credit had organized its leasing business by
equipment category and market segment. Its four groups were hard asset
equipment, high tech equipment, wholesale leasing and Japanese lessees. After
our acquisition, the organization has been changed to reflect Fidelity
Leasing's marketing approach of organizing by technology group. JLA Credit
currently has technology groups for:
o computer hardware and software;
o communications equipment and other technology equipment; and
o industrial technology.
In addition, JLA Credit has retained the Japanese lessee and wholesale
groups. The Japanese group services corporate clients with Japanese parent
organizations. Lessees are generally affiliates or subsidiaries of large
companies, including Japanese banks, investment banks, and manufacturers. The
Japanese group also handles U.S. domestic clients for whom an understanding of
the Japanese language and culture is important. The wholesale group originates
or acquires contracts through other lessors who are typically smaller than JLA
Credit and, to a lesser extent, through contracted brokers. The majority of the
business of this group comes from fewer than 10 sources. Equipment types for
both the Japanese and wholesale groups are similar to those leased through JLA
Credit's technology groups.
As part of our normal course of operations, we expect from time to time to
consider the possibility of further acquisitions; however, we do not expect to
rely on acquisitions for future growth.
Leasing Operations Growth. The following table sets forth the growth in
our leasing operations for the period March 4, 1996 (date of inception) through
September 30, 1996, the years ended September 30, 1997 and 1998 and the nine
months ended June 30, 1999 (including growth attributable to our acquisition of
JLA ) Credit):
<TABLE>
<CAPTION>
Period from
March 4, 1996 Nine Months
(Inception) Year Ended September 30, Ended
through September 30, ------------------------ June 30,
1996 1997 1998 1999
----------------------- ----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Leases funded ............................. 41 3,241 8,832 13,033
Original cost of equipment leased ......... $ 715 $ 33,985 $ 88,740 $ 192,487
Managed receivables serviced(1) ........... $ 847 $ 36,094 $ 117,025 $ 611,975
</TABLE>
- ------------
(1) Stated as of period end. Includes $52.4 million of leases not underwritten
by us but which we manage.
Our Lease Products
We seek to reduce the financial risk associated with our lease
transactions through the use of full-payout leases. A "full-payout lease" is a
lease under which the non-cancelable rental payments due during the initial
lease term are at least sufficient to recover the purchase price of the
underlying equipment, related acquisition
48
<PAGE>
fees and, typically, a minimum return on our invested capital. The initial
non-cancelable term of the lease is equal to or less than the equipment's
estimated economic life. Initial terms of the leases in our portfolio generally
range from 12 to 72 months, and had an average initial term of 46.8 months as
of June 30, 1999.
The terms and conditions of all of our leases are substantially similar.
In general, they require lessees to:
o maintain, service and operate the equipment in accordance with the
manufacturer's and government-mandated procedures;
o insure the equipment against property and casualty loss;
o pay all taxes associated with the equipment; and
o make all scheduled contract payments regardless of the performance of the
equipment.
Throughout the term of a lease, we will charge late fees, prepayment penalties,
loss and damage waiver fees and other service fees, when applicable, which
enhance the profitability of the lease. Our standard lease forms provide that
in the event of a default by the lessee, we can require payment of liquidated
damages and can seize and remove the equipment for subsequent sale, refinancing
or other disposal at our discretion, subject to any limitations imposed by
applicable law. Any additions, modifications or upgrades to the equipment,
regardless of the source of payment, are automatically incorporated into and
deemed a part of the equipment financed.
To the extent possible, we seek to increase the realization on our
residual interest in leased equipment through amounts received upon exercise of
lessee purchase options, re-marketing the equipment in the secondary market or
continued leasing of the equipment after expiration of the initial lease term.
Our leases require lessees to provide notice of termination 30 days before the
end of their lease terms to enable us to arrange for disposition of the
underlying equipment. If notification is not provided, we treat the lease as a
month-to-month lease and bill the lessee for rent until the equipment is
returned for disposition to a location designated by us. Lessees also have the
right to purchase equipment leased to them at the end of the lease term. The
purchase price is either the "fair value" of the lease, a specified percentage
of the original equipment cost, or a bargain purchase that permits a lessee to
buy the leased equipment for a nominal amount. The lessee selects one of these
options at the time it applies for the lease. We charge lower implicit interest
rates on leases with fair value or percentage of cost options than we do on
leases with bargain purchase options. If equipment is returned to us at the end
of a lease term, or earlier upon a default and repossession by us, we sell it
either to the original vendor or to a used equipment dealer.
Asset Quality
The table below sets forth lease delinquencies for our equipment lease
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------------------
1996 1997 1998
--------------------- ------------------------ --------------------------
Amount Percent Amount Percent Amount Percent
-------- ----------- ----------- ----------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross managed receivables ....... $ 847 100.0% $ 36,094 100.0% $ 117,025 100.0%
Current ......................... 847 100.0 34,665 96.0 114,596 97.9
Delinquencies:
31-60 days past due ............. -- -- 1,007 2.8 1,407 1.2
61-90 days past due ............. -- -- 274 0.8 450 0.4
Over 90 days past due ........... -- -- 14 0.4 572 0.5
----- ----- -------- ----- --------- -----
Total delinquencies ............. $ -- --% $ 1,429 4.0% $ 2,429 2.1%
===== ====== ======== ===== ========= =====
<PAGE>
<CAPTION>
June 30,
1999
-------------------------
Amount Percent
------------ -----------
<S> <C> <C>
Gross managed receivables ....... $ 559,539 100.0%
Current ......................... 543,940 97.2
Delinquencies:
31-60 days past due ............. 7,971 1.4
61-90 days past due ............. 2,691 0.5
Over 90 days past due ........... 4,937 0.9
--------- -----
Total delinquencies ............. $ 15,599 2.8%
========= =====
</TABLE>
49
<PAGE>
The following table sets forth our allowance for credit losses as of
September 30, 1996, 1997 and 1998 and as of June 30, 1999, and the related
provisions for credit losses, write-offs and recoveries for such periods and as
a percentage of the average managed receivables:
Allowance
Amount
----------
Fiscal 1996:
Balance at beginning of period ............ $ ---
Provision for losses ...................... 7
Net write-offs ............................
Balance at end of period .................. $ 7
--------
Percentage of managed receivables ......... 0.8%
========
Fiscal 1997:
Balance at beginning of period ............ $ 7
Provision for losses ...................... 253
Net write-offs ............................ (12)
Balance at end of period .................. $ 248
--------
Percentage of managed receivables ......... 0.7%
========
Fiscal 1998:
Balance at beginning of period ............ $ 248
Provision for losses ...................... 1,422
Net write-offs ............................ (68)
Balance at end of period .................. $ 1,602
--------
Percentage of managed receivables ......... 1.4%
========
Nine Months Ended June 30, 1999:
Balance at beginning of period ............ $ 1,602
Acquisition of subsidiary ................. 7,200
Provision for losses ...................... 2,497
Net write-offs ............................ (1,599)
Balance at end of period .................. $ 9,700
--------
Percentage of managed receivables ......... 1.7%
========
Portfolio Composition
Equipment Type. The table below sets forth the distribution of equipment
we have leased, by technology type and by percentage of dollar value of
equipment purchased, during the fiscal years ended September 30, 1996, 1997 and
1998 and for the nine months ended June 30, 1999:
Equipment Volume by Technology Type
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception) Nine Months
through Year Ended September 30, Ended
September 30, ----------------------- June 30,
1996 1997 1998 1999
--------------- ---------- ---------- ------------
(percent by dollar volume of equipment purchased)
<S> <C> <C> <C> <C>
Communications technology ......... 17.1% 35.5% 32.1% 15.5%
Industrial technology ............. 2.1 0.1 0.6 23.1(1)
Information technology ............ 3.9 7.5 14.4 26.0
Office automation ................. 42.8 52.1 40.7 27.7
Other equipment ................... 34.1 4.8 12.2 7.7
----- ----- ----- -------
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =======
</TABLE>
- ------------
(1) The increase in this sector resulted from the acquisition of JLA Credit on
February 4, 1999.
50
<PAGE>
Communications technology equipment includes telephone systems and related
equipment. Industrial technology equipment includes printing, woodworking,
materials handling and industrial compressor equipment. Information technology
equipment includes computers, printers, computer software, point of sale and
audio/visual equipment. Office automation equipment includes copiers, facsimile
machines, accounting machines and office security systems. Other equipment
includes medical, dental and laboratory testing equipment.
Geographic Distribution. As of June 30, 1999, the geographic distribution
of our leases, based on the location of the lessees, was as follows:
Percentage Measured by
Outstanding
State Receivables
- ------------------------ -----------------------
California ............. 30.7%
Texas .................. 6.9
New York ............... 6.9
Florida ................ 5.5
New Jersey ............. 4.0
Georgia ................ 3.4
Illinois ............... 3.3
North Carolina ......... 2.8
Ohio ................... 2.3
Pennsylvania ........... 2.3
Other .................. 31.9
-----
100.0%
=====
Customer Mix. We have a broad lessee and vendor base. As of June 30, 1999,
measured by the dollar amount of lease receivables, no single lessee accounted
for more than 0.31% of our managed lease portfolio and our 25 largest lessees
accounted for less than 5.1% of our managed lease portfolio. Except for two
vendors which accounted for 3.6% and 3.2% of our managed lease portfolio
measured by equipment cost at June 30, 1999, no single vendor accounted for
more than 2.9% of our managed lease portfolio, measured by equipment cost, and
our top 25 vendors accounted for 38% of our managed lease portfolio.
Marketing and Originations
We market our equipment lease products through the use of strategic and
other marketing alliances and other relationships consisting primarily of:
o vendor programs with equipment manufacturers, distributors and resellers;
and
o programs offered through banks directly to their customers.
Vendor Programs. Our vendor programs give us two marketing paths to
equipment end users. First, in a typical manufacturer or distributor
arrangement, the manufacturer or distributor will recommend us to its resellers
as an approved source of financing. We jointly develop marketing and lease
financing application materials which in most cases are co-branded to identify
both the manufacturer or distributor and Fidelity Leasing, JLA Credit or
Reseller Finance, as the case may be. We then solicit the manufacturer's or
distributor's authorized dealers and resellers directly. Second, we have the
capability of offering direct web site links with vendors. An authorized dealer
or reseller can do all of the following online:
o access our web site directly or through a hyperlink from the web site of
the manufacturer or distributor;
o submit a customer credit application;
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<PAGE>
o use our finance calculator to choose the appropriate finance structure
and to calculate interest rates and monthly payments;
o receive credit approval; and
o complete lease documentation and a purchase and install authorization.
We also have the capability of establishing a separate web address either
under the name of a manufacturer or distributor, or co-branded with the
manufacturer's or distributor's name, that provides a window for its equipment
vendors to access our technology systems. The separate web address is referred
to in the manufacturer's or distributor's web site, but is not connected to it
by a hyperlink.
We concentrate on establishing relationships with well established
manufacturers with recognizable brand names and with reputations for producing
high quality equipment. We believe that concentrating on leasing high quality
equipment, together with warranties from reputable manufacturers, reduces our
credit and collateral risk.
We have a Business Development Department that focuses on identifying new
technology providers and establishing them as participants in strategic
marketing alliances with us. Once a strategic marketing alliance has been
established, we offer our leasing products and services to the alliance
participant's distributors, dealers and resellers through our Telemarketing
Sales Group and through our Field Manager Group. Our Telemarketing Sales Group
focuses on information and communications technology equipment, while our Field
Manager Group focuses on industrial technology equipment. To expand our
relationships with participants in strategic marketing alliances, we have a
Program Management Department, including a program manager for our Canadian
subsidiary, which works closely with our alliance participants to develop new
marketing strategies and sales support programs.
By offering a vendor timely, convenient and competitive financing for its
equipment sales, we facilitate the vendor's sales process and become a part of
its overall sales approach to equipment purchases. The vendor is thus offering
not only the equipment, but our lease financing. This allows us to use the
vendor's sales organization as a sales force on our behalf to increase our
lease originations. To further assist vendors in their marketing and sales
process, we offer value added marketing services, which include training the
vendor's sales and management staffs to use leasing as a sales tool and
participating actively in the vendor's sales and marketing efforts, including
promotions, trade show activities and sale meetings.
Bank Programs. Our bank programs are designed for banks or other financial
institutions which want to provide lease financing to their small business
customers as a financing alternative or an additional service but which do not
want to invest in the highly automated systems and processes required for small
ticket leasing. Typically, a participating bank agrees that we will be the
provider of small ticket leasing services, under the bank's name, to commercial
customers of the bank which are seeking lease financing. We develop a marketing
plan for the bank and provide the bank with training and marketing material to
support the program. Lease application forms are available to bank customers at
the bank in point-of-sale displays, and may also be made available by e-mail or
possibly, in the future, through a hyperlink to our web site. Banks may also
have us maintain a "vanity" toll-free number, a number that is answered in the
bank's name, through which bank customers can make inquiries, process lease
applications and obtain assistance in selecting an appropriate lease program.
Through June 30, 1999, we had signed program agreements with three banks,
including Huntington Bank, a $28.3 billion (total assets at December 31, 1998)
bank based in Columbus, Ohio. In addition, we have a program with FISI Madison
Financial Corporation, a company marketing to banks which is a subsidiary of
Cendant Corporation, to provide small business lease financing to its 24 client
banks enrolled in its BusinessEdge program.
Other. In addition to our vendor and bank programs, the wholesale group of
JLA Credit originates or acquires contracts through independent equipment
lessors and, to a lesser extent, through contracted brokers. See "Business--The
Growth of Our Business--Acquisition of JLA Credit." JLA Credit's wholesale
group accounted for less than 8.6% of our lease originations for the nine
months ended June 30, 1999.
52
<PAGE>
Our Technology
We are committed to implementing sophisticated technologies to streamline
and automate the lease application and approval process. We typically customize
off-the-shelf software applications and hardware as we believe that such
off-the-shelf products can be scaled to various lease funding volumes, are
generally more stable and less costly than products we might develop for our
own use, and are easier to integrate with other commercially available
products.
We have designed our technology to accomplish three primary objectives:
Process Large Volumes of Small Ticket Leases in a Low Cost Environment. We
use six functionally integrated systems that provide fully automated, low cost
processing of small ticket leases:
o A management system that allows us to establish strategic alliances with
technology equipment manufacturers and vendors without having to develop
new software for each new program developed.
o Sales and marketing database management systems that provide vendor sales
relationship development and tracking tools. The systems, which have the
capacity to track more than one million files, track and manage sales
activities that drive lease volume and allow us to analyze these
activities to manage sales more effectively.
o An application management system that we have designed to process high
volumes of lease applications.
o A credit scoring model for Fidelity Leasing, to which we expect JLA
Credit will be converted by September 1999, that automates the task of
evaluating high volumes of small ticket lease applications.
o A contract management system that provides us with a stable, fully
automated array of portfolio management tools including electronic invoice
generation, payment posting technologies and extensive collections and
customer service screens, enabling efficient portfolio servicing.
o An accounting and financial management system that provides accurate and
efficient financial management of our portfolio from securitization
reporting to financial pro forma generating tools.
Use a Scalable Open Architecture. Based on the IBM RS/6000 and AS/400
series of Unix and web based servers, the computer hardware of our operating
systems feature an open and scalable architecture that permits us to
significantly expand our business without the necessity of substantial
additional capital investment in core systems or software development. All
systems interface to a single IBM AS/400E server in a seamless, highly secure
platform that has undergone rigorous volume and hack scan security testing. Our
current lease accounting system is capable of handling a portfolio of 125,000
leases. We plan to increase our server capacity to manage a portfolio of
300,000 leases before the end of 1999.
Operate a Web-based System. We have implemented an interactive web site
and related systems and protocols that enable us to complete lease transactions
through a direct, online system with equipment vendors. The online system
allows equipment vendors to electronically transmit lease applications to the
computer system located in our headquarters. The application is then
automatically scored using proprietary algorithms and, if approved, lease
documentation is electronically sent to the lessor for execution. In addition,
we provide the electronic commerce engine that allows manufacturers to provide
leasing icons on their web sites. This icon enables vendors to provide our
lease financing directly to their customers entirely over the Internet.
Underwriting
Fidelity Leasing. We have developed credit underwriting policies and
procedures that we believe have been effective in managing our credit risks. We
address the credit approval process by segregating transactions into three
groups according to dollar size:
53
<PAGE>
o lease applications involving equipment which costs less than $25,000 are
evaluated primarily through credit scoring;
o lease applications involving equipment which costs from $25,000 to
$50,000 are evaluated based both on credit scoring and review by a credit
analyst; and
o lease applications involving equipment which costs more than $50,000 are
evaluated by a credit analyst.
The approval process begins with the submission by telephone, facsimile or
electronic transmission of a credit application for the lessee by the equipment
vendor. Our system automatically extracts credit information from the lease
application and retrieves reports from online credit databases such as those
maintained by TRW, Dun & Bradstreet, Equifax and Trans Union. Information with
respect to applications involving equipment that costs less than $25,000 is
analyzed through our proprietary automated computer scoring model to assess the
credit of the applicant. The model utilizes a statistical formula that
evaluates the characteristics of the applicants, rather than relying solely on
the evaluation skills and judgment of credit analysts in making a credit
decision. The formula has been developed using our customer demographics and
credit history data as well as available industry data. The formula uses
information relating to various factors such as business longevity, types of
business, payment history, bank account balances, lawsuits, judgments, liens
and credit ratings. If there is insufficient information from the application
and online data to evaluate credit, or if the scoring process results in a
credit score that is neither an automatic acceptance or rejection, the
application is referred to a credit analyst for review and decision.
Applications involving equipment which costs from $25,000 to $50,000 are credit
scored and then automatically referred to a credit analyst who reviews
additional information, including comprehensive credit bureau reports, trade
references and, in some cases, financial statements or Comprehensive Credit
Score and Financial Stress Score analyses prepared by Dun & Bradstreet.
Applications involving equipment costs of more than $50,000 are reviewed by a
credit analyst based upon financial statements or, if financial statements are
not available, tax returns, credit reports on the business, credit reports on
the principals, and bank and trade references. Credit analysts have the
authority up to specified limits to reject or accept transactions based upon
our defined criteria and consideration of any mitigating factors. Applications
not meeting these criteria or involving equipment which costs in excess of an
analyst's credit authority are referred to a senior officer, usually our Vice
President of Credit or Vice President of Asset Management, with a higher credit
authority for review and decision.
We assign a master number to each lessee or other party, such as a
guarantor, and reference each transaction with that lessee or party to the
master number. We assess our exposure to the lessee or other party on a
cumulative basis, and our computer software is set up to track multiple
transactions with the same lessee or party to permit evaluation of our
cumulative exposure. We review new business from existing accounts in the
context of total exposure; for example, a new application for a $10,000 item to
a lessee with an existing exposure of $45,000 would be treated as a $55,000
credit decision.
Credit approval authorizations are based upon experience, skill and
position. Individual credit authority levels are approved by the Credit
Committee upon the recommendation of the Vice President of Asset Management.
The Credit Committee is composed of our Chairman and Chief Executive Officer,
President, Senior Vice President of Operations, and Vice President of Asset
Management. The Credit Committee reviews and approves all transactions
involving equipment costs of $250,000 or more; each decision must be unanimous.
54
<PAGE>
The credit authority for single transactions and customer exposures is as
follows:
<TABLE>
<CAPTION>
Position Credit Authority
- --------------------------------------------- -----------------------------------------------------
<S> <C>
Credit Manager .............................. Up to $50,000 individually
Up to $150,000 jointly with Vice President of Credit
Vice President of Credit .................... Up to $150,000 individually
Up to $250,000 jointly with Vice President of Asset
Management or President
Vice President of Asset Management .......... Up to $150,000 individually
Up to $250,000 jointly with Vice President
of Credit or President
Credit Committee ............................ Credit Committee will approve all transactions
or customer exposures greater than $250,000
</TABLE>
Credit analysts and managers review credit applications in excess of their
credit authority and make recommendations, but only an individual with
appropriate credit authority may approve a credit application. If the terms of
a particular transaction are changed after approval, the revised transaction
must be resubmitted for re-evaluation.
JLA Credit Corporation. The underwriting criteria used by JLA Credit are
similar to those at Fidelity Leasing. The principal difference is that JLA
Credit's process uses different equipment cost breakpoints for credit analysis
and, because of the larger number of applications involving equipment costs in
excess of $25,000, calls for a greater role for credit analysts in the
evaluation and decision-making process.
The JLA Credit underwriting process begins with the submission of a credit
application by an equipment vendor, typically by mail or by facsimile. Credit
information is obtained from the lease application and from on-line credit
databases such as TRW, Dun & Bradstreet, Equifax and Trans Union. Bank and
trade references and credit reports are typically used for transactions
involving equipment costs in excess of $25,000. JLA Credit also considers
concentration risk and exposure to existing lessees and other obligors who
apply for additional leases or other financing arrangements. In the case of
technology equipment, transactions with equipment costs of less than $25,000
are credit scored using a third party model. We expect that JLA Credit will
shift to the Fidelity Leasing credit scoring model by September 1999.
Transactions with equipment costs in excess of $25,000 are analyzed through JLA
Credit's RAC system. See "Business--Our Solution--Using Our Credit Evaluation.
Systems."
For transactions in which equipment costs will be in excess of $150,000,
JLA Credit performs a comprehensive review and financial analysis, which
normally includes a review of financial statements or tax returns for the prior
two to three years. If customers cannot provide audited financial statements
required by underwriting guidelines, JLA Credit attempts to obtain tax returns
for periods corresponding to available reviewed or compiled statements. Credit
analysts complete a financial ratio analysis and credit write-ups on these
transactions, which include a narrative description of the applicant's
business, relative collateral value, applicant's payment habits, payment habits
of any guarantor, applicant's industry and applicant's management. JLA Credit
generally processes these transactions through credit approval in two to three
days.
As with Fidelity Leasing, credit approval authorizations are established
based on experience, skill and position. Individual credit authority levels are
approved by JLA Credit's Credit Committee based upon the recommendations of
Fidelity's Vice President of Asset Management. The JLA Credit Credit Committee
is composed of Fidelity Leasing's Chairman and Chief Executive Officer,
President, Chief Financial Officer and Vice President of Asset Management and
JLA Credit's Vice President of Credit. The JLA Credit Credit Committee approves
all transactions involving equipment costs of $250,000 or more; such approvals
must be made by at least four members of the Credit Committee, including either
the Chief Executive Officer or the President, and decisions must be unanimous.
Credit approval authority for single transactions and customer exposures is the
same as at Fidelity Leasing.
55
<PAGE>
Servicing and Administration
General. We service all of the leases we originate, including leases we
securitize. Our lease processing and accounting system, into which JLA Credit's
system has been integrated, has been designed to automate the many functions
associated with servicing high volumes of small ticket leases, including the
following:
o integrated Uniform Commercial Code filing;
o lease invoicing and accounting management;
o lease renewals;
o status reports to equipment vendors;
o sales and use tax compliance;
o equipment insurance compliance;
o securitization management and reports; and
o security against unauthorized access and data back-up.
Collection Management. Our Collection Department is supported by an
automated collection tracking system, into which JLA Credit's system has been
integrated, that accesses all account-related information stored on our main
computers. The tracking system prioritizes and queues delinquent accounts by
age and dollar amount. The system permits collectors to record all
correspondence and discussions with lessees. The system also generates
management reports which allow us to assess the quality and quantity of
collections by individual service representatives, supervisory units or the
Collection Department as a whole.
Our collections policy is designed to identify payment problems early
enough to permit us to address delinquencies quickly and, when necessary, to
act to preserve our interest in the equipment leased. We begin collection
activity on the eleventh day after a payment due date with a telephone call to
the lessee. If the account is not brought current within seven days after the
initial contact, we place a second call to the lessee and contact any
guarantor. If the account is delinquent after the second call and there is no
agreement to bring the account current, we send a notice of potential default
to all parties to the lease.
We place accounts that are delinquent for a period of 60 days after a
payment due date into default and commence efforts to recover the equipment. If
an account is 90 days delinquent, we stop income recognition and determine
whether to pursue collections through assignment to a collection agency or
outside legal counsel. All accounts must be written off and charged to our
allowance for possible losses if they are 180 days delinquent unless we believe
that there is a reasonable certainty that the delinquency can be cured or some
portion of the account recovered. We will charge to our allowance for possible
losses any amount over that recovery estimate. Collection efforts will continue
on accounts which are 180 days delinquent if there is a likelihood of some
recovery.
Receivables Management. Our receivables management system, into which JLA
Credit's system has been integrated, is a fully automated and integrated
invoicing, accounts receivable and cash application system. The system
generates receivables schedules according to the lease master records for terms
and payment schedules and generates invoices three weeks before the payment due
date. The system receives remittance information daily, updates individual
lease receivable records and automatically posts information to our books.
Insurance Management. We maintain an umbrella insurance policy that covers
all leases involving equipment costing under $100,000. In the event a lessee
does not provide proof of insurance coverage within 30 days of request, we have
the right to impose a monthly insurance charge, along with service fees.
Fidelity Leasing currently has elected not to impose such charges; JLA Credit,
however, does impose such charges. On leases involving equipment costing
$100,000 or more, both Fidelity Leasing and JLA Credit require proof of
insurance detailing loss payee clauses in favor of Fidelity Leasing or JLA
Credit, as the case may be, as well
56
<PAGE>
as specific liability coverages. We perform an annual review of lessee
insurance coverages and require renewal certificates. We have the right to
impose monthly insurance charges and service fees to lessees which do not
deliver renewal certificates to us. Both Fidelity Leasing and JLA Credit will
impose such charges.
Competition
The business of small ticket equipment lease financing is highly fragmented and
competitive. We compete with:
o a large number of national, regional and local finance companies;
o captive finance and leasing companies affiliated with major equipment
manufacturers; and
o other sources of financing including traditional financial services
companies such as commercial banks, savings and loan associations and
credit unions.
Many of our competitors, such as GE Capital Corporation, Newcourt Capital
USA, Inc., DeLage Landen Finance Inc. (formerly Tokai Financial) and Copelco
Capital Inc., are substantially larger and have considerably greater financial,
technical and marketing resources than we do. For example, some of these
competitors may have a lower cost of funds and access to funding sources that
are not available to us. A lower cost of funds could enable a competitor to
offer leases with implicit yields which are less than the implicit yields we
use to price our leases, which may force us to lower our implicit yields or
lose origination volume. In addition, certain of our competitors may have
higher risk tolerances or different risk assessments which could allow them to
establish more vendor and lessee relationships and build their market share. We
compete based on the quality of the service we provide to both our lessees and
our vendors, bank participants and other lease originators. We have and will
continue to encounter significant competition and there can be no assurance
that we will be able to successfully compete in our chosen market. However, we
believe that our singular focus on small business and the high level of
services provided by our technology systems, together with our strategic
marketing alliances, allow us to penetrate our targeted market and build market
share.
Government Regulation
Although most states do not regulate the equipment lease financing
business, certain states and Puerto Rico require licensing of lenders and
finance companies, impose limitations on interest rates and other charges,
mandate disclosure of certain contract terms and constrain certain collection
practices and remedies. Under certain circumstances, we may also be required to
comply with the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
These acts require notice to credit applicants of their right to receive a
written statement of reasons an application for credit is denied. We believe
that we are currently in material compliance with applicable statutes and
regulations.
Employees
As of June 30, 1999, we had 204 employees, of which 83 were engaged in
origination operations, 70 were engaged in sales and 51 were engaged in a
variety of administrative, lease servicing and managerial functions. We believe
that our relations with our employees are good. None of our employees is a
member of a collective bargaining unit in connection with his or her employment
by us.
Facilities
We lease our West Chester headquarters, consisting of 20,000 square feet
of office space, at an average monthly rental of $31,279 as of June 30, 1999.
The lease expires in December 2004. We also have an office in Torrance,
California, which consists of 7,325 square feet of office space at an average
monthly rental of $11,113 as of June 30, 1999. The lease expires in May 2004,
but is subject to one five-year renewal option. In addition, we lease a sales
office in San Ramon, California, consisting of 6,651 square feet. The monthly
rent is $1,393, which will increase to $1,401 effective January 1, 2000. The
lease expires in March 2002. Fidelity
57
<PAGE>
Canada leases 3,021 square feet of office space in suburban Toronto. The
monthly rental on that space is C$2,392 through October 2003 and will increase
to C$2,895 thereafter until expiration. The lease expires October 2008 and is
subject to one five year renewal option. We believe that these and other
offices are adequate for our current needs.
Legal Proceedings
In the course of our business operations, we become involved in a variety
of routine litigation, typically concerning the enforcement of our leases. We
do not believe that any such litigation is material to us either individually
or in the aggregate.
58
<PAGE>
MANAGEMENT
Executive Officers, Directors and Other Significant Employees
Our executive officers, directors and other significant employees, and
their ages as of September 15, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------- ----- ---------------------------------------------
<S> <C> <C>
Executive Officers:
Abraham Bernstein(1)(2) ......... 66 Chairman of the Board of Directors and Chief
Executive Officer
Crit S. DeMent(1) ............... 46 President, Chief Operating Officer and
Director
Joseph T. Ellis, Jr ............. 39 Senior Vice President and General Manager of
Operations
Colin Brevik .................... 55 Vice President of Marketing
Nicholas Capparelli ............. 40 Vice President and General Manager of the
Industrial Technology Group
John L. Dale .................... 38 Vice President and Chief Financial Officer
David H. English ................ 48 Vice President of Asset Management
Miles Herman .................... 39 Vice President of Electronic Commerce
Directors:
Debbi Hurd Baptist(2) ........... 50 Director
Daniel G. Cohen(1)(2) ........... 30 Director
Edward E. Cohen(1)(3) ........... 60 Director
Anthony S. Courakis(4) .......... 55 Director
Steven J. Elgart(4) ............. 52 Director
Darshan V. Patel(1)(3) .......... 29 Director
Blanche G. Ross(3) .............. 75 Director
Other Significant Employees:
Maryellen Barbarish ............. 40 Vice President of Information Technologies
Robert Hunter ................... 37 Vice President of Sales
Charles J. Santangelo ........... 50 Controller
</TABLE>
- ------------
(1) Member of the Executive Committee
(2) Member of the Nominating Committee
(3) Member of the Compensation Committee
(4) Member of the Audit Committee
Abraham Bernstein has been Chairman of the Board of Directors and Chief
Executive Officer since 1996. From 1996 to 1998, Mr. Bernstein was also
President. From 1982 to 1993, he was the President and Chief Executive Officer
of Tokai Financial Services, Inc., the equipment leasing subsidiary of Tokai
Bank of Japan. From 1993 to 1995, the contractual period during which Mr.
Bernstein's restrictive covenant with Tokai Financial was in effect, Mr.
Bernstein was a Managing Director of the Rittenhouse Consulting Group, a
financial consulting company. Mr. Bernstein is a past director of the Equipment
Leasing Association.
Crit S. DeMent has been President since 1998, a director since 1997 and
Chief Operating Officer since 1996. Mr. DeMent has been in the leasing finance
industry for over 20 years. Immediately before joining Fidelity Leasing, from
1987 through 1996 he was Vice President--Marketing for Tokai Financial.
59
<PAGE>
Joseph T. Ellis, Jr. has been Senior Vice President and General Manager of
Operations since 1998. From 1996 to 1998, he was Director of Vendor Services.
From 1992 to 1996, he held various marketing and sales positions with Tokai
Financial, most recently as the Director of Program Management and Strategic
Market Development. From 1991 to 1992, Mr. Ellis was a National Accounts
Executive at Copelco Capital Corporation and, from 1989 to 1991, he was Vice
President at Norwest Financial Leasing, Inc.
Colin Brevik has been Vice President of Marketing since March 1999. From
1998 to 1999, he was Senior Vice President Sales at JLA Credit where he
directed business development and led the high technology and hard asset
groups. From 1994 to 1998, Mr. Brevik was Group Vice President of Business
Development of National Accounts with AT&T Capital Leasing Services, Inc. Mr.
Brevik owned Sierra Leasing Company from 1992 to 1993. Mr. Brevik served as
Vice President at Chase Manhattan Leasing Company from 1987 to 1991 and in a
number of positions at United States Leasing Corporation from 1971 to 1987,
most recently as Senior Vice President, Business Systems for the Telelease
small ticket division.
Nicholas Capparelli has been Vice President and General Manager of the
Industrial Technology Group since February 1999. From 1996 to 1999, he was Vice
President of Sales and Operations for Softmart, an international computer
reseller headquartered in suburban Philadelphia, Pennsylvania, where he was
responsible for strategic sales and operations. From 1985 to 1996, Mr.
Capparelli served in a number of positions at Tokai, most recently as Vice
President of Sales.
John L. Dale has been Chief Financial Officer since April 1999. From 1998
to 1999, he was Senior Vice President in charge of Capital Markets at American
Business Financial, Inc., an equipment leasing and financial services company
based in suburban Philadelphia, Pennsylvania, where he was responsible for the
asset backed programs for leasing and mortgage related assets. From 1994 to
1998, Mr. Dale was a managing director of CoreStates Capital Markets where he
created and ran the asset securitization group. Prior to that, Mr. Dale served
as Vice President, Securitization at Prudential Home Mortgage from 1992 to
1994, and as Director of Asset Securitization for the Resolution Trust
Corporation from 1990 to 1992.
David H. English has been Vice President of Asset Management since 1996.
From 1991 to 1996 he held various credit and operational positions with Tokai
Financial, most recently as Director of Credit for the small ticket leasing
division. Mr. English served in credit management positions with the Commercial
Equipment Finance Division of General Electric Capital Corporation from 1990 to
1991 and the Equitable Life Leasing Corporation from 1985 through 1990.
Miles Herman has been Vice President of Electronic Commerce since 1998.
From 1990 to 1998, he held various operational, marketing, program management,
business development and sales positions with Tokai Financial, most recently as
Director of Capital Markets. Before that, he served as Vice President,
Operations and Sales at LSI Leasing Services, Inc. from 1989 to 1990, and as a
manager of operations at Master Lease Corporation from 1984 to 1989.
Debbi Hurd Baptist has been a director since June 1999. Ms. Hurd Baptist
has been President and Chief Executive Officer of City First Bank of D.C., the
first community development bank in Washington, D.C., and CFBanc Corporation
since November 1998. From 1992 to 1998, she was a director of the Community
Development Investment Group at the Federal Home Loan Mortgage Corporation, a
private secondary market financial services company known as Freddie Mac. Ms.
Hurd Baptist was Vice President, Regional Manager of National Cooperative Bank
of Washington, D.C. from 1987 to 1992, and Vice President for Development of
CMS, Inc., a mortgage servicing company, from 1985 until 1987. Ms. Hurd Baptist
currently serves on the Board of TRM Corporation, a provider of copying and ATM
services, on which Messrs. Edward E. and Daniel G. Cohen also serve.
Daniel G. Cohen has been a director since 1996. Mr. Cohen has been a
director of Resource America since 1997 and President and Chief Operating
Officer of Resource America since 1998. From 1997 to 1998 he was an Executive
Vice President of Resource America and from 1995 to 1997 he was a Senior Vice
President of Resource America. He has been of director of TRM Corporation, on
which Edward Cohen and Ms. Hurd Baptist also serve, since 1998. Before joining
Resource America in November 1995, Mr. Cohen was principally engaged in
graduate studies. Mr. Cohen is a son of Edward Cohen.
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<PAGE>
Edward E. Cohen has been a director since June 1999. He has been Chairman
of the Board of Resource America since 1990 and Chief Executive Officer of
Resource America since 1988. Mr. Cohen has been Chairman of the Board of
Brandywine Construction & Management, Inc., a real estate management and
development company, since 1994. He has also been a director of JeffBanks,
Inc., a bank holding company, since 1981 and Chairman of the Board of Directors
of TRM Corporation, a provider of self-service photocopying and ATM machines on
whose board of directors Daniel Cohen and Ms. Hurd Baptist also serve, since
1998. He was a principal of Ledgewood Law Firm, P.C. from 1991 to 1994 and of
counsel from 1995 to 1996. Mr. Cohen is the father of Daniel G. Cohen.
Anthony S. Courakis has been a director since June 1999. Mr. Courakis is
the Senior Economics Fellow of Brasenose College, University of Oxford, Oxford,
England. He has been an Official Fellow, and a member of the Governing Body and
the Executive Council of Brasenose College since 1974. He has been a consultant
to a number of financial institutions, central banks and international
organizations, and a visiting professor to various (mostly European)
universities. He is a Trustee of the John Hicks Foundation for Economics
(England), which he founded in 1992, and a member of the Governing Council of
the Cultural Foundation of the Ionian Bank (Greece).
Steven J. Elgart has been a director since June 1999. Since 1981, except
for the years 1987 to 1991, Mr. Elgart has been a financial consultant to
businesses and institutions in the financial services, biotechnology,
pharmaceutical and computer services industries. Mr. Elgart was Chief Financial
Officer of Magainin Pharmaceuticals from 1989 to 1991 and Chief Financial
Officer of Digene Diagnostics from 1987 to 1989. In addition, Mr. Elgart was a
founder and director of Chase Econometrics from 1971 to 1980, which became the
economic services subsidiary of Chase Manhattan Bank.
Blanche G. Ross has been a director since June 1999. Mrs. Ross has been
retired since 1992. During 1992, she was a consultant with the Fischer/Ross
Group. From 1980 to 1991, Mrs. Ross was President of Ross Associates Speakers
Bureau, the first speakers bureau representing women, which she founded.
Darshan V. Patel has been a director since June 1999. Mr. Patel is an
attorney specializing in commercial litigation at Berman, Paley, Goldstein &
Kannry in New York, New York. From 1996 to 1998, Mr. Patel practiced law at
Glynn & Associates in Flemington, New Jersey. Mr. Patel graduated from
Washington College of Law, American University, Washington, D.C. in 1995.
Maryellen Barbarish has been Vice President of Information Technologies
since May 1998 and was Director of Information Technologies from 1996 to 1998.
From 1992 to 1996, Ms. Barbarish was Director of Information Technologies for
an affiliated entity, FL Partnership Management, Inc. and, from 1988 to 1991,
was Assistant Director of Information Technologies for FL Partnership
Management, Inc.
Robert Hunter has been Vice President of Sales since 1998. Mr. Hunter
served in a number of sales positions at Tokai Financial from 1988 to 1998,
most recently as Director, Medical Division. Before that, Mr. Hunter was a
National Account Manager at Minolta Corporation from 1985 to 1988.
Charles J. Santangelo has been Controller since February 1999. Before
joining us, Mr. Santangelo was Director of Accounting of Tokai Financial from
1994 to 1998 and Manager of Accounting from 1985 to 1994.
Board Committees
We currently have four Board committees:
o The Executive Committee, currently composed of Messrs. Daniel G. Cohen
(chair), Bernstein, Edward E. Cohen, DeMent and Patel, exercises all
power and authority of the Board, subject to certain limitations of
Pennsylvania statutory law, between meetings of the Board.
o The Audit Committee, currently composed of Messrs. Courakis (chair) and
Elgart, reviews our internal accounting procedures and consults with, and
reviews the services provided by, our independent accountants.
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<PAGE>
o The Compensation Committee, currently composed of Messrs. Edward E. Cohen
(chair) and Patel and Mrs. Ross, establishes salaries, incentives and
other forms of compensation for our executive officers and administers
our benefit plans.
o The Nominating Committee, currently composed of Messrs. Daniel G. Cohen
(chair) and Bernstein and Ms. Hurd Baptist, evaluates and proposes
nominees for election to, and to fill vacancies on, the Board of
Directors.
Directors' Compensation
Each outside director who is not an officer or employee of ours or of one
of our affiliates is entitled to receive a cash retainer of $1,000 per month
plus an additional $500 per month if the outside director is chairman of a
board committee. In addition, outside directors receive $500 for each committee
meeting they attend in person, and $250 for each such meeting they attend
telephonically, unless the director is the chair of the committee. We reimburse
all of our directors for expenses incurred in attending meetings.
Compensation Committee Interlocks and Insider Participation
Abraham Bernstein, our Chairman and Chief Executive Officer, was a member
of the Compensation Committee of our Board of Directors during fiscal 1998.
During fiscal 1998, none of our executive officers was a director or executive
officer of any entity for which any member of our Compensation Committee was a
director or executive officer.
Employment Agreements
Mr. Bernstein serves as our Chairman and Chief Executive Officer under an
employment agreement for a term ending on March 4, 2002. The agreement
automatically renews at the end of any term for an additional one-year term
unless either of us gives notice of termination at least two months before the
end of the then current term. Mr. Bernstein receives a base salary of $300,000.
This base salary may be increased by our Board of Directors. Mr. Bernstein also
is entitled to incentive compensation equal to 2.75% of our net annual
after-tax earnings, to a maximum of 2.0% of pre-tax earnings. This incentive
compensation is payable only if our after-tax earnings exceed 10% of
shareholders' equity as shown on our financial statements. If shareholders'
equity changes in any year, it will be calculated as the average of the amounts
of shareholders' equity on the last day of each fiscal quarter. Incentive
compensation is payable annually. We may terminate the agreement if Mr.
Bernstein becomes physically or mentally disabled for more than 90 days in the
aggregate during any 365-day period. We may also terminate the agreement for
cause. For purposes of the agreement, cause means commission of fraud, gross
negligence or material misconduct adversely affecting us, commission of a
felony or unapproved conflict of interest or material self-dealing, or failure
to follow written directions from our Board of Directors. If we terminate the
agreement, Mr. Bernstein will receive his base salary and benefits through the
date of termination. Mr. Bernstein may terminate the agreement for "good
reason." The agreement defines good reason as a change in Mr. Bernstein's
duties inconsistent with the agreement, breach of the agreement by us, a
failure to continue his coverage under our benefit plans, or Edward E. Cohen
being neither an officer nor the owner, directly or indirectly, of at least 5%
of the Class A voting stock of Resource America. If the agreement is terminated
for good reason, Mr. Bernstein will receive periodic payments in the aggregate
equal to one year's compensation (including the incentive compensation which
would have been earned had termination not occurred) and he will continue to
receive all benefits during the period. The agreement prohibits Mr. Bernstein
from competing with us for two years following termination of his employment
unless the agreement is terminated for good reason or by mutual consent. In
addition, upon expiration of the agreement or its termination for good reason,
Mr. Bernstein will receive $100,000 per year for 10 years after the expiration
or termination for consulting services. Such payments will terminate upon Mr.
Bernstein's death or upon breach of his non-competition covenant. In the event
of the sale of all or substantially all of our assets, or Resource America's
sale of a controlling interest in us, Mr. Bernstein will be entitled to a bonus
equal to the lesser of $1.5 million or 1% of the excess of the net sales price
of such stock or assets over the book value of our assets.
62
<PAGE>
In addition, Mr. Bernstein received options to purchase up to 701,241
shares at an aggregate price of $222,200 and, should we declare a dividend,
will receive payments on the options in an amount equal to the dividends that
would have been paid on the shares subject to the options had they been issued.
The options issued to Mr. Bernstein vest 25% per year beginning in March 1997,
becoming fully vested in March 2000, and terminate in March 2005. The options
become fully vested and immediately exercisable in the event Edward E. Cohen
ceases to be either an officer or at least a 5% stockholder, directly or
indirectly, of Resource America. Mr. Bernstein has certain rights, commencing
one year after the closing of this offering, to require Fidelity Leasing to
register his option shares under federal securities laws. Mr. Bernstein intends
to exercise his options to purchase 525,931 shares of common stock before the
closing of this offering.
Mr. DeMent serves as our President and Chief Operating Officer pursuant to
an employment agreement with a term ending on June 30, 2002. The agreement
automatically renews at the end of any term for an additional one year term
unless either of us gives notice of termination not less than two months before
the end of the then current term. Mr. DeMent receives a base salary of $220,000
and is eligible for incentive compensation at the discretion of our Board of
Directors. This base salary may be increased by our Board of Directors. We may
terminate the agreement for cause. For the purposes of the agreement, cause
means commission of fraud, illegal conduct or gross misconduct adversely
affecting us, conviction of a felony, willful and continued failure to perform
his duties or failure to follow written directions of our Board. Mr. DeMent may
terminate the agreement for "good reason." The agreement defines good reason
as, generally, a change in Mr. DeMent's duties inconsistent with the agreement
or a breach of the agreement by us. If Mr. DeMent is terminated by us other
than for cause or by reason of Mr. DeMent's death, or if Mr. DeMent terminates
his employment for good reason, Mr. DeMent will receive periodic payments of
the compensation payable to him under the agreement through the end of the then
term or one year, whichever is longer. He will continue to receive all benefits
during the period. Mr. DeMent also will be paid an amount equal to the prorated
incentive compensation he received in the fiscal year immediately before
termination. All options and shares of common stock received by him under any
plan will become fully vested. In the event of the sale of substantially all of
our assets or stock constituting control of us, Mr. DeMent will be entitled to
a bonus equal to the lesser of $1.5 million or 1% of the amount by which the
net sales price of such stock or assets exceed the book value of our assets.
The agreement prohibits Mr. DeMent from competing with us for, in the case of
termination of his employment for any reason except cause, the longer of one
year following termination and the unexpired term of the agreement.
Mr. Ellis serves as Senior Vice President and General Manager of
Operations pursuant to an employment agreement with a term ending on June 30,
2002. The agreement automatically renews at the end of any term for an
additional one year term unless either of us gives notice of termination not
less than two months before the end of the then current term. Mr. Ellis
receives a base salary of $180,000 and is eligible for incentive compensation
at the discretion of our Board of Directors. We may terminate the agreement for
cause or, without cause, upon 45 days prior written notice. For the purposes of
the agreement, cause means commission of fraud, illegal conduct or gross
misconduct adversely affecting us, conviction of a felony, willful and
continued failure to perform his duties or failure to follow written directions
of our Board. Mr. Ellis may terminate the agreement for good reason. Good
reason is defined, generally, as a change in Mr. Ellis' duties inconsistent
with the agreement or breach of the agreement by us. Upon termination by Mr.
Ellis for good reason, by us without cause or by reason of non-renewal, Mr.
Ellis is entitled to receive periodic payments of the compensation payable to
him under the agreement through the end of the then term or one year, whichever
is greater. Mr. Ellis will also continue to receive all benefits during the
period and will receive an amount equal to the prorated incentive compensation
he received in the fiscal year immediately before termination. The agreement
prohibits Mr. Ellis from competing with us for, in the case of termination of
his employment for any reason except cause, the longer of one year following
termination and the unexpired term of the agreement.
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<PAGE>
Executive Officer Compensation
Summary Compensation of Named Executives. The following table sets forth
certain information concerning the compensation we paid or accrued during each
of our last three fiscal years to our Chief Executive Officer and each of our
other most highly compensated executive officers whose aggregate salary and
bonus exceeded $100,000 during fiscal 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Awards
Annual --------------
Compensation Securities
--------------------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options/SARs Compensation
- ------------------------------------- ------ ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Abraham Bernstein ................... 1998 $207,692 $30,000 -- $612
Chairman and Chief Executive Officer 1997 145,847 25,000 -- 612
1996 84,279 -- 701,241 612
Crit S. DeMent ...................... 1998 $186,923 $30,000 -- $612
President and Chief Operating Officer 1997 141,816 12,500 -- 612
1996 91,730 -- 210,372 599
Joseph T. Ellis, Jr. ................ 1998 $146,596 $30,000 -- $215
Senior Vice President of Operations 1997 93,642 20,000 -- 234
1996 46,604 -- 42,074 119
</TABLE>
Option Grants and Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. During fiscal 1998, there were no option grants to, or option exercises
by, our officers and directors.
The following table sets forth the number of unexercised options held by
the executive officers listed in the Summary Compensation Table. The value of
the unexercised in-the-money options is based upon a value of $18.00 per share
of our common stock, which is the midpoint of the range of the anticipated
public offering price. Amounts reflected are based upon the assumed value minus
the exercise price multiplied by the number of shares acquired on exercise.
1998 Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying in-the-Money
Unexercised Options/ Options/
SARs at FY-End SARs at FY-End
---------------------------- -----------------------------
Name Vested Unvested Vested Unvested
- ------------------------------ --------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Abraham Bernstein ............ 350,621 350,620(1) $6,200,067 $6,200,049
Crit S. DeMent ............... 105,186 105,186(1) 1,860,020 1,860,020
Joseph T. Ellis, Jr. ......... 21,037 21,037(1) 372,004 372,004
</TABLE>
- ------------
(1) Since the end of our fiscal year, the following options have vested: Mr.
Bernstein, 175,310; Mr. DeMent, 52,593; and Mr. Ellis, 10,519. Messrs.
Bernstein, DeMent and Ellis intend to exercise all their vested options
immediately before the closing of this offering.
Stock Incentive Plans
We have adopted two stock option plans that provide for both incentive and
non-qualified options to purchase shares of our common stock. A maximum of
1,051,861 shares in the aggregate are issuable under these plans, of which
1,045,550 have been issued. The plans are administered by our Compensation
Committee, which determines to whom options are granted and the terms of the
options, except that the
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options may not have a term greater than 10 years and qualified options may not
have an exercise price that is less than the fair market value of our common
stock on the date the option is granted. The plans permit the Compensation
Committee to make option grants under which option holders may elect to convert
all or some of their options into stock appreciation rights. These rights
permit the holder to receive cash equal to the difference between the fair
market value of the shares underlying the converted options and the exercise
price of the options. Mr. Bernstein's option grant includes this conversion
privilege; however, he cannot exercise this privilege until March 2000. All of
the outstanding options vest over a four year period from the date of grant.
The purpose of the option plans is to provide performance based compensation to
our key employees. Because all of the options issuable under the existing
option plans have been issued, we intend to seek, before the closing of this
offering, shareholder approval for a new option plan for 750,000 shares.
CERTAIN TRANSACTIONS
We finance our operations in part through warehouse lines of credit, term
loans and securitizations. Since we have been a wholly-owned subsidiary of
Resource America, our obligations under four of these facilities have been
guaranteed by Resource America. Resource America guaranteed a portion of the
lease receivables due under any defaulted leases with respect to a fifth
facility. In addition, we have obtained substantial amounts of financing for
our operations from Resource America. Immediately before the closing of this
offering, Resource America will contribute $30.0 million of this debt to our
capital, exchange the balance of the debt to an unsecured note and receive
280,496 shares of our common stock. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Intercompany Debt." Edward E.
Cohen, one of our directors, is the Chairman and Chief Executive Officer of
Resource America, and Daniel G. Cohen, also a director, is a director,
President and Chief Operating Officer of Resource America. We do not expect
that Resource America will provide additional funding to us or provide further
guarantees following this offering. We will reimburse Resource America for its
costs and expenses incurred in connection with this offering and our
acquisition of JLA Credit, including an allocation of employee compensation.
Such costs and expenses are estimated to be approximately $1,000,000.
We maintain an account for operating expenses, payroll and taxes with
Jefferson Bank. In addition, from time to time we also maintain temporary
investment accounts with Jefferson Bank. Daniel Cohen, one of our directors, is
a director of Jefferson Bank; Betsy Z. Cohen, Daniel Cohen's mother, is
Chairman and Chief Executive Officer of the Bank. Edward E. Cohen, one of our
directors, is the spouse of Betsy Z. Cohen; Mr. Edward E. and Mrs. Cohen are
directors and Mrs. Cohen is Chief Executive Officer of the holding company of
Jefferson Bank, and they are principal shareholders of that holding company.
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of shares of our
common stock owned, as of June 25, 1999, by:
o each person who is known by us to be the beneficial owner of 5% or more
of our common stock;
o each of our directors;
o each of our executive officers; and
o all of our executive officers and directors as a group.
This information is reported in accordance with the beneficial ownership rules
of the SEC under which a person is deemed to be the beneficial owner of a
security if that person has or shares voting power or investment power with
respect to such security or has the right to acquire such ownership within 60
days of the date of this prospectus. Shares of our common stock issuable
pursuant to options are deemed to be outstanding for purposes of computing the
percentage of the person or group holding such options but are not
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deemed to be outstanding for purposes of computing the percentage of any other
person. Except as indicated in the footnotes to this table, each shareholder
named in the table has sole voting and investment power with respect to the
shares set forth opposite such shareholder's name.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Before Offering Owned After Offering
------------------------------ -----------------------
Name of Beneficial Owner Number Percent Number Percent
- -------------------------------------------- ------------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Directors and executive officers(1)
Abraham Bernstein ......................... 525,931(2) 7.4% 525,931 4.7%
Crit S. DeMent ............................ 157,779(2) 2.3 157,779 1.4
Joseph T. Ellis, Jr. ...................... 31,556(2) * 31,556 *
Colin Brevik .............................. -- -- -- --
Nicholas Capparelli ....................... -- -- -- --
John L. Dale .............................. -- -- -- --
David H. English .......................... 10,519(2) * 10,519 *
Miles Herman .............................. -- -- -- --
Debbi Hurd Baptist ........................ -- -- -- --
Daniel G. Cohen ........................... 6,591,663(3) 100 6,591,663 58.8
Edward E. Cohen ........................... 6,591,663(3) 100 6,591,663 58.8
Anthony S. Courakis ....................... -- -- -- --
Steven J. Elgart .......................... -- -- -- --
Darshan V. Patel .......................... -- -- -- --
Blanche G. Ross ........................... -- -- -- --
Executive officers and directors as a group
(15 persons) ............................ 7,317,448 100 7,317,448 65.2
Other owners of 5% or more of our
outstanding common stock: .................
Resource America(4) ....................... 6,591,663 100 6,591,663 58.8
</TABLE>
- ------------
* Less than 1%
(1) The address of each person is c/o Fidelity Leasing, Inc., 1255 Wrights
Lane, West Chester, Pennsylvania 19380, except that the address for
Messrs. Cohen and Cohen is c/o Resource America, Inc., 1521 Locust Street,
Philadelphia, Pennsylvania 19102.
(2) Currently exercisable options. Messrs. Bernstein, DeMent, Ellis and English
intend to exercise their options before the closing of this offering.
(3) The amount beneficially owned by Messrs. Cohen and Cohen reflects 6,591,663
shares owned by Resource America, of which they are directors and
executive officers; it also includes receipt by Resource America of
280,496 shares before the closing of this offering. Please see
"Capitalization" for an explanation of these additional shares.
(4) The address of Resource America is 1521 Locust Street, Philadelphia,
Pennsylvania 19102.
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 41,000,000 shares of capital stock, consisting
of 40,000,000 shares of common stock, no par value, and 1,000,000 shares of
preferred stock, no par value. As of September 15, 1999, there were 6,311,167
shares of common stock outstanding and no shares of preferred stock
outstanding.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a shareholder vote but do not have
cumulative voting rights. Holders of common stock are entitled to share in all
dividends and other distributions in cash, stock or property that our Board of
Directors, in its discretion,
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declares from legally available funds. In any liquidation, each outstanding
share entitles its holder to participate pro rata in the assets that remain
after we pay our liabilities. Shareholders have no preemptive or other rights
to subscribe for or purchase additional shares of common stock, nor are there
any redemption or sinking fund provisions that relate to the common stock. All
outstanding shares of common stock are, and the shares underlying all warrants
and options will be, validly issued, fully paid, and nonassessable at the time
we issue them.
Preferred Stock
Preferred stock may be issued from time to time in one or more series and
our Board of Directors, without further approval of the shareholders, is
authorized to fix the dividend rights, conversion rights, voting rights,
redemption rights, liquidation preferences, sinking funds and any other rights,
preferences, privileges and restrictions applicable to each such series of
preferred stock. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could,
among other things, adversely affect the voting power of the holders of common
stock and, under certain circumstances, make it more difficult for a third
party to gain control of us. We have no current plans to issue preferred stock.
Anti-takeover Provisions of Pennsylvania Law
As a Pennsylvania corporation, we are governed by the Pennsylvania
Business Corporation Law. The Business Corporation Law contains several
provisions regulating fundamental corporate transactions that are applicable to
us which may have an anti-takeover effect, including provisions:
o preventing shareholders from calling a shareholders' meeting, except for
"interested" shareholders, who are generally defined as shareholders
owning at least 20% of our common stock;
o restricting mergers or other business combinations with an interested
shareholder;
o requiring interested shareholders, upon demand from another shareholder,
to purchase the other shareholder's shares at fair value;
o restricting voting rights of the holder of "control shares," generally
shares with 20%, 331/3% or 50% of a company's voting power, depending
upon the voting rights being restricted;
o requiring a "controlling person," generally a person who owns or
discloses that he is seeking 20% or more of a company's voting interest
to disgorge any profit made upon resale of such person's shares within 18
months of becoming a controlling person; and
o permitting the adoption of certain provisions that may have an
anti-takeover effect, such as a classified or "staggered" board of
directors and, under certain circumstances, treating a class of
shareholders designated by the board of directors differently from the
treatment accorded other shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Furthermore, due to
contractual and legal restrictions on resale, only a limited number of shares
will be available for sale shortly after this offering. After these
restrictions lapse, sales of substantial amounts of our common stock in the
public market could adversely affect the prevailing market price and our
ability to raise equity capital.
Upon completion of this offering, we will have 11,217,448 outstanding
shares of common stock. Of these shares, the 3,900,000 shares sold in the
offering, plus any shares issued upon exercise of the underwriters'
over-allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 of the Securities Act.
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The remaining 7,317,448 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144. Restricted shares may be sold in
the public market only if registered with the SEC or if they qualify for an
exemption from registration under Rule 144, Rule 144(k) or Rule 701 of the
Securities Act, all of which are summarized below. Sales of the restricted
shares in the public market, or the availability of shares for sale, could
adversely affect the market price of our common stock.
Resource America, our principal shareholder, and each of our officers,
directors and employees who own our stock or options to purchase our stock have
entered agreements in which they have agreed that they will not, without the
prior written consent of BancBoston Robertson Stephens Inc., offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of their
shares of our common stock for a period of 180 days following the effective
date of the registration statement filed pursuant to this offering. These
agreements are often referred to as lock-up agreements. Because of these
contractual restrictions, shares subject to lock-up agreements may not be sold
until such lock-up agreements expire or are waived by BancBoston Robertson
Stephens Inc. Taking into account the lock-up agreements, and assuming
BancBoston Robertson Stephens Inc. does not release any of the parties from
these agreements, the following shares will be eligible for sale in the public
market at the following time:
o beginning on the effective date, only the shares sold in the offering
will be immediately available for sale in the public market;
o beginning 180 days after effective date, approximately ________ shares
will be eligible for sale; of these ___ shares--all of which are
beneficially owned by Resource America--are subject to the restrictions
of Rule 144; and
o an additional ________ shares will be eligible for sale pursuant to Rule
144 after ______ 2000.
Under Rule 144, the number of shares that may be sold by our affiliates is
subject to volume restrictions. In general, under Rule 144, and beginning after
the expiration of the lock-up agreements, a person who has beneficially owned
restricted shares, including shares that are aggregated to such person or
persons, for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o one percent of the number of shares of our common stock then outstanding,
which will equal approximately ________ shares immediately after this
offering; or
o the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
In order to sell shares under Rule 144, the selling shareholder must comply
with manner of sale provisions and notice requirements and current public
information about us must be available.
Under Rule 144(k), a person who was not an affiliate of ours during the
three months preceding a sale and who beneficially owned the shares proposed to
be sold for at least two years would be entitled to sell his or her shares
without complying with the manner of sale, public information, number of shares
limitation or notice provisions of Rule 144.
As part of the lock-up agreements, our officers, directors and employees
holding common stock or stock options may not sell shares acquired upon
exercise of their options until 180 days after the effective date. Beginning
180 days after the effective date, any person who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may
sell their shares in reliance on Rule 144 without having to comply with the
holding period, public information, number of shares limitation or notice
provisions of Rule 144. In addition, we intend to file one or more registration
statements under the Securities Act as promptly as possible after the effective
date to register shares to be issued under our stock option plan. As a result,
any options exercised under our stock option plan or any other benefit plan
after the effectiveness of a registration statement will also be freely
tradable in the public market, unless the shares are held by affiliates
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<PAGE>
of ours. Shares held by our affiliates will still be subject to the number of
shares limitation, manner of sale, notice and public information requirements
of Rule 144 unless the shares may otherwise be sold under Rule 701. As of July
31, 1999, there were outstanding options for the purchase of 1,045,550 shares,
730,868 of which were exercisable. Messrs. Bernstein, DeMent, Ellis and English
intend to exercise options and purchase an aggregate of 725,785 shares before
the closing of this offering. See "Risk Factors--Purchasers in this offering
will immediately experience substantial dilution in net tangible book value"
and "Management--Executive Officer Compensation."
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Friedman, Billings, Ramsey & Co., Inc.,
U.S. Bancorp Piper Jaffray Inc. and First Union Capital Markets Corp., have
severally agreed with us, subject to the terms and conditions set forth in the
underwriting agreement, to purchase from us the number of shares of common
stock set forth opposite their names below. The underwriters are committed to
purchase and pay for all such shares if any are purchased.
Underwriter Number of Shares
- -------------------------------------------------------- -----------------
BancBoston Robertson Stephens Inc. ..............
Friedman, Billings, Ramsey & Co., Inc. ..........
U.S. Bancorp Piper Jaffray Inc. .................
First Union Capital Markets Corp. ...............
Total ........................................
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain securities dealers at such
price less a discount not in excess of $[______] per share. Those securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at the public offering price less a discount not in excess of
$_______ per share. The underwriters have advised us that they do not expect
sales to discretionary accounts to exceed five percent of the total number of
shares of common stock offered. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and other
selling terms. The shares of common stock are offered by the underwriters as
stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Qualified Independent Underwriter. Because it is anticipated that more than
10% of the proceeds from the sale of our common stock, not including
underwriting compensation, may be received by First Union National Bank in
connection with the public offering, and First Union National Bank is an
affiliate of First Union Capital Markets Corp., a member of the NASD and one of
the underwriters, the offering is being conducted pursuant to Rule 2710(c)(8) of
the NASD. In accordance with such rule, BancBoston Robertson Stephens Inc. has
agreed to act as a qualified independent underwriter pursuant to the
requirements of Rule 2720(c)(3) of the NASD. In connection with Rule 2720(c)(3),
the initial public offering price of our common stock will be set at a price
which is no higher than that recommended by BancBoston Robertson Stephens Inc.
as a qualified independent underwriter. Moreover, BancBoston Robertson Stephens
Inc., as a qualified independent underwriter in connection with the offering,
has performed due diligence investigations and reviewed and participated in the
preparation of this prospectus.
Option to Purchase Additional Shares. We have granted the underwriters an
option, exercisable during the 30-day period after the date of this prospectus,
to purchase up to 585,000 additional shares of common stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus. To the extent that the underwriters exercise
this option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above table
represents as a percentage of the shares offered in this prospectus. If
purchased, such additional shares will be sold by the underwriters on the
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same terms as those in which the shares of common stock offered in this
prospectus are being sold. We will be obligated, pursuant to the option, to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the shares of common stock offered hereby. If such
option is exercised in full, the total public offering price, underwriting
discounts and commissions and proceeds to us will be $____________,
$______________and $___________, respectively.
The following table summarizes the compensation we will pay the
underwriters;, assuming both no exercise and full exercise of the underwriters'
over-allotment option:
<TABLE>
<CAPTION>
Total
----------------------------------
Without With
Per Share Over-allotment Over-allotment
----------- ---------------- ---------------
<S> <C> <C> <C>
Underwriting discounts and commissions .........
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $2,100,000, consisting of $114,336 for SEC and NASD filing fees,
and an estimated $100,000 in printing fees, $775,000 in legal and accounting
fees, $10,000 in transfer agent fees and $1,100,000 in miscellaneous costs and
expenses.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities under the
Securities Act and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement, providing in general
indemnification to the underwriters for any claims relating to the disclosure
in this prospectus, unless such disclosure was provided to us by the
underwriters specifically for use in this prospectus.
Lock-Up Agreements. Pursuant to the terms of lock-up agreements, each of
our officers and directors and other holders of shares of our common stock have
agreed with the representatives of the underwriters, for a period of 180 days
after the date of this prospectus, subject to certain exceptions, not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of common stock, or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. There are no existing agreements between the representatives of the
underwriters and any of our shareholders providing consent to the sale of
shares prior to the expiration of the 180-day -lock-up period.
Future Sales. In addition, we have agreed that we will not, until 180 days
after the date of this prospectus, without the prior written consent of
BancBoston Robertson Stephens Inc., subject to certain exceptions, (1) consent
to the disposition of any shares held by shareholders subject to agreements not
to sell shares prior to the expiration of the 180-day period or (2) issue,
sell, contract to sell or otherwise dispose of any shares of common stock, any
options or warrants to purchase shares of common stock or any securities
convertible into, exercisable for or exchangeable for shares of common stock
other than our sale of shares in this offering, the issuance of shares of
common stock upon the exercise of outstanding options and warrants and the
granting of options to purchase shares under existing stock option and
incentive plans, provided such options do not vest prior to the expiration of
the 180-day lock-up period. See "Shares Eligible for Future Sale."
Offer to Certain Employees. At our request, the underwriters have reserved
5% of the shares of common stock to be issued by us and offered hereby for
sale, at the initial offering price to our directors, officers, employees,
business associates, and related persons. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus.
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Listing. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "FLCO."
No Prior Public Market. There has been no public market for our common
stock before this offering. Consequently, the public offering price for the
common stock offered by this prospectus will be determined through negotiations
among us and the representatives of the underwriters. Among the factors to be
considered in such negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to our company, estimates of our
business potential, the present state of our development and other factors
deemed relevant.
Stabilization. The representatives of the underwriters have advised us
that, pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price
of the shares of common stock at a level above that which might otherwise
prevail in the open market. A "stabilizing bid" is a bid for or the purchase of
the shares of common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the shares of common stock. A "syndicate
covering transaction" is the bid for or the purchase of the shares of common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the shares of common stock originally sold by such underwriter
or syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter
or syndicate member. The representatives have advised us that such transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of our common stock offered by this prospectus
will be passed upon for us by Ledgewood Law Firm, P.C., Philadelphia,
Pennsylvania. Legal matters with respect to the offering of our common stock
will be passed upon for the underwriters by Sidley & Austin, New York, New
York.
EXPERTS
Our consolidated financial statements as of September 30, 1997 and 1998 and
for the period from March 4, 1996 (inception) to September 30, 1996 and for each
of the two years in the period ended September 30, 1998, and the consolidated
financial statements of JLA Credit and subsidiaries as of December 31, 1998 and
for the year then ended included in this prospectus have been so included in
reliance upon the reports of Grant Thorton LLP, independent certified public
accountants, upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of JLA Credit as of December 31,
1996 and 1997 and for each of the two years in the period ended December 31,
1997 included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect to
those financial statements, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules to the registration statement. For further information about us
and the common stock offered hereby, please refer to the registration statement
and the exhibits and schedules filed as part of it. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily
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complete and are qualified by reference to each such contract or other document
which is filed as an exhibit to the registration statement. You can inspect the
registration statement, including its exhibits and schedules, without charge at
the SEC's principal office in Washington, D.C., and you can obtain copies of
all or any part of it from the Public Reference Room of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the SEC's regional offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and at 7 World Trade Center, 13th Floor, New York, New York 10048 after
payment of fees prescribed by the SEC. For information on the operation of the
Public Reference Room, call the SEC at 1-800-SEC-0330. The SEC also maintains a
web site which provides online access to reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC at the address http://www.sec.gov. Before this offering, we were
not subject to the reporting requirements of the Securities Exchange Act of
1934, as amended.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Fidelity Leasing:
Report of Independent Certified Public Accountants ....................................... F-2
Consolidated Balance Sheet at September 30, 1997 and 1998 and June 30, 1999 .............. F-3
Consolidated Statements of Operations for the Years ended September 30, 1996, 1997 and
1998 and for the Nine Months Ended June 30, 1998 and 1999 ................................ F-4
Consolidated Statements of Comprehensive Income for Years ended September 30, 1996, 1997
and 1998 and for the Nine Months Ended June 30, 1998 and 1999 ............................ F-5
Consolidated Statements of Changes in Stockholder's Equity from March 4, 1996 (Inception)
to June 30, 1999 ......................................................................... F-6
Consolidated Statements of Cash Flows for the Years ended September 30, 1996, 1997 and
1998 and for the Nine Months Ended June 30, 1998 and 1999 ................................ F-7
Notes to Consolidated Financial Statements ............................................... F-8
JLA Credit Corporation and Subsidiaries:
Report of Independent Certified Public Accounts--1999 .................................... F-19
Consolidated Balance Sheets at December 31, 1998 ......................................... F-20
Consolidated Statements of Earnings and Retained Earnings for the Year ended December 31, F-21
1998.
Consolidated Statements of Cash Flows for the year ended December 31, 1998 ............... F-22
Notes to Consolidated Financial Statements ............................................... F-23
Report of Independent Certified Public Accountants--1998 ................................. F-29
Consolidated Balance Sheets at December 31, 1996 and 1997 ................................ F-30
Consolidated Statements of Operations and Retained Earnings for the Years ended December
31, 1996 and 1997 ........................................................................ F-31
Consolidated Statements of Cash Flows for the Years ended December 31, 1996 and 1997 ..... F-32
Notes to Consolidated Financial Statements ............................................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholder and Board of Directors
FIDELITY LEASING, INC.
We have audited the accompanying consolidated balance sheets of Fidelity
Leasing, Inc. and Subsidiaries as of September 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholder's equity, and cash
flows for the years ended September 30, 1998 and 1997 for the period March 4,
1996 (inception) through September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fidelity
Leasing, Inc. and Subsidiaries as of September 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
ended September 30, 1998 and 1997 for the period March 4, 1996 (inception)
through September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
---------------------
Grant Thornton LLP
Cleveland, Ohio
December 7, 1998
F-2
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Resource Leasing, Inc.)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, June 30,
----------------------- ------------
1997 1998 1999
---------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ..................................... $ 1,970 $ 3,680 $ 16,510
Investments in leases and notes receivable (less allowance
for possible losses of $248, $1,602, and $9,700).............. 8,153 24,978 356,446
Prepaid expenses and other assets ............................. 597 2,238 7,241
Furniture and equipment (less accumulated depreciation
of $156, $410, and $988)...................................... 829 1,373 3,950
Goodwill (less accumulated amortization of $512)............... -- -- 18,072
-------- -------- --------
Total assets .............................................. $ 11,549 $ 32,269 $402,219
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Debt:
Warehouse debt ............................................... $ -- $ -- $ 6,900
Nonrecourse debt ............................................. -- -- 294,056
Affiliate debt ............................................... 7,418 23,982 65,270
Other debt ................................................... -- -- 12,693
Other liabilities:
Accounts payable and other accrued liabilities ............... 588 879 12,367
Security deposits on leased equipment ........................ 751 2,055 4,262
Deferred income .............................................. 54 37 --
Estimated state income taxes ................................. 73 245 479
-------- -------- --------
Total liabilities ......................................... 8,884 27,198 396,027
Commitments and contingencies ................................. -- -- --
Stockholder's equity:
Preferred stock, no par value: 1,000,000 shares
authorized ................................................. -- -- --
Common stock, no par value: 40,000,000 shares
authorized 6,311,167 shares issued and outstanding ......... 2,000 2,000 2,000
Accumulated other comprehensive income ....................... -- -- 36
Retained earnings ............................................ 665 3,071 4,156
-------- -------- --------
Total stockholder's equity ................................ 2,665 5,071 6,192
-------- -------- --------
Total liabilities and stockholder's equity ................ $ 11,549 $ 32,269 $402,219
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Resource Leasing, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended Nine Months Ended
September 30, September 30, June 30,
--------------- ------------------------- ------------------------
1996 1997 1998 1998 1999
--------------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income ................................... $ 7 $ 859 $ 2,525 $ 1,766 $18,195
Other income ...................................... -- 221 956 607 2,458
Gains on sales of leases and terminations ......... -- 3,710 7,598 5,514 5,609
------- ------- -------- ------- -------
Total revenues ................................. 7 4,790 11,079 7,887 26,262
Costs and expenses:
Provision for possible losses ..................... 7 253 1,422 791 2,497
Depreciation and amortization ..................... 36 232 425 307 1,486
Selling general and administrative ................ 411 2,050 3,337 2,379 8,435
------- ------- -------- ------- -------
454 2,535 5,184 3,477 12,418
Interest expense:
Affiliate ......................................... -- 457 1,344 922 2,971
Other ............................................. -- 233 345 309 8,131
------- ------- -------- ------- -------
Total interest expense ......................... -- 690 1,689 1,231 11,102
------- ------- -------- ------- -------
Total expenses ................................. 454 3,225 6,873 4,708 23,520
------- ------- -------- ------- -------
Income (loss) before provision (benefit) for
income taxes and cumulative effect of a
change in accounting principle .................... (447) 1,565 4,206 3,179 2,742
Provision (benefit) for income taxes ............... (152) 605 1,800 1,360 1,244
------- ------- -------- ------- -------
Income (loss) before cumulative effect of a
change in accounting principle .................... (295) 960 2,406 1,819 1,498
Cumulative effect of a change in accounting
principle (Note 3) ................................ -- -- -- -- (413)
------- ------- -------- ------- -------
Net income (loss) .................................. $ (295) $ 960 $ 2,406 $ 1,819 $ 1,085
======= ======= ======== ======= =======
Earning (loss) per common share:
Basic:
Income (loss) before cumulative effect of
a change in accounting principle ............... $ (0.05) $ 0.15 $ 0.38 $ 0.29 $ 0.24
======= ======= ======== ======= =======
Net income (loss) ............................... $ (0.05) $ 0.15 $ 0.38 $ 0.29 $ 0.17
======= ======= ======== ======= =======
Weighted average shares outstanding ............. 6,311 6,311 6,311 6,311 6,311
======= ======= ======== ======= =======
Diluted:
Income (loss) before cumulative effect of
a change in accounting principle ............... $ (0.05) $ 0.14 $ 0.33 $ 0.25 $ 0.21
======= ======= ======== ======= =======
Net income (loss) ............................... $ (0.05) $ 0.14 $ 0.33 $ 0.25 $ 0.15
======= ======= ======== ======= =======
Weighted average shares ......................... 6,356 6,672 7,242 7,240 7,236
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of Resource Leasing, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended Nine Months Ended
September 30, September 30, June 30,
--------------- --------------------- -----------------------
1996 1997 1998 1998 1999
--------------- -------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Income (Loss) ....................... $ (295) $ 960 $ 2,406 $ 1,819 $ 1,085
Other Comprehensive Income:
Foreign currency translation adjustment,
net of taxes of $24 .................. -- -- -- -- 36
------- ----- ------- ------- -------
Comprehensive Income (Loss) ............ $ (295) $ 960 $ 2,406 $ 1,819 $ 1,121
======= ===== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Resource Leasing, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
PERIODS FROM MARCH 4, 1996 (Inception) TO JUNE 30, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other Retained Total
Common Stock
------------------------- Comprehensive Earnings Stockholder's
Shares Amount Income (Deficit) Equity
------------ ---------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at March 4, 1996 ..................... -- $ -- $ -- $ -- $ --
Common stock issued ......................... 6,311,167 2,000 -- -- 2,000
Net loss .................................... -- -- -- (295) (295)
--------- ------- ---- ------ -------
Balance at September 30, 1996 ................ 6,311,167 2,000 -- (295) 1,705
Net income .................................. -- -- -- 960 960
--------- ------- ---- ------ -------
Balance at September 30, 1997 ................ 6,311,167 2,000 -- 665 2,665
Net income .................................. -- -- -- 2,406 2,406
--------- ------- ---- ------ -------
Balance at September 30, 1998 ................ 6,311,167 2,000 -- 3,071 5,071
Net income (unaudited) ...................... -- -- -- 1,085 1,085
Foreign currency translation adjustment
(unaudited) ............................... -- -- 36 -- 36
--------- ------- ---- ------ -------
Balance at June 30, 1999 (unaudited) ......... 6,311,167 $ 2,000 $ 36 $4,156 $ 6,192
========= ======= ==== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Resource Leasing, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended Nine Months
September 30, September 30, Ended June 30,
--------------- ------------------------- ---------------------------
1996 1997 1998 1998 1999
--------------- ----------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................... $ (295) $ 960 $ 2,406 $ 1,819 $ 1,085
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 36 232 425 307 1,486
Amortization of debt issue costs ................. -- -- -- -- 55
Provision for possible losses .................... 7 253 1,422 791 2,497
Gains on sales of leases and terminations ........ -- (3,710) (7,598) (5,514) (5,037)
Cumulative effect of change in accounting
principle ....................................... -- -- -- -- 413
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and
other assets .................................... (97) (433) (1,230) (962) 470
Increase in accounts payable and other
liabilities ..................................... 93 495 514 450 5,126
Increase in security deposits on leased
equipment ....................................... 11 739 1,305 953 1,908
(Decrease) increase in deferred income ........... -- 54 (17) -- --
Increase in state income taxes ................... -- 73 171 1,361 234
------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities .................................... (245) (1,337) (2,602) (795) 8,237
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash acquired in business acquisition ........... -- -- -- -- 17,221
Capital expenditures ................................ (506) (479) (798) (432) (2,357)
Cost of equipment acquired for lease ................ (732) (34,568) (92,648) (59,535) (204,328)
Principal payments on (additions to) notes
secured by equipment leases ........................ -- 8,514 73 (279) (94)
Proceeds from sales of leases ....................... -- 20,624 78,030 50,522 100,256
Payments received in excess of revenue
recognized on leases ............................... (6) 1,394 3,539 2,165 62,828
Decrease (increase) in other assets ................. (159) 83 (376) -- (125)
--------- --------- --------- --------- ----------
Net cash used in investing activities ........... (1,403) (4,432) (12,180) (7,559) (26,599)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock ............................ 2,000 -- -- -- --
Borrowings under credit facilities .................. -- 16,900 33,800 27,000 121,020
Principal payments on credit facilities ............. -- (16,900) (33,800) (27,000) (114,120)
Increase in borrowings -- affiliate ................. -- 7,419 16,563 12,613 6,145
(Increase) decrease in other assets ................. -- (32) (71) -- (441)
Securitization debt repayments ...................... -- -- -- -- (24,328)
Securitization debt borrowings ...................... -- -- -- -- 42,916
--------- --------- --------- --------- ----------
Net cash provided by financing activities........ 2,000 7,387 16,492 12,613 31,192
--------- --------- --------- --------- ----------
Increase in cash and cash equivalents ............... 352 1,618 1,710 4,259 12,830
Cash and cash equivalents, beginning of period ...... -- 352 1,970 1,970 3,680
--------- --------- --------- --------- ----------
Cash and cash equivalents, end of period ......... $ 352 $ 1,970 $ 3,680 $ 6,229 $ 16,510
========= ========= ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Fidelity Leasing, Inc. (the "Company" or "FLI") is an equipment finance
company which leases technology equipment to the small business market. FLI was
incorporated in Pennsylvania on March 4, 1996 and is a wholly owned subsidiary
of Resource Leasing, Inc. ("RLI"), which is a wholly owned subsidiary of
Resource America, Inc. ("RAI"). RAI is a publicly traded company (trading under
the symbol REXI on the NASDAQ system) operating in the real estate finance,
leasing and energy business sectors. On February 4, 1999, the Company acquired
JLA Credit Corporation ("JLA") another entity involved in the "small ticket"
equipment leasing business (see Note 13). FLI specializes in financing
equipment in the communications technology, industrial technology, information
technology and office automation sectors. FLI provides leasing services by
forming marketing alliances with manufacturers, distributors and resellers of
equipment technologies and with banks that do not have internal lease financing
programs for small business customers.
Equipment leases are subject to the risk of default in payment by lessees.
The Company seeks to control its credit risk through the use of credit scoring
systems in evaluating the credit risk of applicants.
The Company's ability to maintain and build its leasing business is
dependent on its ability to obtain sufficient financing. A warehouse credit
facility, borrowings from RAI, commercial paper ("CP") conduits, term
securitized funding facilities, and proceeds from the sales of equipment leases
have historically provided the working capital needed to fund operations.
Through June 30, 1999, the Company has securitized substantial portions of
its leasing portfolio on a servicing retained basis. The ability to continue to
complete securitization and other structured finance transactions depends upon
a number of factors, including general conditions in the credit markets, the
size and liquidity of the market for types of receivable-backed securities
issued or placed in securitizations sponsored by the Company and the overall
performance of the Company's lease portfolio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
All share and per share data have been adjusted retroactively to reflect
the stock and reverse stock splits discussed in Note 14. All footnote
information and tables referring to the year ended September 30, 1996 relate to
the period March 4, 1996 (inception) through September 30, 1996. All footnote
information and tables referring to information as of June 30, 1999 or for the
nine month periods ended June 30, 1999 and 1998 are unaudited.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions have
been eliminated.
Use of Estimates
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include the estimated residual values,
the allowance for possible losses and impairment of long-lived assets discussed
below. Actual results could differ from those estimates.
Residual Values. Unguaranteed residual value represents the estimated
amount to be received at lease termination from lease extensions or disposition
of the leased equipment. Because of the relatively short time since FLI's
inception, its experience with regard to the realization of residuals is
limited. Accordingly, the
F-8
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
estimates of residual values are to a substantial degree based upon available
industry data and senior management's prior experience with respect to
comparable equipment. The estimated residual values are recorded as investments
in leases on a net present value basis. Residual values are reviewed
periodically to determine if the current estimate of the equipment's fair
market value appears to be below its recorded estimate. If required, residual
values are adjusted downward to reflect adjusted estimates of fair market
values. Generally accepted accounting principles do not permit upward
adjustments to residual values.
Allowance for Possible Losses. The Company maintains an allowance for
possible losses in connection with payments due under leases held in the
Company's portfolio, its retained interest in leases securitized or sold and
its recourse obligation for non-performing leases sold. The allowance is
determined by management's estimate of future uncollectable lease contracts,
based on factors including the Company's historical loss experience, an
analysis of contractual delinquencies, economic conditions and trends, industry
statistics and lease portfolio (including leases under the Company's
management) characteristics. The Company's policy is to charge off to the
allowance those leases which are in default and for which management has
determined the probability of collection to be remote. Recoveries on leases
previously charged off are restored to the allowance.
Impairment of Long-Lived Assets. The Company reviews its long-lived assets
for impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. If it is determined that an asset's
estimated future cash flows will not be sufficient to recover its carrying
amount, an impairment charge will be recorded to reduce the carrying amount for
that asset to its estimated fair value.
Revenue Recognition
Direct Financing Leases. The Company's lease transactions are classified
as direct financing leases (as distinguished from sales-type or operating
leases). Such leases transfer substantially all benefits and risks of equipment
ownership to the customer. A lease is a direct financing lease if the
creditworthiness of the customer and the collectibility of lease payments are
reasonably certain and it meets one of the following criteria: (i) the lease
transfers ownership of the equipment to the customer at the end of the lease
term; (ii) the lease contains a bargain purchase option: (iii) the lease term
at inception is at least 75% of the estimated economic life of the leased
equipment: or (iv) the present value of the minimum lease payments is at least
90% of the fair market value of the leased equipment at inception of the lease.
The Company's investments in leases consists of the sum of the total future
minimum lease payments receivable, and the estimated unguaranteed residual
value of leased equipment, less unearned lease income. Unearned lease income,
which is recognized as revenue over the term of the lease by the effective
interest method, represents the excess of the total future minimum lease
payments plus the estimated unguaranteed residual value expected to be realized
at the end of the lease term over the cost of the related equipment. The
Company discontinues the recognition of revenue for leases for which payments
are more than 180 days past due. Initial direct costs incurred in consummating
a lease are capitalized as part of the investments in leases and amortized over
the lease term as a reduction in the yield.
Securitization of Leases. The Company sells a large percentage of the
leases it originates through securitization transactions and other structured
finance techniques. In a securitization transaction, the Company sells and
transfers a pool of leases to a bankruptcy remote entity (an "Intermediate
Purchaser"). Typically, the Intermediate Purchaser in turn simultaneously
transfers its interest in the leases to one or more investors in return for
cash equal to a percentage of the aggregate present value of the finance lease
receivables being sold. The intermediate purchaser typically retains a residual
interest in the pool of leases transferred to investors consisting of the
excess of collections on the leases and related equipment over the amount of
F-9
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
collections required by investors to recover the consideration paid for the
transfer plus an agreed upon rate of interest. The consideration received by
the Company for each pool of leases sold consists of the cash received by the
Intermediate Purchaser from the financial institution plus an interest-bearing
note from the Intermediate Purchaser.
Through March 1998, the Company's lease sales included residual values. In
June 1998, the Company established a new CP conduit facility under which it
began retaining the residual interests in the securitized leases on its balance
sheet for financial reporting purposes. The Company anticipates that it will
derive a significant portion of any leasing profits realized from residuals.
Currently, repayment of notes received by the Company from Intermediate
Purchasers in earlier sales depends, to a significant extent, on realization of
residuals. The Company anticipates that residuals will principally involve the
original end-users; however, equipment not sold or re-leased to end-users will
be disposed in the secondary market. While residual realization is generally
higher with original end-users than in the secondary market, the secondary
market (essentially, networks of distributors and dealers in various equipment
categories) is well developed in the product categories the Company currently
pursues and transactions in these product categories have historically resulted
in residual recoveries, on average, equal to the book value of the equipment.
Equipment reacquired by the Company prior to lease termination (through lease
default or otherwise) will be sold in the secondary market.
Gains on the sales of equipment leases for securitizations accounted for
as sales are recorded at the date of sale in the amount by which the sales
price exceeds the carrying value of the underlying lease interests sold.
Subsequent to a sale, the Company has no remaining interest in the pool of the
leases or equipment except for residuals retained on post-March 1998 sales and
security interests retained in the lease pool sold when a note is received as
part of the sale proceeds. Under certain circumstances, the Company may have
recourse obligations to replace non-performing leases in the pool.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consists of repossessed equipment held
for resale stated at the lower of cost or market and deferred financing costs
which are being amortized on a straight line basis over the lives of the
related debt.
Interest Rate Swap Agreements
Interest rate swap agreements are entered into as a means of managing
interest rate risk. Net settlements are accrued over the term of the swap
agreements as an adjustment to interest expense. Swaps under each conduit
facility may be terminated upon consummation of term note securitizations.
Payments or receipts upon termination of the swaps are recognized as an
adjustment of the interest expense over the term of the securitizations
accounted for as financings.
Stock-Based Compensation
The Company has adopted the disclosure only provisions under SFAS No. 123,
"Accounting for Stock Based Compensation." As such, the Company recognizes
compensation expense with respect to stock options granted to employees using
the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25.
Income Taxes
Through the fiscal year ended September 30, 1998, the Company filed a
consolidated Federal income tax return with its ultimate parent, RAI. The
Company will continue to be included in RAI's consolidated return
F-10
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
through the date of the public offering contemplated herein. At that point, RAI
will own less than 80% of the Company's outstanding common stock and,
accordingly, the Company will no longer qualify to be included in RAI's
consolidated return. Through June 30, 1999, the Company has recorded provisions
or benefits for Federal income taxes in an amount equal to the product of its
pre-tax book income and RAI's incremental federal income tax rate. Separate
company state tax returns are filed in those states in which the Company is
registered to do business.
Furniture and Equipment
Furniture and equipment are carried at cost, less accumulated
depreciation. Such assets are depreciated using the straight-line method over
their estimated useful lives (generally five years).
Goodwill
Goodwill, which arose through the acquisition of JLA, represents the
excess of the acquisition cost over the fair value of the net assets of the
business acquired and is being amortized over a period of fifteen years using
the straight line method.
Earnings Per Share
Basic earnings per share are determined by dividing net income by the
weighted average number of common shares outstanding during the period.
Earnings per share - diluted are computed by dividing net income by the sum of
the weighted average number of shares and dilutive potential common shares
issuable during the period. Dilutive potential common shares consist of the
excess of common shares issuable under the terms of various stock option
agreements over the number of such shares that could have been acquired (at the
weighted average price of the Company's Common Stock during the period) with
the proceeds received from the exercise of the options and warrants.
The following table presents the components used in the comparison of net
income (loss) per common share-basic and net income (loss) per common share-
diluted for the periods presented.
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended Nine Months Ended
September 30, September 30, June 30
--------------- -------------------------- -----------------------
1996 1997 1998 1998 1999
--------------- -------- --------------- ---------- ----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss) ............................. $ (295) $ 960 $ 2,406 $ 1,819 $ 1,085
======= ====== ======= ======= =======
Basic weighted average shares outstanding ..... 6,311 6,311 6,311 6,311 6,311
Dilutive effective of stock option and award
plans ........................................ 45 361 931 929 925
------- ------ ------- ------- -------
Diluted weighted average shares ............... 6,356 6,672 7,242 7,240 7,236
======= ====== ======= ======= =======
</TABLE>
Supplemental Disclosure of Cash Flow Information
The Company considers temporary investments with maturity at the date of
acquisition of 90 days or less to be cash equivalents.
Information for nine months ended June 30, 1999 and 1998 and the years
ended September 30, 1998, 1997, and 1996 is as follows:
F-11
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended Nine Months Ended
September 30, September 30, June 30,
--------------- ---------------------------- --------------------
1996 1997 1998 1998 1999
--------------- ---------- --------------- -------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash paid during the period for: .........
Interest .............................. $-- $ 628 $ 1,672 $ 254 $7,403
=== ======= ======= ====== ======
Income taxes .......................... $-- $ -- $ 123 $ 283 $ 203
--- ------- ------- ------ ------
Non-cash activities: .....................
Sales and replacements for leases in
exchange for notes ................... $-- $13,275 $ 9,277 $1,159 $ 160
=== ======= ======= ====== ======
</TABLE>
3. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In fiscal 1998, the AICPA issued Statement of Position 98-5, Reporting on
the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
Company elected to adopt the provisions of SOP 98-5 effective October 1, 1998,
and accordingly start up costs of $753,000 ($413,000 net of income tax) which
had been capitalized at September 30, 1998 were charged to operations on
October 1, 1998 and are reflected in the consolidated statement of operations
for the nine months ended June 30, 1999 as a cumulative effect of a change in
accounting principle.
4. NEW ACCOUNTING STANDARDS
Effective October 1, 1998, the Company became subject to the provisions of
Statements of Financial Accounting Standards No. 130 and No. 131 (SFAS 130 and
SFAS 131).
SFAS 130, "Reporting Comprehensive Income" requires disclosure of
comprehensive income and its components. Comprehensive income is defined as
changes in stockholder's equity from nonowner sources and, for the Company,
includes net income and foreign currency translation adjustments.
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," prescribes the manner in which an entity determines the operating
segments it must report and also requires the disclosure of additional segment
information. The Company operates in only one business segment and, therefore,
no segment disclosure is required.
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging. SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of
operations and cash flows will be dependent on the extent of future hedging
activities and fluctuations in interest rates.
5. UNINSURED BANK BALANCES
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of periodic temporary
investments of excess cash. The Company places its temporary excess cash
investments in high quality short-term money market instruments at high quality
institutions. Portions of these instruments are in excess of the Federal
Deposit Insurance Corporation ("FDIC") limit. At June 30, 1999, the Company had
deposits of $20.8 million in nine institutions of which $20.0 million is over
the FDIC limit. No losses have been experienced on such investments.
F-12
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value of each class of financial instruments for which it
is practicable to estimate fair value.
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, including current maturities, the fair value
of the Company's long-term debt approximates historically recorded cost since
interest rates approximate market.
Based upon available market information and appropriate valuation methods,
the Company believes the carrying cost of investments in leases and notes
receivable approximates fair value.
7. INVESTMENTS IN LEASES AND NOTES RECEIVABLE
Components of the investments in leases and notes receivable as of
September 30, 1997 and 1998 and June 30, 1999, as well as future minimum lease
payments receivable, including residual values, are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
---------------------------- ------------
1997 1998 1999
---------- --------------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Total future minimum lease payments
receivable ....................................... $ 4,186 $ 10,011 $ 394,392
Initial direct costs, net of amortization ......... 75 153 3,727
Unguaranteed residual ............................. 310 6,338 24,878
Unearned lease income ............................. (933) (4,061) (72,018)
------- -------- ---------
Investments in leases, net ..................... 3,638 12,441 350,979
Notes receivable ............................... 4,763 14,139 15,167
Allowance for possible losses .................. (248) (1,602) (9,700)
------- -------- ---------
Investments in leases and notes
receivable .................................... $ 8,153 $ 24,978 $ 356,446
======= ======== =========
</TABLE>
The future minimum lease payments receivable for the 12 months ending June
30 for the next five succeeding periods are as follows: 2000 - $148.2 million;
2001 - $113.9 million; 2002 - $73.4 million; 2003 - $38.0 million; and 2004 -
$15.0 million.
The amount of unguaranteed residual value actually realized at contract
termination will depend on the then fair market value of the related equipment
and may vary from the recorded estimate. Residual values are reviewed from time
to time to determine if the equipment's fair market value is below its recorded
value (see Note 2).
Certain of the leases include options to purchase the underlying equipment
at the end of the lease term at fair value or the stated residual which is not
less than the book value at termination.
F-13
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. INVESTMENTS IN LEASES AND NOTES RECEIVABLE -- (Continued)
A summary of the activity in the Company's allowance for possible losses
in connection with payments due under leases held in the Company's portfolio,
its retained interest in leases securitized or sold, and its replacement
obligation for non-performing leases sold for the nine months ended June 30,
1999 and for the years ended and September 30, 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
September 30, June 30,
------------------------------ ------------
1996 1997 1998 1999
------ -------- ---------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning period .............. $-- $ 7 $ 248 $ 1,602
Balance of acquired subsidiary ......... -- -- -- 7,200
Provision for possible losses .......... 7 253 1,422 2,497
Write-offs ............................. -- (12) (68) (1,599)
--- ----- ------ --------
Balance, end of period .............. $ 7 $ 248 $1,602 $ 9,700
=== ===== ====== ========
</TABLE>
The types of equipment financed consist of the following in the
approximate percentages shown below:
September 30, June 30,
------------------- ------------
1997 1998 1999
-------- -------- ------------
(unaudited)
Communications technology ......... 38% 38% 16%
Industrial technology ............. -- -- 23
Information technology ............ 8 11 26
Office automation ................. 52 50 28
Other ............................. 2 1 7
-- -- --
Total .......................... 100% 100% 100%
=== === ===
The Company's leasing transactions with customers located in California
represents approximately 31% of the minimum lease balance, as of June 30, 1999.
There was no other geographical concentration greater than 10%. In addition, no
customer balance exceeded 10% of the minimum lease balance.
The net investment in non-earning receivables which are included in the
Company's direct financing lease portfolio was approximately $3.2 million at
June 30, 1999.
Sales of Leases
Commencing in fiscal 1997, the Company began to sell leases on a servicing
retained basis for a combination of cash and notes as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, June 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Proceeds: .........................................
Cash ........................................... $ 20,624 $ 78,030 $ 50,498 $ 100,256
Notes .......................................... 13,275 7,956 7,956 --
--------- --------- --------- ---------
33,899 85,986 58,454 100,256
Book value ........................................ (30,189) (78,388) (52,940) (95,183)
--------- --------- --------- ---------
Gains on sales of leases and terminations ......... $ 3,710 $ 7,598 $ 5,514 $ 5,073
========= ========= ========= =========
</TABLE>
F-14
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. INVESTMENTS IN LEASES AND NOTES RECEIVABLE -- (Continued)
The notes accrue interest at 9% per annum. The remaining unpaid balances
on the notes are due and payable at dates ranging from April 1, 2003 through
July 1, 2004.
8. SECURITIZATION PROGRAMS
The Company initially funds the origination of leases from working
capital, warehouse facilities from banks, and borrowings from RAI. From time to
time, depending on market conditions, the Company securitizes the leases in its
portfolio that meet pre-established eligibility criteria by packaging them into
a pool and selling the lease receivables, as described below.
Sales by Assignment. In June and September of 1997, the Company entered
into sales transactions where it sold lease receivables and its interests in
the related equipment and residuals to an unaffiliated special purpose entity,
for an amount of cash equal to 100% of the present value of the lease
receivables and a note equal to 100% of the present value of the estimated
residual interests. These transactions were accounted for as sales for
financial reporting purposes. The special purpose entity resold the lease
receivables to Centre Square Funding Corporation ("Centre Square"), a
commercial paper conduit administered by CoreStates Bank, N.A. (now First
Union). RAI provided a guaranty to Centre Square for payment of a portion of
the lease receivables due under the defaulted leases and for the Company's
performance as servicer. In December 1997, Centre Square sold the lease
receivables to an institutional investor.
CP Conduit Securitization. In December 1997, the Company sold additional
lease receivables and interests in the related equipment and residuals to an
unaffiliated entity on terms similar to those of the June and September 1997
sales, except that it received cash equal to a substantial portion of the
present value of the lease receivables and a promissory note in an amount equal
to the remainder of the present value of the lease receivables and 100% of the
estimated present value of the residual interests. The transaction was
accounted for as a sale for financial reporting purposes. The entity resold the
receivables to a CP conduit administered by First Union National Bank ("First
Union").
In June 1998, the Company established a CP conduit facility for $100.0
million ($125.0 million as amended) with Variable Funding Credit Corp.
("VFCC"), a First Union administered conduit. This facility may be terminated
if lease delinquencies or defaults in the securitized portfolio exceed
specified thresholds. This facility had a 364 day commitment period, which
expired in June 1999. Because assets transferred under this facility were
treated as sales for financial reporting purposes, the Company did not renew
this facility.
In December 1998, the Company entered into a $100.0 million facility with
a CP conduit administered by PNC Bank. The commitment period expires in
December 1999, but is subject to annual renewal. This facility contains
provisions which are substantially similar to the $125.0 million facility. This
facility was recently amended to permit the Company to treat future transfers
of leases made under it as financings for financial reporting purposes.
In February 1999, the Company established a $143.0 million CP conduit
facility with First Union in order to finance the acquisition of JLA. In
connection with this facility, the Company sold a portfolio of JLA originated
lease receivables to a special purpose subsidiary, which pledged the
receivables to the CP conduit. The Company treated this transaction as a
financing for financial reporting purposes. This facility was paid down to $7.6
million, primarily with the proceeds of a term note securitization in June
1999, in which the Company privately placed $158.8 million of fixed rate notes.
As servicer, the Company has the right to prepay the outstanding notes when the
remaining balance of the leases is approximately $23.8 million. This term-note
transaction was accounted for as a financing for financial reporting purposes.
Sales Facilities. In December 1998, the Company entered into agreements
with IBM Credit and IBM Canada that allowed the Company to finance, on a
monthly basis, all of the leases originated under the
F-15
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. SECURITIZATION PROGRAMS -- (Continued)
Company's strategic marketing alliances with IBM Credit and IBM Canada. The
Company formed two special purpose subsidiaries for purposes of these sales,
one for lease originations in the U.S. and the other for lease originations in
Canada. The Company treated these transfers as sales for financial reporting
purposes.
Term Note Securitizations. In June 1997, JLA securitized leases in a $75.0
million private placement of floating rate notes. This transaction has a 20%
optional repurchase feature. In February 1998, JLA securitized leases in a
$125.0 million private placement of fixed and floating rate notes. This
transaction also has a repurchase option. The Company treated both the
securitizations as financings for financial reporting purposes.
Interest Rate Risk and Hedging. The Company's conduit facilities, which
are at variable rates of interest, require the Company to enter into interest
rate swap agreements for the benefit of the purchaser of the leases. Because
the cost of funding under the CP conduit facility is floating and the rental
stream is fixed, an interest rate swap is needed to hedge this risk. Under an
interest rate swap, the related special purpose entity agrees to pay a fixed
rate of interest and receive payment of a floating rate from a counterparty. If
short-term interest rates increase, then the fixed rate of interest the special
purpose entity is paying under the swap will be less than the short-term rate
it is receiving, resulting in a payment to the special purpose entity. This
payment will be used to offset the higher borrowing costs under the commercial
paper borrowings. The interest rate swap has the effect of fixing the interest
rate of the borrowings during the securitization period.
FLI terminates the interest rate swaps in their CP conduit facilities when
it removes assets from the conduit and into the term note securitization.
Interest rate hedge agreements outstanding at June 30, 1999 for the
Company's CP conduit securitizations had an aggregate notional value of
approximately $208.4 million, required payments based on fixed rates ranging
from 5.2% to 6.0% and had a positive estimated fair market value of $804,000.
9. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
September 30, June 30,
---------------------------- ------------
1997 1998 1999
---------- --------------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Warehouse debt: ...............................
First Union/European American Bank ......... $ -- $ -- $ 6,900
------- -------- ---------
Nonrecourse debt: .............................
JLA securitized term facilities ............ -- -- 249,611
CP conduit facilities: .....................
First Union (JLA acquisition) ............. -- -- 7,599
PNC ....................................... -- -- 36,846
------- -------- ---------
Total nonrecourse debt ..................... -- -- 294,056
------- -------- ---------
Affiliate debt: ...............................
Subordinated ............................... 4,447 6,000 48,055
Warehouse .................................. 2,971 16,147 15,223
Tax liability to affiliate ................. -- 1,835 1,992
------- -------- ---------
Total affiliate debt ....................... 7,418 23,982 65,270
------- -------- ---------
Other debt: ...................................
Term loan .................................. -- -- 4,725
Seller financing (JLA acquisition) ......... -- -- 7,968
------- -------- ---------
Total other debt ........................... -- -- 12,693
------- -------- ---------
Total debt .................................... $ 7,418 $ 23,982 $ 378,919
======= ======== =========
</TABLE>
F-16
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. DEBT -- (Continued)
The Company classifies its indebtedness as either nonrecourse debt or debt
based on the structure of the debt instrument that defines the Company's
obligations. Nonrecourse debt includes amounts outstanding related to leases
included in securitized term facilities, CP conduit facilities, or individual
or groups of leases funded under nonrecourse funding arrangements with specific
financing sources. Amounts outstanding in these instances are classified as
nonrecourse debt because the Company has no obligation to ensure that investors
or funding sources receive the full amount of principal and interest which may
be due to them under their funding arrangement. In these instances, the
investors or financing sources may only look to specific leases and the
associated cash flows for the ultimate repayment of amounts due to them. In the
event the cash flow associated with specific leases funded under circumstances
are insufficient to fully repay amounts due, the investor or financing source
bears the full risk of loss.
The Company primarily finances its operations with a warehouse line of
credit, securitized term facilities, commercial paper conduit facilities, and
borrowings from RAI. Following is a description of borrowing arrangements in
place at June 30, 1999, and September 30, 1998 and 1997.
Warehouse Debt. In September, 1998, FLI entered into a new secured
revolving credit and term loan agreement that provides for an aggregate
borrowing limit of up to $20.0 million. Revolving credit loans bear interest, at
FLI's election, at (a) an adjusted LIBOR rate plus 150 basis points or (b) the
rate for one month U.S. dollar deposits as reported by Telerate (London) plus
150 basis points, while term loans bear interest at the adjusted LIBOR rate plus
150 basis points. Borrowings under this facility are collateralized by the
leases being financed, the underlying equipment being financed and the
outstanding stock of JLA and are guaranteed by RLI and RAI. The agreement
contains certain covenants pertaining to FLI and its affiliates including the
maintenance of certain financial ratios and restrictions on changes in the
Company's ownership and a key management position. Outstanding borrowings under
the facility were $6.9 million at June 30, 1999. There were no outstanding
borrowings under the facility at September 30, 1998 or 1997. The facility
expires on June 30, 2000 but may be renewed for additional 18 month periods by
the lenders.
Nonrecourse Debt. The JLA securitized term facilities debt was assumed by
the Company when it acquired JLA. This debt is expected to be paid as the
Company receives payments on the underlying securitized contract receivables.
The contract receivables collateralize the notes, and other creditors of the
Company would be subordinate to the note holders with respect to these
securitized receivables. The timing and amount of the repayment of the notes
are dependent upon the ultimate collection of the securitized lease
receivables. As of June 30, 1999, interest rates on these asset backed
borrowings range from 5.2% to 5.8%, and the weighted average interest rate was
5.44% (see Note 8).
The First Union facility was established in order to finance the
acquisition of JLA (see Notes 8 and 13) bears interest at the VFCC commercial
paper rate plus 1.00% and is payable on a monthly basis.
In December 1998, the Company established a $100.0 million CP conduit with
Market Street Funding ("Market Street"), administered by PNC Bank. (see Note 8)
The facility bears interest at Market Street's commercial paper rate plus .65%
and has $60.0 million of availability at June 30, 1999 as a result of off
balance sheet financing of $3.2 million.
Affiliate Debt. As of June 30, 1999, September 30, 1998 and 1997, the
Company had $65.3 million, $24.0 million and $7.4 million of indebtedness to
RAI, respectively. Of this amount, $48.1 million, $6.0 million and $4.4 million
is subordinated at June 30, 1999, September 30, 1998 and 1997, respectively to
repayment of the First Union warehouse facility and the December 1997, June
1998, and February 1998 First Union CP conduit facilities. The subordinated
debt bears interest at the rate of 10.00% per annum and the remaining
unsubordinated Affiliated Debt bears interest at the one month LIBOR rate plus
1.50%. The unsubordinated debt has a 30 day maturity and other terms comparable
to a bank facility. The proceeds of
F-17
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. DEBT -- (Continued)
these loans were used for the acquisition of JLA and for general corporate
purposes, including funding lease originations. Accrued interest to date has
been added to the principal balance of these obligations. The tax liability to
the parent does not bear interest and is due on demand.
Other Debt. In addition, as part of the JLA acquisition, the Company
acquired a small pool of automobile leases. To finance this portfolio, the
Company entered into a 36 month term loan with First Union for $5.7 million,
which bears interest at LIBOR plus 100 basis points.
As part of the consideration of the acquisition of JLA (see Note 13), the
Company gave the seller a promissory note with an original principal amount of
$6.7 million (increased to $8.2 million at June 30, 1999), which bears interest
at the U.S. Treasury Rate plus between 250 and 400 basis points. The note is
payable in quarterly installments, matures in February 2004, and contains
customary events of default.
Annual debt principal payments over the next five periods ending June 30
are as follows: 2000 - $202.2 million, 2001 - $162.9 million, 2002 - $100.7
million, 2003 - $48.0 million, and 2004 - $23.5 million.
10. EMPLOYEE BENEFIT PLANS
Employee Savings Plan
After one year of service, the Company's employees are eligible to
participate in RAI's Employee Retirement Savings Plan and Trust under Section
401(k) of the Internal Revenue Code. Employees can defer up to 10% of their
income (subject to certain limitations) on a pretax basis through contributions
to the plan. The Company matches up to 100% of each employee's contribution.
The Company's contributions for the periods ending June 30, 1999 and 1998
amounted to $147,000 and $80,000 and for the years ended September 30, 1998,
1997, and 1996 amounted to $97,000, $18,000, and $0.
Stock Options
In conjunction with the formation of the Company, its Chairman and Chief
Executive Officer ("CEO") was granted an option to purchase 10% of the
Company's common stock (701,241 shares) at an aggregate price of $222,200.
Additionally, he is entitled to receive payments on the options in an amount
equal to the dividends, if any, declared by the Company that would have been
paid on the shares subject to the options had they been issued. In the event
that, prior to becoming a public company, the Company issues stock to anyone
other than its parent or the CEO, the CEO is entitled to receive options for
the number of additional shares that will allow him to maintain a 10% equity
position in the Company upon exercise of all options held by him (excluding
shares issuable pursuant to the employee option plan referred to below), at an
exercise price equal to the price paid or value received in the additional
issuance. The options granted vest 25% per year beginning in March 1997
(becoming fully vested in March 2000), and terminate in March 2005.
Additionally, the options would fully vest and immediately become exercisable
in the event of a change in control of the Company. After March 2000, the
employee can require the Company to register his option shares under the
Securities Act of 1933. Also, should the Company not become a public company by
March 5, 2001, the CEO may require that the Company thereafter buy from him,
for cash, the Company shares subject to his options at a price equal to ten
times the Company's net earnings (as defined in the agreement) per share for
the fiscal year ended immediately prior to the giving of notice of his exercise
of this right. The Company is required to purchase 25% of such employee's
shares in each year following such employee's exercise of this right.
F-18
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. EMPLOYEE BENEFIT PLANS -- (Continued)
The Company has established another option plan providing for the granting
of options, at the discretion of the Company's Board of Directors, for up to
350,620 shares of common stock to other employees of the Company. As June 30,
1999, options for 344,309 shares had been issued. Transactions for both stock
option plans are as follows:
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended
September 30, September 30,
---------------------- --------------------------------------------
1996 1997 1998
---------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period ........................... - $ - 953,687 $ 0.32 976,828 $ 0.32
Granted .......................... 953,687 $ 0.32 23,141 $ 0.32 16,129 $ 1.52
Exercised ........................ - $ - - $ - - $ -
Canceled ......................... - $ - - $ - - $ -
------- ------ ------- ------ ------- -------
Outstanding, end of period ........ 953,687 $ 0.32 976,828 $ 0.32 992,957 $ 0.33
======= ====== ======= ====== ======= =======
Exercisable, end of period ........ - $ - 238,422 $ 0.32 482,629 $ 0.33
======= ====== ======= ====== ======= =======
Available for grant ............... 98,174 75,033 58,904
======= ======= =======
Weighted average fair value per
share of options granted dur-
ing the period ................... $ 0.14 $ 0.16 $ 0.72
====== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
-------------------------
1999
-------------------------
(unaudited)
Weighted
Average
Exercise
Shares Price
------------ -----------
<S> <C> <C>
Outstanding, beginning of
period ........................... 992,957 $ 0.33
Granted .......................... 52,593 $ 3.81
Exercised ........................ - $ -
Canceled ......................... - $ -
------- -------
Outstanding, end of period ........ 1,045,550 $ 0.51
========= =======
Exercisable, end of period ........ 730,868 $ 0.33
========= =======
Available for grant ............... 6,311
=========
Weighted average fair value per
share of options granted dur-
ing the period ................... $ 5.24
=======
</TABLE>
The following information applies to options outstanding at June 30, 1999:
Outstanding Exercisable
----------------------------- ------------
Contractual
--------------
Exercise Prices Shares Life (Years) Shares
- ----------------- ------------ -------------- ------------
$ 0.32 976,828 6.51 726,836
$ 1.52 16,129 8.32 4,032
$ 3.81 52,593 9.13 -
------- -------
1,045,550 730,868
========= =======
As discussed in Note 2, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. Because options granted prior to February 24, 1999 had an
exercise price equal to the estimated market value of the underlying shares at
the date of grant, no compensation expense was recognized on the granting of
such options. For the options to purchase 14,025 shares, issued on February 24,
1999 at an exercise price of $3.81 per share, the Company has recognized a
compensation element in view of the change in the Company resulting from the
JLA acquisition and the estimated selling price of $18.00 per share in the
contemplated public offering (see Note 15). The total compensation of $198,000
is being amortized over the four year vesting period, and $17,000 has been
charged to operations during the four month period ended June 30, 1999. The
effect on net income for the years ended September 30, 1998 and 1997, had the
Company adopted the provisions of SFAS No. 123, would not have been material.
F-19
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. COMMITMENTS AND CONTINGENCIES
Rent expense for the nine months ended June 30, 1999 and 1998, for the
years ended September 30, 1998, 1997, and for the period from March 4, 1996
(inception) through September 30, 1996 was $403,000, $93,000, $124,000,
$70,000, and $34,000 respectively. The Company entered into an operating lease
agreement for office space with RAI, which terminated in December 1998. The
Company signed two new lease agreements after September 1998 with unaffiliated
entities for its leasing operations and for its Canadian subsidiary.
Future minimum annual rental payments under non-cancelable operating
leases are as follows:
12 Months Ending Operating
June 30, Leases
------------------ --------------
(unaudited)
2000 ........... $ 655,000
2001 ........... 733,000
2002 ........... 693,000
2003 ........... 553,000
2004 ........... 574,000
-----------
$ 3,208,000
===========
As of June 30, 1999 the Company had outstanding commitments to fund the
purchase of equipment, which it intends to lease, with an aggregate cost of
$36.3 million. The Company believes, based on its past experience, that
approximately $16.8 million will be funded.
At June 30, 1999, the Company had guaranteed approximately $1.9 million of
lease receivables with respect to leases sold. RLI and RAI have provided
additional guarantees.
12. INCOME TAXES
The provision (benefit) for income taxes for each period consists of the
following:
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through Year Ended Nine Months Ended
September 30, September 30, June 30,
--------------- --------------------- -------------------------
1996 1997 1998 1998 1999
--------------- -------- ---------- ---------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Federal ................. $ (152) $ 532 $ 1,455 $ 979 $ 807
State and local ......... - 73 345 381 437
------- ----- ------- ------- -------
$ (152) $ 605 $ 1,800 $ 1,360 $ 1,244
======= ===== ======= ======= =======
</TABLE>
As discussed in Note 2, the Company's federal income tax provision
(benefit) is an allocation from RAI, whose consolidated tax return included the
Company. The provision (benefit) allocated to the Company is not materially
different from what the total provision (benefit) would have been had the
Company filed a separate federal income tax return.
RAI recorded current and deferred tax liabilities on its books and the
Company's allocation was settled through increases or decreases to affiliated
debt balances. When the contemplated public offering is completed (see Note
15), the Company will no longer be eligible to be included in RAI's
consolidated income tax return. Any unsettled deferred tax assets and
liabilities related to the Company at that time will be transferred back to the
Company and affiliate debt will be adjusted to reflect the transfer.
F-20
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
At September 30, 1998, the Company's deferred tax assets and liabilities
would have approximated the following (in thousands):
<TABLE>
<S> <C>
Assets related to
State income taxes .......................................... $ 89
Reserve for possible losses ................................. 606
-----
$ 695
=====
Liabilities related to
Depreciation of furniture and equipment and assets subject to
financing leases .......................................... $ 596
Other ....................................................... 66
-----
$ 662
=====
Net asset .................................................... $ 33
=====
</TABLE>
13. ACQUISITION
On February 4, 1999, the Company acquired all of the common stock of JLA,
in exchange for cash and assumption of JLA debt as described below.
The acquisition was recorded as a purchase and accordingly the results of
JLA's operations are included in the Company's consolidated financial
statements from the date of acquisition. The purchase price has been allocated
to assets acquired and liabilities assumed based on their fair market values,
at the date of acquisition as summarized below (in thousands).
Fair market value of assets acquired ............. $ 315,466
Debt issued (including $38,889 by RAI) ........... (185,153)
Debt assumed ..................................... (147,534)
----------
Net cash acquired ................................ $ (17,221)
==========
The following table reflects unaudited pro forma combined results of
operations of the Company and JLA presented as if the acquisition had taken
place on October 1, 1997:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, June 30,
--------------- ---------------------------
1998 1999 1998
--------------- ------------ ------------
(unaudited)
(in thousands, except share amounts)
<S> <C> <C> <C>
Revenue ..................................... $ 52,875 $ 40,231 $ 38,915
Net income .................................. 6,326 2,893 6,199
Net income per common share diluted ......... $ 0.87 $ 0.40 $ 0.86
Shares used in computation .................. 7,242 7,240 7,236
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments to: (i) depreciation and
amortization expense attributable to an allocation of the purchase price; (ii)
general and administrative expenses for certain cost reductions expected to be
realized from combining operations; (iii) interest expense for additional
borrowings; (iv) equipment leasing revenue as a result of the purchase price
allocation; and (v) provision for income taxes to reflect the above adjustments
and the Company's tax rate. They do not purport to be indicative of the results
of operations which actually would
F-21
<PAGE>
FIDELITY LEASING, INC. AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Resource Leasing, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. ACQUISITION -- (Continued)
have resulted had the combination been consummated on October 1, 1997, or of
future results of operations of the consolidated entities.
14. STOCKHOLDER'S EQUITY
On June 25, 1999, the Company's stockholder authorized an amendment to the
Articles of Incorporation of the Company to increase the total authorized
capital stock to 41.0 million shares, of which 40.0 million shares were Common
Stock and 1.0 million shares were Preferred Stock, and to change common stock
from $0.01 par value to no par value. Furthermore on June 25, 1999 and August
____, 1999, the Board of Directors authorized a .6992-for-one reverse stock
split, and a .0028572-for-one stock split respectively. The result of these two
Board actions was a net .7012408-for-one reverse stock split and a reduction of
2,688,833 shares of common stock. Earnings per share, weighted average shares
and stock option data reflect the above transactions.
15. SUBSEQUENT EVENT
In July 1999, the Company filed a registration statement on Form S-1 with
the Securities and Exchange Commission with respect to an initial public
offering of 3.9 million shares of its common stock. There is no assurance that
any offering will be completed or as to its timing.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
JLA Credit Corporation
We have audited the accompanying consolidated balance sheet of JLA Credit
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1998,
and the related consolidated statements of earnings and retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of JLA Credit
Corporation and Subsidiaries as of December 31, 1998, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON
-------------------------------------
San Francisco, California
April 9, 1999
F-23
<PAGE>
JLA Credit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents ............................................................... $ 28,462,252
Investment in direct financing leases, net .............................................. 312,139,555
Other assets ............................................................................ 16,378,076
------------
Total assets ...................................................................... $356,979,883
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Borrowings from banks ................................................................ $154,015,000
Asset backed borrowing ............................................................... 140,124,909
Accrued interest ..................................................................... 833,537
Due to parent ........................................................................ 11,944,554
Other liabilities .................................................................... 11,697,917
------------
Total liabilities ................................................................. 318,615,917
============
Commitments and contingencies ........................................................... --
Shareholder's equity:
Common stock, par value $500 per share; 64,000 shares authorized, 60,000 shares issued
and outstanding ..................................................................... 30,000,000
Additional paid-in capital ........................................................... 250,375
Retained earnings .................................................................... 8,113,591
------------
Total shareholder's equity ........................................................ 38,363,966
============
Total liabilities and shareholder's equity ........................................ $356,979,883
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
JLA Credit Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
Year ended December 31, 1998
Revenues:
Earned income on direct financing leases ......... $29,516,605
Interest income .................................. 2,538,238
Other income ..................................... 3,435,590
-----------
Total revenues ................................ 35,490,433
Expenses:
Interest expense ................................. 20,609,830
Provision for doubtful receivables ............... 3,268,935
General and administrative expenses .............. 9,261,702
-----------
Total expenses ................................ 33,140,467
-----------
Income before provision for income taxes ............ 2,349,966
Provision for income taxes .......................... 1,036,647
-----------
NET EARNINGS ........................................ 1,313,319
Retained earnings at beginning of year .............. 6,800,272
-----------
Retained earnings at end of year .................... $ 8,113,591
===========
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
JLA Credit Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net earnings ............................................................... $ 1,313,319
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization ........................................... 802,434
Provision for doubtful receivables ...................................... 3,268,935
Gain on sale of direct financing leases ................................. (1,850,873)
Changes in assets and liabilities
Other assets ........................................................... (7,978,458)
Accrued interest ....................................................... (1,648,181)
Other liabilities ...................................................... (222,088)
--------------
Net cash used in operating activities .................................. (6,314,912)
Cash flows from investing activities
Collections on direct financing leases ..................................... 136,809,538
Collections on notes and loans receivable .................................. 6,833,885
Purchase of direct financing lease equipment ............................... (180,972,825)
Capital expenditures ....................................................... (188,039)
--------------
Net cash used in investing activities .................................. (37,517,441)
Cash flows from financing activities
Payments of borrowings from banks, net ..................................... (23,845,000)
Proceeds from securitization ............................................... 120,041,027
Payments of borrowings from securitizations ................................ (12,912,096)
Payments of loans from affiliate, net ...................................... (12,641,347)
--------------
Net cash provided by financing activities .............................. 70,642,584
--------------
NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. 26,810,231
Cash and cash equivalents at beginning of year ................................ 1,652,021
--------------
Cash and cash equivalents at end of year ...................................... $ 28,462,252
==============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest ................................................................ $ 21,798,097
Income taxes ............................................................ $ (149,563)
Supplemental disclosures of noncash investing and financing activities
Transfer of note receivable to affiliate loan .............................. $ 8,175,267
</TABLE>
F-26
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A -- ORGANIZATION
JLA Credit Corporation (JLA) was incorporated in the state of Delaware on
August 27, 1985, and is engaged principally in funding direct financing
leases, loan originations and participations as a creditor. Effective
January 1, 1992, JLA became a wholly-owned subsidiary of Japan Leasing
(USA), Inc. (JLUS). JLA's former shareholder made contributions of all of
JLA's outstanding common stock to JLUS in exchange for newly issued common
stock of JLUS.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
o Principles of Consolidation
The consolidated financial statements include the accounts of JLA and its
wholly-owned subsidiaries; JLA Funding Corporation (JLA FC), JLA Funding
Corporation II (JLA FC II), and JLA Funding Corporation III (JLA FC III),
collectively, the Company. All significant intercompany transactions and
balances have been eliminated in consolidation.
o Income Recognition
Income on notes and loans receivable is accrued as earned based on the
interest method. For direct financing leases, unearned income is amortized
over the lease term to produce a constant rate of return on the net
investment. Accrual of interest income is suspended when collection on an
account becomes doubtful, generally after the account becomes 90 days
delinquent. Income recognition is generally resumed when the account
balance has been brought current.
o Allowance for Doubtful Receivables
Based on a periodic review of the lease and loan portfolio, an allowance
for doubtful receivables is maintained at a level that is estimated by the
Company to be sufficient to reasonably provide for expected losses in the
present portfolio of leases and notes and loans receivable.
o Repossessed Equipment Held for Resale
Repossessed equipment held for resale is stated at the lower of cost or
market and is included in other assets on the consolidated balance sheet.
o Income Taxes
The Company files a consolidated federal income tax return with JLUS and
files separate state and local income tax returns for all taxing
authorities except California and New York. The Company continues to
provide for all taxes on a stand-alone basis and settles all federal taxes
currently payable through intercompany accounts, due from/due to
affiliates, on the consolidated balance sheets.
F-27
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1998
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Deferred taxes are provided for temporary differences between the tax
basis and financial reporting basis of assets and liabilities, computed at
current tax rates. Any future change in those rates would result in an
adjustment to the recorded balance of deferred taxes. The Company reviews
the realization of the deferred tax asset to determine if a reserve is
necessary.
o Interest Rate Swap Agreements
Interest rate swap agreements are entered into as a means of managing
interest rate risk. Net settlements are accrued over the term of the swap
agreements as an adjustment to interest expense. Certain interest rate
swap agreements were terminated in 1998 (see Note J) and the remaining
interest rate swap agreemnts were terminated upon the sale of the Company
(see Note M).
o Cash and Cash Equivalents Cash and cash equivalents include short-term
highly liquid investments with original maturities of three months or less
that are readily convertible into cash. At December 31, 1998, the Company
had $18.2 million funds restricted as to use under terms of the
securitizations.
o Defined Contribution Plan
The Company provides a defined contribution plan (the "Plan") under
section 401k of the Internal Revenue Code. The Plan covers all employees
that have completed at least six months of service and are at least 21
years of age. The Company has a discretionary employer contribution which
historically has been equal to a dollar for dollar match of the employees
contribution up to 5% of the employees compensation. The Company match is
vested over a period of seven years at which time the matched amount is
fully vested. All employee contributions and earnings are fully vested at
the time of contribution or earning. All investment selections are made
directly by the employees. The Company's contribution for the year was
$159,155.
F-28
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1998
NOTE C -- NET INVESTMENT IN DIRECT FINANCING LEASES
Direct financing leases consist of the following:
<TABLE>
<S> <C>
Nonsecuritized minimum lease payments receivable ......... $ 210,913,615
Securitized minimum lease payments receivable ............ 155,589,253
-------------
Total minimum lease payment receivable ................... 366,502,868
Less ....................................................
Unearned income, nonsecuritized ....................... (30,153,901)
Unearned income, securitized .......................... (23,125,440)
Allowance for doubtful receivables .................... (5,613,693)
Deferred initial direct costs ......................... 4,529,721
-------------
Net investment in direct financing leases ................ $ 312,139,555
=============
</TABLE>
The minimum lease payments receivable are due in the following installments:
Year ending
December 31,
1999 .................... $ 126,325,711
2000 .................... 109,031,798
2001 .................... 70,422,840
2002 .................... 38,631,859
2003 .................... 15,974,929
Thereafter .............. 6,115,731
-------------
$ 366,502,868
=============
The types of equipment financed consist of the following in the
approximate percentages shown below:
Industrial equipment ......... 50%
Computer equipment ........... 29
Other ........................ 11
Office equipment ............. 7
Cars and trucks .............. 3
--
100%
===
The Company's leasing transactions with customers located in California
represent approximately 47 percent of the minimum lease balance. There was
no other geographical concentration greater than 10 percent. In addition,
no customer balance exceeded 10 percent of the minimum lease balance. When
entering into a leasing transaction, the Company generally does not require
any additional collateral other than the security interest in the property
leased. The contract receivables are pledged as collateral on the
securitized borrowings and the borrowings from banks.
The net investment in nonearning receivables, which are included in the
Company's direct financing lease portfolio, were approximately $5 million.
In 1997, the Company entered into an agreement (the Agreement) whereby it
obtained the right to issue up to $75 million principal balance of direct
financing leases through JLA FC II. During the year the Company securitized
$48.3 million principal balance of direct financing leases through JLA FC
II and received proceeds of $46.2 million. The transaction was accounted
for as a collateralized borrowing, accordingly, the principal balance of
securitized leases remains on the Company's balance sheet.
F-29
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1998
NOTE C -- NET INVESTMENT IN DIRECT FINANCING LEASES -- (Continued)
In March 1998, the Company entered into an agreement (the "Agreement")
whereby it obtained the investor commitments to issue up to $125,000,000 of
notes payable by securitizing the principal balance of financing contracts
through JLA Funding Corporation III ("JLA FC III"), a special-purpose
subsidiary. During 1998, the Company securitized $84,591,032 principal
balance of financing contracts through JLA FC III and received proceeds
from the securitization of these contracts of $80,385,460. A cash
collateral reserve account equal to 1% of the contract receivables is also
maintained with the Trustee. The Note Issuance Period under the Agreement
terminated January 16, 1999, with no additional note issuances. The
transaction was accounted for as a collateralized borrowing; accordingly,
the principal balance of the securitized contracts remained on the
Company's balance sheet.
The proceeds received in connection with the Agreements consisted of notes
payable to various domestic and foreign investors. These notes are expected
to be paid of as the Company receives aggregate payments on the securitized
contract receivables. The contract receivables collateralize the notes, and
other creditors of JLA would be subordinate to the note holders with
respect to the securitized receivables. The timing and amount of the
repayment of the notes are dependent upon the ultimate collection of the
securitized lease receivables.
NOTE D -- ALLOWANCE FOR DOUBTFUL RECEIVABLES
The table below shows the activity in allowance for doubtful receivables for
the year.
Balance at beginning of year ......... $ 5,030,078
Charged to operations, net ........... 3,268,935
Amount written off ................... (2,685,320)
------------
Balance at end of year ............... $ 5,613,693
============
The Company provides for both a general reserve and a specific reserve. A
specific reserve is provided if management believes it is probable that a
loss will be sustained on a specific account and that the loss can be
reasonably estimated. The Company's assessment of the future value of
collateral is inherently subjective, as it requires material estimates that
may be susceptible to significant change.
NOTE E -- BORROWINGS FROM BANKS
The interest rates on the borrowings from banks ranged from 5.41% to 8.35%,
and the weighted average interest rate, before considering any interest
rate swap agreements was 7.26%. The borrowings were paid off in full in
February 1999, with proceeds from borrowings obtained by the purchaser (see
Note M).
NOTE F -- ASSET BACKED BORROWINGS
The interest rates on the asset backed borrowings range from 5.91% to 7.0%,
and the weighted average interest rate was 6.59%.
F-30
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1998
NOTE F -- ASSET BACKED BORROWINGS -- (Continued)
The maturities for assets backed borrowings is as follows:
Year ending
December 31,
- ----------------------
1999 .............. $ 55,816,150
2000 .............. 38,404,587
2001 .............. 29,313,768
2002 .............. 13,322,874
2003 .............. 3,267,530
-------------
$ 140,124,909
=============
NOTE G -- DUE TO PARENT
The Company has amounts outstanding to the Parent in the form of revolving
advances and a note payable. The amounts borrowed are used for working
capital. At December 31, 1998, the outstanding balances of the revolving
advances and the note payable were $689,701 and $11,221,966, respectively.
The note bears interest at LIBOR plus .75% (6.6% at December 31, 1998). The
entire outstanding amount was repaid subsequent to year-end as a result of
the sale of the Company (see note N). The total interest expense on the
notes was $1,678,505.
NOTE H -- INCOME TAXES
The provision (benefit) for income taxes for the year ended consists of
the following:
Current
Federal ................. $ 905,677
State and local ......... 185,500
-----------
1,091,177
===========
Deferred
Federal ................. (45,260)
State and local ......... (9,270)
-----------
(54,530)
-----------
$ 1,036,647
===========
The provision for income tax differs from the federal statutory income tax
rate of 35 percent principally due to state income taxes.
Net deferred tax assets, which are included in other assets, approximate
$3,153,000 and primarily relate to the allowance for doubtful receivables.
The Company has historically filed a consolidated federal tax return with
its parent. Cumulative amounts due to the parent for income taxes, net of
the deferred tax assets, were settled in connection with the sale of the
Company (see note M) for $3.5 million.
NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company, using
available market information and valuation methodologies, as described
below. Changes in these assumptions or estimation methods may significantly
affect the estimated fair values. Accordingly, management provides no
assurance that the estimates presented herein would necessarily be realized
in an immediate sale or settlement of the instruments.
F-31
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 31, 1998
NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
Book values of cash equivalents and other current amounts receivable and
payable approximate fair value due to the short maturity of the
instruments.
The Company generally borrows funds from banks through three to six months
revolving lines of credits. The estimated fair values of debts approximate
carrying cost due to the short maturity.
The securitized borrowings reflect current fair value as the borrowing rate
approximates current market conditions. The rates are covered by short-term
swap arrangements which assist the rates to approximate current conditions.
NOTE J -- RELATED PARTY TRANSACTIONS
In November 1998, the Company transferred all of its rights and obligations
to certain Residual Value Position Pool Agreements to the Parent. The total
value transferred was $8,175,267 for which the Company received a reduction
in the amount due to Parent.
The Parent was the guarantor of the Company's interest rate swap
agreements. During the year, the Company was forced to terminate certain
swap agreements due to the financial condition of the Parent. The
applicable termination fee of approximately $1,600,000 was paid and the
cost was borne by the Parent on behalf of the Company.
NOTE K -- COMMITMENTS AND CONTINGENCIES
The Company rents the office facilities for all office locations. Rental
expense for the year ended was approximately $385,858.
The minimum rental commitments under noncancelable leases are as follows:
Year ending
December 31,
- ---------------------
1999 ............. $ 314,682
2000 ............. 268,147
2001 ............. 244,879
2002 ............. 94,420
2003 ............. 44,267
---------
$ 966,395
=========
NOTE L -- YEAR 2000 COMPLIANCE
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business
partners will not be fully determinable until the Year 2000 and thereafter.
If Year 2000 modifications are not properly completed either by the Company
or entities with which the Company conducts business, the Company's
revenues and financial condition could be adversely impacted.
NOTE M -- SUBSEQUENT EVENTS
On February 4, 1999, the Company's parent sold all of the Company's common
shares to Fidelity Leasing, Inc., a wholly-owned subsidiary of Resource
America, Inc. ("RAI"). RAI is a publicly held, Delaware corporation. The
purchase price of $39 million, (including $1 million in acquisition related
costs) is payable in cash at the closing date. In connection with the sale,
certain assets and liabilities were transferred to the Company's parent
prior to closing.
F-32
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
JLA Credit Corporation:
We have audited the accompanying consolidated balance sheets of JLA Credit
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations and retained
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management.. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plans and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also included assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred top above
presenting fairly, in all material respects, the financial position of JLA
Credit Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
San Francisco, California,
March 18, 1998
F-33
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................................... $ 1,652,021 $ 18,421,711
Investment in direct financing lease:
Investment in nonsecuritized direct financing leases .............. 240,465,456 222,545,823
Investment in securitized direct, financing leases ................ 33,958,952 --
Allowance for doubtful receivables ................................ (5,030,078) (2,827,437)
------------ ------------
Net investment in direct financing leases ...................... 269,394,330 219,718,386
Notes and loans receivable ......................................... 15,009,152 17,842,889
Due from affiliates ................................................ 58,846 8,627,325
Other real estate owned ............................................ -- 15,000,000
Other assets ....................................................... 8,154,132 7,270,538
Office furniture and equipment, net of accumulated depreciation of
$1,369,507 and $1,223,491 in 1997 and 1996, respectively .......... 859,881 1,431,969
------------ ------------
$295,128,362 $288,312,818
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Borrowings from banks ............................................. $177,860,000 $156,889,130
Asset-backed borrowing ............................................ 32,995,978 --
Accrued interest payable .......................................... 2,481,718 1,796,426
Due to affiliates ................................................. 32,820,014 87,980,061
Other liabilities ................................................. 11,920,005 7,426,485
------------ ------------
Total liabilities .............................................. 258,077,715 254,092,102
------------ ------------
Commitments and contingencies ...................................... -- --
Shareholder's equity:
Common stock, par value $500 per share; 64,000 shares authorized,
60,000 shares issued and outstanding ............................ 30,000,000 30,000,000
Additional paid-in capital ........................................ 250,375 250,375
Retained earnings ................................................. 6,800,272 3,970,341
------------ ------------
Total shareholder's equity ..................................... 37,050,647 34,220,716
------------ ------------
Total liabilities and shareholder's equity ..................... $295,128,362 $288,312,818
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
REVENUES:
Earned income on direct financing leases .............. $25,664,537 $15,774,050
Interest income on notes and loans receivable ......... 2,186,724 5,000,785
Other income .......................................... 5,312,850 2,785,174
----------- -----------
Total revenues ..................................... 33,164,111 23,560,009
----------- -----------
EXPENSES:
Interest expense ...................................... 15,530,726 12,033,126
Provision for doubtful receivables .................... 4,945,243 2,004,204
Losses on repossessed equipment ....................... 27,824 974,345
General and administrative expenses ................... 7,342,885 5,853,008
Other expenses ........................................ 315,000 427,895
----------- -----------
Total expenses ..................................... 28,161,678 21,292,578
----------- -----------
Income before provision for income taxes ........... 5,002,433 2,267,431
PROVISION FOR INCOME TAXES ............................. 2,172,502 979,480
----------- -----------
Net income ......................................... 2,829,931 1,287,951
RETAINED EARNINGS, beginning of year ................... 3,970,341 2,682,390
----------- -----------
RETAINED EARNINGS, end of year ......................... $ 6,800,272 $ 3,970,341
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 2,829,931 $ 1,287,951
-------------- --------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 1,017,046 459,171
Provision for doubtful receivables ................................ 4,945,243 2,004,204
Losses on repossessed equipment ................................... 27,824 974,346
Changes in assets and liabilities:
Other assets ..................................................... (883,594) (415,827)
Accrued interest payable ......................................... 685,291 559,524
Other liabilities ................................................ 4,493,520 3,044,931
-------------- --------------
Total adjustments .............................................. 10,285,330 6,626,349
-------------- --------------
Net cash provided by operating activities ...................... 13,115,261 7,914,300
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on direct financing leases .............................. 111,537,085 52,883,062
Collections on notes and loans receivable ........................... 4,564,636 25,768,353
Originations of notes and loans receivable .......................... (1,759,444) (49,144,504)
Originations of direct financing lease equipment .................... (151,165,855) (116,827,209)
Purchase of fixed assets ............................................ (466,529) (454,465)
-------------- --------------
Net cash used in investing activities .......................... (37,290,107) (87,774,763)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings from banks ................................. 35,645,071 37,557,479
Repayments of borrowings from banks ................................. (14,674,201) (47,285,135)
Proceeds from securitization ........................................ 32,995,978 --
Proceeds from (repayments of) loans from affiliate, net ............. (46,561,692) 100,367,611
-------------- --------------
Net cash provided by financing activities ...................... 7,405,156 90,639,955
-------------- --------------
Net increase (decrease) in cash and cash equivalents ........... (16,769,690) 10,779,492
CASH AND CASH EQUIVALENTS, beginning of year ......................... 18,421,711 7,642,219
-------------- --------------
CASH AND CASH EQUIVALENTS, end of year ............................... $ 1,652,021 $ 18,421,711
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .......................................................... $ 14,707,418 $ 11,473,602
Income taxes ...................................................... 1,156,007 274,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION:
JLA Credit Corporation (JLA) was incorporated in the state of Delaware on
August 27,1985, and engaged principally in funding direct financing leases,
loan originations and participations as a creditor. Effective January 1, 1992,
JLA became a wholly owned subsidiary of Japan Leasing (USA), Inc. (JLUS). JLA's
former shareholder made contributions of all of JLA's outstanding common stock
to JLUS in exchange for newly issued common stock of JLUS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
In preparing the financial statements in conformity with generally
accepted accounting principles management is required to make estimates and
assumptions that affect the amount of reported assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements. The same is true of revenues and expenses reported for the period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of JLA and its
wholly owned subsidiaries, JLA Funding Corporation and JLA Funding Corporation
II (collectively, the Company). All significant intercompany transactions and
balances have been eliminated in consolidation.
Income Recognition
Income on notes and loans receivable is accrued as earned based on the
interest method. For direct financing leases, unearned income is amortized over
the lease term to produce a constant rate of return on the net investment.
Accrual of interest income is suspended when collection on an account becomes
doubtful, generally after the account becomes 90 days delinquent. Income
recognition is generally resumed when the account balance has been brought
current.
Allowance for Doubtful Receivables
Based on a periodic review of the lease and loan portfolio, an allowance
for doubtful receivables is maintained at a level that is estimated by the
Company to be necessary to provide for expected losses in the present portfolio
of leases, notes and loans receivable.
Repossessed Equipment Held for Resale
Repossessed equipment held for resale is stated at the lower of cost or
market and is included in other assets on the consolidated balance sheets.
Income Taxes
The Company files a consolidated federal income tax return with JLUS and
files separate state and local income tax returns for all taxing authorities
except California and New York. The Company continues to provide for all taxes
on a stand-alone basis and settles all federal taxes currently payable through
intercompany accounts, due from/due to affiliates, on the consolidated balance
sheets.
Deferred taxes are provided for temporary differences between the tax
basis and financial reporting basis of assets and liabilities, computed at
current tax rates. Any future change in those rates would result in an
adjustment to the recorded balance of deferred taxes. The Company reviews the
realization of the deferred tax asset to determine if a valuation allowance is
necessary.
F-37
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Interest Rate Swap Agreements
Interest rate swap agreements are entered into as a means of managing
interest rate risk. Net settlements are accrued over the term of the swap
agreements as an adjustment to interest expense.
Cash and Cash Equivalents
Cash and cash equivalents include short-term highly liquid investments
with original maturities of three months or less that are readily convertible
into cash.
Reclassification
Certain reclassifications have been made to 1996 financial statements to
conform with the current year's presentation.
3. NET INVESTMENT IN DIRECT FINANCING LEASES:
Leases, which are classified as direct financing leases as of December 31,
1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Nonsecuritized minimum lease payments receivable .............. $ 280,979,123 $ 263,091,757
Securitized minimum lease payments receivable ................. 40,657,854 --
------------- -------------
Total minimum lease payments receivable 321,636,977 263,091,757
Less:
Unearned income, nonsecuritized ............................ (43,270,026) (41,746,957)
Unearned income, securitized ............................... (7,363,200) --
Allowance for doubtful receivables ......................... (5,030,078) (2,827,437)
Deferred initial direct costs .............................. 3,420,657 1,201,023
------------- -------------
Net investment in direct financing leases ............... $ 269,394,330 $ 219,718,386
============= =============
</TABLE>
The minimum lease payments receivable as of December 31, 1997, are due in
the following installments:
Year Ending
December 31 (000s)
- ---------------------- -----------
1998 ............... $112,105
1999 ............... 91,002
2000 ............... 63,939
2001 ............... 37,353
2002 ............... 13,238
Thereafter ......... 4,000
--------
$321,637
========
F-38
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
3. NET INVESTMENT IN DIRECT FINANCING LEASES: -- (Continued)
At December 31, 1997 and 1996, the types of equipment financed consist of
the following:
1997 1996
-------- --------
Industrial equipment .......... 49% 51%
Office equipment .............. 15 10
Computer equipment ............ 19 24
Cars and trucks ............... 7 5
Other ......................... 10 10
-- --
100% 100%
=== ===
The Company's leasing transactions with customers located in California
and New York represent approximately 49 percent and 9 percent of the minimum
lease receivable balance as of December 31, 1997, and 46 percent and 11 percent
as of December 31, 1996. There was no other geographical concentration greater
than 10 percent. In addition, there was no customer with a balance greater than
10 percent of the minimum lease receivable balance. When entering into a
leasing transaction, the Company generally does not require any additional
collateral other than the security interest in the property leased or, in
certain cases, personal guarantees.
At December 31, 1997 and 1996, net investment in nonearning assets, which
were included in the Company's direct financing lease portfolio, were
approximately $4.0 million and $3.3 million, respectively.
1994 Securitization
In July 1994, the Company securitized $24,084,000 principal balance of
direct financing leases and loans receivable (the Receivables) through JLA
Funding Corporation, a special-purpose subsidiary. The Company received
proceeds of $20,069,000 and retained subordinated certificates receivable in
the amount of $3,823,000. The transaction was accounted for as a sale;
accordingly, the Receivables were removed from the Company's balance sheets.
The income statement impact was nominal.
Upon closing, the Company established a cash collateral account as
required by the agreement and recorded an excess servicing fee receivable. At
December 31, 1996, the cash collateral account and excess servicing fee
receivable were $201,000 and $77,000, respectively.
The Company continued to service the Receivables and receive a fee in
accordance with the servicing agreement. Servicing fees recognized during 1997
and 1996 were $24,000 and $123,000, respectively, and are included in other
income on the consolidated statements of operations and retained earnings. At
December 31, 1996, the outstanding balance of the Receivables was $3,089,000.
In August 1997, the Company exercised a cleanup call option whereby it
acquired the remaining principal balance of the Receivables (on the 1994
securitization) and extinguished the respective liabilities associated with the
original sale of the Receivables. The outcome of the exercise of the clean-up
call was to recognize previously deferred income in the amount of $290,000.
This amount is included in other income. At the time of the cleanup call, the
outstanding balance of the Receivables in the amount of $1,311,000 was recorded
by the Company.
1997 Securitization
In September 1997, the Company entered into an agreement (the Agreement)
whereby it obtained the investor commitments to securitize up to $75,000,000
principal balance of direct financing leases through JLA Funding Corporation II
(JLA FC II), a special-purpose subsidiary. During 1997, the Company securitized
F-39
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
3. NET INVESTMENT IN DIRECT FINANCING LEASES: -- (Continued)
$35,115,673 principal balance of direct financing leases through JLA FC II,
received proceeds of $32,995,978 and contributed equity in the amount of
$2,119,695. In addition, the Company contributed additional cash collateral
equaling 1 percent of total collateral. As of December 31, 1997, the balance of
the cash collateral account was $351,157. As of December 31, 1997, net
investment in securitized direct financing leases, including deferred initial
direct costs, was $33,958,952. The transaction was accounted for as a
collateralized borrowing; accordingly, the principal balance of securitized
leases remained on the Company's balance sheet.
The proceeds received in connection with the Agreement consisted of notes
payable to various domestic and foreign investors. These notes are expected to
be paid off as the Company receives aggregate payments of the securitized lease
receivables. The lease receivables collateralize the notes, and other creditors
of JLA would be subordinate to the note holders with respect to the securitized
receivables. The timing and the amount of the repayment of the notes are
dependent upon the ultimate collection of the securitized lease receivables.
The interest rate on the notes is tied to the one-month LIBOR rate, and as of
December 31, 1997, for Class A senior securities was 6.27 percent and for Class
B subordinated securities was 6.61 percent. The weighted average interest rates
for 1997 were 6.03 percent for Class A securities and 6.45 percent for Class B
securities. The notes were subject to an interest rate cap agreement at 7.5
percent until March 1998, when the cap was terminated and replaced with an
interest rate swap agreement. The interest rate swap agreement calls for
interest to be paid on the Class A securities at 6.34 percent and on the Class
B securities at 7 percent.
The estimated repayment schedule for the next five years for the notes
payable based upon the underlying receivables as of December 31, 1997, is as
follows:
Year Ending
December 31
- ----------------
1998 ......... $ 5,950,844
1999 ......... 9,260,879
2000 ......... 8,594,933
2001 ......... 6,917,100
2002 ......... 2,272,222
-----------
$32,995,978
===========
4. NOTES AND LOANS RECEIVABLE:
Notes and loans receivable as of December 31, 1997 and 1996, consist of
the following:
1997 1996
-------------- --------------
Notes and loans receivable .......... $15,009,152 $17,842,889
Interest receivable ................. -- --
Less: Allowance for doubtful
receivables ......................... -- --
----------- -----------
$15,009,152 $17,842,889
=========== ===========
F-40
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
4. NOTES AND LOANS RECEIVABLE: -- (Continued)
The projected annual receipts for notes and loans receivable as of
December 31, 1997, are as follows:
Year Ending
December 31
- ----------------
1998 ......... $ 6,443,798
1999 ......... 6,927,435
2000 ......... 1,637,919
-----------
$15,009,152
===========
At December 31,1994, the Company had a note receivable of $52.3 million
from a partnership that owned land on which the partnership intended to further
develop a real estate project. The note was secured by the land and guaranteed
by Japan Leasing Corporation (JLC), the Company's ultimate parent.
On May 1, 1995, the Company foreclosed on the property and recorded the
land as held for sale at an estimated fair value of $15 million. The difference
between the book value of the note receivable at that time and the fair value
of the land was settled by transferring cash from JLC under the guarantee. In
March 1997, the Company disposed of the property in a sale transaction. The
difference between the carrying value of the property and proceeds received
from the sale as adjusted for closing costs resulted in a net gain on sale in
the amount of $2,027,236. This gain was recorded in other income.
5. ALLOWANCE FOR DOUBTFUL RECEIVABLES:
The table below shows the activity in allowance for doubtful receivables
during 1997 and 1996:
Direct Financing Leases
-------------------------------
1997 1996
-------------- --------------
Balance, beginning of year ......... $ 2,827,437 $ 2,079,521
Charge to operations, net .......... 4,945,243 2,004,204
Amount written off ................. (2,742,602) (1,256,288)
------------ ------------
Balance, end of year ............... $ 5,030,078 $ 2,827,437
============ ============
The Company provides for both a general reserve and a specific reserve. A
specific reserve is provided if management believes it is probable that a loss
will be sustained and that the loss can be reasonably estimated. The Company's
assessment of the future value of collateral is inherently subjective, as it
requires material estimates that may be susceptible to significant change.
6. BORROWINGS FROM BANKS:
At December 31, 1997 and 1996, the interest rates on the borrowings from
banks ranged from 6.25 percent to 7.21 percent and 6.0 percent to 6.4 percent,
respectively, and the weighted average interest rates, before considering any
interest rate swap agreements, were 6.47 percent for 1997 and 6.07 percent for
1996.
F-41
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
6. BORROWINGS FROM BANKS: -- (Continued)
The repayment schedule for the next five years and thereafter for
borrowings from banks as of December 31, 1997, is as follows:
Year Ending
December 31
- ----------------
1998 ......... $162,760,000
1999 ......... 6,920,000
2000 ......... 8,180,000
------------
$177,860,000
============
The Company has developed relationships with several domestic branch
operations of foreign owned banks. These relationships have enabled the Company
to extend credit facilities, generally for one year, as they become due. In
management's opinion, debt scheduled for repayment in 1998 will be extended, as
appropriate, to meet the Company's cash flow requirements for 1998, although no
formal agreements have been arranged in anticipation of these extensions. In
addition, the Company through an affiliate has the ability to refinance the
current portion of the debt as it becomes due.
7. INTEREST RATE INSTRUMENTS:
The Company enters into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating rate debt. The swap
agreements are contracts to exchange floating rate for fixed interest payments
periodically without the exchange of the underlying notional amounts. The
counterparties to these instruments are major financial institutions. The
notional amounts of interest rate agreements are used to measure the interest
to be paid or received and do not represent the amount of exposure to credit
loss. The differential to be paid or received is accrued as interest rates
change and is recognized as an adjustment to interest expense in the income
statement. The related accrued receivable or payable is included in other
assets or liabilities.
At December 31,1997 and 1996, the Company had $140 million and $110
million of aggregate notional principal amounts outstanding, respectively, for
the purpose of converting floating rate debt to fixed rate debt.
At December 31, 1997 and 1996, the agreements effectively changed the
interest rate exposure on $140 million and $110 million of floating rate
borrowing to fixed rates ranging from 5.18 percent to 6.38 percent due through
1997 and from 5.23 percent to 8.37 percent due through 1996, and the weighted
average interest rates were 5.98 percent and 5.80 percent, respectively.
Interest rate caps are used to lock in a maximum rate if rates rise, but
enable the Company to otherwise pay lower market rates. The Company had
interest rate caps in place protecting $35 million and $30 million of bank
borrowings at December 31, 1997 and 1996, respectively. The cap rates ranged
between 5.5 percent and 6.5 percent on the underlying LIBOR. The cost of
interest rate caps is amortized to interest expense over the life of the caps.
The unamortized cost of the interest rate caps is included in other assets.
F-42
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
8. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December 31,
1997 and 1996, consists of the following:
1997 1996
------------- -------------
Current:
Federal ................. $1,996,844 $1,051,161
State and local ......... 956,081 521,469
---------- ----------
2,952,925 1,572,630
---------- ----------
Deferred:
Federal ................. (527,742) (424,210)
State and local ......... (252,681) (168,940)
---------- ----------
(780,423) (593,150)
---------- ----------
$2,172,502 $ 979,480
========== ==========
The provision for income tax for 1997 and 1996 differs from the federal
statutory income tax rate principally due to state income taxes.
The components of the net deferred income tax assets at December 31, 1997
and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Gross deferred tax assets ............... $3,098,432 $2,362,653
Gross deferred tax liabilities .......... -- (81,444)
---------- ----------
Net deferred tax assets ................. $3,098,432 $2,281,209
========== ==========
</TABLE>
Deferred tax assets mainly relate to allowance for doubtful receivables;
at December 31, 1996, deferred tax liabilities mainly relate to depreciation of
fixed assets. No other significant deferred tax assets or liabilities existed
at December 31, 1997 and 1996. Management believes that the realization of the
net deferred tax asset is reasonably assured. The net deferred tax assets are
included in other assets.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value amounts have been determined by the Company,
using available market information and valuation methodologies, as described
below. Changes in these assumptions or estimation methods may significantly
affect the estimated fair values. Accordingly, management provides no assurance
that the estimates presented herein would necessarily be realized in an
immediate sale or settlement of the instruments.
Book values of cash equivalents and other assets and liabilities
approximate fair value due to the short maturity of the instruments.
The estimated fair value of fixed rate loans is based on discounted future
cash flows using current rates for similar instruments having comparable credit
risk and maturity dates.
The Company generally borrows funds from banks through three to six months
revolving lines of credit. The estimated fair values of debts approximate fair
value due to the short maturity.
Interest rate swap agreements were valued by discounting future cash flows
the Company would receive (pay) to reverse the effect of the agreements, taking
into consideration current interest rates adjusted for risks and maturity.
F-43
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1997 AND 1996
9. FAIR VALUE OF FINANCIAL INSTRUMENTS: -- (Continued)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------ ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ----------- ---------- -----------
(000s omitted)
<S> <C> <C> <C> <C>
Notes and loans receivable ..................... $ 15,009 $ 15,009 $ 17,843 $ 17,843
Borrowing from banks and notes payable ......... 210,856 210,856 156,889 156,889
Interest rate swap agreements .................. -- (448) -- (110)
Interest rate cap agreements ................... 458 278 382 502
</TABLE>
10. RELATED--PARTY TRANSACTIONS
Due to affiliates includes funds that the Company borrowed from JLUS for
working capital purposes. The outstanding loan balance at December 31, 1997, is
$32,217,287. The outstanding loan balance at December 31, 1996, was
$78,700,756. Interest expense realized on these loans during 1997 and 1996
amounted to approximately $2,989,909 and $2,033,000, respectively. At December
31, 1997 and 1996, the interest rate on the loan balance was 6.5 percent and
6.56 percent, respectively.
At December 31,1997 and 1996, the Company had loans receivable of $15.0
million and $17.8 million, respectively, from an affiliate. Under the guarantee
agreements between the Company and JLC, the principal and accrued interest on
these loans were guaranteed by JLC. Guarantee fees payable to JLC consist of
certain percentages of outstanding loan balances and residual proceeds, if any.
Guarantee fee expense incurred under this arrangement was approximately
$169,000 and $126,000 in 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES:
Rental expense for office space for the years ended December 31, 1997 and
1996, was approximately $321,000 and $280,000, respectively.
The minimum rental commitments under noncancelable leases as of December
31, 1997, are as follows:
Year Ending
December 31
- ----------------------
1998 ............... $ 280,387
1999 ............... 265,817
2000 ............... 228,926
2001 ............... 201,757
2002 ............... 50,439
Thereafter ......... --
----------
$1,027,326
==========
12. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, in accordance with the Agreement, the
Company securitized an additional $31,225,083 principal balance of direct
financing leases through JLA FC II and received proceeds of $30,105,418 and
contributed equity in the amount of $1,119,665. In March 1998, Class B
securities totaling $3,092,000 that were held by the Company were sold for
$3,076,385.
In March 1998, the Company entered into a securitization agreement whereby
it will securitize its lease receivables and receive proceeds of up to $200
million. This securitization is expected to close by the end of March 1998. The
proceeds of this securitization will be used to finance and acquire new
equipment contracts.
F-44
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 23,689
NASD filing fee ............................................. 9,022
Nasdaq National Market initial listing fee .................. 81,625
Printing and engraving expenses* ............................ 100,000
Legal fees and expenses* .................................... 475,000
Accounting fees and expenses* ............................... 300,000
Transfer agent fees* ........................................ 10,000
Total other expenses* ....................................... 1,100,000
-----------
Total expenses .............................................. $ 2,099,336
</TABLE>
- ------------
*Estimate
Item 14. Indemnification of Directors and Officers
As permitted by the Pennsylvania Business Corporation Law of 1988,
Registrant's Bylaws provide that directors of Registrant shall not be
personally liable to Registrant or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's fiduciary duty to Registrant or its shareholders and the
breach constitutes self-dealing, willful misconduct or recklessness and (ii)
for acts or omissions not in good faith or which involve a knowing violation of
law. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and persons controlling Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Resource America, Registrant's corporate parent (which will be the owner
of a majority of Registrant's common stock following this offering), maintains
directors' and officers' liability insurance which also covers the directors
and executive officers of Registrant. The insurance provides coverage against
any actual or alleged error, misstatement, misleading statement, act, omission,
neglect or breach of duty by any director or officer, excluding certain matters
including fraudulent, dishonest or criminal acts or self-dealing.
Item 15. Recent Sales of Unregistered Securities.
Registrant has issued options to purchase an aggregate of 1,042,571 shares
of its common stock to certain key employees. These options vest over a period
of four years from the date of issue and are exercisable at prices ranging from
$0.32 to $3.82 per share. The issuance of the stock options was exempt from
registration pursuant to Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
a. Exhibits.
<TABLE>
<S> <C>
1.* Form of Underwriting Agreement
2.1** Stock Purchase Agreement, dated as of December 15, 1998, between Japan Leasing
(U.S.A.), Inc. and Registrant
2.2** Amendment No. 1 to Stock Purchase Agreement, dated as of December 31, 1998
2.3** Amendment No. 2 to Stock Purchase Agreement, dated as of January 12, 1998
2.4** Amendment No. 3 to Stock Purchase Agreement, dated as of February 2, 1999
2.5** Amendment No. 4 to Stock Purchase Agreement, dated as of January 3, 1999
3.1** Articles of Incorporation of Registrant
3.2** Articles of Amendment of Registrant
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
3.2(a) Articles of Amendment of Registrant
3.3** Amended and Restated Bylaws of Registrant
4.* Form of certificate for common stock
5.* Opinion of Ledgewood Law Firm, P.C. as to the legality of the securities
10.1** Amended and Restated Loan and Security Agreement, dated September 30, 1998, between
Registrant and First Union National Bank, as agent
10.2** Joinder and Amendment to Amended and Restated Loan and Security Agreement, dated
March 26, 1999, among First Union National Bank, European American Bank, Registrant,
JLA Credit Corporation, Resource America, Resource Leasing, Inc., FL Partnership
Management, Inc. and FL Financial Services, Inc.
10.3** Stock Pledge Agreement, dated March 26, 1999, between First Union National Bank, as
agent, and Registrant
10.4** Amendment to Amended and Restated Loan and Security Agreement, dated May 18,
1999, among First Union National Bank, as agent, Registrant, JLA Credit Corporation,
Resource America, Resource Leasing, Inc., FL Partnership Management, Inc. and FL
Financial Services, Inc.
10.5** Credit Agreement, dated as of May 19, 1999, between Fidelity Leasing Canada, Inc. and
Bank of Montreal
10.6** Guarantee, dated May 19, 1999, from Registrant and Resource America to Bank of
Montreal
10.7** Purchase and Sale Agreement, dated December 18, 1997, between Registrant and SW
Leasing Portfolio IV, Inc.
10.8** Receivables Purchase Agreement, dated December 18, 1997, among SW Leasing Portfolio
IV, Inc., Registrant, Variable Funding Capital Corporation, First Union Capital Markets
Corp., First Union National Bank, Harris Trust and Savings Bank and others
10.8(a) Amendment No. 4 to Receivables Purchase Agreement, dated as of June 30, 1999.
10.9** Purchase and Sale Agreement, dated June 24, 1998, between Registrant and Fidelity
Leasing SPC I, Inc.
10.10** Receivables Purchase Agreement, dated June 24, 1998, among Fidelity Leasing SPC I,
Inc., Registrant, Variable Funding Capital Corporation, First Union Capital Markets, First
Union National Bank, Harris Trust and Savings Bank and others
10.10 (a) Amendment No. 1 to Receivables Purchase Agreement, dated as of March 25, 1999
10.10 (b) Amendment No. 2 to Receivables Purchase Agreement, dated as of June 30, 1999
10.10 (c) Third Amendment to Receivables Purchase Agreement, dated as of July 14, 1999
10.11** Amended and Restated Purchase and Sale Agreement, dated February 5, 1999, between
Registrant, JLA Credit Corporation and Fidelity Leasing SPC II, Inc.
10.12** Receivables Purchase Agreement, dated December 29, 1998, among Fidelity Leasing SPC
II, Inc., Registrant, Market Street Funding Corporation, PNC Bank, National Association
and Harris Trust and Savings Bank (conformed as amended on February 5, 1999 and
March 8, 1999)
10.12 (a) Third Amendment to Receivables Purchase Agreement, dated as of June 28, 1999
10.13** Purchase and Sale Agreement, dated February 4, 1999, among Registrant, Fidelity
Leasing SPE III, LLC, and JLA Credit Corporation
10.14** Receivables Credit Agreement, dated February 4, 1999, among Fidelity Leasing SPE III,
LLC, Registrant, Variable Funding Capital Corporation, First Union Capital Markets, First
Union National Bank, Harris Trust and Savings Bank and others
10.15** Guaranty, dated February 4, 1999, among Registrant, First Union Capital Markets and
Variable Funding Capital Corporation
10.16 Indenture, dated August 15, 1997, among JLA Credit Funding Corporation II, JLA Credit
Credit Corporation and LTCB Trust Company
10.17 Sale and Servicing Agreement, dated August 15, 1997, between JLA Credit Credit
Corporation and JLA Credit Funding Corporation II
10.18 Indenture, dated March 30, 1998, among JLA Credit Funding Corporation III, JLA Credit
Credit Corporation and LTCB Trust Company
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.19 Sale and Servicing Agreement, dated March 30, 1998, between JLA Credit Corporation
and JLA Credit Funding Corporation III
10.20** Transfer and Sale Agreement, dated as of June 2, 1999, between Registrant and Fidelity
Equipment Lease Depositor I, LLC
10.21** Indenture, dated June 2, 1999, between Fidelity Equipment Lease Trust 1999-1 and Harris
Trust and Savings Bank
10.22** Sale and Servicing Agreement, dated as of June 2, 1999, among Fidelity Equipment Lease
Depositor I, LLC, Registrant and Harris Trust and Savings Bank
10.23** Lease Agreement between Bryn Mawr Associates and Registrant
10.24** Lease Addendum
10.25** Fidelity Leasing, Inc. 1996-1 Key Employee Stock Option Plan
10.26** Contribution Agreement, dated March 5, 1996, between Resource Leasing, Inc. and
Abraham Bernstein
10.27** Amendment No. 1 to Contribution Agreement, dated June 30, 1999
10.28** Registration Rights Agreement, dated March 5 1996 between Registrant and Abraham
Bernstein
10.29** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-1 Key Employee
Stock Option Plan, dated March 5, 1996, between Registrant and Abraham Bernstein
10.30** Fidelity Leasing, Inc. 1996-2 Key Employee Stock Option Plan
10.31** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-2 Key Employee
Stock Option Plan, dated May 9, 1996, between Registrant and Crit S. DeMent
10.32** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-2 Key Employee
Stock Option Plan, dated May 9, 1996, between Registrant and Joseph T. Ellis, Jr.
10.33** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-2 Key Employee
Stock Option Plan, dated October 8, 1998, between Registrant and Joseph T. Ellis, Jr.
10.34** Employment Agreement, dated March 5, 1996, between Registrant and Abraham
Bernstein
10.35** Amendment No. 1 to Employment Agreement, dated as of March 4, 1999
10.36** Employment Agreement, dated as of June 30, 1999, between Registrant and Crit S.
DeMent
10.37** Employment Agreement, dated as of June 30, 1999, between Registrant and Joseph T.
Ellis, Jr.
10.38 Receivables Funding Agreement, dated as of July 14, 1999, among Fidelity Leasing SPC
IV, Inc., Registrant, Variable Funding Capital Corporation, First Union Capital Markets
Corp. and others
10.38 (a)* Amendment No. 1 to Receivables Funding Agreement, dated as of August 23, 1999
10.39 Purchase and Sale Agreement dated as of July 14, 1999, between Registrant and Fidelity
Leasing SPC IV, Inc.
10.39 (a)* Amendment No. 1 to Purchase and Sale Agreement, dated as of August 23, 1999
10.40 Secured Subordinated Loan Agreement, dated as of July 14, 1999, among Fidelity
Leasing SPC I, Inc. Registrant and First Union National Bank
10.41 Secured Subordinated Loan Agreement, dated as of July 14, 1999, among Fidelity
Leasing SPC IV, Inc., Registrant and First Union National Bank
10.42 Form of Fidelity Leasing, Inc. 1999 Key Employee Stock Option Plan
11. Statement re: computation of per share earnings
21. Subsidiaries of Registrant
23.1 Consent of Grant Thornton LLP
23.2 Consent of Grant Thornton LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Ledgewood Law Firm, P.C. (included in Exhibit 5)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed with the Registration Statement on Form S-1 on July 2,
1999.
II-3
<PAGE>
b. Financial Statements.
Included within the prospectus are the following:
o Consolidated balance sheets, statements of operations, statements of
changes in stockholder's equity and statements of cash flows for
Registrant for the fiscal years ending September 30, 1996, 1997 and 1998
and for the six months ended March 31, 1998 (unaudited) and March 31,1999.
o Consolidated balance sheets, statements of operations and retained
earnings and statements of cash flows for JLA Credit Corporation for the
fiscal years ended December 31, 1996, 1997 and 1998.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of Registrant's Articles of
Incorporation, Bylaws 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 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a director, officer or controlling person of 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, 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant undertakes that:
1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of West
Chester, Commonwealth of Pennsylvania, on September 15, 1999
FIDELITY LEASING, INC.
By: /s/Abraham Bernstein
-------------------------------------
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Abraham Bernstein
- -----------------------------------
Abraham Bernstein, individually and as attorney-in-fact for:
Crit S. DeMent
John L. Dale
Joseph T. Ellis
Charles J. Santangelo
Debbi Hard Baptist
Daniel G. Cohen
Edward E. Cohen
Anthony Courakis
Steven J. Elgart
Darshan V. Patel
Blanche G. Ross
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.* Form of Underwriting Agreement
2.1** Stock Purchase Agreement, dated as of December 15, 1998, between Japan Leasing
(U.S.A.), Inc. and Registrant
2.2** Amendment No. 1 to Stock Purchase Agreement, dated as of December 31, 1998
2.3** Amendment No. 2 to Stock Purchase Agreement, dated as of January 12, 1998
2.4** Amendment No. 3 to Stock Purchase Agreement, dated as of February 2, 1999
2.5** Amendment No. 4 to Stock Purchase Agreement, dated as of January 3, 1999
3.1** Articles of Incorporation of Registrant
3.2** Articles of Amendment of Registrant
3.2(a) Articles of Amendment of Registrant
3.3** Amended and Restated Bylaws of Registrant
4.* Form of certificate for common stock
5.* Opinion of Ledgewood Law Firm, P.C. as to the legality of the securities
10.1** Amended and Restated Loan and Security Agreement, dated September 30, 1998, between
Registrant and First Union National Bank, as agent
10.2** Joinder and Amendment to Amended and Restated Loan and Security Agreement, dated
March 26, 1999, among First Union National Bank, European American Bank, Registrant,
JLA Credit Corporation, Resource America, Resource Leasing, Inc., FL Partnership
Management, Inc. and FL Financial Services, Inc.
10.3** Stock Pledge Agreement, dated March 26, 1999, between First Union National Bank, as
agent, and Registrant
10.4** Amendment to Amended and Restated Loan and Security Agreement, dated May 18,
1999, among First Union National Bank, as agent, Registrant, JLA Credit Corporation,
Resource America, Resource Leasing, Inc., FL Partnership Management, Inc. and FL
Financial Services, Inc.
10.5** Credit Agreement, dated as of May 19, 1999, between Fidelity Leasing Canada, Inc. and
Bank of Montreal
10.6** Guarantee, dated May 19, 1999, from Registrant and Resource America to Bank of
Montreal
10.7** Purchase and Sale Agreement, dated December 18, 1997, between Registrant and SW
Leasing Portfolio IV, Inc.
10.8** Receivables Purchase Agreement, dated December 18, 1997, among SW Leasing Portfolio
IV, Inc., Registrant, Variable Funding Capital Corporation, First Union Capital Markets
Corp., First Union National Bank, Harris Trust and Savings Bank and others
10.8(a) Amendment No. 4 to Receivables Purchase Agreement, dated as of June 30, 1999.
10.9** Purchase and Sale Agreement, dated June 24, 1998, between Registrant and Fidelity
Leasing SPC I, Inc.
10.10** Receivables Purchase Agreement, dated June 24, 1998, among Fidelity Leasing SPC I,
Inc., Registrant, Variable Funding Capital Corporation, First Union Capital Markets, First
Union National Bank, Harris Trust and Savings Bank and others
10.10 (a) Amendment No. 1 to Receivables Purchase Agreement, dated as of March 25, 1999
10.10 (b) Amendment No. 2 to Receivables Purchase Agreement, dated as of June 30, 1999
10.10 (c) Third Amendment to Receivables Purchase Agreement, dated as of July 14, 1999
10.11** Amended and Restated Purchase and Sale Agreement, dated February 5, 1999, between
Registrant, JLA Credit Corporation and Fidelity Leasing SPC II, Inc.
10.12** Receivables Purchase Agreement, dated December 29, 1998, among Fidelity Leasing SPC
II, Inc., Registrant, Market Street Funding Corporation, PNC Bank, National Association
and Harris Trust and Savings Bank (conformed as amended on February 5, 1999 and
March 8, 1999)
10.12 (a) Third Amendment to Receivables Purchase Agreement, dated as of June 28, 1999
10.13** Purchase and Sale Agreement, dated February 4, 1999, among Registrant, Fidelity
Leasing SPE III, LLC, and JLA Credit Corporation
10.14** Receivables Credit Agreement, dated February 4, 1999, among Fidelity Leasing SPE III,
LLC, Registrant, Variable Funding Capital Corporation, First Union Capital Markets, First
Union National Bank, Harris Trust and Savings Bank and others
10.15** Guaranty, dated February 4, 1999, among Registrant, First Union Capital Markets and
Variable Funding Capital Corporation
10.16 Indenture, dated August 15, 1997, among JLA Credit Funding Corporation II, JLA Credit
Credit Corporation and LTCB Trust Company
10.17 Sale and Servicing Agreement, dated August 15, 1997, between JLA Credit Credit
Corporation and JLA Credit Funding Corporation II
10.18 Indenture, dated March 30, 1998, among JLA Credit Funding Corporation III, JLA Credit
Credit Corporation and LTCB Trust Company
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.19 Sale and Servicing Agreement, dated March 30, 1998, between JLA Credit Corporation
and JLA Credit Funding Corporation III
10.20** Transfer and Sale Agreement, dated as of June 2, 1999, between Registrant and Fidelity
Equipment Lease Depositor I, LLC
10.21** Indenture, dated June 2, 1999, between Fidelity Equipment Lease Trust 1999-1 and Harris
Trust and Savings Bank
10.22** Sale and Servicing Agreement, dated as of June 2, 1999, among Fidelity Equipment Lease
Depositor I, LLC, Registrant and Harris Trust and Savings Bank
10.23** Lease Agreement between Bryn Mawr Associates and Registrant
10.24** Lease Addendum
10.25** Fidelity Leasing, Inc. 1996-1 Key Employee Stock Option Plan
10.26** Contribution Agreement, dated March 5, 1996, between Resource Leasing, Inc. and
Abraham Bernstein
10.27** Amendment No. 1 to Contribution Agreement, dated June 30, 1999
10.28** Registration Rights Agreement, dated March 5 1996 between Registrant and Abraham
Bernstein
10.29** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-1 Key Employee
Stock Option Plan, dated March 5, 1996, between Registrant and Abraham Bernstein
10.30** Fidelity Leasing, Inc. 1996-2 Key Employee Stock Option Plan
10.31** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-2 Key Employee
Stock Option Plan, dated May 9, 1996, between Registrant and Crit S. DeMent
10.32** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-2 Key Employee
Stock Option Plan, dated May 9, 1996, between Registrant and Joseph T. Ellis, Jr.
10.33** Grant of Incentive Stock Option Pursuant to Fidelity Leasing, Inc. 1996-2 Key Employee
Stock Option Plan, dated October 8, 1998, between Registrant and Joseph T. Ellis, Jr.
10.34** Employment Agreement, dated March 5, 1996, between Registrant and Abraham
Bernstein
10.35** Amendment No. 1 to Employment Agreement, dated as of March 4, 1999
10.36** Employment Agreement, dated as of June 30, 1999, between Registrant and Crit S.
DeMent
10.37** Employment Agreement, dated as of June 30, 1999, between Registrant and Joseph T.
Ellis, Jr.
10.38 Receivables Funding Agreement, dated as of July 14, 1999, among Fidelity Leasing SPC
IV, Inc., Registrant, Variable Funding Capital Corporation, First Union Capital Markets
Corp. and others
10.38 (a)* Amendment No. 1 to Receivables Funding Agreement, dated as of August 23, 1999
10.39 Purchase and Sale Agreement dated as of July 14, 1999, between Registrant and Fidelity
Leasing SPC IV, Inc.
10.39 (a)* Amendment No. 1 to Purchase and Sale Agreement, dated as of August 23, 1999
10.40 Secured Subordinated Loan Agreement, dated as of July 14, 1999, among Fidelity
Leasing SPC I, Inc. Registrant and First Union National Bank
10.41 Secured Subordinated Loan Agreement, dated as of July 14, 1999, among Fidelity
Leasing SPC IV, Inc., Registrant and First Union National Bank
10.42 Form of Fidelity Leasing, Inc. 1999 Key Employee Stock Option Plan
11. Statement re: computation of per share earnings
21. Subsidiaries of Registrant
23.1 Consent of Grant Thornton LLP
23.2 Consent of Grant Thornton LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Ledgewood Law Firm, P.C. (included in Exhibit 5)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed with the Registration Statement on Form S-1 on July 2,
1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Microfilm Number Filed with the Department of State on
------------ -------------------
Entity Number
------------ ----------------------------------------------------------
Secretary of the Commonwealth
</TABLE>
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 54 Pa.C.S. ss. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby state(s) that:
1. The name of the corporation is: Fidelity Leasing, Inc.
--------------------------------------------
---------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
1255 Wrights Lane West Chester Pennsylvania 19380 Chester
- --------------------------------------------------------------------------------
Number and Street City State Zip County
- --------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the corporation
is located for venue and official publication purposes.
3. The Statute by or under which it was incorporated is: 15 Pa.C.S.ss.1306
-----------------------
4. The date of incorporation is: March 4, 1996
5. (Check and, if appropriate, complete one of the following):
x The Amendment shall be effective upon filing these Articles of Amendment
--- in the Department of State.
The Amendment shall be effective on , 199 , at o'clock.
---
6. (Check one of the following):
x The Amendment was adopted by the shareholders(or members) pursuant to
--- 15 Pa.C.S.ss.1914(a) and (b).
The Amendment was adopted by the board of directors pursuant to
--- 15 Pa.C.S. ss. 1914(c).
<PAGE>
7. (Check and, if appropriate, complete one of the following):
x The Amendment, adopted by the corporation, set forth in full, is as
--- follows:
Article 4 is hereby amended by adding the following as the last
paragraph:
"As of the effective time of this amendment, each share of
common stock authorized immediately prior to this amendment
shall be converted and changed into 1.002857 of a share of
Common Stock."
--- The Amendment adopted by the corporation as set forth in Exhibit A is
attached hereto and made a part hereof.
8. (Check if the amendment restates the Articles):
--- The restated articles of incorporation superseded the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof
this 5th day of August, 1999.
Fidelity Leasing, Inc
-------------------------------
(name of corporation)
By:
---------------------------
(signature)
TITLE:
---------------------------
<PAGE>
AMENDMENT NO. 4 TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 4 TO RECEIVABLES PURCHASE AGREEMENT, dated as of
June 30, 1999 (this "Amendment"), is entered into by and among SW LEASING
PORTFOLIO IV, INC., as Seller, FIDELITY LEASING, INC., as Servicer, certain
Investors, VARIABLE FUNDING CAPITAL CORPORATION ("VFCC"), as a Purchaser, FIRST
UNION CAPITAL MARKETS CORP., as Deal Agent, FIRST UNION NATIONAL BANK ("First
Union"), as Liquidity Agent and HARRIS TRUST AND SAVINGS BANK, as the Collateral
Custodian and the Backup Servicer. Capitalized terms used and not otherwise
defined herein are used as defined in the Agreement (as defined below).
WHEREAS, the parties hereto entered into that certain Receivables
Purchase Agreement, dated as of December 18, 1997 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as provided herein;
NOW THEREFORE, in consideration of the premises and the other mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) The following additional definition is hereby added to
Section 1.1 of the Agreement:
"Available Funds. With respect to any Payment Date, all amounts
received in the Collection Account during Collection Period that ended
on the last day of calendar month immediately preceding the calendar
month in which such Payment Date occurs."
(b) The first sentence of Section 2.7(a), to the first colon,
is hereby modified, amended and restated to read in its entirety as follows:
"On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent of Available
Funds, and (ii) a Servicer Advance if made or required pursuant to
Section 6.3, the following amounts in the following order of priority:"
(c) The first sentence of Section 2.8(b), to the first colon,
is hereby modified, amended and restated to read in its entirety as follows:
"On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent of Available
Funds, and (ii) a Servicer Advance if made or required pursuant to
Section 6.3, the following amounts in the following order of priority:"
<PAGE>
(d) The first sentence of Section 2.9(b), to the first colon,
is hereby modified, amended and restated to read in its entirety as follows:
"On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent of Available
Funds, and (ii) a Servicer Advance if made or required pursuant to
Section 6.3, the following amounts in the following order of priority:"
(e) Section 7.1 of the Agreement is hereby amended, modified
and restated to read in its entirety as follows:
"If any of the following events ("Payout Events") shall occur:
(a) as of any Reporting Date, the Delinquency Ratio for
the preceding Determination Date exceeds 3.0%;
(b) as of any Reporting Date, the Default Ratio for the
preceding Determination Date exceeds 2.75%;
(c) the passage of 60 days following receipt by the
Purchaser of a written notification of the Seller's intent to
terminate the revolving period; or
(d) the occurrence of the Termination Date."
(f) Section 7.2(c) of the Agreement is hereby deleted and
replaced with the following:
"(c) [reserved];"
SECTION 2. Agreement in Full Force and Effect as Amended. Except as
specifically amended hereby, the Agreement shall remain in full force and
effect. All references to the Agreement shall be deemed to mean the Agreement as
modified hereby. This Amendment shall not constitute a novation of the
Agreement, but shall constitute an amendment thereof. The parties hereto agree
to be bound by the terms and conditions of the Agreement, as amended by this
Amendment, as though such terms and conditions were set forth herein.
- 2 -
<PAGE>
SECTION 3. Miscellaneous.
(a) The effective date of this Amendment shall be April 19, 1999.
(g) This Amendment may be executed in any number of counterparts, and
by the different parties hereto on the same or separate counterparts, each of
which shall be deemed to be an original instrument but all of which together
shall constitute one and the same agreement.
(b) The descriptive headings of the various sections of this Amendment
are inserted for convenience of reference only and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.
(c) This Amendment may not be amended or otherwise modified except as
provided in the Agreement.
(d) First Union certifies by execution hereof that it is an Investor
with Commitments in excess of 66 2/3% of the Purchase Limit, and therefore is a
Required Investor pursuant to the Agreement.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS
PROVISIONS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE SELLER: SW LEASING PORTFOLIO IV, INC.
By: ___________________________
Name:
Title:
THE SERVICER: FIDELITY LEASING, INC.
By: ___________________________
Name:
Title:
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
VFCC: VARIABLE FUNDING CAPITAL
CORPORATION
By First Union Capital Markets Corp.,
as attorney-in-fact
By: ___________________________
Name:
Title:
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288-0610
Attn: Conduit Administration
Facsimile: (704) 383-9630
Telephone: (704) 383-9343
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By: ___________________________
Name:
Title:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile : (704) 383-6036
Telephone: (704) 383-9343
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
THE DOCUMENTATION AGENT: FIRST UNION CAPITAL MARKETS CORP.
By: ___________________________
Name:
Title:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile : (704) 383-6036
Telephone: (704) 383-9343
THE LIQUIDITY AGENT: FIRST UNION NATIONAL BANK
By: ___________________________
Name:
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Capital Markets Credit Administration
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
THE COLLATERAL CUSTODIAN: HARRIS TRUST AND SAVINGS BANK
By: ___________________________
Name:
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3525
Telephone:(312) 461-2532
THE BACKUP SERVICER: HARRIS TRUST AND SAVINGS BANK
By: ___________________________
Name:
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3525
Telephone:(312) 461-2532
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
REQUIRED INVESTORS: FIRST UNION NATIONAL BANK
By: ___________________________
Name:
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit Administration
Facsimile: (704) 374-3254
THE HEDGE COUNTERPARTY: FIRST UNION NATIONAL BANK
By: ___________________________
Name:
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit Administration
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
<PAGE>
AMENDMENT NO. 1 TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO RECEIVABLES PURCHASE AGREEMENT, dated as of
March 25, 1999 (the "Amendment"), is entered into by and among FIDELITY LEASING
SPC I, INC., as Seller, FIDELITY LEASING, INC., as Sevicer, certain Investors,
VARIABLE FUNDING CAPITAL CORPORATION ("VFCC"), as a Purchaser, FIRST UNION
CAPITAL MARKETS CORP. (formerly known as First Union Capital Markets, a division
of Wheat First Securities, Inc.), as Deal Agent, FIRST UNION NATIONAL BANK
("First Union"), as Liquidity Agent and HARRIS TRUST AND SAVINGS BANK, as the
Collateral Custodian and the Backup Servicer. Capitalized terms used and not
otherwise defined herein are used as defined in the Agreement (as defined
below).
WHEREAS, the parties hereto enter into that certain Receivables
Purchase Agreement, dated as of June 24, 1998 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as provided herein;
NOW, THEREFORE, in consideration of the premises and the other mutual
covenants herein, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) The definition of "Purchase Limit" in Section 1.1 of the Agreement
is hereby amended and restated in its entirety as follows:
Purchase Limit: At any time, $125,000,000, on or after the
Termination Date, the "Purchase Limit" shall mean the
aggregate outstanding Capital."
(b) The Commitment of First Union National Bank set forth on the
signature page is hereby amended and restated to be "$125,000,000."
SECTION 2. Agreement in Full Force and Effect as Amended. Except as
specifically amended hereby, the Agreement shall remain in full force and
effect. All references to the Agreement shall be deemed to mean the Agreement as
modified hereby. This Amendment shall not constitute a novation of the
Agreement, but shall constitute an amendment thereof. The parties hereto agree
to be bound by the terms and conditions of the Agreement, as amended by this
Amendment, as though such terms and conditions were set forth herein.
<PAGE>
SECTON 3. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts, and
by the different parties hereto on the same or separate counterparts, each of
which shall be deemed to be an original instrument but all of which together
shall constitute one and the same agreement.
(b) The descriptive headings of the various sections of this Amendment
are inserted for convenience of reference only and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.
(c) This Amendment may not be amended or otherwise modified except as
provided in the Agreement.
(d) First Union certifies by execution hereof that it is an Investor
with Commitments in excess of 66 2/3% of the Purchase Limit, and therefore is a
Required Investor pursuant to the Agreement.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS
PROVISIONS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE SELLER: FIDELITY LEASING SPC I, INC.
By:
-------------------------------------
Title:
THE SERVICER: FIDELITY LEASING, INC.
By:
-------------------------------------
Title:
FIDELITY LEASING, INC.: FIDELITY LEASING, INC.
By:
-------------------------------------
Title:
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
3
<PAGE>
VFCC: VARIABLE FUNDING CAPITAL CORPORATION
By: First Union Capital Markets Corp., as
attorney-in-fact
By:
-------------------------------------
Title:
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288-0610
Attn: Conduit Administration
Facsimile: (704) 383-9630
Telephone: (704) 383-9343
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By:
-------------------------------------
Title:
First Union Capital Market Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile: (704) 383-6036
Telephone: (704) 383-9343
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
4
<PAGE>
VFCC: VARIABLE FUNDING CAPITAL CORPORATION
By: First Union Capital Markets Corp.,
as attorney-in-fact
By:
-------------------------------------
Title:
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288-0610
Attn: Conduit Administration
Facsimile: (704) 383-9630
Telephone: (704) 383-9343
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By:
-------------------------------------
Title:
First Union Capital Market Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile: (704) 383-6036
Telephone: (704) 383-9343
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
5
<PAGE>
THE DOCUMENTATION AGENT: FIRST UNION CAPITAL MARKETS CORP.
By:
-------------------------------------
Title:
First Union Capital Market Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile: (704) 383-6036
Telephone: (704) 383-9343
THE LIQUIDITY AGENT: FIRST UNION NATIONAL BANK
By:
-------------------------------------
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Capital Markets Credit
Administration
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
6
<PAGE>
THE COLLATERAL CUSTODIAN: HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------------
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3625
Telephone: (312) 461-2532
THE BACKUP SERVICER: HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------------
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3625
Telephone: (312) 461-2532
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
7
<PAGE>
REQUIRED INVESTORS: FIRST UNION NATIONAL BANK
By:
-------------------------------------
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Capital Markets Credit
Administration
Facsimile: (704) 374-3254
THE HEDGE COUNTERPARTY: FIRST UNION NATIONAL BANK
By:
-------------------------------------
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Capital Markets Credit
Administration
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
8
<PAGE>
AMENDMENT NO. 2 TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT, dated as of
June 30, 1999 (this "Amendment"), is entered into by and among FIDELITY LEASING
SPC I, INC., as Seller, FIDELITY LEASING, INC., as Servicer, certain Investors,
VARIABLE FUNDING CAPITAL CORPORATION ("VFCC"), as a Purchaser, FIRST UNION
CAPITAL MARKETS CORP. (formerly known as First Union Capital Markets, a division
of Wheat First Securities, Inc.), as Deal Agent, FIRST UNION NATIONAL BANK
("First Union"), as Liquidity Agent and HARRIS TRUST AND SAVINGS BANK, as the
Collateral Custodian and the Backup Servicer. Capitalized terms used and not
otherwise defined herein are used as defined in the Agreement (as defined
below).
WHEREAS, the parties hereto entered into that certain Receivables
Purchase Agreement, dated as of June 24, 1998 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as provided herein;
NOW THEREFORE, in consideration of the premises and the other mutual
covenants contained herein, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) The following additional definition is hereby added to
Section 1.1 of the Agreement:
"Available Funds. With respect to any Payment Date, all amounts
received in the Collection Account during Collection Period that ended
on the last day of calendar month immediately preceding the calendar
month in which such Payment Date occurs."
(b) The first sentence of Section 2.7(a), to the first colon,
is hereby modified, amended and restated to read in its entirety as follows:
"On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent of Available
Funds, and (ii) a Servicer Advance if made or required pursuant to
Section 6.3, the following amounts in the following order of priority:"
(c) The first sentence of Section 2.8(b), to the first colon,
is hereby modified, amended and restated to read in its entirety as follows:
<PAGE>
"On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent of Available
Funds, and (ii) a Servicer Advance if made or required pursuant to
Section 6.3, the following amounts in the following order of priority:"
(d) The first sentence of Section 2.9(b), to the first colon,
is hereby modified, amended and restated to read in its entirety as follows:
"On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent of Available
Funds, and (ii) a Servicer Advance if made or required pursuant to
Section 6.3, the following amounts in the following order of priority:"
(e) Section 7.1 of the Agreement is hereby amended, modified and
restated to read in its entirety as follows:
"If any of the following events ("Payout Events") shall occur:
(a) as of any Reporting Date, the Delinquency Ratio
for the preceding Determination Date exceeds 3.0%;
(b) as of any Reporting Date, the Default Ratio for
the preceding Determination Date exceeds 2.75%; or
(c) the passage of 60 days following receipt by the
Purchaser of a written notification of the Seller's intent to
terminate the revolving period; or
(d) the occurrence of the Termination Date."
(f) Section 7.2(c) of the Agreement is hereby deleted and
replaced with the following:
"(c) [reserved];"
SECTION 2. Agreement in Full Force and Effect as Amended. Except as
specifically amended hereby, the Agreement shall remain in full force and
effect. All references to the Agreement shall be deemed to mean the Agreement as
modified hereby. This Amendment shall not constitute a novation of the
Agreement, but shall constitute an amendment thereof. The parties hereto agree
to be bound by the terms and conditions of the Agreement, as amended by this
Amendment, as though such terms and conditions were set forth herein.
-2-
<PAGE>
SECTION 3. Miscellaneous.
(a) The effective date of this Amendment shall be June 23, 1999.
(g) This Amendment may be executed in any number of counterparts, and
by the different parties hereto on the same or separate counterparts, each of
which shall be deemed to be an original instrument but all of which together
shall constitute one and the same agreement.
(b) The descriptive headings of the various sections of this Amendment
are inserted for convenience of reference only and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.
(c) This Amendment may not be amended or otherwise modified except as
provided in the Agreement.
(d) First Union certifies by execution hereof that it is an Investor
with Commitments in excess of 66 2/3% of the Purchase Limit, and therefore is a
Required Investor pursuant to the Agreement.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS
PROVISIONS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE SELLER: FIDELITY LEASING SPC I, INC.
By:
--------------------------------
Name:
Title:
THE SERVICER: FIDELITY LEASING, INC.
By:
--------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
VFCC: VARIABLE FUNDING CAPITAL
CORPORATION
By First Union Capital Markets Corp.,
as attorney-in-fact
By:
-----------------------------------
Name:
Title:
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288-0610
Attn: Conduit Administration
Facsimile: (704) 383-9630
Telephone: (704) 383-9343
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By:
-----------------------------------
Name:
Title:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile : (704) 383-6036
Telephone: (704) 383-9343
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
THE DOCUMENTATION AGENT: FIRST UNION CAPITAL MARKETS CORP.
By:
----------------------------------------
Name:
Title:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Facsimile : (704) 383-6036
Telephone: (704) 383-9343
THE LIQUIDITY AGENT: FIRST UNION NATIONAL BANK
By:
----------------------------------------
Name:
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Capital Markets Credit Administration
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
THE COLLATERAL CUSTODIAN: HARRIS TRUST AND SAVINGS BANK
By:
-----------------------------------
Name:
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3525
Telephone:(312) 461-2532
THE BACKUP SERVICER: HARRIS TRUST AND SAVINGS BANK
By:
-----------------------------------
Name:
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3525
Telephone:(312) 461-2532
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
REQUIRED INVESTORS: FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit Administration
Facsimile: (704) 374-3254
THE HEDGE COUNTERPARTY: FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit Administration
Facsimile: (704) 374-3254
Telephone: (704) 374-4001
<PAGE>
THIRD AMENDMENT TO THE
RECEIVABLES PURCHASE AGREEMENT
AMENDMENT NO. 3 (the "Amendment"), dated as of July 14, 1999, to the Receivables
Purchase Agreement, dated as of June 24, 1998, and as amended, among FIDELITY
LEASING SPC I, INC., (the "Seller"), FIDELITY LEASING, INC. (the "Servicer"),
the Investor named herein, VARIABLE FUNDING CAPITAL CORPORATION, FIRST UNION
CAPITAL MARKETS CORP. f/k/a FIRST UNION CAPITAL MARKETS, a division of WHEAT
FIRST SECURITIES, INC. (the "Deal Agent"), FIRST UNION NATIONAL BANK (the
"Liquidity Agent"), HARRIS TRUST AND SAVINGS BANK (the "Collateral Custodian"
and "Backup Servicer") (as amended, modified or supplemented from time to time,
the "Receivables Purchase Agreement"). Capitalized terms used and not defined
herein shall have the same meanings as defined in the Receivables Purchase
Agreement.
RECITALS
The parties listed on the signature pages hereto desire to amend the
Receivables Purchase Agreement to the extent set forth herein, and are willing
to do so subject to the terms and conditions set forth herein.
Accordingly, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable
considerations, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree to amend the Receivables Purchase Agreement as follows:
SECTION 1. Amendment.
(a) Section 1.1 of the Receivables Purchase Agreement is hereby amended
by adding the following definitions in alphabetical order thereto:
B-Note: The promissory note, dated as of July 14, 1999, made by
Fidelity Leasing SPC I, Inc. and payable to the order of First Union
National Bank.
B-Note Agreement: The Secured Subordinated Loan Agreement, dated as of
July 14, 1999 among the Seller, the Servicer and First Union National
Bank.
B-Note Interest: "Interest" as defined in the B-Note Agreement.
B-Note Lender: The "Lender" under the B-Note Agreement.
<PAGE>
(b) Section 1.1 of the Receivables Purchase Agreement is hereby amended
by adding the following paragraph at the end of the definition "Permitted
Liens":
(c) Liens granted pursuant to the Transaction Documents and/or the
B-Note Agreement.
(c) Section 2.7 of the Receivables Purchase Agreement is hereby amended
by in its entirety to read as follows:
Section 2.7 Non-Liquidation Settlement Procedures.
The provisions of this Section 2.7 shall apply during the term
of this Agreement prior to the occurrence of the Payout Event.
(a) On each Payment Date, the Servicer shall pay to the
following Persons, from (i) the Collection Account, to the extent of
available funds, and (ii) a Servicer Advance if made or required
pursuant to Section 6.3, the following amounts in the following order
of priority:
(i) FIRST, pro rata to each Hedge Counterparty, any amounts,
including any Hedge Breakage Costs, owing that Hedge Counterparty under
its respective Hedging Agreement in respect of any Hedge
Transaction(s), for the payment thereof;
(ii) SECOND, to the Servicer, in an amount equal to any
Unreimbursed Servicer Advances, for the payment thereof;
(iii) THIRD, to the Servicer, in an amount equal to any
accrued and unpaid Servicing Fee arrearage, for the payment thereof;
(iv) FOURTH, to the Servicer, in amount equal to any accrued
and unpaid Servicing Fee, for the payment thereof;
(v) FIFTH, to the extent not paid for by Fidelity, to the
Backup Servicer, in an amount equal to any accrued and unpaid Backup
Servicing Fee, for the payment thereof;
(vi) SIXTH, to the extent not paid for by Fidelity, to the
Collateral Custodian, in an amount equal to any accrued and unpaid
Custodial Fee, for the payment thereof;
(vii) SEVENTH, to the extent not paid for by Fidelity, to the
Deal Agent for the ratable payment to each Purchaser in an amount equal
to any accrued and unpaid Commitment Fees;
<PAGE>
(viii) EIGHTH, to the extent not paid for by Fidelity, to the
Deal Agent for the ratable payment to each Purchaser, in an amount
equal to any accrued and unpaid Program Fees and Yield for such Payment
Date;
(ix) NINTH, to the Deal Agent, in the amount of unpaid
Increased Costs and/or Taxes, for payment to the Purchasers in respect
thereof;
(x) TENTH, to the B-Note Lender, in an amount equal to the
accrued and unpaid B-Note Interest under the B-Note for such Accrual
Period;
(xi) ELEVENTH, to the extent that funds are available, any
remaining amounts may be reinvested in Eligible Contracts; provided,
however, that if the aggregate Capital exceeds the lesser of (i) the
Capital Limit; or (ii) the Purchase Limit an amount equal to such
excess shall be paid to the Deal Agent to pay down Capital outstanding;
(xii) TWELFTH, to the extent funds are available to satisfy
any unpaid Indemnified Amounts, amounts required to be paid by the
Seller pursuant to the indemnification provisions of Section 8.1 and
any other amounts due hereunder;
(xiii) THIRTEENTH, any remaining amounts shall be used to pay
amounts due and owing in respect of the B-Note to the extent not paid
pursuant to clause NINTH above; and
(xiv) FOURTEENTH, any remaining amount shall be distributed to
the Seller.
(b) Notwithstanding anything to the contrary contained in this
Section 2.7 or any other provision in this Agreement, if on any
Business Day prior to the Payout Event the aggregate outstanding amount
of Capital shall exceed the lesser of (i) the Purchase Limit or (ii)
the Capital Limit, then the Seller shall remit to the Deal Agent, prior
to any reinvestment of funds as set forth in item ELEVENTH of Section
2.7(a) and in any event no later than the close of business of the Deal
Agent on the next succeeding Business Day, a payment (to be applied by
the Deal Agent to outstanding Capital allocated to Monthly Periods
selected by the Deal Agent, in its reasonable discretion) in such
amount as may be necessary to reduce outstanding Capital to an amount
less than or equal to the lesser of (i) the Purchase Limit or (ii) the
Capital Limit.
<PAGE>
(d) Section 2.8 of the Receivables Purchase Agreement is hereby amended
by in its entirety to read as follows:
Section 2.8 Settlement Procedures Following a Termination Date.
The provisions of this Section 2.8 shall apply during the term of
this Agreement after the occurrence of a Payout Event provided that no
Restricting Event has occurred.
(a) [reserved].
(b) On each Payment Date, the Servicer shall pay to the following
Persons, from (i) the Collection Account, to the extent available funds
and (ii) a Servicer Advance if made or required pursuant to Section
6.3, the following amounts in the following order of priority:
(i) FIRST, pro rata to each Hedge Counterparty, any amounts,
including any Hedge Breakage Costs, owing that Hedge Counterparty under
its respective Hedging Agreement in respect of any Hedge
Transaction(s), for the payment thereof;
(ii) SECOND, to the Servicer, in an amount equal to any
Unreimbursed Servicer Advances, for the payment thereof;
(iii) THIRD, to the Servicer, in an amount equal to any accrued and
unpaid Servicing Fee arrearage, for the payment thereof;
(iv) FOURTH, to the Servicer, in an amount equal to any accrued and
unpaid Servicing Fee, for the payment thereof;
(v) FIFTH, to the extent not paid for by Fidelity, to the Backup
Servicer, in an amount equal to any accrued and unpaid Backup Servicing
Fee, for the payment thereof;
(vi) SIXTH, to the extent not paid for by Fidelity, to the
Collateral Custodian, in an amount equal to any accrued and unpaid
Custodial Fee, for the payment thereof;
(vii) SEVENTH, to the extent not paid for by Fidelity, to the Deal
Agent for the ratable payment to each Purchaser in an amount equal to
any accrued and unpaid Commitment Fees;
(viii) EIGHTH, to the extent not paid for by Fidelity, to the Deal
Agent, in an amount equal to any accrued and unpaid Program Fees and
Yield for such Payment Date;
<PAGE>
(ix) NINTH, to the Deal Agent, in the amount of unpaid
Increased Costs and/or Taxes, for payment to the Purchasers in respect
thereof;
(x) TENTH, to the B-Note Lender, in an amount equal to the
accrued and unpaid B-Note Interest under the B-Note for such Accrual
Period;
(xi) ELEVENTH, to the Deal Agent for payment to the Purchasers
in an amount necessary to reduce the aggregate Capital to an amount
equal to the product of (i) the Asset Interest and (ii) the ADCB as of
the current Determination Date;
(xii) TWELFTH, to the extent funds are available to satisfy
any unpaid Indemnified Amounts required to be paid by the Seller
pursuant to the indemnification provisions of Section 8.1, and any
other amounts due hereunder;
(xiii) THIRTEENTH, any remaining amounts shall be used to pay
amounts due and owing in respect of the B-Note to the extent not paid
pursuant to clause NINTH above; and
(xii) FOURTEENTH, any remaining amount shall be distributed to
the Seller, provided, however, that if the Overcollateralization is
less than or equal to the product of (i) 0.05 and (ii) the Purchase
Limit as of the day immediately preceding the occurrence of a
Termination Date, the amount which would have been distributed to the
Seller will be distributed to the Purchaser in reduction, to zero, of
the aggregate Capital.
(c) If at any time on or after the occurrence of a Payout
Event, the Deal Agent or the Seller determines that as of the close of
business on the day immediately preceding the Termination Date the
outstanding amount of Capital exceeded the lesser of (i) the Purchase
Limit, or (ii) the Capital Limit, then the Seller shall immediately
remit to the Deal Agent, for the benefit of the Purchasers, a payment
(to be applied by the Deal Agent to outstanding Capital allocated to
Monthly Periods selected by the Deal Agent, in its reasonable
discretion) in such amount as may be necessary to reduce the amount of
Capital to the lesser of (i) the Purchase Limit, or (ii) the Capital
Limit as of the close of business on the date immediately preceding the
Payout Event.
(e) Section 2.9 of the Receivables Purchase Agreement is hereby
amended by in its entirety to read as follows:
Section 2.9 Settlement Procedures Following a Restricting Event.
The provisions of this Section 2.9 shall apply during the term
of this Agreement after the occurrence of a Restricting Event.
<PAGE>
(a) [reserved].
(b) On each Payment Date, the Servicer shall pay to the
following Persons, from (i) the Collection Account, to the extent of
available funds and (ii) a Servicer Advance if made or required
pursuant to Section 6.3, the following amounts in the following order
of priority:
(i) FIRST, pro rata to each Hedge Counterparty, any amounts,
including any Hedge Breakage Costs, owing that Hedge Counterparty under
its respective Hedging Agreement in respect of any Hedge
Transaction(s), for the payment thereof;
(ii) SECOND, to the Servicer, in an amount equal to any
Unreimbursed Servicer Advances, for the payment thereof;
(iii) THIRD, to the Servicer, in an amount equal to any
accrued and unpaid Servicing Fee arrearage, for the payment thereof;
(iv) FOURTH, to the Servicer, in an amount equal to any
accrued and unpaid Servicing Fee, for the payment thereof;
(v) FIFTH, to the extent not paid for by Fidelity, to the
Backup Servicer, in an amount equal to any accrued and unpaid Backup
Servicing Fee, for the payment thereof;
(vi) SIXTH, to the extent not paid for by Fidelity, to the
Collateral Custodian, in an amount equal to any accrued and unpaid
Custodial Fee, for the payment thereof;
(vii) SEVENTH, to the extent not paid for by Fidelity, to the
Deal Agent for the ratable payment to each Purchaser in an amount equal
to any accrued and unpaid Commitment Fees;
(viii) EIGHTH, to the extent not paid for by Fidelity, to the
Deal Agent, for the ratable payment to each Purchaser in an amount
equal to any accrued and unpaid Program Fees and Yield for such Payment
Date;
(ix) NINTH, to the Deal Agent, in the amount of unpaid
Increased Costs and/or Taxes, for payment to the Purchasers in respect
thereof;
(x) TENTH, to the B-Note Lender, in an amount equal to the
accrued and unpaid B-Note Interest under the B-Note for such Accrual
Period;
(xi) ELEVENTH, to the extent that funds are available, to the
Deal Agent for the Purchasers in reduction of aggregate Capital;
<PAGE>
(xii) TWELFTH, to the extent funds are available to satisfy
any unpaid Indemnified Amounts, amounts required to be paid by the
Seller pursuant to the indemnification provisions of Section 8.1, and
other amounts due hereunder; and
(xiii) THIRTEENTH, upon payment in full of the Advances
Outstanding and the payment in full of the Aggregate Unpaids, any
remaining amount shall be used to pay amounts due and owing in respect
of the B-Note to the extent not paid pursuant to clause NINTH above;
and
(xiv) FOURTEENTH, upon the reduction of the Capital to zero
and the payment in full of the Aggregate Unpaids, any remaining amount
shall be distributed to the Seller.
(c) If at any time on or after the Restricting Event, the Deal
Agent or the Seller determines that as of the close of business on the
day immediately preceding Termination Date the outstanding amount of
Capital exceeded the lesser of (i) the Purchase Limit, or (ii) the
Capital Limit, then the Seller shall immediately remit to the Deal
Agent, for the benefit of the Purchasers, a payment (to be applied by
the Deal Agent to outstanding Capital allocated to Monthly Periods
selected by the Deal Agent, in its reasonable discretion) in such
amount as may be necessary to reduce the amount of Capital to the
lesser of (i) the Purchase Limit, or (ii) the Capital Limit as of the
close of business on the date immediately preceding the Restricting
Event.
(f) Section 5.2(e) of the Receivables Purchase Agreement is hereby
amended by inserting the words ", the B-Note" after the words "this Agreement"
where they appear in the last line therein.
(g) Section 5.2(f) of the Receivables Purchase Agreement is hereby
amended in its entirety to read as follows:
(f) Indebtedness. The Seller shall not create, incur, assume
or suffer to exist any Indebtedness or other liability whatsoever,
except (i) obligations incurred under this Agreement, the B-Note or
under any Hedging Agreement required by Section 5.4(a), or (ii)
liabilities incident to the maintenance of its corporate existence in
good standing.
SECTION 2. Agreement in Full Force and Effect as Amended. Except as
specifically amended hereby, the Agreement shall remain in full force and
effect. All references to the Agreement shall be deemed to mean the Agreement,
as modified hereby. This Amendment shall not constitute a novation of the
Agreement, but shall constitute an amendment thereof. The parties hereto agree
to be bound by the terms and conditions of the Agreement, as amended by this
Amendment, as though such terms and conditions were set forth herein.
<PAGE>
SECTION 3. Miscellaneous.
(a) This Amendment may be executed in any number of
counterparts, and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed to be an original instrument but all
of which together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Amendment by facsimile shall be
effective as delivery of a manually executed counterpart.
(b) The descriptive headings of the various sections of this
Amendment are inserted for convenience of reference only and shall not be deemed
to affect the meaning or construction of any of the provisions hereof.
(c) This Amendment may not be amended or otherwise modified
except as provided in the Agreement.
(d) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE SELLER: FIDELITY LEASING SPC I, INC.
By ___________________________________
Title:
THE SERVICER: FIDELITY LEASING, INC.
By ___________________________________
Title:
THE INVESTORS: FIRST UNION NATIONAL BANK
By ___________________________________
Title:
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:
Facsimile No.:
Confirmation No:
VFCC: VARIABLE FUNDING CAPITAL
CORPORATION
By First Union Capital Markets Corp.,
as attorney-in-fact
By ___________________________________
Title:
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Attention: Conduit Administration
Facsimile No.:
Confirmation No.:
<PAGE>
With a copy to:
Lord Securities Corp.
2 Wall Street, 19th Floor
New York, New York 10005
Attention: Vice President
Facsimile No.: (212) 346-9012
Confirmation No.: (212) 346-9008
THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP.
By ________________________________
Title:
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Conduit Administration
Facsimile No.:
Telephone No.:
THE LIQUIDITY AGENT: FIRST UNION NATIONAL BANK
By ________________________________
Title:
First Union National Bank
One First Union Center, TW-6
Charlotte, North Carolina 28288
Attention:
Facsimile No.:
Telephone No.:
<PAGE>
THE COLLATERAL CUSTODIAN: HARRIS TRUST AND SAVINGS BANK,
as Collateral Custodian
By ______________________________________
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3525
Telephone: (312) 461-2532
THE BACKUP SERVICER: HARRIS TRUST AND SAVINGS BANK,
as Backup Servicer
By ________________________________________
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administrator
Facsimile: (312) 461-3525
Telephone: (312) 461-2532
<PAGE>
THIS THIRD AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT (this
"Amendment") is made as of June 28, 1999, among:
1. FIDELITY LEASING SPC II, INC., a Delaware corporation, as seller
(the "Seller");
2. FIDELITY LEASING, INC., a Pennsylvania corporation ("Fidelity"), as
servicer (the "Servicer");
3. MARKET STREET FUNDING CORPORATION, a Delaware corporation (together
with its successor and permitted assignee, "MSFC")'
4. PNC BANK NATIONAL ASSOCIATION ("PNC"), as administrator for and on
behalf of MSFC (the "Administrator"); and
5. HARRIS TRUST AND SAVINGS BANK, as collateral custodian (the
"Collateral Custodian") and backup servicer (the "Backup Servicer").
BACKGROUND
----------
1. The Seller, the Servicer, MSFC, the Administrator and the Collateral
Custodian and Backup Servicer are parties to Receivables Purchase Agreement,
dated as of December 29, 1998 (as amended, the "Receivables Purchase
Agreement").
2. The parties hereto now desire to amend the Receivables Purchase
Agreement in certain respects, as provided below.
AGREEMENT
---------
ARTICLE I
DEFINITIONS
Capitalized terms used herein and not defined herein shall have the
meaning assigned to such terms in the Receivables Purchase Agreement.
ARTICLE II
AMENDMENTS
SECTION 2.1 Amendment of the Receivables Purchase Agreement. The
Receivables Purchase Agreement is hereby amended to incorporate the changes
shown on the marked pages attached hereto as Exhibit A.
<PAGE>
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Effectiveness. This Amendment shall become effective and be
deemed effective as of the date first above written upon the Administrator's
receipt of counterparts of this Amendment executed by the parties hereto.
SECTION 3.2 Waiver of Conditions. Each of the parties hereto waives any
other notice requirements or other conditions to this Amendment or the
conditions contemplated hereby specified in the documents amended hereby or any
related documents.
SECTION 3.3 Effect of Amendments; Ratification. Upon and after the
effectiveness of this Amendment, (a) (i) this Amendment shall be a part of the
Receivables Purchase Agreement and (ii) each reference in the Receivables
Purchase Agreement to "this Agreement" and the words "hereof," "herein,"
"hereunder" and words of like import, and each reference to the Receivables
Purchase Agreement in any other related agreement shall mean and be a reference
to the Receivables Purchase Agreement, as amended hereby; and (b) except as
expressly amended hereby, the Receivables Purchase Agreement shall remain in
full force and effect and is hereby ratified and confirmed by the parties
hereto.
SECTION 3.4 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 3.5 Headings, Etc. Article and Section headings of this
Amendment are inserted in this Amendment for convenience of reference only and
are not to be considered part of this Amendment for any other purpose.
SECTON 3.6 Counterparts. This Amendment may be executed by the parties
hereto in separate counterparts, each of which shall be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties listed below have caused their names to
be signed hereby by their respective officers thereunto duly authorized all as
of the date and year first above written.
FIDELITY LEASING SPC II, INC.
By:
--------------------------------
Name:
Title
FIDELITY LEASING, INC.
By:
--------------------------------
Name:
Title
MARKET STREET FUNDING CORPORATION
By:
--------------------------------
Name:
Title
PNC BANK NATIONAL ASSOCIATION
By:
--------------------------------
Name:
Title
HARRIS TRUST AND SAVINGS BANK
By:
--------------------------------
Name:
Title
<PAGE>
EXHIBIT A
================================================================================
RECEIVABLES PURCHASE AGREEMENT
among
FIDELITY LEASING SPC II, INC.,
FIDELITY LEASING, INC.,
MARKET STREET FUNDING CORPORATION,
PNC BANK, NATIONAL ASSOCIATION,
and
HARRIS TRUST AND SAVINGS BANK
December 29, 1998
(conformed as amended on February 1, 1999, and March 8, 1999 and June 28, 1999)
================================================================================
<PAGE>
(b) The Seller may reduce the Capital of any Asset Interest, upon 30
days notice to MSFC and the Administrator prior to the date of such reduction,
by remitting to the Agent's Account (i) cash and (ii) instructions to apply such
cash to the reduction of such Capital and Yield to accrue (until such cash can
be used to pay Commercial Paper Notes) with respect to such Asset Interest,
provided that no such reduction shall be given effect unless the Seller has
complied with the terms of any Hedging Agreement requiring that one or more
Hedge Transactions be terminated in whole or in part as the result of any such
reduction of such Asset Interest, and Seller has paid all Hedge Breaking Costs
owing to the relevant Hedge Counterparty for any such termination and all
Breakage Costs. The Seller shall pay all costs related to the reduction of
outstanding Capital, including Breakage Costs, Hedge Breakage Costs and all
costs associated with the outstanding Commercial Paper Notes related to such
Capital reduction; provided, however, that MSFC and the Administrator shall use
their reasonable best efforts to minimize any Breakage Costs.
Section 2.4 Determination of Yield.
The Administrator shall determine the Yield (including unpaid Yield, if
any, due and payable on a prior Settlement Date) to be paid on each Settlement
Date for the related Settlement Period and shall advise the Servicer thereof on
the last day of such Settlement Period.
Section 2.5 Voluntary Repurchases.
The Seller may, upon at least 30 days' notice to the Adminstrator,
repurchase all or any of the Asset Interests, except Asset Interests purchased
by MSFC prior to February 4, 1999, in full by remitting to the Agent's Account
(i) cash and (ii) instructions to apply such cash to the Capital and Yield
accrued and to accrue (until such cash can be used to pay Commercial Paper
Notes) with respect to the Asset Interests to be repurchased, provided that no
such repurchase shall be effective unless the Seller has complied with the terms
of any Hedging Agreement requiring that one or more Hedge Transactions be
terminated in whole or in part as the result of any such repurchase of such
Asset Interest, and Seller has paid all Hedge Breaking Costs. The Seller shall
pay all costs related to such repuchases, including Breakage Costs, Hedge
Breakage Costs and all costs associated with the outstanding Commercial Paper
Notes related to the Asset Interests repurchased; provided, however, that MSFC
and the Administrator shall use their reasonable best efforts to minimize any
Breakage Costs.
Section 2.6 Dividing or Combining Asset Interests.
The Administrator may take any of the following actions at the end of a
Settlement Period with respect to any Asset Interest: (i) divide such Asset
Interest into two or more Asset Interests having aggregate Capital equal to the
Capital of such divided Asset Interest, (ii) combine such Asset
<PAGE>
================================================================================
JLA FUNDING CORPORATION II,
Issuer
JLA CREDIT CORPORATION,
Servicer
and
LTCB TRUST COMPANY,
Trustee
----------------
INDENTURE
Dated as of August 15, 1997
----------------
$70,658,000 FLOATING RATE ASSET-BACKED NOTES, CLASS A
$4,342,000 FLOATING RATE ASSET-BACKED NOTES, CLASS B
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
RECITALS OF THE COMPANY.................................................. 1
GRANTING CLAUSE ......................................................... 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions .............................................. 3
SECTION 1.02. Compliance Certificates and Opinions ..................... 20
SECTION 1.03. Form of Documents Delivered to Trustee.................... 20
SECTION 1.04. Acts of Noteholders, etc. ................................ 22
SECTION 1.05. Notices .................................................. 23
SECTION 1.06. Notice to Noteholders; Waiver............................. 24
SECTION 1.07. Table of Contents, Headings, etc. ........................ 24
SECTION 1.08. Successors and Assigns.................................... 24
SECTION 1.09. Severability Clause....................................... 24
SECTION 1.10. Benefits of Indenture .................................... 25
SECTION 1.11. Governing Law ............................................ 25
SECTION 1.12. Legal Holidays ........................................... 25
SECTION 1.13. Execution in Counterparts................................. 25
SECTION 1.14. Inspection ............................................... 25
SECTION 1.15. Survival of Representations and Warranties ............... 26
SECTION 1.16. Communications with Noteholders .......................... 26
SECTION 1.17. Statements Required in Officer's Certificate ............. 26
SECTION 1.18. When Treasury Securities Disregarded ..................... 27
SECTION 1.19. Rules by Trustee ......................................... 27
SECTION 1.20. No Adverse Interpretation of other Agreements............. 27
SECTION 1.21. No Recourse Against Others .............................. 27
SECTION 1.22. Independence of Covenants ................................ 27
SECTION 1.23. Consent to Jurisdiction .................................. 28
SECTION 1.24. No Bankruptcy Petition ................................... 28
ARTICLE II
THE NOTES
SECTION 2.01. General Provisions ...................................... 29
SECTION 2.02. Issuances During the Note Issuance Period ................ 30
SECTION 2.03. Execution, Authentication, Delivery and Dating............ 31
SECTION 2.04. Registration, Transfer and Exchange ...................... 32
SECTION 2.05. Mutilated, Destroyed, Lost and Stolen Notes .............. 33
SECTION 2.06. Restrictions on Transfer and Exchange of Notes;
Compliance with Rule 144A................................. 34
SECTION 2.07. Payment of Interest and Principal; Rights
Preserved................................................. 36
SECTION 2.08. Persons Deemed Owners .................................... 36
SECTION 2.09. Cancellation ............................................. 36
SECTION 2.10. Class B Notes Subordinated to Class A Notes............... 37
SECTION 2.11. Noteholder Lists.......................................... 37
i
<PAGE>
Page
----
ARTICLE III
ACCOUNTS; INVESTMENT OF MONEYS; COLLECTION
AND APPLICATION OF MONEYS; REPORTS
SECTION 3.01. Accounts; Investments by Trustee.......................... 38
SECTION 3.02. Collections; Applications ............................... 41
SECTION 3.03. Additional Deposits ...................................... 42
SECTION 3.04. Daily Deposits............................................ 42
SECTION 3.05. Reserve Account .......................................... 42
SECTION 3.06. Payahead Account ......................................... 43
SECTION 3.07. Collection Account ....................................... 44
SECTION 3.08. Lease Purchase Account ................................... 46
SECTION 3.09. Reports; Notices of Certain Payments .................... 47
SECTION 3.10. Trustee May Rely on Certain Information .................. 47
ARTICLE IV
LEASES AND EQUIPMENT
SECTION 4.01. Representations and Warranties of the Company ............ 48
SECTION 4.02. Purchase upon Breach; Sale and Servicing
Agreement................................................. 48
SECTION 4.03. Release of Leases and Equipment Following
Substitution or Repurchase ............................... 49
SECTION 4.04. Release of Leases and Equipment Upon Final Rent
Payment .................................................. 50
SECTION 4.05. Execution of Documents ................................... 50
ARTICLE V
SERVICER EVENTS OF DEFAULT; SUBSTITUTE SERVICER
SECTION 5.01. Servicer Events of Default ............................... 50
SECTION 5.02. Substitute Servicer ...................................... 51
SECTION 5.03. Notification to Noteholders .............................. 51
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default ........................................ 51
SECTION 6.02. Acceleration of Maturity; Rescission and
Annulment ................................................ 53
SECTION 6.03. Other Remedies ........................................... 54
SECTION 6.04. Trustee May File Proofs of Claim ......................... 54
SECTION 6.05. Trustee May Enforce Claims Without Possession of
Notes .................................................... 55
SECTION 6.06. Application of Money Collected ........................... 56
SECTION 6.07. Limitation on Suits ...................................... 57
SECTION 6.08. Unconditional Right of Noteholders to Receive
Payment .................................................. 58
ii
<PAGE>
Page
----
SECTION 6.09. Restoration of Rights and Remedies........................ 58
SECTION 6.10. Rights and Remedies Cumulative ........................... 58
SECTION 6.11. Delay or Omission Not Waiver ............................. 58
SECTION 6.12. Control by the Class A and Class B Noteholders ........... 59
SECTION 6.13. Waiver of Defaults and Events of Default ................. 59
SECTION 6.14. Waiver of Stay or Extension Laws ......................... 60
SECTION 6.15. Sale of Trust Property ................................... 60
SECTION 6.16. Undertaking for Costs .................................... 61
ARTICLE VII
THE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities ...................... 62
SECTION 7.02. Notice of Defaults or Events of Default .................. 63
SECTION 7.03. Certain Rights of Trustee................................. 63
SECTION 7.04. Trustee's Disclaimer .................................... 65
SECTION 7.05. Money Held in Trust ...................................... 65
SECTION 7.06. Compensation, Reimbursement, etc. ........................ 65
SECTION 7.07. Eligibility; Disqualification ............................ 66
SECTION 7.08. Resignation and Removal; Appointment of Successor......... 67
SECTION 7.09. Acceptance of Appointment by Successor.................... 68
SECTION 7.10. Merger, Conversion, Consolidation or Succession to
Business ................................................. 68
SECTION 7.11. Co-trustees and Separate Trustees ........................ 68
SECTION 7.12. Servicer to Hold Leases .................................. 70
SECTION 7.13. Financing Statements ..................................... 70
SECTION 7.14. Reports by Trustee to Noteholders ........................ 70
ARTICLE VIII
COVENANTS
SECTION 8.01. Payment of Principal and Interest ........................ 72
SECTION 8.02. Maintenance of Office or Agency; Chief Executive
Office ................................................... 72
SECTION 8.03. Money for Payments to Noteholders to Be Held In
Trust..................................................... 73
SECTION 8.04. Corporate Existence; etc. ................................ 73
SECTION 8.05. Protection of Trust Property; Further Assurances.......... 75
SECTION 8.06. Compliance Certificates .................................. 76
SECTION 8.07. Performance of Obligations; Sale and Servicing
Agreement ................................................ 76
SECTION 8.08. Negative Covenants ....................................... 76
SECTION 8.09. Information as to the Company ............................ 78
SECTION 8.10. Payment of Taxes and Other Claims ........................ 79
SECTION 8.11. Indemnification ......................................... 79
SECTION 8.12. Use of Proceeds .......................................... 79
iii
<PAGE>
Page
----
SECTION 8.13. Maximum Note Principal Balance ........................... 80
SECTION 8.14. Rate Cap Provider......................................... 80
ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES
SECTION 9.01. Amendments and Supplemental Indentures.................... 80
SECTION 9.02. Execution of Amendments and Supplemental
Indentures ............................................... 81
SECTION 9.03. Effect of Amendments and Supplemental Indentures.......... 81
SECTION 9.04. Reference in Notes to Amendments and Supplemental
Indentures ............................................... 82
SECTION 9.05. Revocation and Effect of Consents ........................ 82
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption; Election to Redeem................... 82
SECTION 10.02. Notice to Trustee ........................................ 83
SECTION 10.03. Notice of Redemption by the Company ...................... 83
SECTION 10.04. Deposit of the Redemption Price .......................... 83
SECTION 10.05. Notes Payable on Redemption Date ......................... 84
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture .................. 84
SECTION 11.02. Application of Trust Money ............................... 85
SECTION 11.03. Reinstatement ............................................ 85
SCHEDULES
Schedule I - Maximum Note Principal Balance
EXHIBITS
Exhibit A - Form of Class A Note
Exhibit B - Form of Class B Note
Exhibit C - Form of Transferee Letter
iv
<PAGE>
INDENTURE
This INDENTURE dated as of August 15, 1997, is between JLA
FUNDING CORPORATION II, a Delaware corporation (herein called the "company"),
JLA CREDIT CORPORATION, a Delaware corporation (herein sometimes called "JLACC"
or the "Servicer"), and LTCB TRUST COMPANY, a New York trust company, as
trustee (herein called the "Trustee")
RECITALS OF THE COMPANY
The Company has duly authorized the issuance, from time to
time during the Note Issuance Period (as defined herein), of up to $70,658,000
in aggregate principal amount of its Floating Rate Asset-Backed Notes, Class A
(the "Class A Notes") and up to $4,342,000 in aggregate principal amount of its
Floating Rate Asset-Backed Notes, Class B, which will be subordinate to the
Class A Notes (the "Class B Notes" and together with the Class A Notes, the
"Notes"), of substantially the tenor hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Notes, when executed by the
Company and authenticated and delivered hereunder, the valid obligations of the
Company, and to make this Indenture a valid agreement of the Company, in
accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the holders thereof, it is mutually covenanted and agreed, for the
benefit of all Noteholders, as follows:
GRANTING CLAUSE
The Company hereby Grants to the Trustee, for the benefit and
security of the Noteholders and the Trustee as their interests appear herein,
all of the Company's right, title and interest in and to (a) any and all Leases
(including Substitute Leases) acquired by the Company at any time or from time
to time after August 15, 1997 (including any Purchase Option Payments), and all
Rent Payments, Retransfer Amounts and other amounts due or becoming due with
respect thereto (other than any payments due pursuant to the terms of any Lease
on or before the related Cut-Off Date for such Lease), (b) all rights of
the Company to or under any guarantees of or collateral for the Lessee's
obligations under any Lease, (c) all moneys from time to time held by the
Trustee pursuant to Section 3.01 pending deposit in one of the accounts referred
to therein, (d) the amounts representing Security Deposit Offsets applied to
unpaid Rent Payments and Purchase Option Payments due on or to become due
after the applicable Cut-Off Dates, any guaranty relating to a Lease and all
<PAGE>
moneys from time to time on deposit in the Lock-Box Account Collection Account
and Reserve Account, including all investment and income from the investment of
such moneys, (e) the Payahead Account and the right to receive payments of funds
deposited therein under the circumstances described in this Indenture, (f) the
Lease Purchase Account and the rights to receive payment of all fund deposited
therein and all rights of the Company under the Sale an Servicing Agreement, (g)
the Lease Files and all documents therein and all rights of the Company under
any program agreement, purchase agreement, assignment agreement, or other
document pursuant to which the company acquired an interest in any Lease and the
Equipment subject thereto and any support agreements or guarantees related
thereto, and (h) each Insurance Policy, if any, covering Equipment including all
rights to any Insurance Proceeds received pursuant to such Insurance Policy
after the applicable Cut-Off Date, (i) the Rate Cap Agreement, including all
Rate Cap Proceeds, and any credit enhancement with respect to any Class or
Classes of Notes, and (j) all proceeds of any of the foregoing. The Company also
hereby Grants to the Trustee, for the benefit and security of the Noteholders
and the Trustee, a security interest in (i) all of the Company's right, title
and interest in and to the Equipment at any time subject to any Lease and (ii)
any and all proceeds of such Equipment.
The Grants of the Trust Property effected by this Indenture
shall include all rights, powers, and options (but none of the obligations) of
the Company with respect thereto, including, without limitation, the immediate
and continuing right to claim for, collect, receive, and give receipts for Rent
Payments in respect of the Leases and all other moneys payable thereunder, to
give and receive notice and other communications, to make waivers, amendments or
other agreements, to exercise all rights and options, to bring judicial
proceedings in the name of the Company or otherwise, to terminate a Lease
pursuant to the terms thereof, and generally to do and receive anything that the
Company is or may be entitled to do or receive thereunder or with respect
thereto. Such Grants are made in trust to secure (i) the payment of all amounts
due on the Notes in accordance with their terms, equally and ratably without
prejudices priority, or distinction between any Note of the same class and any
other Note of the same class by reason of differences in time of issuance or
otherwise, except as otherwise may be provided in this Indenture, (ii) the
payment of all other sums payable under this Indenture and (iii) compliance with
the provisions of this Indenture with respect to the Notes.
The Trustee acknowledges such Grants, accepts the trust
hereunder in accordance with the provisions hereof, and agrees to perform the
duties herein required to the best of its ability and to the end that the
interests of the Noteholders may be adequately and effectively protected as
hereinafter provided.
2
<PAGE>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions.
(a) General Definitions. Except as otherwise specified or as
the context may otherwise require, the following terms have the meanings set
forth below for all purposes of this Indenture, and the definitions of such
terms are applicable to the singular as well as the plural forms of such terms
and to the masculine as well as to the feminine and neuter genders of such
terms.
"Account" means each of the Collection Account, the Reserve
Account, the Payahead Account and the Lease Purchase Account.
"Act" has the meaning specified in Section 1.04.
"Administrative Fees" means, with respect to any Lease any
date, any late, prepayment, extension, insurance, property tax or administrative
fees or similar charges paid by the Lessee pursuant to the terms of such Lease.
"Affiliate" means, with respect to any specified Person, any
other Person (i) which directly or indirectly controls, or whose directors or
officers directly or indirectly control, or is controlled by, or is under common
control with, such specified Person, (ii) which beneficially owns or holds, or
whose directors or officers, beneficially own or hold, 5% or more of any class
of the voting stock (or, in the case of an entity that is not a corporation, 5%
of the equity interest) of such specified Person, or (iii) 5% or more of the
voting stock (or, in the case of an entity that is not a corporation, 5% of the
equity interest) of which is owned or held by such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Assumed Longest Amortization" has the meaning specified in
Section 8.13.
"Authorized Officer" means, with respect to any matter, any
officer of or other Person representing the Company, the Seller, the Servicer,
the Trustee or a Noteholder, as the case may be, who is authorized to act for
that party and named on a list which shall be provided to the Trustee from time
to time by each respective Person.
"Available Payment Amount" has the meaning specified Section
3.07(b).
"Available Reserve Amount" shall mean, with respect to any
Monthly Payment Date, the lesser of (a) the amount on deposit in the
3
<PAGE>
Reserve Account (excluding all income from the investment of funds therein) and
(b) the Required Reserve Amount.
"Business Day" means any day that is a London Banking Day and
that is not a Saturday, a Sunday or a day on which banking institutions in New
York City or in the city in which the Corporate Trust Office is located are
authorized or required by law or executive order to be closed.
"Capital Stock" means the Company's common stock, $.10 par
value per share.
"Class" has the meaning specified in Section 2.01.
"Class A Note" means any one of the Notes authorized by and
authenticated and delivered under, this Agreement in substantially the form set
forth in Exhibit A.
"Class A Note Principal Balance" means, on any date, the
unpaid principal amount of the Class A Notes as of such date.
"Class A Noteholder" means, at any time, any Person in whose
name a Class A Note is registered in the Note Register.
"Class A Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (i) the Class A Note Principal
Balance as of such date by (ii) the Note Principal Balance of all Notes as of
such date.
"Class A Rate" means, with respect to the Class A Notes the
variable per annum rate of interest that for each Interest Period is equal to
the sum of LIBOR plus 0.30%.
"Class B Note" means any one of the Notes authorized by and
authenticated and delivered under, this Agreement in substantially the form set
forth in Exhibit B.
"Class B Note Principal Balance" means, on any date, the
unpaid principal amount of the Class B Notes as of such date.
"Class B Noteholder" means, at any time, any Person in whose
name a Class B Note is registered in the Note Register.
"Class B Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (i) the Class B Note Principal
Balance as of such date by (ii) the Note Principal Balance of all Notes as of
such date.
"Class B Rate" means, with respect to the Class B Notes, the
variable per annum rate of interest that for each Interest Period is equal to
the sum of LIBOR plus 0.65%.
4
<PAGE>
"Class Percentage" means (i) with respect to the Class A
Notes, the Class A Percentage, and (ii) with respect to the Class B Notes, the
Class B Percentage.
"Closing Date" means August 15, 1997.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time, or any successor statute thereto, and applicable
regulations of the U.S. Department of the Treasury promulgated thereunder.
"Collection Account" means the segregated account or accounts
by that name established and maintained by the Trustee pursuant to Section 3.01.
"Collection Period" means, as to any Monthly Payment Date the
calendar month preceding the month in which such Monthly Payment Date occurs.
"Committed Investor" means each purchaser of Notes that is
contractually committed to purchase and fund Notes during the Note Issuance
Period.
"Company" means JLA Funding Corporation II, a corporation
organized and existing under the laws of the State of Delaware, and its
successors.
"Company Order" or "Company Request" means a written order or
request delivered to the Trustee and signed in the name of the Company by an
Authorized Officer.
"Corporate Trust Office" means the principal office of the
Trustee at which its corporate trust business shall be administered which office
at the date of execution of this Agreement is locate at 165 Broadway, New York,
New York 10006, Attention: Ms. Barbara Bevelaqua, Vice President, Corporate
Trust Administration, or such office at some other address or such other
person as the Trustee may designate from time to time by notice to the
Noteholders, the Company and the Servicer.
"Credit and Collection Policy" means those receivable credit
and collection policies and practices of the Servicer as in effect from time to
time and maintained in compliance with the requirement of the Sale and Servicing
Agreement.
"Current Amount" means with respect to any Lease (other than a
Defaulted Lease, a Retransferred Lease, or a Lease which, together with amounts,
if any, on deposit in the Payahead Account with respect to such Lease is prepaid
in full (a "Prepaid Lease") from and after the Collection Period in which such
Lease became Defaulted, Retransferred or Prepaid Lease) for any Collection
Period and the related Monthly Payment Date, the portion of any Payahead Amount
which is allocated by the Servicer to such Collection Period or any prior
Collection Period and, with respect to a Defaulted Lease,
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Retransferred Lease or Prepaid Lease, means the entire Payahead Amount.
"Cut-Off Date" means, as to any Lease, the last day of the
calendar month immediately preceding the applicable Lease Purchase Date of such
Lease, as specified in the related Bill of Sale delivered pursuant to the Sale
and Servicing Agreement.
"Default" any occurrence that is, or with notice or the lapse
of time or both would become, an Indenture Event of Default.
"Defaulted Lease" with respect to a Monthly Payment Date,
means a Lease (other than a Retransferred Lease) (i) as to which the Servicer
has, in accordance with its customary servicing procedures, during the
Collection Period preceding such Monthly Payment Date, written off any amount to
be paid thereunder as uncollectible or placed into the pending writeoff or
workout category or (ii) as to which any payment remains unpaid for 181 days or
more from the original due date for such payment or (iii) rejected by or on
behalf of the related Lessee in a bankruptcy proceeding.
"Default Ratio" means the ratio (expressed as an annualized
percentage) computed, as of the last day of each calendar month, by dividing (i)
the aggregate outstanding Principal Balance of all Leases that were Defaulted
Leases on such day or that would have been Defaulted Leases on such day had they
not been written off the books of the Servicer or placed into the pending
writeoff or workout category during such calendar month (in each case without
(for purposes of this definition) giving effect to any withdrawal from the Trust
Property of any Defaulted Lease pursuant to Article IV of the inclusion in the
Trust Property of any Substitute Lease), net of any Recoveries received by the
Servicer with respect to such Leases during such calendar month by (ii) the
aggregate outstanding Principal Balance of all Leases on such day (without (for
purposes of this definition) giving effect to any withdrawal from the Trust
Property of any Defaulted Lease pursuant to Article IV or the inclusion in the
Trust Property of any Substitute Lease); provided, however, that for purposes of
the foregoing ratio the Principal Balance of Substitute Lease that becomes a
Defaulted Lease shall be include if such Sulpstitute Lease becomes a Defaulted
Lease during the Note Issuance Period but shall not be included if such
Substitute Lease becomes a Defaulted Lease after the Note Issuance Period.
"Delinquency Ratio" means the ratio (expressed as percentage)
computed as of the last day of each calendar month by dividing (i) the aggregate
outstanding Principal Balance of all Leases that were Delinquent Leases on such
day by (ii) the aggregate outstanding Principal Balance of all Leases on such
day (without, for purposes of clauses (i) and (ii) of this definition, giving
effect to any withdrawal from the Trust Property of any Delinquent Lease
pursuant to Article IV or to the inclusion in the Trust Property of any
Substitute Lease); provided, however, that for purposes of the foregoing ratio
the Principal Balance of a Substitute Lease that becomes a Delinquent Lease
shall be included if such Substitute Lease
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becomes a Delinquent Lease during the Note Issuance Period but shall not be
included if such Substitute Lease becomes a Delinquent Lease after the Note
Issuance Period.
"Delinquent Lease" with respect to any Monthly Payment Date
means any Lease that is not a Defaulted Lease and under which any payment
remains unpaid, as of the last day of the Collection Period preceding such
Monthly Payment Date, for 61 days or more from the original due date for such
payment.
"Deposit Date" means, with respect to any Monthly Payment
Date, the Business Day immediately preceding such related Month Payment Date.
"Determination Date" means, with respect to each Month Payment
Date, the second Business Day before such Monthly Payment Date.
"Early Amortization Event" means the occurrence of a Indenture
Event of Default.
"Eligibility Criteria" has the meaning specified in the Sale
and Servicing Agreement.
"Eligible Deposit Account" shall mean either (x) a segregated
trust account in the corporate trust department at a Qualified Institution with
corporate trust powers or (y) a segregated demand deposit account at a Qualified
Institution whose short-term unsecured deposits are rated A-1+ by Standard &
Poor's.
"Eligible Lease" has the meaning specified in Section 3.02 of
the Sale and Servicing Agreement.
"Eligible Rate Cap Provider" means a bank, other depository
institution or other Person (i) the long-term debt obligations of which are
rated not less than AA by Standard & Poor's, the rating of which does not have a
"t" highlighter affixed to it and (ii) have the power and authority to execute,
deliver and perform the Rate C Agreement.
"Equipment" means any new or used equipment, together with all
accessions thereto and replacement parts, accessories and repairs with respect
thereto, which is the subject of a Lease.
"Equity Base" means, with respect to the Company on any date,
the amount equal to the excess of (i) the Pool Balance of the Leases owned by
the Company on such date plus the amount on deposit in the Reserve Account
(after giving effect to all required deposit and withdrawals therefrom, if any,
on such date), over (ii) the aggregate outstanding Note Principal Balance of all
Class A Not and Class B Notes on such date.
"ERISA" means the Employee Retirement Income Security of Act
1974, as amended.
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"Excess Collections" means, for any Monthly Payment Date, the
amounts remaining in the Collection Account with respect to the related
Collection Period and available for distribution to or upon the order of the
Company pursuant to Section 3.07(b)(xiii).
"Grant" means to grant, bargain, sell, convey, assign,
transfer, mortgage, pledge, create and grant a security interest in and right of
set-off against, deposit, set over and confirm.
"Indenture" or "this Indenture" means this instrument as
originally executed and as from time to time supplemented or amended pursuant to
the applicable provisions hereof.
"Indenture Event of Default" means an "Event of Default" as
defined in Section 6.01.
"Insurance Policies" means all theft and physical damage and
all other insurance policies covering the Equipment.
"Insurance Proceeds" means proceeds paid pursuant to any
Insurance Policy and amounts (exclusive of rebated premiums or amounts used to
restore or repair the Equipment) paid by any insurer under any other insurance
policy related to the Equipment.
"Interest Component" means, with respect to any Lease on a
Monthly Payment Date, the portion of the Rent Payments thereon received during
the related Collection Period which represents the interest on the purchase
price paid by JLACC for the related Equipment.
"Interest Determination Date" means, with respect to any
Interest Period, the second Business Day preceding the first day of such
Interest Period.
"Interest Period" means, with respect to any Note and any
Monthly Payment Date, the period from and including the previous Monthly Payment
Date (or, in the case of the first Monthly Payment Date for such Note, from and
including the Note Issuance Date for such Note), to but excluding such Monthly
Payment Date.
"JLACC" means JLA Credit Corporation, a Delaware corporation,
and its successors in interest.
"Lease" means, for any applicable Lease Purchase Date, each
commercial loan contract or equipment finance lease contract, secured by
commercial and/or industrial equipment, including any amendment or modification
of such contract and any schedules and promissory notes incorporated therein
(including, without limitation, all rights to receive Rental Payments) sold and
transferred to the Company on such Lease Purchase Date pursuant to the Sale and
Servicing Agreement, as identified in the related Bill of Sale.
"Lease Assets" means the Leases (exclusive of any Purchase
Option Payments, Administrative Fees and all amounts due or becoming
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due under such Leases prior to the applicable Cut-Off Dates), together with
(i) a perfected security interest in the Equipment; (ii) certain rights,
remedies and interests under the Sale and Servicing Agreement; (iii) amounts
representing Security Deposit Offsets applied to unpaid Rent Payments due after
the Cut-Off Date; (iv) any guaranty relating to a Lease; (v) each Insurance
Policy, if any, covering Equipment, including all rights to any Insurance
Proceeds received on or after the applicable Cut-Off Date; (vi) the interest of
the Seller in any funds to be deposited in the Collection Account (exclusive of
any Purchase Option Payments and the proceeds thereof); (vii) all documents
contained in the Lease Files (of which JLA will retain possession only as agent
of the Company); (viii) all payments and proceeds with respect to the Leases and
the other Lease Assets (including any Recoveries on the Leases) held by the
Servicer or any subservicer; (ix) all rights under the Rate Cap Agreement; and
(x) all proceeds of the foregoing.
"Lease Files" means the documents specified in Section 3.04 of
the Sale and Servicing Agreement.
"Lease Proceeds" shall mean collectively (i) the Rent
Payments, (ii) any Retransfer Amounts paid by the Seller or the Servicer
pursuant to Section 3.03 of the Sale and Servicing Agreement and (iii) any
prepayments in full of a Lease.
"Lease Purchase Account" means the account by that name
established and maintained by the Trustee pursuant to Section 3.01.
"Lease Purchase Date" means each date during the Note Issuance
Period that is designated by the Company to the Seller upon not less than five
Business Days' prior notice to the Seller and the Trustee, and approved by the
Seller, on which additional Leases are to be purchased by the Company pursuant
to the Sale and Servicing Agreement.
"Lease Rate" of a Lease means the interest rate stated or
implied in such Lease.
"Lessee" means each lessee under a Lease and its permitted
assigns.
"LIBOR" means, with respect to any Interest Period, the per
annum rate for deposits in United States dollars for a one-month period which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Interest
Determination Date. If such rate does not appear on Telerate Page 3750 on such
day, the rate will be determined on the basis of the rates at which deposits in
U.S. dollars are offered by the Reference Banks at approximately 11:00 a.m.,
London time, on the related Interest Determination Date to prime banks in the
London interbank market for a period of one month. The Trustee will request the
principal London office of each of the Reference Banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate for that
Interest Determination Date will be the arithmetic mean of the quotations. If
fewer then
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two quotations are provided as requested, the rate for that Interest
Determination Date will be the arithmetic mean of the rates rounded upwards to
the nearest 1/16 of 1.0% (one per cent) quoted by two or more major banks in
New York City, selected by the Trustee in its sole discretion, at approximately
11:00 a.m., New York City time, on that Interest Determination Date for loans in
U.S. dollars to leading banks in London interbank market for a period of one
month. "Reference Banks" shall mean Barclays Bank PLC, Citibank, N.A., The Chase
Manhattan Bank and Deutsche Bank AG.
"Lien" means a security interest, lien, charge, pledge or
encumbrance of any kind.
"Lock-Box Account" means the account designated as such,
established and maintained pursuant to the Lock Box Agreement and in accordance
with Section 5.01 of the Sale and Servicing Agreement.
"Lock-Box Agreement" means the agreement, dated as of April 3,
1990, by and among JLACC and Bank of America National Trust and Savings
Association (as successor to Continental Bank), as Lock-Box Bank (as amended by
a letter agreement to be entered into prior to the initial Note Issuance Date
and as may be further amended from time to time), pursuant to which the Lock-Box
Account is established and maintained.
"Lock-Box Bank" means, as of any date, the bank or trust
company at which the Lock-Box Account is established and maintained as of such
date.
"London Banking Day" means any Business Day on which dealings
in deposits in United States dollars are transacted in the London interbank
market.
"Monthly Interest" means, for any Monthly Payment Date, (i)
with respect to each Class A Note, the product of (a) the product of (1) the
actual number of days in each Interest Period for such Note divided by 360 times
(2) the Class A Rate for the related Interest Period for such Note and (b) the
Note Principal Balance of the Class A Note after giving effect to any payments
of the principal thereof on the preceding Monthly Payment Date, and (ii) with
respect to each Class B Note, the product of (a) the product of (1) the actual
number of days in each Interest Period for such Note divided by 360 times (2)
the Class B Rate for the related Interest Period for such Note times (b) the
Note Principal Balance of the Class B Note after giving effect to any payments
of the principal thereof on the preceding Monthly Payment Date; provided that
with respect to the first Monthly Payment Date for a Note, Monthly Interest
shall be equal to the amount of interest that would accrue on the applicable
Note Principal Balance at the applicable Rate from and including the Note
Issuance Date for such Note to but excluding the first Monthly Payment Date for
such Note.
"Monthly Payment Date" means the 16th day of each month (or if
such date is not a Business Day, the next succeeding Business
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Day), commencing in the calendar month immediately succeeding the first Note
Issuance Date, and ending with the Scheduled Final Payment Date.
"Monthly Principal" means for any Monthly Payment Date, an
amount equal to the relevant Class Percentage multiplied by the sum of the
following amounts: (i) to the extent received during the related Collection
Period, the Principal Component of all Rent Payments other than any amounts
received with respect to future collection Periods, which will be deposited in
the Payahead Account and will constitute Rent Payments in the Collection Period
such payments are scheduled to be received; (ii) with respect to any Lease that
first became a Defaulted Lease during the related Collection Period, the
Principal Balance of such Defaulted Lease; (iii) to the extent received during
the related Collection Period, the Principal Component of any Retransfer
Amounts; (iv) to the extent received during the related Collection Period, the
Principal Component of any prepayments in full of a Lease; and (v) to the extent
received during the related Collection Period, any Insurance Proceeds.
"Monthly Servicer Report" means a report in the form attached
as Exhibit B to the Sale and Servicing Agreement.
"Non-Utilization Premium" means the fee payable pursuant to
the Note Purchase Agreement to each Committed Investor on each Monthly Payment
Date during (and immediately following) the Note Issuance Period in an amount
that is equal to the product of (i) the Non-Utilization Premium Rate per annum
and (ii) the daily average principal amount by which the Commitment (as defined
in the Note Purchase Agreement) of such Committed Investor exceeds the aggregate
outstanding principal amount of Notes purchased on or before such day by such
Committed Investor from the Company.
"Non-Utilization Premium Rate" means 0.10% per annum.
"Note Amortization Period" means the period from (and
including) the date that is the earlier of (i) the first day following the end
of the Note Issuance Period and (ii) the date (if any) on which any Early
Amortization Event or Indenture Event of Default shall have occurred, to (and
including) the Scheduled Final Payment Date.
"Note Issuance Date" means each Business Day (not more
frequently than one per month) on which any Notes are issued during the Note
Issuance Period.
"Note Issuance Period" means the period commencing on the
Closing Date and ending (unless sooner terminated pursuant to Section 6.02) on
the date that is the earlier of (i) May 15, 1998 and (ii) the date (if any) on
which the aggregate outstanding principal amount of the Notes equals
$75,000,000.
"Note Principal Balance" means (i) as of any date prior to the
first Monthly Payment Date, the outstanding principal balance of the applicable
Class of Notes on the initial Note Issuance Date,
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(ii) as of any other date prior to the Scheduled Final Payment Date (or other
final payment date on the Notes), the outstanding principal balance of the
applicable Class of Notes as of the preceding Monthly Payment Date, and (iii) as
of the Scheduled Final Payment Date (of other final payment date on the Notes),
the outstanding principal balance of such Class of Notes on such date; provided
that the tern "Note Principal Balance" as of any Monthly Payment Date on which a
payment in respect of principal has been made, shall mean the outstanding
principal balance of the applicable Class of Notes or such date after giving
effect to any distributions of Monthly Principal and overdue Monthly Principal
on such date.
"Note Purchase Agreement" means the Note Purchase Agreement,
dated as of the date hereof, among JLACC, the Company and each initial
Noteholder.
"Note Register" has the meaning specified in Section 2.04.
"Note Registrar" has the meaning specified in Section 2.04.
"Noteholder" means, at any time, any Person in whose name a
Note is registered in the Note Register except that, solely for the purpose of
giving any consent, request or waiver pursuant to this Indenture, the interest
evidenced by any Note registered in the name, of the Company or any other
obligor on the Notes, the Servicer, any subservicer or any Affiliate of any of
them shall not be deemed a Noteholder for the purpose of determining whether the
requisite percentage necessary to effect any such consent, request or waiver
shall have been obtained. The Trustee may request, obtain and conclusively rely
upon a certificate of the Servicer or the Company to determine whether Notes are
registered to the Company, the Servicer, any subservicer or any other Person
controlling, controlled by, or under common control with any of them.
"Notes" means the Class A Notes and the Class B Notes.
"Officer's Certificate" means a certificate signed by the
chairman of the board, the president, any vice chairman of the board, or a vice
president of the Company, the Seller or the Servicer, as appropriate, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel (who
may be in-house counsel for the Seller or Servicer), acceptable in form and
substance to the Trustee.
"Overdue Monthly Interest" means any interest on a Note which
was to have been distributed, and was not distributed, on a Monthly Payment
Date.
"Overdue Monthly Principal" means any principal on a Note
which was to have been distributed, and was not distributed, on a Monthly
Payment Date.
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"Over-Issuance Condition" has the meaning specified in Section
8.13.
"Payahead Account" means the account by that name established
and maintained pursuant to Section 3.01.
"Payahead Amount" means, with respect to any Lease, the amount
of any payment by a Lessee in excess of the Current Amount
"Payahead Draw Amount" means, with respect to any Monthly
Payment Date, the aggregate of all Current Amounts for all Lessees.
"Permitted Investments" means, at any time, any one or more of
the following obligations and securities:
(a) obligations of the United States or any agency thereof,
provided such obligations are guaranteed as to the timely payment of
principal and interest by the full faith an credit of the United
States;
(b) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia the assigned a
rating of AAA or A-1+ by Standard & Poor's or such lower rating (as
approved in writing by Standard & Poor's) as will not result in the
qualification, downgrading or withdrawal of the rating then assigned to
the Notes of either Class by Standard & Poor's;
(c) interests in any money market fund which invest
exclusively in any of the obligations described in (a) or (b) above and
which at the date of acquisition of the interests in such funds has a
rating of AAAm-G by Standard & Poor's or is otherwise approved in
writing by Standard & Poor's;
(d) commercial paper which is then rated A-1+ by Standard &
Poor's or such lower rating (as approved in writing by Standard &
Poor's) as will not result in the qualification, downgrading or
withdrawal of the rating then assigned to the Notes of either Class by
Standard & Poor's;
(e) certificates of deposit, demand or time deposits federal
funds or banker's acceptances issued by any depository institution or
trust company incorporated under the laws of the United States or of
any state thereof or incorporated under the laws of a foreign
jurisdiction with a branch or agency located in the United States and
subject to supervision and examination by federal or state banking
authorities, provided that the short-term unsecured deposit obligations
of such depository institution or trust company have a rating of A-1+
by Standard & Poor's, or such lower rating category (as approved in
writing by Standard & Poor's) as will not result in the qualification,
downgrading or withdrawal of the rating then assigned to the Notes of
either Class by Standard & Poor's.
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(f) guaranteed reinvestment agreements issued by any bank
insurance company or other corporation (as approved in writing by
Standard & Poor's) as will not result in the qualification, downgrading
or withdrawal of the rating then assigned to the Notes of either Class
by Standard & Poor's;
(g) repurchase obligations with respect to any security
described in clauses (a) or (b) hereof or any security issued or
guaranteed by the Federal National Mortgage Association or any agency
or instrumentality of the United States which is backed by the full
faith and credit of the United States, in either case entered into with
a federal agency or a depository institution or trust company (acting
as principal) described in clause (e) above;
(h) interests in any open-end or closed-end management type
investment company or investment trust (x) registered under the
Investment Company Act of 1940, the portfolio of which is limited to
the obligations of, or guaranteed by, the United States and to
agreements to repurchase such obligations, which agreements, with
respect to principal and interest, are at least 100% collateralized by
such obligations marked to market on a daily basis and the investment
company or investment trust shall take delivery of such obligations
either directly or through an independent custodian designated in
accordance with the Investment Company Act of 1940, and (y) as will not
result in the qualification, downgrading or withdrawal of the rating
then assigned to the Notes of either Class by Standard & Poor's (as
approved in writing by Standard & Poor's); and
(i) such other investments (a) where the short-tern unsecured
debt of the obligor is rated A-1+ by Standard & Poor's or (b) which
are acceptable to Standard & Poor's (as approved in writing by
Standard & Poor's) and as will not result in the qualification,
downgrading or withdrawal of the rating assigned to the Notes of either
Class by Standard & Poor's.
Notwithstanding the foregoing, Permitted Investments shall not include (i)
"stripped securities" and investments which contractually may return less than
the purchase price therefor, and (ii) instruments with a purchase price greater
than par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization,
or government or any agency or political subdivision thereof, or any other
entity of whatever nature.
"Plan" has the meaning specified in Section 2.04(f).
"Pool Balance" as of any date means the aggregate Principal
Balance of the Leases as of such date.
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"Predecessor Notes" means, with respect to any particular
Note, every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under section 2.05 in lieu of a lost, destroyed
or stolen Note (or a mutilated Note surrendered to the Trustee) shall be deemed
to evidence the same debt as the lost, destroyed or stolen Note (or a mutilated
Note surrendered to the Trustee).
"Principal Balance" means, with respect to any Lease on any
day, (i) the unamortized portion of the purchase price paid by JLACC for the
related Equipment, and amounts paid by JLACC in respect of taxes and origination
costs and fees, as of the related Cut-Off Date, minus (ii) the sum of the
following with respect to such Lease:(a) the Principal Component of all Rent
Payments since the applicable Cut-Off Date received by the Servicer and
deposited in the Collection Account other than the Principal Component of any
payments received with respect to future Collection Periods, which will be
deposited in the Payahead Account and will constitute Rent Payments in the
Collection Period such payments are scheduled to be received; and (b) the
proceeds of any Insurance Policies; provided, however, that for any day
following the Monthly Payment Date on which the proceeds of a prepayment in full
of a Lease or a Retransferred Lease are payable to Noteholders under the
definition of Monthly Principal or a Defaulted Lease first becomes a Defaulted
Lease, the Principal Balance of any such Lease shall be zero.
"Principal Component" shall mean, with respect to Rent
Payments, that portion of such payments which represents the amortization of
the purchase price paid by JLACC for the related Equipment.
"Purchase Option Payment" shall mean, with respect to any
Lease, any payment (received on or after the applicable Cut-Off Date for such
Lease) made by a Lessee to purchase the Equipment subject to the Lease.
"Oualified Institution" means a depository institution
organized under the laws of the United States or any state thereof and whose
deposits are insured by the Federal Deposit Insurance Corporation.
"Rate" means (i) with respect to the Class A Notes, the Class
A Rate, and (ii) with respect to the Class B Notes, the Class B Rate.
"Rate Cap Agreement" means the interest rate cap agreement,
dated as of the date hereof, between the Company (as assignee of the Seller) and
the Rate Cap Provider.
"Rate Cap Proceeds" means, with respect to the Rate Cap
Agreement, any proceeds to be paid by the Rate Cap Provider thereunder.
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"Rate Cap Provider" means, initially, SRCM Derivative Products
Limited (including its successors) and, thereafter, any such other Person as
becomes the Rate Cap Provider pursuant to Section 8.14.
"Rating Agency" means Standard & Poor's and any successor
thereto.
"Ratings Effect" means a reduction or withdrawal of a rating
on a Class of Notes by the Rating Agency.
"Record Date" means, with respect to any Monthly Payment Date,
the last day of the month preceding the month in which such Monthly Payment Date
occurs (or in the case of the initial Monthly Payment Date, the initial Note
Issuance Date).
"Recoveries" means, with respect to any Defaulted Lease, all
payments and proceeds received by the Servicer or the Company in the process of
recovery, repossession and liquidation of the related Equipment, other than the
amounts reimbursed to the Servicer for all reasonable expenses related to such
process.
"Redemption Date" means, with respect to any redemption of the
Notes, a Monthly Payment Date fixed as the date on which the Notes are to be
redeemed at the option of the Company pursuant to Section 10.01.
"Redemption Price" means, with respect to any Note, and as of
any Redemption Date fixed by the Company, the outstanding Note Principal Balance
of such Note, together with interest accrued thereon to but not including such
Redemption Date at the applicable Rate.
"Redemption Record Date" means, with respect to any redemption
of the Notes, a date fixed pursuant to Section 10.01.
"Rent Payment" shall mean, with respect to each Lease, the
scheduled monthly rental payment for the Equipment leased to the Lessee under
such Lease, consisting of an Interest Component and a Principal Component.
"Required Deposit Rating" shall be a short-term unsecured
deposit rating of A-1+ by Standard & Poor's.
"Required Reserve Amount" means, with respect to any Monthly
Payment Date, an amount equal to the product of (i) the Required Reserve
Percentage and (ii) the aggregate Note Principal Balance of all Notes (after
giving effect to all payments of principal on such Monthly Payment Date).
"Required Reserve Percentage" means one percent (1%) provided
that if during the Note Amortization Period the Weighted Average Yield of the
Leases in the Trust Property for any Collection Period is less than 9.75% per
annum, then on the related Monthly Payment Date and on each Monthly Payment Date
thereafter until the
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Weighted Average Yield of the Leases in the Trust Property for related
Collection Period is equal to or greater than 9.75% per annum, "Required Reserve
Percentage" shall instead mean the sum of (i) one and one-half percent (1.5%)
plus (ii) ten percent (10%) minus the Weighted Average Yield of the Leases in
the Trust Property for the related Collection Period.
"Required Support Percentage" means, on any date, the greater
of (i) 10.5% and (ii) the amount (expressed as a percentage) that is the
quotient obtained by dividing (x) the aggregate Principal Balance of all Leases
having Lessees that are the ten largest Lessees (by aggregate Lease Balance)
represented by the Pool Balance, by (y) the Pool Balance, all computed as of
such date.
"Reserve Account" means the segregated account by that name
established and maintained by the Trustee pursuant to Section 3.01.
"Reserve Account Surplus" means, as of any Monthly Payment
Date, the amount, if any, by which the amount on deposit in the Reserve Account,
including all net income from the investment of funds therein and after taking
into account any deposits and any payments pursuant to Sections 3.05 and 3.07
hereof on such Monthly Payment Date, exceeds the Required Reserve Amount for the
next Monthly Payment Date.
"Reserve Draw Amount" has the meaning specified in Section
3.05(b).
"Residual Amount" means, with respect to any Lease, the amount
(if any) received in respect of such Lease and the related Equipment (through
Lessee payments, Recoveries, Purchase Option Payments or otherwise) that is in
excess of the amount required fox the payment of all amounts owing under such
Lease.
"Responsible Officer" means, when used with respect to the
Trustee, any Vice President, any Assistant Vice President; any Senior Trust
Officer, any Trust Officer or any other officer of the Trustee in its
Corporate Trust Office customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer in its Corporate Trust Office to whom such
matter is referred because of such officer's knowledge of and familiarity with
the particular subject.
"Retransfer Amount" means, with respect to any Lease, the
price equal to the Principal Balance of such Lease (prior to any amendment,
modification or exchange) on the first day of the month following the date on
which the reacquisition obligation with respect to such Lease arose, plus
accrued interest on the Principal Balance of such Lease, at a rate equal to 1/12
of the sum of (i) the Class B Rate and (ii) the Servicing Fee Rate, to the date
that is the date of payment of such Retransfer Amount, less the amount, if any,
on deposit in the Payahead Account with respect to such Lease.
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"Retransferred Lease" means, for any Collection Period a Lease
which has been retransferred to the Seller or Servicer as of the last day of
such Collection Period pursuant to Section 4.0 hereof or Section 3.03 or 4.06 of
the Sale and Servicing Agreement.
"Retransferred Lease Receivables" means, for any Collection
Period, the Lease receivables under Leases which have been retransferred to the
Seller or Servicer as of the last day of such Collection Period pursuant to
Section 3.03 or 4.06 of the Sale an Servicing Agreement.
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of the date hereof, between the Company and JLACC pursuant
to which the Company will purchase Leases and certain related Trust Property
from JLACC on one or more Lease Purchase Dates, an JLACC agrees to act as
Servicer for all purchased Leases, as the same may be amended or modified from
time to time in accordance with the provisions hereof and thereof.
"Scheduled Final Payment Date" means, with respect to the
Notes, the Monthly Payment Date occurring in the sixty-sixth (66th) calendar
month following the expiration (or earlier termination) of the Note Issuance
Period (subject to earlier final payment of the Notes pursuant to the terms of
this Indenture).
"Schedule of Leases" means, as of any date, the schedule of
Leases included in the Trust Property on such date. As of each Note Issuance
Date, a Schedule of Leases in respect of the Leases purchased on such date shall
set forth, as to each such Lease as of the related Cut-Off Date, among other
things, (a) its identifying number and the name of the related Lessee; (b) its
date of origination; (c) the original number of months to stated maturity, (d)
the original stated maturity; (e) the original Principal Balance at inception of
the Lease; (f) the Principal Balance as of the applicable Cut-Off Date; (g) the
location where the related Lease File is kept, if other than 12677 Alcosta
Boulevard, San Ramon, California or 970 West 190th Street, Suite 710, Torrance,
California 90502; (h) the Lease Rate; and (i) the scheduled monthly Rent
Payment.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Deposit Offset" shall mean the application by JLACC
to one or more Rent Payments under a Defaulted Lease of the amount required to
be deposited with JLACC by the Lessee as security for payment of amounts due
under such Lease.
"Seller" means JLACC in its capacity as Seller of Leases under
the Sale and Servicing Agreement, and each successor to JLACC (in the same
capacity) pursuant to Section 6.02 thereof.
"Servicer" means JLACC, as the servicer of the Leases under
the Sale and Servicing Agreement, and each successor to JLACC (in the same
capacity) pursuant to the Sale and Servicing Agreement.
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"Servicer Event of Default" means "Event of Default" as
defined in Section 8.01 of the Sale and Servicing Agreement.
"Servicer Notice" means a written request, instruction or
other notice delivered to the Trustee and signed in the name of the Servicer by
a Servicing Officer.
"Servicing Fee" with regard to a Collection Period means the
fee payable to the Servicer for services rendered during such Collection Period,
determined pursuant to Section 4.07 of the Sale and Servicing Agreement.
"Servicing Officer" means any officer of the Servicer or any
subservicer involved in, or responsible for, the administration and servicing of
the Leases whose name appears on a list of servicing officers annexed to an
Officer's Certificate furnished to the Trustee on the date of execution of this
Agreement by the Servicer, or as such list may from time to time be amended.
"Standard & Poor's" means Standard & Poor's, a division of
McGraw-Hill, and its successors in interest.
"Substitute Lease" has the meaning specified in Section 3.08
of the Sale and Servicing Agreement.
"Successor Servicer" means the Trustee or any successor to the
Servicer pursuant to the Sale and Servicing Agreement.
"Three-Month Average Default Ratio" as of the last day of any
calendar month means the arithmetic average of the Default Ratios as of the last
day of such calendar month and the two immediately preceding calendar months.
"Three-Month Average Delinquency Ratio" as of the last day of
any calendar month means the arithmetic average of the Delinquency Ratios as of
the last day of such calendar month and the two immediately preceding calendar
months.
"Trust Property" means all Leases, Equipment, Accounts, money,
instruments, accounts, general intangibles, contract rights and other assets and
property that is described in the Granting Clause of this Indenture and subject
to or intended to be subject to the lien of this Indenture, including all
proceeds thereof.
"Trustee" means the Person named as the "Trustee" in the
first paragraph of this Indenture until a successor Person shall have become the
Trustee pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Person; provided, that the provisions of
Section 7.06 and Section 8.11, as applicable to any Person at any time serving
as Trustee hereunder, shall survive (with respect to any period prior to the
date of such termination) the termination of such Person's status as Trustee
hereunder and the succession of any other Person to such status.
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"Trustee Fee" means the fee payable to the Trustee hereunder
in an amount that, for each Monthly Payment Date (and for the date on which the
final payment of principal is made), is equal to the sum of (A) the wire
transfer fees and reimburseable out-of-pocket expenses referred to in the
Trustee Fee Letter plus (B) the amount that is the product of (i) the rate per
annum specified in the Trustee Fee Letter and (ii) the Note Principal Balance of
all Notes as of the previous Monthly Payment Date (after giving effect to all
payments of principal on such date) (or, in the case of the first Monthly
Payment Date, as of the Initial Note Issuance Date).
"Trustee Fee Letter" means the letter dated June 19, 1997 from
LTCB Trust Company to JLA Credit Corporation setting forth the rate at which the
Trustee Fee is to accrue under this Indenture.
"Trustee's Certificate" means a statement completed and
executed by a Responsible Officer pursuant to Section 7.14.
"Uniform Commercial Code" or "UCC" means, with respect to a
particular jurisdiction, the Uniform Commercial Code, as in effect from time to
time in such jurisdiction, or any successor statute thereto.
"Weighted Average Yield" means, with respect to the Leases
included in the Trust Property and any Collection Period, the weighted average
yield of such Leases during such period (expressed as an annualized percentage).
SECTION 1.02. Compliance Certificates and Opinions.
Subject to the terms hereof, upon any application or request
by the Company to the Trustee to take any action under any provision of this
Indenture, other than any request expressly provided herein that (i) the Trustee
authenticate the Notes specified in such request, (ii) the Trustee invest moneys
in the Collection Account, the Reserve Account, the Payahead Account or the
Lease Purchase Account pursuant to the written directions specified in such
request, or (iii) the Trustee pay moneys due and payable to the Company
hereunder to the Company's assignee specified in such request, the Trustee may
require the Company to furnish to the Trustee an Officer's Certificate stating
that all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such requested action as to
which other evidence of satisfaction of the conditions precedent thereto is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
SECTION 1.03. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered
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by the opinion of, only one such Person, or that they be so certified or covered
by only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any Officer's Certificate delivered to the Trustee may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such Officer's Certificate or opinion and any Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an Authorized Officer or Authorized Officers
of the Company as to such factual matters unless such Authorized Officer or
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous. Any Opinion of Counsel may be based on the written opinion of other
counsel, in which event such Opinion of Counsel shall be accompanied by a copy
of such other counsel's Opinion and shall include a statement to the effect
that such counsel believes that such counsel and the Trustee may reasonably rely
upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Wherever in this Indenture, in connection with any application
or certificate or report to the Trustee, it is provided that the Company shall
deliver any document as a condition of the granting of such application, or as
evidence of compliance with any term hereof, it is intended that the truth and
accuracy, at the time of the granting of such application or at the effective
date of such certificate or report (as the case may be), of the facts and
opinions stated in such document shall in such case be conditions precedent to
the right of the Company to have such application granted or to the sufficiency
of such certificate or report. The foregoing shall not, however, be construed to
affect the Trustee's right to rely upon the truth and accuracy of any
statement or opinion contained in any such document as provided in Section
7.01(a)(ii).
Whenever in this Indenture it is provided that the absence of
the occurrence and continuation of a Default or an Indenture Event of Default or
a Servicer Event of Default or an Early Amortization Event is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Company, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Company's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it has not been notified in writing, prior
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to the date of such request or direction, of the occurrence and continuation of
such Default or Indenture Event of Default or Servicer Event of Default or Early
Amortization Event. For all purposes of this Indenture, the Trustee shall not be
deemed to have knowledge of any Default or Indenture Event of Default (other
than an Indenture Event of Default of the kind described in clause (i) of
Section 6. 01) or Servicer Event of Default or Early Amortization Event unless a
Responsible Officer of the Trustee shall have been notified in writing thereof
by the Company, the Servicer or any Noteholder.
SECTION 1.04. Acts of Noteholders, etc.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing (pursuant to appointments previously delivered to the
Trustee in form and substance reasonably satisfactory to the Trustee); and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee, with
a copy (or if expressly required an original) to the Company and the Servicer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Section 7.01) conclusive in favor
of the Trustee and the Company, if made in the manner provided in this Section
1.04.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the holder of any Note shall bind every future
holder of the same Note and the holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.
(d) By accepting the Notes issued pursuant to this Indenture,
each Noteholder irrevocably appoints the Trustee hereunder
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as the special attorney-in-fact for such Noteholder vested with full power on
behalf of such Noteholder to effect and enforce the rights of such Noteholder
pursuant hereto and the provisions hereof for the benefit of such Noteholder.
(e) Each holder of a Note, by acceptance of its Note, agrees
to treat the Note as indebtedness of the Company for federal income tax
purposes.
SECTION 1.05. Notices.
Any request, demand, authorization, direction, notice,
consent, waiver, Act of Noteholders, or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with, the
Trustee, the Company or the Servicer shall be sufficient for every purpose
hereunder if in writing and telexed, telecopied (with a copy of the telexed or
telecopied material sent to the recipient by overnight courier on the day of the
telex or telecopy), mailed, first-class postage prepaid, or hand delivered.
Unless otherwise specifically provided herein, no such request, demand,
authorization, direction, notice, consent, waiver, Act of Noteholders or other
document shall be effective until received and any provision hereof requiring
the making, giving, furnishing, or filing of the same on any date shall be
interpreted as requiring the same to be sent or delivered in such fashion that
it will be received on such date. Any such request, demand, authorization,
direction, notice, consent, waiver, Act of Noteholders, or other document shall
be sent or delivered to the following addresses:
(i) if to the Trustee, at the Corporate Trust Office,
Attention: Ms. Barbara Bevelaqua, Vice President, Corporate Trust
Administration (Number for telecopy: (212) 608-3081).
(ii) if to the Company, at 12677 Alcosta Boulevard, Suite 430,
San Ramon, California 94583 (Number for telecopy: (510) 277-0565), or
at any other address previously furnished in writing to the Trustee and
the Servicer by the Company;
(iii) if to the Seller, at 12677 Alcosta Boulevard, Suite 430,
San Ramon, California 94583 (Number for telecopy: (510) 327-0225), or
at any other address previously furnished in writing to the Trustee,
the Company and the Servicer by the Seller;
(iv) if to the Servicer, at 12677 Alcosta Boulevard, Suite
430, San Ramon, California 94583 (Number for telecopy: (510) 277-0565),
or at any other address previously furnished in writing to the Trustee,
the Company and the Seller by the Servicer; and
(v) if to Standard & Poor's, at 25 Broadway, New York, New
York 10004-1064, Attention: Surveillance Group (Number for telecopy:
(212) 208-8208), or at any such other
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address previously furnished in writing to the Trustee, the Company and the
Seller by the Servicer.
SECTION 1.06. Notice to Noteholders; Waiver.
(a) Where this Indenture provides for notice to Noteholders of
any event, or the mailing of any report to Noteholders, such notice or report
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first class postage prepaid, or sent by private courier or
confirmed telecopy (with a copy of the telecopied material sent to the recipient
by overnight courier on the day of the telecopy) to each Noteholder affected
by such event or to whom such report is required to be mailed, at its address as
it appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the mailing
of such report. In any case where a notice or report to Noteholders is mailed,
neither the failure to mail such notice or report, nor any defect in any notice
or report so mailed, to any particular Noteholder shall affect the sufficiency
of such notice or report with respect to other Noteholders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Noteholders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
(b) In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable to mail or
send notice to Noteholders, in accordance with Section 1.06(a), of any event
or any report to Noteholders when such notice or report is required to be
delivered pursuant to any provision of this Indenture, then such notification or
delivery as shall be made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.
SECTION 1.07. Table of Contents, Headings, etc.
The Table of Contents and the Article and Section headings are
for convenience only and shall in no way modify or restrict any of the terms or
provisions hereof.
SECTION 1.08. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
or the Trustee shall bind its respective successors and permitted assigns,
whether so expressed or not.
SECTION 1.09. Severability Clause.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality
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and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1.10. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, any separate trustee or co-trustee appointed under Section 7.11 and
the Noteholders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 1.11. Governing Law.
This Indenture and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the conflict of laws principles thereof.
SECTION 1.12. Legal Holidays.
In any case where any Monthly Payment Date or the Scheduled
Final Payment Date or any other date on which principal of or interest on any
Note is proposed to be paid shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Notes) such payment shall be
made on the next succeeding Business Day and no interest shall accrue for the
intervening period.
SECTION 1.13. Execution in Counterparts.
This Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 1.14. Inspection.
The Company agrees that, on reasonable prior notice, it will
permit the representatives of the Trustee or any Noteholder, during the
Company's normal business hours, to examine all of the books of account,
records, reports and other papers of the Company, to make copies thereof and
extracts therefrom, to cause such books to be audited by independent accountants
selected by the Company and reasonably acceptable to the Trustee or such
Noteholder, as the case may be, and to discuss its affairs, finances and
accounts with its officers, employees and independent accountants with an
Authorized officer of the Company present (and by this provision the Company
hereby authorizes its accountants to discuss with such representatives such
affairs, finances and accounts), all at such reasonable times and as often as
may be reasonably requested for the purpose of reviewing or evaluating the
financial condition or affairs of the Company or the performance of and
compliance with the covenants and undertakings of the Company in this Indenture,
the Sale and Servicing Agreement, the Rate Cap Agreement, the Note Purchase
Agreement or any of the other documents referred to herein or therein. Subject
entirely to the priorities of payment specified in Section 3.07(b)
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and 6.06 hereof and to the availability of funds to the Company in accordance
therewith, any expense incident to the exercise by the Trustee or any Noteholder
of any right set forth in this Section 1.14 during the continuance of any
Default or Indenture Event of Default (including, without limitation, any
Servicer Event of Default) shall be borne by the Company, but any expense due to
the exercise of a right by any such Person prior to the occurrence of a Default
or Indenture Event of Default (including, without limitation, any Servicer Event
of Default) shall be borne (subject to the other provisions of this Indenture)
by such Person; provided, however, that any insufficiency of funds available to
the Company for the payment of any amount otherwise owing by the Company under
this Section will not represent a claim against the Company.
SECTION 1.15. Survival of Representations and Warranties.
The representations, warranties and certifications of the
Company made in this Indenture or in any certificate or other writing delivered
by the Company pursuant hereto shall survive the Closing Date and the
authentication and delivery of the Notes issued on each Note Issuance Date
hereunder, but unless explicitly provided to the contrary, such representations,
warranties and certifications are made only as of the Closing Date and each such
Note Issuance Date.
SECTION 1.16. Communications with Noteholders.
Within 15 days' receipt of written request from the Servicer,
the Trustee, acting as Note Registrar, will provide to the Servicer a list of
the names and addresses of all Noteholders of record as of the most recent
Record Date. The Trustee, upon written request by one or more Noteholders
aggregating not less than 25% of the Note Principal Balance, will obtain from
the Note Registrar (if other than the Trustee) and afford such Noteholders
access during business hours to the current list of Noteholders for purposes of
communicating with other Noteholders with respect to their rights under the
Indenture (provided such Noteholders (i) state that they wish to communicate
with other Noteholders with respect to their rights under the Indenture or under
the Notes and (ii) provide the Trustee and Servicer with a copy of the proposed
communication).
SECTION 1.17. Statements Required in Officer's Certificate.
Each Officer's Certificate with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that the Person making such certificate has
read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in
such certificate are based;
(iii) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary
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to enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of
such Person, such covenant or condition has been complied with.
SECTION 1.18. When Treasury Securities Disregarded.
In determining whether the Noteholders of the required Note
Principal Balance of Notes have concurred in any request, waiver or consent
pursuant to this Indenture, Notes registered in the name of the Company or any
other obligor on the Notes or registered in the name of the Servicer or any
subservicer or in the name of any Affiliate of the Company, such obligor or
such Servicer or subservicer shall be disregarded, except that for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which a Responsible Officer of the
Trustee actually knows are so owned shall be so disregarded. Notes so owned
which have been pledged in good faith shall not be disregarded if the pledgee
establishes to the satisfaction of the Trustee the pledgee is right so to act
with respect to such Notes and that the pledgee's not the Company or any other
obligor upon the Notes or the Servicer or any subservicer or any Affiliate of
the Company, such obligor, such Servicer or such subservicer.
SECTION 1.19. Rules by Trustee.
The Trustee may make reasonable rules for action by or at a
meeting of Noteholders.
SECTION 1.20. No Adverse Interpretation of other Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or an Affiliate of the Company.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 1.21. No Recourse Against Others.
All liability described in the Notes of any director,
officer, employee or shareholder, as such, of the Company is waived and
released.
SECTION 1.22. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Indenture Event of Default or an
Early Amortization Event if such action is taken or condition exists.
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SECTION 1.23. Consent to Jurisdiction.
Each of the Company, the Servicer and the Trustee irrevocably
submits to the non-exclusive Jurisdiction of any New York State or Federal
court sitting in the Borough of Manhattan in the City of New York over any
suit, action or proceeding arising out of or relating to this Indenture or any
Note. Each of the Company, the Servicer and the Trustee irrevocably waives, to
the fullest extent permitted by applicable law, any objection which it may have
to the laying of the venue of any such suit, action or proceeding brought in
such a court and any claim that any such suit, action or proceeding brought in
such a court has been brought in any inconvenient forum. Each of the Company,
the Servicer and the Trustee agrees that final judgment in any such suit,
action or proceeding brought in such a court shall be conclusive and binding
upon the Company, the Servicer or the Trustee, as the case may be, and may be
enforced in the courts of New York (or any other courts to the jurisdiction of
which the Company, the Servicer or the Trustee, as the case may be, is subject)
by a suit upon such judgment, provided that service of process is effected upon
the Company as permitted by law; provided, however, that each of the Company,
the Servicer and the Trustee does not waive, and the foregoing provisions of
this sentence shall not constitute or be deemed to constitute a waiver of, (i)
any right to appeal any such judgment, to seek any stay or otherwise to seek
reconsideration or review of any such judgment or (ii) any stay of execution or
levy pending an appeal from, or a suit, action or proceeding for
reconsideration or review of, any such judgment.
SECTION 1.24. No Bankruptcy Petition.
Notwithstanding any provision contained herein, each of the
Noteholders and the Trustee covenants and agrees that, prior to the date which
is one year and one day after the payment in full of all Notes issued by the
Company and payment of all other amounts due under this Indenture, it will not
institute against, or join any other Person in instituting against, the Company
any bankruptcy, reorganization, receivership, arrangement, insolvency or
liquidation proceedings, or other similar proceedings under any federal or
state bankruptcy or similar law. The Company represents, warrants, and
covenants that it has obtained, and will in the future obtain, a no-petition
agreement from each and every Person that enters into any agreement of any kind
with the Company. Nothing in this Section shall constitute a waiver by the
Trustee or any Noteholder of any right to receive amounts owing to it under
this Indenture or (in the case of the Noteholders) the Notes. This Section 1.24
shall survive the termination of this Indenture.
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ARTICLE II
THE NOTES
SECTION 2.01. General Provisions.
(a) The Notes issuable hereunder shall be issued as
registered Notes without coupons in two classes (each, a "Class") on such date
or dates during the Note Issuance Period as from time to time shall be
authorized by the Company. The Notes of both Classes shall be known and entitled
generally as the "JLA Funding Corporation II Floating Rate Asset-Backed Notes."
The Notes of each Class shall have further particular designation as
specified below, and each Note issued hereunder shall bear upon the face thereof
the designation so specified for the Class to which it belongs. Subject to the
provisions of Section 2.02, the Trustee is hereby authorized and directed, upon
the written order of the Company, accompanied by an officer's Certificate
certifying that the conditions precedent set forth in Section 2.02 have been
satisfied, to authenticate and deliver Notes to be issued hereunder on each Note
Issuance Date in two classes entitled "Floating Rate Asset-Backed Notes, Class
A" and "Floating Rate Asset-Backed Notes, Class B," respectively. The forms
of the Class A Notes and the Class B Notes, and of the Trustee's certificate of
authentication, shall be in substantially the forms set forth in Exhibits A and
B hereto, respectively, with such appropriate insertions, omissions,
substitutions, and other variations as are required or permitted by this
Indenture. The aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is limited to $75,000,000 (of which the
aggregate principal amount of the Class A Notes shall be not greater than
$70,658,000 and the aggregate principal amount of the Class B Notes shall not
be greater than $4,342,000), except for Notes authenticated and delivered upon
registration of, transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Section 2.04, 2.05, or 9.04. The Class A Notes shall be issuable
only in registered form and only in denominations of at least $1,000,000 and
integral multiples of $1,000 in excess thereof, provided that the foregoing
shall not restrict or prevent the transfer or issuance in accordance with
Section 2.04 or 2.05 of any Class A Note having a remaining outstanding
principal amount of less than $1,000,000. The Class B Notes shall be issuable
only in registered form and only in denominations of at least $1,000,000, and
integral multiples of $1,000 in excess thereof; provided that the foregoing
shall not restrict or prevent the transfer or issuance in accordance with
Section 2.04 or 2.05 of any Class B Note having a remaining outstanding
principal amount of less than $1,000,000.
(b) During the Note Issuance Period no principal will be due
and payable on the Class A Notes or the Class B Notes. During the Note
Amortization Period, the aggregate amount of principal due and payable on each
Class of Notes on each Monthly Payment Date shall be equal to the Monthly
Principal for such Class. Except (i) for optional redemption pursuant to Section
10.01, (ii) for Retransfer Amounts, or (iii) as otherwise provided in Section
6.02, no part of
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the principal of any Note shall be paid prior to the Monthly Payment Date on
which such principal is due in accordance with the preceding provisions of this
Section 2.01(b). Unless earlier paid, the entire unpaid Class A Note
Principal Balance and the entire unpaid Class B Note Principal Balance will be
due and payable on the Scheduled Final Payment Date.
(c) Interest on each Note shall accrue from the Note
Issuance Date of such Note. Interest on the outstanding Note Principal Balance
of each Note shall be payable on each Monthly Payment Date, commencing on the
Monthly Payment Date occurring in the calendar month immediately succeeding the
month in which the applicable Note Issuance Date occurs, to Noteholders of
record as of the applicable the Record Date. Interest on the Notes of each
Class is required to be paid to Noteholders in an amount equal to the Monthly
Interest for such Class of Notes. Interest on the Notes of each Class shall be
computed on the basis of a 360-day year and the actual number of days elapsed
during the relevant Interest Period.
(d) All payments made with respect to any Note shall be made
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts and shall be
applied in the manner specified in Article III.
(e) All Notes of the same Class issued under this Indenture
shall be in all respects equally and ratably entitled to the benefits hereof
and thereof without preference, priority or distinction on account of the
actual time or times of authentication and delivery, all in accordance with
the terms and provisions of this Indenture. Payments of principal and interest
on Notes of the same Class shall be made pro rata among all outstanding Notes
of such Class, without preference or priority of any kind. The Notes are
limited recourse obligations of the Company. The sole source of payment of the
Notes will be the assets comprising the Trust Property.
SECTION 2.02. Issuances During the Note Issuance Period.
The Company may issue Notes on any one or more Business Days
during the Note Issuance Period (not more frequently than once per month), in
each case subject to the provisions of this Indenture, including the following
conditions precedent:
(i) at the time of such issuance (and after giving
effect thereto) (a) no Default, Indenture Event of Default, Servicer
Event of Default or Early Amortization Event shall have occurred or be
continuing, (b) the aggregate Note Principal Balance does not exceed
the amount specified for such date in Schedule I to this Indenture,
(c) the Equity Base is not less than 5% of the Pool Balance and the
sum of the Equity Base and the Class B Note Principal Balance is not
less than the Required Support Percentage of the Pool Balance (in each
case both before and after giving effect to any purchase of Leases to
occur on such date), and (d) the aggregate Note Principal Balance is
not greater than 95% of the Company's total assets and the aggregate
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Class A Note Principal Balance is not greater than 89.5%; of the
Company's total assets;
(ii) the net proceeds of such issuance of Notes are
applied by the Company on such Note Issuance Date to the purchase of
additional Eligible Leases pursuant to the Sale and Servicing
Agreement at an aggregate purchase price that is not greater than the
aggregate Principal Balance (excluding any Residual Amounts) of all
Leases purchased, and all conditions precedent to the purchase of
Leases and the related the Lease Assets pursuant to Article II of the
Sale and Servicing Agreement have been satisfied and complied with as
of the applicable Lease Purchase Date (provided that no failure of
compliance thereunder shall affect the validity of any Note issued
hereunder);
(iii) such additional Leases (and all related Lease
Assets) are included in the Trust Property and subject to a perfected
security interest in favor of the Trustee;
(iv) the Company is in compliance with its obligations
under the Note Purchase Agreement and under the Rate Cap Agreement;
(v) the Company shall deliver or cause to be delivered
to the Trustee a written collateral assignment of the Leases and
related Lease Assets to be included in the Trust Property on such
date, duly executed and completed, together with an attached duly
prepared Schedule of Leases identifying all such Leases;
(vi) the Company shall record and file a UCC financing
statement in the office of the Secretary of State of California and in
each other jurisdiction, if any, that is required under applicable
law, executed by and naming the Company as debtor and the Trustee as
secured party and identifying the Leases and related Lease Assets as
collateral. The Company shall deliver a file-stamped copy, or other
evidence of filing, of each such financing statement to the Trustee;
and (vii) the Company will take or cause to be taken such actions as
are necessary so that computer files maintained for the Leases and
related Lease Assets included in the Trust Property are appropriately
adjusted to indicate that such Leases and related Lease Assets have
been assigned and pledged to the Trustee pursuant to the Indenture.
SECTION 2.03. Execution, Authentication, Delivery and
Dating.
(a) The Notes shall be manually executed on behalf of the
Company by its President or one of its Vice Presidents.
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(b) Any Note bearing the signature of an individual who was
at the time of execution thereof a proper officer of the Company shall bind the
Company, notwithstanding that such individual ceases to hold such office prior
to the authentication and delivery of such Note or did not hold such office at
the date of such Note.
(c) No Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Note a certificate of authentication substantially in the form provided for
herein, executed by the Trustee by manual signature, and such certificate upon
any Note shall be conclusive evidence, and the only evidence, that such Note has
been duly authenticated and delivered hereunder. Each Note shall be dated the
date of its authentication.
(d) The Notes may from time to time be executed by the
Company and delivered to the Trustee for authentication together with a Company
Request to the Trustee directing the authentication and delivery of such Notes
and thereupon the same shall be authenticated and delivered by the Trustee in
accordance with such Company Request.
SECTION 2.04. Registration, Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate
Trust office a register (the "Note Register") in which, subject to, such
reasonable regulations as the Trustee may prescribe, the Company shall provide
for the registration of Notes and of transfers of Notes. The Trustee is hereby
appointed initial "Note Registrar", and the Trustee hereby accepts such
appointment, for the purpose of registering Notes and transfers of Notes as
herein provided. In the event that, subsequent to the initial Note Issuance
Date, the Trustee is unable to act as Note Registrar, the Trustee shall appoint
a bank or trust company acceptable to the Trustee, agreeing to act in
accordance with the provisions of this Indenture applicable to it, to act as
successor Note Registrar under this Indenture pursuant to a note registrar
agreement acceptable to the Trustee and Noteholders holding not less than 51%
in Note Principal Balance of the Notes. In performing such duties any such Note
Registrar shall have the same benefit of the provisions of this Indenture as
the Trustee itself would have if it were performing such duties.
(b) Subject to compliance with the provisions of Section
2.06, upon surrender for registration of transfer of any Note at the office of
the Company designated pursuant to Section 8.02 for such purpose, the Company
shall execute and the Trustee upon a Company Request shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of the same class, of any authorized denominations and of a like
aggregate original principal amount. The Trustee shall make a notation on any
such new Note of the amount of principal, if any, that has been paid on such
Note and shall make the appropriate entries in the Note Register.
(c) All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Company,
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evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Notes surrendered upon such registration of transfer or
exchange.
(d) Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the holder
thereof or his attorney duly authorized in writing.
(e) No service charge shall be made for any registration of
transfer or exchange of Notes but the Company or the Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Notes, but this provision shall not apply to any exchange pursuant to Section
9.04 not involving any transfer.
(f) Each prospective initial Noteholder acquiring a Note,
each prospective transferee acquiring a Note and each prospective owner of a
beneficial interest in Notes acquiring such beneficial interest (the
prospective initial Noteholder, the prospective transferee and the prospective
beneficial owner, each, a "Prospective owner"), shall, in the event of such an
acquisition, be deemed to have represented, in any case in which the Notes are
acquired with the assets of an "employee benefit plan". within the meaning of
Section 3(3) of ERISA or a "plan" within the meaning of Section 4975(e)(1)
of the Code (any such plan or employee benefit plan, a "Plan") and for any
period for which a Note is (or is deemed for ERISA purposes to be) assets of a
Plan, that the acquisition or transfer, and subsequent holding, will not
constitute, cause or otherwise give rise to a transaction described in Section
406 of ERISA or Section 4975 of the Code for which a statutory or
administrative exemption is unavailable.
SECTION 2.05. Mutilated, Destroyed, Lost and Stolen Notes.
(a) If any mutilated Note is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a replacement Note of the same class, of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
(b) If there shall be delivered to the Company and the
Trustee (i) evidence to their satisfaction of the destruction, loss or theft of
any Note (provided that any Noteholder's affidavit shall be sufficient
evidence for such purpose) and (ii) such security or indemnity as may be
required by them to save each of them and any agent of either of them harmless
(provided that any institutional Noteholder's own unsecured agreement of
indemnity shall be sufficient for these purposes so long as such Noteholder is
a "qualified institutional buyer" as referred to in Section 2.06), then, in the
absence of actual notice to the Company or the Trustee that such Note
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has been acquired by a bona fide purchaser, the Company shall execute and upon
a Company Request the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Note, a replacement Note of the same class, of
like tenor and principal amount and bearing a number not contemporaneously
outstanding. If, after the delivery of such replacement Note or payment of a
destroyed, lost or stolen Note, a bona fide purchaser of the original Note in
lieu of which such replacement Note was issued presents for payment such
original Note, the Company and the Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred
by the Company or the Trustee in connection therewith.
(c) In case the final installment of principal on any such
mutilated, destroyed, lost or stolen Note has become or will at the next
Monthly Payment Date become due and payable, the Company in its discretion may,
instead of issuing a replacement Note, pay such Note.
(d) Upon the issuance of any replacement Note under this
Section, the Company or the Trustee may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed as a result
of the issuance of such replacement Note plus reasonable costs and expenses of
the Trustee in connection therewith.
(e) Every replacement Note issued pursuant to this Section
in lieu of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Notes of the same class, duly issued hereunder.
(f) The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.06. Restrictions on Transfer and Exchange of Notes;
Compliance with Rule 144A.
(a) The Notes have not been registered under the Securities
Act or any state securities law. Each Noteholder agrees to offer, sell or
otherwise convey a Note or any interest therein only (A) to (i) a Person it
reasonably believes is a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act in a transaction' meeting the requirements of Rule 144A
or (ii) an institutional investor that is an "accredited investor" as defined
under paragraph (1), (2), (3) or (7) of Rule 501(a) under the Securities Act (an
"Institutional Accredited Investor") pursuant to another available exemption
from the registration requirements of
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the Securities Act and any applicable state securities laws and (B) if the
Trustee and the Company receive a Transferee Letter substantially in the form of
Exhibit C hereto from the transferee, in form satisfactory to the Trustee and
the Company, with respect to any transfer made pursuant to Rule 144A or such
other exemption. The Notes shall bear legends to the effect set forth in the
forms of Class A Note and Class B Note attached as Exhibit A and Exhibit B,
respectively. In the event that the Transferee Letter provided pursuant to this
Section 2.06 does not, in the reasonable judgment of the Company or the Trustee,
on its face establish the availability of an exemption under the Securities Act
and of continued exemption of the Company under the Investment Company Act, the
Company or the Trustee may require an Opinion of Counsel (which may be internal
counsel) reasonably satisfactory to the Seller or the Trustee, as the case may
be, that such transfer may be made pursuant to an exemption from the Securities
Act; provided, however, that no Opinion of Counsel shall be required in
connection with a direct transfer by an initial Noteholder of a Class A Note or
a Class B Note to an Affiliate or a wholly-owned subsidiary or affiliated
asset-backed commercial paper conduit so long as such Affiliate, wholly-owned
subsidiary or affiliated asset-backed commercial paper conduit is a qualified
institutional buyer or an Institutional Accredited Investor and (in each case)
delivers a Transferee Letter to the Trustee and the Company. Any such Opinion of
Counsel shall be obtained at the expense of the prospective transferor or
transferee, and not at the expense of the Company, the Seller, the Servicer or
the Trustee, and shall be delivered to the Company and the Trustee prior to any
such transfer. Neither the Company nor the Trustee is obligated to register the
Notes under the Securities Act or to take any other action not otherwise
required under this Agreement to permit the transfer of Notes without
registration. In addition, no transfer of any Note or any interest therein may
be made if the Company or the Trustee reasonably believes that as a result of
such transfer, the Notes would be "beneficially owned," as such term is
defined in the Investment Company Act of 1940, as amended, by more than one
hundred Persons.
(b) For so long as the Notes are "restricted securities"
within the meaning of Rule 144A of the Securities Act, the Seller, the Trustee
and the Servicer agree to cooperate with each other to provide to any Noteholder
and to any prospective purchaser of Notes designated by such a Noteholder, upon
the request of such Noteholder or prospective purchaser, any information that is
required to be provided to such Holder or prospective purchaser to satisfy Rule
144A(d)(4) (or any successor provision) under the Securities Act. Any recipient
of information provided pursuant to this Section 2.06(b) shall agree that such
information shall not be disclosed or used for any purpose other than the
evaluation of the Notes by the prospective purchaser. The Servicer will be
responsible for the physical delivery of the information requested pursuant to
this Section 2.06(b).
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SECTION 2.07. Payment of Interest and Principal; Rights
Preserved.
(a) Any installment of interest or principal payable on any
Note that is paid or duly provided for by the Company on the applicable Monthly
Payment Date shall be paid to the Person in whose name such Note was registered
at the close of business on the Record Date for such Monthly Payment Date by
wire transfer of immediately available funds to the account and number
specified in the Note Register on such Record Date for such Person or, if no
such account or number is so specified, then by check mailed to such Person's
address as it appears in the Note Register on such Record Date.
(b) All reductions in the principal amount of a Note
effected by payments of installments of principal made on any Monthly Payment
Date shall be binding upon all holders of such Note and of any Note issued upon
the registration of transfer thereof or in exchange therefor or in lieu
thereof, whether or not such payment is noted on such Note. All payments on the
Notes shall be paid without any requirement of presentment but each holder of
any Note shall be deemed to agree, by its acceptance of the same, to surrender
such Note at the Corporate Trust Office for the payment of the final
installment of principal of and interest on such Note.
SECTION 2.08. Persons Deemed Owners.
Prior to due presentment of a Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Noteholder as the owner of such Note for the purpose of receiving
payment of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 2.09. Cancellation.
All Notes surrendered for registration of transfer or
exchange or final payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
may be disposed of in the normal course of its business or as directed by a
Company Order.
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SECTION 2.10. Class B Notes Subordinated to Class A Notes.
(a) Notwithstanding the provisions of this Indenture and any
Class B Note, each Holder of a Class B Note, by his acceptance thereof,
covenants and agrees that the rights of the Noteholder of such Class B Notes in
and claims to the assets of the Company, the Class B Notes and the Trust
Property shall be subordinate and junior in right of payment, in accordance
with the provisions of this Section and to the extent and in the manner set
forth in Sections 3.07(b) and 6.06 and the other provisions of this Indenture,
to the prior payment in full of the Class A Notes (subject to the provisions of
such Sections). For purposes of this Indenture, the Class A Notes shall not be
deemed to have been paid in full until the holders or owners of the Class A
Notes shall have received full payment of the Class A Notes in cash.
(b) Each Holder of a Class B Note, by its acceptance
thereof, authorizes and directs the Company and the Trustee to take such
actions on his behalf as may be necessary or appropriate to effectuate, as
between the holders of the Class A Notes and the Class B Notes, the
subordination as provided in this Section 2.10 and appoints the Company as its
attorney-in-fact for any and all such purposes.
(c) In the event that, notwithstanding paragraphs (a) and
(b) of this Section, any Noteholder shall have received any payment or
distribution in respect of a Class B Note contrary to such provisions, then
such payment or distribution shall be received and held in trust for the
holders or owners of the Class A Notes and shall be paid over or delivered to
the Trustee on behalf of the Class A Noteholders or their representatives, as
the case may be, for application to (in the case of cash) or as collateral for
(in the case of non-cash property or securities) the payment or prepayment of
the Class A Notes after giving effect to any concurrent payment or distribution
to the holders or owners of such Class A Notes.
SECTION 2.11. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders. If the Trustee is not the Note Registrar, the Company
or other obligor, if any, shall furnish to the Trustee at least five Business
Days prior to each Record Date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
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ARTICLE III
ACCOUNTS; INVESTMENT OF MONEYS; COLLECTION
AND APPLICATION OF MONEYS; REPORTS
SECTION 3.01. Accounts; Investments by Trustee.
(a) The Servicer, pursuant to the Lock-Box Agreement, shall
maintain the Lock-Box Account, which account shall be maintained as an Eligible
Deposit Account, in the name of the Servicer for the benefit of the Trustee and
the Noteholders. The Lock-Box Account shall be an account maintained with Bank
of America or such other Lock-Box Bank as the Servicer may select; provided,
however, that the Servicer shall give the Trustee at least 30 days' prior
written notice of any change in the location of the Lock-Box Account, shall not
make any such change without the consent of the Trustee and shall give at least
60 days' prior written notice of the new location to each Lessee.
In addition, on or before the Closing Date, the Trustee
shall establish, in the name of the Trustee for the benefit of the Noteholders
as provided in this Indenture, the following accounts, which accounts shall be
segregated trust accounts maintained at the Corporate Trust Office:
(i) Collection Account;
(ii) Reserve Account;
(iii) Payahead Account; and
(iv) Lease Purchase Account.
Each of such Accounts shall be established and maintained as an Eligible Deposit
Account. Subject to the further provisions of this Section 3.01(a), the Trustee
sha11, upon receipt or upon transfer from another account, as the case may be,
deposit into such Accounts all amounts received by it which are required to be
deposited therein in accordance with the provisions of this Indenture. All such
amounts and all investments made with such amounts, including all income and
other gain from such investments, shall be held by the Trustee in such Accounts
as part of the Trust Property as herein provided, subject to withdrawal by the
Trustee in accordance with, and for the purposes specified in the provisions
of, this Indenture.
(b) The Trustee shall hold in trust but shall not be required
to deposit in any Account specified in Section 3. 01 (a) any payment received by
it until such time as the Trustee shall have identified to its reasonable
satisfaction the nature of such payment and, on the basis thereof, the proper
account or accounts into which such payment is to be deposited. In determining
into which of the Accounts, if any, any amount received by the Trustee is to be
deposited, the Trustee may conclusively rely (in the absence of gross negligence
or wilful misconduct on the part of the Trustee) on the
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written instructions of the Servicer. Unless otherwise advised in writing by
the Servicer, the Trustee shall assume that any amount remitted to it is to be
deposited into the Collection Account pursuant to Section 3.02. The Trustee may
establish from time to time such deadline or deadlines as it shall determine
are reasonable or necessary in the administration of the Trust Property after
which all amounts received or collected by the Trustee on any day shall not be
deemed to have been received or collected until the next succeeding Business
Day.
(c) The Trustee shall have no right of set-off with respect
to the Lock-Box Account, the Collection Account, the Reserve Account, the
Payahead Account or the Lease Purchase Account, or any investment therein,
whether or not commingled. If at any time any Account ceases to be an Eligible
Deposit Account, the Trustee shall within 10 Business Days (or such longer
period, not to exceed 30 calendar days, as to which Standard & Poor's may
consent) establish a new Account meeting the conditions specified in this
Section, and shall transfer any cash and/or any investments in the old Account
to such new Account.
(d) So long as no Default or Indenture Event of Default
shall have occurred and be continuing, the amounts in the Collection Account,
the Reserve Account, the Payahead Account and the Lease Purchase Account shall
be invested and reinvested by the Trustee pursuant to a Servicer Notice in one
or more Permitted Investments. Subject to the restrictions on the maturity of
investments set forth in Section 3.01(f), each such Servicer Notice may
authorize the Trustee to make the specific Permitted Investments set forth
therein, to make Permitted Investments from time to time consistent with the
general instructions set forth therein, or to make specific Permitted
Investments pursuant to instructions received in writing or by telegraph or
facsimile transmission from the employees or agents of the Servicer identified
therein, in each case in such amounts as such Servicer Notice shall specify. The
Company agrees to report as income for financial reporting and tax purposes (to
the extent reportable) all investment earnings on amounts in the Collection
Account, the Reserve Account, the Payahead Account and the Lease Purchase
Account.
(e) In the event that either (i) the Servicer shall have
failed to give investment directions to the Trustee by 12:00 P.M. New York time
on any Business Day on which there may be uninvested cash or (ii) a Default or
Indenture Event of Default shall have occurred and be continuing, then the
Trustee shall invest and reinvest the funds then in the Collection Account, the
Reserve Account, the Payahead Account and the Lease Purchase Account, as the
case may be, to the fullest extent practicable in one or more Permitted
Investments as specified in paragraph (c) of the definition of Permitted
Investments. All investments made by the Trustee shall mature no later than the
maturity date therefor permitted by Section 3.01(f).
(f) No investment of any amount held in the Collection
Account, the Reserve Account, the Payahead Account or the Lease Purchase Account
shall mature later than the second Business Day
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immediately preceding the Monthly Payment Date which is scheduled to occur
immediately following the date of investment. All income or other gains from
the investment of moneys deposited in the Collection Account, the Reserve
Account, the Payahead Account and the Lease Purchase Account shall be
deposited by the Trustee in such account immediately upon receipt. Any net
loss of principal (determined on a month by month basis) resulting from such
investment of amounts in the Collection Account, the Reserve Account, the
Payahead Account or the Lease Purchase Account shall be charged to the
respective Account.
(g) Any investment of any funds in the Collection Account,
the Reserve Account, the Payahead Account or the Lease Purchase Account, and
any sale of any investment held in such accounts, shall be made under the
following terms and conditions:
(i) each such investment shall be made in the name of
the Trustee (in its capacity as such) for the benefit of the
Noteholders or in the name of a nominee of the Trustee;
(ii) the investment earnings of any investment shall be
credited to the Account for which such investment was made;
(iii) any certificate or other instrument evidencing
such investment shall be delivered directly to the Trustee or its
agent and the Trustee shall have sole possession of such instrument
and all income on such investment; and
(iv) the proceeds of any sale of an investment shall be
remitted by the purchaser thereof directly to the Trustee for deposit
in the Account in which such investment was held.
(h) If any amounts are needed for disbursement from the
Collection Account, the Reserve Account, the Payahead Account or the Lease
Purchase Account, and sufficient uninvested funds are not collected and
available therein to make such disbursement, in the absence of a Servicer Order
for the liquidation of investments held therein in an amount sufficient to
provide the required funds, the Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account
selected by it in its absolute discretion and shall not be liable for any loss
resulting therefrom.
(i) The Trustee shall not in any way be held liable by
reason of any insufficiency in the Collection Account, the Reserve Account, the
Payahead Account or the Lease Purchase Account, resulting from losses on
investments (including from liquidations thereof) made in accordance with the
provisions of this Section 3.01 (but the institution serving as Trustee shall
at all times remain liable for its own debt obligations, if any, constituting
part of such investments). The Trustee shall not be liable for any investment
(or liquidation) made by it in accordance with this Section 3.01 on the grounds
that it could have made a more favorable investment (or liquidation).
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SECTION 3.02. Collections; Applications.
(a) If (i)(A) the Servicer's short-term unsecured debt has
been rated A-1 or higher by Standard & Poor Is or (B) a Servicer letter of
credit issued by an institution rated A-1 or higher by Standard & Poor's has
been obtained by the Servicer and (ii) the Trustee has received confirmation
from the Rating Agency that there would not be a reduction in the then-current
rating of the Class A Notes or of the Class B Notes, the Servicer shall on or
before each Deposit Date remit, or cause the Lock-Box Bank to remit, to the
Collection Account all payments by the Lessees on the Leases (including any
Purchase Option Payment, any prepayments in full of a Lease and any applicable
Payahead Amounts related to such Collection Period), other than Servicing Fees
(to the extent that sufficient funds are allocated and available therefor as
provided in Section 3.07) and Administrative Fees (which may be retained by the
Servicer), and all Recoveries and Insurance Proceeds and Rate Cap Proceeds, as
collected during the Collection Period.
(b) Unless the conditions in Section 3.02(a) have been
satisfied, or if at any time a Servicer Event of Default has occurred and is
continuing and no successor Servicer has been appointed, the Servicer shall
remit or cause the Lock-Box Bank to remit the amounts referred to in Section
3.02 (a) into the Collection Account (including any such amounts then held by
the Servicer) as soon as practicable, but in no event later than the close of
business on the second Business Day after receipt thereof. As of the date
hereof, the provisions of this paragraph (b) are applicable and the Servicer
will notify the Company, and the Company will thereupon promptly notify the
Trustee, if paragraph (a) of this Section becomes applicable at any time after
the date hereof.
(c) Notwithstanding the provisions of subsections (a) and (b)
hereof, the Servicer may retain, or will be entitled to be reimbursed from,
amounts otherwise payable into, or on deposit in, the Collection Account with
respect to a Collection Period, amounts previously deposited in the Collection
Account but later determined to have resulted from mistaken deposits or payments
due before the applicable Cut-Off Date or postings or checks returned for
insufficient funds (provided that the Servicer accounts for such amounts in the
Monthly Servicer Report for the related Collection Period). The amount to be
retained or reimbursed hereunder shall not be included in funds available for
distribution with respect to the related Monthly Payment Date. The Trustee may
fully rely upon notice as to such matters from the Company or the Servicer.
(d) In those cases where a subservicer is servicing a Lease
pursuant to a subservicing agreement and where required by the Rating Agency to
maintain the ratings on the Notes, the Servicer shall cause the subservicer to
remit to the Collection Account as soon as practicable, but in no event later
than the close of business on the second Business Day after receipt thereof by
the subservicer (but subject to the provisions of Section 3.02 (c) of this
Agreement), the
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amounts referred to in Section 3.02 (a) in respect of a Lease being serviced by
the subservicer.
(e) Pending their deposit into the Collection Account, all
collections, Insurance Proceeds, Recoveries and Liquidation Proceeds shall be
segregated by book-entry or similar form of identification on the Servicer's
books and records and identified as the property of the Company subject to the
lien of the Trustee.
(f) If at any time the Company shall receive any payment on
or in respect of any Lease, Equipment (including any Residual Amount) or other
Trust Property, it shall hold such payment in trust for the benefit of the
Trustee and the Noteholders, shall segregate such payment from the other
property of the Company, and shall, within two Business Days of receipt, deliver
such payment in the form received (with any necessary endorsement) by it to the
Trustee.
SECTION 3.03. Additional Deposits.
The Company shall be required to deposit into the Collection
Account the aggregate Retransfer Amount pursuant to Section 4.02 in accordance
with the provisions of such Section. All remittances shall be made to the
Collection Account, in Automated Clearinghouse Corporation next-day funds or
immediately available funds, not later than 3:00 p.m., New York time, on the
related Deposit Date. The Trustee shall deposit in the Collection Account the
aggregate of any Reserve Draw Amounts pursuant to Section 3.05, the aggregate of
any amounts received from JLACC under the Sale and Servicing Agreement, and the
Payahead Draw Amount due pursuant to Section 3.06, in each case on the Deposit
Date or Monthly Payment Date, as applicable.
SECTION 3.04. Daily Deposits.
The Servicer is required to make deposits into the Collection
Account on a daily basis pursuant to Section 3.02 (b) and not monthly pursuant
to Section 3.02(a) as of the date hereof and shall continue to be so obligated
until such date (if any) on which the Servicer by Servicer Notice certifies to
the Trustee that the conditions precedent to the applicability of Section
3.02(a) have been satisfied. For so long as the Servicer is so obligated to make
deposits on a daily basis, not later than 3:00 p.m. (New York time) on the
first Business Day of each week, commencing in the week following the initial
Lease Purchase Date, the Servicer will deliver to the Company and the Trustee a
written statement verifying the amount delivered by the Servicer from the Lock
Box Account to the Trustee for deposit into the Collection Account on each
Business Day during the preceding week.
SECTION 3.05. Reserve Account.
(a) On each Note Issuance Date, the Company shall deposit or
cause to be deposited into the Reserve Account, by wire transfer in immediately
available funds, such amount, if any, as is required to make the balance of
amounts in the Reserve Account be not less
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than 1% of the Note Principal Balance (after giving effect to any issuance of
Notes on such Note Issuance Date).
(b) On each Monthly Payment Date, the Trustee shall transfer
from the Reserve Account to the Collection Account immediately available funds
in the amount of the Reserve Draw Amount, if any, in accordance with the
instructions contained in the applicable Monthly Servicer Report for such
Monthly Payment Date. "Reserve Draw Amount" shall mean the excess of (i) the
amount necessary to make distributions on such Monthly Payment Date pursuant to
clauses (i) through (iv) of Section 3.07(b) over (ii) amounts in the
Collection Account available for distribution on such Monthly Payment Date as
set forth in the Monthly Servicer Report for the related Collection Period, but
in no event will the Reserve Draw Amount be greater than the Available Reserve
Amount with respect to such Monthly Payment Date.
(c) On each Monthly Payment Date, if no Indenture Event of
Default has occurred and is continuing, the Trustee shall withdraw from the
Reserve Account and transfer to the Seller by wire transfer of immediately
available funds the Reserve Account Surplus, if any.
(d) Upon the first date on which the Notes are paid in full,
the Trustee, after the payment of all amounts payable from the Reserve Account
as provided herein and after payment of all amounts due to the Trustee
hereunder, shall withdraw from the Reserve Account all amounts on deposit in the
Reserve Account and pay such amounts to or upon the instructions of the Company.
SECTION 3.06. Payahead Account.
(a) The Trustee shall withdraw and transfer amounts in the
Collection Account that represent the Payahead Amounts from the Collection
Account into the Payahead Account on each Monthly Payment Date.
(b) The Trustee shall withdraw from the Payahead Account and
transfer to the Collection Account on each Deposit Date in immediately available
funds the Payahead Draw Amount for the following Monthly Payment Date.
(c) On each Monthly Payment Date, all interest (including
accrued discount realized on liquidation of any Permitted Investment purchased
at a discount) and earnings (net of losses and investment expenses, if any)
accrued since the preceding Monthly payment Date on funds on deposit in the
Payahead Account shall be transferred to the Collection Account.
(d) Notwithstanding the foregoing, if (i) (a) the Servicer's
short-term unsecured debt has been rated A-1 or higher by Standard & Poor's or
(b) a Servicer letter of credit issued by an institution rated A-1 or higher by
Standard & Poor's has been obtained by the Servicer and (ii) the Trustee has
received confirmation from the Rating Agency that there would not be a
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reduction in the then-current rating of the Class A Notes or of the Class B
Notes, then the Servicer may hold the Payahead Amounts together with its own
funds rather than deposit such amounts into the Payahead Account, and shall pay
the Payahead Draw Amount to the Trustee in next day funds on or prior to each
Deposit Date. As of the date hereof, the provisions of this paragraph are not
applicable and the Servicer will notify the Company, and the Company will
thereupon promptly notify the Trustee, if this paragraph becomes applicable at
any time after the date hereof.
(e) Upon the earlier to occur of (i) the Final Scheduled
Monthly Payment Date, and (ii) the date on which the Notes are paid in full, the
Trustee, after the payment of all amounts payable from the Payahead Account as
provided herein (and after payment of all amounts due to the Trustee hereunder),
shall withdraw from the Payahead Account all amounts on deposit in such
account and pay such amounts to the Company or its designee.
SECTION 3.07. Collection Account.
(a) The Trustee shall deposit the following into the
Collection Account promptly upon receipt thereof by the Trustee:
(i) each Rent Payment (including all Rent Payments
deposited with the Trustee by the Company on each Lease Purchase
Date);
(ii) any Retransfer Amount and any other proceeds of any
repurchase of Leases and Equipment pursuant to Section 4.02 that are
received by the Trustee;
(iii) each prepayment of any Lease received by the Trustee;
(iv) all Security Deposit Offsets (if any) and Recoveries
(if any) and Liquidation Proceeds (if any) on any Lease, in each case
received by the Trustee;
(v) all earnings on Permitted Investments in the Reserve
Account and the Lease Purchase Account;
(vi) all proceeds received by the Trustee pursuant to any
Insurance Policy covering Equipment or any other amounts received by
the Trustee relating to a Lease or Equipment;
(vii) all Rate Cap Proceeds, if any, received by the
Trustee pursuant to the Rate Cap Agreement; and
(viii) any other amount required to be deposited in the
Collection Account pursuant to Section 3.02.
(b) Unless the Notes have been declared due and payable
pursuant to Section 6.02 and moneys collected by the Trustee are being applied
in accordance with Section 6.06, the Trustee shall by
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3:00 P.M. (New York City time) on the Business Day prior to each Monthly Payment
Date allocate all available funds on deposit in the Collection Account and
attributable to the related Collection Period (or, in the case of any Rate Cap
Proceeds, attributable to such Monthly Payment Date) (including any investment
income with respect to funds on deposit in the Collection Account)
(collectively, the "Available Payment Amount") in the amounts required for
application, and on such Monthly Payment Date shall make payments, in the
following order of priority:
(i) to the payment to the Trustee of the Trustee Fee
(including any overdue Trustee Fee) plus all other amounts due to the
Trustee hereunder; provided, however, that the aggregate amount
payable under this clause (i) in any single year will not exceed
$25,000; then
(ii) to the payment on each Monthly Payment Date to the
Servicer, the Servicing Fee (including any overdue Servicing Fee) due
to the Servicer on such Monthly Payment Date; then
(iii) to the payment of Monthly Interest, including any
Overdue Monthly Interest, to the Class A Noteholders; then
(iv) to the payment of Monthly Interest, including any
Overdue Monthly Interest, to the Class B Noteholders; then
(v) solely during the Note Issuance Period, to payment of
the Non-Utilization Premium, to the Committed Investors, pro rata in
accordance with the respective amounts thereof owing to such investors
pursuant to the Note Purchase Agreement; then
(vi) solely during the Note Issuance Period, to the
Reserve Account an amount that is equal to the amount necessary to
increase the amount on deposit therein (exclusive of interest and
earnings) to the Required Reserve Amount; then
(vii) solely during the Note Issuance Period, to the
deposit of any Principal Component of all Rent Payments into the Lease
Purchase Account; then
(viii) solely during the Note Amortization Period, to the
payment of Monthly Principal, including any Overdue Monthly Principal,
to the Class A Noteholders; then
(ix) solely during the Note Amortization Period, if the
sum of the Equity Base and the Class B Note Principal Balance (before
giving effect to any payments of principal on such date) is less than
$2,072,368, then to the payment to the Class A Noteholders of an
amount equal to the lesser of (i) the remaining Available Payment
Amount and (ii) the Class A Note Principal Balance; then
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(x) solely during the Note Amortization Period, to the
payment of Monthly Principal, including any Overdue Monthly Principal,
to the Class B Noteholders; then
(xi) solely during the Note Amortization Period, to the
Reserve Account an amount that is equal to the lesser of (i) the
amount necessary to increase the amount on deposit therein to the
Required Reserve Amount and (ii) the interest Component of the Rent
Payments received during the related Collection Period; then
(xii) to the payment to the Trustee of the Trustee Fee
(including any overdue Trustee Fee) plus all other amounts due
to the Trustee hereunder, to the extent (if any) not paid pursuant to
clause (i) above; then
(xiii) all remaining funds, if any, to or upon the order of
the Company;
provided, however, that (A) if an Indenture Event of Default shall have occurred
and be continuing on such Monthly Payment Date, any amounts otherwise payable
under clauses (vi), (vii), (x), (xi), (xii) and (xiii) shall be paid to the
Class A Noteholders until the Class A Note Principal Balance has been reduced to
zero and all amounts owing on the Class A Notes have been paid in full, and (B)
if during the Note Amortization Period an Over-Issuance Condition shall have
occurred and be continuing, any amounts otherwise payable under clause (xiii) on
such Monthly Payment Date shall be paid to the Trustee and the Noteholders, in
accordance with the priorities of payment specified above, until the Note
Principal Balance of all Notes has been reduced to zero and all amounts owing on
the Notes and to the Trustee have been paid in full.
Distributions to Noteholders on a Monthly Payment Date will
be made pro rata to the Noteholders of record of each Class as of the Record
Date preceding such Monthly Payment Date. On any Monthly Payment Date,
Noteholders will not be entitled to any amount in excess of Monthly Interest
and Monthly Principal (including any Overdue Monthly Interest and Overdue
Monthly Principal), except as described above.
SECTION 3.08. Lease Purchase Account.
(a) On each Note Issuance Date, the Trustee shall deposit in
the Lease Purchase Account an amount equal to all of the net proceeds to the
Company received from the issuance of Notes on such Note Issuance Date. On each
Monthly Payment Date, the Trustee shall deposit in the Lease Purchase Account
all amounts required to be so deposited pursuant to Section 3.07(b)(vii).
(b) On each Lease Purchase Date during the Note Issuance
Period, the Trustee shall pay from the Lease Purchase Account to the Seller
directly on behalf of the Company, an amount equal to the
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applicable purchase price for the Leases sold to the Company on such Lease
Purchase Date.
(c) If the Lease Purchase Account has not been reduced to
zero on the last day of the Note Issuance Period, the Trustee shall transfer any
amount remaining in the Lease Purchase Account on such date to the Collection
Account and such amount shall be distributed on the Monthly Payment Date
concurrent with or immediately following such date. Upon such distribution, the
Lease Purchase Account shall be closed.
SECTION 3.09. Reports; Notices of Certain Payments.
(a) Concurrently with each payment to the Noteholders on a
Monthly Payment Date, the Trustee shall mail to the Servicer (except that with
respect to clause (i) below no report shall be delivered to the Servicer), the
Rating Agency and each Noteholder the following information:
(i) the Monthly Servicer Report furnished to the Trustee
by the Servicer relating to such Monthly Payment Date (or if such
report has not been received, a written statement to such effect);
and
(ii) the amount on deposit as of such Monthly Payment
Date in the Collection Account, the Reserve Account, the Payahead
Account and the Lease Purchase Account, in each case after giving
effect to all of the withdrawals and applications or transfers
required on such Monthly Payment Date pursuant to this Article III.
(b) The Trustee shall within five Business Days after the
request of the Company or the Servicer, deliver to the Company and the Servicer
a written report setting forth the amounts on deposit in the Collection Account,
the Reserve Account, the Payahead Account and the Lease Purchase Account, and
identifying the investments included therein.
SECTION 3.10. Trustee May Rely on Certain Information.
Pursuant to the Sale and Servicing Agreement, the Company,
the Seller and the Servicer are required to furnish to the Trustee from time to
time certain information and make various calculations which are relevant to the
performance of the Trustee's duties in this Article III and in Article IV and
in Section 7.14 of this Indenture. The Servicer shall provide the Trustee with a
revised amortization schedule within 10 Business Days following the termination
of the Note Issuance Period and on the Business Day preceding each Determination
Date thereafter. In making distributions from any of the Accounts and any
transfer of amounts between such Accounts the Trustee may fully rely on
information provided to it as specified herein by the Seller, the Servicer or
the Company in writing, whether by way of a certificate, report or otherwise, or
failing delivery
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thereof on such other information as the Trustee reasonably determines
appropriate.
ARTICLE IV
LEASES AND EQUIPMENT
SECTION 4.01. Representations and Warranties of the Company.
The Company hereby makes, as to itself, to the Trustee for
the benefit of the Noteholders and the Trustee (i) the representations and
warranties set forth in Section 3.01 of the Sale and Servicing Agreement and
(ii) the representations and warranties made by the Seller in Section 3.02 of
the Sale and Servicing Agreement with respect to the Leases and related Lease
Assets. The Trustee shall rely on such representations and warranties in
authenticating Notes to be issued on each Note Issuance Date and in accepting in
trust the Leases, the related Lease Assets and the other Trust Property
delivered to the Trustee upon the purchase thereof by the Company on each Lease
Purchase Date pursuant to the Sale and Servicing Agreement. Such representations
and warranties shall speak as of the date hereof, as of the Closing Date and as
of each Lease Purchase Date, as applicable.
SECTION 4.02. Purchase upon Breach; Sale and Servicing
Agreement.
The Company and the Servicer, as the case may be, shall
promptly inform the Trustee, and thereafter the Trustee shall promptly inform
the Noteholders, in writing, upon the discovery of a breach of any of the
Seller's or Company's representations and warranties set forth in or referred to
in Section 4.01, or of the Seller's breach of the representations and
warranties set forth in Section 3.02 of the Sale and Servicing Agreement or the
Servicer's breach of the covenants set forth in Section 4.05 of the Sale and
Servicing Agreement, which materially and adversely affects the interest of the
Noteholders in any Lease. Each such notice shall include a statement that such
breach materially and adversely affects the interest of the Noteholders in such
Lease. As of the Deposit Date in the month following the month (or, if the
Seller or the Servicer (as applicable) elects under the Sale and Servicing
Agreement, the last day of the month) in which the Company, the Seller or the
Servicer (as applicable) becomes aware or receives such written notice of such
breach, the Company, unless the Seller or the Servicer cures such breach, shall
replace in the Trust Property each such Lease that is materially and adversely
affected by such breach) by delivering the Retransfer Amount to the Trustee for
inclusion in the Trust Property (or, if the Seller shall have delivered to the
Company a Substitute Lease subject to and in accordance with the Sale and
Servicing Agreement, such Substitute Lease) and, upon receipt of the Retransfer
Amount (or such Substitute Lease), the Trustee shall release and retransfer such
Lease from the Trust Property. The
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Trustee, whereupon the balance of such proceeds, if any, shall be paid to, or as
directed by, the Seller.
SECTION 4.04. Release of Leases and Equipment Upon Final Rent
Payment.
(a) In the event that the Trustee shall have received written
certification from an Authorized Officer of the Servicer that the Trustee has
received from amounts paid by the Lessee or from the proceeds of the Equipment
subject to any Lease (i) the final Rent Payment due and payable under any Lease
(excluding, if applicable, any Purchase Option Payment), or (ii) a Retransfer
Amount or prepayment in respect of any Lease and, following such final Rent
Payment or Retransfer Amount or prepayment, no further payments on or in respect
of such Lease are or will be due and payable, such Lease and the related Lease
Assets shall be released from the lien of this Indenture.
(b) If an Early Amortization Event or Event of Default shall
have occurred and be continuing, then each Lease and related Lease Assets which
would otherwise be released from the lien of this Indenture pursuant to this
Section 4.04 shall instead remain subject to such lien and all of the provisions
of this Indenture, including without limitation Article VI hereof.
SECTION 4.05. Execution of Documents.
The Trustee shall, at the Company's cost and expense,
promptly execute and deliver such documents (which shall be furnished to the
Trustee by the Company) and take such other actions as the Company, by Company
Request, may reasonably request to fully effectuate the release from this
Indenture of any Lease and Equipment required to be so released pursuant to
Sections 4.03 and 4.04.
ARTICLE V
SERVICER EVENTS OF DEFAULT; SUBSTITUTE
SERVICER
SECTION 5.01. Servicer Events of Default.
If a Servicer Event of Default shall have occurred and be
continuing, the Trustee shall, upon the written request of the holders of Class
A and Class B Notes evidencing more than 66-2/3% of the aggregate outstanding
principal amount of the Class A and Class B Notes, give written notice to the
Servicer of the termination of all of the rights and obligations of the Servicer
(but none of the Seller's obligations thereunder or hereunder, which shall
survive any such termination) under the Sale and Servicing Agreement and this
Indenture and the Trustee shall act as substitute Servicer in accordance with
Section 8.02 of the Sale and Servicing Agreement.
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SECTION 5.02. Substitute Servicer.
Notwithstanding the provisions of Section 5.01, the Trustee
may, if it shall be unwilling or unable to act as the Successor Servicer in
accordance with Section 5.01, appoint a Successor Servicer in accordance with
the provisions of Section 8.02 of the Sale and Servicing Agreement.
SECTION 5.03. Notification to Noteholders.
Upon any termination of the Servicer or appointment of a
Successor Servicer, the Trustee shall give prompt notice of such termination or
appointment, together with the conditions of default, to the Rating Agency and
each Noteholder in the manner provided herein.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default.
"Indenture Event of Default," wherever used herein, means
anyone of the following (whatever the reason for such Indenture Event of Default
and whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) default in the payment of (a) any interest upon any
outstanding Note when it becomes due and payable or (b) any principal
of any outstanding Note when it becomes due and payable;
(ii) default in the performance, or breach, of any
covenant set forth in (a) Section 8.04, 8.07(c), 8.08, 8.10 or 8.14 or
(b) Section 8.13;
(iii) default in the performance, or breach, of any
covenant of the Company in the Notes or this Indenture (other than a
covenant described in clause (i) or (ii) above) or in the Note
Purchase Agreement or the Sale and Servicing Agreement and continuance
of such default or breach for a period of 30 days after the earliest
of (A) any officer of the Company first acquiring knowledge thereof, or
(B) written notice being given to the Company by the Trustee itself of
upon the request of Noteholders holding not less than 51% of the Note
Principal Balance of all Notes;
(iv) if any representation or warranty of the Company or
the Seller made in this Indenture, in the Note Purchase Agreement or
in the Sale and Servicing Agreement or any other writing provided to
the Noteholders in connection with the
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foregoing documents shall prove to be incorrect in any material
respect as of the time when the same shall have been made; provided,
however, that the breach of any representation or warranty made by the
Seller in Section 3.02 of the Sale and Servicing Agreement with
respect to any of the Leases or the Equipment subject thereto shall
not constitute an Indenture Event of Default if the Seller cures such
breach within the period permitted by, or repurchases a Lease and the
related Equipment in accordance with, Section 3.03 of the Sale and
Servicing Agreement;
(v) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company
in an involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization, or other similar law or
(B) a decree or order adjudging the Company a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment, or composition of or in respect of the
Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator, or
other similar official of the Company or of any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period
of 90 consecutive days;
(vi) the commencement by the Company of a voluntary case
or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect
of the Company in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization, or
other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator,
or similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the Company's failure to pay its debts generally as they
become due, or the taking of corporate action by the Company in
furtherance of any such action;
(vii) the Company becomes obligated to register as an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended;
(viii) on two consecutive Monthly Payment Dates during the
Note Issuance Period (a) the Equity Base is less than 5%
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of the Pool Balance or (b) the sum of the Equity Base and the Class B
Note Principal Balance is less than the Required Support Percentage of
the Pool Balance (in each case both before and after giving effect to
any purchase of Leases to occur on such date);
(ix) any Over-Issuance Condition occurs;
(x) on two consecutive Monthly Payment Dates after the
Note Issuance Period, the amount in the Reserve Account is below the
Required Reserve Amount (after giving effect to all withdrawals from
and deposits to the Reserve Fund on such dates); or
(xi) any Servicer Event of Default occurs.
SECTION 6.02. Acceleration of Maturity; Rescission and
Annulment.
(a) If an Indenture Event of Default occurs and is
continuing, then and in every such case the Note Issuance Period (unless earlier
terminated) shall immediately terminate and the Trustee, with the consent of the
holders of Class A and Class B Notes evidencing not less than 66-2/3% of the
aggregate outstanding principal amount of the Class A and Class B Notes, may
declare the unpaid principal amount of all the Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by the Noteholders), and upon any such declaration such principal amount shall
become immediately due and payable together with all accrued and unpaid interest
thereon, without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Company; provided, that in the case of any of
the Events of Default specified in clause (i)(a), (ii)(b), (v), (vi) or (ix) of
Section 6.01 with respect to the Company, without any notice to the Trustee or
the Company, the Notes (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
(b) At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the holders of
Class A and Class B Notes evidencing not less than 66-2/3% of the aggregate
outstanding principal amount of the Class A and Class B Notes, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Company has paid or deposited with the Trustee a
sum sufficient to pay:
(A) all principal of the Class A and Class B Notes
which has become due otherwise than by such declaration of
acceleration, and interest thereon from the
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date when the same first became due at the applicable Note
Rate;
(B) all interest which has became due with respect to
the Class A and Class B Notes and, to the extent that payment
of such interest is lawful, interest upon overdue interest
from the date when the same first became due at a rate per
annum equal to the applicable rate of interest for each such
Note;
(C) all sums paid or advanced, together with interest
thereon, by the Trustee hereunder and the reasonable
compensation, expenses, disbursements, and advances of the
Trustee and its agents and counsel;
(ii) all Indenture Events of Default, other than the
non-payment of the aggregate principal amount of the Notes which has
become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 6.13; and
(iii) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction.
No such rescission shall affect any subsequent Indenture Event of Default or
impair any right consequent thereon.
SECTION 6.03. Other Remedies.
(a) If an Indenture Event of Default occurs and is continuing
of which a Responsible Officer of the Trustee has received written notice (other
than a payment default as described in clause (i) of Section 6.01), the Trustee
shall give notice to each Noteholder as set forth in Section 7.02. The Trustee
shall then take such action, if any, as may be directed by the holders of Class
A and Class B Notes evidencing not less than 66-2/3% of the aggregate
outstanding principal amount of the Class A and Class B Notes.
(b) Following any acceleration of the Class A and Class B
Notes, the Trustee shall have all of the rights, powers and remedies with
respect to the Trust Property set forth herein or as are otherwise available to
secured parties under the Uniform Commercial Code or other applicable law. Such
rights, powers and remedies may be exercised by the Trustee in its own name as
trustee of an express trust.
SECTION 6.04. Trustee May File Proofs of Claim.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition,
or other judicial proceeding relative to the Company, the Seller, the Servicer
or any other obligor upon the Class A and Class B Notes or the other obligations
secured hereby or relating to the property of the Company, the Seller, the
Servicer or of such other obligor or their creditors, the Trustee (irrespective
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of whether the principal of the Class A and Class B Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company, the Seller or
the Servicer for the payment of overdue principal or overdue interest or any
such other obligation) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Class A and
Class B Notes and any other obligation secured hereby and to file
such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee and its agents and counsel) and of the Noteholders allowed in
such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator, or
other similar official in any such judicial proceeding is hereby authorized by
each Class A and Class B Noteholder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Class A and Class B Noteholders to pay to the Trustee any amount due it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee and its agents and counsel, and any other amounts due the Trustee under
section 7.06.
(b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Class A
or Class B Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Class A or Class B Notes or the rights of any holder
thereof or to authorize the Trustee to vote in respect of the claim of any Class
A or Class B Noteholder in any such proceeding.
SECTION 6.05. Trustee May Enforce Claims Without Possession
of Notes.
All rights of action and claims under this Indenture or the
Class A and Class B Notes may be prosecuted and enforced by the Trustee without
the possession of any of the Class A or Class B Notes or the production thereof
in any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Class A and Class
B Notes in respect of which such judgment has been recovered.
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SECTION 6.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article,
and any moneys that may then be held or thereafter received by the Trustee,
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of the entire amount due on account of
principal or interest, upon presentation of the Class A and Class B Notes and
surrender thereof:
first, to the payment of the Trustee Fee and all costs and
expenses of collection incurred by the Trustee (including the
reasonable fees and expenses of any counsel to the Trustee) and all
other amounts due the Trustee under Section 7.06 (the parties hereto
agree that when the Trustee renders services following an Indenture
Event of Default under Section 6.01 (v) or (vi), compensation for such
services and expenses in connection therewith are intended to
constitute administrative expenses under applicable bankruptcy law);
provided that the aggregate amount payable under this clause first
shall not exceed $25,000;
second, if the Person then acting as Servicer is not the
Seller or an Affiliate of the Seller, to the payment of all
unreimbursed Servicing Fees due to the Servicer;
third, to the payment of all accrued and unpaid interest on
the outstanding Class A Note Principal Balance to the date of payment
thereof, without preference or priority of any kind;
fourth, to the payment of all accrued and unpaid interest on
the outstanding Class B Note Principal Balance to the date of payment
thereof, without preference or priority of any kind;
fifth, to the payment of the outstanding Class A Note
Principal Balance, and any other amounts due to the Class A
Noteholders ratably, without preference or priority of any kind;
sixth, to the payment of the Non-Utilization Premium, if any,
to the Committed Investors ratably, without preference or priority of
any kind;
seventh, to the payment of the outstanding Class B Note
Principal Balance, and any other amounts due to the Class B
Noteholders ratably, without preference or priority of any kind;
eighth, to the payment of all amounts specified in clause
first to the extent not paid thereunder (due to the limitation imposed
by the proviso therein);
ninth, if the Person then acting as Servicer is the Seller or
'an Affiliate of the Seller, to the payment of all unreimbursed
Servicing Fees due to the Servicer; and
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tenth, to the payment of the remainder, if any, to or upon
the instructions of the Company.
SECTION 6.07. Limitation on Suits.
The holder of any Class A or Class B Note shall not have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture or the Class A or Class B Notes, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(i) such Noteholder has previously given written notice
to the Trustee of a continuing Indenture Event of Default;
(ii) the holders of Notes evidencing not less than 66-2/3%
of the aggregate outstanding principal amount of the Class A and B
Notes, taken together, shall have made written request to the Trustee
to institute proceedings in respect of such Indenture Event of Default
in its own name as Trustee hereunder;
(iii) such Noteholder or Noteholders have offered to the
Trustee adequate indemnity against the costs, expenses and liabilities
to be incurred in compliance with such request;
(iv) the Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and.
(v) so long as any of the Class A or Class B Notes remain
outstanding, no direction inconsistent with such written request has
been given to the Trustee during such 30-day period by the holders of
Notes evidencing more than a majority of the aggregate outstanding
principal amount of the Class A and B Notes, taken together;
it being understood and intended that no one or more Noteholder shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb, or prejudice the rights of any other
Noteholder, or to obtain or to seek to obtain priority or preference over any
other Noteholder or to enforce any right under this Indenture, except in the
manner herein provided. It is further understood and intended that so long as
any portion of the Notes remains outstanding, the Servicer shall not have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture (other than for the enforcement of Section 4.04(a)) or for the
appointment of a receiver or trustee, or for any other remedy hereunder.
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SECTION 6.08. Unconditional Right of Noteholders to Receive
Payment.
Notwithstanding any other provision in this Indenture, other
than the provisions hereof establishing priorities of payment or limiting the
right to recover amounts due on the Class A and Class B Notes to recoveries from
the property of the Trust Property, the holder of any Note shall have the
absolute and unconditional right to receive payment of the principal of and
interest on such Note as such principal and interest becomes due on the Monthly
Payment Dates for such payments, including the Scheduled Final Payment Date,
and, subject to the terms of Section 6.07, to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of such Noteholder.
SECTION 6.09. Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Noteholder, then and in every
such case, subject to any determination in such proceeding, the Company, the
Trustee and the Noteholders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Noteholders shall continue as though no such proceeding had been
instituted.
SECTION 6.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost, or stolen Notes in the last paragraph
of Section 2.05, no right or remedy herein conferred upon or reserved to the
Trustee or to the Noteholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any holder of any
Note to exercise any right or remedy accruing upon any Indenture Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Indenture Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Noteholders, as the case may be.
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SECTION 6.12. Control by the Class A and Class B Noteholders.
Except as may otherwise be provided in this Indenture, until
such time as the conditions specified in Section 11-01 have been satisfied in
full, the holders of Class A and Class B Notes evidencing not less than 66-2/3%
of the aggregate outstanding Note Principal Balance of the Class A and Class B
Notes shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee, subject (in each case) to the Trustee being
indemnified to its reasonable satisfaction. Notwithstanding the foregoing:
(i) no such direction shall be in conflict with any rule
of law or with this Indenture;
(ii) the Trustee shall not be required to follow any such
direction which the Trustee reasonably believes might result in any
personal liability on the part of the Trustee for which the Trustee is,
in its reasonable judgment, not adequately indemnified; and
(iii) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with any such direction;
provided that the Trustee shall give notice of any such action to each
Noteholder.
SECTION 6.13. Waiver of Defaults and Events of Default.
(a) Subject to the provisions of Sections 6.08 and 9.01,
the holders of Notes evidencing not less than 66-2/3% of the aggregate
outstanding principal amount of the Class A and Class B Notes, taken together,
may, by one or more instruments in writing, waive an existing Default or
Indenture Event of Default hereunder and its consequences, except a continuing
Indenture Event of Default:
(i) in respect of the payment of the principal of or
interest on any outstanding Note (which may only be waived by the holder
of such Note),
(ii) in respect of a covenant or provision hereof which
under Article IX cannot be modified or amended without the consent of
the holder of each outstanding Note affected (which may be waived only
by the holders of all outstanding Notes affected), or
(iii) in respect of any payment owing to the Trustee or
covenant or Provision in its favor (which may be waived only by the
Trustee);
(b) A copy of each waiver pursuant to Section 6.13 (a) shall
be furnished by the Company to the Trustee. Upon any such waiver, such Indenture
Event of Default shall cease to exist and shall be
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deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Indenture Event of Default or
impair any right consequent thereon.
SECTION 6.14. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 6.15. Sale of Trust Property.
(a) The power to effect any sale of any portion of the Trust Property
pursuant to Section 6.03 shall not be exhausted by any one or more sales as to
any portion of the Trust Property remaining unsold, but shall continue
unimpaired until the entire Trust Property shall have been sold or all amounts
payable on the Notes shall have been paid. The Trustee may from time to time,
upon directions in accordance with Section 6.12, postpone any public sale by
public announcement made at the time and place of such sale.
(b) To the extent permitted by applicable law, the Trustee shall not in any
private sale sell the Trust Property, or any portion thereof, unless either (i)
until such time as the conditions specified in Section 11.01(a) have been
satisfied in full, the holders of Notes evidencing 66-2/3% of the aggregate
outstanding principal amount of the Class A Notes and Class B Notes, taken
together, consent to or direct the Trustee to make such sale; or (ii) the
proceeds of such sale would be not less than the sum of all amounts due to the
Trustee hereunder and the entire unpaid principal amount of the Class A Notes
and the Class B Notes with respect to such Notes and interest due or to become
due thereon in accordance with Section 6.06 on the Monthly Payment Date next
succeeding the date of such sale.
(c) In connection with a sale of all or any portion of the Trust Property:
(i) any one or more Noteholders or the Trustee may bid for and purchase
the property offered for sale, and upon compliance with the terms of sale
may hold, retain, and possess and dispose of such property, without further
accountability, and any Noteholder may, in paying the purchase money
therefor, deliver in lieu of cash any outstanding Notes or claims for
interest thereon for credit in the amount that shall, upon distribution of
the net proceeds of such sale, be payable thereon, and such Notes, in case
the amounts so payable thereon
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shall be less than the amount due thereon, shall be returned to the
Noteholders after being appropriately stamped to show such partial payment;
(ii) the Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Trust Property
in connection with a sale thereof;
(iii) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Company to transfer and convey its interest in any
portion of the Trust Property in connection with a sale thereof, and to
take all action necessary to effect such sale; and
(iv) no purchaser or transferee at such a sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(d) The method, manner, time, place and terms of any sale of all or any
portion of the Trust Property shall be commercially reasonable.
(e) The provisions of this Section 6.15 shall not be construed to restrict
the ability of the Trustee to exercise any rights and powers against the Company
or the Trust Property that are vested in the Trustee by this Indenture or
pursuant to applicable law, including, without limitation, the power of the
Trustee to proceed against the collateral subject to the lien of this Indenture
and to institute judicial proceedings for the collection of any deficiency
remaining thereafter.
SECTION 6.16. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court may in its discretion require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.16
does not apply to a suit by the Trustee, a suit by a Noteholder pursuant to
Section 6.08, or a suit by any Noteholder or group of Noteholders of more than
10% in principal amount of the Notes then outstanding.
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ARTICLE VII
THE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Indenture Event of Default:
(i) the Trustee undertakes to perform only those duties that are
specifically set forth in this Indenture and no others and no covenants or
duties shall be implied herein in connection with the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. The
Trustee, however, shall examine the same to determine whether or not they
conform on their face to the requirements of this Indenture, but the
Trustee shall not be required to determine, confirm or recalculate
information contained in such certificates or opinions.
(b) If an Indenture Event of Default has occurred and is continuing, the
Trustee shall exercise its rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(c) The Trustee shall not be liable for any action taken or omitted by it
in good faith in connection with the performance of its duties hereunder,
except for its own willful misconduct or gross negligence. In particular, but
without limiting the generality of the foregoing:
(i) the Trustee shall not be liable for any error in judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
directions received by it from the Noteholders in accordance with this
Indenture; and
(iii) the Trustee shall not be liable for acting in good faith reliance
on the information provided to the Trustee as described in Section 3.10.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any personal financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
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rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee (solely in its role as Trustee and not in its role as
substitute Servicer) shall be subject to the provisions of this Section.
(f) The Trustee is hereby authorized to execute and deliver the Sale and
Servicing Agreement by duly executing the consent and agreement line at the end
of the Sale and Servicing Agreement.
SECTION 7.02. Notice of Defaults or Events of Default.
Within one Business Day after a Responsible Officer receives written
notice of the occurrence of any Default or Indenture Event of Default hereunder
or Servicer Event of Default under the Sale and Servicing Agreement, the Trustee
shall transmit by certified mail return receipt requested, hand delivery or
overnight courier, to all Noteholders, as their names and addresses appear in
the Note Register, the Company, the Servicer, the Rating Agency and the Seller
notice of such Default, Indenture Event of Default or Servicer Event of Default
hereunder known to the Trustee, unless such Default, Indenture Event of Default
or Servicer Event of Default shall have been cured or waived.
SECTION 7.03. Certain Rights of Trustee.
Subject to the provisions of Section 7.01:
(i) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, note,
debenture, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(ii) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any action
of the Company may be sufficiently evidenced by a Company Order;
(iii) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officer's Certificate;
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(iv) the Trustee may consult with counsel as to legal matters and the
advice or opinion of any such counsel selected by the Trustee with due care
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(v) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(vi) except as provided in Section 7.01, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, note, debenture, other evidence of
indebtedness, or other paper or document, other than to examine such
documents to determine whether they conform as to form to the requirements
of this Indenture, unless requested in writing to do so by the holders of
not less than a majority in aggregate outstanding principal amount of Class
A and Class B Notes, taken together; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely
to be incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such examination shall be paid
by the Company, subject to the priorities of payment in Section 3.07(b) and
6.06 hereof and to the other requirements and restrictions on payments
specified in Article III or, if paid by the Trustee or any predecessor
trustee, shall be promptly repaid by the Company upon demand, subject to
the priorities of payment in Section 3.07(b) and 6.06 hereof and to the
other requirements and restrictions on payments specified in Article III;
provided that any insufficiency of amounts available for such payments will
not represent a claim against the Company and no provision of this
paragraph shall limit the Servicer's obligations under Section 7.06;
(vii) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents,
custodians, nominees or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent, custodian,
nominee or attorney appointed with due care by it hereunder; and
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(viii) the Trustee shall not be liable for any action it takes or omits
to take if it believes in good faith that such action or inaction is
authorized or within its rights or powers.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture (except as against itself), the Sale and Servicing Agreement, any
Bill of Sale, the Rate Cap Agreement, the Note Purchase Agreement, the Notes or
the Trust Property and it shall not be responsible for any statement in the
Notes other than its certificate of authentication or in any document used in
the sale of the Notes other than any statement in writing provided by the
Trustee for use in such document. The Trustee shall have no responsibility for,
or duty, or liability in connection with (i) performance by the Servicer, and
shall have no obligation to monitor the performance of the Servicer or (ii) the
use of the Note proceeds. The Trustee makes no representations about, and has no
responsibility or liability with respect to, the tax consequences of the
transactions contemplated by this Indenture, including, without limiting the
generality of the foregoing, the tax status of the Trust Property and the Notes
and the tax consequences to the Servicer, the Seller, the Company or the
Noteholders of any such transactions.
SECTION 7.05. Money Held in Trust.
Money and investments held by the Trustee or other paying agent shall be
held in trust in one or more trust accounts as required hereunder.
SECTION 7.06. Compensation, Reimbursement, etc.
The Servicer agrees:
(i) to pay, to the extent that such amounts are not paid pursuant to
Section 3.07(b), to the Trustee from time to time compensation for all
services rendered by it hereunder as specified by the Trustee Fee Letter
(which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust), such payment to be
made independent of the other payment obligations of the Servicer
hereunder; and
(ii) except as otherwise expressly provided herein, to reimburse, to
the extent that such amounts are not paid pursuant to Section 3.07(b), the
Trustee upon its request for all reasonable expenses, disbursements, and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement, or advance as may be attributable to its gross negligence or
bad faith.
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(iii) to pay the Trustee its annual administrative fee in advance on
the Closing Date;
(iv) to pay the Trustee all indemnified amounts specified in Section
8.11;
(v) to indemnify and hold the Trustee harmless from any and all
claims, damages, losses, costs or expenses (including, without limitation
attorneys' fees and disbursements) incurred by the Trustee in any manner or
way related to the Lock Box Account or the Lock Box Agreement; and
(vi) to pay the reasonable fees and expenses of the Trustee's counsel
on the Closing Date, subject to the limit specified in the Trustee Fee
Letter.
Limitations specified in this Indenture as to rights to collect payments from
the Company or out of the Trust Property are not intended to limit in any
respect the obligations of the Servicer pursuant to this Section. The provisions
of this Section 7.06 shall survive any termination of this Indenture in
accordance with Section 11.01 hereof and the payments and indemnities provided
for herein shall be provided to the Trustee by the initial Servicer irrespective
of any resignation or removal of it as the initial Servicer.
SECTION 7.07. Eligibility; Disqualification.
The Trustee hereunder shall at all times be a corporation organized and
doing business under the laws of the United States of America, any state thereof
or the District of Columbia authorized under such laws to exercise corporate
trust powers, be acceptable to the Rating Agency, have a combined capital and
surplus of at least $100,000,000 or shall be a member of a bank holding system,
the aggregate combined capital and surplus of which is at least $100,000,000,
provided that the Trustee, or the bank holding company system of which the
Trustee is a member shall be subject to supervision or examination by Federal or
state authority and, in the case of any successor Trustee, subject to
regulations regarding fiduciary funds on deposit substantially similar to 12
C.F.R. ss. 9.10(b). If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section 7.07, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.07, the Trustee shall resign
immediately in the manner and with the effect specified in Section 7.08.
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SECTION 7.08. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by a successor Trustee under Section 7.09.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company and by mailing notice of resignation by first-class mail, postage
prepaid, to the Rating Agency and the Noteholders at their addresses appearing
on the Note Register.
(c) The Trustee may be removed at any time by the Act of the holders of
Notes evidencing not less than 66-2/3%; in aggregate outstanding principal
amount of the Class A Notes and the Class B Notes, taken together, delivered to
the Trustee and the Company. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.07;
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the Trustee or
its property; or
(iv) the Trustee becomes incapable of acting.
(d) If the Trustee shall resign, be removed, or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
with the consent of the holders of Notes evidencing not less than 66-2/3% in
aggregate outstanding principal amount of the Class A Notes and the Class B
Notes, taken together, by an act of the Company, shall promptly appoint a
successor Trustee.
(e) If no successor Trustee shall have been so appointed by the Company as
hereinbefore provided and accepted appointment in the manner hereinafter
provided within 30 days after any such resignation or removal, existence of
incapability, or occurrence of such vacancy, the Trustee or any Noteholder may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to all Noteholders,
as their names and addresses appear in the Note Register and to the Rating
Agency. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust office.
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(g) Any liability of any Trustee arising hereunder prior to the resignation
or removal of such Trustee shall survive the appointment of a successor Trustee.
SECTION 7.09. Acceptance of Appointment by Successor.
(a) Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
(b) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article and the effectiveness of such appointment will not, as evidenced by
confirmation in writing by the Rating Agency, result in any reduction or
withdrawal of the then current rating of the Class A Notes or of the Class B
Notes by the Rating Agency.
SECTION 7.10. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Trustee may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Notes shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion, or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Notes.
SECTION 7.11. Co-trustees and Separate Trustees.
(a) At any time or times, for the purpose of meeting the legal requirements
of any jurisdiction in which any of the Trust Property may at the time be
located, the Company and the Trustee shall have power to appoint, and, upon the
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written request of the Trustee or the holders of Notes evidencing more than
50% of the aggregate outstanding principal amount of the Class A and B Notes,
taken together, the Company shall for such purpose join with the Trustee in the
execution, delivery, and performance of all instruments and agreements necessary
or proper to appoint one or more Persons approve by the Trustee either to act as
co-trustee, jointly with the Trustee, of all or any part of such Trust Property,
or to act as separate trustee of any such property, in either case with such
powers as may be provided in the instrument of appointment, and to vest in such
Person or Persons in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section.
If the Company does not join in such appointment within 15 days after the
receipt by it of a request so to do, or in case an Indenture Event of Default
has occurred and is continuing, the Trustee alone shall have power to make such
appointment.
(b) Should any written instrument from the Company be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Company.
(c) Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms:
(i) The Notes shall be authenticated and delivered and all rights,
powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely
by the Trustee.
(ii) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
by the Trustee or by the Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee
or separate trustee, except to the extent that, under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee.
(iii) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company evidenced by a Company Order, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section, and, in case an Indenture Event of Default
has occurred and is continuing, the Trustee shall have power to accept the
resignation of, or remove, any such co-trustee or separate trustee without
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the concurrence of the Company. Upon the written request of the Trustee,
the Company shall join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section.
(iv) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee or any other such
trustee hereunder and the Trustee shall not be personally liable by reason
of any act or omission of any co-trustee or other such separate trustee
hereunder selected and supervised by the Trustee with due care or appointed
in accordance with directions to the Trustee pursuant to Section 6.12.
(v) Any Act of Noteholders delivered to the Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
SECTION 7.12. Servicer to Hold Leases.
The Servicer may hold the sole original, manually executed counterpart of
each Lease that constitutes chattel paper, together with any documents relating
thereto that may from time to time be delivered to the Servicer, until such time
as such Lease is released from the lien of this Indenture pursuant to the
provisions hereof; provided that upon a Servicer Event of Default, the Trustee
may take possession of such original copies as necessary to protect the
Noteholders' rights, powers and remedies with respect to the Trust Property. The
Servicer will cause the electronic ledger to be clearly and unambiguously marked
to show that such Leases have been transferred by the Seller to the Company and
pledged by the Company to the Trustee for the benefit of the Noteholders;
provided, however, if the Servicer elects not to hold the above documents, the
Servicer shall cause the Trustee to hold the Lease File and the List of Leases,
and in such case the electronic ledger will be marked to show that such Lease
has been sold by the Seller to the Company and pledged by the Company to the
Trustee for the benefit of the Noteholders.
SECTION 7.13. Financing Statements.
The Trustee shall execute such UCC financing statements and continuation
statements as shall have been prepared by the Servicer and shall furnish the
Servicer with such limited powers of attorney or other documents necessary or
appropriate to enable the Servicer to fulfill its obligations under Section 7.06
of the Sale and Servicing Agreement and to carry out its servicing and
administration duties under the Sale and Servicing Agreement.
SECTION 7.14. Reports by Trustee to Noteholders. At least three Business
Days prior to each Monthly Payment Date, the Servicer shall prepare and deliver
to the Trustee and the Rating Agency for distribution to each Noteholder, and,
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upon receipt thereof from the Servicer, the Trustee shall deliver to each
Noteholder, a statement setting forth for the related Collection Period the
following information (which in the case of items (ii), (iii) and (iv) shall be
based on a Note in a principal amount of $1,000):
(i) the total amount available in the Collection Account on the Monthly
Payment Date;
(ii) the amount of the distribution allocable to principal, including
Overdue Monthly Principal, on each of the Class A and Class B Notes;
(iii) the amount of the distribution allocable to interest, including
any Overdue Monthly Interest, on each of the Class A and Class B Notes;
(iv) the Servicing Fee, including any overdue Servicing Fee;
(v) the Pool Balance as of the end of the related Collection Period;
(vi) the Available Reserve Amount, after giving effect to any deposit
or withdrawal from the Reserve Account with respect to such Monthly Payment
Date, and specifying the amount of each such deposit or withdrawal,
and such Available Reserve Amount expressed as a percentage of the Pool
Balance and any change in the Required Reserve Amount;
(vii) the total Principal Balance of Defaulted Leases as of the last
day of the related Collection Period;
(viii) the Note Principal Balances of the Class A and Class B Notes as
of such Monthly Payment Date (after giving effect to any distributions on
such Monthly Payment Date);
(ix) the Three-Month Average Delinquency Ratio as of the last day of
the end of the related Collection Period and the Delinquency Ratio as of
the last day of the related Collection Period;
(x) the Three-Month Average Default Ratio as of the last day of the
related Collection Period and the Default Ratio as of the last day of the
related Collection Period;
(xi) the amount of all prepayments in full of the Leases as of the end
of the related Collection Period;
(xii) the aggregate Payahead Amount with respect to the Leases as of
the end of the related Collection Period; and
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(xiii) the past due experience of the Leases (with respect to the
different aging categories set forth in the Confidential Private Placement
Memorandum dated June 1997, as amended and supplemented by the Company as
of the Closing Date) as of the last day of the end of the related
Collection Period.
Within a reasonable period of time after the end of each calendar year, but
not later than the latest date permitted by law, the Servicer shall deliver to
the Trustee, and the Trustee shall furnish, to each Person who any time during
such calendar year shall have been a Noteholder, a statement, prepared by the
Servicer and delivered to the Trustee, containing the sum of the amounts
determined in clauses (ii) and (iii) for such calendar year, or, in the event
such Person shall have been a Noteholder during a portion of such calendar year,
for the applicable portion of such year, for the purposes of such Noteholder's
preparation of federal income tax returns and, to the extent requested by a
Noteholder to comply with applicable law, such additional information as will
enable the Noteholder to prepare its state and local income and franchise tax
returns. In addition, any Noteholder may obtain from the Trustee, by written
request to the Trustee, a copy of any Monthly Servicer Report or any annual
compliance statement pursuant to Section 4.09 of the Sale and Servicing
Agreement that has been delivered to the Trustee.
ARTICLE VIII
COVENANTS
SECTION 8.01. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest on
the Notes in accordance with the terms of the Notes and this Indenture. An
installment of interest shall be considered paid on the date it is due if the
Trustee holds on that date money designated for and sufficient to pay the
installment.
SECTION 8.02. Maintenance of Office or Agency; Chief Executive Office.
(a) The Company will maintain in the State of California an office or
agency where notices and demands to or upon the Company in respect of the Notes
and this Indenture may be served.
(b) The chief executive office of the Company, and the office at which the
Company maintains its records with respect to the Leases, the Equipment, and the
transactions contemplated hereby, is located in San Ramon, California. The
Company will not change the location of such office without giving the Trustee,
the Rating Agency and each Noteholder at least 60 days' prior written notice
thereof.
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SECTION 8.03. Money for Payments to Noteholders to Be Held in Trust.
(a) All payments of amounts due and payable with respect to any Notes that
are to be made from amounts withdrawn from the Collection Account, the Reserve
Account, the Payahead Account or the Lease Purchase Account pursuant to Section
3.07(b) or Section 6.06 shall be made on behalf of the Company by the Trustee,
and no amounts so withdrawn from the Collection Account, the Reserve Account,
the Payahead Account or the Lease Purchase Account for payments of Notes shall
be paid over to the Company under any circumstances except as provided in this
Section 8.03.
(b) In making payments hereunder, the Trustee will:
(i) allocate all sums received for payment to the Noteholders on each
Monthly Payment Date in accordance with the terms of this Indenture;
(ii) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
and
(iii) comply with all requirements of the Internal Revenue Code of
1986, as amended (or any successor statutes), and all regulations
thereunder, with respect to the withholding from any payments made by it on
any Notes of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
(c) Except as required by applicable law, any money held by the Trustee in
trust for the payment of any amount due with respect to any Note shall be held
in a non-interest bearing account and if the same remains unclaimed for three
years after such amount has become due and payable to the Noteholder, the
Trustee shall be discharged from such trust and, subject to applicable escheat
laws, paid to the Company upon request; and such Noteholder shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee with respect to such trust money shall thereupon
cease.
SECTION 8.04. Corporate Existence; etc.
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
rights, licenses and franchises of the Company, and will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes, or any of the Leases.
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(b) The Company shall at all times observe and comply in all material
respects with (i) all laws, regulations and court orders applicable to it,
(ii) all requirements of law in the declaration and payment of dividends on its
Capital Stock, and (iii) all requisite and appropriate corporate and other
formalities (including, without limitation, annual and all other appropriate
meetings of the Company's board of directors and, if required by law, its
charter or otherwise, meetings and votes of shareholders to authorize corporate
action) in the management of its business and affairs and the conduct of the
transactions contemplated hereby and by the Sale and Servicing Agreement.
(c) The Company will, at all times: (i) maintain (A) corporate and
financial books and records separate from those of and other Person and (B)
minutes of the meetings and other proceedings of its shareholders and board of
directors; (ii) continuously maintain the resolutions, agreements and other
instruments underlying the transactions contemplated hereby and by the Sale and
Servicing Agreement as official records of the Company; (iii) act solely in its
corporate name and through its duly authorized officers or agents to maintain
an arm's length relationship with the Seller and its Affiliates; (iv) pay all of
its operating expenses and liabilities from its own funds (including any funds
advanced to it by the Servicer); (v) maintain office space separate from that
of the Seller on the premises currently rented by the Seller and (vi)
maintain its assets separately from the assets of the Seller.
(d) The Company shall conduct its business solely in its own name through
its duly authorized officers or agents so as to not mislead others as to the
identity of the corporation with which those others are concerned, and
particularly will avoid the appearance of conducting business on behalf of the
Seller or any of its Affiliates or that the assets of the Company are available
to pay the creditors of the Seller or any of its Affiliates. Without limiting
the generality of the foregoing, all oral and written communications,
including without limitation, letters, invoices, purchase orders, contracts,
statements and loan applications, will be made solely in the name of the
Company.
(e) The Company will be operated so as not to be substantively consolidated
for bankruptcy purposes with the Seller.
(f) At least one director of the Company shall at all times be a person who
is not a director, officer or employee of any direct or ultimate parent or
Affiliate of the Seller.
(g) The Company will not initiate or approve any amendment to its
Certificate of Incorporation without the prior written consent of the Trustee
and written confirmation by the Rating Agency that the adoption of such
amendment will not result in a reduction or withdrawal of the then-current
rating by such Rating Agency of the Class A Notes or the Class B Notes.
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(h) The Company will pay all reasonable costs and expense of the Rating
Agency to maintain its ratings on the Notes.
SECTION 8.05. Protection of Trust Property; Further Assurances.
The Company will from time to time execute and deliver all such supplements
and amendments hereto and all such UCC financing statements, continuation
statements, instruments of further assurance and other instruments, and will
take such other action as may be necessary or advisable to:
(i) grant more effectively all or any portion of the Trust Property;
(ii) maintain or preserve the lien of this Indenture or carry out more
effectively the purposes hereof;
(iii) publish notice of, or protect the validity of, any Grant made or
to be made by this Indenture and perfect the security interest contemplated
hereby in favor of the Trustee in the Leases and the related Equipment and
the other property constituting the Trust Property;
(iv) enforce or cause the Servicer to enforce any of the Leases;
(v) preserve and defend title to any Lease (including the right to
receive all payments due or to become due thereunder), Equipment, or other
property included in the Trust Property and preserve and defend the rights
of the Trustee and the Noteholders in such Lease (including the right to
receive all payments due or to become due thereunder), Equipment and other
property against the claims of all persons and parties; or
(vi) if the Servicer elects to hold the Lease Files and the related
documents, cause the electronic ledger, with respect to each Lease and the
Schedule of Leases, to clearly and unambiguously show that such Lease has
been pledged by the Company to the Trustee for the benefit of the
Noteholders.
The Company, upon the Company's failure to do so, hereby designates the Trustee
its agent and attorney-in-fact to execute any UCC financing statement,
continuation statement or other document or instrument required pursuant to this
Section 8.05; provided, however, that such designation shall not be deemed to
create a duty in the Trustee to monitor the compliance of the Company with the
foregoing covenants, and provided further that the duty of the Trustee to
execute any instrument required pursuant to this Section 8.05 shall arise only
if a Responsible Officer of the Trustee has actual knowledge of any failure of
the Company to comply with the provisions of this Section 8.05.
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SECTION 8.06. Compliance Certificates.
The Company will deliver to the Trustee, the Rating Agency, within 90 days
after the end of each fiscal year, a written statement signed by the President
or a Vice President and by the Chief Financial Officer of the Company, stating,
in addition to the statements required by Section 1.17 (i)-(iv), as to each
signer thereof, that
(i) a review of the activities of the Company during such year and of
performance under this Indenture has been made under his supervision and
(ii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all of it obligations under this Indenture
throughout such year.
(iii) whether the officer knows of any Defaults by the Company under
this Indenture throughout such year or, if there has been a Default in the
fulfillment of any such obligation, specifying each such Default known to
him and the nature and status thereof and the nature of the action taken
with respect thereto.
SECTION 8.07. Performance of Obligations; Sale and Servicing Agreement.
(a) The Company will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the Notes, the Note Purchase
Agreement, the Sale and Servicing Agreement and the Rate Cap Agreement.
(b) The Company will clearly mark its books and records to reflect each
assignment and transfer of Leases and the relate Equipment subject thereto from
the Seller.
(c) If any Authorized Officer shall have knowledge of the occurrence of a
default under the Sale and Servicing Agreement, the Company shall promptly
notify the Trustee, the Rating Agency and the Noteholders thereof, and shall
specify in such notice the action if any, the Company is taking in respect of
such default. Unless consented to by the holders of not less than 66 2/3% in
outstanding principal amount of the Class A Notes and Class B Notes, taken
together, the Company may not waive any default under or amend the Sale and
Servicing Agreement.
SECTION 8.08. Negative Covenants.
The Company will not:
(i) sell, transfer, exchange or otherwise dispose of any portion of the
Trust Property except as expressly permitted by this Indenture;
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(ii) claim any credit on, or make any deduction from, the principal of,
or interest on, any of the Notes by reason of the payment of any taxes
levied or assessed upon any portion of the Trust Property;
(iii) engage in any business or activity other than in connection with,
or relating to the ownership of, the Leases and the Equipment, the issuance
of the Notes, the specific transactions contemplated hereby, and similar
activities with respect to ownership and financing of other pools
receivables;
(iv) seek dissolution or liquidation in whole or in part or
reorganization of its business or affairs;
(v) (A) permit the validity or effectiveness of this Indenture or any
Grant hereby to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or permit
any Person to be released from any covenants or obligations under this
Indenture, except as may be expressly permitted hereby, (B) permit any lien
charge, security interest, mortgage or other encumbrance to be created on
or to extend to or otherwise arise upon or burden the Trust Property or any
part thereof or any interest therein or the proceeds thereof other than the
lien of this Indenture and the rights of Lessees, or (C) permit the lien of
this Indenture not to constitute a valid first priority perfect security
interest in the Leases and a valid perfected security interest in the
Seller's (and the Company's) interests in the Equipment and the other Trust
Property;
(vi) conduct its business or engage in any activity in violation of the
provisions contained in its Certificate of Incorporation or make any
material change in its business or incur any indebtedness to any Person
other than as express contemplated by the Notes, this Indenture, the Sale
and Servicing Agreement and documents relating thereto;
(vii) at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or other law
that would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on the Notes as contemplated herein or in
the Notes, wherever enacted, now or at any time hereafter in force, or that
may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
thou no such law had been enacted;
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(viii) issue or register the transfer of any of its Capital Stock to
any Person other than the Seller;
(ix) merge or consolidate with any other Person except on terms, if
any, approved in writing by the Trustee, each Noteholder and the Rating
Agency;
(x) take any action or permit any action to be taken by others which
would release any Person from any of such Person's covenants or obligations
under any Lease or any other instrument included in the Trust Property
other than any such release occasioned by the early termination of a Lease
after receipt of the Retransfer Amount, or which would result in the
amendment, hypothecation, subordination, termination, or discharge of, or
impair the validity or effectiveness of, any Lease or such other
instrument, except as expressly provided in this Indenture or the Sale and
Servicing Agreement; or
(xi) purchase any Lease on any date unless at the time of such purchase
(and after giving effect thereto) (a) no Default, Indenture Event of
Default, Servicer Event of Default or Early Amortization Event shall occur
or be continuing, (b) the aggregate Note Principal Balance of all Notes
does not exceed the amount specified for such date in Schedule I to this
Indenture, (c) the Equity Base is not less than 5% of the Pool Balance and
the sum of the Equity Base and the Class B Note Principal Balance is not
less than the Required Support Percentage of the Pool Balance (in each case
both before and after giving effect to the purchase of Leases to occur on
such date), and (d) the Company is in compliance with its obligations under
the Note Purchase Agreement and under the Rate Cap Agreement.
SECTION 8.09. Information as to the Company. The Company shall deliver to
the Trustee, each Noteholder and the Rating Agency:
(a) immediately upon becoming aware of the existence of any condition or
event which constitutes a Default or an Indenture Event of Default, a written
notice describing its nature and period of existence and what action the Company
is taking or proposes to take with respect thereto; and
(b) promptly upon the Company's becoming aware of (i) any proposed or
pending investigation of it by any governmental authority or agency, or (ii) any
pending or proposed court or administrative proceeding which (in either case)
involves or may involve the possibility, individually or in the aggregate, of
materially and adversely affecting the properties, business, profits or
condition (financial or otherwise) of the Company, a written notice specifying
the nature of such investigation or proceeding and what action the Company is
taking or proposes to take with respect thereto and evaluating its merits.
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SECTION 8.10. Payment of Taxes and Other Claims.
Subject to the priorities of payment and other restrictions and
limitations specified in Article III and the other provisions hereof, the
Company will pay or discharge or cause to be paid or discharged, before any
penalty accrues from the failure to so pay or discharge, (1) all taxes,
assessments and governmental charge levied or imposed upon the Company or upon
the income, profits or property (including any property that is part of the
Trust Property) of the Company and (2) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien upon the property of
the Company; provided, however, that the (i) Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
provision has been made or when the failure to effect such payment or discharge
is not adverse in any material respect to the Noteholders and (ii) the Company
shall not apply to any such payments any funds constituting Trust Property other
than amounts (if any) constituting Excess Collections. The Company shall be
included as a consolidated entity in the federal tax returns filed by the
Seller.
SECTION 8.11. Indemnification.
The Company agrees to indemnify and hold harmless the Trustee, (which shall
include its directors, officers, employees and agents) and each Noteholder (each
an "Indemnified Party") against any and all liabilities, losses, damages,
penalties, costs and expenses (including the fees and expenses of counsel and
the cost of defense and legal fees and expenses) which may be incurred or
suffered by such Indemnified Party without negligence, bad faith or willful
misconduct on its part as a result of claims, actions, suit or judgments
asserted or imposed against it and arising out of the transactions contemplated
hereby or by the Sale and Servicing Agreement, including, without limitation,
any claims resulting from any use, operation, maintenance, repair, storage or
transportation of any item of Equipment, whether or not in the Company's
possession or under its control, and any tort claims and any fines or penalties
arising from any violation of the laws or regulations of the United States or
any state or local government or governmental authority including, without
limitation, securities laws, and, in the case of the Trustee, in connection with
the acceptance or administration of this trust, including all costs and expenses
of defending itself against any claim in connection with the exercise or
performance (or inaction) of any of its powers or duties hereunder. The
provisions of this Section 8.11 shall survive the termination of this Indenture
in accordance with Section 11.01 hereof.
SECTION 8.12. Use of Proceeds. The Company will use the net proceeds from
the issuance of Notes on each Note Issuance Date, to make a purchase of Leases
and Lease Assets pursuant to and accordance with the Sale and Servicing
Agreement.
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SECTION 8.13. Maximum Note Principal Balance. The Company will not purchase
any Lease on any Lease Purchase Date unless, after giving effect thereto, the
Assumed Longest Amortization of all Leases included in the Trust Property will
not result in the Note Principal Balance of the Notes on any date exceeding the
amount specified for such date in Schedule I to this Indenture (an
"Over-Issuance Condition"). For purposes of this Section, "Assumed Longest
Amortization" means the amortization of the Principal Balance of the Leases
assuming that (i) no Lease is or becomes a Defaulted Lease and (ii) no
prepayment occurs on any Lease, (iii) no Lease is subject to repurchase by the
Seller or purchase by the Servicer pursuant to the Sale and Servicing Agreement
and (iv) the payment schedule for each Lease is extended for three months
immediately after giving effect to the purchase of such Lease by the Company.
SECTION 8.14. Rate Cap Provider. If on any day the Rate Cap Provider shall
cease to be an Eligible Rate Cap Provider, then within 60 days thereafter (or
such longer period, if any, as the Rating Agency confirms in writing would not
result in a reduction or withdrawal of the rating of the Notes of either Class
by the Rating Agency), the Company shall (i) cause the replacement of the Rate
Cap Provider with a substitute Person that is an Eligible Rate Cap Provider, or
(ii) obtain a supporting letter of credit or other credit enhancement for the
existing Rate Cap Provider such that the Rate Cap Provider (after giving effect
to such enhancement) is an Eligible Rate Cap Provider, and (in each case) obtain
confirmation in writing by the Rating Agency that, based on such actions, no
reduction or withdrawal of the then-current rating of either Class of Notes
would occur. The Rate Cap Agreement shall at all times provide that the level of
LIBOR above which the Rate Cap Provider is required to make payments thereunder
is not greater than 7.5% per annum.
ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES
SECTION 9.01. Amendments and Supplemental Indentures.
This Indenture or the Notes may be amended or supplemented by the parties
hereto, without notice to or consent of the Noteholders, but with notice to the
Rating Agency and confirmation by such Rating Agency that no reduction or
withdrawal of the rating of either Class of Notes would be caused by such
amendment or supplement, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Indenture or the
Notes or of modifying in any manner the rights of such Noteholders, provided
that such action will not, in the opinion of counsel reasonably satisfactory to
the Trustee, materially and adversely affect the interests of any such
Noteholders. The parties hereto agree and each Noteholder, by its acceptance of
a Note, shall be deemed to have agreed that an amendment hereto solely to
increase the authorized amount of Class B Notes issuable hereunder by not more
than $1,000,000 does not materially or adversely affect the interests of any
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Noteholder. This Indenture or the Notes may also be amended or supplemented by
the Company and the Trustee with the consent of the holders of Class A and Class
B Notes evidencing at least a majority of the voting rights of such then
outstanding Class A and Class B Notes for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in any manner the rights of such Noteholders;
provided, however, that no amendment to this Indenture or any supplemental
indenture may (i) cause a reduction in the then current rating of the Class A
Notes or the Class B Notes, (ii) increase or reduce in any manner the amount of,
or accelerate or delay the timing of collections of payments on the related
Leases or distributions that are required to be made for the benefit of such
Noteholders, (iii) reduce the aforesaid percentage of the Class A and Class B
Notes of such series which is required to consent to any such amendment or
waiver, (iv) change the Scheduled Final Payment Date or (v) release any of the
Trust Property from the lien hereof (except as otherwise permitted herein) or
modify Section 2.06, 3.07, 6.06, 6.08, 6.13 or 9.01, without the consent of
each affected Noteholder. Furthermore, any amendment, modification or waiver of
the Indenture that affects the rights, duties or obligations of the Trustee may
only be effected with the Trustee's prior written consent.
It shall not be necessary for the consent of the Class A and Class B
Noteholders under this Section to approve the particular form of any proposed
amendment or supplement, but it shall be sufficient if such consent approves the
substance thereof.
SECTION 9.02. Execution of Amendments and Supplemental Indentures.
In executing any amendment to this Indenture, the Notes or any supplemental
indenture pursuant to Section 9.01 of this Indenture, the Trustee shall be
entitled to receive, and (subject to Section 7. 01) shall be fully protected in
relying upon, an opinion of Counsel stating that the execution of such amendment
to this Indenture, the Notes or any supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any supplemental indenture which affects the Trustee's own rights,
duties, protections, or immunities under this Indenture or otherwise.
SECTION 9.03. Effect of Amendments and Supplemental Indentures.
Upon the execution of any amendment to this Indenture, the Notes or any
supplemental indenture under this Article, this Indenture, the Notes or any
supplemental indenture shall be modified in accordance therewith, and such
amendment or supplemental indenture shall form a part of this Indenture, the
Notes or any supplemental indenture for all purposes, and every Noteholder of
Notes theretofore or thereafter authenticated and delivered hereunder shall be
bound thereby. After an amendment or supplement under this Section becomes
effective, the Company shall mail to the Noteholders affected thereby and to the
81
<PAGE>
Rating Agency a notice briefly describing the amendment or supplement. Any
failure of the Company to mail such notice, or any defects therein, shall not,
however, in any way impair or affect the validity of such amendment or
supplement.
SECTION 9.04. Reference in Notes to Amendments and Supplemental Indentures.
Notes authenticated and delivered after the execution of any amendment to
this Indenture or any supplemental indenture pursuant to this Article may, and
shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such amendment or supplemental
indenture. if the Company shall so determine, new Notes so modified as to
conform, in the opinion of the Trustee and the Company, to any such amendment or
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for outstanding Notes.
SECTION 9.05. Revocation and Effect of Consents.
Subject to this Indenture, each amendment, waiver or instrument evidencing
other action shall become effective in accordance with its terms. Until an
amendment, waiver or other action becomes effective, a consent to it by a
Noteholder is a continuing consent by the Noteholder even if notation of the
consent is not made on any Security.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Noteholders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then those Persons who were
Noteholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such Persons
continue to be Noteholders after such record date. No such consent shall be
valid or effective for more than 90 days after such record date.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption; Election to Redeem.
(a) The Notes may be redeemed by the Company, in whole but not in part, at
the Redemption Price on any Monthly Payment Date on which the Note Principal
Balance is less than 10% of the Note Principal Balance as of the first day of
the Note Amortization Period (after giving effect to payments of principal on
such Monthly Payment Date).
(b) The Company, by an Authorized Officer, shall set the Redemption Date
and the Record Date (which shall be the Record Date that would otherwise be
82
<PAGE>
applicable for the Monthly Payment Date on which such Redemption Date is to
occur) and shall give notice thereof to the Trustee pursuant to Section 10.02.
SECTION 10.02. Notice to Trustee.
In the case of any redemption pursuant to Section 10.01, the Company shall,
at least 35 days prior to the Redemption Date (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee and the Rating Agency of such
Redemption Date and the principal amount of Notes to be redeemed. The notice
shall be accompanied by an Officer's Certificate stating that the redemption
complies with the provisions of this Indenture.
SECTION 10.03. Notice of Redemption by the Company.
Notice of redemption pursuant to Section 10.01 shall be given by first
class mail, postage prepaid, mailed at least 30 days but not more than 60 days
prior to the applicable Redemption Date, to each Noteholder at its address in
the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Note, and that interest thereon shall cease to
accrue if payment is made on such date; and
(4) the CUSIP number, if any, of the Notes of each Class.
(5) Corporate Trust Office where Notes are to be surrendered for payment of
the Redemption Price.
Notice of redemption of Notes shall be given by the Company, by an
Authorized officer, or, at the request of such Authorized Officer, by the
Trustee in the name and at the expense of the Company. Failure to give notice of
redemption, or any defect therein, to any holder of an Note shall not impair or
affect the validity of the redemption of any other Note. If a CUSIP number is
listed in such notice or printed on the Note, the notice may state that no
representation is made as to the correctness or accuracy of such CUSIP number.
SECTION 10.04. Deposit of the Redemption Price.
On or before the Business Day next preceding any Redemption Date, the
Company shall deposit with the Trustee an amount of monies sufficient to pay the
Redemption Price of all Notes outstanding on such Redemption Date (less any
83
<PAGE>
portion of such payment to be made from monies in the Collection Account and
from the Reserve Account).
SECTION 10.05. Notes Payable on Redemption Date.
Notice of redemption having been given as provided in Section 10-03, the
Notes shall, on the applicable Redemption Date, become due and payable at the
Redemption Price and on such Redemption Date (unless the Company shall default
in the payment of the Redemption Price) such Notes shall cease to bear interest.
The Noteholders shall be paid the Redemption Price by the Trustee on behalf of
the Company; provided, however, that installments of principal and interest
which are due on or prior to the Redemption Date shall be payable to the
Noteholders registered as such on the relevant Record Dates according to their
terms and the provisions of Section 2.07. If the holders of any Note called for
redemption shall not be so paid upon surrender, the principal and interest
shall, until paid, bear interest from the Redemption Date at the related Rate.
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture.
(a) This Indenture shall cease to be of further effect (except as to any
surviving rights herein expressly provided for), and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when each of the
following conditions are satisfied:
(i) either:
(A) all Notes theretofore authenticated and delivered (other than
(x) Notes which have been destroyed, lost, or stolen and which have
been replaced or paid as provided in Section 2.05 and (y) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
8.03(c) have been irrevocably paid and delivered to the Trustee for
cancellation; or
(B) the final installments of principal on all such Notes not
theretofore delivered to the Trustee for cancellation:
(1) have become due and payable, or
(2) will become due and payable at their Scheduled Final
Payment Date within one year, and the Company has deposited or
84
<PAGE>
caused to be deposited with the Trustee as trust funds in
trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the
case of Notes which have become due and payable) or to the
Scheduled Final Payment Date thereof;
(ii) all amounts payable hereunder for the benefit of the Trustee and
the Noteholders have been paid in full; and
(iii) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
At such time, the Trustee shall deliver to the Company or, upon Company Order,
its assignee, all cash, securities and other property held by it as part of the
Trust Property other than funds deposited with the Trustee pursuant to Section
11.01(a)(i)(B) for the payment and discharge of the Notes.
(b) Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company under Sections 7.06 and 8.11, and, if money shall
have been deposited with the Trustee pursuant to Section 11.01(a)(i)(B), the
obligations of the Trustee under Section 11.02 and Section 8.03(c) shall
survive.
SECTION 11.02. Application of Trust Money.
Subject to the provisions of Section 8.03(c), all money deposited with the
Trustee pursuant to Sections 11.01 and 8.03 shall be held in trust and applied
by it, in accordance with the provisions of the Notes and this Indenture, to the
payment to the Persons entitled thereto of the principal and interest for whose
payment such money has been deposited with the Trustee.
SECTION 11.03. Reinstatement.
If the Trustee is unable to apply any money in accordance with Section
11.01 by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture and
the Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 11.01 until such time as the Trustee is permitted to apply
all such money in accordance with Section 11.01.
85
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seal to be hereunto affixed and
witnessed, all as of the day and year first above written.
JLA FUNDING CORPORATION II, Issuer
By: /s/ Steven A. Dietsch
-------------------------------
Name: Steven A. Dietsch
Title: Treasurer
JLA CREDIT CORPORATION, Servicer
By: /s/ Steven A. Dietsch
-------------------------------
Name: Steven A. Dietsch
Title: SVP/CFO
LTCB TRUST COMPANY, Trustee
By:
-------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seal to be hereunto affixed and
witnessed, all as of the day and year first above written.
JLA FUNDING CORPORATION II, Issuer
By:
-------------------------------
Name:
Title:
JLA CREDIT CORPORATION, Servicer
By:
-------------------------------
Name:
Title:
LTCB TRUST COMPANY, Trustee
By: /s/ Ronald N. Lamendola
-------------------------------
Name: Ronald N. Lamendola
Title: SVP
By: /s/ Barbara Bevelaqua
-------------------------------
Name: Barbara Bevelaqua
Title: Vice President
<PAGE>
Worst Case/Cap Schedule SCHEDULE I
Total Notes Month
-------------------------------
15,000,000.00 1 9/11/97
27,000,000.00 2 10/16/97
36,000,000.00 3 11/16/97
48,000,000.00 4 12/16/97
62,000,000.00 5 1/16/98
75,000,000.00 6 2/16/98
75,000,000.00 7 3/16/98
75,000,000.00 8 4/16/98
75,000,000.00 9 5/16/98
75,000,000.00 1 6/16/98
75,000,000.00 2 7/16/98
75,000,000.00 3 8/16/98
73,461,213.92 4 9/16/98
71,861,067.66 5 10/16/98
70,246,603.52 6 11/16/98
68,617,693.38 7 12/16/98
66,974,207.97 8 1/16/99
65,321,453.18 9 2/16/99
63,657,102.40 10 3/16/99
61.985,534.12 11 4/16/99
60,299,243.33 12 5/16/99
58,654,686.16 13 6/16/99
56,998,579.51 14 7/16/99
55,335,795.26 15 8/16/99
53,664,468.51 16 9/16/99
51,979,507.39 17 10/16/99
50,287,346.39 18 11/16/99
48,591,425.89 19 12/16/99
46,891,631.45 20 1/16/00
45,195,219.21 21 2/16/00
43,519,810.51 22 3/16/00
41,871,927.34 23 4/16/00
40,241,821.88 24 5/16/00
38,615,051.02 25 6/16/00
36,988,187.58 26 7/16/00
35,360,020.68 27 8/16/00
33,722,955.95 28 9/16/00
32,084,767.14 29 10/16/00
30,442,315.65 30 11/16/00
28,848,154.35 31 12/16/00
27,304,688.72 32 1/16/01
25,822,700.44 33 2/16/01
24,375,921.26 34 3/16/01
22,978,992.30 35 4/16/01
21,636,401.25 36 5/16/01
20,346,021.54 37 6/16/01
19,155,258.12 38 7/16/01
17,971,528.10 39 8/16/01
16,777,648.77 40 9/16/01
15,580,262.25 41 10/16/01
14,381,681.83 42 11/16/01
13,200,398.40 43 12/16/01
12,025,377.08 44 1/16/02
10,853,147.21 45 2/16/02
9,693,401.94 46 3/16/02
8,566,820.69 47 4/16/02
7,462,169.59 48 5/16/02
6,359,713.42 49 6/16/02
5,275,980.04 50 7/16/02
4,192,140.82 51 8/16/02
3,098,873.17 52 9/16/02
2,001,341.80 53 10/16/02
929,656.74 54 11/16/02
0.00 55 12/16/02
<PAGE>
EXHIBIT A
[FORM OF CLASS A NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY (A)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN THE CASE OF CLAUSES (B) OR (C)
ABOVE, TO COMPLIANCE BY THE HOLDER AND THE TRANSFEREE WITH THE PROVISIONS OF THE
INDENTURE, DATED AS OF AUGUST 15, 1997, AMONG JLA FUNDING CORPORATION II (THE
"COMPANY"), JLA CREDIT CORPORATION, AS SERVICER, AND LTCB TRUST COMPANY, AS
TRUSTEE (THE "TRUSTEE"), APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO TREAT THIS NOTE AS INDEBTEDNESS
FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR ANY INTEREST
HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON SHALL HAVE
PROVIDED TO THE ISSUER AND THE TRUSTEE A CERTIFICATION, IN THE FORM APPROVED BY
THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND FOR SO LONG AS IT HOLDS
NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29 C.F.R. ss.
2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY CASE IN WHICH
THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE ASSETS OF AN "EMPLOYEE BENEFIT
PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA OR A "PLAN" WITHIN THE
MEANING OF SECTION 4975(E)(1) OF THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT
PLAN, A "PLAN") AND FOR ANY PERIOD FOR WHICH A NOTE IS (OR IS DEEMED FOR ERISA
PURPOSES TO BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR TRANSFER, AND
SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE RISE TO A
TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR
WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (B) NO
VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF SUCH
PERSON'S ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
No. Note Principal Balance $
Cusip No.
FLOATING RATE ASSET-BACKED NOTE, CLASS A
JLA FUNDING CORPORATION II, a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ________________________or registered
assigns, the principal sum of _______________________________________
(____________) which shall be payable in monthly installments to the extent of
available funds pursuant to the Indenture (as defined below), each equal to the
sum of (i) the Monthly Principal allocable to this Class A Note and (ii) the
Overdue Monthly Principal
A-1
<PAGE>
allocable to this Class A Note, on the 16th day of each month commencing in the
first calendar month following the end of the Note Issuance Period and ending
not later than the Scheduled Final Payment Date, when all remaining principal
and interest are due and payable in their entirety (each, a "Monthly Payment
Date"), and to pay interest (computed on the basis of a 360-day year and the
actual number of days elapsed) accruing from the Note Issuance Date hereof.
Interest on this Note will be payable on each Monthly Payment Date on the Class
A Note Principal Balance hereof commencing on the Monthly Payment Date occurring
in the calendar month immediately succeeding the month in which the Note
Issuance Date of this Note occurs, at a per annum rate that, for each Interest
Period, will equal the sum of LIBOR plus 0.30% (the "Class A Rate"). As used
herein, "LIBOR" means, with respect to any Interest Period, the per annum rate
for deposits in United States dollars for a one-month period which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on the Interest Determination
Date. If such rate does not appear on Telerate Page 3750 on such day, the rate
will be determined on the basis of the rates at which deposits in U.S. dollars
are offered by the Reference Banks at approximately 11:00 a.m., London time, on
the related Interest Determination Date to prime banks in the London interbank
market for a period of one month. The Trustee will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If
at least two such quotations are provided, the rate for that Interest
Determination Date will be the arithmetic mean of the quotations. If fewer than
two quotations are provided as requested, the rate for that Interest
Determination Date will be the arithmetic mean of the rates rounded upwards to
the nearest 1/16 of 1.0% (one percent) quoted by two or more major banks in
New York City, selected by the Trustee in its sole discretion, at approximately
11:00 a.m., New York City time, on that Interest Determination Date for loans in
U.S. dollars to leading banks in London interbank market for a period of one
month. "Interest Determination Date" means, with respect to any Interest Period,
the second Business Day preceding the first day of such Interest Period.
"Reference Banks" shall mean Barclays Bank PLC, Citibank, N.A., Chase Manhattan
Bank and Deutsche Bank AG. "Interest Period" means, with respect to any Note and
any Monthly Payment Date, the period from and including the previous Monthly
Payment Date (or, in the case of the first Monthly Payment Date for such Note,
from and including the Note Issuance Date for such Note), to but excluding such
Monthly Payment Date.
Payments of principal and interest on this Note shall be made on each
Monthly Payment Date in such coin or currency of the United States of America as
at such time is legal tender for payment of public and private debts to the
Person in whose name this Note (or one or more predecessor Notes) is registered
at the close of business on the Record Date for such Monthly Payment Date, which
shall be the last day of the month preceding the month in which the Monthly
Payment Date occurs (or in the case of the initial Monthly Payment Date, the
Note Issuance Date hereof), by wire transfer of immediately available funds to
the account and number specified in the Note Register on such Record Date for
A-2
<PAGE>
such Person or, if no such account or number is so specified, then by check
mailed to such Person's address as it appears in the Note Register on such
Record Date. The holder hereof shall surrender this Note at the principal
Corporate Trust Office of the Trustee for the final installment of principal of
this Note.
This Note is one of a duly authorized issue of Class A Notes of the Company
designated as its Floating Rate Asset-Backed Notes, Class A, with an aggregate
principal amount of up to $70,658,000 and which, together with up to
$4,342,000 aggregate principal amount of Floating Rate Asset Backed Notes, Class
B (the "Class B Notes"), are being or have been issued on any date or dates
during the Note Issuance Period (as defined in the Indenture) under an
Indenture, dated as of August 15, 1997 (as may be amended from time to time, the
"Indenture"), among the Company, the Servicer and LTCB Trust Company, as
trustee (herein called the "Trustee, which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, and immunities thereunder of the Company, the Trustee, and
the holders of the Notes and of the terms upon which the Notes are, and are to
be, authenticated and delivered. The Class B Notes are subordinated to the Class
A Notes as and to the extent set forth in the Indenture. The Trust Property
secures all of the Notes equally and ratably without preference, priority, or
distinction between any Note of the same Class and any other Note of the same
Class by reason of difference in time or times of issuance and delivery or
otherwise, and also secures the payment of certain other amounts and certain
other obligations as set forth in the Indenture.
If an Indenture Event of Default shall occur and be continuing, the Notes
may be declared due and payable in the manner and with the effect provided in
the Indenture.
As provided in the Indenture and subject to restrictions on transfer and
the other limitations set forth therein and above, the transfer of this Note is
registrable in the Note Register, upon surrender of this Note for registration
of transfer at the office or agency designated by the Company pursuant to the
Indenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same original aggregate principal
amount, will, in accordance with the Indenture, be issued to the designated
transferee or transferees.
The Notes may be redeemed by the Company, in whole but not in part, at the
Redemption Price on any Monthly Payment Date on which the outstanding Note
Principal Balance of the Notes is less than 10% of the Note Principal Balance
of the Notes as of the first day of the Note Amortization Period (after giving
effect to payments of principal on such Monthly Payment Date) in the manner
provided in the Indenture.
A-3
<PAGE>
The Notes are issuable only in registered form without coupons in
denominations as provided in the Indenture and subject to certain limitations
therein set forth. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Notes are limited recourse obligations of the Company. The sole source
of payment of the Notes will be the assets comprising the Trust Property. The
Notes do not represent an obligation of, or an interest in, the Seller, the
Servicer or any affiliate of any of them. The Notes are limited in right of
payment to certain collections and recoveries respecting the Leases and certain
payments from the Collection Account, the Reserve Account and the Payahead
Account, all as more specifically set forth in the Indenture. A copy of the
Indenture may be examined during normal business hours at the office of the
Servicer, and at such other places, if any, designated by the Trustee, by any
Noteholder upon request.
The Indenture permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights of the Noteholders under
the Indenture at any time by the Seller, the Servicer and the Trustee with the
consent of the Holders of Notes evidencing not less than a majority of the
entire Note Principal Balance and, in certain circumstances, each affected
Noteholder. Any such consent by the Holder of this Note shall be conclusive and
binding on such Holder and on all future Holders of this Note and of any Note
issued upon the transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent is made upon this Note. The Indenture also
permits the amendment thereof, in certain limited circumstances, without prior
notice to or the consent of the Holders of any of the Notes.
Each Noteholder, by its acceptance of a Note, covenants and agrees that
such Noteholder will not, at any time prior to the day that is one year and one
day following the payment in full of all amounts owing pursuant to the Notes and
the Indenture, institute against the Seller or the Company, or join in any
institution against the Seller or the Company of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under any
United States Federal or state bankruptcy or similar law in connection with any
obligations under or relating to the Notes or the Indenture.
A-4
<PAGE>
By accepting this Note, the holder hereof irrevocably appoints the Trustee
under the Indenture as the special attorney-in-fact for the holder vested with
full power on behalf of the holder to effect and enforce the rights of such
holder and the provisions of the Indenture for the benefit of the holder. The
preceding provision in no way shall limit the right of the holder hereof to
demand payment hereunder or bring an action to enforce payment hereof.
Capitalized terms used and not defined in this Note which are defined in
the Indenture have the meanings specified in the Indenture.
As provided in the Indenture, this Note and the Indenture shall be governed
by, and construed in accordance with, the laws of the State of New York, without
regard to the conflict of laws principles thereof.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, JLA Funding Corporation II has caused this instrument
to be duly executed.
JLA FUNDING CORPORATION II
By:
-----------------------
Title:
CERTIFICATE OF AUTHENTICATION
Dated:_________________________
This is one of the Notes
referred to in the within
mentioned Indenture.
LTCB TRUST COMPANY,
not in its individual
capacity but solely in
its capacity as Trustee
By:
----------------------------
Authorized Signatory
A-5
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
-------------------------
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
Your signature:
(Sign exactly as your name appears on the other side of this Note)
Signature(s) Guaranteed by:
(All signatures must be guaranteed by a member of a Signature
Guarantee Medallion Program.)
A-6
<PAGE>
EXHIBIT B
(FORM OF CLASS B NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY (A)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN THE CASE OF CLAUSES (B) OR (C)
ABOVE, TO COMPLIANCE BY THE HOLDER AND THE TRANSFEREE WITH THE PROVISIONS OF THE
INDENTURE, DATED AS OF AUGUST 15, 19971 AMONG JLA FUNDING CORPORATION II (THE
"COMPANY"), JLA CREDIT CORPORATION, AS SERVICER, AND LTCB TRUST COMPANY, AS
TRUSTEE (THE "TRUSTEE"), APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO TREAT THIS NOTE AS INDEBTEDNESS
FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR ANY INTEREST
HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON SHALL HAVE
PROVIDED TO THE ISSUER AND THE TRUSTEE A CERTIFICATION, IN THE FORM APPROVED BY
THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND FOR SO LONG AS IT HOLDS
NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29 C.F.R. ss.
2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY CASE IN WHICH
THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE ASSETS OF AN "EMPLOYEE BENEFIT
PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA OR A "PLAN" WITHIN THE
MEANING OF SECTION 4975(E)(1) OF THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT
PLAN, A "PLAN") AND FOR ANY PERIOD FOR WHICH A NOTE IS (OR IS DEEMED FOR ERISA
PURPOSES TO BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR TRANSFER, AND
SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE RISE TO A
TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR
WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (B) NO
VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF SUCH
PERSON'S ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
No. Note Principal Balance $
Cusip No.
FLOATING RATE ASSET-BACKED NOTE, CLASS B
JLA FUNDING CORPORATION II, a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ________________or registered assigns,
the principal sum of ________________________________ (_________________), which
shall be payable in monthly installments to the extent of available funds
pursuant to the Indenture (as defined below), each equal to the sum of (i) the
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Monthly Principal allocable to this Class B Note and (ii) the Overdue Monthly
Principal allocable to this Class B Note, on the 16th day of each month
commencing in the first calendar month following the end of the Note Issuance
Period and ending not later than the Scheduled Final Payment Date, when all
remaining principal and interest are due and payable in their entirety (each, a
"Monthly Payment Date"), and to pay interest (computed on the basis of a 360-day
year and the actual number of days elapsed) accruing from the Note Issuance Date
hereof. Interest on this Note will be payable on each Monthly Payment Date on
the Class B Note Principal Balance hereof commencing on the Monthly Payment Date
occurring in the calendar month immediately succeeding the month in which the
Note Issuance Date of this Note occurs, at a per annum rate that, for each
Interest Period, will equal the sum of LIBOR plus 0.65% (the "Class B Rate").
As used herein, "LIBOR" means, with respect to any Interest Period, the per
annum rate for deposits in United States dollars for a one-month period which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Interest
Determination Date. If such rate does not appear on Telerate Page 3750 on such
day, the rate will be determined on the basis of the rates at which deposits in
U.S. dollars are offered by the Reference Banks at approximately 11:00 a.m.,
London time, on the related Interest Determination Date to prime banks in the
London interbank market for a period of one month. The Trustee will request the
principal London office of each of the Reference Banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate for that
Interest Determination Date will be the arithmetic mean of the quotations. If
fewer than two quotations are provided as requested, the rate for that Interest
Determination Date will be the arithmetic mean of the rates rounded upwards to
the nearest 1/16 of 1.0% (one percent) quoted by two or more major banks in
New York City, selected by the Trustee in its sole discretion, at approximately
11:00 a.m., New York City time, on that Interest Determination Date for loans in
U.S. dollars to leading banks in London interbank market for a period of one
month. "Interest Determination Date" means, with respect to any Interest Period,
the second Business Day preceding the first day of such Interest Period.
"Reference Banks" shall mean Barclays Bank PLC, Citibank, N.A., Chase Manhattan
Bank and Deutsche Bank AG. "Interest Period" means, with respect to any Note and
any Monthly Payment Date, the period from and including the previous Monthly
Payment Date (or, in the case of the first Monthly Payment Date for such Note,
from and including the Note Issuance Date for such Note), to but excluding such
Monthly Payment Date.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS CLASS B NOTE ARE
SUBORDINATE TO THE PRIOR PAYMENT IN FULL ON EACH MONTHLY PAYMENT DATE OF ALL
AMOUNTS OF PRINCIPAL AND INTEREST DUE AND PAYABLE ON THE CLASS A NOTES AS
PROVIDED IN THE INDENTURE.
Payments of principal and interest on this Note shall be made on each
Monthly Payment Date in such coin or currency of the United States of America as
at such time is legal tender for payment of public and private debts to the
Person in whose name this Note (or one or more predecessor Notes) is registered
at the close of business on the Record Date for such Monthly Payment Date, which
B-2
<PAGE>
shall be the last day of the month preceding the month in which the Monthly
Payment Date occurs (or in the case of the initial Monthly Payment Date, the
Note Issuance Date hereof), by wire transfer of immediately available funds to
the account and number specified in the Note Register on such Record Date for
such Person or, if no such account or number is so specified, then by check
mailed to such Person's address as it appears in the Note Register on such
Record Date. The holder hereof shall surrender this Note at the principal
Corporate Trust Office of the Trustee for the final installment of principal of
this Note.
This Note is one of a duly authorized issue of Class B Notes of the Company
designated as its Floating Rate Asset-Backed Notes, Class B, with an aggregate
principal amount of up to $4,342,000 and which, together with up to $70,658,000
aggregate principal amount of Floating Rate Asset Backed Notes, Class A (the
"Class A Notes"), are being or have been issued on any date or dates during the
Note Issuance Period (as defined in the Indenture) under an Indenture, dated as
of August 15, 1997 (as may be amended from time to time, the "Indenture"),
among the Company, the Servicer and LTCB Trust Company, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, and immunities thereunder of the Company, the Trustee, and the holders
of the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered. The Class B Notes are subordinated to the Class A
Notes as and to the extent set forth in the Indenture. The Trust Property
secures all of the Notes equally and ratably without preference, priority, or
distinction between any Note of the same Class and any other Note of the same
Class by reason of difference in time or times of issuance and delivery or
otherwise, and also secures the payment of certain other amounts and certain
other obligations as set forth in the Indenture.
If an Indenture Event of Default shall occur and be continuing, the Notes
may be declared due and payable in the manner and with the effect provided in
the Indenture.
As provided in the Indenture and subject to restrictions on transfer and
the other limitations set forth therein and above, the transfer of this Note is
registrable in the Note Register, upon surrender of this Note for registration
of transfer at the office or agency designated by the Company pursuant to the
Indenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same original aggregate principal
amount, will, in accordance with the Indenture, be issued to the designated
transferee or transferees.
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The Notes may be redeemed by the Company, in whole but not in part, at the
Redemption Price on any Monthly Payment Date on which the outstanding Note
Principal Balance of the Notes is less than 10% of the Note Principal Balance
of the Notes as of the first day of the Note Amortization Period (after giving
effect to payments of principal on such Monthly Payment Date) in the manner
provided in the Indenture.
The Notes are issuable only in registered form without coupons in
denominations as provided in the Indenture and subject to certain limitations
therein set forth. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Notes are limited recourse obligations of the Company. The sole source
of payment of the Notes will be the assets comprising the Trust Property. The
Notes do not represent an obligation of, or an interest in, the Seller, the
Servicer or any affiliate of any of them. The Notes are limited in right of
payment to certain collections and recoveries respecting the Leases and certain
payments from the Collection Account, the Reserve Account and the Payahead
Account, all as more specifically set forth in the Indenture. A copy of the
Indenture may be examined during normal business hours at the office of the
Servicer, and at such other places, if any, designated by the Trustee, by any
Noteholder upon request.
The Indenture permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights of the Noteholders under
the Indenture at any time by the Seller, the Servicer and the Trustee with the
consent of the Holders of Notes evidencing not less than a majority of the
entire Note Principal Balance and, in certain circumstances, each affected
Noteholder. Any such consent by the Holder of this Note shall be conclusive and
binding on such Holder and on all future Holders of this Note and of any Note
issued upon the transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent is made upon this Note. The Indenture also
permits the amendment thereof, in certain limited circumstances, without prior
notice to or the consent of the Holders of any of the Notes.
Each Noteholder, by its acceptance of a Note, covenants and agrees that
such Noteholder will not, at any time prior to the day that is one year and one
day following the payment in full of all amounts owing pursuant to the Notes and
the Indenture, institute against the Seller or the Company, or join in any
institution against the Seller or the Company of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under any
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<PAGE>
United States Federal or state bankruptcy or similar law in connection with any
obligations under or relating to the Notes or the Indenture.
By accepting this Note, the holder hereof irrevocably appoints the Trustee
under the Indenture as the special attorney-in-fact for the holder vested with
full power on behalf of the holder to effect and enforce the rights of such
holder and the provisions of the Indenture for the benefit of the holder. The
preceding provision in no way shall limit the right of the holder hereof to
demand payment hereunder or bring an action to enforce payment hereof.
Capitalized terms used and not defined in this Note which are defined in
the Indenture have the meanings specified in the Indenture.
As provided in the Indenture, this Note and the Indenture shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to the conflict of laws principles thereof.
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, JLA Funding Corporation II has caused this instrument
to be duly executed.
JLA FUNDING CORPORATION II
By:
-----------------------
Title:
CERTIFICATE OF AUTHENTICATION
Dated:_________________________
This is one of the Notes
referred to in the within
mentioned Indenture.
LTCB TRUST COMPANY,
not in its individual
capacity but solely in
its capacity as Trustee
By:____________________________
Authorized Signatory
B-5
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
-------------------------
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:
Your signature:
(Sign exactly as your name appears on the other side of this Note)
Signature(s) Guaranteed by:
(All signatures must be guaranteed by a member of a Signature
Guarantee Medallion Program.)
B-6
<PAGE>
EXHIBIT C
FORM OF TRANSFEREE LETTER
[letterhead of Transferee]
Date:
JLA Funding Corporation II
12677 Alcosta Boulevard - Suite 430
San Ramon, California 94583
LTCB Trust Company, as Trustee
165 Broadway
New York, New York 10006
Re: JLA Funding Corporation II
--------------------------
Dear Sirs:
We are the transferee in a private sale or other transfer from ___________
(the "Transferor") of $_________________ in aggregate original principal amount
of Floating Rate Asset-Backed Notes, Class A (the "Class A Notes"), and
$_________________ in aggregate original principal amount of Floating Rate
Asset-Backed Notes, Class B (the "Class B Notes" and, collectively with the
Class A Notes, the "Notes") issued by JLA Funding Corporation II (the
"Company"), pursuant to the Indenture, dated as of August 15, 1997 (as may be
amended from time to time, the "Indenture"), among the Company, JLA Credit
Corporation and LTCB Trust Company, as Trustee (the "Trustee") . Capitalized
terms used and not otherwise defined herein have the meanings specified in the
Indenture.
In connection with our acquisition of the Notes, we hereby represent,
warrant, certify and agree as follows:
(A) We confirm that (check as applicable]:
____ We are an institutional investor that is an "accredited investor"
as defined under paragraph (1), (2), (3) or (7) of Rule 501(a) under
the Securities Act of 1933, as amended (the "Securities Act") (an
"Institutional Accredited Investor") or, if the Notes are to
be purchased by us for one or more institutional accounts ("investor
accounts") for which we are acting as a fiduciary or agent, each such
investor account is an Institutional Accredited Investor.
C-1
<PAGE>
____ We are a "qualified institutional buyer" as that term is defined
in Rule 144A under the Securities Act (a "Qualified Institutional
Buyer") or, if the Notes are to be purchased by us for one or more
investor accounts for which we are acting as a fiduciary or agent, each
such investor account is a Qualified Institutional Buyer.
(B) We are purchasing the Notes solely for our own account or accounts
for which we exercise sole investment discretion and not as nominee or
agent for any other person.
(C) We have such knowledge and experience in financial and business
matters and with respect to investments in securities that we are capable
of evaluating the merits and risks of an investment in the Notes, and we
are (and each account, if any, for which we are purchasing is) able to bear
the economic risk of such investment for an indefinite period. We have had
such opportunity to ask questions of and receive answers from the
Transferor and the Company concerning our purchase of the Notes and all
matters relating thereto and we have been afforded such access to
information (including financial information) about the Company and JLACC
as have enabled us to evaluate our investment in the Notes and we have
received all such information as we have deemed necessary to make an
informed decision with respect to our purchase of the Notes.
(D) We understand that the Notes are not being registered under the
Securities Act or any state securities laws and that the Company is relying
upon an exemption from registration as an "investment company" under the
Investment Company Act of 1040, as amended (the "Investment Company Act").
We understand that the Notes are being transferred to us in a transaction
that is exempt from the registration requirements of the Securities Act and
such laws. We understand that there is no market for, nor is there any
assurance that a market will develop, for the Notes, and we will not
reoffer or resell the Notes by any form of general solicitation or general
advertising.
(E) We understand that, if in the future we decide to sell or otherwise
transfer any Note, such Note may be sold or transferred only (A) to a
person that we reasonably believe is a Qualified Institutional Buyer in a
transaction meeting the requirements of Rule 144A under the Securities Act,
or (B) to an Institutional Accredited Investor pursuant to another
available exemption from the registration requirements of the Securities
Act subject, in the case of clauses (A) and (B) above, to compliance by the
transferee and us with the provisions of the Indenture including, without
limitation, the delivery by the proposed transferee of a Transferee Letter
substantially in the form of this letter and, in the case of clause (B),
the delivery of an opinion of counsel of counsel to the transferee, in form
and substance acceptable to the Trustee and the Issuer, if requested by the
Trustee or the Issuer.
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<PAGE>
(F) We understand that the Notes will bear legends substantially to the
following effect:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER OF THIS NOTE
BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A OR (C) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT
SUBJECT, IN THE CASE OF CLAUSES (B) OR (C) ABOVE, TO COMPLIANCE BY THE
HOLDER AND THE TRANSFEREE WITH THE PROVISIONS OF THE INDENTURE, DATED AS OF
AUGUST 15, 1997, AMONG JLA FUNDING CORPORATION II (THE "COMPANY"), JLA
CREDIT CORPORATION, AS SERVICER, AND LTCB TRUST COMPANY, AS TRUSTEE (THE
"TRUSTEE"), APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO TREAT THIS NOTE AS
INDEBTEDNESS FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR
ANY INTEREST HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH
PERSON SHALL HAVE PROVIDED TO THE ISSUER AND THE TRUSTEE A CERTIFICATION,
IN THE FORM APPROVED BY THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND
FOR SO LONG AS IT HOLDS NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS
DEFINED IN 29 C.F.R. ss. 2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II)
THAT (A) IN ANY CASE IN WHICH THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH
THE ASSETS OF AN "EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3)
OF ERISA OR A "PLAN" WITHIN THE MEANING OF SECTION 4975 (E) (1) OF THE CODE
(ANY SUCH PLAN OR EMPLOYEE BENEFIT PLAN, A "PLAN") AND FOR ANY PERIOD FOR
WHICH A NOTE IS (OR IS DEEMED FOR ERISA PURPOSES TO BE) ASSETS OF A PLAN,
THAT THE ACQUISITION OR TRANSFER, AND SUBSEQUENT HOLDING, WILL NOT
CONSTITUTE, CAUSE OR OTHERWISE GIVE RISE TO A TRANSACTION DESCRIBED IN
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH A STATUTORY OR
ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (E) NO VIOLATION OF STATE,
LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF SUCH PERSON'S
ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
(G) We hereby represent and warrant, further, that either (i) we are
not and for so long as we hold Notes will not be a "benefit plan investor"
(as defined in 29 C.F.R. ss. 2510.3-101 or any successor provision) or (ii)
in any case in which Notes are being acquired by us with the assets of an
"employee benefit plan" within the meaning of Section 3(3) of ERISA or a
"plan" within the meaning of Section 4975 (e) (1) of the Code (any such
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<PAGE>
plan or employee benefit plan, a "Plan") and for any period for which a
Note is (or is deemed for ERISA purposes to be) assets of a Plan, that the
acquisition or transfer, and subsequent holding, of any such Notes will not
constitute, cause or otherwise give rise to a transaction described in
Section 406 of ERISA or Section 4975 of the Code for which a statutory or
administrative exemption is unavailable.
We agree that we will obtain from any purchaser of our Notes a letter
executed by such purchaser in the form of this letter.
We hereby indemnify each of you, your respective affiliates and each other
Noteholder for any losses, claims, damages or liabilities (including fees and
expenses of counsel) incurred by you or them as a result, directly or
indirectly, of (i) any statements made by us in this letter, or in any document
delivered by us relating hereto, (ii) our making any transfer or other
disposition of any Note in a manner that violates the provisions of this letter,
such Note or the indenture, or (iii) any failure of a direct purchaser from us
to have furnished to each of you a letter in the form hereof.
Our Notes should be registered as follows:
Name:
Address:
Tax Identification Number:
Physical Location of the Notes:
Contact:
Very truly yours,
[NAME OF PURCHASER)
By:
---------------------------------------------
Title:
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<PAGE>
================================================================================
JLA CREDIT CORPORATION,
as Seller and as Servicer,
and
JLA FUNDING CORPORATION II,
as Purchaser
SALE AND SERVICING AGREEMENT
Dated as of August 15, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions ......................................... 1
ARTICLE II.
PURCHASE AND SALE OF THE LEASE ASSETS
SECTION 2.01 Purchases and Sales ........................... 6
SECTION 2.02 Conditions to Obligations of the Purchaser..... 6
SECTION 2.03 Conditions to Obligations of the Seller........ 7
SECTION 2.04 Lease Purchase Dates........................... 8
ARTICLE III.
THE LEASES
SECTION 3.01 Representations and Warranties of the Purchaser 8
SECTION 3.02 Representations and Warranties of the Seller... 9
SECTION 3.03 Retransfer of Leases........................... 14
SECTION 3.04 Custody of Lease Files......................... 14
SECTION 3.05 Duties of Servicer as Custodian................ 15
SECTION 3.06 Instructions; Authority to Act................. 16
SECTION 3.07 Effective Period and Termination............... 16
SECTION 3.08 Substitution of Leases......................... 16
SECTION 3.09 Notice of Substitution......................... 17
SECTION 3.10 Subsequent Obligations......................... 18
ARTICLE IV.
ADMINISTRATION AND SERVICING OF LEASES
SECTION 4.01 Duties of Servicer; Subservicing Arrangements.. 18
SECTION 4.02 Collection of Rent Payments.................... 20
SECTION 4.03 Repossession of Equipment...................... 20
SECTION 4.04 Theft and Physical Damage Insurance............ 21
SECTION 4.05 Covenants of the Servicer...................... 21
SECTTON 4.06 Transfer of Leases upon Breach................. 23
SECTION 4.07 Servicing Fee.................................. 24
SECTION 4.08 Monthly Servicer Report........................ 24
SECTION 4.09 Annual Statement as to Compliance.............. 24
SECTION 4.10 Annual Accountants' Statement.................. 25
SECTION 4.11 Access to Certain Information.................. 25
SECTION 4.12 Weekly Servicer Verification................... 26
i
<PAGE>
Section Page
- ------- ----
ARTICLE V.
DISTRIBUTIONS; STATEMENTS
SECTION 5.01 Accounts....................................... 26
SECTION 5.02 Collections; Applications...................... 26
SECTION 5.03 Additional Deposits............................ 27
SECTION 5.04 Distributions.................................. 27
SECTION 5.05 Statements to Noteholders...................... 27
ARTICLE VI.
THE SELLER
SECTION 6.01 Additional Representations of the Seller....... 27
SECTION 6.02 Merger or Consolidation of Seller.............. 29
SECTION 6.03 Limitation on Liability of Seller and others... 30
SECTION 6.04 Covenants of Seller............................ 30
SECTION 6.05 Other Liens or Interests....................... 32
SECTION 6.06 Costs and Expenses............................. 32
SECTION 6.07 Indemnification................................ 32
SECTION 6.08 Sale........................................... 33
SECTION 6.09 Accounting Statements.......................... 34
ARTICLE VII.
THE SERVICER; REPRESENTATIONS AND INDEMNITIES
SECTION 7.01 Representations of the Servicer................ 34
SECTION 7.02 Liability of Servicer; Indemnities............. 35
SECTION 7.03 Merger or Consolidation of Servicer............ 37
SECTION 7.04 Limitation on Liability of Servicer and Others. 38
SECTION 7.05 Servicer Not to Resign......................... 38
SECTION 7.06 Protection of Interest of Trust Property....... 38
ARTICLE VIII.
DEFAULT
SECTION 8.01 Events of Default.............................. 40
SECTION 8.02 Trustee to Act; Appointment of Successor....... 42
SECTION 8.03 Notification to Noteholders.................... 44
SECTION 8.04 Waiver of Past Defaults........................ 44
ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.01 Amendment ..................................... 44
ii
<PAGE>
Section Page
------- ----
SECTION 9.02 Counterparts................................... 45
SECTION 9.03 Governing Law.................................. 45
SECTION 9.04 Notices........................................ 45
SECTION 9.05 Severability of Provisions..................... 46
SECTION 9.06 Assignment..................................... 46
SECTION 9.07 Submission to Jurisdiction; Venue.............. 46
SECTION 9.08 No Bankruptcy Petition......................... 46
SECTION 9.09 Rule 144A Information.......................... 47
SECTION 9.10 Limited Recourse............................... 47
SECTION 9.11 Trustee Rights................................. 47
Exhibit A Form of Bill of Sale
Exhibit B Form of Monthly Servicer Report
iii
<PAGE>
This SALE AND SERVICING AGREEMENT dated as of August 15, 1997
is by and among JLA CREDIT CORPORATION, as Seller (the "Seller") and as Servicer
(the "Servicer"), and JLA FUNDING CORPORATION II, as Purchaser (the
"Purchaser").
RECITALS
The Seller desires to sell to the Purchaser, and the Purchaser
desires to buy from the Seller, from time to time during the Note Issuance
Period (as defined herein), Leases (and related Lease Assets), and the Seller
and Purchaser desire, in addition, that the Seller act as Servicer of such
Leases and Lease Assets.
In consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions. Whenever used in this Agreement,
capitalized terms used and not defined herein have the meanings specified in the
Indenture (as defined herein) and the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
"Agreement" means this Sale and Servicing Agreement, as it
may be amended or supplemented from time to time.
"Bill of Sale" means the Bill of Sale to be delivered on each
Lease Purchase Date pursuant to which the Seller sells to the Purchaser the
Leases identified in such Bill of Sale on such Lease Purchase Date, a form of
which is attached hereto as Exhibit A.
"Cut-Off Date" means, as to any Lease, the last day of the
calendar month immediately preceding the applicable Lease Purchase Date of such
Lease, as specified in the related Bill of Sale delivered on the applicable
Lease Purchase Date.
"Eligibility Criteria," means, as to each Lease, the
requirements for such Lease to be an "'Eligible Lease" pursuant to Section 3.02.
"Eligible Lease" has the meaning specified in Section 3.02.
"Eligible Servicer" means an entity which, at the time of its
appointment as Servicer or as a subservicer, (i) (a) is servicing a portfolio of
equipment lease contracts, (b) is legally qualified and has the capacity to
service the Leases, (c) has demonstrated the ability to professionally and
competently service a portfolio of similar contracts in accordance with high
standards of skill and care, (d) has (if not the Seller) combined capital and
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surplus of at least $10,000,000 and (e) is qualified and entitled to use, and
agrees to maintain the confidentiality of, the software that the Servicer or any
subservicer uses in connection with performing its duties and responsibilities
under this Agreement or the related subservicing agreement or obtains rights to
use or develops its own software which is adequate to perform its duties and
responsibilities under this Agreement or the related subservicing agreement,
(ii) so long as no Event of Default has occurred and is continuing, is a
subsidiary of the Servicer or a subservicer (which itself is an Eligible
Servicer) and which satisfies the requirements of (i)(b), (i)(c) and (i)(d)
above, or (iii) is a successor by merger or consolidation to the Servicer in
accordance with the provisions of Section 7.03 hereof:
"Equipment" means any new or used equipment, together with all
accessions thereto and replacement parts, accessories and repairs with respect
thereto, which is the subject of a Lease.
"Event of Default" means an event specified in Section 8.01.
"Excluded Equipment" means any of the following: restaurant
equipment, gas supply equipment, gas pumps, gas or chemical tanks, paint booths,
processing, dispensing and disposal equipment for environmental waste, real
estate, pianos, containers, working capital loans, yellow iron (construction and
mining equipment) and sale/leaseback transactions.
"Indenture" means the Indenture, dated as of the date hereof,
between the Purchaser, the Servicer and LTCB Trust Company, as Trustee, as may
be from time to time amended or supplemented pursuant to the applicable
provisions thereof.
"JLACC" means JLA Credit Corporation, a Delaware corporation,
and its successors in interest.
"Lease" means, for any applicable Lease Purchase Date, each
commercial loan contract or equipment finance lease contract, secured by
commercial and/or industrial equipment, including any amendment or modification
of such contract and any schedules and promissory notes incorporated therein
(including, without limitation, all right to receive Rental Payments) sold and
transferred to the Purchaser on such Lease Purchase Date, as identified in
the related Bill of Sale.
"Lease Files" means the documents specified in Section 3.04.
"Lease Purchase Date" means each date during the Note Issuance
Period that is designated by the Company to the Seller, upon not less than five
Business Days' prior notice to the Seller and the Trustee, and approved by the
Seller, on which Leases are to be purchased by the Company pursuant to this Sale
and Servicing Agreement.
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"Lease Purchase Price" has the meaning specified in Section
2.01(b).
"Lessee" means each lessee under a Lease and its permitted
assigns.
"Lien" means any lien, security interest or encumbrance of any
kind.
"Liquidation Proceeds" has the meaning specified in Section
4.03.
"Lock-Box Account" means the account designated as such,
established and maintained pursuant to the Lock Box Agreement and in accordance
with Section 5.01.
"Lock-Box Agreement" means the agreement, dated as of April 3,
1990, by and among the Servicer and Bank of America National Trust and Savings
Association (as successor to Continental Bank), as Lock Box Bank (as amended by
a letter agreement to be entered into prior to the initial Note Issuance Date
and as may be further amended from time to time), pursuant to which the Lock-Box
Account is established and maintained.
"Lock-Box Bank" means, as of any date, the bank or trust
company at which the Lock-Box Account is established and maintained as of such
date.
"Monthly Payment Date" means the 16th day of each month (or if
such date is not a Business Day, the next succeeding Business Day), commencing
in the calendar month immediately succeeding the first Note Issuance Date, and
ending with the Scheduled Final Payment Date.
"Monthly Servicer Report" means a report substantially in the
form attached as Exhibit B hereto, completed by and executed on behalf of the
Servicer by a Servicing Officer of the Servicer in accordance with Section 4.08.
"Note Amortization Period" means the period from (and
including) the date that is the earlier of (i) the first day following the end
of the Note Issuance Period and (ii) the date (if any) on which any Early
Amortization Event or Indenture Event of Default shall have occurred, to (and
including) the Scheduled Final Payment Date.
"Note Issuance Period" means the period commencing on the
Closing Date and ending (unless sooner terminated as described herein) on the
date that is the earlier of (i) May 15, 1998 and (ii) the date (if any) on which
the aggregate outstanding principal amount of the Notes equals $75,000,000.
"Note Principal Balance" means (i) as of any date prior to the
first Monthly Payment Date, the outstanding principal
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balance of the applicable Class of Notes on the initial Note Issuance Date, and
thereafter (ii) as of any date, the outstanding principal balance of the
applicable Class of Notes as of the preceding Monthly Payment Date; provided
that the term "Note Principal Balance", as of any Monthly Payment Date on which
a payment in respect of principal has been made, shall mean the outstanding
principal balance of the applicable Class of Notes on such date after giving
effect to any distributions of Monthly Principal and overdue Monthly Principal
on such date.
"Pool Balance" means, as of any date, the aggregate Principal
Balance of the Leases as of such date.
"Predecessor Lease" has the meaning specified in Section 3.08.
"Principal Balance" means, with respect to any Lease on any
day, (i) the unamortized portion of the purchase price paid by JLACC for the
related Equipment and amounts paid by JLACC in respect of taxes and organization
costs and fees as of the related Cut-Off Date, minus (ii) the sum of the
following with respect to such Lease: (a) the Principal Component of all Rent
Payments since the applicable Cut-Off Date received by the Servicer and
deposited in the Collection Account (other than the Principal Component of any
payments received with respect to future Collection Periods, which will be
deposited in the Payahead Account and will constitute Rent Payments in the
Collection Period such payments were scheduled to be received) and (b) the
Principal Component of all proceeds of any Insurance Policies; provided,
however, that for any day following the Monthly Payment Date on which either (x)
the proceeds of a prepayment in full of a Lease or a Retransferred Lease are
payable to Noteholders under the definition of Monthly Principal or (y) a
Defaulted Lease first becomes a Defaulted Lease, the Principal Balance of any
such Lease shall be zero.
"Purchase Option Payment" shall mean, with respect to any
Lease, any payment (received on or after the applicable Cut-Off Date for such
Lease) made by a Lessee to purchase the Equipment subject to the Lease.
"Rent Payment" shall mean, with respect to each Lease, the
scheduled monthly rental payment for the Equipment leased to the Lessee under
such Lease, consisting of an Interest Component and a Principal Component.
"Retransfer Amount" means, with respect to any Lease, the
price equal to the Principal Balance of such Lease (prior to any amendment,
modification or exchange) on the first day of the month following the date on
which the reacquisition or purchase obligation with respect to such Lease arose
pursuant to Section 3.03 or 4.02 hereof, plus accrued interest on the Principal
Balance of such Lease, at a race equal to 1/12 of the sum of the (i) Class B
Rate and (ii) the Servicing Fee Rate, from the last date on which such amount
was paid to the date that is the date of payment of the
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Retransfer Amount, less the amount, if any, on deposit in the Payahead Account
with respect to such Lease.
"Retransferred Lease" means, for any Collection Period, a
Lease which has been transferred to the Seller or the Servicer as of the last
day of such Collection Period pursuant to Section 3.03 or 4.06.
"Retransferred Lease Receivables" means, for any Collection
Period, the Lease receivables under Leases which have been retransferred to the
Seller or Servicer as of the last day of such Collection Period pursuant to
Section 3.03 or 4.06.
"Schedule of Leases" means, as of any date, the schedule of
Leases owned by the Purchaser (and included in the Trust Property) on such date.
As of each Lease Purchase Date, a Schedule of Leases in respect of the Leases
purchased on such date shall set forth, as to each such Lease as of the related
Cut-Off Date, among other things, (a) its identifying number and the name of the
related Lessee; (b) its date of origination; (c) the original number of months
to stated maturity; (d) the original stated maturity; (e) the original Principal
Balance at inception of the Lease; (f) the Principal Balance as of the
applicable Cut-Off Date; (g) the location where the related Lease File is kept,
which shall be 12677 Alcosta Boulevard, San Ramon, California 94583, indicated
by the symbol "SRI", or 970 West 190th Street, Suite 710, Torrance, California
90502, indicated by a "IT", or such other address in California as shall be
specified therein; (h) the Lease Rate; and (i) the scheduled monthly Rent
Payment.
"Scheduled Final Payment Date" has the meaning specified in
the Indenture.
"Seller" means JLACC in its capacity as Seller of Leases under
this Agreement, and each successor to JLACC (in the same capacity) pursuant to
Section 6.02.
"Servicer" means JLACC, as the servicer of the Leases under
this Agreement, and each successor to JLACC (in the same capacity) pursuant to
Section 8.02, and each successor Servicer pursuant to Section 7.03.
"Servicer Fee" means, with regard to any Collection Period,
the fee payable to the Servicer for services rendered during such Collection
Period, determined pursuant to Section 4.07.
"Servicing Fee Rate" means 1% per annum.
"Substitute Lease" means any Lease that is substituted by the
Seller pursuant to Section 3.08 for a Lease previously sold to the Purchaser
hereunder.
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ARTICLE II.
PURCHASE AND SALE OF THE LEASE ASSETS
SECTION 2.01 Purchases and Sales. On each Lease Purchase Date,
subject to the terms and conditions of this Agreement, the Seller agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, all of
the Seller's right, title and interest in, to and under such Leases as are
offered by the Seller for sale to, and accepted by the Purchaser for purchase
by, the Purchaser (including the rights to any Purchase Option Payments),
together with the property of the Seller constituting the related Lease Assets
and all of Seller's right, title and interest in and to the related Equipment.
(a) Transfer of Leases. On each Lease Purchase Date,
the Seller shall sell, transfer, assign and otherwise convey to the Purchaser,
without recourse, all of the Seller's right, title and interest in, to and under
the Leases and related Lease Assets that the Purchaser has agreed to purchase on
such date. Each Lease to be so purchased shall be identified in a Bill of Sale
delivered by the Seller to the Purchaser on such Lease Purchase Date.
(b) Lease Purchase Price. In consideration for the
Lease Assets being sold on a Lease Purchase Date, the Purchaser shall, on each
Lease Purchase Date, pay to the Seller an amount equal to the aggregate
Principal Balance of the Leases being sold as the purchase price for such Leases
and the related Lease Assets (the "Lease Purchase Price"). On each Lease
Purchase Date, the Seller may make a capital contribution to the Purchaser in an
amount that, together with all other amounts available to the Purchaser for the
purchase of Leases on such date in the Lease Purchase Account, along with the
proceeds of the issuance of Notes on the related Note Issuance Date, will be
applied by the Purchaser as a portion of the amount that is the Lease Purchase
Price of the Leases to be purchased by the Purchaser from the Seller on such
Lease Purchase Date. The amount so paid and contributed to the Purchaser will be
deposited into the Lease Purchase Account for application by the Trustee in
accordance with the Indenture.
SECTION 2.02 Conditions to obligations of the Purchaser.
The obligations of the Purchaser to purchase the Leases and related Lease
Assets and interest of the Seller in the related Equipment on each Lease
Purchase Date is subject to the satisfaction of the following conditions as
of such Lease Purchase Date:
(a) Representations and Warranties True. The
representations and warranties of each of the Seller and the
Servicer hereunder shall be true and correct on such Lease
Purchase Date and with the same effect as if made on such
date.
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(b) Compliance with Obligations. The Seller shall
have performed all obligations to be performed by it
hereunder on or prior to such Lease Purchase Date.
(c) No Defaults. No Event of Default hereunder or
Indenture Event of Default shall have occurred or be
continuing.
(d) Weighted Average Yield. Upon the transfer of each
Lease to be transferred to the Purchaser on such Lease
Purchase Date, the Weighted Average Yield of all Leases
acquired by the Purchaser on or prior to such date (and
included in the Trust Property pursuant to the Indenture) will
be not less than 10% per annum.
(e) Bill of Sale. The Seller shall deliver to the
Purchaser a Bill of Sale, duly completed and executed,
together with an attached duly prepared Schedule of Leases
identifying the Leases transferred pursuant to such Bill of
Sale.
(f) Evidence of UCC Filing. On or prior to such Lease
Purchase Date, the Seller shall record and file, at the
Seller's expense, UCC financing statements in each
jurisdiction in which required by applicable law, executed by
the Seller, as seller or debtor, and naming the Purchaser, as
purchaser, identifying the Leases and related Lease Assets as
collateral, meeting the requirements of the laws of each such
jurisdiction and in such manner as is necessary to perfect the
sale, transfer, assignment and conveyance of its interest in
such Lease Assets to the Purchaser. The Seller shall deliver a
file-stamped copy, or other evidence satisfactory to the
Purchaser, of each such filing, to the Purchaser on or prior
to such Lease Purchase Date.
(g) Computer Files Marked. The Seller shall, at its
own expense, on or prior to such Lease Purchase Date, indicate
in its computer files that the Leases to be purchased on such
date (together with all other Leases sold to purchaser by
Seller) have been sold to the Purchaser pursuant to this
Agreement and shall deliver to the Purchaser a cumulative
Schedule of Leases, certified by an officer of the Seller to
be true, correct and complete.
(h) Other Documents. At the Seller's expense, the
Seller shall deliver, or cause to be delivered, such other
documents, and take or cause to be taken such other actions,
as the Purchaser may reasonably request or as may be
otherwise necessary to vest in the Purchaser all of Seller's
right, title and interest in and to the Leases and related
Lease Assets.
SECTION 2.03 Conditions to Obligations of the Seller. The
obligation of the Seller to sell the Leases and the Lease
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Assets to the Purchaser on each Lease Purchase Date is subject to the
satisfaction of the following conditions:
(a) Performance of Agreement. The representations
and warranties of the Purchaser hereunder shall be true and correct
on such Lease Purchase Date with the same effect as if then made, and
the Purchaser shall have performed all obligations to be performed by
it hereunder on or prior to such Lease Purchase Date.
(b) Lease Purchase Price. On each Lease Purchase
Date, the Purchaser will deliver to the Seller the Lease Purchase
Price, as provided in Section 2.01(b).
SECTION 2.04 Lease Purchase Dates. At any time or from time to
time during the Note Issuance Period, not more frequently than once per calendar
month during such Note Issuance Period, the Seller and Purchaser may establish
one or more Lease Purchase Dates. As of the date hereof, the Lease Purchase Date
in each calendar month is expected to be a Business Day during the first or
second week of each calendar month, subject to agreement otherwise by Seller and
Purchaser. A Lease Purchase Date will occur only on a date on which the Seller
has an amount of Eligible Leases sufficient to be acceptable for purchase by the
Purchaser on such date and the Purchaser has sufficient available funds in the
Lease Purchase Account (from Note issuances, Seller capital contributions and
principal payments on Leases) to pay the applicable Lease Purchase Price on such
date; provided that no failure of Leases to constitute Eligible Leases shall
affect the validity of any Bill of Sale or any purchase that occurs on any Lease
Purchase Date. Each purchase and sale of Leases on a Lease Purchase Date shall
be subject to the other conditions and provisions set forth in this Article II.
ARTICLE III.
THE LEASES
SECTION 3.01 Representations and Warranties of the
Purchaser. The Purchaser hereby represents and warrants to the Seller, as of the
date hereof, as of the Closing Date and as of each Lease Purchase Date, as
follows:
(a) The Purchaser has been duly incorporated and is validiy
existing as a corporation in good standing under the laws of the State of
Delaware, and has full corporate power and authority to execute and deliver this
Agreement and to perform the terms and provisions hereof.
(b) This Agreement has been duly authorized, executed and
delivered by the Purchaser, and is the legal, valid, binding and enforceable
obligation of the Purchaser, except as the same may be limited by insolvency,
bankruptcy, reorganization or
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other laws relating to or affecting the enforcement of creditors' rights or by
general equitable principles. The consummation of the transactions contemplated
by this Agreement, and the fulfillment of the terms hereof, will not conflict
with or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Purchaser pursuant to the
terms of any indenture, mortgage, deed of trust, loan agreement, guarantee or
similar agreement or instrument under which the Purchaser is a debtor or
guarantor (other than the liens created pursuant to this Agreement), nor will
such action result in any violation of the provisions of the certificate of
incorporation or the bylaws of the Purchaser.
(c) No legal or governmental proceedings are pending to which
the Purchaser is a party or of which any property of the Purchaser is the
subject, and no such proceedings are threatened or contemplated by governmental
authorities or threatened by others, other than such proceedings which will not
have a material adverse effect upon the general affairs, financial position, net
worth or results of operations of the Purchaser and will not materially and
adversely affect the performance by the Purchaser of its obligations under, or
the validity and enforceability of, this Agreement.
SECTION 3.02 Representations and Warranties of the Seller. The
Seller hereby makes the following representations and warranties as to each
Lease on the Lease Purchase Date therefor and each of the Purchaser, and the
Trustee, as pledgee of the Purchaser, shall rely upon such representations and
warranties in accepting each such Lease and the related Lease Assets. Such
representations and warranties shall be deemed to be made for each Lease as of
the related Lease Purchase Date unless otherwise specified, but shall survive
the transfer of such Leases to the Purchaser (and by the Purchaser to the
Trustee). As to each Lease to be purchased on the applicable Lease Purchase
Date:
(a) The Seller is the sole legal and beneficial owner of all
right, title and interest in and to the Leases and the Lease Assets, including
the rights to the Rent Payments and the Insurance Proceeds with respect to the
Leases, free from any Lien of any Person (except for (i) any Lien which has been
waived or released by any Person prior to the date hereof and (ii) the rights of
Lessees to Insurance Proceeds on account of reimbursements for equipment
repairs).
(b) The Seller is the owner of each item of Equipment that is
subject to any Lease that is not a finance lease and the Seller has a perfected
security interest in, or is the owner of, each item of Equipment that is the
subject of any other Lease, with a Lien or ownership that is prior to the
interest of any other Person, except for (i) any Lien which has been waived or
released by any Person prior to the date hereof and (ii) the rights
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of the Lessees with regard to the Equipment under the Leases and any liens
arising from action of Lessees.
(c) The Seller (i) has in its possession the original copy of
each Lease that constitutes "chattel paper" under the Uniform Commercial Code
and (ii) has in its possession, with respect to each other Lease, a copy of the
master lease, certified by the seller or other transferor of the Lease to the
Seller, and an original executed copy of the relevant lease schedule or
assignment agreement, and (iii) has provided the Purchaser and the Trustee with
access to original copies of all the Leases, including any amendments thereto
and any documents related thereto, and those copies will have been true and
complete copies of the Leases and such amendments and related documents, and no
provision of any Lease will have been amended, modified or waived other than by
documents included in the original copies to which the Purchaser and the Trustee
has been given access.
(d) Neither the Seller nor, insofar as the Seller is aware,
any Lessee, has done or failed to do anything (other than Rent Payment
delinquencies of 60 days or less) which would or might permit any Lessee or the
Seller to terminate any Lease or suspend or reduce any payments or obligations
due or to become due thereunder by reason of default by the other party to such
Lease, except for amounts which are not material to the business of the
Purchaser or to the value of such Leases to the Noteholders. Neither the rights
and interests of the Seller in any Lease nor the obligations of the Lessee under
any Lease are subject to any defense, offset, counterclaim, claim or right of
rescission, and none of the foregoing have been asserted or alleged against the
Seller as to any Lease.
(e) Each Lease is a legal, valid and binding obligation of the
Lessee under such Lease and of the Seller, enforceable against each of them in
accordance with its terms, except as such enforceability may be affected by
applicable bankruptcy, insolvency, reorganization and other similar laws
affecting the rights of creditors generally and by general principles of equity.
(f) All filings and other actions required to be made or taken
by the Seller to evidence the Purchaser's rights in respect of the Leases and
the Lease Assets have been accomplished and are in full force and effect, except
that the Seller will not have notified any insurer with respect to the transfer
of the right to receive Insurance Proceeds.
(g) The Seller has granted the Purchaser full access to its
books and records, which contain a complete and correct statement of the Rent
Payments payable by the Lessee under each Lease and with respect to the related
Equipment, separately setting forth such amounts with respect to each Lease for
each month for the number of months of anticipated Rent Payments under such
Lease.
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(h) The Lease complied at the time it was originated or made,
and at the applicable Lease Purchase Date will comply, in all material
respects with all requirements of applicable federal, state and local law and
regulations thereunder, including usury laws, the Federal Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss
Warranty Act, the Federal Reserve Board's Regulations B and S and other equal
credit opportunity and disclosure laws, in each case to the extent applicable to
nonconsumer transactions.
(i) As of the Lease Purchase Date, the Lease (i) has not been
terminated, is not a Defaulted Lease and is not more than 60 days past due as of
the related Cut-Off Date as to any amount required to be paid thereunder, (ii)
has a remaining term to scheduled maturity of not more than 60 months and not
less than 6 months as of the related Cut-Off Date, (iii) is a direct financing
lease, (iv) relates to an item of Equipment that is not in repossession by the
Lessor or subject to procedures for obtaining repossession by the Lessor or
possession by any other Person, (v) has a term ending not later than the last
day of the Collection Period immediately preceding the Scheduled Final Payment
Date, (vi) relates to a Lessee that (A) is an individual residing in the United
States or a corporation, limited liability company or limited liability
partnership organized under the laws of the United States or any state thereof,
(B) is not the United States or a state or any agency or instrumentality thereof
and (C) has not been disapproved by the Seller (based, in the Seller's
reasonable judgment, upon the creditworthiness of such Lessee), (vii)
constitutes "chattel paper" within the meaning of Section 9-105 of the UCC as in
effect in the state of New York and there is only one original executed copy of
each Lease, (viii) is denominated in United States dollars and is payable in the
United States in United States dollars, (ix) relates to an item of Equipment
which is located in the United States and has already been delivered, (x) is not
a "consumer lease" as defined in Section 2A-103(i) of the UCC, (xi) provides for
level monthly payments which, if made as scheduled, fully amortize the amount
financed (other than the Residual Amount, if any) over the original term of the
Lease; (xii) has a pre-tax yield (based on original net investment and timing of
payment amounts) of at least 8.75%, (xiii) has an original equipment cost of
less than $500,000, (xiv) is not secured by a bus, car, truck, trailer or any
type of motor vehicle which requires motor vehicle titling, and is not secured
primarily by any Excluded Equipment, (xv) was not more than 60 days past due
during the term of the Lease, and (xvi) has been determined by the Seller to
satisfy all applicable approval requirements of the Seller.
(j) The Lessee under the Lease has not been noted in the
electronic ledger of the Servicer as being the subject of a bankruptcy
proceeding.
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(k) No facts exist which would give rise to any right of
rescission, setoff, counterclaim or defense nor have any been asserted, or to
the best of the Seller's knowledge after due inquiry, threatened, with respect
to the Lease.
(l) The Lease has not been sold, transferred, assigned or
pledged by the Seller to any Person other than the Purchaser. Immediately prior
to the transfer of the Leases to the Purchaser, the Seller had good and
marketable title to such Lease free and clear of all Liens (except for any Lien
which has been waived or released by any Person prior to the date hereof) and
immediately upon the transfer thereof pursuant to the related Bill of Sale, the
Purchaser will acquire good and marketable title to such Lease, free and clear
of all Liens, encumbrances, security interests, and rights of others.
(m) The Lease does not require the prior written consent of
the Lessee for, or contain any other restrictions on, the transfer or assignment
of the Lease.
(n) The Lease does not have a Lessee that is the obligor on a
Lease or Leases for which the aggregate Principal Balance exceeds 1.5% of the
Pool Balance as of the applicable Cut-Off Date for the third Lease Purchase Date
and as of the applicable Cut-Off Date for each Lease Purchase Date thereafter
during the Note Issuance Period (in each case after giving effect to the
purchase of Leases to occur on such Lease Purchase Date).
(o) The Lease was selected from equipment leases in the
Seller's portfolio that had met the applicable conditions specified in this
Section 3.02 utilizing no selection procedures adverse to the Purchaser relative
to similar equipment leases in the Seller's portfolio.
(p) The Lease provides that the Lessee's obligations under the
Lease including, without limitation, the obligation to make Rent Payments, are
absolute and unconditional and shall continue without any claim, defense,
set-off, counterclaim, reduction, or abatement of any kind whatsoever and
regardless of any inability of the Lessee to use the Equipment or any part
thereof because of any reason whatsoever including damage to or destruction
thereof.
(q) The Lease provides that the Lessee shall maintain the
Equipment in good operating condition, repair and appearance, and protect it
from deterioration other than normal wear and tear.
(r) The Lease was not previously transferred to or owned by
the Purchaser.
(s) If the Lease was not originated by the Seller but was
acquired by the Seller in a purchase transaction then such Lease (i) constitutes
a "finance lease" under generally accepted
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accounting principles, (ii) does not by its terms permit, on or after the
applicable Lease Purchase Date, the Lessor (or any transferee) to require the
predecessor owner or other transferor to repurchase such Lease or otherwise
provide credit support for payments due under the Lease.
(t) Neither the Seller nor any entity aggregated now or at any
relevant time with the Seller under Section 4001 of ERISA or Section 414 (b) or
(c) of the Code (i) has any material tax, penalty or other liability under ERISA
or the employee benefits provisions of the Code, or (ii) is subject to having
any of its property subject to a lien or other encumbrance thereunder, where
such liability is or could becom6 the liability of the Purchaser or the Trustee
or where the property of the Purchaser could be subject to such a lien or
encumbrance, (iii) no such liability, lien or encumbrance presently is expected
to occur or exist, (iv) no notice of intent to terminate any employee benefit
plan under ERISA (a "Plan") has been filed under Title IV of ERISA by it or any
plan administrator, (v) no "prohibited termination" under Section 406 (b) of
ERISA has been engaged in by it and (vi) no "accumulated funding deficiency"
under ERISA has occurred or exists with respect to any Plan.
(u) Upon the transfer of each Lease to be transferred to the
Purchaser (and included in the Trust Property pursuant to the Indenture) on such
date, (i) the aggregate Principal Balance of all Leases with Lessees having
billing addresses with the same postal zip code does not exceed 5% of the Pool
Balance, (ii) the aggregate Principal Balance of all Leases with Lessees located
(by billing address) in any one state other than California does not exceed 25%
of the Pool Balance, (iii) the aggregate Principal Balance of all Leases with
Lessees located (by billing address) in California does not exceed 60% of the
Pool Balance, (iv) the aggregate Principal Balance of all Leases relating to
Equipment that is used Equipment does not exceed 15% of the Pool Balance.
(v) the aggregate Principal Balance of all Leases that were
not originated by the Seller but were instead acquired by the Seller in purchase
transactions in which Form UCC-3 filings were not made naming the Lessee as
debtor and the Seller as assignee of the underlying seller secured party does
not exceed 5% of the Pool Balance.
(w) Upon the transfer of each Lease to be transferred to the
Purchaser, the Leases owned by the Purchaser (and included in the Trust Property
pursuant to the Indenture) will have a weighted average term to maturity of not
more than 50 months commencing from the last day of the Note Issuance Period.
(x) Statistical information appearing in the Confidential
Private Placement Memorandum dated June 1997, as amended or supplemented to the
date hereof, is true and accurate in all material respects as of the date
hereof.
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A Lease which satisfies all of the above representations and
warranties shall be deemed an "Eligible Lease".
SECTION 3.03 Retransfer of Leases. The Seller, the Servicer,
the Purchaser or the Trustee, as the case may be, shall inform the other parties
and the Trustee promptly, in writing, upon the discovery of a breach of any of
the Seller's representations and warranties set forth in Section 3.02, that
materially and adversely affects the interest of the Purchaser and the Trustee
in any Lease. Each such notice shall include a statement that such breach
materially and adversely affects the interest of the Purchaser in such Lease. As
of the last day of the month following the month (or, if the Seller elects, as
of the last day of the month) in which the Seller becomes aware or receives such
written notice of such breach, the Seller, unless it cures the breach, shall
reacquire such Lease materially and adversely affected by the breach. The Seller
shall remit the Retransfer Amount of such Lease as of the date of retransfer in
the manner specified in Section 5.03. Except as provided in Section 7.02, the
sole remedy of the Purchaser, the Trustee or the Noteholders against the Seller
with respect to a breach of a representation or a warranty set forth in Section
3.02 or any matter set forth in this Section 3.03 shall be to require the Seller
to reacquire Leases pursuant to this Section 3.03. With respect to all Leases
repurchased by the Seller pursuant to this Agreement, the Purchaser shall
assign, without recourse, representation or warranty (except as to the absence
of liens, claims, or encumbrances resulting from actions taken, or failed to be
taken, by the Purchaser), to the Seller all the Purchaser's right, title and
interest in and to such Leases and the related Lease Assets. The determination
of "material and adverse" as to the interest of the Purchaser or the Trustee in
a Lease would be made by the Purchaser, or by the Trustee (upon a Noteholders'
instruction pursuant to the Indenture), in determining whether notice would be
sent, and may be expected to include consideration of such matters as likelihood
of full repayment, enforceability of security for the loan and other similar
matters.
SECTION 3.04 Custodv of Lease Files. To assure uniform quality
in servicing the Leases and to reduce administrative costs, the Purchaser, upon
the execution and delivery of this Agreement, revocably appoints the Servicer,
acting directly or through a subservicer or another agent, and the Servicer
accepts such appointment, to act as the agent of the Trustee as custodian of the
following documents or instruments (the "Lease Files") which are hereby
constructively delivered to the Trustee with respect to each Lease:
(i) The original copy of each Lease that constitutes
"chattel paper" under the Uniform Commercial Code and, with
respect to each other Lease, a copy of the master lease,
certified by the seller or other transferor of the Lease to
the Seller, and an original executed copy of the relevant
lease schedule or assignment agreement,
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(ii) Documents, if any, evidencing the existence of
theft and physical damage insurance covering the Equipment or
the Lessee;
(iii) Copies of documents that the Servicer shall
keep on file, in accordance with its customary procedures,
evidencing the interest of Seller in the Equipment; and
(iv) Any and all other documents that the Seller or
the Servicer, as the case may be, shall keep on file, in
accordance with its customary procedures, relating to a Lease,
the related items of Equipment or other related Lease Assets
or a Lessee.
The Lease Files will not be stamped or otherwise marked to
reflect the transfer of the Leases from the Seller to the Purchaser or the
pledge of the Purchaser to the Trustee and will not be segregated from the files
of other leases and installment sale contracts of the Servicer. Prior to
conveyance of the Leases to the Purchaser, Seller will cause the electronic
ledger and computer systems used by Seller as a master record of the Leases to
be marked to show that such Leases have been conveyed by Seller to the Purchaser
and pledged to the Trustee and will file UCC financing statements reflecting
such sales and assignments with appropriate governmental authorities. The Seller
will not alter the electronic ledger designation referenced in this paragraph
with respect to any Lease during the term of this Agreement unless and until
such Lease becomes a Retransferred Lease. The Lessees under the Leases will not
be notified of the transfer of the Leases to the Purchaser.
SECTION 3.05 Duties of Servicer as Custodian.
(a) Safekeeping. The Servicer, in its capacity as agent of the
Purchaser and the Trustee and as custodian pursuant to Section 3.04 above, shall
hold (or have a subservicer or other agent hold on behalf of the Servicer) the
Lease Files on behalf of the Trustee for the benefit of all present and future
Noteholders and maintain such accurate and complete accounts, records and
computer systems pertaining to the Leases as shall enable the Trustee to comply
with its obligations pursuant to the Indenture. In performing its duties as
custodian, the Servicer shall act with reasonable care (and shall cause each
subservicer or agent to act with reasonable care), using that degree of skill
and attention that the Servicer (or subservicer or agent) exercises with respect
to the files of comparable equipment leases that the Servicer services for
itself or others. The Servicer shall promptly report to the Trustee any failure
on its part (or on the part of a subservicer or agent) to hold the Lease Files
and maintain its accounts, records and computer systems as herein provided, and
shall promptly take appropriate action to remedy any such failure. The Trustee
has not reviewed (and is not obligated to review) the Lease Files and has no
knowledge of their contents.
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(b) Maintenance of and Access to Records. The Servicer shall
maintain each Lease File at its office specified in Section 9.04 hereof or at
its office at 970 West 190th Street, Suite 710, Torrance, California 90502, as
(in each case) specified in the applicable Schedule of Leases. The Servicer
shall make available (and shall cause each subservicer or agent to make
available) to the Purchaser and/or Trustee or its duly authorized
representatives, attorneys or auditors the Lease Files and the related accounts,
records and computer systems maintained by the Servicer or subservicer or agent
at such times during normal operating hours as the Purchaser and/or Trustee
shall reasonably instruct which do not unreasonably interfere with the
Servicer's or subservicer's or agent's normal operations or customer or employee
relations.
SECTION 3.06 Instructions; Authority to Act. The Servicer
shall be deemed to have received proper instructions from the Trustee with
respect to the Lease Files upon its receipt of written instructions signed by a
Responsible Officer.
SECTION 3.07 Effective Period and Termination. The Servicer's
appointment as custodian shall become effective as to the Leases being sold on a
Lease Purchase Date as of the applicable Cut-Off Date for such Lease Purchase
Date and shall continue in full force and effect until terminated pursuant to
this Section 3.07 or until this Agreement and Indenture shall be terminated and
all of the Notes and other amounts due and owing under the Indenture are paid in
full. The Servicer may perform its duties as custodian through one or more
agents, which agents may maintain physical possession of Lease Files as agent
for the Servicer acting as custodian. If the Servicer shall resign as Servicer
under Section 7.05 or if all of the rights and obligations of the Servicer shall
have been terminated under Section 8.01, the appointment of the Servicer as
custodian may be terminated by the Trustee or by the Holders of Notes evidencing
not less than a majority of the Note Principal Balance, in the same manner as
the Trustee or such Holders may terminate the rights and obligations of the
Servicer under Section 8.01. The Purchaser or the Trustee may terminate the
Servicer's appointment as custodian at any time upon written notification to the
Servicer. As soon as practicable after any termination of such appointment, the
Servicer shall deliver the Lease Files to the Trustee or the Trustee's agent at
such place or places as the Trustee may reasonably designate. The Servicer shall
cooperate with the Trustee in making the transfer and shall bear all of its
costs and expenses with respect to such transfer. Notwithstanding the
termination of the Servicer as custodian, the Trustee agrees that upon any such
termination, the Trustee shall provide, or cause its agent to provide, access to
the Lease Files to the Servicer and each subservicer for the purpose of carrying
out the Servicer's duties and responsibilities with respect to the servicing of
the Leases hereunder.
SECTION 3.08 Substitution of Leases. (a) The Seller will
have the right (but not the obligation) at any time to
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substitute one or more Eligible Leases (each a "Substitute Lease") and the
Equipment subject thereto (or, with respect to equipment notes, finance leases
and conditional sales agreements, a security interest therein) for a Lease (each
a "Predecessor Lease") and the Equipment subject thereto (or a security interest
therein) if:
(i) the Predecessor Lease is then subject to repurchase
by the Seller pursuant to Section 3.03; or
(ii) the Predecessor Lease has been a Defaulted Lease
since the last day of the most recent Collection Period.
provided, however, that (A) on the date of such substitution (and after giving
effect thereto) (x) the cumulative Principal Balance of all Leases substituted
pursuant to clauses (i) and (ii) of this Section 3.08(a) shall not exceed 10% of
the Pool Balance of the Leases, determined as of the date of such substitution,
and (y) the cumulative Principal Balance of all Leases substituted pursuant to
clause (ii) of this Section 3.08(a) shall not exceed 3% of the Pool Balance of
the Leases as of the date of such substitution, (B) no Lease shall be
substituted pursuant to clause (ii) of this Section 3.08 (a) on any date on
which any Class B Note is owned by the Seller or any Affiliate of the Seller,
(C) the final maturity of each Substitute Lease is not later than the final
maturity of the Predecessor Lease for which it is being substituted, (D) the
Lease Rate of each Substitute Lease is equivalent to or greater than the Lease
Rate of the Predecessor Lease for which it is being substituted, and (E) the
related Equipment to which each Substitute Lease relates is comparable to the
related Equipment of the Predecessor Lease for which it is being substituted. If
such Substitute Lease has a Principal Balance less than the Principal Balance of
the Predecessor Lease, the Seller shall, on the date of substitution, deposit
funds in an amount equal to such difference into the Collection Account for
application as provided in the Indenture.
(b) Any substitution pursuant to this Section 3.08 shall
become effective upon (i) delivery to the Trustee and the Purchaser of an
instrument or instruments effectively transferring to the Purchaser all right,
title and interest of the Seller in and to the Eligible Lease being substituted
and the Equipment subject thereto, and granting the Trustee a valid and first
priority security interest in such Substitute Leases and the related Equipment
(ii) the taking of such other action as the Trustee may reasonably request in
order to subject such Eligible Lease and the Equipment subject thereto to the
lien of the Indenture, and (iii) delivery to the Seller by the Purchaser of an
instrument or instruments transferring to the Seller, without representation or
warranty, all of the Purchaser's right, title and interest in and to the Lease
and the Equipment for which the substitution is being made.
SECTION 3.09 Notice of Substitution. In the Monthly Servicer
Report to be delivered on each Determination Date, the Seller shall give written
notice to the Truszee, the Servicer and
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the Rating Agency of each substitution of Leases pursuant to Section 3.08 hereof
and of any related repurchase pursuant to Section 3.03 hereof during the
preceding Collection Period. Such notice shall (i) specify the amount of each
periodic Rent Payment under the Predecessor Lease and the amount of each
periodic Rent Payment under each Eligible Lease being substituted (and the
portion thereof, if any, constituting Excess Amount), (ii) specify the Principal
Balance of the Predecessor Lease and of the Substitute Lease and any shortfall
to be deposited in the Collection Account, and (iii) be accompanied by an
Officer's Certificate certifying as to each of the facts or conditions specified
in the definition of "Eligible Lease" set forth in Section 3.02 hereof and that
each such Substitute Lease is an Eligible Lease and complies with the
requirements of Section 3.08.
SECTION 3.10 Subsecruent obligations. Upon any substitution of
Leases in accordance with the provisions of Section 3.08 and 3.09, such
Substitute Lease shall become a "Lease" for all purposes of this Agreement and
the Indenture, the Seller's and the Servicer's obligations hereunder with
respect to the Predecessor Lease shall cease but the Seller and the Servicer
shall each thereafter have the same obligations with respect to the Substitute
Lease substituted as it has with respect to all other Leases subject to the
terms hereof.
ARTICLE IV.
ADMINISTRATION AND SERVICING OF LEASES
SECTION 4.01 Duties of Servicer; Subservicing Arrangements.
The Servicer, as agent for the Purchaser, shall manage, service, administer and
make collections on the Leases with reasonable care, using that degree of skill
and attention that the Servicer exercises with respect to comparable equipment
leases that it services for itself or others. The Servicer may enter into
subservicing agreements with one or more subservicers for the servicing and
administration of certain of the Leases; provided, however, that any such
subservicer shall be, and shall remain, for so long as it is acting as
subservicer, an Eligible Servicer. References in this Agreement to actions
taken, to be taken, permitted to be taken, or restrictions on actions permitted
to be taken, by the Servicer in servicing the Leases shall include actions
taken, to be taken, permitted to be taken, or restrictions on actions permitted
to be taken, by a subservicer on behalf of the Servicer, and references to
amounts collected by the Servicer shall be deemed to include amounts collected
by the subservicer on behalf of the Servicer. Each subservicing agreement will
be upon such terms and conditions as are not inconsistent with this Agreement
and the standard of care set forth herein and as the Servicer and the
subservicer have agreed. All compensation payable to a subservicer under a
subservicing agreement shall be payable by the Servicer from its servicing
compensation or otherwise from its own
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funds, and none of the Purchaser, the Trustee or the Noteholders will have any
liability to the subservicer with respect thereto.
Notwithstanding any subservicing agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Servicer or a subservicer or any reference to actions taken through such Persons
or otherwise, the Servicer shall remain obligated and liable to the Purchaser,
the Trustee and Noteholders for the servicing and administering of the Leases
and the other Trust Property in accordance with the provisions of this Agreement
without diminution of such obligation or liability by virtue of such
subservicing agreements.
Any subservicing agreement that may be entered into and any
other transactions or servicing arrangements relating to the Leases and the
other Trust Property involving a subservicer in its capacity as such shall be
deemed to be between the subservicer and the Servicer alone, and the Purchaser,
the Trustee and the Noteholders shall not be deemed parties thereto and shall
have no claims, rights, obligations, duties or liabilities with respect to the
subservicer except as set forth in the next succeeding paragraph.
In the event the Servicer shall for any reason no longer be
acting as such, the successor Servicer may, in its discretion, thereupon assume
all of the rights and obligations of the outgoing Servicer under a subservicing
agreement. In such event, the successor Servicer shall be deemed to have assumed
all of the outgoing Servicer's interest therein and to have replaced the
outgoing Servicer as a party to each such subservicing agreement to the same
extent as if such subservicing agreement had been assigned to the successor
Servicer, except that the outgoing Servicer shall not thereby be relieved of any
liability or obligations on the part of the outgoing Servicer to the subservicer
under such subservicing agreement. The outgoing Servicer shall, upon request of
the Purchaser, but at the expense of the outgoing Servicer, deliver to the
successor Servicer all documents and records relating to each such subservicing
agreement and the Leases and other Trust Property then being serviced thereunder
and an accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of any subservicing
agreement to the successor Servicer. In the event that the successor Servicer
elects not to assume a subservicing agreement, the outgoing Servicer, at its
expense, shall cause the subservicer to deliver to the successor Servicer all
documents and records relating to the Leases and the other Trust Property being
serviced thereunder and all amounts held (or thereafter received) by such
subservicer (together with an accounting of such amounts) and shall otherwise
use its best efforts to effect the orderly and efficient transfer of servicing
of the Leases and the other Trust Property being serviced by such subservicer to
the successor Servicer.
The Servicer's duties shall include collection and posting of
all payments, responding to inquiries by Lessees or by
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federal, state or local governmental authorities with respect to the Leases,
investigating delinquencies, administering and enforcing the Insurance Policies
(if any) in accordance with its customary procedures, accounting for
collections, furnishing monthly and annual statements to the Purchaser and the
Trustee with respect to distributions, deposits and withdrawals, and preparing
applicable federal, state or local tax information returns and furnishing
applicable forms or statements, if any, to the Company. The Servicer shall
follow its customary standards, policies, and procedures for equipment leases in
performing its duties as Servicer. Without limiting the generality of the
foregoing, the Servicer shall, subject to the terms of the Indenture, be
authorized and empowered by the Purchaser and the Trustee to execute and
deliver, on behalf of itself, the Trustee and the Purchaser, or any of them, any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to the
Leases or the Equipment. If the Servicer shall commence a legal proceeding to
enforce a Lease or any Insurance Policies in respect thereof, the Purchaser
shall thereupon be deemed to have automatically assigned such Lease and the
related Trust Property to the Servicer, solely for the purpose of collection
and, upon its receipt of notice in writing from the Servicer, the Trustee shall
be deemed to have released its Lien thereon. Upon written request of the
Servicer and receipt by the Purchaser and the Trustee of an Officer's
Certificate setting forth the facts underlying such request, the Purchaser shall
furnish the Servicer with any limited powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder and the Purchaser and the Trustee shall not be
held liable for such actions of the Servicer thereunder.
SECTION 4.02 Collection of Rent Payments. The Servicer shall
make reasonable efforts to collect all payments called for under the terms and
provisions of the Leases as and when the same shall become due, and in
connection therewith shall follow such collection procedures as it follows with
respect to comparable new or used equipment leases that it services for itself
or others; provided, however, that, within two Business Days after each Lease
Purchase Date, the Servicer shall notify each Lessee, if any, not already
required to make payments directly to the Lock Box Account to make all payments
with respect to its respective Leases on and after the Cut-Off Date directly to
the Lock-Box Account. The Servicer may, in accordance with its customary
standards, policies and procedures, in its discretion waive any Administrative
Fees that may be collected in the ordinary course of servicing a Lease.
SECTION 4.03 Repossession of Equipment. on behalf of the
Purchaser, the Servicer shall use its best efforts, consistent with its
customary servicing procedures, to repossess or otherwise take possession of the
Equipment relating to any Lease which the Servicer shall have determined to be a
Defaulted Lease (and shall specify such Lease to the Purchaser and the Trustee
no later than the Determination Date following the Collection Period in which
the
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Servicer shall have made such determination). The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of equipment leases. The Servicer shall be entitled
to recover all reasonable expenses incurred by it in the course of recovery and
repossession of such Equipment solely from the proceeds of liquidation. All
proceeds of liquidation ("Liquidation Proceeds") realized in connection with any
such action with respect to a Lease which has not been retransferred under
Section 3.03 shall be deposited by the Servicer in the Collection Account in the
manner specified in Section 5.02 and shall be applied to reduce (or to satisfy,
as the case may be) unpaid Rent Payments on such Lease. The foregoing shall be
subject to the provision that, in any case in which the Equipment shall have
suffered damage, the Servicer shall not expend funds in connection with the
repair or the repossession of such Equipment unless it shall determine in its
sole discretion that such repair and/or repossession will increase the
Liquidation Proceeds of the related Lease by an amount equal to or greater than
the amount of such expenses which, in any event, shall not be unreasonable.
SECTION 4.04 Theft and Physical Damacte Insurance. The
Servicer shall require that each Lessee shall have obtained and shall maintain
theft and physical damage insurance covering the Equipment. The Servicer shall
enforce its rights under the Leases to require the Lessees to maintain theft and
physical damage insurance to the extent consistent with the Servicer's customary
practices and procedures with respect to comparable equipment leases that it
services for itself or others (but shall not, in any event, be required to
monitor the maintenance of or obtain such insurance). The Servicer may sue to
enforce or collect upon the Insurance Policies, in its own name, if possible, or
as agent for the Trustee. If the Servicer elects to commence a legal proceeding
to enforce an Insurance Policy, the act of commencement shall, upon the
Trustee's receipt of notice in writing from the Servicer, be deemed to be an
automatic assignment of the rights of the Trustee under such Insurance Policy to
the Servicer for purposes of collection only. If, however, in any enforcement
suit or legal proceeding it is held that the Servicer may not enforce an
Insurance Policy on the grounds that it is not a real party in interest or a
Holder entitled to enforce the Insurance Policy, the Trustee, at the Servicer's
expense, or the Purchaser at the Purchaser's expense, shall take such steps as
the Servicer deems necessary to enforce such Insurance Policy, including
bringing suit in its name or the names of the Noteholders.
SECTION 4.05 Covenants of the Servicer. The Servicer makes the
following covenants on which the Purchaser relies and on which the Trustee will
rely in accepting the Leases and executing and authenticating the Notes:
(a) The Servicer will keep copies of the originals of
all documents and related records and books evidencing all Leases and
Lease Proceeds at, and only at, its offices in 970
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West 190th Street, Suite 710, Torrance, California 90502 and 12677
Alcosta Boulevard, Suite 430, San Ramon, California 94583.
(b) Unless a default has occurred under a Lease, the
Servicer will: (i) continue to make the Equipment which is the subject
of each Lease available to the Lessee thereunder, (ii) do nothing to
impair such Lessee's possession of such Equipment and (iii) promptly
transfer the Equipment to the Lessee upon such Lessee's payment of the
applicable Purchase Option Payment.
(c) The Servicer will pay or cause to be paid all
taxes, fees or other costs in respect of the Equipment.
(d) Unless otherwise prohibited by law or court
order, the Servicer shall apply any security deposit held by it under a
Lease which the Servicer elects to terminate following a default by the
Lessee thereunder against defaulted Rent Payments under such Lease
before any other application thereof.
(e) The Servicer will deliver to the Trustee, from
time to time at the Trustee's request but in each case not more than
once in any calendar month, (i) schedules of all Rent Payments due
under the Leases and (ii) a revised Schedule of Leases, modified to
reflect reacquisitions by the Servicer of Leases, the exercise by
Lessees of expiration purchase options under the Leases and any other
occurrence that has had or will have the effect of altering the amount
or composition of the aggregate Rent Payments.
(f) The Servicer will not cancel, extend or terminate
any Lease except that the Servicer may (i) extend the term of any Lease
to a date not later than three months later than the original
expiration date of such Lease on the date of the acquisition thereof by
the Purchaser (except that the Servicer may extend a Lease to a later
date to the extent, if any, that after giving effect thereto the
aggregate Principal Balance of Leases owned by the Purchaser subject to
such longer extensions does not exceed 1% of the aggregate Principal
Balance of all Leases owned by the Purchaser); provided, however, that
in no event may the term of any Lease be extended to a date that is
later than the Scheduled Final Payment Date, and (ii) permit early
termination of any Lease with the payment by the Lessee of an amount at
least equal to the Retransfer Amount of such Lease (together with any
Purchase Option Payment or Residual Amount due to the Seller).
(g) Until the expiration of each Lease the Servicer
shall defend the Leases, the Lease Proceeds, each insurance Policy and
the Insurance Proceeds against all claims and demands of all persons at
any time claiming the same or any interest therein adverse to that of
the Seller, the
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Purchaser, the Trustee or the Noteholders (other than claims by
Les'sees to Insurance Proceeds on account of reimbursements for
equipment repairs). so long as any Equipment remains subject to a
Lease, the Servicer shall defend each such item of Equipment against
all claims and demands of all Persons at any time claiming the same or
any interest therein adverse to that of the Lessees, the Seller, the
Purchaser or the Trustee.
(h) The interests in the Equipment granted hereunder
shall not be transferred in whole or in part except as contemplated
herein.
(i) The Servicer shall not (nor will it permit any
subservicer to) impair the rights of the Purchaser or the Trustee in
the Trust Property or take any action inconsistent with the Trustee's
ownership of the Trust Property, except as expressly provided herein
with respect to the servicing of the Leases and Lease Assets.
SECTION 4.06 Transfer of Leases upon Breach. The Seller, the
Servicer or the Purchaser, as the case may be, shall inform the other parties
and the Trustee promptly, in writing, upon the discovery of a breach of any of
the Servicer's covenants set forth in Section 4.05. If such breach materially
and adversely affects the interest of the Trustee in a Lease, unless the breach
shall have been cured by the last day of the month following the month (or, if
the Trustee elects, (upon a Noteholders, instruction pursuant to the Indenture),
as of the last day of the month) in which the Servicer becomes aware or receives
such written notice of such breach, the Servicer shall acquire any Lease
materially and adversely affected by such breach; provided, however, that in the
case of a breach of the covenant contained in the last sentence of Section
4.05(f), the Servicer shall be obligated to acquire the affected Lease or Leases
on the Deposit Date immediately succeeding the Collection Period during which
the Servicer becomes aware of, or receives written notice of, such breach. The
Servicer shall remit the Retransfer Amount of such Lease as of the date of
retransfer in the manner specified in Section 5.03. Except as provided in
Section 7.02, the sole remedy of the Purchaser, the Trustee or the Noteholders
against the Servicer with respect to a breach of Section 4.05 shall be to
require the Servicer to acquire Leases pursuant to this Section 4.06. With
respect to all Leases purchased by the Servicer pursuant to this Agreement, the
Purchaser shall assign, without recourse, representation or warranty (except as
to the absence of liens, claims, or encumbrances resulting from actions taken,
or failed to be taken, by the Purchaser), to the Servicer all the Purchaser's
right, title and interest in and to such Leases and the related Lease Assets.
The determination of "material and adverse" as to the interest of the Purchaser
or the Trustee in a Lease would be made by the Purchaser or the Trustee (upon a
Noteholders' instruction pursuant to the Indenture) in determining whether
notice would be sent, and may be expected to include consideration of such
matters as likelihood of full.
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repayment, enforceability of security for the loan and other similar matters.
SECTION 4.07 Servicing Fee. The Servicing Fee for a Collection
Period shall be equal to the sum of (a) one-twelfth of the product of the
Servicing Fee Rate and the Pool Balance on the first day of the related
Collection Period (or in the case of the first Monthly Payment Date, the initial
Cut-Off Date) (except that in the case of a successor Servicer, the Servicing
Fee shall equal such amount as is arranged in accordance With Section 8.02) and
(b) net investment earnings on amounts on deposit in the Collection Account
during such Collection Period. In addition, the Servicer shall be entitled to
collect and retain' any Administrative Fees with respect to the Leases. The
Servicer shall be required to pay for its own account all expenses incurred by
it in connection with its activities hereunder (including fees and disbursements
of any subservicer or agent, the Trustee, Trustee's counsel and independent
accountants, taxes imposed on the Servicer, and expenses incurred in connection
with distributions and reports to Noteholders) except expenses in connection
with realizing upon Leases under Section 4.03.
SECTION 4.08 Monthly Servicer Report. On or before 3:00 p.m.
(New York time) on the third Business Day preceding each Monthly Payment Date,
the Servicer shall deliver to the Purchaser, the Trustee, the Paying Agent and
the Rating Agency a Monthly Servicer Report substantially in the form of Exhibit
B hereto, for the Collection Period preceding such Determination Date,
containing all information necessary to make the deposits, withdrawals and
distributions pursuant to Section 5.04, and all information necessary for the
Trustee to send statements to Noteholders pursuant to Section 7.14 of the
Indenture. The Servicer shall also specify (i) each Lease which is retransferred
to the Seller or the Servicer, as the case may be, as of the last day of such
Collection Period, (ii) each Lease which the Servicer shall have determined to
be a Defaulted Lease during such Collection Period, (iii) each Lease which has
been prepaid in full during such Collection Period, (iv) the aggregate Payahead
Amounts with respect to the Leases during such Collection Period and all other
information that the Trustee may require in order to make determinations and
calculations pursuant to the Indenture. The Trustee may rely upon all
information so furnished.
SECTION 4.09 Annual Statement as to Compliance.
(a) The Servicer shall deliver to the Purchaser, the Trustee
and the Rating Agency, within 45 days following the end of the Note Issuance
Period and within 90 days following December 31, 1998 and the end of each
calendar year thereafter during which any Note or other amount under the
Indenture is outstanding, an Officer's Certificate of the Servicer, stating that
(a) a review of the activities of the Servicer during the preceding calendar
year (or shorter period, in the case of the first such Officer's Certificate)
of its performance under this Agreement has been made
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under such officer's supervision and (b) to the best of such officer's
knowledge, based on such review, the Servicer has fulfilled all its obligations
under this Agreement throughout such preceding calendar year (or shorter period,
in the case of the first such Officers Certificate), or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof.
(b) The Servicer or Seller, as applicable, shall deliver to
the Trustee, promptly after such party has obtained knowledge thereof, but in no
event later than five Business Days thereafter, an Officer's Certificate
specifying any event which with the giving of notice or lapse of time, or both,
would become an Event of Default under Section 8.01.
SECTION 4.10 Annual Accountants' Statement. The Servicer shall
cause an independent firm of qualified certified public accountants to deliver
to the Purchaser, the Rating Agency and the Trustee, within 120 days following
the Note Issuance Period and 120 days following December 31, 1998 and the end of
each calendar year thereafter during which any Note or other amount under the
Indenture is outstanding, a report addressed to the Board of Directors of the
Servicer, the Board of Directors of the Seller and to the Purchaser and the
Trustee, to the effect that such independent accountants have performed certain
agreed upon procedures with respect to information contained in the Monthly
Servicer Reports in the relevant period and with respect to the information
contained in the accounts and records relating to the servicing of the Leases,
for such period, and report on any exceptions identified in their work. The
procedures shall be agreed upon with the Trustee, the Servicer and the Purchaser
and be consistent with professional auditing standards. The letter of the
independent certified public accountants shall also indicate that such
accounting firm is independent of the Servicer, the Seller and the Purchaser
within the meaning of the Code of Professional Ethics of the American Institute
of Certified Public Accountants.
SECTION 4.11 Access to Certain Information. The Servicer shall
provide (and shall cause each subservicer or agent to provide) access to the
Lease Files to the Purchaser and the Trustee when required by applicable
statutes or regulations to have access to such documentation. Access shall be
afforded without charge, but only upon reasonable request and during normal
business hours which does not unreasonably interfere with the Servicer's,
subservicer's or agent's, as applicable, normal operations or customer or
employee relations. Nothing in this Section 4.31. shall affect the obligation of
the Servicer and each subservicer or agent to observe any applicable law
prohibiting disclosure of information regarding the Lessees, and the failure of
the Servicer or any subservicer or agent to provide access to information as a
result of such obligation shall not constitute a breach of this Section 4.11.
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SECTION 4.12 Weekly Servicer Verification. Not later than 3:00
p.m. (New York time) on the first Business Day of each week, commencing in the
week following the initial Lease Purchase Date, the Servicer will deliver to the
Purchaser and the Trustee a written statement verifying the amount delivered by
the Servicer from the Lock Box Account to the Trustee for deposit into the
Collection Account on each Business Day during the preceding week.
ARTICLE V.
DISTRIBUTIONS; STATEMENTS
SECTION 5.01 Accounts. The Servicer shall maintain the
Lock-Box Account in accordance with the Lock Box Agreement and shall perform and
comply with all of the Servicer's obligations thereunder. The Lock-Box Account
shall be an account maintained with Bank of America or such other Lock-Box Bank
as the Servicer may select; provided, however, that the Servicer shall give the
Trustee prior written notice of any change in the-location of the Lock-Box
Account and the Servicer shall give at least 10 days prior written notice of the
new location to each Lessee.
SECTION 5.02 Collections; Applications.
(a) The Servicer shall remit, or cause the Lock-Box Bank to
remit, to the Collection Account all payments by the Lessees on the Leases
(including any Purchase Option Payment, any prepayments in full of a Lease and
any applicable Payahead Amounts related to such Collection Period) other than
Servicing Fees (to the extent that sufficient funds are allocated and available
for that purpose as provided in Section 5.04) and Administrative Fees (which may
be retained by the Servicer), and all Liquidation Proceeds and Insurance
Proceeds and Rate Cap Proceeds, as collected during the Collection Period, as
soon as practicable, but in no event later than the close of business on the
second Business Day after receipt thereof (except as may be otherwise permitted
in limited circumstances pursuant to Section 3.02 (a) of the Indenture).
(b) Notwithstanding the provisions of subsection (a) hereof,
the Servicer may retain, or will be entitled to be reimbursed from, amounts
otherwise payable into, or on deposit in, the Collection Account with respect to
a Collection Period, amounts previously deposited in the Collection Account but
later determined to have resulted from mistaken deposits or payments due before
the applicable Cut-Off Date or postings or checks returned for insufficient
funds (provided that the Servicer accounts for such amounts in the Monthly
Servicer Report for the related Collection Period). The amount to be retained or
reimbursed hereunder shall not be included in funds available for distribution
with respect to the related Monthly Payment Date.
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(c) In those cases where a subservicer is servicing a Lease
pursuant to a subservicing agreement and where required by the Rating Agency to
maintain the rating on the Notes, the Servicer shall cause the subservicer to
remit to the Collection Account as soon as practicable, but in no event later
than the close of business on the second Business Day after receipt thereof by
the subservicer (but subject to the provisions of paragraph (b)), the amounts
referred to in Section 5.02 (a) in respect of a Lease being serviced by the
subservicer.
(d) Pending their deposit into the Collection Account, all
collections, Insurance Proceeds and Liquidation Proceeds shall be segregated by
book-entry or similar form of identification on the Servicer's books and
records and identified as the property of the Trustee.
SECTION 5.03 Additional Deposits. The Seller shall deposit, or
cause to be deposited, into the Collection Account the aggregate Retransfer
Amount pursuant to Section 3.02. All remittances shall be made to the Collection
Account in Automated Clearinghouse Corporation next-day funds or immediately
available funds, no later than 3:00 p.m., New York time, on the related Deposit
Date.
SECTION 5.04 Distributions. The Servicer shall direct and
instruct the Trustee to make the deposits, withdrawals and distributions to and
from the Collection Account as provided for in the Indenture.
SECTION 5.05 Statements to Noteholders. At least three
Business Days prior to each Monthly Payment Date, the Servicer shall prepare and
deliver to the Trustee and the Rating Agency for distribution by the Trustee to
each Noteholder, a statement setting forth for the related Collection Period the
information specified to be furnished pursuant to Section 7.14 of the Indenture
on each Monthly Payment Date. Within a reasonable period of time after the end
of each calendar year, but not later than the latest date permitted by law or
otherwise necessary to permit the Trustee to act under the last paragraph of
Section 7.14 of the Indenture, the Servicer shall furnish to the Trustee a
statement prepared by the Servicer and delivered to the Trustee containing the
sum of the amounts determined in clauses (ii) and (iii) of Section 7.14 of the
Indenture for such calendar year. The Servicer shall also furnish any such other
information as the Trustee may be required to deliver pursuant to Section 7.14
of the Indenture.
ARTICLE VI.
THE SELLER
SECTION 6.01 Additional Representations of the Seller. The
Seller hereby makes the following representations as to itself on which the
Purchaser and the Trustee shall rely. The
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representations shall speak as of the execution and delivery of this Agreemdnt
and as of each Lease Purchase Date, and shall survive each transfer of the Trust
Property to the Purchaser.
(i) organization and Good Standing; - Authorization.
The Seller has been duly incorporated and is validly existing in good
standing under the laws of its jurisdiction of incorporation, with
power and authority to own its assets and to transact the business in
which it is currently engaged, and had at all relevant times, and has,
power, authority, and legal right to acquire, own, assign and sell the
Leases and the other Trust Property.
(ii) Due Qualification. The Seller is duly qualified
to do business as a foreign corporation in good standing, and has
obtained all necessary licenses and approvals, in each jurisdiction in
which the failure to obtain such qualification, licenses or approvals
would have a material adverse effect on the Trust Property or on the
Seller's ability to perform its obligations hereunder.
(iii) Power and Authority; Binding Obligations. The
Seller has the corporate power and authority to make execute, deliver
and perform its obligations under this Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of this Agreement. When executed and delivered, this
Agreement will constitute the legal, valid and binding obligation of
the Seller enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors, rights generally,
and by the availability of equitable remedies.
(iv) No Violation. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof will not conflict with, result in
any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation, bylaws or other constitutive documents of the Seller, or
conflict with or breach any of the terms or provisions of, or
constitute (with or without notice or lapse of time) a default under,
any indenture, agreement or other instrument to which the Seller is a
party or by which it is bound or to which its properties are subject;
nor result in the creation or imposition of any lien, security
interest, charge or encumbrance (except in favor of the Trustee for the
benefit of the Noteholders) upon any of the property or assets of the
Seller or any subsidiary thereof pursuant to the terms of any such
indenture, mortgage, deed of trust, loan agreement or other agreement
instrument (other than this Agreement) to which the Seller or any
subsidiary thereof is a party or by which the Seller or any subsidiary
thereof is bound or to
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which any of the property or assets of any of them is subject; nor
violate any law or, to the best of the Seller's knowledge, any order,
rule or regulation applicable to the Seller of any court or of any
federal or state regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or its
properties.
(v) No Proceedings. No litigation or administrative
proceeding of or before any court, tribunal or governmental body is
currently pending or, to the knowledge of the Seller, threatened
against the Seller or any of its properties or with respect to this
Agreement or the Notes which, in the opinion of the Seller, has a
reasonable likelihood of resulting in a material adverse effect on the
Notes or the transactions contemplated by this Agreement.
(vi) No Consent Recruired. The Seller is not required
to obtain the consent of any other Person or any consent, license,
approval or authorization of, or make any registration or declaration
with, any governmental authority or agency in connection with the
execution, delivery and performance of this Agreement (except as have
been obtained), other than as may be required under the blue sky laws
of any state.
(vii) Sale. This Agreement and each Bill of Sale will
effect, on each Lease Purchase Date, a valid sale, transfer, and
assignment of the Seller's interest in the Leases and the related Lease
Assets covered by such Bill of Sale, enforceable against creditors of
and purchasers from the Seller.
(viii) Insolvency. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
were not made in contemplation of the insolvency of the Seller or after
the commission of any act of insolvency by the Seller.
SECTION 6.02 Merger or Consolidation of Seller. Any entity (i)
into which the Seller may be merged or consolidated, (ii) which may result from
any merger, conversion or consolidation to which the Seller shall be a party, or
(iii) which may succeed to all or substantially all of the business of the
Seller, shall be the successor to the Seller hereunder without the execution or
filing of any document or any further act by any of the parties to this
Agreement. The Seller may not enter into any merger, conversion, sale of all or
substantially all of its assets or consolidation transactions unless (v) the
surviving entity shall execute an agreement of assumption to perform every
obligation of the Seller hereunder; (w) the Seller provides the Rating Agency
with notice of such foregoing event and the name of such surviving entity and
delivers to the Trustee a letter from the Rating Agency that such merger,
conversion or consolidation will not result in a reduction of the ratings for
the Notes; (x) immediately before and
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after giving effect to any such transaction, no representation or warranty. made
pursuant to Section 3.02 or 6.01 shall have been breached (for purposes hereof,
such representations and warranties in Section 6.01 shall speak as of the date
of consummation of such transaction) and no event that, after notice or lapse of
time, or both, would become an Event of Default shall have occurred and be
continuing; (y) the Seller shall have delivered to the Trustee an Officer's
Certificate and an opinion of Counsel each stating-that such consolidation,
merger, or succession and such agreement or assumption complies with this
Section 6.02 and that all conditions precedent, if any, provided for in the
agreement relating to such transaction have been complied with; and (z) the
Seller shall have delivered to the Trustee an Opinion of Counsel, either (A)
stating that, in the opinion of such counsel, all financing statements and
continuation statements and amendments thereto have been executed and filed that
are necessary fully to preserve and protect the interest of the Trustee in the
Trust Property as required herein, and reciting the details of such filings, or
(B) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
SECTION 6.03 Limitation on Liability of Seller and Others. The
Seller and any director, officer, employee or agent of the Seller may rely in
good faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Seller shall not be under any obligation under this Agreement to
appear in, prosecute, or defend any legal action that shall be unrelated to its
obligations under this Agreement.
SECTION 6.04 Covenants of Seller.
(a) The Seller shall execute and file such UCC financing
statements and cause to be executed and filed such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain, and protect the respective interests of the Purchaser and the Trustee
in the Leases, the Equipment, the other Lease Assets and the other Trust
Property and in the proceeds thereof. The Seller shall deliver (or cause to be
delivered) to the Purchaser and the Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing. In the event that the Seller fails to perform its
obligations under this subsection, the Purchaser or the Trustee may do so, on
the Seller's behalf, at the expense of the Seller. The Seller hereby grants the
Purchaser and the Trustee a power of attorney to effectuate the provisions of
the preceding sentence.
(b) The Seller shall not change its name, identity, or
corperate structure in any manner that would, could, or might make any UCC
financing statement or continuation statement filed by the Seller in accordance
with paragraph (a) above seriously misleading within the meaning of ss. 9-402
(7) of the UCC, unless it shall have given the Purchaser and the Trustee at
least 60 days'
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prior written notice thereof and shall have promptly filed appropriate
amendments to all previously filed UCCI financing statements or continuation
statements as requested by the Purchaser or the Trustee.
(c) The Seller shall give the Purchaser at least 60 days'
prior written notice of any relocation of its principal executive office if, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed UCC financing or
continuation statement or of any new UCC financing statement and shall promptly
file any such amendment as requested by the Purchaser or the Trustee. The Seller
shall at all times maintain each office from which it shall service Leases, and
its principal executive office, within the United States of America. The Seller
shall pay all filing fees or taxes payable in respect of any UCC financing or
continuation statements required to be filed pursuant to this Section 6.05.
(d) The Seller shall maintain accounts and records as to
each Lease accurately and in sufficient detail to permit the reader thereof to
know at any time the status of such Lease, including payments and recoveries
made and payments owing (and the nature of each).
(e) The Seller shall maintain its computer systems so that,
from and after the time of sale hereunder of the Leases to the Purchaser, the
Seller's master computer records (including archives) that refer to a Lease
shall indicate clearly the interest of the Purchaser in such Lease and that such
Lease has been sold to the Purchaser and is owned by the Trustee. Indication of
the Purchaser's and the Trustee's ownership of a Lease shall be deleted from or
modified on the Seller's computer systems when, and only when, the Lease shall
have been paid in full or repurchased and the Retransfer Amount has been paid.
(f) If at any time the Seller shall propose to sell, grant a
security interest in, or otherwise transfer any interest in other equipment
leases or installment sale contracts to any prospective purchaser, lender, or
other transferee, the Seller shall give to such prospective purchaser, lender,
or other transferee computer tapes, records, or print-outs (including any
restored from archives) that, if they shall refer in any manner whatsoever to
any Lease, shall indicate clearly that such Lease has been sold to the Purchaser
and is owned by the Trustee.
(g) The Seller shall permit the Purchaser and the Trustee
and their respective agents upon reasonable notice at any time during normal
business hours which does not unreasonably interfere with its normal operations
or customer or employee relations, to confer with the Seller's officers and
relevant other personnel, to confer with the Seller's independent auditors and
to inspect, audit, and make copies of and abstracts from its records regarding
any Lease.
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(h) Upon request by the Purchaser or the Trustee, the Seller
shall furnish to the Purchaser or the Trustee (as the case may be), within five
Business Days, a current composite Schedule of Leases held by the Purchaser as
of the end of the most recent Collection Period.
(i) The Seller shall deliver to the Purchaser and the
Trustee, promptly after the execution and delivery of this Agreement and of each
amendment hereto, an opinion of Counsel either (a) stating that, in the opinion
of such counsel, all UCC financing statements and continuation statements
necessary to preserve and protect fully the interest of the Purchaser and the
Trustee in the Lease Assets have been filed, or (b) stating that, in the opinion
of such counsel, no such action shall be necessary to preserve and protect such
interest and (c) stating that such amendment is in compliance with the terms of
this Agreement and the Indenture.
SECTION 6.05 Other Liens or Interests. Except for the
conveyances-hereunder, the Seller will not sell, pledge, assign or transfer to
any other Person, or grant, create incur, assume or suffer to exist any Lien on
the Leases or any other Lease Assets or any interest therein, and the Seller
shall defend the right, title, and interest of the Purchaser and the Trustee in,
to and under the Lease and the other Lease Assets against all claims of third
parties claiming through or under the Seller; provided, however, that the
Seller's obligations to the Trustee under this Section 6.06 shall terminate upon
the termination of the Indenture pursuant to Section 11.01 thereof.
SECTION 6.06 Costs and Expenses. The Seller agrees to pay all
reasonable costs and disbursements in connection with the performance. of its
obligations hereunder and under the Sale and Servicing Agreement.
SECTION 6.07 Indemnification.
(a) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee, and the Noteholders from and against any and all costs,
expenses, losses, damages, claims, and liabilities, arising out of or resulting
from any breach of any of the Seller's representations and warranties contained
herein or in any manner relating to or arising out of the. transactions
contemplated by this Agreement.
(b) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee, and the Noteholders from and against any and all costs,
expenses, losses, damages, claims, and liabilities, arising out of or resulting
from the use, ownership, operation or sale by the Seller or any Affiliate
thereof of any item of Equipment.
(c) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee, and the Noteholders from and
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against any taxes that may at any time be asserted against such persons with
respect to the transactions contemplated in this Agreement, including, without
limitation, any sales, gross receipts, general corporation, tangible or
intangible personal property, privilege, or license taxes (but not including any
taxes asserted with respect to, and as of the date of, the transfer and
assignment of the Trust Property to the Trustee or the issuance and original
sale of the Notes, which shall be indemnified by the Servicer pursuant to
Section 7.02 (ii) hereof and the Indenture) and costs and expenses in defending
against the same, arising by reason of the acts to be performed by the Seller
under this Agreement or imposed against such Persons. In addition, the Trustee
shall be indemnified by the Seller for any liability or assessment against the
Trustee resulting from an error or omission in any tax or information return
prepared by the Seller.
(d) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee and the Noteholders from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage, or liability arose out of, or was imposed upon
such persons through the gross negligence, willful misfeasance, or bad faith of
the Seller in the performance of its duties under this Agreement or by reason of
reckless disregard of the Seller's obligations and duties under this Agreement.
(e) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee and the Noteholders from and against any loss, liability
or expense incurred by reason of the violation by the Seller of federal or state
securities laws in connection with the registration or the sale of the
Certificates.
Indemnification under this Section 6.08 shall include
reasonable fees and expenses of counsel plus expenses of litigation and shall
survive termination of the Indenture pursuant to Section 11.01 thereof. The
indemnity obligations hereunder shall be in addition to any obligation that the
Seller may otherwise have.
SECTION 6.08 Sale. Each of the Seller and the Purchaser agrees
to treat each conveyance pursuant to this Agreement and each Bill of Sale
delivered hereunder for all purposes (subject to consolidation for financial
accounting and tax purposes) as a sale of the Seller's interest in the Leases
and related Lease Assets, including all of the Seller's right, title and
interest in and to the related Equipment, on all relevant books, records and
other applicable documents.
The execution and delivery of this Agreement shall constitute
an acknowledgement by the Seller and the Purchaser that each intends that the
assignment and transfer herein contemplated constitute an outright sale and
assignment to the Purchaser by the Seller of its interest in the Leases, and the
other Lease Assets and not for security, conveying good title in such interests
free and clear of any liens, and that such interest shall not be a part
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of the Seller's estate in the event of the bankruptcy or the occurrence of
another similar event, of, or with respect to, the Seller. In the event that
such conveyance is determined to be made as security for a loan made by the
Purchaser, the Trustee or the Noteholders to the Seller, the parties intend that
the Seller shall have granted to the Purchaser a security interest in all of the
Seller's right, title and interest in the Lease Assets and that this Agreement
shall constitute a security agreement under applicable law.
SECTION 6.09 Accounting Statements. The Seller will cooperate
with the Purchaser and its independent public accountants in making available
all information and taking all steps, in each case reasonably necessary to
permit such accountants to deliver the letters required of them, if any, under
the Indenture.
ARTICLE VII.
THE SERVICER; REPRESENTATIONS AND INDEMNITIES
SECTION 7.01 Representations of the Servicer. The Servicer
hereby makes the following representations on which the Trustee shall rely. The
representations shall speak as of the execution and delivery of this Agreement,
and shall survive the transfer of the Leases and the other Trust Property to the
Trustee.
(i) Organization and Good Standing. The Servicer has
been duly incorporated and is validly existing in good standing under
the laws of its jurisdiction of incorporation, with power and authority
to own its assets and to transact the business in which it is currently
engaged, and to acquire, own, sell, and service the Leases and the
other Trust Property and to hold the Lease Files as custodian on behalf
of the Trustee.
(ii) Due Qualification. The Servicer is duly
qualified to do business as a foreign corporation in good standing, and
has obtained all necessary licenses and approvals, in each jurisdiction
in which the failure to obtain such qualifications, licenses or
approvals would have a material adverse effect on the Trust Property or
on the Servicer's ability to perform its obligations hereunder.
(iii) Power and Authority; Binding Obligations. The
Servicer has the corporate power and authority to make, execute,
deliver and perform its obligations under this Agreement, and has
taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement. When executed and
delivered, this Agreement will constitute the legal, valid and binding
obligation of the Servicer enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of
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creditors' rights generally, and by the availability of
equitable remedies.
(iv) No Violation. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof will not conflict with, result in
any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Servicer, or conflict with or breach any
of the terms or provisions of, or constitute (with or without notice or
lapse of time) a default under, any indenture, agreement or other
instrument to which the Servicer is a party or by which it is bound or
to which its properties are subject; nor result in the creation or
imposition of any Lien upon any of its properties pursuant to the terms
of any such indenture, agreement or other instrument (other than this
Agreement); nor violate any law or, to the best of the Servicer's
knowledge, any order, rule, or regulation applicable to the Servicer of
any court or of any federal or state regulatory body, administrative
agency, or other governmental instrumentality having jurisdiction over
the Servicer or its properties.
(v) No Proceedings. No litigation or administrative
proceeding of or before any court, tribunal or governmental body is
currently pending or, to the knowledge of the Servicer, threatened,
against the Servicer or any of its properties or with respect to this
Agreement or the Notes which, in the opinion of the Servicer, has a
reasonable likelihood of resulting in a material adverse effect on the
Notes or the transactions contemplated by this Agreement.
(vi) No Consent Recruired. The Servicer is not
required to obtain the consent of any other Person or any consent,
license, approval or authorization of, or make any registration or
declaration with, any governmental authority or agency in connection
with the execution, delivery and performance by the Servicer of this
Agreement (except as have been obtained).
SECTION 7.02 Liability of Servicer; Indemnities. The Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Servicer or the Seller under this Agreement and
shall have no other obligations or liabilities hereunder.
(i) The Servicer shall indemnify, defend and hold
harmless the Trustee, the Noteholders and the Seller from and against
any and all costs, expenses, losses, damages, claims, and liabilities,
arising out of or resulting from the use, ownership, operation or sale
by the Servicer or any Affiliate thereof of an item of Equipment.
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(ii) The Servicer shall indemnify, defend and hold
harmless the Trustee, the Noteholders and the Seller from and against
any taxes that may at any time be asserted against such persons with
respect to the transactions contemplated in this Agreement, including,
without limitation, any sales, gross receipts, general corporation,
tangible or intangible personal property, privilege, or license taxes
(but not including any taxes asserted with respect to, and as of the
date of, the transfer of the Leases to the Purchaser or asserted with
respect to ownership of the Trust Property by the Purchaser, which
shall be indemnified by the Seller pursuant to Section 6.07(c) hereof)
and costs and expenses in defending against the same, arising by reason
of the acts to be performed by the Servicer under this Agreement or
imposed against such Persons. In addition, the Trustee shall be
indemnified by the Servicer for any liability or assessment against the
Trustee resulting from any error or omission in any tax or information
return prepared by the Servicer.
(iii) The Servicer shall indemnify, defend and hold
harmless the Trustee, the Noteholders and the Seller from and against
any and all costs, expenses, losses, claims, damages, and liabilities
to the extent that such cost, expense, loss, claim, damage, or
liability arose out of, or was imposed upon such persons through the
actions or omissions of the Servicer or the willful misfeasance, gross
negligence, or bad faith of the Servicer in the performance of its
duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement.
(iv) The Servicer shall indemnify, defend and hold
harmless the Trustee from and against all costs, expenses, losses,
claims, damages, and liabilities arising out of or incurred in
connection with (x) any claims, actions, suits or judgments asserted or
imposed against it and arising out of the transactions contemplated by
this Agreement or the Indenture, (y) any breach of any of the
Servicer's representations or warranties contained herein and (z) the
acceptance, administration or performance of the trusts and duties
herein contained or set forth in the Indenture, except to the extent
that such cost, expense, loss, claim, damage or liability: (a) shall be
due to the willful misfeasance, gross negligence or bad faith of the
Trustee; (b) relates to any tax other than the taxes with respect to
which the Servicer shall be required to indemnify the Trustee pursuant
to this Agreement or the Indenture; (c) shall arise from the Trustee's
breach of the indenture; or (d) shall be one as to which the Seller has
reimbursed the Trustee.
For purposes of this Section, in the event of the
termination of the rights and obligations of the Servicer pursuant to
Section 8.01, or a resignation by the Servicer pursuant to this
Agreement, such Servicer shall be deemed to be the Servicer pending
appointment of a successor Servicer
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(other than the Trustee) pursuant to Section 7.02. Furthermore,
indemnities in this Section 7.02 from the Servicer to the Trustee
shall also include indemnities from the initial Servicer to the Trustee
in its capacity as successor Servicer hereunder; provided that no
failure or inability of the Servicer to provide or perform such
indemnities shall in any respect alter or affect the Trustee's
obligations to act as successor Servicer hereunder. For purposes of
this Section, the reference to Trustee includes any director, officer,
employee or agent of the Trustee.
Indemnification under this Section 7.02 shall include
reasonable fees and expenses of counsel of each indemnified Person plus expenses
of litigation. If the Servicer or the Seller shall have made any indemnity
payments pursuant to this Section 7.02 and the recipient thereafter collects any
of such amounts from others, the recipient shall promptly repay such amounts to
the Servicer and/or the Seller, without interest. The indemnities under this
Section 7.02 shall survive the resignation or removal of the Servicer and the
Trustee, the termination of this Agreement and the termination of the Indenture
pursuant to Section 11.01 thereof.
SECTION 7.03 Merger or Consolidation of Servicer. Any entity
(i) into which the Servicer may be merged or consolidated, (ii) which may result
from any merger, conversion, or consolidation to which the Servicer shall be a
party, or (iii) which may succeed to all or substantially all of the business of
the Servicer, shall be the successor to the Servicer hereunder without the
execution or filing of any document or any further act on the part of any of the
parties to this Agreement. The Servicer may not enter into any merger,
conversion, sale of all or substantially all of its assets or consolidation
transaction unless (v) the surviving entity shall execute an agreement of
assumption to perform every obligation of the Servicer hereunder; (w) the
Servicer provides the Rating Agency with notice of such foregoing event and the
name of such surviving entity and delivers to the Trustee a letter from the
Rating Agency that such merger, conversion or consolidation will not result in a
reduction or withdrawal of the then current rating of either Class of Notes by
the Rating Agency; (x) immediately before and after giving effect to such
transaction, no representation or warranty made pursuant to Section 7.01 shall
have been breached (for purposes hereof, such representations and warranties in
Section 7.01 shall speak as of the date of consummation of such transaction) and
no event that, after notice or lapse of time, or both, would become an Event of
Default shall have occurred and be continuing; (y) the Servicer shall have
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger, or succession and such agreement or
assumption complies with this Section 7.03 and that all conditions precedent, if
any, provided for in the agreement relating to such transaction have been
complied with; and (z) the Servicer shall have delivered to the Trustee an
Opinion of Counsel either (A) stating that, in the opinion of such counsel, all
UCC financing statements and continuation statements and amendments thereto
have
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been executed and filed that are necessary fully to preserve and protect the
interest of the Trustee in the Trust Property as required herein, and reciting
the details of such filings, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interest.
SECTION 7.04 Limitation on Liability of Servicer and Others.
(a) Neither the Servicer nor any agents of the Servicer shall be under any
liability to the Trustee or the Noteholders, except as provided under this
Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or errors in judgment; provided, however, that this
provision shall not protect the Servicer or any such agent against any liability
that would otherwise be imposed by reason of willful misfeasance, gross
negligence, or bad faith in the performance of duties or by reason of reckless
disregard of obligations and duties under this Agreement or a breach of any
representation or warranty of the Servicer contained herein.
(b) Except as provided in this Agreement, the Servicer
shall not be under any obligation to appear in, prosecute, or defend any legal
action that shall not be incidental to its duties to service the Leases in
accordance with this Agreement; provided, however, that the Servicer may
undertake, in accordance with the terms hereof, at its expense, any reasonable
action that it may deem necessary or desirable in respect of this Agreement and
the rights and duties of the parties to this Agreement and the interests of the
Noteholders under this Agreement.
(c) The Servicer and any director or officer or employee or
agent of the Servicer may rely in good faith on the advice of counsel or on any
document of any kind, prima facie properly executed and submitted by any Person,
respecting any matters arising hereunder.
SECTION 7.05 Servicer Not to Resign. The Servicer shall not
resign from its obligations and duties under this Agreement except upon
determination that the performance of its duties shall no longer be permissible
under applicable law. Notice of any such determination permitting the
resignation of the Servicer shall be communicated to the Trustee and the Rating
Agency at the earliest practicable time (and, if such communication is not in
writing, shall be confirmed in writing at the earliest practicable time) and any
such determination permitting the resignation of the Servicer shall be evidenced
by an Opinion of Counsel (which counsel shall be outside counsel) to such effect
delivered to the Trustee concurrently with such notice. No such resignation
shall become effective until the Trustee or a successor Servicer shall have
assumed the responsibilities and obligations of the Servicer in accordance with
Section 8.02.
SECTION 7.06 Protection of Interest of Trust Property.
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(a) The Servicer shall execute and file such financing
statements and cause to be executed and filed such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain, and protect the respective interests of the Purchaser under this
Agreement and of the Noteholders and the Trustee under the Indenture in the
Trust Property and in the proceeds thereof. The Servicer shall deliver (or cause
to be delivered) to the Trustee file-stamped copies, or filing receipts for, any
document filed as provided above, as soon as available following such filing. In
the event that the Servicer fails to perform its obligations under this
subsection, the Trustee may (but shall not be required to) do so, on behalf of
the Servicer, at the Servicer's expense. The Servicer hereby irrevocably
appoints the Trustee its attorney-in-fact, and grants the Trustee a power of
attorney, coupled with an interest and with full power or substitution, to
effectuate the provisions of the preceding sentence.
(b) The Servicer shall not change its name, identity, or
corporate structure in any manner that would, could, or might make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of Section 9-402(7) of the UCC, unless
it shall have given the Trustee at least 60 days prior written notice thereof
and unless the Servicer shall execute and file amended financing statements or
continuation statements to cure such misleading effect.
(c) The Servicer shall give the Trustee at least 60 days
prior written notice of any relocation of any of their respective principal
executive offices if, as a result of such relocation, the applicable provisions
of the UCC would require the filing of any amendment of any previously filed
financing or continuation statement or of any new financing statement. The
Servicer shall at all times maintain each office from which it shall service
Leases, and the Servicer shall keep at all times its principal executive office
and the Lease Files, within the United States of America. The Servicer, as
applicable, shall pay all filing fees or taxes payable in respect of any
financing or continuation statements required to be filed pursuant to this
Section.
(d) The Servicer shall maintain (and shall cause any
subservicer to maintain) accounts and records as to each Lease accurately and in
sufficient detail to permit (i) The reader thereof to know at any time the
status of such Lease, including payments and recoveries made and payments owing
(and the nature of each) and (ii) reconciliation between payments or recoveries
on (or with respect to) each Lease and the amounts from time to time deposited
in the Collection Account in respect of such Lease.
(e) The Servicer shall maintain its computer systems so
that, from and after the time of transfer under this Agreement of the Leases to
the Trustee, the master computer records
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of the Seller and the Servicer (or the subservicer) (including archives) that
refer to a Lease shall indicate clearly that such Lease is owned by the Trustee.
Indication of the Trustee's ownership of a Lease shall be deleted from or
modified on such computer systems when, and only when, the Lease shall have
expired, been terminated, or been reacquired pursuant hereto.
(f) If at any time the Servicer shall propose to sell, grant
a security interest in, or otherwise transfer any interest in an equipment lease
to any prospective purchaser, creditor or other transferee, the Servicer shall
make available to such prospective purchaser, creditor, or other transferee
computer tapes, records, or print-outs (including any restored from archives)
that, if they shall refer in any manner whatsoever to any Lease, shall indicate
clearly that such Lease is owned by the Trustee.
(g) The Servicer shall permit (and shall cause any
subservicer to permit) the Trustee and its agents upon reasonable notice at any
time during normal business hours which does not unreasonably interfere with the
Servicer's (or such subservicer's) normal operations or customer or employee
relations to inspect, audit, and make copies of and abstracts from the
Servicer's (or such subservicer's) records regarding the Leases.
ARTICLE VIII.
DEFAULT
SECTION 8.01 Events of Default. If any one of the following
events ("Events of Default") shall occur and be continuing:
(i) any failure by the Servicer or the Seller to
deliver to the Trustee, for distribution to Noteholders, any proceeds
or payment required to be so delivered under the terms of this
Agreement or the Indenture, in each case that continues unremedied for
a period of three Business Days after the due date thereof; or
(ii) failure on the part of the Servicer or the
Seller duly to observe or to perform in any material respect any other
covenants or agreements of the Servicer, or the Seller set forth in
the Notes, in the Indenture or in this Agreement, which failure shall
(a) materially and adversely affect the rights of the Noteholders and
(b) continues unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be
remedied, shall have been given (1) to the Servicer by the Trustee or
(2) to the Trustee and the Servicer and the Seller (as the case may be)
by the Holders of Notes evidencing not less than a majority of the Note
Principal Balance of the Notes; or
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(iii) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Servicer
or the Seller in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Servicer or the
Seller a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Servicer or the Seller under any applicable
federal or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the
Servicer, or the Seller or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any of the foregoing unstayed and in effect for a period
of 90 consecutive days; or
(iv) the commencement by the Servicer or the Seller
of a voluntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for
relief in respect of the Servicer or the Seller in an involuntary case
or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement
of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under any applicable Federal or State law, or the consent by
it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestratorr or similar official of the Servicer or the Seller or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Servicer or the Seller in
furtherance of any such action; or
(v) a final nonappealable judgment of a court of
competent jurisdiction for more than $1,000,000 shall be entered
against JLACC and shall not be stayed, vacated, bonded, paid or
discharged within 30 days; or
(vi) JLACC shall fail to pay, when and as the same
shall become due and payable (after giving effect to any applicable
grace period), any principal or interest, regardless of amount, due in
respect of any indebtedness Of JLACC in a principal amount in excess of
$5,000,000; provided, however, that such failure to pay shall not
constitute an Event of Default pursuant to this clause if such
non-payment is subject to good faith dispute by JLACC; or
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(vii) as of the last day of any calendar month, the
Three-Month Average Default Ratlio for the Leases exceeds 4.0%, or the
Three-Month Average Delinquency Ratio for the Leases exceeds 5.0%.
then, and in each and every case and so long as an Event of Default shall not
have been remedied, either the Trustee or the Holders of Notes evidencing not
less than 66-2/3% of the aggregate Note Principal Balance, by notice given in
writing to the Servicer (and to the Trustee if given by the Noteholders) may
terminate all of the rights and obligations of the Servicer under this Agreement
and/or direct the Lessees to make all payments under the Leases directly to the
Trustee. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Notes or the Trust Property or otherwise, shall pass to and be vested in
the Trustee pursuant to this Section 8.01; and, without limitation, the Trustee
shall be hereby authorized and empowered to execute and deliver, on behalf of
the predecessor Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Lease Files
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer and the Trustee in effecting the termination of the responsibilities
and rights of the predecessor Servicer under this Agreement, including the
transfer to the successor Servicer for administration by it of all cash amounts
that shall at the time be held by the predecessor Servicer for deposit, shall
have been deposited by the Servicer in the Collection Account, or shall
thereafter be received with respect to a Lease or any other portion of the Trust
Property. All reasonable costs and expenses (including attorneys' fees) incurred
by the Trustee and the successor Servicer in connection with the transfer of
servicing to the successor Servicer and amending this Agreement to reflect such
succession as Servicer pursuant to this Section 8.01 shall be paid by the
predecessor Servicer upon presentation of reasonable documentation of such costs
and expenses.
SECTION 8.02 Trustee to Act; Appointment of Successor. Upon
the Servicer's receipt of notice of termination pursuant to Section 8.01 or upon
resignation of the Servicer pursuant to Section 7.05, the Trustee shall be the
successor in all respects to the Servicer in its capacity as Servicer under this
Agreement, and shall be subject to all the responsibilities, duties and
liabilities arising thereafter relating thereto placed on the Servicer by the
terms and provisions of this Agreement; provided that the Trustee as successor
Servicer shall have no obligations whatsoever with respect to Sections 3.03,
4.05 (c), 4.06, 4.10, or 7.02 and shall not be deemed at any time to have made
any of the representations or warranties of the Servicer. Without limiting any
of the foregoing, under no circumstance shall the Trustee (as successor
Servicer) be deemed to have incurred any obligation to make any advance
hereunder or to repurchase or substitute any
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Leases. Prior to the time specified in the first sentence of this Section, the
Trustee shall have no obligation to perform any backup or standby Servicer
operations or functions. As compensation therefor, the Trustee shall be entitled
to such compensation (whether payable out of the Collection Account or
otherwise) as the Servicer would have been entitled to under this Agreement if
no such notice of termination or resignation had been given. The successor
Servicer shall not be liable in any respect for any duties, responsibilities,
obligations or liabilities of the Servicer or any predecessor Servicer arising
prior to the date of the successor Servicer's assumption of duties or
appointment. In the event the Trustee becomes the successor Servicer, the prior
Servicer must agree to indemnify the Trustee against any claims or expenses
arising out of such prior servicing performance and, notwithstanding the
appointment of any successor Servicer, the initial Servicer shall continue to be
obligated in favor of the Trustee with regard to Section 7.02 hereof; provided
that no failure or inability of the initial Servicer to perform such obligations
shall in any respect alter or affect the Trustee's obligations to act as
successor Servicer hereunder. Notwithstanding the above, the Trustee shall, if
it shall be legally unable so to act, appoint, or petition a court of competent
jurisdiction to appoint, any established financial institution, having a net
worth of not less than $10,000,000 and whose regular business shall include the
servicing of equipment leases, as successor Servicer under this Agreement;
Provided that, pending such appointment, the Trustee shall continue to act as
Servicer (unless it is legally unable to act as Servicer), and provided further
that (unless the Trustee is legally unable to act as Servicer, in which event
the outgoing Servicer shall act as Servicer until the appointment) the
appointment of any such successor Servicer will not result in the withdrawal or
reduction of the outstanding rating assigned to the Notes of either Class by the
Rating Agency. In connection with such appointment, the Trustee may make such
arrangements for the compensation of such successor Servicer out of payments on
the Trust Property as it and such successor Servicer shall agree; provided,
however, that the amount of such compensation shall not exceed a reasonable fee
(taking into account the estimated costs of servicing and a reasonable profit).
Such reasonable fee shall be determined by the Trustee, but shall not be greater
in any month than the Servicing Fee would be if the Servicing Fee Rate were 1.0%
per annum, and provided such fee is paid solely from the Collection Account in
accordance with the priorities of payment specified in Section 3.07(b) and the
other provisions of the Indenture. The Trustee and such successor Servicer shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. The Trustee (unless the Trustee is legally
unable to act as Servicer, in which event the outgoing Servicer shall act as
Servicer until the appointment, and the acceptance of appointment) shall not be
relieved of its duties as successor Servicer under this Section 8.02 until the
newly appointed successor Servicer shall have assumed the responsibilities and
obligations of the Servicer under this Agreement. The outgoing Servicer shall
provide
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the successor Servicer with all files, computer tapes and software, ledgers and
records, and access to all Servicer locations and personnel, that (in each case)
are necessary to enable the successor Servicer to perform the Servicer's duties
hereunder. Neither the Trustee nor any successor Servicer shall be deemed to be
in default hereunder by reason of any failure to make, or any delay in making
any distribution hereunder or any portion thereof caused solely by the failure
or delay of the outgoing Servicer to deliver cash, documents, files, computer
tapes, ledgers or records to it or otherwise on account of the inaccuracy of any
information that it receives from the outgoing Servicer. Notwithstanding the
foregoing provisions of this Section, the Trustee upon becoming obligated to be
successor Servicer hereunder may, with the prior written approval of each
Noteholder and of the Rating Agency, designate another Person to instead be such
successor Servicer; provided that such approvals are obtained from each
Noteholder and the Rating Agency and such Person agrees in writing to be the
successor Servicer in substantially such manner as the Trustee would have been
for all purposes of this Agreement.
SECTION 8.03 Notification to Noteholders. Upon any notice of
an Event of Default or upon any termination of the Servicer or appointment of a
successor Servicer pursuant to this Article IX, the Trustee shall give written
notice within two Business Days thereof to Noteholders at their respective
addresses of record and to the Rating Agency.
SECTION 8.04 Waiver of Past Defaults. The Noteholders holding
Notes evidencing not less than 66-2/3% of the Note Principal Balance of all
Notes may, on behalf of all Holders of Notes, waive any default by the Servicer
(or, so long as JLACC is the Servicer, the Seller) in the performance of its
obligations hereunder and its consequences, except a default in the failure to
make any required deposits to or payments from the Collection Account in
accordance with this Agreement, which shall require the consent of 100% of the
Noteholders. Upon any such waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.01 Amendment. This Agreement may be amended in
writing by the Seller, the Servicer and the Purchaser, with the consent of the
Trustee, without prior notice to or the consent of any of the Noteholders, to
cure any ambiguity, to correct or supplement any provisions in this Agreement
which may be inconsistent with any other provision herein, or to add any other
provisions with respect to matters or questions arising under this
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Agreement, which are not inconsistent with the provisions of this Agreement;
provided however, that such action shall not, as agreement; provided, however,
that evidenced by an Opinion of Counsel delivered to the Trustee, adversely and
materially affect the interests of the Trustee or any Noteholder. A copy of any
such amendment shall be delivered by the Servicer to the Rating Agency promptly
following the execution and delivery thereof.
This Agreement may also be amended in writing from time to
time by the Seller, the Servicer and the Purchaser, subject to the receipt by
the Purchaser and the Trustee of notice in writing from the Rating Agency that
the execution and delivery of such amendment would not result in the reduction
or withdrawal of the then-current rating of the Notes of either Class by the
Rating Agency, with the consent of the Trustee acting with the consent of
Noteholders evidencing not less than 66-2/3% of the Note Principal Balance, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement, or of modifying in any manner the
rights of the Noteholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments of Leases, or distributions that shall be
required to be made on any Note or (b) reduce the aforesaid percentage required
to consent to any such amendment, in each case without the consent of Holders of
all Notes then outstanding. Promptly after the execution of any such amendment
or consent, the Trustee shall furnish written notification of the substance of
such amendment or consent to each Noteholder. Further, any amendment,
modification or waiver of this Agreement which affects the rights, duties or
obligations of the Trustee (as Trustee or as successor Servicer) may only be
effected with the prior written consent of (as applicable) the Trustee as
Trustee or as such successor Servicer.
SECTION 9.02 Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.
SECTION 9.03 Governing Law. This Agreement shall be construed
in accordance with the substantive laws of the State of New York (without regard
to conflicts of laws) and the obligations, rights, and remedies of the parties
under this Agreement shall be determined in accordance with such laws.
SECTION 9.04 Notices. All demands, notices, and communications
under this Agreement shall be in writing, personally delivered or mailed by
certified mail, telecopy or courier, return receipt requested, and shall be
deemed to have been duly given upon receipt
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(a) in the case of the Seller and the Servicer,
JLA Credit Corporation
12677 Alcosta Boulevard
Suite 430
San Ramon, California 94583
Attention: President
Telephone: (510) 277-3399
Telecopier: (510) 277-0565
(b) in the case of the Purchaser,
JLA Funding Corporation II
12677 Alcosta Boulevard
Suite 430
San Ramon, California 94583
Attention: Treasurer
Telephone: (510) 277-3314
Telecopier: (510) 327-0228
Any notice required or permitted to be mailed to either party
hereto shall be given by first class mail, postage prepaid, at the address of
such party with (in each case) a copy to the Trustee at 165 Broadway, New York,
New York 10006, Attention: Ms. Barbara Bevelaqua, Vice President, Corporate
Trust Administration. Any notice to any such party so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not such party shall receive such notice.
SECTION 9.05 Severability of Provisions. If any one or more of
the covenants, agreements, provisions, or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions,
or terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the Notes or
the rights of the Holders thereof.
SECTION 9.06 Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Section 6.02 or Section 7.03,
this Agreement may not be assigned by the Seller or the Servicer without the
prior written consent of the Trustee and Holders of Notes evidencing not less
than 66-2/3% of the Note Principal Balance.
SECTION 9.07 Submission to Jurisdiction; Venue. The parties
hereto with respect to any action or claim brought against or by the Trustee
submit to jurisdiction in the state or federal courts in New York, New York, and
agree to New York, New York as the venue for any such claim or action.
SECTION 9.08 No Bankruptcy Petition. Each of JLACC and the
Servicer covenants and agrees that, prior to the date which is one year and one
day after the payment in full of all debt
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securities issued by the Purchaser, it will not institute against, or join any
other Person in instituting against, the Purchaser any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or state bankruptcy or similar law. The Purchaser
represents, warrants, and covenants that it has obtained, and will in the future
obtain, a no-petition agreement from each and every Person that enters into any
agreement of any kind with the Purchaser.
SECTION 9.09 Rule 144A Information. For so long as the Notes
are "restricted securities" within the meaning of Rule 144A of the Securities
Act, the Seller and the Servicer agree to cooperate with each other to provide
to any Noteholder and to any prospective purchaser of Notes designated by such a
Noteholder, upon the request of such Noteholder or prospective purchaser, any
information that is required to be provided to such Holder or prospective
purchaser to satisfy Rule 144A(d) (4) (or any successor provision) under the
Securities Act. The Seller will be responsible for the physical delivery of any
such information so requested.
SECTION 9.10 Limited Recourse. Each of the Seller and the
Servicer agrees that any payments to be made by the Purchaser hereunder shall be
made only to the extent that the Purchaser has funds available for such purpose.
The parties hereto agree, further, that the obligations of the Purchaser to make
any payment pursuant to this Agreement shall be subject entirely to the
availability of funds to the Purchaser and to the priorities of payment
specified in the Indenture and no insufficiency of such available funds shall
constitute a claim against the Purchaser. The provisions of this Section shall
survive any termination of this Agreement.
SECTION 9.11 Trustee Rights. Each of the Seller and the
Servicer agrees that the Trustee shall be a third party beneficiary of this
Agreement as if it were a party hereto with all corresponding rights. In
addition, each of the Seller and the Servicer expressly acknowledges and agrees
that all of the Purchaser's right, title and interest in, to and under this
Agreement, and each Bill of Sale delivered hereunder, is being collaterally
assigned and pledged by the Purchaser to the Trustee for the benefit of the
Noteholders pursuant to the Indenture in order to secure the Purchaser's
obligations under the Indenture and the Notes.
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IN WITNESS WHEREOF, the parties have caused this Sale and Servicing
Agreement to be duly executed by their respective offices as of the day and year
first above written.
JLA CREDIT CORPORATION,
Seller and Servicer
By: /s/ Steven A. Dietsch
----------------------------
Name: Steven A. Dietsch
Title: SVPICF
JLA FUNDING CORPORATION II,
Purchaser
By: /s/ Steven A. Dietsch
----------------------------
Name: Steven A. Dietsch
Title: Treasurer
Consented and Agreed to:
LTCB TRUST COMPANY,
not in its individual capacity
but solely in its capacity
as Trustee
By:
-------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Sale and Servicing
Agreement to be duly executed by their respective offices as of the day and year
first above written.
JLA CREDIT CORPORATION,
Seller and Servicer
By:
----------------------------
Name:
Title:
JLA FUNDING CORPORATION II,
Purchaser
By:
----------------------------
Name:
Title:
Consented and Agreed to:
LTCB TRUST COMPANY,
not in its individual capacity
but solely in its capacity
as Trustee
By: /s/ Ronald N. Lamendola
-------------------------------------
Name: Ronald N. Lamendola
Title: SVP
By: /s/ Barbara Bevelaqua
-------------------------------------
Name: Barbara Bevelaqua
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF BILL OF SALE]
BILL OF SALE
FOR VALUE RECEIVED, JLA CREDIT CORPORATION, a Delaware
corporation (the "Seller"), hereby sells transfers and assigns to JLA FUNDING
CORPORATION II, a Delaware corporation (the "Purchaser"), without recourse, all
of the right, title and interest of the Seller, whether now owned or hereafter
acquired, in, to and under all accounts, money, chattel paper, securities,
instruments, documents, deposit accounts, certificates of deposit, letters of
credit, advices of credit, banker's acceptances, uncertificated securities,
general intangibles, contract rights, goods and other property consisting of,
arising from or relating to the Leases listed on Schedule 1 hereto (the
"Schedule of Leases"), including, without limitation, (a) all Rent Payments,
Retransfer Amounts and other amounts due or becoming due with respect thereto
(other than any payments due pursuant to the terms of any Lease on or before the
last day of the calendar month preceding the date hereof or such other date as
is specified as the cut-off date in the attached Schedule of Leases (the
"related Cut-Off Date"), (b) all rights of the Seller to or under any guarantees
of or collateral for the Lessee's obligations under any Lease, (c) the amounts
representing Security Deposit Offsets applied to unpaid Rent Payments and
Purchase Option Payments due on or to become due after the applicable Cutoff
Date, any guaranty relating to a Lease and all moneys constituting collections
on such Leases from time to time on deposit in the Lock-Box Account, (d) all
rights of the Seller under any program agreement, purchase agreement, assignment
agreement, or other document pursuant to which the Seller acquired an interest
in any Lease and the Equipment subject thereto and any support agreements or
guarantees related thereto, and (e) each Insurance Policy, if any, covering
Equipment, including any Insurance Proceeds received pursuant to such Insurance
Policy after the applicable Cut-off Date, and (f) all proceeds of any of the
foregoing. The Seller hereby also sells, transfers and assigns to the Purchaser
all of the Seller's right, title and interest in and to all Equipment covered by
each of the Leases listed in the Schedule of Leases and all proceeds thereof.
The Seller warrants to the Purchaser that the right, title and interest assigned
hereby are not subject to any lien, claim or encumbrance. Although the parties
intend, and have expressly so stated, that the conveyance of the Seller's right,
title and interest in, to and under the Leases (including the related Equipment)
pursuant to this Bill of Sale shall constitute a purchase and sale and not a
financing, in order to protect the Purchaser in the event that, despite such
express intention that the transaction be treated as a sale, such conveyance is
deemed to be a financing, the Seller hereby grants to the Purchaser a first
priority security interest in all of the Seller's right, title and interest in,
to and under the Leases, including all proceeds thereof, to secure the repayment
of such financing, and agrees that this Bill of Sale shall constitute a
<PAGE>
security agreement under applicable law. All capitalized terms used in this Bill
of Sale and not defined herein shall have the meanings assigned to such terms in
the Sale and Servicing Agreement. The Seller hereby additionally represents and
warrants to the Purchaser that all representations and warranties of Seller with
respect to the Leases in Section 3.02 of the Sale and Servicing Agreement are
true and correct as of the date hereof.
IN WITNESS WHEREOF, the Seller has executed this Bill of Sale
as of the date set forth below.
Dated: ___________________ JLA CREDIT CORPORATION,
a Delaware corporation
By:_________________________________
Name:
Title:
Accepted: JLA FUNDING CORPORATION II,
a Delaware corporation
By:_________________________________
Name:
Title:
2
<PAGE>
EXHIBIT B
Note Issuance Period
[FORM OF MONTHLY SERVICER REPORT]
SAMPLE
- --------------------------------------------------------------------------------
JLA FUNDING CORPORATION II
For the November 16, 1997 Payment Date
For the period beginning on October 1, 1997
and ending on October 31, 1997 ("Collection Period")
- --------------------------------------------------------------------------------
Date of Report November 10, 1997
<TABLE>
<CAPTION>
Notes Distribution
<S> <C>
a) Class A Note
Beginning Balance 9,421,052.63
----------------
Interest Distribution 75,645.16
New Issuance Amount 9,421,052.63
----------------
Ending Balance 18,842,105.26
b) Class B Note
Beginning Balance 578,947.37
----------------
Interest Distribution 4,918.76
New Issuance Amount 578,947.37
----------------
Ending Balance 1,157,894.74
c) Aggregate Note Principal Balance (a+b)
Total Beginning Balance 10,000,000.00
----------------
Total New Issuance 10,000,000.00
================
Total Ending Balance 20,000,000.00
Non-Utilization Premium Distribution 5,125.00
Aggregate Principal Balance of Receivables (see Annex A for further detail)
Beginning Balance 10,421,052.63
================
Ending Balance 20,842,055.26
Cash Reserve Account (see Annex B for further detail)
Total Available Cash Reserve for current distribution 105,482.46
----------------
Withdrawal from Cash Reserve for distribution -2,582.80
Deposit to Cash Reserve 105,263.16
or Release from Cash Reserve 0.00
----------------
Ending Cash Reserve Balance (after Withdrawal, Deposit and Release) 208,162.81
% of Cash Reserve Target Met 99.88%
Collection Account (see Annex A for further detail)
Collections allocable to Principal for Lease Purchase (prin + prepay + Recov) 208,561.00
Collections allocable to Interest (Interest + Cap Pmts + Oth.) 91,832.00
Withdrawals from the Reserve Account 2,582.80
----------------
Total Available Collections for current distribution 302,975.80
</TABLE>
<PAGE>
Note Issuance Period
Priority of Distributions (see Annex B for further detail)
Total Available Collections for current distribution 302,975.80
1) Monthly Trustee Fee & Servicing Fee paid 8,725.88
2) Class A Interest paid 75,645.16
3) Class B Interest paid 4,918.76
4) Unused Facility Fee 5,125.00
5) Principal deposit to Lease Purchase Account 208,561.00
------------
Total Excess Interest before Deposit to Reserve 0.00
% of beginning receivables bal. (Annualized) 0.00%
6) Deposit to Cash Reserve Account (see Annex B) 0.00
Release from Cash Reserve Account 0.00
============
7) Total Disbursement to the Company 0.00
<PAGE>
Note Issuance Period
Annex A - Receivables and Collections
1) Receivables
<TABLE>
<CAPTION>
Number of Aggregate
Leases Principal Balance
<S> <C> <C>
Beginning of Collection Period Receivables 10,421,052.63
Principal Collection 208,311.00
Prepayment Collections 200.00
Defaulted Leases during Collection Period 100.00
-----------------
Net Receivables 10,212,441.63
Deposit to Lease Purchase Account 208,561.00
New Purchase 10,421,052.63
------------ -----------------
Total 20,842,055.26
</TABLE>
<TABLE>
<CAPTION>
Aggregate Principal
Number of Days Number of Balance of Receivables
Delinquent Receivables before New Purchase
<S> <C> <C>
Current (1-29)
30-59
60-89
90-119
120-149
150-179
------------ -----------------
Total 10,212,441.63
</TABLE>
2) Collections
<TABLE>
<S> <C>
Interest Collections 91,832.00
Principal Collections 208,311.00
Prepayment Collections 200.00
Cap Payments 0.00
Recoveries 50.00
Other 0.00
-----------------
Total Deposit to Lease Purchase Account (prin + prepay + recoveries) 208,561.00
Total Collections Allocable to I (int + cap + other) 91,832.00
</TABLE>
3) New Notes Issuance and Initial Cash Reserve Deposit
<TABLE>
<S> <C> <C>
New Notes Issuance Amount 10,000,000.00
New Class A Note Amount 89.50% 9,421,052.63
New Class B Note Amount 5.50% 578,947.37
Initial Cash Reserve Deposit 1% 105,263.16
New Collateral Principal Balance 99% 10,421,052.63
</TABLE>
<PAGE>
Note Issuance Period
Annex B - Distributions Due
1) Monthly Fees
<TABLE>
<S> <C> <C>
Total Monthly Servicing Fee owing for the current Collection Period 8,684.21
-----------
Current Amount (% of beginning receivables bal.) (1.00%) 8,684.21
Amount owing but not paid on any preceding Payment Dates 0.00
Total Monthly Trustee Fee owing for the current Collection Period 41.67
-----------
Current Amount (% of beginning notes bat.) (0.005%) 41.67
Amount owing but not paid on any preceding Payment Dates 0.00
===========
Total Trustee & Servicing Fees 8,726.88
2) Distribution Schedule of Interest
---------------------------------------------------------------------------------------------------------------------
Class A (+0.30%) Interest Period
Libor Reset Interest% Note Balance From To Days Interest Schedule
---------------------------------------------------------------------------------------------------------------------
5.6875% 5.9875% 9,421,052.63 10/16/97 11/16/97 31 48,574.03
5.7850% 6.0850% 9,421,052.63 10/30/97 11/16/97 17 27,071.13
---------------------------------------------------------------------------------------------------------------------
Total 75,645.16
Class A Interest Payment Amount 75,645.16
Class A Prior Interest Shortfall 0.00
-----------
Total Class A Interest Payment Amount 75,645.16
---------------------------------------------------------------------------------------------------------------------
Class B (+0.65%) Interest Period
Libor Reset Interest% Note Balance From To Days Interest Schedule
---------------------------------------------------------------------------------------------------------------------
5.6875% 6.3375% 578,947.37 10/16/97 11/16/97 31 3,159.48
5.7850% 6.4350% 578,947.37 10/30/97 11/16/97 17 1,759.28
---------------------------------------------------------------------------------------------------------------------
Total 4,918.76
Class B Interest Payment Amount 4,918.76
Class B Prior Interest Shortfall 0.00
------------
Total Class B Interest Payment Amount 4,918.76
3) Non-Utilization Premium
----------------------------------------------------------------------------------------------------------------------
Related Interest Period
Note Issuance Amount Available Facility From To Days Premium Amount
----------------------------------------------------------------------------------------------------------------------
0.10%
65,000,000.00 10/16/97 10/30/97 14 2,527.78
10,000,000.00 55,000,000.00 10/30/97 11/16/97 17 2,597.22
--------------------------------------------------------------------------------------------------------
Total 5,125.00
</TABLE>
<PAGE>
Note Issuance Period
<TABLE>
<CAPTION>
<S> <C> <C>
4) Cash Reserve Account
Available Cash Reserve - beginning of Collection Period (1.00%) 105,263.16
Interest earned on Available Cash Reserve (2.50%) 219.30
----------
Total Available Cash Reserve for current distribution 105,482.46
Withdrawal from Cash Reserve Account -2,582.80
Initial Deposit Amount due to Notes Issuance 105,263.16
Additional Deposit to Cash Reserve 0.00
Total Cash Reserve - before Release 208,162.81
Cash Reserve Target (% of ending receivables bal.) (1.00%) 208,420.55
Release from Cash Reserve 0.00
----------
Total Cash Reserve -End of Collection Period 208,162.81
% of Cash Reserve Target Met 99.88%
Annex C - Triggers
1) Target Reserve Percentage
1% during the Note Issuance Period
2) Loss Ratio and Delinquency Ratio as the end of Collection Period
Calculated % Trigger %
------------ ---------
3 mth Avg. Default% 4%
3 mth Avg. Delinquency% 5%
3) Compliance with principal schedule Interest Rate Cap YES
---------------
4) Compliance with Customer Concentration Limitation 1.50% YES
---------------
5) Portfolio Performance table (Format see p29 of PPM)
</TABLE>
<PAGE>
Note Amortization Period
[FORM OF MONTHLY SERVICER REPORT]
S A M P L E
- --------------------------------------------------------------------------------
JLA FUNDING CORPORATION II
For the June 16, 1998 Payment Date
For the period beginning on May 1, 1998
and ending on May 31, 1998 ("Collection Period")
- --------------------------------------------------------------------------------
Date of Report: June 10, 1997
<TABLE>
<CAPTION>
<S> <C>
Notes Distribution
a) Class A Note
Beginning Balance 70,658,000.00
-------------
Interest Distribution 364,305.78
Principal Distribution 1,472,167.99
-------------
Total Distributions 1,836,473.77
=============
Ending Balance 69,185,832.01
b) Class B Note
Beginning Balance 4,342,000.00
-------------
Interest Distribution 23,695.56
Principal Distribution 90,466.10
-------------
Total Distributions 114,161.66
=============
Ending Balance 4,261,533.90
c) Aggregate Note Principal Balance (a+b)
Beginning Balance 75,000,000.00
=============
Ending Balance 73,437,365.91
Aggregate Principal Balance of Receivables (see Annex A for further detail)
Beginning Balance 78,947.000.00
Ending Balance 77,384,365.91
Cash Reserve Account (see Annex B for further detail)
Total Available Cash Reserve for current distribution 790,643.75
Withdrawal from Cash Reserve for distribution 0.00
Deposit to Cash Reserve 0.00
or Release from Cash Reserve 16,800.09
Ending Cash Reserve Balance (after Withdrawal, Deposit and Release) 773,843.66
% of Cash Reserve Target Met 100.00%
Collection Account (see Annex A for further detail)
Total Collections (Interest + Principal + Prepayments + Cap Pmts + Oth.) 2,251,300.95
Withdrawals from the Reserve Account 0.00
-------------
Total Available Collections for current distribution 2,251,300.95
</TABLE>
<PAGE>
Note Amortization Period
Priority of Distributions (see Annex B for further detail)
Total Available Collections for current distribution 2,251,300.95
1) Monthly Trustee Fee & Servicing Fee paid 66,101.67
2) Class A Interest paid 364,305.78
3) Class B Interest paid 23,695.56
4) Class A Principal Payment Amount paid 1,472,167.99
5) Class B Principal Payment Amount paid 90,466.10
------------
Total Excess Interest before Deposit to Reserve 234,563.85
% of beginning receivables bal. (Annualized) 3.57%
6) Deposit to Cash Reserve Account (see Annex B) 0.00
Release from Cash Reserve Account 16,800.09
===========
7) Total Disbursement to the Company 251,363.94
<PAGE>
Note Amortization Period
Annex A - Receivables and Collections
<TABLE>
<CAPTION>
<S> <C> <C>
1) Receivables
Number of Aggregate
Leases Principal Balance
Beginning of Collection Period Receivables 1,883 78,947,000.00
Principal Collection 0 1,562,334.09
Prepayment Collections 0 200.00
Defaulted Leases during Collection Period 1 100.00
--------------------------------------------------------------
End of Collection Period Receivables 1,882 77,384,365.91
End of Collection Period
Number of Days Number of Aggregate Principal
Delinquent Receivables Balance of Receivables
Current(1-29)
30-59
60-89
90-119
120-149
150-179
---------------------------------------------------------------------------------------
Total 77,384,365.91
2) Collections
Interest Collections 688,746.86
Principal Collections 1,562,334.09
Prepayment Collections (partial + full prepay) 200.00
Recoveries 20.00
Cap Payments 0.00
Other - 0.00
------------
Total Available Collections for current distribution 2,251,300.95
</TABLE>
<PAGE>
Note Amortization Period
Annex B - Distributions Due
<TABLE>
<CAPTION>
<S> <C> <C>
1) Monthly Fees
Total Monthly Servicing Fee owing for the current Collection Period 65,789.17
-----------------
Current Amount (% of beginning receivables bal.) (1.00%) 65,789.17
Amount owing but not paid on any preceding Payment Dates 0.00
Total Monthly Trustee Fee owing for the current Collection Period 312.50
-----------------
Current Amount (% of beginning notes bal.) (0.005%) 312.60
Amount owing but not paid on any preceding Payment dates 0.00
=================
Total Trustee & Servicing Fees 66,101.67
2) Total support for Class A (Beginning Receiv. - A + Resv) 9,079,643.75
Trigger for Pro-Rata to Sequential Allocation (<2,072,368 No
3) Distribution Schedule of Principal
Total Scheduled Principal Payment Amount including: 1,562,634.09
-----------------
(i) Total Collections allocated to Principal (prin + prepay) 1,562,534.09
(ii) Defaulted Receivables 100.00
Class A Percentage A/(A+B) 94.21%
Class A Principal Payment Amount 1,472,167.99
Class A Prior Principal Shortfall 0.00
-----------------
Total Class A Principal Payment Amount 1,472,167.99
Class B Percentage B/(A+B) 5.79%
Class B Principal Payment Amount 90,466.10
Class B Prior Principal Shortfall 0.00
-----------------
Total Class B Principal Payment Amount 90,466.10
4) Distribution Schedule of Interest
Libor Reset 5.6875%
Interest Period 5/15/98 to 6/15/98 31 days
Class A Interest Rate (+0.30%) 5.9875%
Class A Beginning Balance 70,658,000.00
-----------------
Class A Interest Payment Amount 364,305.78
Class A Prior Interest Shortfall 0.00
Total Class A Interest Payment Amount 364,305.78
Interest Period 5/15/98 to 6/15/98 31 days
Class B Interest Rate (+0.65%) 6.3375%
Class B Beginning Balance 4,342,000.00
-----------------
Class B Interest Payment Amount 23,695.56
Class B Prior Interest Shortfall 0.00
-----------------
Total Class B Interest Payment Amount 23,695.56
Total Scheduled Interest Payment Amount
388,001.34
</TABLE>
<PAGE>
Note Amortization Period
<TABLE>
<CAPTION>
<S> <C> <C>
5) Cash Reserve Account
Available Cash Reserve - beginning of Collection Period 789,000.00
Interest earned on Available Cash Reserve (2.50%) 1,643.75
----------------------------
Total Available Cash Reserve for current distribution 790,643.75
Withdrawal from Cash Reserve Account 0.00
Deposit to Cash Reserve 0.00
Release from Cash Reserve 16,800.09
----------------------------
Total Cash Reserve - end of Collection Period 773,843.66
Cash Reserve Target (1.00%) 773,843.66
% of Cash Reserve Target Met 100.00%
Annex C -Triggers
1) Target Reserve Percentage (if triggered, resv target %=10%-calc%+1.5%)
Calculated % Trigger % Reserve Target %
------------ ---------
Wt.Avg.Lease Rate 11.16% 9.75% 1.00%
2) Loss Ratio and Delinquency Ratio as the end of Collection Period
Calculated % Trigger %
------------ ---------
3mth Avg. Default% 4%
3 mth Avg. Delinquency% 5%
3) Compliance with principal schedule of Interest Rate Cap (Yes/No) Yes
4) Compliance With Customer Concentration Limitation (Yes/No) 1.25% Yes
5) Occurance of Lease Substitution (Yes/No) No
If Yes, complicance with Lease Substitution (Yes/No/N.A.) N.A.
5) Portfolio Performance table
(Format see p29 of PPM)
</TABLE>
<PAGE>
EXECUTION COPY
================================================================================
JLA FUNDING CORPORATION III,
Issuer
JLA CREDIT CORPORATION,
Servicer
LTCB TRUST COMPANY,
Trustee
THE BANK OF NEW YORK,
Backup Trustee
------------------
INDENTURE
Dated as of March 30, 1998
------------------
$200,000,000 ASSET-BACKED NOTES
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
RECITALS OF THE COMPANY .................................................................................. 1
GRANTING CLAUSE .......................................................................................... 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions ...................................................................... 2
SECTION 1.02. Compliance Certificates and Opinions ............................................. 19
SECTION 1.03. Form of Documents Delivered to Trustee ........................................... 20
SECTION 1.04. Acts of Noteholders, etc. ........................................................ 21
SECTION 1.05. Notices .......................................................................... 21
SECTION 1.06. Notice to Noteholders; Waiver .................................................... 22
SECTION 1.07. Table of Contents, Headings etc .................................................. 23
SECTION 1.08. Successors and Assigns ........................................................... 23
SECTION 1.09. Severability Clause .............................................................. 23
SECTION 1.10. Benefits of Indenture ............................................................ 23
SECTION 1.11. Governing Law .................................................................... 23
SECTION 1.12. Legal Holidays ................................................................... 23
SECTION 1.13. Execution in Counterparts ........................................................ 23
SECTION 1.14. Inspection ....................................................................... 23
SECTION 1.15. Survival of Representations and Warranties........................................ 24
SECTION 1.16. Communications with Noteholders .................................................. 24
SECTION 1.17. Statements Required in Officer's Certificate...................................... 24
SECTION 1.18. When Treasury Securities Disregarded.............................................. 25
SECTION 1.19. Rules by Trustee ................................................................. 25
SECTION 1.20. No Adverse Interpretation of Other Agreements..................................... 25
SECTION 1.21. No Recourse Against Others ....................................................... 25
SECTION 1.22. Independence of Covenants ........................................................ 25
SECTION 1.23. Consent to Jurisdiction .......................................................... 25
SECTION 1.24. No Bankruptcy Petition ........................................................... 26
ARTICLE II
THE NOTES
SECTION 2.01. General Provisions................................................................ 26
SECTION 2.02. Issuances During the Note Issuance Period ........................................ 27
SECTION 2.03. Execution, Authentication, Delivery and Dating.................................... 28
SECTION 2.04. Registration, Transfer and Exchange .............................................. 29
SECTION 2.05. Mutilated, Destroyed, Lost and Stolen Notes....................................... 30
SECTION 2.06. Restrictions on Transfer and Exchange of Notes; Compliance with Rule 144A......... 31
SECTION 2.07. Payment of Interest and Principal; Rights Preserved .............................. 32
SECTION 2.08. Persons Deemed Owners............................................................. 32
SECTION 2.09. Cancellation ..................................................................... 32
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
SECTION 2.10. Subordination of Subordinated Notes............................................... 32
SECTION 2.11. Noteholder Lists.................................................................. 33
ARTICLE III
ACCOUNTS; INVESTMENT OF MONEYS; COLLECTION
AND APPLICATION OF MONEYS; REPORTS
SECTION 3.01. Accounts; Investments by Trustee.................................................. 33
SECTION 3.02. Collections; Applications......................................................... 35
SECTION 3.03. Additional Deposits............................................................... 36
SECTION 3.04. Daily Deposits.................................................................... 37
SECTION 3.05. Reserve Account................................................................... 37
SECTION 3.06. Payahead Account ................................................................. 37
SECTION 3.07. Collection Account ............................................................... 38
SECTION 3.08. Contract Purchase Account ........................................................ 40
SECTION 3.09. Reports, Notices of Certain Payments ............................................. 41
SECTION 3.10. Trustee May Rely on Certain Information .......................................... 41
ARTICLE IV
CONTRACTS AND EQUIPMENT
SECTION 4.01. Representations and Warranties of the Company .................................... 42
SECTION 4.02. Purchase upon Breach; Sale and Servicing Agreement ............................... 42
SECTION 4.03. Release of Contracts and Equipment Following Substitution or Repurchase........... 43
SECTION 4.04. Release of Contracts and Equipment Upon Final Contract Payment ................... 43
SECTION 4.05. Execution of Documents ........................................................... 43
ARTICLE V
SERVICER EVENTS OF DEFAULT; SUBSTITUTE SERVICER
SECTION 5.01. Servicer Events of Default ....................................................... 44
SECTION 5.02. [RESERVED] ....................................................................... 44
SECTION 5.03. Notification to Noteholders ...................................................... 44
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default ................................................................ 44
SECTION 6.02. Acceleration of Maturity; Rescission and Annulment.................. ............. 46
SECTION 6.03. Other Remedies ................................................................... 47
SECTION 6.04. Trustee May File Proofs of Claim ................................................. 47
SECTION 6.05. Trustee May Enforce Claims Without Possession of Notes............................ 48
SECTION 6.06. Application of Money Collected ................................................... 48
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
SECTION 6.07. Limitation on Suits ............................................................... 49
SECTION 6.08. Unconditional Right of Noteholders to Receive Payment ............................. 49
SECTION 6.09. Restoration of Rights and Remedies ................................................ 50
SECTION 6.10. Rights and Remedies Cumulative .................................................... 50
SECTION 6.11. Delay or Omission Not Waiver ...................................................... 50
SECTION 6.12. Control by Noteholders ............................................................ 50
SECTION 6.13. Waiver of Defaults and Events of Default........................................... 51
SECTION 6.14. Waiver of Stay or Extension Laws................................................... 51
SECTION 6.15. Sale of Trust Property............................................................. 51
SECTION 6.16. Undertaking for Costs.............................................................. 52
ARTICLE VII
THE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities............................................... 53
SECTION 7.02. Notice of Defaults or Events of Default .......................................... 54
SECTION 7.03. Certain Rights of Trustee ........................................................ 54
SECTION 7.04. Trustee's Disclaimer ............................................................. 55
SECTION 7.05. Money Held in Trust .............................................................. 55
SECTION 7.06. Compensation, Reimbursement, etc . ............................................... 55
SECTION 7.07. Trustee; Eligibility; Disqualification . . . . . . ............................... 56
SECTION 7.08. Resignation and Removal; Appointment of Successor ................................ 57
SECTION 7.09. Acceptance of Appointment by Successor............................................ 58
SECTION 7.10. Merger, Conversion, Consolidation or Succession to Business ...................... 58
SECTION 7.11. Co-trustees and Separate Trustees ................................................ 59
SECTION 7.12. Servicer to Hold Contracts ....................................................... 60
SECTION 7.13. Financing Statements ..............................................................60
SECTION 7.14. Reports by Trustee to Noteholders................................................. 60
SECTION 7.15. Limitation on Duty of Trustee in Respect of Trust Property........................ 61
ARTICLE VIII
COVENANTS
SECTION 8.01. Payment of Principal and Interest ................................................ 62
SECTION 8.02. Maintenance of Office or Agency, Chief Executive Office .......................... 62
SECTION 8.03. Money for Payments to Noteholders to Be Held in Trust ............................ 62
SECTION 8.04. Corporate Existence; etc ......................................................... 63
SECTION 8.05. Protection of Trust Property; Further Assurances ................................. 64
SECTION 8.06. Compliance Certificates .......................................................... 65
SECTION 8.07. Performance of Obligations; Sale and Servicing Agreement.......................... 65
SECTION 8.08. Negative Covenants ............................................................... 66
SECTION 8.09. Information as to the Company ................................................... 67
SECTION 8.10. Payment of Taxes and Other Claims ................................................ 67
SECTION 8.11. Indemnification .................................................................. 68
SECTION 8.12. Use of Proceeds .................................................................. 68
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES'
SECTION 9.01. Amendments and Supplemental Indentures ........................................... 68
SECTION 9.02. Execution of Amendments and Supplemental Indentures............................... 69
SECTION 9.03. Effect of Amendments and Supplemental Indentures ................................. 69
SECTION 9.04. Reference in Notes to Amendments and Supplemental Indentures ..................... 69
SECTION 9.05. Revocation and Effect of Consents ................................................ 69
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption; Election to Redeem........................................... 70
SECTION 10.02. Notice to Trustee ................................................................ 70
SECTION 10.03. Notice of Redemption by the Company .............................................. 70
SECTION 10.04. Deposit of the Redemption Price .................................................. 71
SECTION 10.05. Notes Payable on Redemption Date ................................................. 71
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture .......................................... 71
SECTION 11.02. Application of Trust Money ....................................................... 72
SECTION 11.03. Reinstatement .................................................................... 72
ARTICLE XII
HEDGE AGREEMENTS
SECTION 12.01. Hedge Agreements ................................................................. 73
SECTION 12.02. Fixed Rate Hedge ................................................................. 73
SECTION 12.03. Floating Rate Hedge .............................................................. 73
SECTION 12.04. Substitution of Floating Rate Hedge .............................................. 74
SECTION 12.05. Hedge Provider ................................................................... 74
SECTION 12.06. Rights of Swap Provider .......................................................... 74
SECTION 12.07. Over-Issuance Condition .......................................................... 74
SCHEDULES
Schedule I - Maximum Note Principal Balance
EXHIBITS
Exhibit A-1 - Form of Class A-FL Note
Exhibit A-2 - Form of Class A-FX Note
Exhibit B-1 - Form of Class B-FL Note
Exhibit B-2 - Form of Class B-FX Note
Exhibit C - Form of Transferee Letter
Exhibit D - Form of Issuer Order
</TABLE>
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INDENTURE
This INDENTURE dated as of March 30, 1998 (the
"Closing Date"), is by and among JLA FUNDING CORPORATION III, a Delaware
corporation (herein called the "Company"), JLA CREDIT CORPORATION, a Delaware
corporation (herein called "JLACC" or the "Servicer"), LTCB TRUST COMPANY, a New
York trust company, as trustee (herein called the "Trustee") and THE BANK OF NEW
YORK, a New York banking corporation, as backup trustee (herein called the
"Backup Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the issuance, from time to
time during the Note Issuance Period (as defined herein), of up to $200,000,000
in aggregate principal amount of its Asset-Backed Notes (the "Notes"), of
substantially the tenor hereinafter set forth, and to provide therefor the
Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Notes, when executed by the
Company and authenticated and delivered hereunder, the valid obligations of the
Company, and to make this Indenture a valid agreement of the Company, in
accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the holders thereof, it is mutually covenanted and agreed, for the
benefit of all Noteholders, as follows:
GRANTING CLAUSE
The Company hereby Grants to the Trustee, for the benefit and
security of the Noteholders, the Trustee and (except as to clause (i) of this
paragraph) each Swap Provider as their interests appear herein, all of the
Company's right, title and interest in and to (a) any and all Contracts
(including Substitute Contracts) acquired by the Company at any time or from
time to time on or after the Closing Date (including any Purchase Option
Payments), and all Contract Payments, Retransfer Amounts and other amounts due
or becoming due with respect thereto (other than any payments due pursuant to
the terms of any Contract on or before the related Cut-Off Date for such
Contract), (b) all rights of the Company to or under any guarantees of or
collateral for the Obligor's obligations under any Contract, (c) all moneys from
time to time held by the Trustee pursuant to Section 3.01 pending deposit in one
of the accounts referred to therein, (d) the amounts representing Security
Deposit Offsets applied to unpaid Contract Payments and Purchase Option Payments
due on or to become due after the applicable Cut-Off Dates, any guaranty
relating to a Contract and all moneys from time to time on deposit in the
Lock-Box Account, Collection Account and Reserve Account, including all
investments and income from the investment of such moneys, (e) the Payahead
Account and the right to receive payments of funds deposited therein under the
circumstances described in this Indenture, (f) the Contract Purchase Account and
the rights to receive payment of all funds deposited therein and all rights of
the Company under the Sale and Servicing Agreement, (g) the Contract Files and
all documents therein and all rights of the Company under any program agreement,
purchase agreement, assignment agreement, or other document pursuant to which
the Company acquired an interest in any Contract and the Equipment subject
thereto and any support agreements or guarantees related thereto, and (h) each
Insurance Policy, if any, covering Equipment, including all rights to any
Insurance Proceeds received pursuant to such Insurance Policy after the
applicable Cut-Off Date, (i) all
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Hedge Agreements, including all Hedge Proceeds, (j) any credit enhancement with
respect to any Class or Classes of Notes, and (k) all proceeds of any of the
foregoing. The Company also hereby Grants to the Trustee, for the benefit and
security of the Noteholders, the Trustee and each Swap Provider, a security
interest in (A) all of the Company's right, title and interest in and to the
Equipment at any time subject to any Contract and (B) any and all proceeds of
such Equipment.
The Grants of the Trust Property effected by this Indenture
shall include all rights, powers, and options (but none of the obligations) of
the Company with respect thereto, including, without limitation, the immediate
and continuing right to claim for, collect, receive, and give receipts for
Contract Payments in respect of the Contracts and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers, amendments or other agreements, to exercise all rights and options, to
bring judicial proceedings in the name of the Company or otherwise, to terminate
a Contract pursuant to the terms thereof, and generally to do and receive
anything that the Company is or may be entitled to do or receive thereunder or
with respect thereto. Such Grants are made in trust to secure (1) the payment of
all amounts due on the Notes in accordance with their terms, equally and ratably
without prejudice, priority, or distinction between any Note of the same class
and any other Note of the same class by reason of differences in time of
issuance or otherwise, except as otherwise may be provided in this Indenture,
and the payment of all amounts due under each Swap Agreement, if any, including
(without limitation) all Swap Payment Amounts and each Swap Termination Amount,
if any, (ii) the payment of all other sums payable under this Indenture and
(iii) compliance with the provisions of this Indenture with respect to the
Notes.
The Trustee acknowledges such Grants, accepts the trusts
hereunder in accordance with the provisions hereof, and agrees to perform the
duties herein required to the best of its ability and to the end that the
respective interests of the Noteholders and each Swap Provider may be adequately
and effectively protected as hereinafter provided.
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions.
(a) General Definitions. Except as otherwise specified or as
the context may otherwise require, the following terms have the meanings set
forth below for all purposes of this Indenture, and the definitions of such
terms are applicable to the singular as well as the plural forms of such terms
and to the masculine as well as to the feminine and neuter genders of such
terms. Any capitalized term used but not defined herein shall have the meaning
given such term in Sale and Servicing Agreement.
"Account" means each of the Collection Account, the Reserve
Account, the Payahead Account and the Contract Purchase Account.
"Act" has the meaning specified in Section 1.04.
"Administrative Fees" means, with respect to any Contract on
any date, any late, prepayment, extension, insurance, property tax or
administrative fees or similar charges paid by the Obligor pursuant to the terms
of such Contract.
2
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"Affiliate" means, with respect to any specified Person, any
other Person (i) which directly or indirectly controls, or whose directors or
officers directly or indirectly control, or is controlled by, or is under common
control with, such specified Person, (ii) which beneficially owns or holds, or
whose directors or officers beneficially own or hold, 5% or more of any class of
the voting stock (or, in the case of an entity that is not a corporation, 5% of
the equity interest) of such specified Person, or (iii) 5% or more of the voting
stock (or, in the case of an entity that is not a corporation, 5% of the equity
interest) of which is owned or held by such specified Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Aggregate Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Notes as of such date.
"Assumed Longest Amortization" has the meaning specified in
Section 12.07.
"Authorized Officer" means, with respect to any matter, any
officer of or other Person representing the Company, the Seller, the Servicer,
the Trustee or a Noteholder as the case may be, who is authorized to act for
that party and named on a list which shall be provided to the Trustee from time
to time by each respective Person.
"Available Payment Amount" has the meaning specified in
Section 3.07(b).
"Available Reserve Amount" shall mean, with respect to any
Monthly Payment Date, the lesser of (a) the amount on deposit in the Reserve
Account (excluding all income from the investment of funds therein) and (b) the
Required Reserve Amount.
"Backup Trustee Fee" means (i) with respect to the Closing
Date, the "Acceptance Fee" plus the "Stand-By Trustee Annual Administration
Fee," each as specified in the Backup Trustee Fee Letter and (ii) on the Monthly
Payment Date occurring in April of each calendar year, the "Stand-By Trustee
Annual Administration Fee" as specified in the Backup Trustee Fee Letter.
"Backup Trustee Fee Letter" means the letter dated February
17, 1998 from The Bank of New York to Daiwa Securities America and JLA Funding
Corporation III setting forth the fees payable to The Bank of New York under
this Indenture.
"Business Day" means any day that is a London Banking Day and
that is not a Saturday, a Sunday or a day on which banking institutions in New
York City or in the city in which the Corporate Trust Office is located are
authorized or required by law or executive order to be closed.
"Capital Stock" means the Company's common stock, $.10 par
value per share.
"Class" means any of the four classes of Notes which may be
issued pursuant to this Indenture, which classes are "Class A-FL," "Class A-FX,"
"Class B-FL," and "Class B-FX."
"Class A-FL Floating Rate Margin" has the meaning specified in
the applicable Note Purchase Agreement.
"Class A-FL Note" means any one of the Floating Rate
Asset-Backed Notes, Class A-FL, authorized by, and authenticated and delivered
under, this Agreement in substantially the form set forth in Exhibit A-1.
3
<PAGE>
"Class A-FL Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Class A-FL Notes as of such
date.
"Class A-FL Noteholder" means, at any time, any Person in
whose name a Class A-FL Note is registered in the Note Register.
"Class A-FL Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (i) the Class A-FL Note
Principal Balance as of such date by (ii) the Aggregate Note Principal Balance
as of such date.
"Class A-FL Rate" means, with respect to the Class A-FL Notes,
the variable per annum rate of interest that for each Interest Period is equal
to the sum of LIBOR plus the Class A-FL Floating Rate Margin.
"Class A-FX Note" means any one of the Fixed Rate Asset-Backed
Notes, Class A-FX, authorized by, and authenticated and delivered under, this
Agreement in substantially the form set forth in Exhibit A-2.
"Class A-FX Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Class A-FX Notes as of such
date.
"Class A-FX Noteholder" means, at any time, any Person in
whose name a Class A-FX Note is registered in the Note Register.
"Class A-FX Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (i) the Class A-FX Note
Principal Balance as of such date by (ii) the Aggregate Note Principal Balance
as of such date.
"Class A-FX Rate" means, with respect to any Class A-FX Note,
a per annum fixed rate that is equal to the Fixed Rate Benchmark applicable to
such Class A-FX Note plus any Pricing Premium applicable to such Class A-FX
Note.
"Class B-FL Floating Rate Margin" has the meaning specified in
the applicable Note Purchase Agreement.
"Class B-FL Note" means any one of the Floating Rate
Asset-Backed Notes, Class B-FL, authorized by, and authenticated and delivered
under, this Agreement in substantially, the form set forth in Exhibit B-1.
"Class B-FL Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Class B-FL Notes as of
such date.
"Class B-FL Noteholder" means, at any time, any Person in
whose name a Class B-FL Note is registered in the Note Register.
"Class B-FL Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (i) the Class B-FL Note
Principal Balance as of such date by (ii) the Aggregate Note Principal Balance
as of such date.
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"Class B-FL Rate" means, with respect to the Class B-FL
Notes, the variable per annum rate of interest that for each Interest Period is
equal to the sum of LIBOR plus the Class B-FL Floating Rate Margin.
"Class B-FX Note" means any one of the Fixed Rate
Asset-Backed Notes, Class B-FX, authorized by, and authenticated and delivered
under, this Agreement in substantially the form set forth in Exhibit B-2.
"Class B-FX Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Class B-FX Notes as of such
date.
"Class B-FX Noteholder" means, at any time, any Person in
whose name a Class B-FX Note is registered in the Note Register.
"Class B-FX Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (a) the Class B-FX Note
Principal Balance as of such date by (ii) the Aggregate Note Principal Balance
as of such date.
"Class B-FX Rate" means, with respect to any Class B-FX Note,
a per annum fixed rate that is equal to the Fixed Rate Benchmark applicable to
such Class B-FX Note Plus any Pricing Premium applicable to such Class B-FX
Note.
"Class Percentage" means (i) with respect to the Class A-FL
Note, the Class A-FL Percentage, (ii) with respect to the Class A-FX Notes, the
Class A-FX Percentage, (ii) with respect to the Class B-FL Notes, the Class B-FL
Percentage, (iv) with respect to the Class B-FX Notes, the Class B-FX
Percentage.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time, or any successor statute thereto, and applicable
regulations of the U.S. Department of the Treasury promulgated thereunder.
"Collection Account" means the segregated account or accounts
by that name established and maintained by the Trustee pursuant to Section 3.01.
"Collection Period" means, as to any Monthly Payment Date, the
calendar month preceding the month in which such Monthly Payment Date occurs.
"Committed Investor" means each purchaser of Notes that is
contractually committed to purchase and fund Notes during the Note Issuance
Period.
"Company" means JLA Funding Corporation III, a corporation
organized and existing under the laws of the State of Delaware, and its
successors.
"Company Order" or "Company Request" means a written order or
request delivered to the Trustee and signed in the name of the Company by an
Authorized Officer.
"Contract" means, for any applicable Contract Purchase Date,
each commercial loan contract or equipment finance lease, secured by commercial
and/or industrial equipment, including any amendment or modification of such
contract and any schedules and promissory notes incorporated therein (including,
without limitation, all rights to receive Contract Payments) sold and
transferred to the Company on such
5
<PAGE>
Contract Purchase Date pursuant to the Sale and Servicing Agreement, as
identified in the related Bill of Sale.
"Contract Assets" means the Contracts (exclusive of any
Administrative Fees and all amounts due or becoming due under such Contracts
prior to the applicable Cut-Off Dates), together with (i) a perfected security
interest, if any, in the Equipment; (ii) certain rights, remedies and interests
under the Sale and Servicing Agreement, (iii) amounts representing Security
Deposit Offsets applied to unpaid Contract Payments due after the Cut-Off Date;
(iv) any guaranty relating to a Contract; (v) each Insurance Policy, if any,
covering Equipment, including all rights to any Insurance Proceeds received on
or after the applicable Cut-Off Date; (vi) the interest of the Seller in any
funds to be deposited in the Collection Account; (vii) all documents contained
in the Contract Files (of which JLA will retain possession only as agent of the
Company); (viii) all payments and proceeds with respect to the Contracts and the
other Contract Assets (including any Recoveries on the Contracts) held by the
Servicer or any subservicer; and (ix) all proceeds of the foregoing.
"Contract Files" means the documents specified in Section 3.04
of the Sale and Servicing Agreement.
"Contract Payment" means, with respect to each Contract, the
scheduled monthly payment for the Equipment leased to or otherwise financed by
the Obligor under such Contract, consisting of an Interest Component and a
Principal Component.
"Contract Proceeds" means collectively (i) the Contract
Payments, (ii) any Retransfer Amounts paid by the Seller or the Servicer
pursuant to Section 3.03 of the Sale and Servicing Agreement and (iii) any
prepayments in full of a Contract.
"Contract Purchase Account" means the account by that name
established and maintained by the Trustee pursuant to Section 3.01.
"Contract Purchase Date" means each date during the Note
Issuance Period that is designated by the Company to the Seller upon not less
than five Business Days' prior notice to the Seller and the Trustee, and
approved by the Seller, on which additional Contracts are to be purchased by the
Company pursuant to the Sale and Servicing Agreement.
"Contract Rate" of a Contract means the interest rate stated
or implied in such Contract.
"Corporate Trust Office" means the principal office of the
Trustee at which its corporate trust business shall be administered, which
office at the date of execution of this Agreement is located at 165 Broadway,
New York, New York 10006, Attention: Corporate Trust Administration, facsimile
(212) 335-4796, or such office at some other address or such other person as the
Trustee may designate from time to time by notice to the Noteholders, the
Company and the Servicer.
"Credit and Collection Policy" means those receivable credit
and collection policies and practices of the Servicer as in effect from time to
time and maintained in compliance with the requirements of the Sale and
Servicing Agreement.
"Current Amount" means with respect to any Contract (other
than a Defaulted Contract, a Retransferred Contract, or a Contract which,
together with amounts, if any, on deposit in the Payahead Account with respect
to such Contract is prepaid in full (a "Prepaid Contract") from and after the
Collection Period in which such Contract became a Defaulted, Retransferred or
Prepaid Contract) for any Collection
6
<PAGE>
Period and the related Monthly Payment Date, the portion of any Payahead Amount
which is allocated by the Servicer to such Collection Period or any prior
Collection Period and, with respect to a Defaulted Contract, Retransferred
Contract or Prepaid Contract, means the entire Payahead Amount.
"Cut-Off Date" means, as to any Contract, the last day of the
calendar month immediately preceding the applicable Contract Purchase Date of
such Contract, as specified in the related Bill of Sale delivered pursuant to
the Sale and Servicing Agreement.
"Default" means any occurrence that is, or with notice or the
lapse of time or both would become, an Indenture Event of Default.
"Default Ratio" means the ratio (expressed as an annualized
percentage) computed, as of the last day of each calendar month, by dividing (i)
the aggregate outstanding Principal Balance of all Contracts that were Defaulted
Contracts on such day or that would have been Defaulted Contracts on such day
had they not been written off the books of the Servicer or placed into the
pending writeoff or workout category during such calendar month (in each case
without (for purposes of this definition) giving effect to any withdrawal from
the Trust Property of any Defaulted Contract pursuant to Article IV or the
inclusion in the Trust Property of any Substitute Contract), net of any
Recoveries received by the Servicer with respect to such Contracts during such
calendar month by (ii) the aggregate outstanding Principal Balance of all
Contracts on such day (without (for purposes of this definition) giving effect
to any withdrawal from the Trust Property of any Defaulted Contract pursuant to
Article IV or the inclusion in the Trust Property of any Substitute Contract);
provided, however, that for purposes of the foregoing ratio the Principal
Balance of a Substitute Contract that becomes a Defaulted Contract shall be
included if such Substitute Contract becomes a Defaulted Contract during the
Note Issuance Period but shall not be included if such Substitute Contract
becomes a Defaulted Contract after the Note Issuance Period.
"Defaulted Contract" means, with respect to a Monthly Payment
Date, a Contract (other than a Retransferred Contract) (i) as to which the
Servicer has, in accordance with its customary servicing procedures, during the
Collection Period preceding such Monthly Payment Date, written off any amount to
be paid thereunder as uncollectible or placed into the pending writeoff or
workout category or (ii) as to which any payment remains unpaid for 181 days or
more from the original due date for such payment or (iii) rejected by or on
behalf of the related Obligor in a bankruptcy proceeding.
"Delinquency Ratio" means the ratio (expressed as a
percentage) computed as of the last day of each calendar month by dividing (i)
the aggregate outstanding Principal Balance of all Contracts that were
Delinquent Contracts on such day by (ii) the aggregate outstanding Principal
Balance of all Contracts on such day.
"Delinquent Contract" with respect to any Monthly Payment Date
means any Contract that is not a Defaulted Contract and under which any payment
remains unpaid, as of the last day of the Collection Period preceding such
Monthly Payment Date, for 61 days or more from the original due date for such
payment.
"Deposit Date" means, with respect to any Monthly Payment
Date, the Business Day immediately preceding such related Monthly Payment Date.
"Early Amortization Event" means the occurrence of any
Indenture Event of Default.
"Eligibility Criteria" has the meaning specified in the Sale
and Servicing Agreement.
7
<PAGE>
"Eligible Contract" has the meaning specified in Section 3.02
of the Sale and Servicing Agreement.
"Eligible Deposit Account" means either (x) a segregated trust
account in the corporate trust department at a Qualified Institution with
corporate trust powers or (y) a segregated demand deposit account at a Qualified
Institution whose short-term unsecured deposits are rated A-1+ by Standard &
Poor's.
"Eligible Provider" means, with respect to any Hedge
Agreement, a bank, other depository institution or other Person (i) the
long-term debt obligations of which are rated by Standard & Poor's not less
than AA (or such other minimum rating level, if any, as Standard & Poor's
confirms in writing will not result in a reduction or withdrawal of the
then-current rating of any Class of Notes by Standard & Poor's), the rating of
which does not have a "t" highlighter affixed to it and (ii) having the power
and authority to execute, deliver and perform the Hedge Agreement.
"Equipment" means any new or used equipment, together with all
accessions thereto and replacement parts, accessories and repairs with respect
thereto, which is the subject of a Contract.
"Equity Base means, with respect to the Company on any date,
the amount equal to the excess of (i) the Pool Balance of the Contracts owned by
the Company on such date plus the amount on deposit in the Reserve Account
(after giving effect to all required deposits and withdrawals therefrom, if any,
on such date), over (ii) the Aggregate Note Principal Balance on such date.
"Equity Threshold Amount" has the meaning specified in Section
3.07(b)(x).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Excess Collections" means, for any Monthly Payment Date,
the amounts remaining in the Collection Account with respect to the related
Collection Period and available for distribution to or upon the order of the
Company pursuant to Section 3.07(b)(xiii).
"Fixed Rate Benchmark" means, with respect to any Fixed Rate
Note, the interpolated rate for United States Treasury securities having a
maturity comparable to the expected average life of such Note, determined as of
a Fixed Rate Determination Date. Interest on the Fixed Rate Notes will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
"Fixed Rate Determination Date" means a date that is two
Business Days (or such greater number of Business Days, but in no event more
than 10 Business Days, as may be agreed between the Company and a Note purchaser
in any particular instance) prior to the related Note Issuance Date.
"Fixed Rate Hedge" means an interest rate hedge agreement
entered into by the Company with a Hedge Provider in connection with an issuance
of the Fixed Rate Notes, pursuant to which the Company shall not have any
periodic and scheduled payment obligations to the Hedge Provider under the terms
thereof.
"Fixed Rate Notes" means the Class A-FX Notes and the Class
B-FX Notes.
"Floating Rate Cap" means an interest rate hedge agreement
entered into by the Company with a Hedge Provider in connection with an issuance
of the Floating Rate Notes, pursuant to which the Company shall not have any
periodic and scheduled payment obligations to the Hedge Provider under the terms
thereof.
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"Floating Rate Hedge" means either a Floating Rate Cap or a
Swap Agreement.
"Floating Rate Notes" means the Class A-FL Notes and the Class
B-FL Notes.
"Grant" means to grant, bargain, sell, convey, assign,
transfer, mortgage, pledge, create and grant a security interest in and right of
set-off against, deposit, set over and confirm.
"Hedge Agreement" means any Fixed Rate Hedge or Floating Rate
Hedge.
"Hedge Agreements" means, collectively, all Fixed Rate Hedges
and Floating Rate Hedges.
"Hedge Proceeds" means, with respect to any Hedge Agreement
on any date, all amounts due and owing by the Hedge Provider to the Company on
such date pursuant to the Hedge Agreement (including any amount owing by reason
of a Swap Termination).
"Hedge Provider" means, with respect to any Hedge Agreement,
the counter party providing such Hedge Agreement.
"Indenture" or "this Indenture" means this instrument as
originally executed and as from time to time supplemented or amended pursuant to
the applicable provisions hereof.
"Indenture Event of Default" means an "Event of Default" as
defined in Section 6.01.
"Insurance Policies" means all theft and physical damage and
all other insurance policies covering the Equipment.
"Insurance Proceeds" means proceeds paid pursuant to any
Insurance Policy and amounts (exclusive of rebated premiums or amounts used to
restore or repair the Equipment) paid by any insurer under any other insurance
policy related to the Equipment.
"Interest Component" means, with respect to any Contract on a
Monthly Payment Date, the portion of the Contract Payments thereon received
during the related Collection Period which represents the interest on the
purchase price paid by JLACC for the related Equipment.
"Interest Determination Date" means, with respect to any
Interest Period, the second Business Day preceding the first day of such
Interest Period.
"Interest Period" means, with respect to any Note and any
Monthly Payment Date, the period from and including the previous Monthly Payment
Date (or, in the case of the first Monthly Payment Date for such Note, from and
including the Note Issuance Date for such Note), to but excluding such Monthly
Payment Date; provided, however, that, with respect to calculation of any
accrued Non-Utilization Premium accrued prior to the first Monthly Payment Date,
"Interest Period" means the period from and including the Closing Date to but
excluding the first Monthly Payment Date.
"Issuer Order" means an order substantially in the form of
Exhibit D hereto signed by the president, the treasurer or the secretary of the
Company and delivered to the Trustee by the Company, directing the Trustee to
authenticate and deliver the Notes specified therein in the manner specified
therein.
"JLACC" means JLA Credit Corporation, a Delaware corporation,
and its successors in interest.
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"LIBOR" means with respect to any Interest Period, the, per
annum rate for deposits in United States dollars for a one-month period which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Interest
Determination Date. If such rate does not appear on Telerate Page 3750 on such
day, the rate will be determined on the basis of the rates at which deposits in
U.S. dollars are offered by the Reference Banks at approximately 11:00 a.m.,
London time, on the related Interest Determination Date to prime banks in the
London interbank market for a period of one month. The Trustee will request the
principal London office of each of the Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, the rate for that
Interest Determination Date will be the arithmetic mean of the quotations. If
fewer then two quotations are provided as requested, the rate for that Interest
Determination Date will be the arithmetic mean of the rates rounded upwards to
the nearest 1/16 of 1.0% (one per cent) quoted by two or more major banks in
New York City, selected by the Trustee in its sole discretion, at approximately
11:00 a.m., New York City time, on that Interest Determination Date for loans in
U.S. dollars to leading banks in London interbank market for a period of one
month. "Reference Banks" shall mean Barclays Bank PLC, Citibank, N.A., The Chase
Manhattan Bank and Deutsche Bank AG.
"Lien" means a security interest, lien, charge, pledge or
encumbrance of any kind.
"Lock-Box Account" means the account for JLA Funding
Corporation III designated as such, established and maintained pursuant to the
Lock Box Agreement and in accordance with Section 5.01 of the Sale and Servicing
Agreement.
"Lock-Box Agreement" means the master lock-box agreement,
dated as of March 30, 1998, by and among the Purchaser, Bank of America National
Trust and Savings Association, as Lock Box Bank, and the Trustee, pursuant to
which the Lock-Box Account is established and maintained.
"Lock-Box Bank" means, as of any date, the bank or trust
company at which the Lock-Box Account is established and maintained as of such
date.
"London Banking Day" means any Business Day on which dealings
in deposits in United States dollars are transacted in the London interbank
market.
"Monthly Interest" means, for any Monthly Payment Date, (i)
with respect to each Class A-FL Note, the product of (a) the product of (1) the
actual number of days in each Interest Period for such Note divided by 360 times
(2) the Class A-FL Rate for the related Interest Period for such, Note and (b)
the Class A-FL Note Principal Balance, (ii) with respect to each Class A-FX
Note, the product of (a) the applicable Class A-FX Rate, (b) the Class A-FX Note
Principal Balance and (c) 1/12, (iii) with respect to each Class B-FL Note, the
product of (a) the product of (1) the actual number of days in each Interest
Period for such Note divided by 360 times (2) the Class B-FL Rate for the
related Interest Period for such Note times (b) the Class B-FL Note Principal
Balance of the Class B-FL Note and (iv) with respect to each Class B-FX Note,
the product of (a) the applicable Class B-FX Rate, (b) the Class B-FX Note
Principal Balance and (c) 1/12.
"Monthly Payment Date" means the 16th day of each month (or if
such date is not a Business Day, the next succeeding Business Day), commencing
in the calendar month immediately succeeding the first Note Issuance Date, and
ending with the Scheduled Final Payment Date.
"Monthly Principal" means for any Monthly Payment Date, an
amount equal to the relevant Class Percentage multiplied by the sum of the
following amounts: (i) to the extent received during the related Collection
Period, the Principal Component of all Contract Payments other than any amounts
received
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with respect to future Collection Periods, which will be deposited in the
Payahead Account and will constitute Contract Payments in the Collection Period
such payments are scheduled to be received; (ii) with respect to any Contract
that first became a Defaulted Contract during the related Collection Period, the
Principal Balance of such Defaulted Contract; (iii) to the extent received
during the related Collection Period, the Principal Component of any Retransfer
Amounts; (iv) to the extent received during the related Collection Period, the
Principal Component of any prepayments in full of a Contract; and (v) to the
extent received during the related Collection Period, any Insurance Proceeds.
"Monthly Servicer Report" means a report in the form attached
as Exhibit B to the Sale and Servicing Agreement.
"Non-Utilization Premium" means the fee set forth in the
applicable Note Purchase Agreement, which shall commence accruing as of the
Closing Date and shall be payable pursuant to the Note Purchase Agreement to
each Committed Investor of Floating Rate Notes on each Monthly Payment Date
during (and immediately following) the Note Issuance Period in an amount that is
equal to the product of (i) the Non-Utilization Premium Rate (computed on the
basis of the actual number of days elapsed during the related Interest Period
and a 360-day year) and (ii) the daily weighted average principal amount of
Notes the purchases of which are committed to but not yet funded by the
Committed Investors; provided however, that the calculation of any
Non-Utilization Premium shall be subject to any additional conditions and
restrictions, if any, set forth in the related Note Purchase Agreement.
"Non-Utilization Premium Rate" means 0.10% per annum.
"Note Amortization Period" means the period from (and
including) the date that is the earlier of (i) the first day following the end
of the Note Issuance Period and (ii) the date (if any) on which any Early
Amortization Event or Indenture Event of Default shall have occurred, to (and
including) the Scheduled Final Payment Date.
"Note Issuance Date" means each Business Day (not more
frequently than one per month) on which any Notes are issued during the Note
Issuance Period.
"Note Issuance Period" means the period commencing on the
Closing Date and ending (unless sooner terminated pursuant to Section 6.02) on
the date that is the earlier of (i) January 16, 1999 and (ii) the date (if any)
on which the aggregate outstanding principal amount of the Notes equals
$200,000,000.
"Note Principal Balance" means, with respect to any Note or
Class of Notes, (i) as of any date prior to the first Monthly Payment Date, the
outstanding principal balance of the applicable Class of Notes on the initial
Note Issuance Date, (ii) as of any other date prior to the Scheduled Final
Payment Date (or other final payment date on the Notes), the outstanding
principal balance of the applicable Class of Notes as of the preceding Monthly
Payment Date, and (iii) as of the Scheduled Final Payment Date (or other final
payment date on the Notes), the outstanding principal balance of such Class of
Notes on such date; provided that the term "Note Principal Balance" as of any
Monthly Payment Date on which a payment in respect of principal has been made,
shall mean the outstanding principal balance of the applicable Class of Notes on
such date after giving effect to any distributions of Monthly Principal and
overdue Monthly Principal on such date.
"Note Purchase Agreement" means any Note Purchase Agreement
among JLACC, the Company and each initial Noteholder, executed in connection
with the issuance of the Notes.
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"Note Register" has the meaning specified in Section 2.04.
"Note Registrar" has the meaning specified in Section 2.04.
"Noteholder" means, at any time, any Person in whose name a
Note is registered in the Note Register except that, solely for the purpose of
giving any consent, request or waiver pursuant to this Indenture, the interest
evidenced by any Note registered in the name of the Company or any other obligor
on the Notes, the Servicer, any subservicer or any Affiliate of any of them
shall not be deemed a Noteholder for the purpose of determining whether the
requisite percentage necessary to effect any such consent, request or waiver
shall have been obtained. The Trustee may request, obtain and conclusively rely
upon a certificate of the Servicer or the Company to determine whether Notes are
registered to the Company, the Servicer, any subservicer or any other Person
controlling, controlled by, or under common control with any of them.
"Notes" means the Class A-FL Notes, the Class A-FX Notes, the
Class B-FL Notes and the Class B-FX Notes.
"Obligor" means each obligor under a Contract and its
permitted assigns.
"Officer's Certificate" means a certificate signed by the
chairman of the board, the president, any vice chairman of the board, or a vice
president of the Company, the Seller or the Servicer, as appropriate, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel (who
may be in-house counsel for the Seller or Servicer), acceptable in form and
substance to the Trustee.
"Over-Issuance Condition" has the meaning specified in
Section 12.07
"Overdue Monthly Interest" means any interest on a Note which
was to have been distributed, and was not distributed, on a Monthly Payment
Date.
"Overdue Monthly Principal" means any principal on a Note
which was to have been distributed, and was not distributed, on a Monthly
Payment Date.
"Payahead Account" means the account by that name established
and maintained pursuant to Section 3.01.
"Payahead Amount" means, with respect to any Contract, the
amount of any payment by an Obligor in excess of the Current Amount.
"Payahead Draw Amount" means, with respect to any Monthly
Payment Date, the aggregate of a11 Current Amounts for all Obligors.
"Permitted Investments" means, at any time, any one or more of
the following obligations and securities:
(a) obligations of the United States or any agency thereof,
provided such obligations are guaranteed as to the timely payment of
principal and interest by the full faith and credit of the United
States;
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(b) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia then assigned a
rating of AAA or A-1 + by Standard & Poor's or such lower rating (as
approved in writing by Standard & Poor's) as will not result in the
qualification, downgrading or withdrawal of the rating then assigned to
the Notes of any Class by Standard & Poor's;
(c) interests in any money market fund (including funds for
which the Trustee or the Backup Trustee or any of their respective
affiliates serve as investment manager or advisor) which invests
exclusively in any of the obligations described in (a) or (b) above and
which at the date of acquisition of the interests in such funds has a
rating of AAAm-G by Standard & Poor's or is otherwise approved in
writing by Standard & Poor's;
(d) commercial paper which is then rated A-1 + by Standard &
Poor's or such lower rating (as approved in writing by Standard &
Poor's) as will not result in the qualification, downgrading or
withdrawal of the rating then assigned to the Notes of any Class by
Standard & Poor's;
(e) certificates of deposit, demand or time deposits, federal
funds or banker's acceptances issued by any depository institution or
trust company incorporated under the laws of the United States or of
any state thereof or incorporated under the laws of a foreign
jurisdiction with a branch or agency located in the United States and
subject to supervision and examination by federal or state banking
authorities, provided that the short-term unsecured deposit obligations
of such depository institution or trust company have a rating of A-1 +
by Standard & Poor's, or such lower rating category (as approved in
writing by Standard & Poor's) as will not result in the qualification,
downgrading or withdrawal of the rating then assigned to the Notes of
any Class by Standard & Poor's;
(f) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation (as approved in writing by
Standard & Poor's) as will not result in the qualification, downgrading
or withdrawal of the rating then assigned to the Notes of any Class by
Standard & Poor's;
(g) repurchase obligations with respect to any security
described in clauses (a) or (b) hereof or any security issued or
guaranteed by the Federal National Mortgage Association or any agency
or instrumentality of the United States which is backed by the full
faith and credit of the United States, in either case entered into with
a federal agency or a depository institution or trust company (acting
as principal) described in clause (e) above;
(h) interests in any open-end or closed-end management type
investment company or investment trust (x) registered under the
Investment Company Act of 1940, the portfolio of which is limited to
the obligations of, or guaranteed by, the United States and to
agreements to repurchase such obligations, which agreements, with
respect to principal and interest, are at least 100% collateralized by
such obligations marked to market on a daily basis and the investment
company or investment trust shall take delivery of such obligations
either directly or through an independent custodian designated in
accordance with the Investment Company Act of 1940, and (y) as will not
result in the qualification, downgrading or withdrawal of the rating
then assigned to the Notes of any Class by Standard & Poor's (as
approved in writing by Standard & Poor's); and
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(i) such other investments (a) where the short-term unsecured
debt of the obligor is rated A-1+ by Standard & Poor's or (b) which
are acceptable to Standard & Poor's (as approved in writing by Standard
& Poor's) and as will not result in the qualification, downgrading or
withdrawal of the rating assigned to the Notes of any Class by Standard
& Poor's,
Notwithstanding the foregoing, Permitted Investments shall not include (i)
"stripped securities" and investments which contractually may return less than
the purchase price therefor, and (ii) instruments with a purchase price greater
than par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization,
or government or any agency or political subdivision thereof, or any other
entity of whatever nature.
"Plan" has the meaning specified in Section 2.04(f).
"Pool Balance" as of any date means the aggregate Principal
Balance of the Contracts as of such date.
"Predecessor Notes" means, with respect to any particular
Note, every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purpose of this definition, any
Note authenticated and delivered under Section 2.05 in lieu of a lost, destroyed
or stolen Note (or a mutilated Note surrendered to the Trustee) shall be deemed
to evidence the same debt as the lost, destroyed or stolen Note (or a mutilated
Note surrendered to the Trustee).
"Pricing Premium" means (i) 0.00% with respect to any Fixed
Rate Notes issued from the Closing Date through June 30, 1998, (ii) 0.05% with
respect to any Fixed Rate Notes issued from July 1, 1998 through September 30,
1998 and (iii) 0.10% with respect to any Fixed Rate Notes issued from October 1,
1998 through the last day of the Note Issuance Period; provided however, that
the determination of any Pricing Premium shall be subject to any additional
conditions and restrictions, if any, set forth in the related Note Purchase
Agreement.
"Principal Balance" means, with respect to any Contract on any
day, (i) the unamortized portion of the purchase price paid by JLACC for the
related Equipment, and amounts paid by JLACC in respect of taxes and origination
costs and fees, as of the related Cut-Off Date, minus (ii) the sum of the
following with respect to such Contract: (a) the Principal Component of all
Contract Payments since the applicable Cut-Off Date received by the Servicer and
deposited in the Collection Account other than the Principal Component of any
payments received with respect to future Collection Periods, which will be
deposited in the Payahead Account and will constitute Contract Payments in the
Collection Period such payments are scheduled to be received; and (b) the
proceeds of any Insurance Policies; provided, however, that for any day
following the Monthly Payment Date on which the proceeds of a prepayment in full
of a Contract or a Retransferred Contract are payable to Noteholders under the
definition of Monthly Principal or a Defaulted Contract first becomes a
Defaulted Contract, the Principal Balance of any such Contract shall be zero.
"Principal Component" shall mean, with respect to Contract
Payments, that portion of such payments which represents the amortization of the
purchase price paid by JLACC for the related Equipment.
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"Purchase Option Payment" shall mean, with respect to any,
Contract, any payment (received on or after the applicable Cut-Off Date for such
Contract) made by an Obligor to purchase the Equipment subject to the Contract.
"Qualified Institution" means a depository institution
organized under the laws of the United States or any state thereof and whose
deposits are insured by the Federal Deposit Insurance Corporation.
"Rate" means (i) with respect to the Class A-FL Notes, the
Class A-FL Rate, (ii) with respect to the Class A-FX Notes, the Class A-FX Rate,
(iii) with respect to the Class B-FL Notes, the Class B-FL Rate or (iv) with
respect to the Class B-FX Notes, the Class B-FX Rate.
"Rating Agency" means Standard & Poor's and any successor
thereto.
"Ratings Effect" means a reduction or withdrawal of a rating
on a Class of Notes by the Rating Agency.
"Record Date" means, with respect to any Monthly Payment
Date, the last day of the month preceding the month in which such Monthly
Payment Date occurs (or in the case of the initial Monthly Payment Date, the
initial Note Issuance Date).
"Recoveries" means, with respect to any Defaulted Contract,
all payments and proceeds received by the Servicer or the Company in the
process of recovery, repossession and liquidation of the related Equipment,
other than the amounts reimbursed to the Servicer for all reasonable expenses
related to such process.
"Redemption Date" means, with respect to any redemption of
the Notes, a Monthly Payment Date fixed as the date on which the Notes are to be
redeemed at the option of the Company pursuant to Section 10.01.
"Redemption Price" means, with respect to any Note, and as of
any Redemption Date fixed by the Company, the Note Principal Balance of such
Note, together with interest accrued thereon to but not including such
Redemption Date at the applicable Rate.
"Redemption Record Date" means, with respect to any
redemption of the Notes, a date fixed pursuant to Section 10.01.
"Required Deposit Rating" shall be a short-term unsecured
deposit rating of A-1+ by Standard & Poor's.
"Required Reserve Amount" means, with respect to any Monthly
Payment Date, an amount equal to the product of (i) the Required Reserve
Percentage and (ii) the aggregate Note Principal Balance of all Notes (after
giving effect to all payments of principal on such Monthly Payment Date).
"Required Reserve Percentage" means one percent (1%);
provided that if during the Note Amortization Period the Weighted Average Yield
of the Contracts in the Trust Property for any Collection Period is less than
9.25% per annum, then on the related Monthly Payment Date and on each Monthly
Payment Date thereafter until the Weighted Average Yield of the Contracts in the
Trust Property for a related Collection Period is equal to or greater than 9.25%
per annum, "Required Reserve Percentage" shall instead mean the sum of (i) one
and one-half percent (1.5%) plus (ii) ten percent (10%) minus the Weighted
Average Yield of the Contracts in the Trust Property for the related Collection
Period.
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"Required Support Percentage" means, on any date, the
greater of (i) 10.5% and (ii) the amount (expressed as a percentage) that is the
quotient obtained by dividing (x) the aggregate Principal Balance of all
Contracts having Obligors that are the ten largest Obligors (by aggregate,
Contract Balance) represented by the Pool Balance, by (y) the Pool Balance, all
computed as of such date.
"Replacement Date" has the meaning specified in Section 7.07.
"Reserve Account" means the segregated account by that name
established and maintained by the Trustee pursuant to Section 3.01.
"Reserve Account Surplus" means, as of any Monthly Payment
Date, the amount, if any, by which the amount on deposit in the Reserve Account,
including all net income from the investment of funds therein and after taking
into account any deposits and any payments pursuant to Sections 3.05 and 3.07
hereof on such Monthly Payment Date, exceeds the Required Reserve Amount for the
next Monthly Payment Date.
"Reserve Draw Amount" has the meaning specified in Section
3.05(b).
"Residual Amount" means, with respect to any Contract, the
amount (if any) received in respect of such Contract and the related Equipment
(through Obligor payments, Recoveries, Purchase Option Payments or otherwise)
that is in excess of the amount required for the payment of all amounts owing
under such Contract.
"Responsible Officer" means, when used with respect to the
Trustee, (a) any officer within the corporate trust department of the Trustee
including any vice president, assistant vice president, secretary, assistant
secretary, treasurer, assistant treasurer, trust officer or any other officer of
the Trustee who customarily performs functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of such person's knowledge of and
familiarity with the particular subject and (b) who shall have direct
responsibility for the administration of this Agreement.
"Retransfer Amount" means, with respect to any Contract, the
price equal to the Principal Balance of such Contract (prior to any amendment,
modification or exchange) on the first day of the month following the date on
which the reacquisition obligation with respect to such Contract arose, plus
accrued interest on the Principal Balance of such Contract, at a rate equal to
1/12 of the sum of (i) the weighted average Rate of all outstanding
Subordinated Notes and (ii) the Servicing Fee Rate, to the date that is the date
of payment of such Retransfer Amount, less the amount, if any, on deposit in the
Payahead Account with respect to such Contract.
"Retransferred Contract" means, for any Collection Period, a
Contract which has been retransferred to the Seller or Servicer as of the last
day of such Collection Period pursuant to Section 4.02 hereof or Section 3.03 or
4.06 of the Sale and Servicing Agreement.
"Retransferred Contract Receivables" means, for any
Collection Period, the Contract receivables under Contracts which have been
retransferred to the Seller or Servicer as of the last day of such Collection
Period pursuant to Section 3.03 or 4.06 of the Sale and Servicing Agreement.
"Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of the date hereof, between the Company and JLACC, pursuant
to which the Company will purchase Contracts and certain related Trust Property
from JLACC on one or more Contract Purchase Dates, and JLACC
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agrees to act as Servicer for all purchased Contracts, as the same may be
amended or modified from time to time in accordance with the provisions hereof
and thereof.
"Schedule of Contracts" means, as of any date, the schedule
of Contracts included in the Trust Property on such date. As of each Note
Issuance Date, a Schedule of Contracts in respect of the Contracts purchased on
such date shall set forth, as to each such Contract as of the related Cut-Off
Date, among other things, (a) its identifying number and the name of the related
Obligor; (b) its date of origination; (c) the remaining term of the Contract;
(d) the stated termination date of the Contract; (e) the original Principal
Balance at inception of the Contract; (f) the Principal Balance as of the
applicable Cut-Off Date; (g) the location where the related Contract File is
kept, if other than 12677 Alcosta Boulevard, San Ramon, California or 970 West
190th Street, Suite 710, Torrance, California 90502; (h) the Contract Rate; and
(i) the scheduled monthly Contract Payment.
"Scheduled Final Payment Date" means, with respect to the
Notes, the Monthly Payment Date occurring in the ninety-sixth (96th) calendar
month following the expiration (or earlier termination) of the Note Issuance
Period (subject to earlier final payment of the Notes pursuant to the terms of
this Indenture).
"Securities Act" means the Securities Act of 1933, as
amended.
"Security Deposit Offset" shall mean the application by JLACC
to one or more Contract Payments under a Defaulted Contract of the amount
required to be deposited with JLACC by the Obligor as security for payment of
amounts due under such Contract.
"Seller" means JLACC in its capacity as Seller of Contracts
under the Sale and Servicing Agreement, and each successor to JLACC (in the same
capacity) pursuant to Section 6.02 thereof.
"Senior Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Senior Notes as of such
date.
"Senior Note Percentage" means, as of any date, the quotient
(expressed as a percentage) obtained by dividing (i) the Senior Note Principal
Balance as of such date by (ii) the Aggregate Note Principal Balance as of such
date.
"Senior Noteholder" means, at any time, any Person in whose
name a Senior Note is registered in the Note Register.
"Senior Notes" means, collectively, the Class A-FL Notes and
the Class A-FX Notes.
"Servicer" means JLACC, as the servicer of the Contracts
under the Sale and Servicing Agreement, and each successor to JLACC (in the same
capacity) pursuant to the Sale and Servicing Agreement.
"Servicer Event of Default" means "Event of Default" as
defined in Section 8.01 of the Sale and Servicing Agreement.
"Servicer Notice" means a written request, instruction or
other notice delivered to the Trustee and signed in the name of the Servicer by
a Servicing Officer.
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"Servicing Fee" with regard to a Collection Period means the
fee payable to the Servicer for services rendered during such Collection Period,
determined pursuant to Section 4.07 of the Sale and Servicing Agreement.
"Servicing Officer" means any officer of the Servicer or any
subservicer involved in, or responsible for, the administration and servicing of
the Contracts whose name appears on a list of servicing officers annexed to an
Officer's Certificate furnished to the Trustee on the date of execution of this
Agreement by the Servicer, or as such list may from time to time be amended.
"Standard & Poor's" means Standard & Poor's, a division of
McGraw-Hill, and its successors in interest.
"Subordinated Note Percentage" means, as of any date, the
quotient (expressed as a percentage) obtained by dividing (i) the Subordinated
Note Principal Balance as of such date by (ii) the Aggregate Note Principal
Balance as of such date.
"Subordinated Note Principal Balance" means, on any date, the
aggregate Note Principal Balances of all outstanding Subordinated Notes as of
such date.
"Subordinated Noteholder" means, at any time, any Person in
whose name a Subordinated Note is registered in the Note Register.
"Subordinated Notes" means, collectively, the Class B-FL
Notes and the Class B-FX Notes.
"Substitute Contract" has the meaning specified in Section
3.08 of the Sale and Servicing Agreement.
"Swap Agreement" means any interest rate swap agreement (or
other similar hedge agreement) entered into by the Company with a Hedge Provider
in connection with the issuance of the Floating Rate Notes, pursuant to which
the Company shall have periodic or other scheduled payment obligations to the
Hedge Provider under the terms thereof.
"Swap Payment Amount" means, with respect to any Monthly
Payment Date, the amount due and owing by the Company to any Swap Provider on
such date pursuant to the related Swap Agreement.
"Swap Provider" means any Hedge Provider providing a Swap
Agreement.
"Swap Termination" means any early termination of a Swap
Agreement pursuant to the terms thereof.
"Swap Termination Amount" means the amount (if any) due and
owing to any Swap Provider in connection with a Swap Termination.
"Three-Month Average Default Ratio" as of the last day of any
calendar month means the arithmetic average of the Default Ratios as of the last
day of such calendar month and the two immediately preceding calendar months.
"Three-Month Average Delinquency Ratio" as of the last day of
any calendar month means the arithmetic average of the Delinquency Ratios as of
the last day of such calendar month and the two immediately preceding calendar
months.
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"Trust Property" means all Contracts, Equipment, Accounts,
money, instruments, accounts, general intangibles, contract rights and other
assets and property that is described in the Granting Clause of this Indenture
and subject to or intended to be subject to the lien of this Indenture,
including all proceeds thereof.
"Trustee" shall have the meaning given such term in Section
7.07 hereof.
"Trustee Fee" means (i) if the Trustee is LTCB Trust Company,
the fee payable to the Trustee hereunder in an amount that, for each Monthly
Payment Date (and for the date on which the final payment of principal is made),
is equal to the sum of (A) the wire transfer fees and reimbursable out-of-pocket
expenses referred to in the Trustee Fee Letter plus (B) the amount that is the
product of (x) the rate per annum specified in the Trustee Fee Letter and (y)
the Aggregate Note Principal Balance as of the previous Monthly Payment Date
(after giving effect to all payments of principal on such date) (or, in the case
of the first Monthly Payment Date, as of the Initial Note Issuance Date) or (ii)
if the Trustee is The Bank of New York, the "Trustee Annual Administration Fee"
specified in the Backup Trustee Fee Letter payable in advance on the Replacement
Date and, annually, on each Monthly Payment Date occurring on or immediately
before each anniversary of the Replacement Date.
"Trustee Fee Letter" means the letter dated February 19, 1998
from LTCB Trust Company to JLA Credit Corporation setting forth the fees payable
to LTCB Trust Company under this Indenture.
"Trustee's Certificate" means a statement completed and
executed by a Responsible Officer pursuant to Section 7.14.
"Trustee Fee Cap" means $40,000 per annum.
"Uniform Commercial Code" or "UCC" means, with respect to a
particular jurisdiction, the Uniform Commercial Code, as in effect from time to
time in such jurisdiction, or any successor statute, thereto.
"Weighted Average Yield" means, with respect to the Contracts
included in the Trust Property and any Collection Period, the weighted average
yield of such Contracts during such period (expressed as an annualized
percentage).
SECTION 1.02. Compliance Certificates and Opinions.
Subject to the terms hereof, upon any application or request
by the Company to the Trustee, to take any action under any provision of this
Indenture, other than any request expressly provided herein that (i) the Trustee
authenticate the Notes specified in such request, (ii) the Trustee invest moneys
in the Collection Account, the Reserve Account, the Payahead Account or the
Contract Purchase Account pursuant to the written directions specified in such
request, or (iii) the Trustee pay moneys due and payable to the Company
hereunder to the Company's assignee specified in such request, the Trustee may
require the Company to furnish to the Trustee an Officer's Certificate stating
that all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such requested action as to
which other evidence of satisfaction of the conditions precedent thereto is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
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SECTION 1.03. Form of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.
Any Officer's Certificate delivered to the Trustee may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such Officer's Certificate or opinion and any Opinion of Counsel
may be based, insofar as it, relates to factual matters, upon a certificate or
opinion of, or representations by, an Authorized Officer or Authorized Officers
of the Company as to such factual matters unless such Authorized Officer or
Counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous. Any Opinion of Counsel may be based on the written opinion of other
counsel, in which event such Opinion of Counsel shall be accompanied by a copy
of such other counsel's opinion and shall include a statement to the effect that
such counsel believes that such counsel and the Trustee may reasonably rely upon
the opinion of such other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Wherever in this Indenture, in connection with any
application or certificate or report to the Trustee, it is provided that the
Company shall deliver any document as a condition of the granting of such
application, or as evidence of compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Company to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Section
7.01(a)(ii).
Whenever in this Indenture it is provided that the absence of
the occurrence and continuation of a Default or an Indenture Event of Default
or a Servicer Event of Default or an Early Amortization Event is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Company, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Company's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it has not been notified in writing, prior to the date of such
request or direction, of the occurrence and continuation of such Default or
Indenture Event of Default or Servicer Event of Default or Early Amortization
Event. For all purposes of this Indenture, the Trustee shall not be deemed to
have knowledge of any Default or Indenture Event of Default (other than an
Indenture Event of Default of the kind described in clause (i) of Section 6.01)
or Servicer Event of Default or Early Amortization Event unless a Responsible
Officer of the Trustee shall have been notified in writing thereof by the
Company, the Servicer or any Noteholder.
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SECTION 1.04. Acts of Noteholders, etc.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing (pursuant to appointments previously delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee); and,
except as herein otherwise expressly, provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee, with
a copy (or if expressly required an original) to the Company and the Servicer.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 7.01) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section
1.04.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the holder of any Note shall bind every future
holder of the same Note and the holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.
(d) By accepting the Notes issued pursuant to this Indenture,
each Noteholder irrevocably appoints the Trustee hereunder as the special
attorney-in-fact for such Noteholder vested with full power on behalf of such
Noteholder to effect and enforce the rights of such Noteholder pursuant hereto
and the provisions hereof for the benefit of such Noteholder.
(e) Each holder of a Note, by acceptance of its Note, agrees
to treat the Note as indebtedness of the Company for federal income tax
purposes.
SECTION 1.05. Notices.
Any request, demand, authorization, direction, notice,
consent, waiver, Act of Noteholders, or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with, the
Trustee, the Company or the Servicer shall be sufficient for every purpose
hereunder if in writing and telexed, telecopied (with a copy of the telexed or
telecopied material sent to the recipient by overnight courier on the day of the
telex or telecopy), mailed, first-class postage prepaid, or hand delivered.
Unless otherwise specifically provided herein, no such request, demand,
authorization, direction, notice, consent, waiver, Act of Noteholders or other
document shall be effective until received and any provision hereof requiring
the making, giving, furnishing, or filing of the same on any date shall be
interpreted as requiring the same to be sent or delivered in such fashion that
it will be received on such
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date. Any such request, demand, authorization, direction, notice, consent,
waiver, Act of Noteholders, or other document shall be sent or delivered to the
following addresses:
(i) if to the Trustee, at the Corporate Trust Office,
Attention: Corporate Trust Administration (Number for telecopy:
(212) 608-3081).
(ii) if to the Backup Trustee, at 101 Barclay Street,
Floor 12 East, New York 10286, Attention: Corporate Trust-Asset
Backed Finance Unit.
(iii) if to the Company, at 12677 Alcosta Boulevard,
Suite 430, San Ramon, California 94583 (Number for telecopy:
(510) 327-0228), or at any other address previously furnished in
writing to the Trustee and the Servicer by the Company;
(iv) if to the Seller, at 12677 Alcosta Boulevard, Suite
430, San Ramon, California 94583 (Number for telecopy: (510)
327-0225), or at any other address previously furnished in
writing to the Trustee, the Company and the Servicer by the
Seller;
(v) if to the Servicer, at 12677 Alcosta Boulevard,
Suite 430, San Ramon, California 94583 (Number for telecopy:
(510) 277-0565), or at any other address previously furnished in
writing to the Trustee, the Company and the Seller by the
Servicer; and
(vi) if to Standard & Poor's, at 25 Broadway, New York,
New York 10004-1064, Attention: Surveillance Group (Number for
telecopy: (212) 208-8208), or at any such other address
previously furnished in writing to the Trustee, the Company and
the Seller by Standard & Poor's.
SECTION 1.06. Notice to Noteholders; Waiver.
(a) Where this Indenture provides for notice to Noteholders
of any event, or the mailing of any report to Noteholders, such notice or report
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first class postage prepaid, or sent by private courier or
confirmed telecopy (with a copy of the telecopied material sent to the recipient
by overnight courier on the day of the telecopy) to each Noteholder affected by
such event or to whom such report is required to be mailed, at its address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice or the mailing
of such report. In any case where a notice or report to Noteholders is mailed,
neither the failure to mail such notice or report, nor any defect in any notice
or report so mailed, to any particular Noteholder shall affect the sufficiency
of such notice or report with respect to other Noteholders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Noteholders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
(b) In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable to mail or
send notice to Noteholders, in accordance with Section 1.06(a), of any event or
any report to Noteholders when such notice or report is required to be delivered
pursuant to any provision of this Indenture, then such notification or delivery
as shall be made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.
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SECTION 1.07. Table of Contents, Headings, etc.
The Table of Contents and the Article and Section headings
are for convenience only and shall in no way modify or restrict any of the terms
or provisions hereof.
SECTION 1.08. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
or the Trustee shall bind its respective successors and permitted assigns,
whether so expressed or not.
SECTION 1.09. Severability Clause.
In case any provision in this Indenture or in the Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 1.10. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any separate trustee or co-trustee appointed under Section
7.11 and the Noteholders, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 1.11. Governing Law.
This Indenture and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the conflict of laws principles thereof.
SECTION 1.12. Legal Holidays.
In any case where any Monthly Payment Date or the Scheduled
Final Payment Date or any other date on which principal of or interest on any
Note is proposed to be paid shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Notes) such payment shall be
made on the next succeeding Business Day and no interest shall accrue for the
intervening period.
SECTION 1.13. Execution in Counterparts.
This Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 1.14. Inspection.
The Company agrees that, on reasonable prior notice, it will
permit the representatives of the Trustee or any Noteholder, during the
Company's normal business hours, to examine all of the books of account,
records, reports and other papers of the Company, to make copies thereof and
extracts therefrom, to cause such books to be audited by independent accountants
selected by the Company and reasonably acceptable to the Trustee or such
Noteholder, as the case may be, and to discuss its affairs, finances and
accounts with its officers, employees and independent accountants with an
Authorized Officer of the Company present (and by this provision the Company
hereby authorizes its accountants to discuss
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with such representatives such affairs, finances and accounts), all at such
reasonable times and as often as may be reasonably requested for the purpose of
reviewing or evaluating the financial condition or affairs of the Company or the
performance of and compliance with the covenants and undertakings of the Company
in this Indenture, the Sale and Servicing Agreement, the Hedge Agreements, the
Note Purchase Agreement or any of the other documents referred to herein or
therein. Subject entirely to the priorities of payment specified in Section
3.07(b) and 6.06 hereof and to the availability of funds to the Company in
accordance therewith, any expense incident to the exercise by the Trustee or any
Noteholder of any right set forth in this Section 1.14 during the continuance
of any Default or Indenture Event of Default (including, without limitation, any
Servicer Event of Default) shall be borne by the Company, but any expense due to
the exercise of a right by any such Person prior to the occurrence of a Default
or Indenture Event of Default (including, without limitation, any Servicer Event
of Default) shall be borne (subject to the other provisions of this Indenture)
by such Person; provided, however, that any insufficiency of funds available to
the Company for the payment of any amount otherwise owing by the Company under
this Section will not represent a claim against the Company.
SECTION 1.15. Survival of Representations and Warranties.
The representations, warranties and certifications of the
Company made in this Indenture or in any certificate or other writing delivered
by the Company pursuant hereto shall survive the Closing Date and the
authentication and delivery of the Notes issued on each Note Issuance Date
hereunder, but unless explicitly provided to the contrary, such representations,
warranties and certifications are made only as of the Closing Date and each
such Note Issuance Date.
SECTION 1.16. Communications with Noteholders
Within 15 days' receipt of written request from the
Servicer, the Trustee, acting as Note Registrar, will provide to the Servicer a
list of the names and addresses of all Noteholders of record as of the most
recent Record Date. The Trustee, upon written request by one or more Noteholders
aggregating not less than 25% of the Aggregate Note Principal Balance, will
obtain from the Note Registrar (if other than the Trustee) and afford such
Noteholders access during business hours to the current list of Noteholders for
purposes of communicating with other Noteholders with respect to their rights
under the Indenture (provided such Noteholders (i) state that they wish to
communicate with other Noteholders with respect to their rights under the
Indenture or under the Notes and (ii) provide the Trustee and Servicer with a
copy of the proposed communication).
SECTION 1.17. Statements Required in Officer's Certificate.
Each Officer's Certificate with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that the Person making such certificate
has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained
in such certificate are based;
(iii) a statement that, in the opinion of such Person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
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(iv) a statement as to whether or not, in the opinion of
such Person, such covenant or condition has been complied with.
SECTION 1.18. When Treasury Securities Disregarded.
In determining whether the Noteholders of the required Note
Principal Balance of Notes have concurred in any request, waiver or consent
pursuant to this Indenture, Notes registered in the name of the Company or any
other obligor on the Notes or registered in the name of the Servicer or any
subservicer or in the name of any Affiliate of the Company, such obligor or such
Servicer or subservicer shall be disregarded, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which a Responsible Officer of the
Trustee actually knows are so owned shall be so disregarded. Notes so owned
which have been pledged in good faith shall not be disregarded if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes or the Servicer or any subservicer or any Affiliate of
the Company, such obligor, such Servicer or such subservicer.
SECTION 1.19. Rules by Trustee.
The Trustee may make reasonable rules for action by or at a
meeting of Noteholders.
SECTION 1.20. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or an Affiliate of the Company.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 1.21. No Recourse Against Others.
All liability described in the Notes of any director,
officer, employee or shareholder, as such, of the Company is waived and
released.
SECTION 1.22. Independence of Covenants.
All covenants and agreements in this Indenture shall be
given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Indenture Event of Default or an
Early Amortization Event if such action is taken or condition exists.
SECTION 1.23. Consent to Jurisdiction.
Each of the Company, the Servicer and the Trustee irrevocably
submits to the non-exclusive jurisdiction of any New York State or Federal court
sitting in the Borough of Manhattan in the City of New York over any suit,
action or proceeding arising out of or relating to this Indenture or any Note.
Each of the Company, the Servicer and the Trustee irrevocably waives, to the
fullest extent permitted by applicable law, any objection which it may have to
the laying of the venue of any such suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in any inconvenient forum. Each of the Company, the
Servicer and the Trustee agrees that final judgment in any such suit, action or
proceeding brought in such a court shall be conclusive
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and binding upon the Company, the Servicer or the Trustee, as the case may
be, and may be enforced in the courts of New York (or any other courts to the
jurisdiction of which the Company, the Servicer or the Trustee, as the case may
be, is subject) by a suit upon such judgment, provided that service of process
is effected upon the Company as permitted by law; provided, however, that each
of the Company, the Servicer and the Trustee does not waive, and the foregoing
provisions of this sentence shall not constitute or be deemed to constitute a
waiver of, (i) any right to appeal any such judgment, to seek any stay or
otherwise to seek reconsideration or review of any such judgment or (ii) any
stay of execution or levy pending an appeal from, or a suit, action or
proceeding for reconsideration or review of, any such judgment. The Company
hereby irrevocably designates and appoints Corporation Service Company (the
"Agent"), which on the date hereof has an office located at 80 State Street,
Albany, New York 12207, Tel.: (518) 433-4740, Fax: (518) 433-4741, as its
authorized agent upon whom process may be served in any such suit or proceeding.
The Company further agrees that, to the extent permitted by applicable law,
service of process upon the Agent shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding, The Servicer
hereby irrevocably designates and appoints the Agent, as its authorized agent
upon whom process may be served in any suit or proceeding related to the
transactions contemplated by this Indenture. The Servicer further agrees that,
to the extent permitted by applicable law, service of process upon the Agent
shall be deemed in every respect effective service of process upon the Servicer
in any suit or proceeding related to the transactions contemplated by this
Indenture.
SECTION 1.24. No Bankruptcy Petition.
Notwithstanding any provision contained herein, each of the
Noteholders and the Trustee covenants and agrees that, prior to the date which
is one year and one day after the payment in full of all Notes issued by the
Company and payment of all other amounts due under this Indenture, it will not
institute against, or join any other Person in instituting against, the Company
any bankruptcy, reorganization, receivership, arrangement, insolvency or
liquidation proceedings, or other similar proceedings under any federal or state
bankruptcy or similar law. The Company represents, warrants, and covenants that
it has obtained, and will in the future obtain, a no-petition agreement from
each and every Person that enters into any agreement of any kind with the
Company. Nothing in this Section shall constitute a waiver by the Trustee or any
Noteholder of any right to receive amounts owing to it under this Indenture or
(in the case of the Noteholders) the Notes. This Section 1.24 shall survive the
termination of this Indenture.
ARTICLE II
THE NOTES
SECTION 2.01. General Provisions.
(a) The Notes issuable hereunder shall be issued as
registered Notes without coupons in four Classes on such date or dates during
the Note Issuance Period as from time to time shall be authorized by the
Company. The Notes of all Classes shall be known and entitled generally as the
"JLA Funding Corporation III Asset-Backed Notes." The Notes of each Class shall
have further particular designation as specified below, and each Note issued
hereunder shall bear upon the face thereof the designation so specified for the
Class to which it belongs. Subject to the provisions of Section 2.02, the
Trustee shall be authorized and directed, upon the delivery by the Company of an
Issuer Order, to authenticate and deliver Notes to be issued hereunder on each
Note Issuance Date in classes entitled "Floating Rate Asset-Backed Notes, Class
A-FL," "Fixed Rate Asset-Backed Notes, Class A-FX," "Floating Rate Asset-Backed
Notes, Class B-FL and/or "Fixed Rate Asset-Backed Notes, Class B-FX,"
respectively. The forms of the Class A-FL Notes, the Class A-FX Notes, the Class
B-FL Notes and the Class B-FX Notes, and of
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the Trustee's certificate of authentication, shall be in substantially the
forms set forth in Exhibits A-1, A-2, B-1 and B-2 hereto, respectively, with
such appropriate insertions, omissions, substitutions, and other variations as
are required or permitted by this Indenture. The aggregate principal amount of
Notes which may be authenticated and delivered under this Indenture is limited
to $200,000,000 (of which the aggregate principal amount of the Senior Notes
shall be not greater than $188,421,000 and the aggregate principal amount of the
Subordinated Notes shall not be greater than $11,579,000, except for Notes
authenticated and delivered upon registration of, transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 2.04, 2.05, or 9.04. The
Notes shall be issuable only in registered form and only in denominations of at
least $1,000,000 and integral multiples of $1,000 in excess thereof, provided
that the foregoing shall not restrict or prevent the transfer or issuance in
accordance with Section 2.04 or 2,05 of any Note having a remaining outstanding
principal amount of less than $1,000,000.
(b) During the Note Issuance Period no principal will be due
and payable on the Notes. During the Note Amortization Period, the aggregate
amount of principal due and payable on each Class of Notes on each Monthly
Payment Date shall be equal to the Monthly Principal for such Class. Except (i)
for optional redemption pursuant to Section 10.01, (ii) for Retransfer Amounts,
or (iii) as otherwise provided in Section 6.02, no part of the principal of any
Note shall be paid prior to the Monthly Payment Date on which such principal is
due in accordance with the preceding provisions of this Section 2.01(b). Unless
earlier paid, the entire unpaid Senior Note Principal Balance and the entire
unpaid Subordinated Note Principal Balance will be due and payable on the
Scheduled Final Payment Date.
(c) Interest on each Note shall accrue from the Note Issuance
Date of such Note. Interest on the Note Principal Balance of each Note shall be
payable on each Monthly Payment Date, commencing on the Monthly Payment Date
occurring in the calendar month immediately succeeding the month in which the
applicable Note Issuance Date occurs, to Noteholders of record as of the
applicable Record Date. Interest on the Notes of each Class is required to be
paid to Noteholders in an amount equal to the Monthly Interest for such Class of
Notes. Interest on the Floating Rate Notes will be computed on the basis of the
actual number of days elapsed during the related Interest Period and a 360-day
year. Interest on the Fixed Rate Notes will be computed on the basis of a
360-day year consisting of twelve 30-day months.
(d) All payments made with respect to any Note shall be made
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts and shall be
applied in the manner specified in Article III.
(e) All Notes of the same Class issued under this Indenture
shall be in all respects equally and ratably entitled to the benefits hereof and
thereof without preference, priority or distinction on account of the actual
time or times of authentication and delivery, all in accordance with the terms
and provisions of this Indenture. Payments of principal and interest on Notes of
the same Class shall be made pro rata among all outstanding Notes of such Class,
without preference or priority of any kind. The Notes are limited recourse
obligations of the Company. The sole source of payment of the Notes will be the
assets comprising the Trust Property.
SECTION 2.02. Issuances During the Note Issuance Period.
The Company may issue Notes on any one or more Business Days
during the Note Issuance Period (not more frequently than once per month), in
each case subject to the provisions of this Indenture, including the following
conditions precedent:
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(i) at the time of such issuance (and after giving
effect thereto) (a) no Default, Indenture Event of Default,
Servicer Event of Default or Early Amortization Event shall have
occurred or be continuing, (b) the Equity Base is not less than
5% of the Pool Balance and the sum of the Equity Base and the
Subordinated Note Principal Balance is not less than the Required
Support Percentage of the Pool Balance (in each case both before
and after giving effect to any purchase of Contracts to occur on
such date), and (c) the aggregate Note Principal Balance is not
greater than 95% of the Company's total assets and the aggregate
Senior Note Principal Balance is not greater than 89.5% of the
Company's total assets;
(ii) the net proceeds of such issuance of Notes are
applied by the Company on such Note Issuance Date to the purchase
of additional Eligible Contracts pursuant to the Sale and
Servicing Agreement at an aggregate purchase price that is not
greater than the aggregate Principal Balance (excluding any
Residual Amounts) of all Contracts purchased, and all conditions
precedent to the purchase of Contracts and the related Contract
Assets pursuant to Article II of the Sale and Servicing Agreement
have been satisfied and complied with as of the applicable
Contract Purchase Date (provided that no failure of compliance
thereunder shall affect the validity of any Note issued
hereunder);
(iii) such additional Contracts (and all related
Contract Assets) are included in the Trust Property and subject
to a perfected security interest in favor of the Trustee;
(iv) the Company is in compliance with its obligations
under the Note Purchase Agreement and under each Hedge Agreement;
(v) the Company shall deliver or cause to be delivered
to the Trustee a written collateral assignment of the Contracts
and related Contract Assets to be included in the Trust Property
on such date, duly executed and completed, together with an
attached duly prepared Schedule of Contracts identifying all such
Contracts;
(vi) to the extent necessary under applicable law, the
Company shall record and file a UCC financing statement in the
office of the Secretary of State of California and in each other
jurisdiction, if any, executed by and naming the Company as
debtor and the Trustee as secured party and identifying the
Contracts and the related Contract Assets as collateral. The
Company shall deliver a file-stamped copy, or other evidence of
filing, of each such financing statement to the Trustee;
(vii) the Company will take or cause to be taken such
actions as are necessary so that computer files maintained for
the Contracts and related Contract Assets included in the Trust
Property are appropriately adjusted to indicate that such
Contracts and related Contract Assets have been assigned and
pledged to the Trustee pursuant to the Indenture; and
(viii) the Company shall deliver to the Trustee an
Issuer Order, which shall include a statement that each of the
conditions precedent to the issuance of Notes on such date that
are set forth in this Section 2.02 has been satisfied.
SECTION 2.03. Execution, Authentication, Delivery and Dating.
(a) The Notes shall be manually executed on behalf of the
Company by its President or one of its Vice Presidents.
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(b) Any Note bearing the signature of an individual who was
at the time of execution thereof a proper officer of the Company shall bind the
Company, notwithstanding that such individual ceases to hold such office prior
to the authentication and delivery of such Note or did not hold such office at
the date of such Note.
(c) No Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Note a certificate of authentication substantially in the form provided for
herein, executed by the Trustee by manual signature, and such certificate upon
any Note shall be conclusive evidence, and the only evidence, that such Note has
been duly authenticated and delivered hereunder. Each Note shall be dated the
date of its authentication.
(d) The Notes may from time to time be executed by the
Company and delivered to the Trustee for authentication together with a Company
Request to the Trustee directing the authentication and delivery of such Notes
and thereupon the same shall be authenticated and delivered by the Trustee in
accordance with such Company Request.
SECTION 2.04. Registration, Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the "Note Register") in which, subject to such reasonable
regulations as the Trustee may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby
appointed initial "Note Registrar", and the Trustee hereby accepts such
appointment, for the purpose of registering Notes and transfers of Notes as
herein provided. In the event that, subsequent to the initial Note Issuance
Date, the Trustee is unable to act as Note Registrar, the Company shall appoint
a bank or trust company acceptable to the Company, agreeing to act in accordance
with the provisions of this Indenture applicable to it, to act as successor Note
Registrar under this Indenture pursuant to a note registrar agreement
acceptable to the Company. In performing such duties any such Note Registrar
shall have the same benefit of the provisions of this Indenture as the Trustee
itself would have if it were performing such duties.
(b) Subject to compliance with the provisions of Section
2.06, upon surrender for registration of transfer of any Note at the office of
the Company designated pursuant to Section 8.02 for such purpose, the Company
shall execute and the Trustee upon a Company Request shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of the same class, of any authorized denominations and of a like
aggregate original principal amount. The Trustee shall make a notation on any
such new Note of the amount of principal, if any, that has been paid on such
Note and shall make the appropriate entries in the Note Register.
(c) All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
(d) Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the holder thereof
or his attorney duly authorized in writing.
(e) No service charge shall be made for any registration of
transfer or exchange of Notes but the Company or the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer, or exchange of Notes,
but this provision shall not apply to any exchange pursuant to Section 9.04 not
involving any transfer.
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(f) Each prospective initial Noteholder acquiring a Note,
each prospective transferee acquiring a Note and each prospective owner of a
beneficial interest in Notes acquiring such beneficial interest (the prospective
initial Noteholder, the prospective transferee and the prospective beneficial
owner, each, a "Prospective Owner"), shall, in the event of such an acquisition,
be deemed to have represented, in any case in which the Notes are acquired with
the assets of an "employee benefit plan" within the meaning of Section 3(3) of
ERISA or a "plan" within the meaning of Section 4975(e)(1) of the Code (any such
plan or employee benefit plan, a "Plan") and for any period for which a Note is
(or is deemed for ERISA purposes to be) assets of a Plan, that the acquisition
or transfer, and subsequent holding, will not constitute, cause or otherwise
give rise to a transaction described in Section 406 of ERISA or Section 4975 of
the Code for which a statutory or administrative exemption is unavailable.
SECTION 2.05. Mutilated, Destroyed, Lost and Stolen Notes.
(a) If any mutilated Note is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a replacement Note of the same class, of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
(b) If there shall be delivered to the Company and the
Trustee (i) evidence to their satisfaction of the destruction, loss or theft of
any Note (provided that any Noteholder's affidavit shall be sufficient evidence
for such purpose) and (ii) such security or indemnity as may be required by them
to save each of them and any agent of either of them harmless, then, in the
absence of actual notice to the Company or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall execute and upon a Company
Request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Note, a replacement Note of the same class, of like
tenor and principal amount and bearing a number not contemporaneously
outstanding. If, after the delivery of such replacement Note or payment of a
destroyed, lost or stolen Note, a bona fide purchaser of the original Note in
lieu of which such replacement Note was issued presents for payment such
original Note, the Company and the Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Company or the Trustee in connection therewith.
(c) In case the final installment of principal on any such
mutilated, destroyed, lost or stolen Note has become or will at the next Monthly
Payment Date become due and payable, the Company in its discretion may, instead
of issuing a replacement Note, pay such Note.
(d) Upon the issuance of any replacement Note under this
Section, the Company or the Trustee may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed as a result of
the issuance of such replacement Note plus reasonable costs and expenses of the
Trustee in connection therewith.
(e) Every replacement Note issued pursuant to this Section in
lieu of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Notes of the same class, duly issued hereunder.
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(f) The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment Of mutilated, destroyed, lost or stolen Notes.
SECTION 2.06. Restrictions on Transfer and Exchange of Notes;
Compliance with Rule 144A.
(a) The Notes have not been registered under the Securities
Act or any state securities law. Each Noteholder agrees to offer, sell or
otherwise convey a Note or any interest therein only (A) to (i) a Person it
reasonably believes is a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act in a transaction meeting the requirements of Rule 144A
or (ii) an institutional investor that is an "accredited investor" as defined
under paragraph (1), (2), (3) or (7) of Rule 501(a) under the Securities Act (an
"Institutional Accredited Investor") pursuant to another available exemption
from the registration requirements of the Securities Act and any applicable
state securities laws and (B) if the Trustee and the Company receive a
Transferee Letter substantially in the form of Exhibit C hereto from the
transferee, in form satisfactory to the Trustee and the Company, with respect to
any transfer made pursuant to Rule 144A or such other exemption. The Notes shall
bear legends to the effect set forth in the forms of Class A-FL Note, Class A-FX
Note, Class B-FL Note and Class B-FX Note attached as Exhibit A-1, Exhibit A-2,
Exhibit B-1 and Exhibit B-2, respectively. In the event that the, Transferee
Letter from an Institutional Accredited Investor, provided pursuant to this
Section 2.06 does not, in the reasonable judgment of the Company or the Trustee,
on its face establish the availability of an exemption under the Securities Act
and of continued exemption of the Company under the Investment Company Act, the
Company or the Trustee may require an Opinion of Counsel (which may be internal
counsel) reasonably satisfactory to the Seller or the Trustee, as the case may
be, that such transfer may be made pursuant to an exemption from the Securities
Act; provided, however, that no Opinion of Counsel shall be required in
connection with a direct transfer by an initial Noteholder to an Affiliate or a
wholly-owned subsidiary or affiliated asset-backed commercial paper conduit so
long as such Affiliate, wholly-owned subsidiary or affiliated asset-backed
commercial paper conduit is a qualified institutional buyer or an Institutional
Accredited Investor and (in each case) delivers a Transferee Letter to the
Trustee and the Company. Any such Opinion Of Counsel shall be obtained at the
expense of the prospective transferor or transferee, and not at the expense of
the Company, the Seller, the Servicer or the Trustee, and shall be delivered to
the Company and the Trustee prior to any such transfer. Neither the Company nor
the Trustee is obligated to register the Notes under the Securities Act or to
take any other action not otherwise required under this Agreement to permit the
transfer of Notes without registration. In addition, no transfer of any Note or
any interest therein may be made if the Company or the Trustee reasonably
believes that as a result of such transfer, the Notes would be "beneficially
owned," as such term is defined in the Investment Company Act of 1940, as
amended, by more than one hundred Persons.
(b) For so long as the Notes are "restricted securities"
within the meaning of Rule 144A of the Securities Act, the Seller, the Trustee
and the Servicer agree to cooperate with each other to provide to any Noteholder
and to any prospective purchaser of Notes designated by such a Noteholder, upon
the request of such Noteholder or prospective purchaser, any information that is
required to be provided to such Noteholder or prospective purchaser to satisfy
Rule 144A(d)(4) (or any successor provision) under the Securities Act. Any
recipient of information provided pursuant to this Section 2.06(b) shall agree
that such information shall not be disclosed or used for any purpose other than
the evaluation of the Notes by the prospective purchaser. The Servicer will be
responsible for the physical delivery of the information requested pursuant to
this Section 2.06(b).
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SECTION 2.07. Payment of Interest and Principal; Rights
Preserved.
(a) Any installment of interest or principal payable on any
Note that is paid or duly provided for by the Company on the applicable Monthly
Payment Date shall be paid to the Person in whose name such Note was registered
at the close of business on the Record Date for such Monthly Payment Date by
wire transfer of immediately available funds to the account and number specified
in the Note Register on such Record Date for such Person or, if no such account
or number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date.
(b) All reductions in the principal amount of a Note effected
by payments of installments of principal made on any Monthly Payment Date shall
be binding upon all holders of such Note and of any Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Note. All payments on the Notes
shall be paid without any requirement of presentment but each holder of any Note
shall be deemed to agree, by its acceptance of the same, to surrender such Note
at the Corporate Trust Office for the payment of the final installment of
principal of and interest on such Note.
SECTION 2.08. Persons Deemed Owners.
Prior to due presentment of a Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Noteholder as the owner of such Note for the purpose of receiving
payment of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 2.09. Cancellation.
All Notes surrendered for registration of transfer or
exchange or final payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
may be disposed of in the normal course of its business or as directed by a
Company Order; provided, however, that the Trustee shall not be required to
destroy such cancelled Notes.
SECTION 2.10. Subordination of Subordinated Notes.
(a) Notwithstanding the provisions of this Indenture and any
Subordinated Note, each Noteholder of a Subordinated Note, by his acceptance
thereof, covenants and agrees that the rights of the Noteholder of such
Subordinated Notes in and claims to the assets of the Company, the Subordinated
Notes and the Trust Property shall be subordinate and junior in right of
payment, in accordance with the provisions of this Section and to the extent and
in the manner set forth in Sections 3.07(b) and 6.06 and the other provisions of
this Indenture, to the prior payment in full of the Senior Notes (subject to the
provisions of such Sections). For purposes of this Indenture, the Senior Notes
shall not be deemed to have been paid in full until the holders or owners of the
Senior Notes shall have received full payment of the Senior Notes in cash.
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(b) Each Noteholder of a Subordinated Note, by its acceptance
thereof, authorizes and directs the Company and the Trustee to take such actions
on his behalf as may be necessary or appropriate to effectuate, as between the
holders of the Senior Notes and the Subordinated Notes, the subordination as
provided in this Section 2.10 and appoints the Company as its attorney-in-fact
for any and all such purposes.
(c) In the event that, notwithstanding paragraphs (a) and (b)
of this Section, any Noteholder shall have received any payment or distribution
in respect of a Subordinated Note contrary to such provisions, then such payment
or distribution shall be received and held in trust for the holders or owners of
the Senior Notes and shall be paid over or delivered to the Trustee on behalf of
the Senior Noteholders or their representatives, as the case may be, for
application to (in the case of cash) or as collateral for (in the case of
non-cash property or securities) the payment or prepayment of the Senior Notes
after giving effect to any concurrent payment or distribution to the holders or
owners of such Senior Notes.
SECTION 2.11. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders. If the Trustee is not the Note Registrar, the Company
or other obligor, if any, shall furnish to the Trustee at least five Business
Days prior to each Record Date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
ARTICLE III
ACCOUNTS; INVESTMENT OF MONEYS; COLLECTION
AND APPLICATION OF MONEYS; REPORTS
SECTION 3.01. Accounts; Investments by Trustee.
(a) The Servicer, pursuant to the Lock-Box Agreement, shall
maintain the Lock-Box Account, which account shall be maintained as an Eligible
Deposit Account, in the name of the Company for the benefit of the Trustee and
the Noteholders. The Lock-Box Account shall be an account maintained with Bank
of America or such other Lock-Box Bank as the Servicer may select; provided,
however, that the Servicer shall give the Trustee at least 30 days' prior
written notice of any change in the location of the Lock-Box Account, shall not
make any such change without the consent of the Trustee and shall give at least
60 days' prior written notice of the new location to each Obligor.
In addition, on or before the Closing Date, the Trustee shall
establish, in the name of the Trustee for the benefit of the Noteholders as
provided in this Indenture, the following accounts, which accounts shall be
segregated trust accounts maintained at the Corporate Trust Office:
(i) Collection Account;
(ii) Reserve Account;
(iii) Payahead Account; and
(iv) Contract Purchase Account,
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Each of such Accounts shall be established and maintained as an Eligible Deposit
Account. Subject to the further provisions of this Section 3.01(a), the Trustee
shall, upon receipt or upon transfer from another account, as the case may be,
deposit into such Accounts all amounts received by it which are required to be
deposited therein in accordance with the provisions of this Indenture. All such
amounts and all investments made with such amounts, including all income and
other gain from such investments, shall be held by the Trustee in such Accounts
as part of the Trust Property as herein provided, subject to withdrawal by the
Trustee in accordance with, and for the purposes specified in the provisions of,
this Indenture.
(b) The Trustee shall hold in trust but shall not be required
to deposit in any Account specified in Section 3.01(a) any payment received by
it until such time as the Trustee shall have identified to its reasonable
satisfaction the nature of such payment and, on the basis thereof, the proper
account or accounts into which such payment is to be deposited. In determining
into which of the Accounts, if any, any amount received by the Trustee is to be
deposited, the Trustee may conclusively rely (in the absence of gross negligence
or wilful misconduct on the part of the Trustee) on the written instructions of
the Servicer. Unless otherwise advised in writing by the Servicer, the Trustee
shall assume that any amount remitted to it is to be deposited into the
Collection Account pursuant to Section 3.02. The Trustee may establish from time
to time such deadline or deadlines as it shall determine are reasonable or
necessary in the administration of the Trust Property after which all amounts
received or collected by the Trustee on any day shall not be deemed to have been
received or collected until the next succeeding Business Day.
(c) The Trustee shall have no right of set-off with respect
to the Lock-Box Account, the Collection Account, the Reserve Account, the
Payahead Account or the Contract Purchase Account, or any investment therein,
whether or not commingled. If at any time any Account ceases to be an Eligible
Deposit Account, as determined by the Servicer, the Trustee shall within 10
Business Days after receipt of written notice from the Servicer (or such longer
period, not to exceed 30 calendar days, as to which Standard & Poor's may
consent) establish a new Account meeting the conditions specified in this
Section, and shall transfer any cash and/or any investments in the old Account
to such new Account.
(d) So long as no Default or Indenture Event of Default shall
have occurred and be continuing, the amounts In the Collection Account, the
Reserve Account, the Payahead Account and the Contract Purchase Account shall be
invested and reinvested by the Trustee pursuant to a Servicer Notice in one or
more Permitted Investments. Subject to the restrictions on the maturity of
investments set forth in Section 3.01(f), each such Servicer Notice may
authorize the Trustee to make the specific Permitted Investments set forth
therein, to make Permitted Investments from time to time consistent with the
general instructions set forth therein, or to make specific Permitted
Investments pursuant to instructions received in writing or by telegraph or
facsimile transmission from the employees or agents of the Servicer identified
therein, in each case in such amounts as such Servicer Notice shall specify. The
Company agrees to report as income for financial reporting and tax purposes (to
the extent reportable) all investment earnings on amounts in the Collection
Account, the Reserve Account, the Payahead Account and the Contract Purchase
Account.
(e) In the event that either (i) the Servicer shall have
failed to give investment directions to the Trustee by 12:00 P.M. New York time
on any Business Day on which there may be uninvested cash or (ii) a Default or
Indenture Event of Default shall have occurred and be continuing, then the
Trustee shall invest and reinvest the funds then in the Collection Account, the
Reserve Account, the Payahead Account and the Contract Purchase Account, as the
case may be, to the fullest extent practicable in one or more Permitted
Investments as specified in paragraph (c) of the definition of Permitted
Investments. All investments made by the Trustee shall mature no later than the
maturity date therefor permitted by Section 3.01(f).
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(f) No investment of any amount held in the Collection
Account, the Reserve Account, the Payahead Account or the Contract Purchase
Account shall mature later than the second Business Day immediately preceding
the Monthly Payment Date which is scheduled to occur immediately following the
date of investment. All income or other gains from the investment of moneys
deposited in the Collection Account, the Reserve Account, the Payahead Account
and the Contract Purchase Account shall be deposited by the Trustee in such
account immediately upon receipt. Any net loss of principal (determined on a
month by month basis) resulting from such investment of amounts in the
Collection Account, the Reserve Account, the Payahead Account or the Contract
Purchase Account shall be charged to the respective Account.
(g) Any investment of any funds in the Collection Account,
the Reserve Account, the Payahead Account or the Contract Purchase Account, and
any sale of any investment held in such accounts, shall be made under the
following terms and conditions:
(i) each such investment shall be made in the name of
the Trustee (in its capacity as such) for the benefit of the
Noteholders or in the name of a nominee of the Trustee;
(ii) the investment earnings of any investment shall be
credited to the Account for which such investment was made;
(iii) any certificate or other instrument evidencing
such investment shall be delivered directly to the Trustee or its
agent and the Trustee shall have sole possession of such
instrument and all income on such investment; and
(iv) the proceeds of any sale of an investment shall be
remitted by the purchaser thereof directly to the Trustee for
deposit in the Account in which such investment was held.
(h) If any amounts are needed for disbursement from the
Collection Account, the Reserve Account, the Payahead Account or the Contract
Purchase Account, and sufficient uninvested funds are not collected and
available therein to make such disbursement, in the absence of a Servicer Order
for the liquidation of investments held therein in an amount sufficient to
provide the required funds, the Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account
selected by it in its absolute discretion and shall not be liable for any loss
resulting therefrom.
(i) The Trustee shall not in any way be held liable by reason
of any insufficiency in the Collection Account, the Reserve Account, the
Payahead Account or the Contract Purchase Account, resulting from losses on
investments (including from liquidations thereof) made in accordance with the
provisions of this Section 3.01 (but the institution serving as Trustee shall at
all times remain liable for its own debt obligations, if any, constituting part
of such investments). The Trustee shall not be liable for any investment (or
liquidation) made by it in accordance with this Section 3.01 on the grounds
that it could have made a more favorable investment (or liquidation).
SECTION 3.02. Collections; Applications.
(a) If (i)(A) the Servicer's short-term unsecured debt has
been rated A-1 or higher by Standard & Poor's or (B) a Servicer letter of credit
issued by an institution rated A-1 or higher by Standard & Poor's has been
obtained by the Servicer and (ii) the Trustee has received confirmation from the
Rating Agency that there would not be a reduction in the then-current rating of
the Senior Notes or of the Subordinated Notes, the Servicer shall on or before
each Deposit Date remit, or cause the Lock-Box Bank to remit, to the Collection
Account all payments by the Obligors on the Contracts (including any Purchase
Option Payment, any prepayments in full of a Contract and any applicable
Payahead Amounts
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related to such Collection Period), other than Servicing Fees (to the extent
that sufficient funds are allocated and available therefor as provided in
Section 3.07) and Administrative Fees (which may be retained by the Servicer),
and all Recoveries and Insurance Proceeds, as collected during the Collection
Period.
(b) Unless the conditions in Section 3.02(a) have been
satisfied, or if at any time a Servicer Event of Default has occurred and is
continuing and no successor Servicer has been appointed, the Servicer shall
remit or cause the Lock-Box Bank to remit the amounts referred to in Section
3.02(a) into the Collection Account (including any such amounts then held by the
Servicer) as soon as practicable, but in no event later than the close of
business on the second Business Day after receipt thereof. As of the date
hereof, the provisions of this paragraph (b) are applicable and the Servicer
will notify the Company, and the Company will thereupon promptly notify the
Trustee, if paragraph (a) of this Section becomes applicable at any time after
the date hereof.
(c) Notwithstanding the provisions of subsections (a) and (b)
hereof the Servicer may retain, or will be entitled to be reimbursed from,
amounts otherwise payable into, or on deposit in, the Collection Account with
respect to a Collection Period, amounts previously deposited in the Collection
Account but later determined to have resulted from mistaken deposits or payments
due before the applicable Cut-Off Date or postings or checks returned for
insufficient funds (provided that the Servicer accounts for such amounts in the
Monthly Servicer Report for the related Collection Period). The amount to be
retained or reimbursed hereunder shall not be included in funds available for
distribution with respect to the related Monthly Payment Date. The Trustee may
fully rely upon notice as to such matters from the Company or the Servicer.
(d) In those cases where a subservicer is servicing a
Contract pursuant to a subservicing agreement and where required by the Rating
Agency to maintain the ratings on the Notes, the Servicer shall cause the
subservicer to remit to the Collection Account as soon as practicable, but in no
event later than the close of business on the second Business Day after receipt
thereof by the subservicer (but subject to the provisions of Section 3.02(c) of
this Agreement), the amounts referred to in Section 3.02(a) in respect of a
Contract being serviced by the subservicer.
(e) Pending their deposit into the Collection Account, all
collections, Insurance Proceeds, Recoveries and Liquidation Proceeds shall be
segregated by book-entry or similar form of identification on the Servicer's
books and records and identified as the property of the Company subject to the
lien of the Trustee.
(f) If at any time the Company shall receive any payment on
or in respect of any Contract, Equipment (including any Residual Amount) or
other Trust Property, it shall hold such payment in trust for the benefit of the
Trustee and the Noteholders, shall segregate such payment from the other
property of the Company, and shall, within two Business Days of receipt, deliver
such payment in the form received (with any necessary endorsement) by it to the
Trustee,
(g) All Hedge Proceeds received by the Issuer and/or the
Trustee shall be deposited into the Collection Account.
SECTION 3.03. Additional Deposits.
The Company shall be required to deposit into the Collection
Account the aggregate Retransfer Amount pursuant to Section 4.02 in accordance
with the provisions of such Section. All remittances shall be made to the
Collection Account, in Automated Clearinghouse Corporation next-day funds or
immediately available funds, not later than 3:00 p.m., New York time, on the
related Deposit
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Date. The Trustee shall deposit in the Collection Account the aggregate of any
Reserve Draw Amounts pursuant to Section 3.05, the aggregate of any amounts
received from JLACC under the Sale and Servicing Agreement, and the Payahead
Draw Amount due pursuant to Section 3.06, in each case on the Deposit Date or
Monthly Payment Date, as applicable.
SECTION 3.04. Daily Deposits.
The Servicer is required to make deposits into the
Collection Account on a daily basis pursuant to Section 3.02(b) and not
monthly pursuant to Section 3.02(a) as of the date hereof and shall continue
to be so obligated until such date (if any) on which the Servicer by Servicer
Notice certifies to the Trustee that the conditions precedent to the
applicability of Section 3.02(a) have been satisfied. For so long as the
Servicer is so obligated to make deposits on a daily basis, not later than
3:00 p.m. (New York time) on the first Business Day of each week, commencing
in the week following the initial Contract Purchase Date, the Servicer will
deliver to the Company and the Trustee a written statement verifying the
amount delivered by the Servicer from the Lock Box Account to the Trustee for
deposit into the Collection Account on each Business Day during the preceding
week.
SECTION 3.05. Reserve Account.
(a) On each Note Issuance Date, the Company shall deposit or
cause to be deposited into the Reserve Account, by wire transfer in
immediately available funds, such amount, if any, as is required to make the
balance of amounts in the Reserve Account be not less than 1% of the
Aggregate Note Principal Balance (after giving effect to any issuance of Notes
on such Note Issuance Date).
(b) On each Monthly Payment Date, the Trustee shall
transfer from the Reserve Account to the Collection Account immediately
available funds in the amount of the Reserve Draw Amount, if any, in
accordance with the instructions contained in the applicable Monthly Servicer
Report for such Monthly Payment Date. "Reserve Draw Amount" shall mean the
excess of (i) the amount necessary to make distributions on such Monthly
Payment Date pursuant to clauses (i) through (iv) of Section 3.07(b) over (ii)
amounts in the Collection Account available for distribution on such Monthly
Payment Date as set forth in the Monthly Servicer Report for the related
Collection Period, but in no event will the Reserve Draw Amount be greater
than the Available Reserve Amount with respect to such Monthly Payment Date.
(c) On each Monthly Payment Date, if no Indenture Event of
Default has occurred and is continuing, the Trustee shall withdraw from the
Reserve Account and transfer to the Seller by wire transfer of immediately
available funds the Reserve Account Surplus, if any.
(d) Upon the first date on which the Notes are paid in full,
the Trustee, after the payment of all amounts payable from the Reserve Account
as provided herein and after payment of all amounts due to the Trustee
hereunder, shall withdraw from the Reserve Account all amounts on deposit in
the Reserve Account and pay such amounts to or upon the instructions of the
Company.
SECTION 3.06. Payahead Account.
(a) The Trustee shall withdraw and transfer amounts in the
Collection Account that represent the Payahead Amounts from the Collection
Account into the Payahead Account on each Monthly Payment Date.
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(b) The Trustee shall withdraw from the Payahead Account and
transfer to the Collection Account on each Deposit Date in immediately
available funds the Payahead Draw Amount for the following Monthly Payment
Date.
(c) On each Monthly Payment Date, all interest (including
accrued discount realized on liquidation of any Permitted Investment purchased
at a discount) and earnings (net of losses and investment expenses, if any)
accrued since the preceding Monthly payment Date on funds on deposit in the
Payahead Account shall be transferred to the Collection Account.
(d) Notwithstanding the foregoing, if (i) (a) the Servicer's
short-term unsecured debt has been rated A-1 or higher by Standard & Poor's or
(b) a Servicer letter of credit issued by an institution rated A-1 or higher
by Standard & Poor's has been obtained by the Servicer and (ii) the Trustee
has received confirmation from the Rating Agency that there would not be a
reduction in the then-current rating of the Senior Notes or of the
Subordinated Notes, then the Servicer may hold the Payahead Amounts together
with its own funds rather than deposit such amounts into the Payahead Account,
and shall pay the Payahead Draw Amount to the Trustee in next day funds on or
prior to each Deposit Date. As of the date hereof, the provisions of this
paragraph are not applicable and the Servicer will notify the Company, and the
Company will thereupon promptly notify the Trustee, if this paragraph becomes
applicable at any time after the date hereof.
(e) Upon the earlier to occur of (i) the Scheduled Final
Monthly Payment Date, and (ii) the date on which the Notes are paid in full,
the Trustee, after the payment of all amounts payable from the Payahead
Account as provided herein (and after payment of all amounts due to the
Trustee hereunder), shall withdraw from the Payahead Account all amounts on
deposit in such account and pay such amounts to the Company or its designee.
SECTION 3.07. Collection Account.
(a) The Trustee shall deposit the following into the
Collection Account promptly upon receipt thereof by the Trustee:
(i) each Contract Payment (including all Contract
Payments deposited with the Trustee by the Company on each Contract
Purchase Date);
(ii) any Retransfer Amount and any other proceeds of
any repurchase of Contracts and Equipment pursuant to Section 4.02
that are received by the Trustee;
(iii) each prepayment of any Contract received by the
Trustee;
(iv) all Security Deposit Offsets (if any) and
Recoveries (if any) and Liquidation Proceeds (if any) on any Contract,
in each case received by the Trustee;
(v) all earnings on Permitted Investments in the
Reserve Account and the Contract Purchase Account;
(vi) all proceeds received by the Trustee pursuant to
any Insurance Policy covering Equipment or any other amounts received
by the Trustee relating to a Contract or Equipment;
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(vii) all Hedge Proceeds, if any, received by the
Trustee pursuant to the Hedge Agreements; and
(viii) any other amount required to be deposited in the
Collection Account pursuant to Section 3.02.
Upon any transfer by the Servicer to the Trustee of any
amount required to be deposited into the Collection Account by the Trustee
pursuant to this Section 3.07(a), the Servicer shall specify to the Trustee
the type of payment included in such amount (with a description substantially
similar to the descriptions set forth in the above clauses).
(b) Unless the Notes have been declared due and payable
pursuant to Section 6.02 and moneys collected by the Trustee are being applied
in accordance with Section 6.06, the Trustee shall by 3:00 P.M. (New York City
time) on the Business Day prior to each Monthly Payment Date allocate all
available funds on deposit in the Collection Account and attributable to the
related Collection Period (or, in the case of any Hedge Proceeds, attributable
to such Monthly Payment Date) (including any investment income with respect to
funds on deposit in the Collection Account) (collectively, the "Available
Payment Amount") in the amounts required for application, and, subject to
Section 3.07(c) below, on such Monthly Payment Date shall make payments, in
the following order of priority:
(i) on a pro rata basis, (A) to the payment to the
Trustee of the Trustee Fee (including any overdue Trustee Fee) plus
all other amounts due to the Trustee hereunder and (B) to the Backup
Trustee, payment of the applicable Backup Trustee Fee; provided,
however, that the aggregate amount payable under this clause (i) in
any single year will not exceed the Trustee Fee Cap; then
(ii) to the payment on each Monthly Payment Date to
the Servicer, the Servicing Fee (including any overdue Servicing Fee)
due to the Servicer on such Monthly Payment Date; then
(iii) on a pro rata basis, (A) to the payment of
Monthly Interest with respect to the Senior Notes, including any
Overdue Monthly Interest to the Senior Noteholders, and (B) to each
Swap Provider, payment of the applicable Swap Payment Amount, if any,
and the applicable Swap Termination Amount, if any; then
(iv) to the payment of Monthly Interest, including any
Overdue Monthly Interest, to the Subordinated Noteholders; then
(v) solely during the Note Issuance Period (and on the
Monthly Payment Date immediately following the last day of the Note
Issuance Period), to the payment of the Non-Utilization Premium, to
the Committed Investors of Class A-FL Notes, pro rata in accordance
with the respective amounts thereof owing to such investors; then
(vi) solely during the Note Issuance Period (and on the
Monthly Payment Date immediately following the last day of the Note
Issuance Period), to the payment of the Non-Utilization Premium to
the Committed Investors of Class B-FL Notes, pro rata in accordance
with the respective amounts thereof owing to such investors; then
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(vii) solely during the Note Issuance Period, to the
Reserve Account an amount that is equal to the amount necessary to
increase the amount on deposit therein (exclusive of interest and
earnings) to the Required Reserve Amount; then
(viii) solely during the Note Issuance Period, to the
deposit of any Principal Component of all Contract Payments into the
Contract Purchase Account; then
(ix) solely during the Note Amortization Period, to the
payment of Monthly Principal, including any Overdue Monthly
Principal, to the Senior Noteholders; then
(x) solely during the Note Amortization Period, if the
sum of the Equity Base and the Subordinated Note Principal Balance
(before giving effect to any payments of principal on such date) is
less than an amount equal to 25% of the product of (1) the Aggregate
Note Principal Balance plus the Equity Base, determined as of the
first day of the Note Amortization Period, and (2) the Required
Support Percentage (as defined herein) (such product, the "Equity
Threshold Amount"), then on a pari passu basis, to the payment to the
Senior Noteholders of an amount equal to the lesser of (i) the
remaining Available Payment Amount and (ii) the Senior Note Principal
Balance; then
(xi) solely during the Note Amortization Period, to the
payment of Monthly Principal, including any Overdue Monthly
Principal, to the Subordinated Noteholders; then
(xii) solely during the Note Amortization Period, to the
Reserve Account an amount that is equal to the lesser of (i) the
amount necessary to increase the amount on deposit therein to the
Required Reserve Amount and (ii) the Interest Component of the
Contract Payments received during the related Collection Period; then
(xiii) to the payment to the Trustee of the Trustee Fee
(including any overdue Trustee Fee) plus all other amounts due to the
Trustee hereunder, to the extent (if any) not paid pursuant to clause
(i) above; then
(xiv) all remaining funds, if any, to or upon the order
of the Company;
provided, however, that if an Indenture Event of Default shall have occurred
and be continuing on such Monthly Payment Date, any amounts otherwise payable
under clauses (vii), (viii), (xi), (xii), (xiii) and (xiv) shall be paid to
the Senior Noteholders until the Senior Note Principal Balance has been
reduced to zero and all amounts owing on the Senior Notes have been paid in
full.
Distributions to Noteholders on a Monthly Payment Date will
be made pro rata to the Noteholders of record of each Class as of the Record
Date preceding such Monthly Payment Date. On any Monthly Payment Date,
Noteholders will not be entitled to any amount in excess of Monthly Interest
and Monthly Principal (including any Overdue Monthly Interest and Overdue
Monthly Principal), except as described above.
(c) During any period on which a Swap Agreement is in
effect, the amount that would be payable by the Trustee on each Monthly
Payment Date to each Swap Provider pursuant to Section 3.07(b)(iii) in
accordance with the priorities of Section 3.07(b) shall instead be paid by the
Trustee to each Swap Provider on the third Business Day prior to such Monthly
Payment Date.
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SECTION 3.08. Contract Purchase Account.
(a) On each Note Issuance Date, the Trustee shall deposit in
the Contract Purchase Account an amount equal to all of the net proceeds to
the Company received from the issuance of Notes on such Note Issuance Date. On
each Monthly Payment Date, the Trustee shall deposit in the Contract Purchase
Account all amounts required to be so deposited pursuant to Section
3.07(b)(vii).
(b) On each Contract Purchase Date during the Note Issuance
Period, the Trustee shall pay from the Contract Purchase Account to the Seller
directly on behalf of the Company, an amount equal to the applicable purchase
price for the Contracts sold to the Company on such Contract Purchase Date.
(c) If the Contract Purchase Account has not been reduced to
zero on the last day of the Note Issuance Period, the Trustee shall transfer
any amount remaining in the Contract Purchase Account on such date to the
Collection Account and such amount shall be distributed on the Monthly Payment
Date concurrent with or immediately following such date. Upon such
distribution, the Contract Purchase Account shall be closed.
SECTION 3.09. Reports; Notices of Certain Payments.
(a) Concurrently with each payment to the Noteholders on a
Monthly Payment Date, the Trustee shall mail to the Servicer (except that with
respect to clause (i) below no report shall be delivered to the Servicer), the
Rating Agency and each Noteholder the following information:
(i) the Monthly Servicer Report furnished to the
Trustee by the Servicer relating to such Monthly Payment Date (or if
such report has not been received, a written statement to such
effect); and
(ii) the amount on deposit as of such Monthly Payment
Date in the Collection Account, the Reserve Account, the Payahead
Account and the Contract Purchase Account, in each case after giving
effect to all of the withdrawals and applications or transfers
required on such Monthly Payment Date pursuant to this Article III.
(b) The Trustee shall within five Business Days after the
request of the Company or the Servicer, deliver to the Company and the
Servicer a written report setting forth the amounts on deposit in the
Collection Account, the Reserve Account, the Payahead Account and the Contract
Purchase Account, and identifying the investments included therein.
SECTION 3.10. Trustee May Rely on Certain Information.
Pursuant to the Sale and Servicing Agreement, the Company,
the Seller and the Servicer are required to furnish to the Trustee from time
to time certain information and make various calculations which are relevant
to the performance of the Trustee's duties in this Article III and in Article
IV and in Section 7.14 of this Indenture. The Servicer shall provide the
Trustee with a revised amortization schedule within 10 Business Days following
the termination of the Note Issuance Period and on the Business Day preceding
each Interest Determination Date thereafter. In making distributions from any
of the Accounts and any transfer of amounts between such Accounts the Trustee
may fully rely on information provided to it as specified herein by the
Seller, the Servicer or the Company in writing, whether by way of a
certificate, report or otherwise, or failing delivery thereof on such other
information as the Trustee reasonably determines appropriate.
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ARTICLE IV
CONTRACTS AND EQUIPMENT
SECTION 4.01. Representations and Warranties of the
Company.
The Company hereby makes, as to itself, to the Trustee for
the benefit of the Noteholders and the Trustee (i) the representations and
warranties set forth in Section 3.01 of the Sale and Servicing Agreement and
(ii) the representations and warranties made by the Seller in Section 3.02 of
the Sale and Servicing Agreement with respect to the Contracts and related
Contract Assets. The Trustee shall rely on such representations and warranties
in authenticating Notes to be issued on each Note Issuance Date and in
accepting in trust the Contracts, the related Contract Assets and the other
Trust Property delivered to the Trustee upon the purchase thereof by the
Company on each Contract Purchase Date pursuant to the Sale and Servicing
Agreement. Such representations and warranties shall speak as of the date
hereof, as of the Closing Date and as of each Contract Purchase Date, as
applicable.
SECTION 4.02. Purchase upon Breach; Sale and Servicing
Agreement.
The Company and the Servicer, as the case may be, shall
promptly inform the Trustee, and thereafter the Trustee shall promptly inform
the Noteholders, in writing, upon the discovery of a breach of any of the
Seller's or Company's representations and warranties set forth in or referred
to in Section 4.01, or of the Seller's breach of the representations
and warranties set forth in Section 3.02 of the Sale and Servicing Agreement
or the Servicer's breach of the covenants set forth in Section 4.05 of the
Sale and Servicing Agreement, which materially and adversely affects the
interest of the Noteholders in any Contract. Each such notice shall include a
statement that such breach materially and adversely affects the interest of
the Noteholders in such Contract. As of the Deposit Date in the month
following the month (or, if the Seller or the Servicer (as applicable) elects
under the Sale and Servicing Agreement, the last day of the month) in which
the Company, the Seller or the Servicer (as applicable) becomes aware or
receives such written notice of such breach, the Company, unless the Seller or
the Servicer cures such breach, shall replace in the Trust Property each such
Contract that is materially and adversely affected by such breach) by
delivering the Retransfer Amount to the Trustee for inclusion in the Trust
Property (or, if the Seller shall have delivered to the Company a Substitute
Contract subject to and in accordance with the Sale and Servicing Agreement,
such Substitute Contract) and, upon receipt of the Retransfer Amount (or such
Substitute Contract), the Trustee shall release and retransfer such Contract
from the Trust Property. The Company shall remit to the Trustee the Retransfer
Amount of such Contract (or, if such Contract is then a Defaulted Contract, an
amount equal to the Retransfer Amount computed as of the date such Contract
first became a Defaulted Contract) upon the earlier of (i) receipt thereof
from the Seller or the Servicer (as the case may be) and (ii) 11:00 a.m. (New
York City time) on the Deposit Date in the calendar month immediately
following the month in which the Company became obligated to reacquire such
Contract from the Trust Property. The Trustee shall deposit all such amounts
so delivered to and received by it in the Collection Account promptly
following receipt thereof from the Company. Except as provided in Section
8.11, the sole remedy of the Trustee or the Noteholders against the Company
with respect to a breach of a representation or a warranty set forth in
Section 4.01 or any matter set forth in this Section 4.02 shall be to require
the Company to pay into the Trust Property the Retransfer Amount of each
applicable Contract pursuant to this Section 4.02 (or, in the circumstances
referred to above, to deliver into the Trust Property one or more Substitute
Contracts in lieu of such Retransfer Amount).
Concurrently with the execution and delivery of this
Indenture, the Company and the Seller have entered into the Sale and Servicing
Agreement, the rights of the Company under which have been assigned by the
Company to the Trustee. Under the Sale and Servicing Agreement, the Seller has
agreed
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that in the event that the Company is required to purchase a Contract
hereunder by reason of a breach of a representation and warranty made by it
pursuant to Section 4.01, the Seller will purchase such Contract from the
Company contemporaneously with the Company's reacquisition of the Contract
from the Trust Property, in exchange for the purchase price paid by the
Seller. The obligation of the Company to acquire any such Contract from the
Trust Property is subject to the Seller's acquisition of such Contract from
the Company. In the event that the Company fails to purchase any Contract it
is required to purchase hereunder, the Trustee shall enforce directly the
Company's rights against the Seller under and in accordance with the terms of
the Sale and Servicing Agreement, as assigned to the Trustee, to require the
purchase of such Contract.
SECTION 4.03. Release of Contracts and Equipment
Following Substitution or Repurchase.
In the event that (i) the Seller shall have substituted a
Substitute Contract and the Equipment subject thereto for a Contract and the
Equipment subject thereto in accordance with the Sale and Servicing
Agreement, or (ii) the Company (or the Seller) shall have purchased a Contract
and the related Equipment in accordance with Section 4.02 (or Section 3.03 of
the Sale and Servicing Agreement), the retransferred Contract, and the
Equipment subject thereto, shall be released from the lien of this Indenture
when the Trustee shall have (i) deposited in the Collection Account all
amounts received pursuant to Section 4.02 (or Section 3.03 or 3.08 of the Sale
and Servicing Agreement) and (ii) received a copy of a duly executed
assignment to the Company by the Seller of any Substitute Contract.
SECTION 4.04. Release of Contracts and Equipment Upon
Final Contract Payment.
(a) In the event that the Trustee shall have received
written certification from an Authorized Officer of the Servicer that the
Trustee has received from amounts paid by the Obligor or from the proceeds of
the Equipment subject to any Contract (i) the final Contract Payment due and
payable under any Contract (excluding, if applicable, any Purchase Option
Payment), or (ii) a Retransfer Amount or prepayment in respect of any Contract
and, following such final Contract Payment or Retransfer Amount or prepayment,
no further payments on or in respect of such Contract are or will be due and
payable, such Contract and the related Contract Assets shall be released from
the lien of this Indenture.
(b) If an Early Amortization Event or Event of Default shall
have occurred and be continuing, then each Contract and related Contract
Assets which would otherwise be released from the lien of this Indenture
pursuant to this Section 4.04 shall instead remain subject to such lien and
all of the provisions of this Indenture, including without limitation Article
VI hereof.
SECTION 4.05. Execution of Documents.
The Trustee shall, at the Company's cost and expense,
promptly execute and deliver such documents (which shall be furnished to the
Trustee by the Company) and take such other actions as the Company, by Company
Request, may reasonably request to fully effectuate the release from this
Indenture of any Contract and Equipment required to be so released pursuant to
Sections 4.03 and 4.04.
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ARTICLE V
SERVICER EVENTS OF DEFAULT; SUBSTITUTE SERVICER
SECTION 5.01. Servicer Events of Default.
If a Servicer Event of Default shall have occurred and be
continuing, the Trustee shall, upon the written request of the Noteholders of
Notes evidencing not less than 66-2/3% of the Aggregate Note Principal
Balance, give written notice to the Servicer of the termination of all of the
rights and obligations of the Servicer (but none of the Seller's obligations
thereunder or hereunder, which shall survive any such termination) under the
Sale and Servicing Agreement and this Indenture and the Trustee shall, subject
to and in accordance with the terms and conditions set forth in Section 8.02
of the Sale and Servicing Agreement, act as successor Servicer.
SECTION 5.02. Successor Servicer
Notwithstanding the provisions of Section 5.01, the Trustee
may appoint a successor Servicer in accordance with the provisions of Section
8.02 of the Sale and Servicing Agreement.
SECTION 5.03. Notification to Noteholders.
Upon any termination of the Servicer or appointment of a
Successor Servicer, the Trustee shall give prompt notice of such termination
or appointment, together with the conditions of default, to the Rating Agency,
each Swap Provider and each Noteholder in the manner provided herein.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default.
"Indenture Event of Default," wherever used herein, means any
one of the following (whatever the reason for such Indenture Event of Default
and whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) default in the payment of (a) any interest upon
any outstanding Note when it becomes due and payable or (b) any
principal of any outstanding Note when it becomes due and payable;
(ii) default in the performance, or breach, of any
covenant set forth in (a) Section 8.04, 8.07(c), 8.08, 8.10 or (b)
Section 12.07;
(iii) default in the performance, or breach, of any
covenant of the Company in the Notes or this Indenture (other than a
covenant described in clause (i) or (ii) above) or in the Note
Purchase Agreement or the Sale and Servicing Agreement and
continuance of such default or breach for a period of 30 days after
the earliest of (A) any officer of the Company first acquiring
knowledge thereof, or (B) written notice being given to the Company
by the Trustee itself or upon
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the request of Noteholders of Notes evidencing not less than 51% of
the Aggregate Note Principal Balance;
(iv) if any representation or warranty of the Company or
the Seller made in this Indenture, in the Note Purchase Agreement or
in the Sale and Servicing Agreement or any other writing provided to
the Noteholders in connection with the foregoing documents shall
prove to be incorrect in any material respect as of the time when the
same shall have been made; provided, however, that the breach of any
representation or warranty made by the Seller in Section 3.02 of the
Sale and Servicing Agreement with respect to any of the Contracts or
the Equipment subject thereto shall not constitute an Indenture Event
of Default if the Seller cures such breach within the period
permitted by, or repurchases a Contract and the related Equipment in
accordance with, Section 3.03 of the Sale and Servicing Agreement;
(v) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization, or other
similar law or (B) a decree or order adjudging the Company a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of or in
respect of the Company under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator, or other similar official of the Company or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in
effect for a period of 90 consecutive days;
(vi) the commencement by the Company of a voluntary case
or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect
of the Company in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization,
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee,
sequestrator, or similar official of the Company or of any
substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the Company's failure to
pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action;
(vii) the Company becomes obligated to register as an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended;
(viii) on two consecutive Monthly Payment Dates during
the Note Issuance Period (a) the Equity Base is less than 5% of the
Pool Balance or (b) the sum of the Equity Base and the Subordinated
Note Principal Balance is less than the Required Support Percentage
of the Pool Balance (in each case both before and after giving effect
to any purchase of Contracts to occur on such date);
(ix) any Over-Issuance Condition, if applicable,
occurs;
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(x) on two consecutive Monthly Payment Dates after the
Note Issuance Period, the amount in the Reserve Account is below the
Required Reserve Amount (after giving effect to all withdrawals from
and deposits to the Reserve Fund on such dates);
(xi) any Servicer Event of Default occurs; or
(xii) any Swap Agreement is terminated by the Company or
the Swap Provider for any reason and, within 30 days following such
termination, the Company shall not have entered into a successor Swap
Agreement on substantially the same terms with an Eligible Provider.
SECTION 6.02. Acceleration of Maturity; Rescission and
Annulment.
(a) If an Indenture Event of Default occurs and is
continuing, then and in every such case the Note Issuance Period (unless
earlier terminated) shall immediately terminate and the Trustee, with the
consent of the Noteholders of Notes evidencing not less than 66-2/3% of the
Aggregate Note Principal Balance, may declare the unpaid principal amount of
all the Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Noteholders), and upon any such
declaration such principal amount shall become immediately due and payable
together with all accrued and unpaid interest thereon, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Company; provided, that in the case of any of the Events of Default
specified in clause (i)(a), (ii)(b), (v), (vi), (vii) or (ix) of Section 6.01
with respect to the Company, without any notice to the Trustee or the Company,
the Notes (together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Company.
(b) At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Noteholders of Notes evidencing not less than 66-2/3% of the Aggregate Note
Principal Balance, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if:
(i) the Company has paid or deposited with the Trustee a
sum sufficient to pay:
(A) all principal of the Notes which has
become due otherwise than by such declaration of
acceleration, and interest thereon from the date when the
same first became due at the applicable Rate for each such
Note;
(B) all interest which has became due with
respect to the Notes and, to the extent that payment of such
interest is lawful, interest upon overdue interest from the
date when the same first became due at a rate per annum
equal to the applicable Rate for each such Note;
(C) all sums paid or advanced, together
with interest thereon, by the Trustee hereunder and the
reasonable compensation, expenses, disbursements, and
advances of the Trustee and its agents and counsel;
(ii) all Indenture Events of Default, other than the
non-payment of the aggregate principal amount of the Notes which has
become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 6.13; and
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(iii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
No such rescission shall affect any subsequent Indenture Event of Default or
impair any right consequent thereon.
SECTION 6.03. Other Remedies.
(a) If an Indenture Event of Default occurs and is
continuing of which a Responsible Officer of the Trustee has received written
notice (other than a payment default as described in clause (i) of Section
6.01), the Trustee shall give notice to each Noteholder as set forth in
Section 7.02. The Trustee shall then take such action, if any, as may be
directed by the Noteholders of Notes evidencing not less than 66-2/3% of the
Aggregate Principal Note Balance.
(b) Following any acceleration of the Notes, the Trustee
shall have all of the rights, powers and remedies with respect to the Trust
Property set forth herein or as are otherwise available to secured parties
under the Uniform Commercial Code or other applicable law. Such rights, powers
and remedies may be exercised by the Trustee in its own name as trustee of an
express trust.
SECTION 6.04. Trustee May File Proofs of Claim.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition,
or other judicial proceeding relative to the Company, the Seller, the Servicer
or any other obligor upon the Notes or the other obligations secured hereby or
relating to the property of the Company, the Seller, the Servicer or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or
by declaration or otherwise and irrespective of whether the Trustee shall
have made any demand on the Company, the Seller or the Servicer for the
payment of overdue principal or overdue interest or any such other obligation)
shall be entitled and empowered, by intervention in such proceeding or
otherwise:
(i) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes and
any other obligation secured hereby and to file such other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee and
its agents and counsel) and of the Noteholders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute
the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator, or
other similar official in any such judicial proceeding is hereby authorized by
each Noteholder to make such payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
Noteholders to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee and its
agents and counsel, and any other amounts due the Trustee under Section 7.06.
(b) Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Noteholder or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceeding.
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SECTION 6.05. Trustee May Enforce Claims Without
Possession of Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Noteholders in respect of which such judgment has been
recovered.
SECTION 6.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article,
and any moneys that may then be held or thereafter received by the Trustee,
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of the entire amount due on account
of principal or interest, upon presentation of the Notes and surrender
thereof:
first, on a pro rata basis, (A) to the payment of the Trustee
Fee and all costs and expenses of collection incurred by the Trustee
(including the reasonable fees and expenses of any counsel to the
Trustee) and all other amounts due the Trustee under Section 7.06 (the
parties hereto agree that when the Trustee renders services following
an Indenture Event of Default under Section 6.01 (v) or (vi),
compensation for such services and expenses in connection therewith
are intended to constitute administrative expenses under applicable
bankruptcy law) and (B) to the Back-up Trustee, payment of the
applicable Backup Trustee Fee; provided that the aggregate amount
payable under this clause first shall not exceed the Trustee Fee Cap;
second, if the Person then acting as Servicer is not the
Seller or an Affiliate of the Seller, to the payment of all
unreimbursed Servicing Fees due to the Servicer;
third, to the payment, pro rata, of (i) all accrued and
unpaid interest on the outstanding Senior Note Principal Balance to
the date of payment thereof, without preference or priority of any
kind, and (ii) the Swap Termination Amount, if any, to each
applicable Swap Provider;
fourth, to the payment of all accrued and unpaid interest on
the outstanding Subordinated Note Principal Balance to the date of
payment thereof, without preference or priority of any kind;
fifth, solely during the Note Issuance Period, to the
payment of the Non-Utilization Premium, if any, to the Committed
Investors of Class A-FL Notes ratably, without preference or priority
of any kind;
sixth, solely during the Note Issuance Period, to the
payment of the Non-Utilization Premium, if any, to the Committed
Investors of Class B-FL Notes ratably, without preference or priority
of any kind;
seventh, to the payment of the outstanding Senior Note
Principal Balance, and any other amounts due to the Senior
Noteholders ratably, without preference or priority of any kind;
eighth, to the payment of the outstanding Subordinated Note
Principal Balance, and any other amounts due to the Subordinated
Noteholders ratably, without preference or priority of any kind;
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ninth, to the payment of all amounts specified in clause
first to the extent not paid thereunder (due to the limitation
imposed by the proviso therein);
tenth, if the Person then acting as Servicer is the Seller
or an Affiliate of the Seller, to the payment of all unreimbursed
Servicing Fees due to the Servicer; and
eleventh, to the payment of the remainder, if any, to or
upon the instructions of the Company.
SECTION 6.07. Limitation on Suits.
No Noteholder shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Notes, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Noteholder has previously given written
notice to the Trustee of a continuing Indenture Event of Default;
(ii) the Noteholders of Notes evidencing not less
than 66-2/3% of the Aggregate Note Principal Balance shall have made
written request to the Trustee to institute proceedings in respect of
such Indenture Event of Default in its own name as Trustee hereunder;
(iii) such Noteholder or Noteholders have offered to
the Trustee adequate indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(iv) the Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and
(v) so long as any of the Notes remain outstanding, no
direction inconsistent with such written request has been given to
the Trustee during such 30-day period by the Noteholders of Notes
evidencing not less than 51% of the Aggregate Note Principal
Balance;
it being understood and intended that no one or more Noteholder shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb, or prejudice the rights of any other
Noteholder, or to obtain or to seek to obtain priority or preference over any
other Noteholder or to enforce any right under this Indenture, except in the
manner herein provided. It is further understood and intended that so long as
any portion of the Notes remains outstanding, the Servicer shall not have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture (other than for the enforcement of Section 4.04(a)) or for the
appointment of a receiver or trustee, or for any other remedy hereunder.
SECTION 6.08. Unconditional Right of Noteholders to
Receive Payment.
Notwithstanding any other provision in this Indenture, other
than the provisions hereof establishing priorities of payment or limiting the
right to recover amounts due on the Notes to recoveries from the property of
the Trust Property, the holder of any Note shall have the absolute and
unconditional right to receive payment of the principal of and interest on
such Note as such principal and interest becomes due on the Monthly Payment
Dates for such payments, including the Scheduled Final Payment Date, and,
subject to the terms of Section 6.07, to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Noteholder.
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SECTION 6.09. Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Noteholder, then and in every
such case, subject to any determination in such proceeding, the Company, the
Trustee and the Noteholders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Noteholders shall continue as though no such proceeding had
been instituted.
SECTION 6.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost, or stolen Notes in the last
paragraph of Section 2.05, no right or remedy herein conferred upon or
reserved to the Trustee or to the Noteholders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
SECTION 6.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any holder of any
Note to exercise any right or remedy accruing upon any Indenture Event of
Default shall impair any such right or remedy or constitute a waiver of any
such Indenture Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Trustee or to the Noteholders
may be exercised from time to time, and as often as may be deemed expedient,
by the Trustee or by the Noteholders, as the case may be.
SECTION 6.12. Control by Noteholders.
Except as may otherwise be provided in this Indenture, until
such time as the conditions specified in Section 11.01 have been satisfied in
full, the Noteholders of Notes evidencing not less than 66-2/3% of the
Aggregate Note Principal Balance shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee, subject (in
each case) to the Trustee being indemnified to its reasonable satisfaction.
Notwithstanding the foregoing:
(i) no such direction shall be in conflict with any
rule of law or with this Indenture;
(ii) the Trustee shall not be required to follow any
such direction which the Trustee reasonably believes might result in
any personal liability on the part of the Trustee for which the
Trustee is, in its reasonable judgment, not adequately indemnified;
and
(iii) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with any such
direction; provided that the Trustee shall give notice of any such
action to each Noteholder.
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SECTION 6.13. Waiver of Defaults and Events of Default.
(a) Subject to the provisions of Sections 6.08 and 9.01, the
Noteholders of Notes evidencing not less than 66-2/3% of the Aggregate Note
Principal Balance, may, by one or more instruments in writing, waive an
existing Default or Indenture Event of Default hereunder and its consequences,
except a continuing Indenture Event of Default:
(i) in respect of the payment of the principal of or
interest on any outstanding Note (which may only be waived by the
holder of such Note),
(ii) in respect of a covenant or provision hereof
which under Article IX cannot be modified or amended without the
consent of the holder of each outstanding Note affected (which may be
waived only by the holders of all outstanding Notes affected), or
(iii) in respect of any payment owing to the Trustee
or covenant or provision in its favor (which may be waived only by
the Trustee);
(b) A copy of each waiver pursuant to Section 6.13(a) shall
be furnished by the Company to the Trustee. Upon any such waiver, such
Indenture Event of Default shall cease to exist and shall be deemed to have
been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Indenture Event of Default or impair any
right consequent thereon.
SECTION 6.14. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law wherever enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Indenture; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 6.15. Sale of Trust Property.
(a) The power to effect any sale of any portion of the Trust
Property pursuant to Section 6.03 shall not be exhausted by any one or more
sales as to any portion of the Trust Property remaining unsold, but shall
continue unimpaired until the entire Trust Property shall have been sold or
all amounts payable on the Notes shall have been paid. The Trustee may from
time to time, upon directions in accordance with Section 6.12, postpone any
public sale by public announcement made at the time and place of such sale.
(b) To the extent permitted by applicable law, the Trustee
shall not in any private sale sell the Trust Property, or any portion thereof,
unless either (i) until such time as the conditions specified in Section
11.01(a) have been satisfied in full, the Noteholders of Notes evidencing
66-2/3% of the Aggregate Note Principal Balance, consent to or direct the
Trustee to make such sale; or (ii) the proceeds of such sale would be not less
than the sum of all amounts due to the Trustee hereunder and the entire unpaid
Aggregate Note Principal Balance of such Notes and interest due or to become
due thereon in accordance with Section 6.06 on the Monthly Payment Date next
succeeding the date of such sale.
(c) In connection with a sale of all or any portion of the
Trust Property:
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(i) any one or more Noteholders or the Trustee may
bid for and purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain, and possess and
dispose of such property, without further accountability, and any
Noteholder may, in paying the purchase money therefor, deliver in
lieu of cash any outstanding Notes or claims for interest thereon for
credit in the amount that shall, upon distribution of the net
proceeds of such sale, be payable thereon, and such Notes, in case
the amounts so payable thereon shall be less than the amount due
thereon, shall be returned to the Noteholders after being
appropriately stamped to show such partial payment;
(ii) the Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any
portion of the Trust Property in connection with a sale thereof;
(iii) the Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Company to transfer and convey its
interest in any portion of the Trust Property in connection with a
sale thereof, and to take all action necessary to effect such sale;
and
(iv) no purchaser or transferee at such a sale shall
be bound to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of
any moneys.
(d) The method, mariner, time, place and terms of any sale
of all or any portion of the Trust Property shall be commercially reasonable.
(e) The provisions of this Section 6.15 shall not be
construed to restrict the ability of the Trustee to exercise any rights and
powers against the Company or the Trust Property that are vested in the
Trustee by this Indenture or pursuant to applicable law, including, without
limitation, the power of the Trustee to proceed against the collateral subject
to the lien of this Indenture and to institute judicial proceedings for the
collection of any deficiency remaining thereafter.
SECTION 6.16. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.16 does not apply to a suit by the Trustee, a
suit by a Noteholder pursuant to Section 6.08, or a suit by any Noteholder or
group of Noteholders of more than 10% in principal amount of the Notes then
outstanding.
ARTICLE VII
THE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Indenture Event of
Default:
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(i) the Trustee undertakes to perform only those
duties that are specifically set forth in this Indenture and no
others and no covenants or duties shall be implied herein in
connection with the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. The Trustee, however, shall examine
the same to determine whether or not they conform on their face to
the requirements of this Indenture, but the Trustee shall not be
required to determine, confirm or recalculate information contained
in such certificates or opinions.
(b) If an Indenture Event of Default has occurred and is
continuing, the Trustee shall exercise its rights and powers vested in it by
this Indenture and use the same degree of care and skill in their exercise as
a prudent person would exercise or use under the circumstances in the conduct
of his own affairs.
(c) The Trustee shall not be liable for any action taken or
omitted by it in good faith in connection with the performance of its duties
hereunder, except for its own willful misconduct or gross negligence. In
particular, but without limiting the generality of the foregoing:
(i) the Trustee shall not be liable for any error in
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts;
(ii) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the directions received by it from the Noteholders in
accordance with this Indenture; and
(iii) the Trustee shall not be liable for acting in
good faith reliance on the information provided to the Trustee as
described in Section 3.10.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any personal financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee (solely in its role as Trustee and
not in its role as substitute Servicer) shall be subject to the provisions of
this Section.
(f) The Trustee is hereby authorized to execute and deliver
the Sale and Servicing Agreement by duly executing the consent and agreement
line at the end of the Sale and Servicing Agreement.
SECTION 7.02. Notice of Defaults or Events of Default.
Within one Business Day after a Responsible Officer receives
written notice of the occurrence of any Default or Indenture Event of Default
hereunder or Servicer Event of Default under the Sale and Servicing Agreement,
the Trustee shall transmit by certified mail return receipt requested, hand
delivery or overnight courier, to all Noteholders, as their names and
addresses appear in the Note Register, the
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Company, the Servicer, the Rating Agency and the Seller notice of such
Default, Indenture Event of Default or Servicer Event of Default hereunder
known to the Trustee, unless such Default, Indenture Event of Default or
Servicer Event of Default shall have been cured or waived.
In the absence of actual knowledge of a Responsible Officer
of the Trustee, the Trustee will not be deemed to have knowledge of any
Servicer Event of Default or Indenture Event of Default or Default unless
notified thereof in writing by the Company, a Noteholder, a Committed Investor
or a Swap Provider.
SECTION 7.03. Certain Rights of Trustee.
Subject to the provisions of Section 7.01:
(i) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, note, debenture, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(ii) any request or direction of the Company
mentioned herein shall be sufficiently evidenced by a Company Request
or Company Order and any action of the Company may be sufficiently
evidenced by a Company Order;
(iii) whenever in the administration of this
Indenture the Trustee shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon
an Officer's Certificate;
(iv) the Trustee may consult with counsel as to legal
matters and the advice or opinion of any such counsel selected by the
Trustee with due care shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(v) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture
at the request or direction of any of the Noteholders pursuant to
this Indenture, unless such Noteholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in compliance with such
request or direction;
(vi) except as provided in Section 7.01, the Trustee
shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, note,
debenture, other evidence of indebtedness, or other paper or
document, other than to examine such documents to determine whether
they conform as to form to the requirements of this Indenture, unless
requested in writing to do so by the Noteholders of Notes evidencing
not less than 51% of the Aggregate Note Principal Balance; provided
that, if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by
the terms of this Indenture, the Trustee may require reasonable
indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such examination shall
be paid by the Company, subject to the priorities of payment in
Section 3.07(b) and 6.06 hereof and to the
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other requirements and restrictions on payments specified in Article
III or, if paid by the Trustee or any predecessor trustee, shall be
promptly repaid by the Company upon demand, subject to the priorities
of payment in Section 3.07(b) and 6.06 hereof and to the other
requirements and restrictions on payments specified in Article III;
provided that any insufficiency of amounts available for such
payments will not represent a claim against the Company and no
provision of this paragraph shall limit the Servicer's obligations
under Section 7.06;
(vii) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or
by or through agents, custodians, nominees or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent, custodian, nominee or attorney appointed with
due care by it hereunder; and
(viii) the Trustee shall not be liable for any action
it takes or omits to take if it believes in good faith that such
action or inaction is authorized or within its rights or powers.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture (except as against itself), the Sale and Servicing
Agreement, any Bill of Sale, the Hedge Agreements, the Note Purchase
Agreement, the Notes or the Trust Property and it shall not be responsible for
any statement in the Notes other than its certificate of authentication or in
any document used in the sale of the Notes other than any statement in writing
provided by the Trustee for use in such document. The Trustee shall have no
responsibility for, or duty, or liability in connection with (i) performance
by the Servicer, and shall have no obligation to monitor the performance of
the Servicer or (ii) the use of the Note proceeds. The Trustee makes no
representations about, and has no responsibility or liability with respect to,
the tax consequences of the transactions contemplated by this Indenture,
including, without limiting the generality of the foregoing, the tax status of
the Trust Property and the Notes and the tax consequences to the Servicer, the
Seller, the Company or the Noteholders of any such transactions.
SECTION 7.05. Money Held in Trust.
Money and investments held by the Trustee or other paying
agent shall be held in trust in one or more trust accounts as required
hereunder.
SECTION 7.06. Compensation, Reimbursement, etc.
The Servicer agrees:
(i) to pay, to the extent that such amounts are not
paid pursuant to Section 3.07(b), to the Trustee from time to time
compensation for all services rendered by it hereunder as specified
by the Trustee Fee Letter (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an
express trust), such payment to be made independent of the other
payment obligations of the Servicer hereunder; and
(ii) except as otherwise expressly provided herein,
to reimburse, to the extent that such amounts are not paid pursuant
to Section 3.07(b), the Trustee upon its request for all reasonable
expenses, disbursements, and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement, or
advance as may be attributable to its gross negligence or bad faith.
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(iii) to pay the Backup Trustee the Backup Trustee
Fee payable on the Closing Date;
(iv) to pay the Trustee all indemnified amounts
specified in Section 8.11;
(v) to indemnify and hold the Trustee harmless from
any and all claims, damages, losses, costs or expenses (including,
without limitation attorneys' fees and disbursements) incurred by the
Trustee in any manner or way related to the Lock Box Account or the
Lock Box Agreement; and
(vi) to pay the reasonable fees and expenses of the
Trustee's counsel on the Closing Date, subject to the limit specified
in the Trustee Fee Letter.
Limitations specified in this Indenture as to rights to
collect payments from the Company or out of the Trust Property are not
intended to limit in any respect the obligations of the Servicer pursuant to
this Section. The provisions of this Section 7.06 shall survive any
termination of this Indenture in accordance with Section 11.01 hereof and the
payments and indemnities provided for herein shall be provided to the
Trustee by the initial Servicer irrespective of any resignation or removal of
it as the initial Servicer.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 6.01(v) or
Section 6.01 (vi), the expenses (including the reasonable charges and expenses
of its counsel) and the compensation for the services are intended to
constitute expenses of administration under any applicable Federal or state
bankruptcy, insolvency or other similar law.
SECTION 7.07. Trustee; Eligibility; Disqualification.
(a) "Trustee" shall mean, initially, LTCB Trust Company and,
upon the occurrence of a Trustee Replacement Event, then the Backup Trustee.
Notwithstanding any provision in this Agreement to the contrary, if a Trustee
Replacement Event occurs, (i) the Back-up Trustee shall become the Trustee
hereunder five Business Days (the "Replacement Date") after the Backup
Trustee's receipt of a notice from the Company, the Trustee, any Noteholder or
any Committed Investor of the occurrence of such Trustee Replacement Event and
(ii) LTCB Trust Company shall be deemed to be removed as of the Replacement
Date. A "Trustee Replacement Event" means, at any time, any of the following:
(i) the unsecured long-term obligations of LTCB Trust Company are not rated at
least "Baa3" by Moody's or "BBB-" by S&P; (ii) the New York branch of LTCB
Trust Company closes or otherwise ceases its corporate trust operations; (iii)
either LTCB Trust Company or its New York office files a petition for
bankruptcy, reorganization, receivership, arrangement, insolvency or
liquidation proceedings, or other similar proceedings under any federal or
state bankruptcy or similar law or any such petition is filed against either
of them; (iv) LTCB Trust Company does not meet the requirements under Section
7.07(c); or (v) the Trustee fails to perform any of its material duties and
obligations hereunder and such failure continues for five (5) Business Days
after notice of such failure is delivered by the Issuer, the Servicer or any
Noteholder. If a Trustee Replacement Event occurs, then the Backup Trustee
shall become the Trustee for all purposes of this Indenture and shall be
entitled to the same benefits, protections, privileges and rights provided to
the Trustee hereunder and shall have all of the obligations of the initial
Trustee hereunder as of the Replacement Date, including the obligation of the
Trustee to act as a successor Servicer as set forth in Article V hereof.
(b) The Backup Trustee shall be paid the Backup Trustee Fees
on the Closing Date and on each applicable Monthly Payment Date.
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(c) The Trustee hereunder shall at all times be a
corporation organized and doing business under the laws of the United States
of America, any state thereof or the District of Columbia authorized under
such laws to exercise corporate trust powers, be acceptable to the Rating
Agency, have a combined capital and surplus of at least $50,000,000 or shall
be a member of a bank holding system, the aggregate combined capital and
surplus of which is at least $50,000,000, provided that the Trustee, or the
bank holding company system of which the Trustee is a member shall be subject
to supervision or examination by Federal or state authority and, in the case
of any successor Trustee, subject to regulations regarding fiduciary funds on
deposit substantially similar to 12 C.F.R. ss. 9.10(b). If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section 7.07, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. In case at any time
the Trustee shall cease to be eligible in accordance with the provisions of
this Section 7.07, the Trustee shall resign immediately in the manner and with
the effect specified in Section 7.08.
SECTION 7.08. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by a successor Trustee under
Section 7.09.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company and by mailing notice of resignation by
first-class mail, postage prepaid, to the Rating Agency and the Noteholders at
their addresses appearing on the Note Register.
(c) The Trustee may be removed at any time by the Act of the
Noteholders of Notes evidencing not less than 66-2/3% of the Aggregate Note
Principal Balance of the Notes, delivered to the Trustee and the Company. The
Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.07(c);
(ii) the Trustee is adjudged bankrupt or insolvent;
(iii) a receiver or other public officer takes charge
of the Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(d) Subject to Section 7.07(a), if the Trustee shall resign,
be removed, or become incapable of acting, or if a vacancy shall occur in the
office of Trustee for any cause, the Company, with the consent of each Swap
Provider and the Noteholders of Notes evidencing not less than 66-2/3% of the
Aggregate Note Principal Balance, by an act of the Company, shall promptly
appoint a successor Trustee.
(e) If no successor Trustee shall have been so appointed by
the Company as hereinbefore provided and accepted appointment in the manner
hereinafter provided within 30 days after any such resignation or removal,
existence of incapability, or occurrence of such vacancy, the Trustee or any
Noteholder or each Swap Provider may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee by
mailing written notice of such event by first-class mail,
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postage prepaid, to all Noteholders, as their names and addresses appear in
the Note Register, to the Rating Agency and to each Swap Provider. Each notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
(g) Any liability of any Trustee arising hereunder prior to
the resignation or removal of such Trustee shall survive the appointment of a
successor Trustee.
SECTION 7.09. Acceptance of Appointment by Successor.
(a) Every successor Trustee appointed hereunder shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee hereunder. Upon request
of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
(b) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article and the effectiveness of such appointment will
not, as evidenced by confirmation in writing by the Rating Agency, result in
any reduction or withdrawal of the then current rating of the Senior Notes or
of the Subordinated Notes by the Rating Agency.
SECTION 7.10. Merger, Conversion, Consolidation or
Succession to Business.
Any Person into which the Trustee may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
the Trustee, shall be the successor of the Trustee hereunder, provided such
Person shall be otherwise qualified and eligible under this Article, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto. In case any Notes shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion,
or consolidation to such authenticating Trustee may adopt such authentication
and deliver the Notes so authenticated with the same effect as if such
successor Trustee had itself authenticated such Notes.
SECTION 7.11. Co-trustees and Separate Trustees.
(a) At any time or times, for the purpose of meeting the
legal requirements of any jurisdiction in which any of the Trust Property may
at the time be located or for any other purpose, the Company and the Trustee
shall have power to appoint, and, upon the written request of the Trustee, the
Trustee, any Swap Provider or the Noteholders of Notes evidencing not less
than 51% of the Aggregate Note Principal Balance, the Company shall for such
purpose join with the Trustee in the execution, delivery, and performance of
all instruments and agreements necessary or proper to appoint one or more
Persons approved by the Trustee either to act as co-trustee, jointly with the
Trustee, of all or any part of such Trust Property, or to act as separate
trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this
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Section. If the Company does not join in such appointment within 15 days after
the receipt by it of a request so to do, or in case an Indenture Event of
Default has occurred and is continuing, the Trustee alone shall have power to
make such appointment.
(b) Should any written instrument from the Company be
required by any co-trustee or separate trustee so appointed for more fully
confirming to such co-trustee or separate trustee such property, title, right,
or power, any and all such instruments shall, on request, be executed,
acknowledged and delivered by the Company.
(c) Every co-trustee or separate trustee shall, to the
extent permitted by law, but to such extent only, be appointed subject to the
following terms:
(i) The Notes shall be authenticated and delivered
and all rights, powers, duties, and obligations hereunder in respect
of the custody of securities, cash and other personal property held
by, or required to be deposited or pledged with, the Trustee
hereunder, shall be exercised solely by the Trustee.
(ii) The rights, powers, duties, and obligations
hereby conferred or imposed upon the Trustee in respect of any
property covered by such appointment shall be conferred or imposed
upon and exercised or performed by such co-trustee or separate
trustee, as shall be provided in the instrument appointing such
co-trustee or separate trustee.
(iii) The Trustee at any time, by an instrument in
writing executed by it, with the concurrence of the Company evidenced
by a Company Order, may accept the resignation of or remove any
co-trustee or separate trustee appointed under this Section, and, in
case an Indenture Event of Default has occurred and is continuing,
the Trustee shall have power to accept the resignation of, or remove,
any such co-trustee or separate trustee without the concurrence of
the Company. Upon the written request of the Trustee, the Company
shall join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee
or separate trustee so resigned or removed may be appointed in the
manner provided in this Section.
(iv) No co-trustee or separate trustee hereunder
shall be personally liable by reason of any act or omission of the
Trustee or any other such trustee hereunder and the Trustee shall not
be personally liable by reason of any act or omission of any
co-trustee or other such separate trustee hereunder.
(v) Any Act of Noteholders delivered to the Trustee
shall be deemed to have been delivered to each such co-trustee and
separate trustee.
SECTION 7.12. Servicer to Hold Contracts.
The Servicer may hold the sole original, manually executed
counterpart of each Contract that constitutes chattel paper, together with any
documents relating thereto that may from time to time be delivered to the
Servicer, until such time as such Contract is released from the lien of this
Indenture pursuant to the provisions hereof; provided that upon a Servicer
Event of Default, the Trustee may take possession of such original copies as
necessary to protect the Noteholders' rights, powers and remedies with respect
to the Trust Property. The Servicer will cause the electronic ledger to be
clearly and unambiguously marked to show that such Contracts have been
transferred by the Seller to the Company and pledged by the Company to the
Trustee for the benefit of the Noteholders; Provided, however, if the
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Servicer elects not to hold the above documents, the Servicer shall cause the
Trustee to hold the Contract File and the List of Contracts, and in such case
the electronic ledger will be marked to show that such Contract has been sold
by the Seller to the Company and pledged by the Company to the Trustee for the
benefit of the Noteholders.
SECTION 7.13. Financing Statements.
The Trustee shall execute such UCC financing statements and
continuation statements as shall have been prepared by the Servicer and shall
furnish the Servicer with such limited powers of attorney or other documents
necessary or appropriate to enable the Servicer to fulfill its obligations
under Section 7.06 of the Sale and Servicing Agreement and to carry out its
servicing and administration duties under the Sale and Servicing Agreement.
SECTION 7.14. Reports by Trustee to Noteholders. At least
three Business Days prior to each Monthly Payment Date, the Servicer shall
prepare and deliver to the Trustee and the Rating Agency for distribution to
each Noteholder, and, upon receipt thereof from the Servicer, the Trustee
shall deliver to each Noteholder, a statement setting forth for the related
Collection Period the following information (which in the case of items (ii),
(iii) and (iv) shall be based on a Note in a principal amount of $1,000):
(i) the total amount available in the Collection
Account on the Monthly Payment Date;
(ii) the amount of the distribution allocable to
principal, including Overdue Monthly Principal, on each of the Notes;
(iii) the amount of the distribution allocable to
interest, including any Overdue Monthly Interest, on each of the
Notes, and each Swap Payment Amount, the Hedge Proceeds and each Swap
Termination Amount (if any) for such Monthly Payment Date;
(iv) the Servicing Fee, including any overdue
Servicing Fee;
(v) the Pool Balance as of the end of the related
Collection Period;
(vi) the Available Reserve Amount, after giving
effect to any deposit or withdrawal from the Reserve Account with
respect to such Monthly Payment Date, and specifying the amount of
each such deposit or withdrawal, and such Available Reserve Amount
expressed as a percentage of the Pool Balance and any change in the
Required Reserve Amount;
(vii) the total Principal Balance of Defaulted
Contracts as of the last day of the related Collection Period;
(viii) the Senior Note Principal Balance and
Subordinated Note Principal Balance as of such Monthly Payment Date
(after giving effect to any distributions on such Monthly Payment
Date);
(ix) the Three-Month Average Delinquency Ratio as of
the last day of the end of the related Collection Period and the
Delinquency Ratio as of the last day of the related Collection
Period;
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(x) the Three-Month Average Default Ratio as of the
last day of the related Collection Period and the Default Ratio as of
the last day of the related Collection Period;
(xi) the amount of all prepayments in full of the
Contracts as of the end of the related Collection Period;
(xii) the aggregate Payahead Amount with respect to
the Contracts as of the end of the related Collection Period;
(xiii) the past due experience of the Contracts (with
respect to the different aging categories set forth in the
Confidential Private Placement Memorandum dated February 1998, as
amended and supplemented by the Company as of the Closing Date) as of
the last day of the end of the related Collection Period; and
(xiv) the occurrence of any substitution of
Contracts, if any, in accordance with the Sale and Servicing
Agreement and all applicable information as to compliance of such
substitution with the requirements under the Sale and Servicing
Agreement.
Within a reasonable period of time after the end of each
calendar year, but not later than the latest date permitted by law, the
Servicer shall deliver to the Trustee, and the Trustee shall furnish, to each
Person who at any time during such calendar year shall have been a Noteholder,
a statement, prepared by the Servicer and delivered to the Trustee, containing
the sum of the amounts determined in clauses (ii) and (iii) for such calendar
year, or, in the event such Person shall have been a Noteholder during a
portion of such calendar year, for the applicable portion of such year, for
the purposes of such Noteholder's preparation of federal income tax returns
and, to the extent requested by a Noteholder to comply with applicable law,
such additional information as will enable the Noteholder to prepare its state
and local income and franchise tax returns. In addition, any Committed
Investor, Noteholder or Swap Provider may obtain from the Trustee, by written
request to the Trustee, a copy of any Monthly Servicer Report or any annual
compliance statement pursuant to Section 4.09 of the Sale and Servicing
Agreement that has been delivered to the Trustee.
SECTION 7.15. Limitation on Duty of Trustee in Respect of
Trust Property.
(a) Beyond the exercise of reasonable care in the custody
thereof, the Trustee shall have no duty as to any Trust Property in its
possession or control or in the possession or control of any agent or bailee
or any income thereon or as to preservation of rights against prior parties or
any other rights pertaining thereto and the Trustee shall not be responsible
for filing any financing or continuation statements or recording any documents
or instruments in any public office at any time or times or otherwise
perfecting or maintaining the perfection of any security interest in the Trust
Property. The Trustee shall be deemed to have exercised reasonable care in the
custody of the Trust Property in its possession if the Trust Property is
accorded treatment substantially equal to that which it accords its own
property and shall not be liable or responsible for any loss or diminution in
the value of any of the Trust Property, by reason of the act or omission of
any carrier, forwarding agency or other agent or bailee selected by the
Trustee in good faith.
(b) The Trustee shall not be responsible for the existence,
genuineness or value of any of the Trust Property or for the validity,
perfection, priority or enforceability of the Liens in any of the Trust
Property, whether impaired by operation of law or by reason of any action or
omission to act on its part hereunder, except to the extent such action or
omission constitutes gross negligence, bad faith or wilful misconduct on the
part of the Trustee, for the validity or sufficiency of the Trust Property or
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any agreement or assignment contained therein, for the validity of the title
of the Company to the Trust Property, for insuring the Trust Property or for
the payment of taxes, charges, assessments or Liens upon the Trust Property or
otherwise as to the maintenance of the Trust Property.
ARTICLE VIII
COVENANTS
SECTION 8.01. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of
and interest on the Notes in accordance with the terms of the Notes and this
Indenture. An installment of interest shall be considered paid on the date it
is due if the Trustee holds on that date money designated for and sufficient
to pay the installment.
SECTION 8.02. Maintenance of Office or Agency; Chief
Executive Office.
(a) The Company will maintain in the State of California an
office or agency where notices and demands to or upon the Company in respect
of the Notes and this Indenture may be served.
(b) The chief executive office of the Company, and the
office at which the Company maintains its records with respect to the
Contracts, the Equipment, and the transactions contemplated hereby, is located
in San Ramon, California. The Company will not change the location of such
office without giving the Trustee, the Rating Agency and each Noteholder at
least 60 days' prior written notice thereof.
SECTION 8.03. Money for Payments to Noteholders to Be
Held in Trust.
(a) All payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Collection
Account, the Reserve Account, the Payahead Account or the Contract Purchase
Account pursuant to Section 3.07(b) or Section 6.06 shall be made on behalf of
the Company by the Trustee, and no amounts so withdrawn from the Collection
Account, the Reserve Account, the Payahead Account or the Contract Purchase
Account for payments of Notes shall be paid over to the Company under any
circumstances except as provided in this Section 8.03.
(b) In making payments hereunder, the Trustee will:
(i) allocate all sums received for payment to the
Noteholders on each Monthly Payment Date in accordance with the terms
of this Indenture;
(ii) hold all sums held by it for the payment of
amounts due with respect to the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and pay such sums
to such Persons as herein provided; and
(iii) comply with all requirements of the Internal
Revenue Code of 1986, as amended (or any successor statutes), and all
regulations thereunder, with respect to the withholding from any
payments made by it on any Notes of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
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(c) Except as required by applicable law, any money held by
the Trustee in trust for the payment of any amount due with respect to any
Note shall be held in a non-interest bearing account and if the same remains
unclaimed for three years after such amount has become due and payable to the
Noteholder, the Trustee shall be discharged from such trust and, subject to
applicable escheat laws, paid to the Company upon request; and such Noteholder
shall thereafter, as an unsecured general creditor, look only to the Company
for payment thereof, and all liability of the Trustee with respect to such
trust money shall thereupon cease.
SECTION 8.04. Corporate Existence; etc.
(a) The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence and the rights, licenses and franchises of the Company, and will
obtain and preserve its qualification to do business as a foreign corporation
in each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, or any of
the Contracts.
(b) The Company shall at all times observe and comply in all
material respects with (i) all laws, regulations and court orders applicable
to it, (ii) all requirements of law in the declaration and payment of
dividends on its Capital Stock, and (iii) all requisite and appropriate
corporate and other formalities (including, without limitation, annual and all
other appropriate meetings of the Company's board of directors and, if
required by law, its charter or otherwise, meetings and votes of shareholders
to authorize corporate action) in the management of its business and affairs
and the conduct of the transactions contemplated hereby and by the Sale and
Servicing Agreement.
(c) The Company will, at all times: (i) maintain (A)
corporate and financial books and records separate from those of any other
Person and (B) minutes of the meetings and other proceedings of its
shareholders and board of directors; (ii) continuously maintain the
resolutions, agreements and other instruments underlying the transactions
contemplated hereby and by the Sale and Servicing Agreement as official
records of the Company; (iii) act solely in its corporate name and through its
duly authorized officers or agents to maintain an arm's-length relationship
with the Seller and its Affiliates; (iv) pay all of its operating expenses and
liabilities from its own funds (including any funds advanced to it by the
Servicer); (v) maintain office space separate from that of the Seller on the
premises currently rented by the Seller and (vi) maintain its assets
separately from the assets of the Seller.
(d) The Company shall conduct its business solely in its own
name through its duly authorized officers or agents so as to not mislead
others as to the identity of the corporation with which those others are
concerned, and particularly will avoid the appearance of conducting business
on behalf of the Seller or any of its Affiliates or that the assets of the
Company are available to pay the creditors of the Seller or any of its
Affiliates. Without limiting the generality of the foregoing, all oral and
written communications, including without limitation, letters, invoices,
purchase orders, contracts, statements and loan applications, will be made
solely in the name of the Company.
(e) The Company will be operated so as not to be
substantively consolidated for bankruptcy purposes with the Seller.
(f) At least one director of the Company shall at all times
be a person who is not a director, officer or employee of any direct or
ultimate parent or Affiliate of the Seller.
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(g) The Company will not initiate or approve any amendment
to its Certificate of Incorporation without the prior written consent of the
Trustee and written confirmation by the Rating Agency that the adoption of
such amendment will not result in a reduction or withdrawal of the
then-current rating by such Rating Agency of the Senior Notes or the
Subordinated Notes.
(h) The Company will pay all reasonable costs and expenses
of the Rating Agency to maintain its ratings on the Notes.
SECTION 8.05. Protection of Trust Property; Further
Assurances.
The Company will from time to time execute and deliver all
such supplements and amendments hereto and all such UCC financing statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as may be necessary or advisable
to:
(i) grant more effectively all or any portion of the
Trust Property;
(ii) maintain or preserve the lien of this Indenture
or carry out more effectively the purposes hereof;
(iii) publish notice of, or protect the validity of,
any Grant made or to be made by this Indenture and perfect the
security interest contemplated hereby in favor of the Trustee in the
Contracts and the related Equipment and the other property
constituting the Trust Property;
(iv) enforce or cause the Servicer to enforce any of
the Contracts;
(v) preserve and defend title to any Contract
(including the right to receive all payments due or to become due
thereunder), Equipment, or other property included in the Trust
Property and preserve and defend the rights of the Trustee and the
Noteholders in such Contract (including the right to receive all
payments due or to become due thereunder), Equipment and other
property against the claims of all persons and parties; or
(vi) if the Servicer elects to hold the Contract
Files and the related documents, cause the electronic ledger, with
respect to each Contract and the Schedule of Contracts, to clearly
and unambiguously show that such Contract has been pledged by the
Company to the Trustee for the benefit of the Noteholders.
The Company, upon the Company's failure to do so, hereby designates the
Trustee its agent and attorney-in-fact to execute any UCC financing statement,
continuation statement or other document or instrument required pursuant to
this Section 8.05; provided, however, that such designation shall not be
deemed to create a duty in the Trustee to monitor the compliance of the
Company with the foregoing covenants, and provided further that the duty of
the Trustee to execute any instrument required pursuant to this Section 8.05
shall arise only if a Responsible Officer of the Trustee has actual knowledge
of any failure of the Company to comply with the provisions of this Section
8.05.
SECTION 8.06. Compliance Certificates.
The Company will deliver to the Trustee, the Rating Agency
and each Swap Provider within 90 days after the end of each fiscal year, a
written statement signed by the President or a Vice President and by the Chief
Financial Officer of the Company, stating, in addition to the statements
required by Section 1.17 (i)-(iv), as to each signer thereof, that
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(i) a review of the activities of the Company during
such year and of performance under this Indenture has been made under
his supervision and
(ii) to the best of such officers' knowledge, based
on such review, the Servicer has fulfilled all of its obligations
under this Indenture throughout such year.
(iii) whether the officer knows of any Defaults by
the Company under this Indenture throughout such year or, if there
has been a Default in the fulfillment of any such obligation,
specifying each such Default known to him and the nature and status
thereof and the nature of the action taken with respect thereto.
SECTION 8.07. Performance of Obligations; Sale and
Servicing Agreement.
(a) The Company will punctually perform and observe all of
its obligations and agreements contained in this Indenture, the Notes, the
Note Purchase Agreement, the Sale and Servicing Agreement and the Hedge
Agreements.
(b) The Company will clearly mark its books and records to
reflect each assignment and transfer of Contracts and the related Equipment
subject thereto from the Seller.
(c) If any Authorized Officer shall have knowledge of the
occurrence of a default under the Sale and Servicing Agreement or any Swap
Agreement, the Company shall promptly notify the Trustee, the Rating Agency
and the Noteholders thereof, and shall specify in such notice the action, if
any, the Company is taking in respect of such default. Unless consented to by
the Noteholders of Notes evidencing not less than 66-2/3% of Aggregate Note
Principal Balance, the Company may not waive any default under or amend the
Sale and Servicing Agreement or any Swap Agreement.
SECTION 8.08. Negative Covenants.
The Company will not:
(i) sell, transfer, exchange or otherwise dispose of
any portion of the Trust Property except as expressly permitted by
this Indenture;
(ii) claim any credit on, or make any deduction from,
the principal of, or interest on, any of the Notes by reason of the
payment of any taxes levied or assessed upon any portion of the Trust
Property;
(iii) engage in any business or activity other than
in connection with, or relating to the ownership of, the Contracts
and the Equipment, the issuance of the Notes, the specific
transactions contemplated hereby, and similar activities with respect
to ownership and financing of other pools of receivables;
(iv) seek dissolution or liquidation in whole or in
part or reorganization of its business or affairs;
(v) (A) permit the validity or effectiveness of this
Indenture or any Grant hereby to be impaired, or permit the lien of
this Indenture to be amended, hypothecated, subordinated, terminated
or discharged, or permit any Person to be released from any covenants
or obligations under this Indenture, except as may be expressly
permitted hereby, (B) permit any lien, charge,
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security interest, mortgage or other encumbrance to be created on or
to extend to or otherwise arise upon or burden the Trust Property or
any part thereof or any interest therein or the proceeds thereof
other than the lien of this Indenture and the rights of Obligors, or
(C) permit the lien of this Indenture not to constitute a valid first
priority perfected security interest in the Contracts and a valid
perfected security interest in the Seller's (and the Company's)
interests in the Equipment and the other Trust Property;
(vi) conduct its business or engage in any activity
in violation of the provisions contained in its Certificate of
Incorporation or make any material change in its business or incur
any indebtedness to any Person other than as expressly contemplated
by the Notes, this Indenture, the Sale and Servicing Agreement and
documents relating thereto;
(vii) at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay
or extension law or other law that would prohibit or forgive the
Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein or in the Notes,
wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly
waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted;
(viii) issue or register the transfer of any of its
Capital Stock to any Person other than the Seller;
(ix) merge or consolidate with any other Person
except on terms, if any, approved in writing by the Trustee, each
Noteholder and the Rating Agency;
(x) take any action or permit any action to be taken
by others which would release any Person from any of such Person's
covenants or obligations under any Contract or any other instrument
included in the Trust Property other than any such release occasioned
by the early termination of a Contract after receipt of the
Retransfer Amount, or which would result in the amendment,
hypothecation, subordination, termination, or discharge of, or impair
the validity or effectiveness of, any Contract or such other
instrument, except as expressly provided in this Indenture or the
Sale and Servicing Agreement; or
(xi) purchase any Contract on any date unless at the
time of such purchase (and after giving effect thereto) (a) no
Default, Indenture Event of Default, Servicer Event of Default or
Early Amortization Event shall occur or be continuing, (b) the Equity
Base is not less than 5% of the Pool Balance and the sum of the
Equity Base and the Subordinated Note Principal Balance is not less
than the Required Support Percentage of the Pool Balance (in each
case both before and after giving effect to the purchase of Contracts
to occur on such date), and (c) the Company is in compliance with its
obligations under the Note Purchase Agreement and under the Hedge
Agreements.
SECTION 8.09. Information as to the Company. The Company
shall deliver to the Trustee, each Swap Provider, each Noteholder and the
Rating Agency:
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(a) immediately upon becoming aware of the existence of any
condition or event which constitutes a Default or an Indenture Event of
Default, a written notice describing its nature and period of existence and
what action the Company is taking or proposes to take with respect thereto;
and
(b) promptly upon the Company's becoming aware of (i) any
proposed or pending investigation of it by any governmental authority or
agency, or (ii) any pending or proposed court or administrative proceeding
which (in either case) involves or may involve the possibility, individually
or in the aggregate, of materially and adversely affecting the properties,
business, profits or condition (financial or otherwise) of the Company, a
written notice specifying the nature of such investigation or proceeding and
what action the Company is taking or proposes to take with respect thereto and
evaluating its merits.
SECTION 8.10. Payment of Taxes and Other Claims.
Subject to the priorities of payment and other restrictions
and limitations specified in Article III and the other provisions hereof, the
Company will pay or discharge or cause to be paid or discharged, before any
penalty accrues from the failure to so pay or discharge, (1) all taxes,
assessments and governmental charges levied or imposed upon the Company or
upon the income, profits or property (including any property that is part of
the Trust Property) of the Company and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company; provided, however, that the (i) Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which
adequate provision has been made or where the failure to effect such payment
or discharge is not adverse in any material respect to the Noteholders and
(ii) the Company shall not apply to any such payments any funds constituting
Trust Property other than amounts (if any) constituting Excess Collections.
The Company shall be included as a consolidated entity in the federal tax
returns filed by the Seller.
SECTION 8.11. Indemnification.
The Company agrees to indemnify and hold harmless the
Trustee, (which shall include its directors, officers, employees and agents)
and each Noteholder (each an "Indemnified Party") against any and all
liabilities, losses, damages, penalties, costs and expenses (including the
fees and expenses of counsel and the costs of defense and legal fees and
expenses) which may be incurred or suffered by such Indemnified Party without
gross negligence, bad faith or willful misconduct on its part as a result of
claims, actions, suits or judgments asserted or imposed against it and arising
out of the transactions contemplated hereby or by the Sale and Servicing
Agreement, including, without limitation, any claims resulting from any use,
operation, maintenance, repair, storage or transportation of any item of
Equipment, whether or not in the Company's possession or under its control,
and any tort claims and any fines or penalties arising from any violation of
the laws or regulations of the United States or any state or local government
or governmental authority including, without limitation, securities laws, and,
in the case of the Trustee, in connection with the acceptance or
administration of this trust, including all costs and expenses of defending
itself against any claim in connection with the exercise or performance (or
inaction) of any of its powers or duties hereunder. The provisions of this
Section 8.11 shall survive the termination of this Indenture in accordance
with Section 11.01 hereof.
SECTION 8.12. Use of Proceeds. The Company will use the net
proceeds from the issuance of Notes on each Note Issuance Date to make a
purchase of Contracts and Contract Assets pursuant to and in accordance with
the Sale and Servicing Agreement.
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ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES
SECTION 9.01. Amendments and Supplemental Indentures.
This Indenture or the Notes may be amended or supplemented
by the parties hereto, without notice to or consent of the Noteholders, but
with notice to the Rating Agency and confirmation by such Rating Agency that
no reduction or withdrawal of the rating of any Class of Notes would be caused
by such amendment or supplement, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Indenture or the Notes or of modifying in any manner the rights of such
Noteholders, provided that such action will not, in the opinion of counsel
reasonably satisfactory to the Trustee, materially and adversely affect the
interests of any such Noteholders and that such action will not materially and
adversely affect the interests of any Swap Provider. This Indenture or the
Notes may also be amended or supplemented by the Company and the Trustee with
the consent of the Noteholders of Notes evidencing at least 51% of the
Aggregate Note Principal Balance for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in any manner the rights of such Noteholders;
provided, however, that, no amendment to this Indenture or any supplemental
indenture may (i) cause a reduction in the then current rating of the Senior
Notes or the Subordinated Notes, (ii) increase or reduce in any manner the
amount of, or accelerate or delay the timing of collections of payments on the
related Contracts or distributions that are required to be made for the
benefit of such Noteholders, (iii) reduce the aforesaid percentage of the
Notes which is required to consent to any such amendment or waiver, (iv)
change the Scheduled Final Payment Date or (v) release any of the Trust
Property from the lien hereof (except as otherwise permitted herein) or modify
Section 2.06, 3.07, 6.06, 6.08, 6.13 or 9.01, without the consent of each
affected Noteholder. Furthermore, any amendment, modification or waiver of the
Indenture that affects the rights, duties or obligations of the Trustee may
only be effected with the Trustee's prior written consent. Notwithstanding
anything herein to the contrary, no amendment to this Indenture or any
supplemental indenture shall be required to cause a substitution of the
Floating Rate Hedge pursuant to Section 12.04 hereof so long as all
requirements for such substitution set forth in Section 12.04 are met.
It shall not be necessary for the consent of the Noteholders
under this Section to approve the particular form of any proposed amendment or
supplement, but it shall be sufficient if such consent approves the substance
thereof. The Trustee shall, promptly upon execution thereof, send a copy of
each amendment of or supplement to this Indenture or the Notes to each Swap
Provider.
SECTION 9.02. Execution of Amendments and Supplemental
Indentures.
In executing any amendment to this Indenture, the Notes or
any supplemental indenture pursuant to Section 9.01 of this Indenture, the
Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Opinion of Counsel stating that the
execution of such amendment to this Indenture, the Notes or any supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any supplemental indenture which affects
the Trustee's own rights, duties, protections, or immunities under this
Indenture or otherwise.
SECTION 9.03. Effect of Amendments and Supplemental
Indentures.
Upon the execution of any amendment to this Indenture, the
Notes or any supplemental indenture under this Article, this Indenture, the
Notes or any supplemental indenture shall be modified in accordance therewith,
and such amendment or supplemental indenture shall form a part of this
Indenture,
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the Notes or any supplemental indenture for all purposes, and every Noteholder
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby. After an amendment or supplement under this Section becomes
effective, the Company shall mail to the Noteholders affected thereby and to
the Rating Agency a notice briefly describing the amendment or supplement. Any
failure of the Company to mail such notice, or any defects therein, shall not,
however, in any way impair or affect the validity of such amendment or
supplement.
SECTION 9.04. Reference in Notes to Amendments and
Supplemental Indentures.
Notes authenticated and delivered after the execution of any
amendment to this Indenture or any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such amendment or
supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Company, to any
such amendment or supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
outstanding Notes.
SECTION 9.05. Revocation and Effect of Consents.
Subject to this Indenture, each amendment, waiver or
instrument evidencing other action shall become effective in accordance with
its terms. Until an amendment, waiver or other action becomes effective, a
consent to it by a Noteholder is a continuing consent by the Noteholder even
if notation of the consent is not made on any Security.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Noteholders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then those Persons
who were Noteholders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such Persons continue to be Noteholders after such record date. No such
consent shall be valid or effective for more than 90 days after such record
date.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption; Election to Redeem.
(a) The Notes may be redeemed by the Company, in whole but
not in part, at the Redemption Price on any Monthly Payment Date on which the
Aggregate Note Principal Balance is less than 10% of the Aggregate Note
Principal Balance as of the first day of the Note Amortization Period (after
giving effect to payments of principal on such Monthly Payment Date).
(b) The Company, by an Authorized Officer, shall set the
Redemption Date and the Record Date (which shall be the Record Date that would
otherwise be applicable for the Monthly Payment Date on which such Redemption
Date is to occur) and shall give notice thereof to the Trustee pursuant to
Section 10.02.
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SECTION 10.02. Notice to Trustee.
In the case of any redemption pursuant to Section 10.01, the
Company shall, at least 35 days prior to the Redemption Date (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee, each Swap
Provider and the Rating Agency of such Redemption Date and the principal
amount of Notes to be redeemed. The notice shall be accompanied by an
Officer's Certificate stating that the redemption complies with the provisions
of this Indenture.
SECTION 10.03. Notice of Redemption by the Company.
Notice of redemption pursuant to Section 10.01 shall be
given by first class mail, postage prepaid, mailed at least 30 days but not
more than 60 days prior to the applicable Redemption Date, to each Noteholder
at its address in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) that on the Redemption Date, the Redemption
Price will become due and payable upon each
such Note, and that interest thereon shall
cease to accrue if payment is made on such
date; and
(4) the CUSIP number, if any, of the Notes of
each Class.
(5) Corporate Trust Office where Notes are to
be surrendered for payment of the
Redemption Price.
Notice of redemption of Notes shall be given by the Company,
by an Authorized Officer, or, at the request of such Authorized Officer, by
the Trustee in the name and at the expense of the Company. Failure to give
notice of redemption, or any defect therein, to any holder of an Note shall
not impair or affect the validity of the redemption of any other Note. If a
CUSIP number is listed in such notice or printed on the Note, the notice may
state that no representation is made as to the correctness or accuracy of such
CUSIP number.
SECTION 10.04. Deposit of the Redemption Price.
On or before the Business Day next preceding any Redemption
Date, the Company shall deposit with the Trustee an amount of monies
sufficient to pay the Redemption Price of all Notes outstanding on such
Redemption Date (less any portion of such payment to be made from monies in
the Collection Account and from the Reserve Account).
SECTION 10.05. Notes Payable on Redemption Date.
Notice of redemption having been given as provided in
Section 10.03, the Notes shall, on the applicable Redemption Date, become due
and payable at the Redemption Price and on such Redemption Date (unless the
Company shall default in the payment of the Redemption Price) such Notes shall
cease to bear interest. The Noteholders shall be paid the Redemption Price by
the Trustee on behalf of the Company; provided, however, that installments of
principal and interest which are due on or prior
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to the Redemption Date shall be payable to the Noteholders registered as such
on the relevant Record Dates according to their terms and the provisions of
Section 2.07. If the holders of any Note called for redemption shall not be so
paid upon surrender, the principal and interest shall, until paid, bear
interest from the Redemption Date at the related Rate.
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture.
(a) This Indenture shall cease to be of further effect
(except as to any surviving rights herein expressly provided for), and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
each of the following conditions are satisfied:
(i) either:
(A) all Notes theretofore authenticated and
delivered (other than (x) Notes which have been destroyed,
lost, or stolen and which have been replaced or paid as
provided in Section 2.05 and (y) Notes for whose payment
money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section
8.03(c)) have been irrevocably paid and delivered to the
Trustee for cancellation; or
(B) the final installments of principal on
all such Notes not theretofore delivered to the Trustee for
cancellation:
(1) have become due and payable,
or
(2) will become due and payable at
their Scheduled Final Payment Date within one year,
and the Company has deposited or caused to be deposited with
the Trustee as trust funds in trust for such purpose an
amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal and interest to the
date of such deposit (in the case of Notes which have become
due and payable) or to the Scheduled Final Payment Date
thereof;
(ii) all amounts payable hereunder for the benefit of
the Trustee and the Noteholders have been paid in full and all
amounts due and payable pursuant to each Swap Agreement have been
paid in full; and
(iii) the Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that
all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
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At such time, the Trustee shall deliver to the Company or, upon Company Order,
its assignee, all cash, securities and other property held by it as part of
the Trust Property other than funds deposited with the Trustee pursuant to
Section 11.01 (a)(i)(B) for the payment and discharge of the Notes.
(b) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company under Sections 7.06 and 8.11, and,
if money shall have been deposited with the Trustee pursuant to Section
11.01(a)(i)(B), the obligations of the Trustee under Section 11.02 and Section
8.03(c) shall survive.
SECTION 11.02. Application of Trust Money.
Subject to the provisions of Section 8.03(c), all money
deposited with the Trustee pursuant to Sections 11.01 and 8.03 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment to the Persons entitled thereto of the
principal and interest for whose payment such money has been deposited with
the Trustee.
SECTION 11.03. Reinstatement.
If the Trustee is unable to apply any money in accordance
with Section 11.01 by reason of any legal proceeding or by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 11.01 until such time as the Trustee is
permitted to apply all such money in accordance with Section 11.01.
ARTICLE XII
HEDGE AGREEMENTS
SECTION 12.01 Hedge Apreements.
In connection with the issuance of any Notes, the Company
shall enter into Hedge Agreements described below with respect to the issued
Notes with Eligible Providers for the purpose of limiting the Company's
exposure to changes in market interest rates. The Company's rights under each
Hedge Agreement shall be collaterally assigned by the Company to the Trustee
for the benefit of the Noteholders.
SECTION 12.02 Fixed Rate Hedge.
(a) In connection with the issuance of any Fixed Rate Notes,
the Company shall enter into a Fixed Rate Hedge with a Hedge Provider for the
purpose of limiting the Company's exposure to changes in market interest rates
during the Note Issuance Period.
(b) The Fixed Rate Hedge shall provide for payments by the
Hedge Provider to the Company in the event the Fixed Rate Benchmark for either
class of Fixed Rate Notes exceeds certain rates specified in the Fixed Rate
Hedge during the Note Issuance Period. These payments shall supplement amounts
available to pay interest on the Notes if such Fixed Rate Benchmark is
exceeded.
SECTION 12.03 Floating Rate Hedge.
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(a) In connection with the issuance of any Floating Rate
Notes, the Company shall enter into one or more hedging agreements, each of
which shall be either a Floating Rate Cap or a Swap Agreement with an Eligible
Provider for the purpose of limiting the Company's exposure to changes in
market interest rates during the period from the Note Issuance Date of the
related Floating Rate Notes through the Scheduled Final Payment Date.
(b) A Floating Rate Cap, if any, will provide for payments
by the Hedge Provider to the Company in the event LIBOR (as defined herein)
for any Interest Period exceeds a certain rate specified therein.
(c) Pursuant to each Swap Agreement, if any, each Swap
Provider (subject to the terms thereof) shall be obligated to pay to the
Trustee, in connection with each Monthly Payment Date (as defined herein) and
on the Scheduled Final Payment Date (as defined herein), an amount equal to
the product of a rate specified therein and a notional amount specified
therein, and the Trustee shall be obligated to pay to each such Swap Provider
(but solely with funds available to the Trustee in the Trust Property), in
connection with each Monthly Payment Date and on the Scheduled Final Payment
Date, the related Swap Payment Amount, if any. Any Swap Agreement shall be
subject to termination by either party under the circumstances specified
therein prior to the Scheduled Final Payment Date.
SECTION 12.04 Substitution of Floating Rate Hedge.
At any time during the Note Issuance Period, the Company
may, at its option, simultaneously terminate any Floating Rate Cap that is in
effect at such time and enter into a Swap Agreement in a form satisfactory to
Standard & Poor's and Noteholders of Notes evidencing not less than 66-2/3% of
the Aggregate Note Principal Balance. After the Note Issuance Period, any
termination or substitution of the Floating Rate Hedge at the option of the
Company must be approved by Noteholders of Notes evidencing not less than
66-2/3% of the Aggregate Note Principal Balance.
SECTION 12.05 Hedge Provider.
If on any day a Hedge Provider shall cease to be an Eligible
Provider and within 30 days thereafter no Hedge Provider Transfer (as defined
below) shall have occurred, then within 30 days thereafter (or such longer
period, if any, as the Rating Agency confirms in writing would not result in a
reduction or withdrawal of the rating of the Notes of any Class by the Rating
Agency), the Company shall have the right (but not the obligation) to (a)
cause the replacement of the Hedge Provider with a substitute Person that is
an Eligible Provider, or (b) obtain a supporting letter of credit or other
credit enhancement for the existing Hedge Provider such that the Hedge
Provider (after giving effect to such enhancement) is an Eligible Provider,
and (in each case) obtain confirmation in writing by the Rating Agency that,
based on such actions, no reduction or withdrawal of the then-current rating
of any Class of Notes would occur. "Hedge Provider Transfer" means an exercise
by the Hedge Provider of its rights under the Hedge Agreement to effect a
transfer of its rights and obligations under the Hedge Agreement to another
Person, or to obtain credit enhancement or to deliver collateral, such that
(in any such case) after giving effect thereto, no reduction or withdrawal of
the then-current rating of any Class of Notes by the Rating Agency would
occur.
SECTION 12.06 Rights of Swap Provider.
This Indenture and the Trust Property (except the Company's
rights under the Swap Agreements) secures the obligations of the Company to
each Swap Provider under each Swap Agreement. Notwithstanding any provision to
the contrary contained in this Indenture, if a Swap Termination Amount is at
any time owing by the Company, or if the Company fails to pay all amounts due
to the applicable
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<PAGE>
Swap Provider upon the scheduled termination of the related Swap Agreement,
then for all purposes of exercising the rights and remedies of Noteholders
under this Indenture (including, without limitation, all voting rights), each
applicable Swap Provider shall be treated as the holder of a Note with an
outstanding Note Principal Amount equal to the related Swap Termination Amount
as advised in writing to the Trustee by each such Swap Provider, and the
Senior Note Principal Amount shall be treated as having been increased on a
pro tanto basis. Notwithstanding the foregoing, all payments to all Swap
Providers shall be made in accordance with Articles Three and Six.
SECTION 12.07 Over-Issuance Condition.
The Company shall not cause or permit to exist an
Over-Issuance Condition (as defined below). On any date, if the Assumed
Longest Amortization of all Contracts included in the Trust Property will
result in the aggregate Note Principal Balance of all Notes which are subject
to a Fixed Rate Hedge or a Floating Rate Cap exceeding the aggregate notional
amounts of all such Fixed Rate Hedges and Floating Rate Caps, then an
"Over-Issuance Condition" shall be deemed to exist on such date. For purposes
of this Section, "Assumed Longest Amortization" means the amortization of the
Principal Balance of the Contracts assuming that (i) no Contract is or becomes
a Defaulted Contract and (ii) no prepayment occurs on any Contract, (iii) no
Contract is subject to repurchase by the Seller or purchase by the Servicer
pursuant to the Sale and Servicing Agreement and (iv) the payment schedule for
each Contract is extended for three months immediately after giving effect to
the purchase of such Contract by the Company.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and witnessed, all as of the day and year first above
written.
JLA FUNDING CORPORATION III
By:/s/ Steven A. Dietsch
-------------------------------------------
Name: Steven A. Dietsch
Title: Treasurer
JLA CREDIT CORPORATION
By:/s/ Mitsumasa Sakka
-------------------------------------------
Name: Mitsumasa Sakka
Title: President
LTCB TRUST COMPANY, as Trustee
By:
-------------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Backup Trustee
By:
-------------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and witnessed, all as of the day and year first above
written.
JLA FUNDING CORPORATION III
By:
-------------------------------------------
Name:
Title:
JLA CREDIT CORPORATION
By:
-------------------------------------------
Name:
Title:
LTCB TRUST COMPANY, as Trustee
By:/s/ Ronald N. Lamendola
-------------------------------------------
Name: Ronald N. Lamendola
Title: Senior Vice President
THE BANK OF NEW YORK, as Backup Trustee
By:
-------------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and witnessed, all as of the day and year first above
written.
JLA FUNDING CORPORATION III
By:
-------------------------------------------
Name:
Title:
JLA CREDIT CORPORATION
By:
-------------------------------------------
Name:
Title:
LTCB TRUST COMPANY, as Trustee
By:
-------------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Backup Trustee
By:/s/ Reyne A. Macadaeg
-------------------------------------------
Name: Reyne A. Macadaeg
Title: Assistant Vice President
<PAGE>
EXHIBIT A-1
[FORM OF CLASS A-FL NOTE)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE NOTEHOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY
(A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN THE CASE
OF CLAUSES (B) OR (C) ABOVE, TO COMPLIANCE BY THE NOTEHOLDER AND THE
TRANSFEREE WITH THE PROVISIONS OF THE INDENTURE, DATED AS OF MARCH 30, 1998,
AMONG JLA FUNDING CORPORATION III (THE "COMPANY"), JLA CREDIT CORPORATION, AS
SERVICER, LTCB TRUST COMPANY, AS TRUSTEE (THE "TRUSTEE"), AND THE BANK OF NEW
YORK, AS BACKUP TRUSTEE (THE "BACKUP TRUSTEE"), APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE NOTEHOLDER AGREES TO TREAT THIS NOTE AS
INDEBTEDNESS FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR
ANY INTEREST HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON
SHALL HAVE PROVIDED TO THE COMPANY AND THE TRUSTEE A CERTIFICATION, IN THE
FORM APPROVED BY THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND FOR SO
LONG AS IT HOLDS NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29
C.F.R. ss. 2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY
CASE IN WHICH THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE ASSETS OF AN
"EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA OR A
"PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE CODE (ANY SUCH PLAN OR
EMPLOYEE BENEFIT PLAN, A "PLAN") AND FOR ANY PERIOD FOR WHICH A NOTE IS (OR IS
DEEMED FOR ERISA PURPOSES TO BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR
TRANSFER, AND SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE
RISE TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE FOR WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (B)
NO VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF
SUCH PERSON'S ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
No. Note Principal Balance $
Cusip No.
FLOATING RATE ASSET-BACKED NOTE, CLASS A-FL
JLA Funding Corporation III, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to __________________
_________________ or registered assigns, the principal sum of
_______________________ (_____________), which shall be payable in monthly
installments to the extent of available funds pursuant to the Indenture (as
defined below), each equal to the sum of (i) the Monthly Principal allocable
to this Class A-FL Note and (ii) the Overdue Monthly Principal allocable to
this Class A-FL Note, on the 16th day of each month commencing in the first
calendar month following the end of the Note Issuance Period and ending not
later than the Scheduled Final Payment Date, when all remaining principal and
interest are due and payable in their entirety (each, a "Monthly Payment
Date"),
A-1
<PAGE>
and to pay interest (computed on the basis of a 360-day year and the actual
number of days elapsed) accruing from the Note Issuance Date hereof. Interest
on this Note will be payable on each Monthly Payment Date on the Class A-FL
Note Principal Balance hereof commencing on the Monthly Payment Date occurring
in the calendar month immediately succeeding the month in which the Note
Issuance Date of this Note occurs, at a per annum rate that, for each Interest
Period, will equal the sum of LIBOR plus the Class A-FL Floating Rate Margin.
As used herein, "LIBOR" means, with respect to any Interest Period, the per
annum rate for deposits in United States dollars for a one-month period which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Interest
Determination Date. If such rate does not appear on Telerate Page 3750 on such
day, the rate will be determined on the basis of the rates at which deposits
in U.S. dollars are offered by the Reference Banks at approximately 11:00
a.m., London time, on the related Interest Determination Date to prime banks
in the London interbank market for a period of one month. The Trustee will
request the principal London office of each of the Reference Banks to provide
a quotation of its rate. If at least two such quotations are provided, the
rate for that Interest Determination Date will be the arithmetic mean of the
quotations. If fewer then two quotations are provided as requested, the rate
for that Interest Determination Date will be the arithmetic mean of the rates
rounded upwards to the nearest 1/16 of 1.0% (one percent) quoted by two or
more major banks in New York City, selected by the Trustee in its sole
discretion, at approximately 11:00 a.m., New York City time, on that Interest
Determination Date for loans in U.S. dollars to leading banks in London
interbank market for a period of one month. "Interest Determination Date"
means, with respect to any Interest Period, the second Business Day preceding
the first day of such Interest Period. "Reference Banks" shall mean Barclays
Bank PLC, Citibank, N.A., Chase Manhattan Bank and Deutsche Bank AG. "Interest
Period" means, with respect to any Note and any Monthly Payment Date, the
period from and including the previous Monthly Payment Date (or, in the case
of the first Monthly Payment Date for such Note, from and including the Note
Issuance Date for such Note), to but excluding such Monthly Payment Date.
Payments of principal and interest on this Note shall be made
on each Monthly Payment Date in such coin or currency of the United States of
America as at such time is legal tender for payment of public and private
debts to the Person in whose name this Note (or one or more predecessor Notes)
is registered at the close of business on the Record Date for such Monthly
Payment Date, which shall be the last day of the month preceding the month in
which the Monthly Payment Date occurs (or in the case of the initial Monthly
Payment Date, the Note Issuance Date hereof), by wire transfer of immediately
available funds to the account and number specified in the Note Register on
such Record Date for such Person or, if no such account or number is so
specified, then by check mailed to such Person's address as it appears in the
Note Register on such Record Date. The holder hereof shall surrender this Note
at the principal Corporate Trust Office of the Trustee for the final
installment of principal of this Note.
This Note is one of a duly authorized issue of Class A-FL
Notes of the Company designated as its Floating Rate Asset-Backed Notes, Class
A-FL, which are being or have been issued on any date or dates during the Note
Issuance Period (as defined in the Indenture) under an Indenture, dated as of
March 30, 1998 (as may be amended from time to time, the "Indenture"), among
the Company, the Servicer, LTCB Trust Company, as trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), and
The Bank of New York, as backup trustee, to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, and immunities thereunder of
the Company, the Trustee, and the holders of the Notes and of the terms upon
which the Notes are, and are to be, authenticated and delivered. The
Subordinated Notes are subordinated to the Senior Notes as and to the extent
set forth in the Indenture. The Trust Property secures all of the Notes
equally and ratably without preference, priority, or distinction between any
Note of the same Class and any other Note of the same Class by reason of
difference in time or times of issuance and delivery or otherwise, and also
secures the payment of certain other amounts and certain other obligations as
set forth in the Indenture.
A-2
<PAGE>
If an Indenture Event of Default shall occur and be
continuing, the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
As provided in the Indenture and subject to restrictions on
transfer and the other limitations set forth therein and above, the transfer
of this Note is registrable in the Note Register, upon surrender of this Note
for registration of transfer at the office or agency designated by the Company
pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same original aggregate principal amount, will, in accordance with the
Indenture, be issued to the designated transferee or transferees.
The Notes may be redeemed by the Company, in whole but not
in part, at the Redemption Price on any Monthly Payment Date on which the
Aggregate Note Principal Balance is less than 10% of the Aggregate Note
Principal Balance as of the first day of the Note Amortization Period (after
giving effect to payments of principal on such Monthly Payment Date) in the
manner provided in the Indenture.
The Notes are issuable only in registered form without
coupons in denominations as provided in the Indenture and subject to certain
limitations therein set forth. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Notes are limited recourse obligations of the Company.
The sole source of payment of the Notes will be the assets comprising the
Trust Property. The Notes do not represent an obligation of, or an interest
in, the Seller, the Servicer or any affiliate of any of them. The Notes are
limited in right of payment to certain collections and recoveries respecting
the Contracts and certain payments from the Collection Account, the Reserve
Account and the Payahead Account, all as more specifically set forth in the
Indenture. A copy of the Indenture may be examined during normal business
hours at the office of the Servicer, and at such other places, if any,
designated by the Trustee, by any Noteholder upon request.
The Indenture permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights of the
Noteholders under the Indenture at any time by the Seller, the Servicer and
the Trustee with the consent of the Noteholders of Notes evidencing not less
than 51% of the Aggregate Note Principal Balance and, in certain
circumstances, each affected Noteholder. Any such consent by the Noteholder of
this Note shall be conclusive and binding on such Noteholder and on all future
Noteholders of this Note and of any Note issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Note. The Indenture also permits the amendment thereof, in
certain limited circumstances, without prior notice to or the consent of the
Noteholders of any of the Notes.
Each Noteholder, by its acceptance of a Note, covenants and
agrees that such Noteholder will not, at any time prior to the day that is one
year and one day following the payment in full of all amounts owing pursuant
to the Notes and the Indenture, institute against the Seller or the Company,
or join in any institution against the Seller or the Company of, any
bankruptcy, reorganization, arrangement,
A-3
<PAGE>
insolvency or liquidation proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations under or relating
to the Notes or the Indenture.
By accepting this Note, the holder hereof irrevocably
appoints the Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and
enforce the rights of such holder and the provisions of the Indenture for the
benefit of the holder. The preceding provision in no way shall limit the right
of the holder hereof to demand payment hereunder or bring an action to enforce
payment hereof.
Capitalized terms used and not defined in this Note which
are defined in the Indenture have the meanings specified in the Indenture.
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State
of New York, without regard to the conflict of laws principles thereof.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, JLA Funding Corporation III has caused
this instrument to be duly executed.
JLA FUNDING CORPORATION III
By:______________________________
Title:
CERTIFICATE OF AUTHENTICATION
Dated:____________________
This is one of the Notes
referred to in the within
mentioned Indenture.
LTCB TRUST COMPANY,
not in its individual
capacity but solely in
its capacity as Trustee
By:_______________________________
Authorized Signatory
A-4
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
___________________
___________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_______________________________________________________
______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
______________________________________
Date:_________________________________________________________________________
Your signature:_______________________________________________________________
(Sign exactly as your name appears on the other side
of this Note)
Signature(s) Guaranteed by:___________________________________________________
(All signatures must be guaranteed by a
member of a Signature Guarantee Medallion
Program.)
A-5
<PAGE>
EXHIBIT A-2
[FORM OF CLASS A-FX NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE NOTEHOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY
(A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN THE CASE
OF CLAUSES (B) OR (C) ABOVE, TO COMPLIANCE BY THE NOTEHOLDER AND THE
TRANSFEREE WITH THE PROVISIONS OF THE INDENTURE, DATED AS OF MARCH 30, 1998,
AMONG JLA FUNDING CORPORATION III (THE "COMPANY"), JLA CREDIT CORPORATION, AS
SERVICER, LTCB TRUST COMPANY, AS TRUSTEE (THE "TRUSTEE"), AND THE BANK OF NEW
YORK, AS BACKUP TRUSTEE (THE "BACKUP TRUSTEE"), APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE NOTEHOLDER AGREES TO TREAT THIS NOTE AS
INDEBTEDNESS FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR
ANY INTEREST HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON
SHALL HAVE PROVIDED TO THE COMPANY AND THE TRUSTEE A CERTIFICATION, IN THE
FORM APPROVED BY THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND FOR SO
LONG AS IT HOLDS NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29
C.F.R. ss. 2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY
CASE IN WHICH THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE ASSETS OF AN
"EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA OR A
"PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE CODE (ANY SUCH PLAN OR
EMPLOYEE BENEFIT PLAN, A "PLAN") AND FOR ANY PERIOD FOR WHICH A NOTE IS (OR IS
DEEMED FOR ERISA PURPOSES TO BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR
TRANSFER, AND SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE
RISE TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE FOR WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (B)
NO VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF
SUCH PERSON'S ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
No. Note Principal Balance $
Cusip No.
FIXED RATE ASSET-BACKED NOTE, CLASS A-FX
JLA Funding Corporation III, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to __________________
_______________ or registered assigns, the principal sum of
______________________ (_________________), which shall be payable in monthly
installments to the extent of available funds pursuant to the Indenture (as
defined below), each equal to the sum of (i) the Monthly Principal allocable
to this Class A-FX Note and (ii) the Overdue Monthly Principal allocable to
this Class A-FX Note, on the 16th day of each month commencing in the first
calendar month following the end of the Note Issuance Period and ending not
later than the Scheduled Final Payment Date, when
A-1
<PAGE>
all remaining principal and interest are due and payable in their entirety
(each, a "Monthly Payment Date") and to pay interest (computed on the basis of
a 360-day year consisting of twelve 30-day months) accruing from the Note
Issuance Date hereof. Interest on this Note will be payable on each Monthly
Payment Date on the Class A-FX Note Principal Balance hereof commencing on the
Monthly Payment Date occurring in the calendar month immediately succeeding
the month in which the Note Issuance Date of this Note occurs, at a per annum
rate of __%, for each Interest Period. "Interest Period" means, with respect
to any Note and any Monthly Payment Date, the period from and including the
previous Monthly Payment Date (or, in the case of the first Monthly Payment
Date for such Note, from and including the Note Issuance Date for such Note),
to but excluding such Monthly Payment Date.
Payments of principal and interest on this Note shall be
made on each Monthly Payment Date in such coin or currency of the United
States of America as at such time is legal tender for payment of public and
private debts to the Person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on the Record Date
for such Monthly Payment Date, which shall be the last day of the month
preceding the month in which the Monthly Payment Date occurs (or in the case
of the initial Monthly Payment Date, the Note Issuance Date hereof), by wire
transfer of immediately available funds to the account and number specified in
the Note Register on such Record Date for such Person or, if no such account
or number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date. The holder hereof shall
surrender this Note at the principal Corporate Trust Office of the Trustee for
the final installment of principal of this Note.
This Note is one of a duly authorized issue of Class A-FX
Notes of the Company designated as its Fixed Rate Asset-Backed Notes, Class
A-FX, which are being or have been issued on any date or dates during the Note
Issuance Period (as defined in the Indenture) under an Indenture, dated as of
March 30, 1998 (as may be amended from time to time, the "Indenture"), among
the Company, the Servicer, LTCB Trust Company, as trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), and
The Bank of New York, as back-up trustee, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, and immunities
thereunder of the Company, the Trustee, and the holders of the Notes and of
the terms upon which the Notes are, and are to be, authenticated and
delivered. The Subordinated Notes are subordinated to the Senior Notes as and
to the extent set forth in the Indenture. The Trust Property secures all of
the Notes equally and ratably without preference, priority, or distinction
between any Note of the same Class and any other Note of the same Class by
reason of difference in time or times of issuance and delivery or otherwise,
and also secures the payment of certain other amounts and certain other
obligations as set forth in the Indenture.
If an Indenture Event of Default shall occur and be
continuing, the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
As provided in the Indenture and subject to restrictions on
transfer and the other limitations set forth therein and above, the transfer
of this Note is registrable in the Note Register, upon surrender of this Note
for registration of transfer at the office or agency designated by the Company
pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same original aggregate principal amount, will, in accordance with the
Indenture, be issued to the designated transferee or transferees.
The Notes may be redeemed by the Company, in whole but not
in part, at the Redemption Price on any Monthly Payment Date on which the
outstanding Aggregate Note Principal Balance of the
A-2
<PAGE>
Notes is less than 10% of the Aggregate Note Principal Balance as of the first
day of the Note Amortization Period (after giving effect to payments of
principal on such Monthly Payment Date) in the manner provided in the
Indenture.
The Notes are issuable only in registered form without
coupons in denominations as provided in the Indenture and subject to certain
limitations therein set forth. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Notes are limited recourse obligations of the Company.
The sole source of payment of the Notes will be the assets comprising the
Trust Property. The Notes do not represent an obligation of, or an interest
in, the Seller, the Servicer or any affiliate of any of them. The Notes are
limited in right of payment to certain collections and recoveries respecting
the Contracts and certain payments from the Collection Account, the Reserve
Account and the Payahead Account, all as more specifically set forth in the
Indenture. A copy of the Indenture may be examined during normal business
hours at the office of the Servicer, and at such other places, if any,
designated by the Trustee, by any Noteholder upon request.
The Indenture permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights of the
Noteholders under the Indenture at any time by the Seller, the Servicer and
the Trustee with the consent of the Noteholders of Notes evidencing not less
than 51% of the Aggregate Note Principal Balance and, in certain
circumstances, each affected Noteholder. Any such consent by the Noteholder of
this Note shall be conclusive and binding on such Noteholder and on all future
Noteholders of this Note and of any Note issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Note. The Indenture also permits the amendment thereof, in
certain limited circumstances, without prior notice to or the consent of the
Noteholders of any of the Notes.
Each Noteholder, by its acceptance of a Note, covenants and
agrees that such Noteholder will not, at any time prior to the day that is one
year and one day following the payment in full of all amounts owing pursuant
to the Notes and the Indenture, institute against the Seller or the Company,
or join in any institution against the Seller or the Company of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
under any United States Federal or state bankruptcy or similar law in
connection with any obligations under or relating to the Notes or the
Indenture.
By accepting this Note, the holder hereof irrevocably
appoints the Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and
enforce the rights of such holder and the provisions of the Indenture for the
benefit of the holder. The preceding provision in no way shall limit the right
of the holder hereof to demand payment hereunder or bring an action to enforce
payment hereof.
Capitalized terms used and not defined in this Note which are
defined in the Indenture have the meanings specified in the Indenture.
A-3
<PAGE>
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State
of New York, without regard to the conflict of laws principles thereof.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, JLA Funding Corporation III has caused
this instrument to be duly executed.
JLA FUNDING CORPORATION III
By:__________________________
Title:
CERTIFICATE OF AUTHENTICATION
Dated:_______________________
This is one of the Notes
referred to in the within
mentioned Indenture.
LTCB TRUST COMPANY,
not in its individual
capacity but solely in
its capacity as Trustee
By:_______________________________
Authorized Signatory
A-4
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
___________________
___________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_______________________________________________________
______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
______________________________________
Date:_________________________________________________________________________
Your signature:_______________________________________________________________
(Sign exactly as your name appears on the other side
of this Note)
Signature(s) Guaranteed by:___________________________________________________
(All signatures must be guaranteed by a
member of a Signature Guarantee Medallion
Program.)
A-5
<PAGE>
EXHIBIT B-1
[FORM OF CLASS B-FL NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE NOTEHOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY
(A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN THE CASE
OF CLAUSES (B) OR (C) ABOVE, TO COMPLIANCE BY THE NOTEHOLDER AND THE
TRANSFEREE WITH THE PROVISIONS OF THE INDENTURE, DATED AS OF MARCH 30, 1998,
AMONG JLA FUNDING CORPORATION III (THE "COMPANY"), JLA CREDIT CORPORATION, AS
SERVICER, LTCB TRUST COMPANY, AS TRUSTEE (THE "TRUSTEE"), AND THE BANK OF NEW
YORK, AS BACKUP TRUSTEE (THE "BACKUP TRUSTEE"), APPLICABLE TO, SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE NOTEHOLDER AGREES TO TREAT THIS NOTE AS
INDEBTEDNESS FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR
ANY INTEREST HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON
SHALL HAVE PROVIDED TO THE COMPANY AND THE TRUSTEE A CERTIFICATION, IN THE
FORM APPROVED BY THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND FOR SO
LONG AS IT HOLDS NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29
C.F.R. ss. 2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY
CASE IN WHICH THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE ASSETS OF AN
"EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA OR A
"PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE CODE (ANY SUCH PLAN OR
EMPLOYEE BENEFIT PLAN, A "PLAN") AND FOR ANY PERIOD FOR WHICH A NOTE IS (OR IS
DEEMED FOR ERISA PURPOSES TO BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR
TRANSFER, AND SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE
RISE TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE FOR WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (B)
NO VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF
SUCH PERSON'S ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
No. Note Principal Balance $
Cusip No.
FLOATING RATE ASSET-BACKED NOTE, CLASS B-FL
JLA Funding Corporation 111, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to ______________
______________ or registered assigns, the principal sum of ___________________
(______________), which shall be payable in monthly installments to the extent
of available funds pursuant to the Indenture (as defined below), each equal to
the sum of (i) the Monthly Principal allocable to this Class B-FL Note and
(ii) the Overdue Monthly Principal allocable to this Class B-FL Note, on the
16th day of each month commencing in the first calendar month following the
end of the Note Issuance Period and ending not later than the Scheduled Final
Payment Date, when all remaining principal and interest are due and payable in
their entirety (each, a "Monthly Payment Date"),
B-1
<PAGE>
and to pay interest (computed on the basis of a 360-day year and the actual
number of days elapsed) accruing from the Note Issuance Date hereof. Interest
on this Note will be payable on each Monthly Payment Date on the Class B-FL
Note Principal Balance hereof commencing on the Monthly Payment Date occurring
in the calendar month immediately succeeding the month in which the Note
Issuance Date of this Note occurs, at a per annum rate that, for each Interest
Period, will equal the sum of LIBOR plus the Class Floating Rate Margin. As
used herein, "LIBOR" means, with respect to any Interest Period, the per annum
rate for deposits in United States dollars for a one-month period which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Interest
Determination Date. If such rate does not appear on Telerate Page 3750 on such
day, the rate will be determined on the basis of the rates at which deposits
in U.S. dollars are offered by the Reference Banks at approximately 11:00
a.m., London time, on the related Interest Determination Date to prime banks
in the London interbank market for a period of one month. The Trustee will
request the principal London office of each of the Reference Banks to provide
a quotation of its rate. If at least two such quotations are provided, the
rate for that Interest Determination Date will be the arithmetic mean of the
quotations. If fewer then two quotations are provided as requested, the rate
for that Interest Determination Date will be the arithmetic mean of the rates
rounded upwards to the nearest 1/16 of 1.0% (one percent) quoted by two or
more major banks in New York City, selected by the Trustee in its sole
discretion, at approximately 11:00 a.m., New York City time, on that Interest
Determination Date for loans in U.S. dollars to leading banks in London
interbank market for a period of one month. "Interest Determination Date"
means, with respect to any Interest Period, the second Business Day preceding
the first day of such Interest Period. "Reference Banks" shall mean Barclays
Bank PLC, Citibank, N.A., Chase Manhattan Bank and Deutsche Bank AG. "Interest
Period" means, with respect to any Note and any Monthly Payment Date, the
period from and including the previous Monthly Payment Date (or, in the case
of the first Monthly Payment Date for such Note, from and including the Note
Issuance Date for such Note), to but excluding such Monthly Payment Date.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS CLASS
B-FL NOTE ARE SUBORDINATE TO THE PRIOR PAYMENT IN FULL ON EACH MONTHLY PAYMENT
DATE OF ALL AMOUNTS OF PRINCIPAL AND INTEREST DUE AND PAYABLE ON THE SENIOR
NOTES AS PROVIDED IN THE INDENTURE.
Payments of principal and interest on this Note shall be
made on each Monthly Payment Date in such coin or currency of the United
States of America as at such time is legal tender for payment of public and
private debts to the Person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on the Record Date
for such Monthly Payment Date, which shall be the last day of the month
preceding the month in which the Monthly Payment Date occurs (or in the case
of the initial Monthly Payment Date, the Note Issuance Date hereof), by wire
transfer of immediately available funds to the account and number specified in
the Note Register on such Record Date for such Person or, if no such account
or number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date. The holder hereof shall
surrender this Note at the principal Corporate Trust Office of the Trustee for
the final installment of principal of this Note.
This Note is one of a duly authorized issue of Class B-FL
Notes of the Company designated as its Floating Rate Asset-Backed Notes, Class
B-FL, which are being or have been issued on any date or dates during the Note
Issuance Period (as defined in the Indenture) under an Indenture, dated as of
March 30, 1998 (as may be amended from time to time, the "Indenture"), among
the Company, the Servicer, LTCB Trust Company, as trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), and
The Bank of New York, as backup trustee, to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, and immunities thereunder of
the Company, the Trustee, and the holders of the Notes and of the terms upon
which the Notes are, and are to be, authenticated and delivered. The
Subordinated Notes are
B-2
<PAGE>
subordinated to the Senior Notes as and to the extent set forth in the
Indenture. The Trust Property secures all of the Notes equally and ratably
without preference, priority, or distinction between any Note of the same
Class and any other Note of the same Class by reason of difference in time or
times of issuance and delivery or otherwise, and also secures the payment of
certain other amounts and certain other obligations as set forth in the
Indenture.
If an Indenture Event of Default shall occur and be
continuing, the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
As provided in the Indenture and subject to restrictions on
transfer and the other limitations set forth therein and above, the transfer
of this Note is registrable in the Note Register, upon surrender of this Note
for registration of transfer at the office or agency designated by the Company
pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same original aggregate principal amount, will, in accordance with the
Indenture, be issued to the designated transferee or transferees.
The Notes may be redeemed by the Company, in whole but not
in part, at the Redemption Price on any Monthly Payment Date on which the
Aggregate Note Principal Balance is less than 10% of the Aggregate Note
Principal Balance as of the first day of the Note Amortization Period (after
giving effect to payments of principal on such Monthly Payment Date) in the
manner provided in the Indenture.
The Notes are issuable only in registered form without
coupons in denominations as provided in the Indenture and subject to certain
limitations therein set forth. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the
owner hereof for all purposes, whether or not this Note be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Notes are limited recourse obligations of the Company.
The sole source of payment of the Notes will be the assets comprising the
Trust Property. The Notes do not represent an obligation of, or an interest
in, the Seller, the Servicer or any affiliate of any of them. The Notes are
limited in right of payment to certain collections and recoveries respecting
the Contracts and certain payments from the Collection Account, the Reserve
Account and the Payahead Account, all as more specifically set forth in the
Indenture. A copy of the Indenture may be examined during normal business
hours at the office of the Servicer, and at such other places, if any,
designated by the Trustee, by any Noteholder upon request.
The Indenture permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights of the
Noteholders under the Indenture at any time by the Seller, the Servicer and
the Trustee with the consent of the Noteholders of Notes evidencing not less
than 51% of the Aggregate Note Principal Balance and, in certain
circumstances, each affected Noteholder. Any such consent by the Noteholder of
this Note shall be conclusive and binding on such Noteholder and on all future
Noteholders of this Note and of any Note issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Note. The Indenture also permits the amendment thereof, in
certain limited circumstances, without prior notice to or the consent of the
Noteholders of any of the Notes.
B-3
<PAGE>
Each Noteholder, by its acceptance of a Note, covenants and
agrees that such Noteholder will not, at any time prior to the day that is one
year and one day following the payment in full of all amounts owing pursuant
to the Notes and the Indenture, institute against the Seller or the Company,
or join in any institution against the Seller or the Company of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
under any United States Federal or state bankruptcy or similar law in
connection with any obligations under or relating to the Notes or the
Indenture.
By accepting this Note, the holder hereof irrevocably
appoints the Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and
enforce the rights of such holder and the provisions of the Indenture for the
benefit of the holder. The preceding provision in no way shall limit the right
of the holder hereof to demand payment hereunder or bring an action to enforce
payment hereof.
Capitalized terms used and not defined in this Note which
are defined in the Indenture have the meanings specified in the Indenture.
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State
of New York, without regard to the conflict of laws principles thereof.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, JLA Funding Corporation III has caused
this instrument to be duly executed.
JLA FUNDING CORPORATION III
By:_______________________
Title:
CERTIFICATE OF AUTHENTICATION
Dated:________________________
This is one of the Notes
referred to in the within
mentioned Indenture.
LTCB TRUST COMPANY,
not in its individual
capacity but solely in
its capacity as Trustee
By:_______________________________
Authorized Signatory
B-4
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
___________________
___________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_______________________________________________________
______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
______________________________________
Date:_________________________________________________________________________
Your signature:_______________________________________________________________
(Sign exactly as your name appears on the other side
of this Note)
Signature(s) Guaranteed by:___________________________________________________
(All signatures must be guaranteed by a
member of a Signature Guarantee Medallion
Program.)
B-5
<PAGE>
EXHIBIT B-2
[FORM OF CLASS B-FX NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. THE NOTEHOLDER OF THIS NOTE BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY
(A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE ACT, (B) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN THE CASE
OF CLAUSES (B) OR (C) ABOVE, TO COMPLIANCE BY THE NOTEHOLDER AND THE
TRANSFEREE WITH THE PROVISIONS OF THE INDENTURE, DATED AS OF MARCH 30,1998,
AMONG JLA FUNDING CORPORATION III (THE "COMPANY"), JLA CREDIT CORPORATION, AS
SERVICER, LTCB TRUST COMPANY, AS TRUSTEE (THE "TRUSTEE"), AND THE BANK OF NEW
YORK, AS BACKUP TRUSTEE (THE "BACKUP TRUSTEE"), APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE NOTEHOLDER AGREES TO TREAT THIS NOTE AS
INDEBTEDNESS FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES. THIS NOTE OR
ANY INTEREST HEREIN SHALL NOT BE TRANSFERRED TO ANY PERSON UNLESS SUCH PERSON
SHALL HAVE PROVIDED TO THE COMPANY AND THE TRUSTEE A CERTIFICATION, IN THE
FORM APPROVED BY THE COMPANY AND THE TRUSTEE, (I) THAT IT IS NOT AND FOR SO
LONG AS IT HOLDS NOTES WILL NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29
C.F.R. ss. 2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY
CASE IN WHICH THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE ASSETS OF AN
"EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA OR A
"PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE CODE (ANY SUCH PLAN OR
EMPLOYEE BENEFIT PLAN, A "PLAN") AND FOR ANY PERIOD FOR WHICH A NOTE IS (OR IS
DEEMED FOR ERISA PURPOSES TO BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR
TRANSFER, AND SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE
RISE TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE FOR WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS UNAVAILABLE, AND (B)
NO VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE LAW WILL ARISE BY VIRTUE OF
SUCH PERSON'S ACQUISITION, HOLDING AND SUBSEQUENT TRANSFER OF A NOTE.
No. Note Principal Balance $
Cusip No.
FIXED RATE ASSET-BACKED NOTE, CLASS B-FX
JLA Funding Corporation III, a Delaware corporation (the
"Company "), for value received, hereby promises to pay to ________________
_______________ or registered assigns, the principal sum of
___________________ (________________), which shall be payable in monthly
installments to the extent of available funds pursuant to the Indenture (as
defined below), each equal to the sum of (i) the Monthly Principal allocable
to this Class B-FX Note and (ii) the Overdue Monthly Principal allocable to
this Class B-FX Note, on the 16th day of each month commencing in the first
calendar month following the end of the Note Issuance Period and ending not
later than the Scheduled Final Payment Date, when all remaining principal and
interest are due and payable in their entirety (each, a "Monthly Payment
Date"),
B-1
<PAGE>
and to pay interest (computed on the basis of a 360-day year consisting of
twelve 30-day months) accruing from the Note Issuance Date hereof. Interest on
this Note will be payable on each Monthly Payment Date on the Class A-FX Note
Principal Balance hereof commencing on the Monthly Payment Date occurring in
the calendar month immediately succeeding the month in which the Note Issuance
Date of this Note occurs, at a per annum rate of __%, for each Interest
Period. "Interest Period" means, with respect to any Note and any Monthly
Payment Date, the period from and including the previous Monthly Payment Date
(or, in the case of the first Monthly Payment Date for such Note, from and
including the Note Issuance Date for such Note), to but excluding such Monthly
Payment Date.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS CLASS
B-FX NOTE ARE SUBORDINATE TO THE PRIOR PAYMENT IN FULL ON EACH MONTHLY PAYMENT
DATE OF ALL AMOUNTS OF PRINCIPAL AND INTEREST DUE AND PAYABLE ON THE CLASS
B-FX NOTES AS PROVIDED IN THE INDENTURE.
Payments of principal and interest on this Note shall be
made on each Monthly Payment Date in such coin or currency of the United
States of America as at such time is legal tender for payment of public and
private debts to the Person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on the Record Date
for such Monthly Payment Date, which shall be the last day of the month
preceding the month in which the Monthly Payment Date occurs (or in the case
of the initial Monthly Payment Date, the Note Issuance Date hereof), by wire
transfer of immediately available funds to the account and number specified in
the Note Register on such Record Date for such Person or, if no such account
or number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date. The holder hereof shall
surrender this Note at the principal Corporate Trust Office of the Trustee for
the final installment of principal of this Note.
This Note is one of a duly authorized issue of Class B-FX
Notes of the Company designated as its Fixed Rate Asset-Backed Notes, Class
B-FX, which are being or have been issued on any date or dates during the
Note Issuance Period (as defined in the Indenture) under an Indenture, dated
as of March 30, 1998 (as may be amended from time to time, the "Indenture"),
among the Company, the Servicer, LTCB Trust Company, as trustee (herein called
the "Trustee," which term includes any successor trustee under the Indenture),
and The Bank of New York, as backup trustee, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, and immunities
thereunder of the Company, the Trustee, and the holders of the Notes and of
the terms upon which the Notes are, and are to be, authenticated and
delivered. The Subordinated Notes are subordinated to the Senior Notes as and
to the extent set forth in the Indenture. The Trust Property secures all of
the Notes equally and ratably without preference, priority, or distinction
between any Note of the same Class and any other Note of the same Class by
reason of difference in time or times of issuance and delivery or otherwise,
and also secures the payment of certain other amounts and certain other
obligations as set forth in the Indenture.
If an Indenture Event of Default shall occur and be
continuing, the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture.
As provided in the Indenture and subject to restrictions on
transfer and the other limitations set forth therein and above, the transfer
of this Note is registrable in the Note Register, upon surrender of this Note
for registration of transfer at the office or agency designated by the Company
pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes, of authorized denominations and
for the same original
B-2
<PAGE>
aggregate principal amount, will, in accordance with the Indenture, be issued
to the designated transferee or transferees.
The Notes may be redeemed by the Company, in whole but not
in part, at the Redemption Price on any Monthly Payment Date on which the
outstanding Aggregate Note Principal Balance of the Notes is less than 10% of
the Aggregate Note Principal Balance as of the first day of the Note
Amortization Period (after giving effect to payments of principal on such
Monthly Payment Date) in the manner provided in the Indenture.
The Notes are issuable only in registered form without
coupons in denominations as provided in the Indenture and subject to certain
limitations therein set forth. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Notes are limited recourse obligations of the Company.
The sole source of payment of the Notes will be the assets comprising the
Trust Property. The Notes do not represent an obligation of, or an interest
in, the Seller, the Servicer or any affiliate of any of them. The Notes are
limited in right of payment to certain collections and recoveries respecting
the Contracts and certain payments from the Collection Account, the Reserve
Account and the Payahead Account, all as more specifically set forth in the
Indenture. A copy of the Indenture may be examined during normal business
hours at the office of the Servicer, and at such other places, if any,
designated by the Trustee, by any Noteholder upon request.
The Indenture permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights of the
Noteholders under the Indenture at any time by the Seller, the Servicer and
the Trustee with the consent of the Noteholders of Notes evidencing not less
than 51% of the Aggregate Note Principal Balance and, in certain
circumstances, each affected Noteholder. Any such consent by the Noteholder of
this Note shall be conclusive and binding on such Noteholder and on all future
Noteholders of this Note and of any Note issued upon the transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Note. The Indenture also permits the amendment thereof, in
certain limited circumstances, without prior notice to or the consent of the
Noteholders of any of the Notes.
Each Noteholder, by its acceptance of a Note, covenants and
agrees that such Noteholder will not, at any time prior to the day that is one
year and one day following the payment in full of all amounts owing pursuant
to the Notes and the Indenture, institute against the Seller or the Company,
or join in any institution against the Seller or the Company of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
under any United States Federal or state bankruptcy or similar law in
connection with any obligations under or relating to the Notes or the
Indenture.
By accepting this Note, the holder hereof irrevocably
appoints the Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and
enforce the rights of such holder and the provisions of the Indenture for the
benefit of the holder. The preceding provision in no way shall limit the right
of the holder hereof to demand payment hereunder or bring an action to enforce
payment hereof.
B-3
<PAGE>
Capitalized terms used and not defined in this Note which
are defined in the Indenture have the meanings specified in the Indenture.
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State
of New York, without regard to the conflict of laws principles thereof.
Unless the certificate of authentication hereon has been
executed by the Trustee by manual signature, this Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, JLA Funding Corporation III has caused
this instrument to be duly executed.
JLA FUNDING CORPORATION III
By:_________________________
Title:
CERTIFICATE OF AUTHENTICATION
Dated:_______________________
This is one of the Notes
referred to in the within
mentioned Indenture.
LTCB TRUST COMPANY,
not in its individual
capacity but solely in
its capacity as Trustee
By:________________________________
Authorized Signatory
B-4
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
___________________
___________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
(Print or type assignee's name,
address and zip code)
and irrevocably appoint_______________________________________________________
______________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
______________________________________
Date:_________________________________________________________________________
Your signature:_______________________________________________________________
(Sign exactly as your name appears on the other side
of this Note)
Signature(s) Guaranteed by:___________________________________________________
(All signatures must be guaranteed by a
member of a Signature Guarantee Medallion
Program.)
B-5
<PAGE>
EXHIBIT C
FORM OF TRANSFEREE LETTER
[letterhead of Transferee]
Date:
JLA Funding Corporation III
12677 Alcosta Boulevard - Suite 430
San Ramon, California 94583
LTCB Trust Company, as Trustee
165 Broadway
New York, New York 10006
Re: JLA Funding Corporation III
---------------------------
Dear Sirs:
We are the transferee in a private sale or other transfer from
__________ (the "Transferor") of $__________ in aggregate original principal
amount of Floating Rate Asset-Backed Notes, Class A (the "Senior Notes"), and
$__________ in aggregate original principal amount of Floating Rate
Asset-Backed Notes, Class B (the "Subordinated Notes" and, collectively with
the Senior Notes, the "Notes") issued by JLA Funding Corporation III (the
"Company"), pursuant to the Indenture, dated as of March 30, 1998 (as may be
amended from time to time, the "Indenture"), among the Company, JLA Credit
Corporation and LTCB Trust Company, as Trustee (the "Trustee"). Capitalized
terms used and not otherwise defined herein have the meanings specified in the
Indenture.
In connection with our acquisition of the Notes, we hereby represent,
warrant, certify and agree as follows:
(A) We confirm that [check as applicable]:
___________We are an institutional investor that is an
"accredited investor" as defined under paragraph (1), (2),
(3) or (7) of Rule 501(a) under the Securities Act of 1933,
as amended (the "Securities Act") (an "Institutional
Accredited Investor") or, if the Notes are to be purchased by
us for one or more institutional accounts ("investor
accounts") for which we are acting as a fiduciary or agent,
each such investor account is an Institutional Accredited
Investor.
___________We are a "qualified institutional buyer" as that
term is defined in Rule 144A under the Securities Act (a
"Qualified Institutional Buyer") or, if the Notes are to be
purchased by us for one or more investor accounts
C-1
<PAGE>
for which we are acting as a fiduciary or agent, each such investor
account is a Qualified Institutional Buyer.
(B) We are purchasing the Notes solely for our own account or
accounts for which we exercise sole investment discretion and not as nominee
or agent for any other person.
(C) We have such knowledge and experience in financial and business
matters and with respect to investments in securities that we are capable of
evaluating the merits and risks of an investment in the Notes, and we are (and
each account, if any, for which we are purchasing is) able to bear the
economic risk of such investment for an indefinite period. We have had such
opportunity to ask questions of and receive answers from the Transferor and
the Company concerning our purchase of the Notes and all matters relating
thereto and we have been afforded such access to information (including
financial information) about the Company and JLACC as have enabled us to
evaluate our investment in the Notes and we have received all such information
as we have deemed necessary to make an informed decision with respect to our
purchase of the Notes.
(D) We understand that the Notes are not being registered under the
Securities Act or any state securities laws and that the Company is relying
upon an exemption from registration as an "investment company" under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). We
understand that the Notes are being transferred to us in a transaction that is
exempt from the registration requirements of the Securities Act and such laws.
We understand that there is no market for, nor is there any assurance that a
market will develop, for the Notes, and we will not reoffer or resell the
Notes by any form of general solicitation or general advertising.
(E) We understand that, if in the future we decide to sell or
otherwise transfer any Note, such Note may be sold or transferred only (A) to
a person that we reasonably believe is a Qualified Institutional Buyer in a
transaction meeting the requirements of Rule 144A under the Securities Act,
or (B) to an Institutional Accredited Investor pursuant to another available
exemption from the registration requirements of the Securities Act subject, in
the case of clauses (A) and (B) above, to compliance by the transferee and us
with the provisions of the Indenture including, without limitation, the
delivery by the proposed transferee of a Transferee Letter substantially in
the form of this letter and, in the case of clause (B), the delivery of an
opinion of counsel of counsel to the transferee, in form and substance
acceptable to the Trustee and the Company, if requested by the Trustee or the
Company.
(F) We understand that the Notes will bear legends substantially to
the following effect:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS. THE NOTEHOLDER
OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE ACT, (B) TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE ACT IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT SUBJECT, IN
THE CASE OF CLAUSES (B) OR (C) ABOVE, TO COMPLIANCE BY THE NOTEHOLDER
AND THE TRANSFEREE WITH THE PROVISIONS OF THE INDENTURE, DATED AS OF
MARCH 30,1998, AMONG
C-2
<PAGE>
JLA FUNDING CORPORATION III (THE "COMPANY"), JLA CREDIT CORPORATION,
AS SERVICER, AND LTCB TRUST COMPANY, AS TRUSTEE (THE "TRUSTEE"),
APPLICABLE TO SUCH TRANSFER.
BY ACCEPTANCE OF THIS NOTE, THE NOTEHOLDER AGREES TO TREAT THIS NOTE
AS INDEBTEDNESS FOR FEDERAL, STATE AND LOCAL INCOME TAX PURPOSES.
THIS NOTE OR ANY INTEREST HEREIN SHALL NOT BE TRANSFERRED TO ANY
PERSON UNLESS SUCH PERSON SHALL HAVE PROVIDED TO THE COMPANY AND THE
TRUSTEE A CERTIFICATION, IN THE FORM APPROVED BY THE COMPANY AND THE
TRUSTEE, (I) THAT IT IS NOT AND FOR SO LONG AS IT HOLDS NOTES WILL
NOT BE A BENEFIT PLAN INVESTOR (AS DEFINED IN 29 C.F.R.
ss. 2510.3-101 OR ANY SUCCESSOR PROVISION), OR (II) THAT (A) IN ANY
CASE IN WHICH THE NOTES ARE ACQUIRED BY SUCH PURCHASER WITH THE
ASSETS OF AN "EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION
3(3) OF ERISA OR A "PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF
THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT PLAN, A "PLAN") AND FOR
ANY PERIOD FOR WHICH A NOTE IS (OR IS DEEMED FOR ERISA PURPOSES TO
BE) ASSETS OF A PLAN, THAT THE ACQUISITION OR TRANSFER, AND
SUBSEQUENT HOLDING, WILL NOT CONSTITUTE, CAUSE OR OTHERWISE GIVE RISE
TO A TRANSACTION DESCRIBED IN SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE FOR WHICH A STATUTORY OR ADMINISTRATIVE EXEMPTION IS
UNAVAILABLE, AND (B) NO VIOLATION OF STATE, LOCAL OR OTHER APPLICABLE
LAW WILL ARISE BY VIRTUE OF SUCH PERSON'S ACQUISITION, HOLDING AND
SUBSEQUENT TRANSFER OF A NOTE.
(G) We hereby represent and warrant, further, that either
(i) we are not and for so long as we hold Notes will not be a
"benefit plan investor" (as defined in 29 C.F.R. ss. 2510.3-101 or
any successor provision) or (ii) in any case in which Notes are being
acquired by us with the assets of an "employee benefit plan" within
the meaning of Section 3(3) of ERISA or a "plan" within the meaning
of Section 4975(e)(1) of the Code (any such plan or employee benefit
plan, a "Plan") and for any period for which a Note is (or is deemed
for ERISA purposes to be) assets of a Plan, that the acquisition or
transfer, and subsequent holding, of any such Notes will not
constitute, cause or otherwise give rise to a transaction described
in Section 406 of ERISA or Section 4975 of the Code for which a
statutory or administrative exemption is unavailable.
We agree that we will obtain from any purchaser of our Notes a letter
executed by such purchaser in the form of this letter.
We hereby indemnify each of you, your respective affiliates and each
other Noteholder for any losses, claims, damages or liabilities (including
fees and expenses of counsel) incurred by you or them as a result, directly or
indirectly, of (i) any statements made by us in this letter, or in any
document delivered by us relating hereto, (ii) our making any transfer or
other disposition of any Note in a manner that violates the provisions of this
letter, such Note or the Indenture, or (iii) any failure of a direct purchaser
from us to have furnished to each of you a letter in the form hereof.
C-3
<PAGE>
Our Notes should be registered as follows:
Name:
Address:
Tax Identification Number:
Physical Location of the Notes:
Contact:
Very truly yours,
[NAME OF PURCHASER)
By:____________________
Title:
C-4
<PAGE>
EXHIBIT D
[FORM OF ISSUER ORDER)
[DATE OF ISSUER ORDER)
[TRUSTEE]
[ADDRESS]
[Attention: Corporate Trust Administration]
Ladies and Gentlemen:
Reference is made to the Indenture dated as of March 30, 1998, by and
among JLA Funding Corporation III, a Delaware corporation (herein called the
"Company"), JLA Credit Corporation, a Delaware corporation, LTCB Trust
Company, a New York trust company, as trustee and The Bank of New York, a
__________, as backup trustee.
In connection with the Note Issuance Date to occur on _________ 199_,
pursuant to Section 2.03(d) of the Indenture, you are requested to
authenticate definitive certificates for the Notes in the respective
denominations and in the respective names below, and to deliver such Notes in
accordance with the delivery instructions set forth below:
Name of Registered Holder: [NAME]
Denomination(s): [$______________ of [Floating/___% Fixed] Rate Asset-Backed
Notes, Class [ ]
Delivery Instruction: [DELIVERY INFORMATION]]
Name of Registered Holder: [NAME]
Denomination(s): [$______________ of [Floating/___% Fixed] Rate Asset-Backed
Notes, Class [ ]
Delivery Instruction: [DELIVERY INFORMATION]]
Name of Registered Holder: [NAME]
Denomination(s): [$______________ of [Floating/___% Fixed] Rate Asset-Backed
Notes, Class [ ]
Delivery Instruction: [DELIVERY INFORMATION]]
Upon the issuance of the Specified Notes, the Aggregate Note
Principal Balance of each class of Notes issued under the Indenture shall be:
[$_______________ of Floating Rate Asset-Backed Notes, Class A-FL]
[$_______________ of Fixed Rate Asset-Backed Notes, Class A-FX]
[$_______________ of Floating Rate Asset-Backed Notes, Class B-FL]
[$_______________ of Fixed Rate Asset-Backed Notes, Class B-FX]
The Company hereby certifies that the following conditions have been
met for the issuance of the Specified Notes:
D-1
<PAGE>
(i) (a) no Default, Indenture Event of Default, Servicer Event
of Default or Early Amortization Event has occurred or is continuing, (b) the
Equity Base is not less than 5% of the Pool Balance and the sum of the Equity
Base and the Subordinated Note Principal Balance is not less than the Required
Support Percentage of the Pool Balance (in each case both before and after
giving effect to any purchase of Contracts to occur on the Note Issuance
Date), and (c) the aggregate Note Principal Balance is not greater than 95% of
the Company's total assets and the aggregate Senior Note Principal Balance is
not greater than 89.5% of the Company's total assets;
(ii) the net proceeds of the issuance of the Specified Notes
shall be applied by the Company on the Note Issuance Date to the purchase of
additional Eligible Contracts pursuant to the Sale and Servicing Agreement at
an aggregate purchase price that is not greater than the aggregate Principal
Balance (excluding any Residual Amounts) of all Contracts purchased, and all
conditions precedent to the purchase of Contracts and the related Contract
Assets pursuant to Article II of the Sale and Servicing Agreement have been
satisfied and complied with as of the applicable Contract Purchase Date
(provided that no failure of compliance thereunder shall affect the validity
of any Specified Notes);
(iii) such additional Contracts (and all related Contract Assets)
are included in the Trust Property and subject to a perfected security
interest in favor of the Trustee;
(iv) the Company is in compliance with its obligations under the
applicable Note Purchase Agreement and under each applicable Hedge Agreement;
(v) the Company has delivered or caused to be delivered to the
Trustee a written collateral assignment of the Contracts and related Contract
Assets to be included in the Trust Property on the Note Issuance Date, duly
executed and completed, together with an attached duly prepared Schedule of
Contracts identifying all such Contracts;
(vi) to the extent necessary under applicable law, the Company
has recorded and filed or has caused to be recorded and filed a UCC financing
statement in the office of the Secretary of State of California and in each
other jurisdiction, if any, executed by and naming the Company as debtor and
the Trustee as secured party and identifying the Contracts and the related
Contract Assets as collateral. The Company shall deliver a file-stamped copy,
or other evidence of filing, of each such financing statement to the Trustee;
and
(vii) the Company has taken or caused to be taken such actions as
are necessary so that computer files maintained for the Contracts and related
Contract Assets included in the Trust Property are appropriately adjusted to
indicate that such Contracts and related Contract Assets have been assigned
and pledged to the Trustee pursuant to the Indenture.
D-2
<PAGE>
Very truly yours,
JLA Funding Corporation III
By:________________________________
Authorized Signatory
D-3
<PAGE>
EXHIBIT 10.19
EXECUTION COPY
===============================================================================
JLA CREDIT CORPORATION,
as Seller and as Servicer,
and
JLA FUNDING CORPORATION III,
as Purchaser
--------------------
SALE AND SERVICING AGREEMENT
Dated as of March 30, 1998
--------------------
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions...................................................1
ARTICLE II.
PURCHASE AND SALE OF THE CONTRACT ASSETS
SECTION 2.01 Purchases and Sales ..........................................5
SECTION 2.02 Conditions to Obligations of the Purchaser ...................5
SECTION 2.03 Conditions to Obligations of the Seller ......................6
SECTION 2.04 Contract Purchase Dates.......................................7
ARTICLE III.
THE CONTRACTS
SECTION 3.01 Representations and Warranties of the Purchaser ..............7
SECTION 3.02 Representations and Warranties of the Seller .................8
SECTION 3.03 Retransfer of Contracts .....................................11
SECTION 3.04 Custody of Contract Files ...................................12
SECTION 3.05 Duties of Servicer as Custodian .............................12
SECTION 3.06 Instructions; Authority to Act ..............................13
SECTION 3.07 Effective Period and Termination ............................13
SECTION 3.08 Substitution of Contracts ...................................13
SECTION 3.09 Notice of Substitution ......................................14
SECTION 3.10 Subsequent Obligations ......................................15
ARTICLE IV.
ADMINISTRATION AND SERVICING OF CONTRACT
SECTION 4.01 Duties of Servicer, Subservicing Arrangements ...............15
SECTION 4.02 Collection of Contract Payments .............................16
SECTION 4.03 Repossession of Equipment ...................................17
SECTION 4.04 Theft and Physical Damage Insurance .........................17
SECTION 4.05 Covenants of the Servicer ...................................17
SECTION 4.06 Transfer of Contracts upon Breach ...........................18
SECTION 4.07 Servicing Fee ...............................................19
SECTION 4.08 Monthly Servicer Report......................................19
SECTION 4.09 Annual Statement as to Compliance............................19
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
SECTION 4.10 Annual Accountants' Statement ...............................20
SECTION 4.11 Access to Certain Information ...............................20
SECTION 4.12 Weekly Servicer Verification ................................20
ARTICLE V.
DISTRIBUTIONS; STATEMENTS
SECTION 5.01 Accounts ....................................................21
SECTION 5.02 Collections, Applications ...................................21
SECTION 5.03 Additional Deposits .........................................21
SECTION 5.04 Distributions ...............................................21
SECTION 5.05 Statements to Noteholders ...................................22
ARTICLE VI.
THE SELLER
SECTION 6.01 Additional Representations of the Seller ....................22
SECTION 6.02 Merger or Consolidation of Seller ...........................23
SECTION 6.03 Limitation on Liability of Seller and Others ................24
SECTION 6.04 Covenants of Seller .........................................24
SECTION 6.05 Other Liens or Interests ....................................25
SECTION 6.06 Costs and Expenses ..........................................25
SECTION 6.07 Indemnification .............................................25
SECTION 6.08 Sale ........................................................26
SECTION 6.09 Accounting Statements .......................................27
ARTICLE VII.
THE SERVICER; REPRESENTATIONS AND INDEMNITIES
SECTION 7.01 Representations of the Servicer .............................27
SECTION 7.02 Liability of Servicer, Indemnities ..........................28
SECTION 7.03 Merger or Consolidation of Servicer .........................29
SECTION 7.04 Limitation on Liability of Servicer and Others ..............29
SECTION 7.05 Servicer Not to Resign ......................................30
SECTION 7.06 Protection of Interest of Trust Property ....................30
ARTICLE VIII.
DEFAULT
SECTION 8.01 Events of Default ...........................................31
SECTION 8.02 Appointment of Successor ....................................33
SECTION 8.03 Notification to Noteholders .................................34
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
SECTION 8.04 Waiver of Past Defaults .....................................35
ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.01 Amendment ...................................................35
SECTION 9.02 Counterparts ................................................35
SECTION 9.03 Governing Law ...............................................35
SECTION 9.04 Notices .....................................................36
SECTION 9.05 Severability of Provisions ..................................36
SECTION 9.06 Assignment ..................................................36
SECTION 9.07 Submission to Jurisdiction; Venue ...........................36
SECTION 9.08 No Bankruptcy Petition ......................................37
SECTION 9.09 Rule 144A Information .......................................37
SECTION 9.10 Limited Recourse ............................................37
SECTION 9.11 Trustee Rights ..............................................37
Exhibit A Form of Bill of Sale
Exhibit B Form of Monthly Servicer Report
</TABLE>
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This SALE AND SERVICING AGREEMENT dated as of March 30, 1998
is by and between JLA CREDIT CORPORATION, as Seller (the "Seller") and as
Servicer (the "Servicer"), and JLA FUNDING CORPORATION III, as Purchaser (the
"Purchaser").
RECITALS
The Seller desires to sell to the Purchaser, and the Purchaser
desires to buy from the Seller, from time to time during the Note Issuance
Period (as defined herein), Contracts (and related Contract Assets), and the
Seller and Purchaser desire, in addition, that the Seller act as Servicer of
such Contracts and Contract Assets.
In consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions. Whenever used in this Agreement,
capitalized terms, used and not defined herein have the meanings specified in
the Indenture (as defined herein) and the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
"Agreement" means this Sale and Servicing Agreement, as it may
be amended or supplemented from time to time.
"Bill of Sale" means the Bill of Sale to be delivered on each
Contract Purchase Date pursuant to which the Seller sells to the Purchaser the
Contracts identified in such Bill of Sale on such Contract Purchase Date, a form
of which is attached hereto as Exhibit A.
"Contract" means, for any applicable Contract Purchase Date,
each commercial loan contract or equipment finance lease contract, secured by
commercial and/or industrial equipment, including any amendment or modification
of such contract and any schedules and promissory notes incorporated therein
(including, without limitation, all right to receive Contract Payments) sold and
transferred to the Purchaser on such Contract Purchase Date, as identified in
the related Bill of Sale.
"Contract Assets" means the Contracts (exclusive of any
Administrative Fees and all amounts due or becoming due under such Contracts
prior to the applicable Cut-Off Dates), together with (i) a perfected security
interest, if any, in the Equipment; (ii) certain rights, remedies and interests
under the Sale and Servicing Agreement, (iii) amounts representing Security
Deposit Offsets applied to unpaid Contract Payments due after the Cut-Off Date;
(iv) any guaranty, relating to a Contract; (v) each Insurance Policy, if any,
covering Equipment, including all rights to any Insurance Proceeds received on
or after the applicable Cut-Off Date; (vi) the interest of the Seller in any
funds to be deposited in the Collection Account; (vii) all documents contained
in the Contract Files (of which JLA will retain possession only as agent of the
Purchaser); (viii) all payments and proceeds with respect to the Contracts and
the other Contract Assets (including any Recoveries on the Contracts) held by
the Servicer or any subservicer; and (ix) all proceeds of the foregoing.
"Contract Files" means the documents specified in Section
3.04.
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"Contract Payment" means, with respect to each Contract, the
scheduled monthly Contract payment for the Equipment leased or otherwise
financed by the Obligor under such Contract, consisting of an Interest Component
and a Principal Component.
"Contract Purchase Date" means each date during the Note
Issuance Period that is designated by the Purchaser to the Seller, upon not less
than five Business Days' prior notice to the Seller and the Trustee, and
approved by the Seller, on which Contracts are to be purchased by the Purchaser
pursuant to this Sale and Servicing Agreement.
"Contract Purchase Price" has the meaning specified in Section
2.01(b).
"Cut-Off Date" means, as to any Contract, the last day of the
calendar month immediately preceding the applicable Contract Purchase Date of
such Contract, as specified in the related Bill of Sale delivered on the
applicable Contract Purchase Date.
"Eligibility Criteria" means, as to each Contract, the
requirements for such Contract to be an "Eligible Contract" pursuant to Section
3.02.
"Eligible Contract" has the meaning specified in Section 3.02.
"Eligible Servicer" means an entity which, at the time of its
appointment as Servicer or as a subservicer, (i)(a) is servicing a portfolio of
equipment lease contracts and commercial loan contracts, (b) is legally
qualified and has the capacity to service the Contracts, (c) has demonstrated
the ability to professionally and competently service a portfolio of similar
contracts in accordance with high standards of skill and care, (d) has (if not
the Seller) combined capital and surplus of at least $10,000,000 and (e) is
qualified and entitled to use, and agrees to maintain the confidentiality of,
the software that the Servicer or any subservicer uses in connection with
performing its duties and responsibilities under this Agreement or the related
subservicing agreement or obtains rights to use or develops its own software
which is adequate to perform its duties and responsibilities under this
Agreement or the related subservicing agreement, or (ii) so long as no Event of
Default has occurred and is continuing, is a subsidiary of the Servicer or a
subservicer (which itself is an Eligible Servicer) and which satisfies the
requirements of (i)(b), (i)(c) and (i)(d) above, or (iii) is a successor by
merger or consolidation to the Servicer in accordance with the provisions of
Section 7.03 hereof.
"Equipment" means any new or used equipment, together with all
accessions thereto and replacement parts, accessories and repairs with respect
thereto, which is the subject of a Contract.
"Event of Default" means an event specified in Section 8.01.
"Excluded Equipment" means any of the following: restaurant
equipment, gas supply equipment, gas pumps, gas or chemical tanks, paint booths,
processing, dispensing and disposal equipment for environmental waste, real
estate, pianos, containers, working capital loans, yellow iron (construction and
mining equipment) and sale/leaseback transactions.
"Heidelberg Contracts" means any Contract originated by
Heidelberg USA Inc. containing provisions which grant to the Obligor the right
to prepay the amounts owed by the Obligor subject to the terms and conditions of
such Contract.
"Indenture" means the Indenture, dated as of the date hereof,
by and among the Purchaser, the Servicer, and LTCB Trust Company, as trustee,
and The Bank of New York, as backup
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trustee, as may be from time to time amended or supplemented pursuant to the
applicable provisions thereof.
"JLACC" means JLA Credit Corporation, a Delaware corporation,
and its successors in interest.
"Lien" means any lien, security interest or encumbrance of any
kind.
"Liquidation Proceeds" has the meaning specified in Section
4.03.
"Lock-Box Account" means the account designated as such,
established and maintained pursuant to the Lock Box Agreement and in accordance
with Section 5.01.
"Lock-Box Agreement" means the master lock-box agreement,
dated as of March 30, 1998, by and between the Purchaser, Bank of America
National Trust and Savings Association, as Lock Box Bank, the Trustee and the
Backup Trustee, pursuant to which the Lock-Box Account is established and
maintained.
"Lock-Box Bank" means, as of any date, the bank or trust
company at which the Lock-Box Account is established and maintained as of such
date.
"Maximum Note Principal Balance" means $200,000,000.
"Monthly Payment Date" means the 16th day of each month (or if
such date is not a Business Day, the next succeeding Business Day), commencing
in the calendar month immediately succeeding the first Note Issuance Date, and
ending with the Scheduled Final Payment Date.
"Monthly Servicer Report" means a report substantially in the
form attached as Exhibit B hereto, completed by and executed on behalf of the
Servicer by a Servicing Officer of the Servicer in accordance with Section 4.08.
"Note Issuance Date" means each Business Day (not more
frequently than one per month) on which any Notes are issued during the Note
Issuance Period.
"Note Issuance Period" means the period commencing on the
Closing Date and ending (unless sooner terminated as described herein) on the
date that is the earlier of (i) January 16, 1999 and (ii) the date (if any) on
which the aggregate outstanding principal amount of the Notes equals the Maximum
Note Principal Balance.
"Note Principal Balance" means (i) as of any date prior to the
first Monthly Payment Date, the outstanding principal balance of the applicable
Class of Notes on the initial Note Issuance Date, and thereafter (ii) as of any
date, the outstanding principal balance of the applicable Class of Notes as of
the preceding Monthly Payment Date; provided that the term "Note Principal
Balance", as of any Monthly Payment Date on which a payment in respect of
principal has been made, means the outstanding principal balance of the
applicable Class of Notes on such date after giving effect to any distributions
of Monthly Principal and overdue Monthly Principal on such date.
"Obligor" means each obligor under a Contract and its
permitted assigns.
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"Pool Balance" means, as of any date, the aggregate Principal
Balance of the Contracts as of such date.
"Predecessor Contract" has the meaning specified in Section
3.08.
"Principal Balance" means, with respect to any Contract on any
day, (i) the unamortized portion of the purchase price paid by JLACC for the
related Equipment and amounts paid by JLACC in respect of taxes and organization
costs and fees as of the related Cut-Off Date, minus (ii) the sum of the
following with respect to such Contract: (a) the Principal Component of all
Contract Payments since the applicable Cut-Off Date received by the Servicer and
deposited in the Collection Account (other than the Principal Component of any
payments received with respect to future Collection Periods, which will be
deposited in the Payahead Account and will constitute Contract Payments in the
Collection Period such payments were scheduled to be received) and (b) the
Principal Component of all proceeds of any Insurance Policies; provided,
however, that for any day following the Monthly Payment Date on which either (x)
the proceeds of a prepayment in full of a Contract or a Retransferred Contract
are payable to Noteholders under the definition of Monthly Principal or (y) a
Defaulted Contract first becomes a Defaulted Contract, the Principal Balance of
any such Contract shall be zero.
"Purchase Option Payment" means, with respect to any Contract,
any payment (received on or after the applicable Cut-Off Date for such Contract)
made by an Obligor to purchase the Equipment subject to the Contract.
"Retransfer Amount" means, with respect to any Contract, the
price equal to the Principal Balance of such Contract (prior to any amendment,
modification or exchange) on the first day of the month following the date on
which the reacquisition or purchase obligation with respect to such Contract
arose pursuant to Section 3.03 or 4.02 hereof, plus accrued interest on the
Principal Balance of such Contract, at a rate equal to 1/12 of the sum of (i)
the weighted average Rate of all outstanding Subordinated Notes and (ii) the
Servicing Fee Rate, from the last date on which such amount was paid to the date
that is the date of payment of the Retransfer Amount, less the amount, if any,
on deposit in the Payahead Account with respect to such Contract.
"Retransferred Contract" means, for any Collection Period, a
Contract which has been transferred to the Seller or the Servicer as of the last
day of such Collection Period pursuant to Section 3.03 or 4.06.
"Retransferred Contract Receivables" means, for any Collection
Period, the Contract receivables under Contracts which have been retransferred
to the Seller or Servicer as of the last day of such Collection Period pursuant
to Section 3.03 or 4.06.
"Schedule of Contracts" means, as of any date, the schedule of
Contracts owned by the Purchaser (and included in the Trust Property) on such
date. As of each Contract Purchase Date, a Schedule of Contracts in respect of
the Contracts purchased on such date shall set forth, as to each such Contract
as of the related Cut-Off Date, among other things, (a) its identifying number
and the name of the related Obligor; (b) its date of origination; (c) the
remaining term of the Contract; (d) the stated date of termination of the
Contract; (e) the original Principal Balance at inception of the Contract; (f)
the Principal Balance as of the applicable Cut-Off Date; (g) the location where
the related Contract File is kept, which shall be 12677 Alcosta Boulevard, San
Ramon, California 94583, indicated by the symbol "SR", or 970 West 190th Street,
Suite 710, Torrance, California 90502, indicated by a "T", or such other address
in California as shall be specified therein; (h) the Contract Rate; and (i) the
scheduled monthly Contract Payment.
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"Scheduled Final Payment Date" has the meaning specified in
the Indenture.
"Seller" means JLACC in its capacity as Seller of Contracts
under this Agreement, and each successor to JLACC (in the same capacity)
pursuant to Section 6.02.
"Servicer" means JLACC, as the servicer of the Contracts under
this Agreement, and each successor to JLACC (in the same capacity) pursuant to
Section 8.02, and each successor Servicer pursuant to Section 7.03.
"Servicing Fee" means, with regard to any Collection Period,
the fee payable to the Servicer for services rendered during such Collection
Period, determined pursuant to Section 4.07.
"Servicing Fee Rate" means 1% per annum.
"Substitute Contract" means any Contract that is substituted
by the Seller pursuant to Section 3.08 for a Contract previously sold to the
Purchaser hereunder.
ARTICLE II.
PURCHASE AND SALE OF THE CONTRACT ASSETS
SECTION 2.01 Purchases and Sales. On each Contract Purchase
Date, subject to the terms and conditions of this Agreement, the Seller agrees
to sell to the Purchaser, and the Purchaser agrees to purchase from the Seller,
all of the Seller's right, title and interest in, to and under such Contracts as
are offered by the Seller for sale to, and accepted by the Purchaser for
purchase by, the Purchaser (including the rights to any Purchase Option
Payments), together with the property of the Seller constituting the related
Contract Assets and all of Seller's right, title and interest in and to the
related Equipment.
(a) Transfer of Contracts. On each Contract Purchase Date, the
Seller shall sell, transfer, assign and otherwise convey to the Purchaser,
without recourse, all of the Seller's right, title and interest in, to and under
the Contracts and related Contract Assets that the Purchaser has agreed to
purchase on such date. Each Contract to be so purchased shall be identified in a
Bill of Sale delivered by the Seller to the Purchaser on such Contract Purchase
Date.
(b) Contract Purchase Price. In consideration for the Contract
Assets being sold on a Contract Purchase Date, the Purchaser shall, on each
Contract Purchase Date, pay to the Seller an amount equal to the aggregate
Principal Balance of the Contracts being sold as the purchase price for such
Contracts and the related Contract Assets (the "Contract Purchase Price"). On
each Contract Purchase Date, the Seller may make a capital contribution to the
Purchaser in an amount that, together with all other amounts available to the
Purchaser for the purchase of Contracts on such date in the Contract Purchase
Account, along with the proceeds of the issuance of Notes on the related Note
Issuance Date, will be applied by the Purchaser as a portion of the amount that
is the Contract Purchase Price of the Contracts to be purchased by the Purchaser
from the Seller on such Contract Purchase Date. The amount so paid and
contributed to the Purchaser will be deposited into the Contract Purchase
Account for application by the Trustee in accordance with the Indenture.
SECTION 2.02 Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Contracts and related Contract
Assets and interest of the Seller in the
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related Equipment on each Contract Purchase Date is subject to the satisfaction
of the following conditions as of such Contract Purchase Date:
(a) Representations and Warranties True. The representations
and warranties of each of the Seller and the Servicer hereunder shall be true
and correct on such Contract Purchase Date and with the same effect as if made
on such date.
(b) Compliance with Obligations. The Seller shall have
performed all obligations to be performed by it hereunder on or prior to such
Contract Purchase Date.
(c) No Defaults. No Event of Default hereunder or Indenture
Event of Default shall have occurred or be continuing.
(d) Bill of Sale. The Seller shall deliver to the Purchaser a
Bill of Sale, duly completed and executed, together with an attached duly
prepared Schedule of Contracts identifying the Contracts transferred pursuant to
such Bill of Sale.
(e) Evidence of UCC Filing. On or prior to such Contract
Purchase Date, the Seller shall record and file, at the Seller's expense, UCC
financing statements in each jurisdiction in which required by applicable law,
executed by the Seller, as seller or debtor, and naming the Purchaser, as
purchaser, identifying the Contracts and related Contract Assets as collateral,
meeting the requirements of the laws of each such jurisdiction and in such
manner as is necessary to perfect the sale, transfer, assignment and conveyance
of its interest in such Contract Assets to the Purchaser. The Seller shall
deliver a file-stamped copy, or other evidence satisfactory to the Purchaser, of
each such filing, to the Purchaser on or prior to such Contract Purchase Date.
(f) Computer Files Marked. The Seller shall, at its own
expense, on or prior to such Contract Purchase Date, indicate in its computer
files that the Contracts to be purchased on such date (together with all other
Contracts sold to the Purchaser by the Seller) have been sold to the Purchaser
pursuant to this Agreement and pledged by the Purchaser to the Trustee and shall
deliver to the Purchaser a cumulative Schedule of Contracts, certified by an
officer of the Seller to be true, correct and complete.
(g) Other Documents. At the Seller's expense, the Seller shall
deliver, or cause to be delivered, such other documents, and take or cause to be
taken such other actions, as the Purchaser may reasonably request or as may be
otherwise necessary to vest in the Purchaser all of Seller's right, title and
interest in and to the Contracts and related Contract Assets.
SECTION 2.03 Conditions to Obligations of the Seller. The
obligation of the Seller to sell the Contracts and the Contract Assets to the
Purchaser on each Contract Purchase Date is subject to the satisfaction of the
following conditions:
(a) Performance of Agreement. The representations and
warranties of the Purchaser hereunder shall be true and correct on such Contract
Purchase Date with the same effect as if then made, and the Purchaser shall have
performed all obligations to be performed by it hereunder on or prior to such
Contract Purchase Date.
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(b) Contract Purchase Price. On each Contract Purchase Date,
the Purchaser will deliver to the Seller the Contract Purchase Price, as
provided in Section 2.01(b).
SECTION 2.04 Contract Purchase Dates. At any time or from time
to time during the Note Issuance Period, not more frequently than once per
calendar month during such Note Issuance Period, the Seller and Purchaser may
establish one or more Contract Purchase Dates. As of the date hereof, the
Contract Purchase Date in each calendar month is expected to be a Business Day
during the first or second week of each calendar month, subject to agreement
otherwise by Seller and Purchaser. A Contract Purchase Date will occur only on a
date on which the Seller has an amount of Eligible Contracts sufficient to be
acceptable for purchase by the Purchaser on such date and the Purchaser has
sufficient available funds in the Contract Purchase Account (from Note
issuances, Seller capital contributions and principal payments on Contracts) to
pay the applicable Contract Purchase Price on such date; provided that no
failure of Contracts to constitute Eligible Contracts shall affect the validity
of any Bill of Sale or any purchase that occurs on any Contract Purchase Date.
Each purchase and sale of Contracts on a Contract Purchase Date shall be subject
to the other conditions and provisions set forth in this Article II.
ARTICLE III.
THE CONTRACTS
SECTION 3.01 Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Seller, as of the date
hereof, as of the Closing Date and as of each Contract Purchase Date, as
follows:
(a) The Purchaser has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, and has full corporate power and authority to execute and deliver this
Agreement and to perform the terms and provisions hereof.
(b) This Agreement has been duly authorized, executed and
delivered by the Purchaser, and is the legal, valid, binding and enforceable
obligation of the Purchaser, except as the same may be limited by insolvency,
bankruptcy, reorganization or other laws relating to or affecting the
enforcement of creditors' rights or by general equitable principles. The
consummation of the transactions contemplated by this Agreement, and the
fulfillment of the terms hereof, will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Purchaser pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement, guarantee or similar agreement or
instrument under which the Purchaser is a debtor or guarantor (other than the
liens created pursuant to this Agreement), nor will such action result in any
violation of the provisions of the certificate of incorporation or the bylaws of
the Purchaser.
(c) No legal or governmental proceedings are pending to which
the Purchaser is a party or of which any property of the Purchaser is the
subject, and no such proceedings are threatened or contemplated by governmental
authorities or threatened by others, other than such proceedings which will not
have a material adverse effect upon the general affairs, financial position, net
worth or results of operations of the Purchaser and will not materially and
adversely affect the performance by the Purchaser of its obligations under, or
the validity and enforceability of, this Agreement.
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SECTION 3.02 Representations and Warranties of the Seller. The
Seller hereby makes the following representations and warranties as to each
Contract on the Contract Purchase Date therefor and each of the Purchaser, and
the Trustee, as pledgee of the Purchaser, shall rely upon such representations
and warranties in accepting each such Contract and the related Contract Assets.
Such representations and warranties shall be deemed to be made for each Contract
as of the related Contract Purchase Date unless otherwise specified, but shall
survive the transfer of such Contracts to the Purchaser (and by the Purchaser to
the Trustee). As to each Contract to be purchased on the applicable Contract
Purchase Date:
(a) The Seller is the legal and beneficial owner of all right,
title and interest in and to the Contracts and the Contract Assets, including
the rights to the Contract Payments and the Insurance Proceeds with respect to
the Contracts, free from any Lien of any Person (except for (i) any Lien which
has been waived or released by any Person prior to the Contract Purchase Date,
(ii) the rights of Obligors to Insurance Proceeds on account of reimbursements
for equipment repairs and (iii) rights of certain Obligors to the residual
value, if any, of the related Equipment).
(b) The Seller is the owner of each item of Equipment that is
subject to any Contract that is not a finance lease and the Seller has a
perfected security interest in, or is the owner of, each item of Equipment that
is the subject of any other Contract, with a Lien or ownership that is prior to
the interest of any other Person, provided, however, that, (i) the Seller's Lien
or ownership may not be prior to a Lien which has been waived or released by any
Person prior to the date hereof or the rights of the Obligors with regard to the
Equipment under the Contracts and any liens arising from action of Obligors and
(ii) the seller will have filed UCC financing statements covering the related
Equipment only in connection with transactions in which the Principal Balance of
the Contract is greater than $25,000.
(c) The Seller (i) has in its possession the original copy of
each Contract that constitutes "chattel paper" under the Uniform Commercial Code
and (ii) has in its possession, with respect to each other Contract, a copy of
the master contract, certified by the seller or other transferor of the Contract
to the Seller, and an original executed copy of the relevant contract schedule
or assignment agreement, and (iii) has provided the Purchaser and the Trustee
with access to original copies of all the Contracts, including any amendments
thereto and any documents related thereto, and those copies will have been true
and complete copies of the Contracts and such amendments and related documents,
and no provision of any Contract will have been amended, modified or waived
other than by documents included in the original copies to which the Purchaser
and the Trustee has been given access.
(d) Neither the Seller nor, insofar as the Seller is aware,
any Obligor, has done or failed to do anything (other than Contract Payment
delinquencies of 60 days or less) which would or might permit any Obligor or the
Seller to terminate any Contract or suspend or reduce any payments or
obligations due or to become due thereunder by reason of default by the other
party to such Contract, except for amounts which are not material to the
business of the Purchaser or to the value of such Contracts to the Noteholders.
Neither the rights and interests of the Seller in any Contract nor the
obligations of the Obligor under any Contract are subject to any defense,
offset, counterclaim, claim or right of rescission, and none of the foregoing
have been asserted or alleged against the Seller as to any Contract.
(e) Each Contract is a legal, valid and binding obligation of
the Obligor under such Contract and of the Seller, enforceable against each of
them in accordance with its terms, except as such enforceability may be affected
by applicable bankruptcy, insolvency, reorganization and other similar laws
affecting the rights of creditors generally and by general principles of equity.
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(f) All filings and other actions required to be made or taken
by the Seller to evidence the Purchaser's rights in respect of the Contracts and
the Contract Assets have been accomplished and are in full force and effect,
except that the Seller will not have notified any insurer with respect to the
transfer of the right to receive Insurance Proceeds.
(g) The Seller has granted the Purchaser full access to its
books and records, which contain a complete and correct statement of the
Contract Payments payable by the Obligor under each Contract and with respect to
the related Equipment, separately setting forth such amounts with respect to
each Contract for each month for the number of months of anticipated Contract
Payments under such Contract.
(h) The Contract complied at the time it was originated or
made, and at the applicable Contract Purchase Date will comply, in all material
respects with all requirements of applicable federal, state and local law and
regulations thereunder, including usury laws, the Federal Truth-in-Lending Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and S and other equal credit opportunity and
disclosure laws, in each case to the extent applicable to nonconsumer
transactions.
(i) As of the Contract Purchase Date, the Contract (i) has not
been terminated, is not a Defaulted Contract and is not more than 60 days past
due as of the related Cut-Off Date as to any amount required to be paid
thereunder, (ii) has a remaining term (subject to the conditions set forth in
paragraphs (w) and (x) of this Section 3.02) to scheduled maturity of not more
than 60 months and not less than 6 months as of the related Cut-Off Date, (iii)
is a direct financing lease, if the Contract is a lease, (iv) relates to an item
of Equipment that is not in repossession by the creditor or subject to
procedures for obtaining repossession by the creditor or possession by any other
Person, (v) has a term ending not later than the last day of the Collection
Period immediately preceding the Scheduled Final Payment Date, (vi) relates to
an Obligor that (A) is an individual residing in the United States or a
corporation, limited liability company or limited liability partnership
organized under the laws of the United States or any state thereof, (B) is not
the United States or a state or any agency or instrumentality thereof and (C)
has not been disapproved by the Seller (based, in the Seller's reasonable
judgment, upon the creditworthiness of such Obligor), (vii) constitutes "chattel
paper" within the meaning of Section 9-105 of the UCC as in effect in the state
of New York and there is only one original executed copy of each Contract,
(viii) is denominated in United States dollars and is payable in the United
States in United States dollars, (ix) relates to an item of Equipment which is
located in the United States and has already been delivered, (x) is not a
"consumer lease" as defined in Section 2A-103(l) of the UCC, (xi) provides for
level monthly payments which, if made as scheduled, fully amortize the amount
financed (other than the Residual Amount, if any) over the original term of the
Contract; (xii) has a pre-tax yield (based on original net investment and timing
of payment amounts) of at least 8.25%, (xiii) has an original equipment cost of
not more than $750,000, (xiv) is not secured by a bus, car, truck, trailer or
any type of motor vehicle which requires motor vehicle titling, and is not
secured primarily by any Excluded Equipment, (xv) was not more than 60 days past
due during the term of the Contract, and (xvi) has been determined by the Seller
to satisfy all applicable approval requirements of the Seller.
(j) The Obligor under the Contract has not been noted in the
electronic ledger of the Servicer as being the subject of a bankruptcy
proceeding.
(k) No facts exist which would give rise to any right of
rescission, setoff, counterclaim or defense, nor have any been asserted, or to
the best of the Seller's knowledge after due inquiry, threatened, with respect
to the Contract.
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(1) The Contract has not been sold, transferred, assigned or
pledged by the Seller to any Person other than the Purchaser. Immediately prior
to the transfer of the Contracts to the Purchaser, the Seller had good and
marketable title to such Contract free and clear of all Liens (except for any
Lien which has been waived or released by any Person prior to the date hereof)
and immediately upon the transfer thereof pursuant to the related Bill of Sale,
the Purchaser will acquire good and marketable title to such Contract, free and
clear of all Liens, encumbrances, security interests, and rights of others.
(m) The Contract does not require the prior written consent of
the Obligor for, or contain any other restrictions on, the transfer or
assignment of the Contract.
(n) The Contract does not have an Obligor that is the obligor
on a Contract or Contracts for which the aggregate Principal Balance exceeds
1.5% of the Pool Balance as of the applicable Cut-Off Date for the third
Contract Purchase Date and as of the applicable Cut-Off Date for each Contract
Purchase Date thereafter during the Note Issuance Period (in each case after
giving effect to the purchase of Contracts to occur on such Contract Purchase
Date).
(o) The Contract was selected from contracts in the Seller's
portfolio that had met the applicable conditions specified in this Section 3.02
utilizing no selection procedures adverse to the Purchaser relative to similar
contracts in the Seller's portfolio.
(p) The Contract provides that the Obligor's obligations under
the Contract including, without limitation, the obligation to make Contract
Payments, are absolute and unconditional and shall continue without any claim,
defense, set-off, counterclaim, reduction, or abatement of any kind whatsoever
and regardless of any inability of the Obligor to use the Equipment or any part
thereof because of any reason whatsoever including damage to or destruction
thereof.
(q) The Contract provides that the Obligor shall maintain the
Equipment in good operating condition, repair and appearance, and protect it
from deterioration other than normal wear and tear.
(r) The Contract was not previously transferred to or owned by
the Purchaser.
(s) If the Contract is a lease which was not originated by the
Seller but was acquired by the Seller in a purchase transaction then such
Contract (i) constitutes a "finance lease" under generally accepted accounting
principles, (ii) does not by its terms permit, on or after the applicable
Contract Purchase Date, the creditor (or any transferee) to require the
predecessor owner or other transferor to repurchase such Contract or otherwise
provide credit support for payments due under the Contract.
(t) Neither the Seller nor any entity aggregated now or at any
relevant time with the Seller under Section 4001 of ERISA or Section 414(b) or
(c) of the Code (i) has any material tax, penalty or other liability under ERISA
or the employee benefits provisions of the Code, or (ii) is subject to having
any of its property subject to a lien or other encumbrance thereunder, where
such liability is or could become the liability of the Purchaser or the Trustee
or where the property of the Purchaser could be subject to such a lien or
encumbrance, (iii) no such liability, lien or encumbrance presently is expected
to occur or exist, (iv) no notice of intent to terminate any employee benefit
plan under ERISA (a "Plan") has been filed under Title IV of ERISA by it or any
plan administrator, (v) no
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"prohibited termination" under Section 406(b) of ERISA has been engaged in by it
and (vi) no "accumulated funding deficiency" under ERISA has occurred or exists
with respect to any Plan.
(u) Upon the transfer of each Contract to be transferred to
the Purchaser (and included in the Trust Property pursuant to the Indenture) on
such date, (i) the aggregate Principal Balance of all Contracts with Obligors
having billing addresses with the same postal zip code does not exceed 5% of the
Pool Balance, (ii) the aggregate Principal Balance of all Contracts with
Obligors located (by billing address) in any one state other than California
does not exceed 25% of the Pool Balance, (iii) the aggregate Principal Balance
of all Contracts with Obligors located (by billing address) in California does
not exceed 60% of the Pool Balance, (iv) the aggregate Principal Balance of all
Contracts relating to Equipment that is used Equipment does not exceed 15% of
the Pool Balance.
(v) The aggregate Principal Balance of all Contracts that were
not originated by the Seller but were instead acquired by the Seller in purchase
transactions in which Form UCC-3 filings were not made naming the Obligor as
debtor and the Seller as assignee of the underlying seller secured party does
not exceed 5% of the Pool Balance.
(w) Upon the transfer of Contracts to the Purchaser on each
Contract Purchase Date, Contracts having a remaining term to scheduled maturity
of more than 60 months but not more than 84 months will constitute not more than
11.5% of the Pool Balance.
(x) Upon the transfer of each Contract to be transferred to
the Purchaser, the Contracts owned by the Purchaser (and included in the Trust
Property pursuant to the Indenture) will have a weighted average life to
maturity of not more than 2.3 years commencing from the last day of the Note
Issuance Period.
(y) Upon the transfer of each Contract to be transferred to
the Purchaser on such Contract Purchase Date, (i) the Weighted Average Yield of
all Contracts acquired by the Purchaser on or prior to such date (and included
in the Trust Property pursuant to the Indenture) will be not less than 9.5% per
annum and (ii) the Weighted Average Yield of all Contracts which are not
Heidelberg Contracts and are acquired by the Purchaser on or prior to such date
(and included in the Trust Property pursuant to the Indenture) will be not less
than 9.5% per annum.
(z) Statistical information appearing in the Confidential
Private Placement Memorandum dated February 1998, as amended or supplemented to
the date hereof, is true and accurate in all material respects as of the date
hereof.
A Contract which satisfies all of the above representations
and warranties shall be deemed an "Eligible Contract."
SECTION 3.03 Retransfer of Contracts. The Seller, the
Servicer, the Purchaser or the Trustee, as the case may be, shall inform the
other parties and the Trustee promptly, in writing, upon the discovery of a
breach of any of the Seller's representations and warranties set forth in
Section 3.02, that materially and adversely affects the interest of the
Purchaser and the Trustee in any Contract. Each such notice shall include a
statement that such breach materially and adversely affects the interest of the
Purchaser in such Contract. As of the last day of the month following the month
(or, if the Seller elects, as of the last day of the month) in which the Seller
becomes aware or receives such written notice of such breach, the Seller, unless
it cures the breach, shall reacquire such Contract materially and adversely
affected by the breach. The Seller shall remit the Retransfer Amount of such
Contract as of the date of retransfer in the manner specified in Section 5.03.
Except as provided in Section 7.02, the
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sole remedy of the Purchaser, the Trustee or the Noteholders against the Seller
with respect to a breach of a representation or a warranty set forth in Section
3.02 or any matter set forth in this Section 3.03 shall be to require the Seller
to reacquire Contracts pursuant to this Section 3.03. With respect to all
Contracts repurchased by the Seller pursuant to this Agreement, the Purchaser
shall assign, without recourse, representation or warranty (except as to the
absence of liens, claims, or encumbrances resulting from actions taken, or
failed to be taken, by the Purchaser), to the Seller all the Purchaser's right,
title and interest in and to such Contracts and the related Contract Assets. The
determination of "material and adverse" as to the interest of the Purchaser or
the Trustee in a Contract would be made by the Purchaser, or by the Trustee
(upon a Noteholders' instruction pursuant to the Indenture), in determining
whether notice would be sent, and may be expected to include consideration of
such matters as likelihood of full repayment, enforceability of security for the
loan and other similar matters.
SECTION 3.04 Custody of Contract Files. To assure uniform
quality in servicing the Contracts and to reduce administrative costs, the
Purchaser, upon the execution and delivery of this Agreement, revocably appoints
the Servicer, acting directly or through a subservicer or another agent, and the
Servicer accepts such appointment, to act as the agent of the Trustee as
custodian of the following documents or instruments (the "Contract Files") which
are hereby constructively delivered to the Trustee with respect to each
Contract:
(i) The original copy of each Contract that constitutes
"chattel paper" under the Uniform Commercial Code and, with respect to each
other Contract, a copy of the master lease, certified by the seller or other
transferor of the Contract to the Seller, and an original executed copy of the
relevant lease schedule or assignment agreement,
(ii) Documents, if any, evidencing the existence of theft and
physical damage insurance covering the Equipment or the Obligor;
(iii) Copies of documents that the Servicer shall keep on
file, in accordance with its customary procedures, evidencing the interest of
Seller in the Equipment; and
(iv) Any and all other documents that the Seller or the
Servicer, as the case may be, shall keep on file, in accordance with its
customary procedures, relating to a Contract, the related items of Equipment or
other related Contract Assets or an Obligor.
The Contract Files will not be stamped or otherwise marked to
reflect the transfer of the Contracts from the Seller to the Purchaser or the
pledge of the Purchaser to the Trustee and will not be segregated from the files
of other contracts and installment sale contracts of the Servicer. Prior to
conveyance of the Contracts to the Purchaser, Seller will cause the electronic
ledger and computer systems used by Seller as a master record of the Contracts
to be marked to show that such Contracts have been conveyed by Seller to the
Purchaser and pledged to the Trustee and will file UCC financing statements
reflecting such sales and assignments with appropriate governmental authorities.
The Seller will not alter the electronic ledger designation referenced in this
paragraph with respect to any Contract during the term of this Agreement unless
and until such Contract becomes a Retransferred Contract. The Obligors under the
Contracts will not be notified of the transfer of the Contracts to the
Purchaser.
SECTION 3.05 Duties of Servicer as Custodian.
(a) Safekeeping. The Servicer, in its capacity as agent of the
Purchaser and the Trustee and as custodian pursuant to Section 3.04 above, shall
hold (or have a subservicer or other agent hold on behalf of the Servicer) the
Contract Files on behalf of the Trustee for the benefit of all
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present and future Noteholders and maintain such accurate and complete accounts,
records and computer systems pertaining to the Contracts as shall enable the
Trustee to comply with its obligations pursuant to the Indenture. In performing
its duties as custodian, the Servicer shall act with reasonable care (and shall
cause each subservicer or agent to act with reasonable care), using that degree
of skill and attention that the Servicer (or subservicer or agent) exercises
with respect to the files of comparable equipment leases that the Servicer
services for itself or others. The Servicer shall promptly report to the Trustee
any failure on its part (or on the part of a subservicer or agent) to hold the
Contract Files and maintain its accounts, records and computer systems as herein
provided, and shall promptly take appropriate action to remedy any such failure.
The Trustee has not reviewed (and is not obligated to review) the Contract Files
and has no knowledge of their contents.
(b) Maintenance of and Access to Records. The Servicer shall
maintain each Contract File at its office specified in Section 9.04 hereof or at
its office at 970 West 190th Street, Suite 710, Torrance, California 90502, as
(in each case) specified in the applicable Schedule of Contracts. The Servicer
shall make available (and shall cause each subservicer or agent to make
available) to the Purchaser and/or Trustee or its duly authorized
representatives, attorneys or auditors the Contract Files and the related
accounts, records and computer systems maintained by the Servicer or subservicer
or agent at such times during normal operating hours as the Purchaser and/or
Trustee shall reasonably instruct which do not unreasonably interfere with the
Servicer's or subservicer's or agent's normal operations or customer or employee
relations.
SECTION 3.06 Instructions; Authority to Act. The Servicer
shall be deemed to have received proper instructions from the Trustee with
respect to the Contract Files upon its receipt of written instructions signed by
a Responsible Officer.
SECTION 3.07 Effective Period and Termination. The Servicer's
appointment as custodian shall become effective as to the Contracts being sold
on a Contract Purchase Date as of the applicable Cut-Off Date for such Contract
Purchase Date and shall continue in full force and effect until terminated
pursuant to this Section 3.07 or until this Agreement and Indenture shall be
terminated and all of the Notes and other amounts due and owing under the
Indenture are paid in full. The Servicer may perform its duties as custodian
through one or more agents, which agents may maintain physical possession of
Contract Files as agent for the Servicer acting as custodian. If the Servicer
shall resign as Servicer under Section 7.05 or if all of the rights and
obligations of the Servicer shall have been terminated under Section 8.01, the
appointment of the Servicer as custodian may be terminated by the Trustee,
acting at the direction of Noteholders of Notes evidencing not less than a
majority of the Note Principal Balance, in the same manner as the Trustee or
such Noteholders may terminate the rights and obligations of the Servicer under
Section 8.01. The Purchaser or the Trustee, acting at the direction of
Noteholders of Notes evidencing not less than a majority of the Note Principal
Balance, may terminate the Servicer's appointment as custodian at any time upon
written notification to the Servicer. As soon as practicable after any
termination of such appointment, the Servicer shall deliver the Contract Files
to the Trustee or to a person designated by the Trustee at such place or places
as the Trustee may reasonably designate. The Servicer shall cooperate with the
Trustee in making the transfer and shall bear all of its costs and expenses with
respect to such transfer. Notwithstanding the termination of the Servicer as
custodian, the Trustee agrees that upon any such termination, the Trustee shall
provide, or cause a Person designated by the Trustee to provide, access to the
Contract Files to the Servicer and each subservicer for the purpose of carrying
out the Servicer's duties and responsibilities with respect to the servicing of
the Contracts hereunder.
SECTION 3.08 Substitution of Contracts. (a) The Seller will
have the right (but not the obligation) at any time to substitute one or more
Eligible Contracts (each a "Substitute Contract") and
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the Equipment subject thereto (or, with respect to equipment notes, finance
contracts and conditional sales agreements, a security interest therein) for a
Contract (each a "Predecessor Contract") and the Equipment subject thereto (or a
security interest therein) if:
(i) the Predecessor Contract is then subject to repurchase by
the Seller pursuant to Section 3.03;
(ii) the Predecessor Contract has been a Defaulted Contract
since the last day of the most recent Collection Period; or
(iii) the Predecessor Contract has been a Delinquent Contract
since the last day of the most recent Collection Period;
provided, however, that (A) on the date of such substitution (and after giving
effect thereto) (x) the cumulative Principal Balance of all Contracts
substituted pursuant to clauses (i), (ii) and (iii) of this Section 3.08(a)
shall not exceed 10% of the Pool Balance of the Contracts, determined as of the
date of such substitution, and (y) the cumulative Principal Balance of all
Contracts substituted pursuant to clause (ii) and (iii) of this Section 3.08(a)
shall not exceed 3% of the Pool Balance of the Contracts as of the date of such
substitution, (B) the final maturity of each Substitute Contract is not later
than the final maturity of the Predecessor Contract for which it is being
substituted, (C) the Contract Rate of each Substitute Contract is equivalent to
or greater than the Contract Rate of the Predecessor Contract for which it is
being substituted, and (D) the related Equipment to which each Substitute
Contract relates is comparable to the related Equipment of the Predecessor
Contract for which it is being substituted; provided, further, that the Seller's
right to substitute Contracts shall be limited or precluded to the extent, if
any, that Class B Notes are owned by the Seller and its Affiliates. If such
Substitute Contract has a Principal Balance less than the Principal Balance of
the Predecessor Contract, the Seller shall, on the date of substitution, deposit
funds in an amount equal to such difference into the Collection Account for
application as provided in the Indenture.
(b) Any substitution pursuant to this Section 3.08 shall
become effective upon (i) delivery to the Trustee and the Purchaser of an
instrument or instruments effectively transferring to the Purchaser all right,
title and interest of the Seller in and to the Eligible Contract being
substituted and the Equipment subject thereto, and granting the Trustee a valid
and first priority security interest in such Substitute Contracts and the
related Equipment (ii) the taking of such other action as is necessary or as the
Trustee may reasonably request in order to subject such Eligible Contract and
the Equipment subject thereto to the lien of the Indenture, and (iii) delivery
to the Seller by the Purchaser of an instrument or instruments transferring to
the Seller, without representation or warranty, all of the Purchaser's right,
title and interest in and to the Contract and the Equipment for which the
substitution is being made.
SECTION 3.09 Notice of Substitution. In the Monthly Servicer
Report to be delivered on each Determination Date, the Seller shall give written
notice to the Trustee, the Servicer and the Rating Agency of each substitution
of Contracts pursuant to Section 3.08 hereof and of any related repurchase
pursuant to Section 3.03 hereof during the preceding Collection Period. Such
notice shall (i) specify the amount of each periodic Contract Payment under the
Predecessor Contract and the amount of each periodic Contract Payment under each
Eligible Contract being substituted (and the portion of such Contract Payment,
if any, constituting the excess of such Contract Payment over the relevant
Contract Payment under the Predecessor Contract), (ii) specify the Principal
Balance of the Predecessor Contract and of the Substitute Contract and any
shortfall to be deposited in the Collection Account, and (iii) be accompanied by
an Officer's Certificate certifying as to each of the facts or conditions
specified in the
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definition of "Eligible Contract" set forth in Section 3.02 hereof and that each
such Substitute Contract is an Eligible Contract and complies with the
requirements of Section 3.08.
SECTION 3.10 Subsequent Obligations. Upon any substitution of
Contracts in accordance with the provisions of Sections 3.08 and 3.09, such
Substitute Contract shall become a "Contract" for all purposes of this Agreement
and the Indenture, the Seller's and the Servicer's obligations hereunder with
respect to the Predecessor Contract shall cease but the Seller and the Servicer
shall each thereafter have the same obligations with respect to the Substitute
Contract substituted as it has with respect to all other Contracts subject to
the terms hereof.
ARTICLE IV.
ADMINISTRATION AND SERVICING OF CONTRACTS
SECTION 4.01 Duties of Servicer, Subservicing Arrangements.
The Servicer, as agent for the Purchaser, shall manage, service, administer and
make collections on the Contracts with reasonable care, using that degree of
skill and attention that the Servicer exercises with respect to comparable
equipment leases that it services for itself or others. The Servicer may enter
into subservicing agreements with one or more subservicers for the servicing and
administration of certain of the Contracts; provided, however, that any such
subservicer shall be, and shall remain, for so long as it is acting as
subservicer, an Eligible Servicer. References in this Agreement to actions
taken, to be taken, permitted to be taken, or restrictions on actions permitted
to be taken, by the Servicer in servicing the Contracts shall include actions
taken, to be taken, permitted to be taken, or restrictions on actions permitted
to be taken, by a subservicer on behalf of the Servicer, and references to
amounts collected by the Servicer shall be deemed to include amounts collected
by the subservicer on behalf of the Servicer. Each subservicing agreement will
be upon such terms and conditions as are not inconsistent with this Agreement
and the standard of care set forth herein and as the Servicer and the
subservicer have agreed. All compensation payable to a subservicer under a
subservicing agreement shall be payable by the Servicer from its servicing
compensation or otherwise from its own funds, and none of the Purchaser, the
Trustee or the Noteholders will have any liability to the subservicer with
respect thereto.
Notwithstanding any subservicing agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Servicer or a subservicer or any reference to actions taken through such Persons
or otherwise, the Servicer shall remain obligated and liable to the Purchaser,
the Trustee and Noteholders for the servicing and administering of the Contracts
and the other Trust Property in accordance with the provisions of this Agreement
without diminution of such obligation or liability by virtue of such
subservicing agreements.
Any subservicing agreement that may be entered into and any
other transactions or servicing arrangements relating to the Contracts and the
other Trust Property involving a subservicer in its capacity as such shall be
deemed to be between the subservicer and the Servicer alone, and the Purchaser,
the Trustee and the Noteholders shall not be deemed parties thereto and shall
have no claims, rights, obligations, duties or liabilities with respect to the
subservicer except as set forth in the next succeeding paragraph.
In the event the Servicer shall for any reason no longer be
acting as such, the successor Servicer may, but shall not be required to, in its
discretion, thereupon assume all of the rights and obligations of the outgoing
Servicer under a subservicing agreement. In such event, the successor Servicer
shall be deemed to have assumed all of the outgoing Servicer's interest therein
and to have
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replaced the outgoing Servicer as a party to each such subservicing agreement to
the same extent as if such subservicing agreement had been assigned to the
successor Servicer, except that the outgoing Servicer shall not thereby be
relieved of any liability or obligations on the part of the outgoing Servicer to
the subservicer under such subservicing agreement. The outgoing Servicer shall,
upon request of the Purchaser, but at the expense of the outgoing Servicer,
deliver to the successor Servicer all documents and records relating to each
such subservicing agreement and the Contracts and other Trust Property then
being serviced thereunder and an accounting of amounts collected and held by it
and otherwise use its best efforts to effect the orderly and efficient transfer
of any subservicing agreement to the successor Servicer. In the event that the
successor Servicer elects not to assume a subservicing agreement, the outgoing
Servicer, at its expense, shall cause the subservicer to deliver to the
successor Servicer all documents and records relating to the Contracts and the
other Trust Property being serviced thereunder and all amounts held (or
thereafter received by such subservicer (together with an accounting of such
amounts) and shall otherwise use its best efforts to effect the orderly and
efficient transfer of servicing of the Contracts and the other Trust Property
being serviced by such subservicer to the successor Servicer.
The Servicer's duties shall include collection and posting of
all payments, responding to inquiries by Obligors or by federal, state or local
governmental authorities with respect to the Contracts, investigating
delinquencies, administering and enforcing the Insurance Policies (if any) in
accordance with its customary procedures, accounting for collections, furnishing
monthly and annual statements to the Purchaser and the Trustee with respect to
distributions, deposits and withdrawals, and preparing applicable federal, state
or local tax information returns and furnishing applicable forms or statements,
if any, to the Purchaser. The Servicer shall follow its customary standards,
policies, and procedures for equipment leases and commercial loans in performing
its duties as Servicer. Without limiting the generality of the foregoing, the
Servicer shall, subject to the terms of the Indenture, be authorized and
empowered by the Purchaser and the Trustee to execute and deliver, on behalf of
itself, the Trustee and the Purchaser, or any of them, any and all instruments
of satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Contracts or the
Equipment. If the Servicer shall commence a legal proceeding to enforce a
Contract or any Insurance Policies in respect thereof, the Purchaser shall
thereupon be deemed to have automatically assigned such Contract and the related
Trust Property to the Servicer, solely for the purpose of collection and, upon
its receipt of notice in writing from the Servicer, the Trustee shall be deemed
to have released its Lien thereon. Upon written request of the Servicer and
receipt by the Purchaser and the Trustee of an Officer's Certificate setting
forth the facts underlying such request, the Purchaser shall furnish the
Servicer with any limited powers of attorney and other documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder and the Purchaser and the Trustee shall not be held liable for
such actions of the Servicer thereunder.
SECTION 4.02 Collection of Contract Payments. The Servicer
shall make reasonable efforts to collect all payments called for under the terms
and provisions of the Contracts as and when the same shall become due, and in
connection therewith shall follow such collection procedures as it follows with
respect to comparable new or used equipment leases that it services for itself
or others; provided, however, that, within two Business Days after each Contract
Purchase Date, the Servicer shall notify each Obligor, if any, not already
required to make payments directly to the Lock Box Account to make all payments
with respect to its respective Contracts on and after the Cut-Off Date directly
to the Lock-Box Account. The Servicer may, in accordance with its customary
standards, policies and procedures, in its discretion waive any Administrative
Fees that may be collected in the ordinary course of servicing a Contract.
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SECTION 4.03 Repossession of Eguipment. On behalf of the
Purchaser, the Servicer shall use its best efforts, consistent with its
customary servicing procedures, to repossess or otherwise take possession of the
Equipment relating to any Contract which the Servicer shall have determined to
be a Defaulted Contract (and shall specify such Contract to the Purchaser and
the Trustee no later than the Determination Date following the Collection Period
in which the Servicer shall have made such determination). The Servicer shall
follow such customary and usual practices and procedures as it shall deem
necessary or advisable in its servicing of equipment leases. The Servicer shall
be entitled to recover all reasonable expenses incurred by it in the course of
recovery and repossession of such Equipment solely from the proceeds of
liquidation. All proceeds of liquidation ("Liquidation Proceeds") realized in
connection with any such action with respect to a Contract which has not been
retransferred under Section 3.03 shall be deposited by the Servicer in the
Collection Account in the manner specified in Section 5.02 and shall be applied
to reduce (or to satisfy, as the case may be) unpaid Contract Payments on such
Contract. The foregoing shall be subject to the provision that, in any case in
which the Equipment shall have suffered damage, the Servicer shall not expend
funds in connection with the repair or the repossession of such Equipment unless
it shall determine in its sole discretion that such repair and/or repossession
will increase the Liquidation Proceeds of the related Contract by an amount
equal to or greater than the amount of such expenses which, in any event, shall
not be unreasonable.
SECTION 4.04 Theft and Physical Damage Insurance. The Servicer
shall require that each Obligor shall have obtained and shall maintain theft and
physical damage insurance covering the related Equipment. The Servicer shall
enforce its rights under the Contracts to require the Obligors to maintain theft
and physical damage insurance to the extent consistent with the Servicer's
customary practices and procedures with respect to comparable equipment leases
that it services for itself or others (but shall not, in any event, be required
to monitor the maintenance of or obtain such insurance). The Servicer may sue to
enforce or collect upon the Insurance Policies, in its own name, if possible, or
as agent for the Trustee. If the Servicer elects to commence a legal proceeding
to enforce an Insurance Policy, the act of commencement shall, upon the
Trustee's receipt of notice in writing from the Servicer, be deemed to be an
automatic assignment of the rights of the Trustee under such Insurance Policy to
the Servicer for purposes of collection only. If, however, in any enforcement
suit or legal proceeding it is held that the Servicer may not enforce an
Insurance Policy on the grounds that it is not a real party in interest or a
Noteholder entitled to enforce the Insurance Policy, the Trustee, at the
Servicer's expense, or the Purchaser at the Purchaser's expense, shall take such
steps as the Servicer deems necessary to enforce such Insurance Policy,
including bringing suit in its name or the names of the Noteholders.
SECTION 4.05 Covenants of the Servicer. The Servicer makes the
following covenants on which the Purchaser relies and on which the Trustee will
rely in accepting the Contracts and executing and authenticating the Notes:
(a) The Servicer will keep copies of the originals of all
documents and related records and books evidencing all Contracts and Contract
Proceeds at, and only at, its offices in 970 West 190th Street, Suite 710,
Torrance, California 90502 and 12677 Alcosta Boulevard, Suite 430, San Ramon,
California 94583.
(b) Unless a default has occurred under a Contract, the
Servicer will: (i) continue to make the Equipment which is the subject of each
Contract available to the Obligor thereunder, (ii) do nothing to impair such
Obligor's possession of such Equipment and (iii) promptly transfer the Equipment
to the Obligor upon such Obligor's payment of the applicable Purchase Option
Payment.
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(c) The Servicer will pay or cause to be paid all taxes, fees
or other costs in respect of the Equipment.
(d) Unless otherwise prohibited by law or court order, the
Servicer shall apply any security deposit held by it under a Contract which the
Servicer elects to terminate following a default by the Obligor thereunder
against defaulted Contract Payments under such Contract before any other
application thereof.
(e) The Servicer will deliver to the Trustee, from time to
time at the Trustee's request but in each case not more than once in any
calendar month, (i) schedules of all Contract Payments due under the Contracts
and (ii) a revised Schedule of Contracts, modified to reflect reacquisitions by
the Servicer of Contracts, the exercise by Obligors of expiration purchase
options under the Contracts and any other occurrence that has had or will have
the effect of altering the amount or composition of the aggregate Contract
Payments.
(f) The Servicer will not cancel, extend or terminate any
Contract except that the Servicer may (i) extend the term of any Contract to a
date not later than three months from the original expiration date of such
Contract on the date of the acquisition thereof by the Purchaser (except that
the Servicer may extend a Contract to a later date to the extent, if any, that
after giving effect thereto the aggregate Principal Balance of Contracts owned
by the Purchaser subject to such longer extensions does not exceed 1% of the
aggregate Principal Balance of all Contracts owned by the Purchaser); provided,
however, that in no event may the term of any Contract be extended to a date
that is later than the Scheduled Final Payment Date, and (ii) permit early
termination of any Contract with the payment by the Obligor of an amount at
least equal to the Retransfer Amount of such Contract (together with any
Purchase Option Payment or Residual Amount due to the Seller).
(g) Until the expiration of each Contract, the Servicer shall
defend the Contracts, the Contract Proceeds, each Insurance Policy and the
Insurance Proceeds against all claims and demands of all persons at any time
claiming the same or any interest therein adverse to that of the Seller, the
Purchaser, the Trustee or the Noteholders (other than claims by Obligors to
Insurance Proceeds on account of reimbursements for equipment repairs). So long
as any Equipment remains subject to a Contract, the Servicer shall defend each
such item of Equipment against all claims and demands of all Persons at any time
claiming the same or any interest therein adverse to that of the Obligors, the
Seller, the Purchaser or the Trustee.
(h) The interests in the Equipment granted hereunder shall not
be transferred in whole or in part except as contemplated herein.
(i) The Servicer shall not (nor will it permit any subservicer
to) impair the rights of the Purchaser or the Trustee in the Trust Property or
take any action inconsistent with the Trustee's ownership of the Trust Property,
except as expressly provided herein with respect to the servicing of the
Contracts and Contract Assets.
SECTION 4.06 Transfer of Contracts upon Breach. The Seller,
the Servicer or the Purchaser, as the case may be, shall inform the other
parties and the Trustee promptly, in writing, upon the discovery of a breach of
any of the Servicer's covenants set forth in Section 4.05. If such breach
materially and adversely affects the interest of the Trustee in a Contract,
unless the breach shall have been cured by the last day of the month following
the month (or, if the Trustee elects, (upon a Noteholders' instruction pursuant
to the Indenture), as of the last day of the month) in which the Servicer
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becomes aware or receives such written notice of such breach, the Servicer shall
acquire any Contract materially and adversely affected by such breach; provided,
however, that in the case of a breach of the covenant contained in the last
sentence of Section 4.05(f), the Servicer shall be obligated to acquire the
affected Contract or Contracts on the Deposit Date immediately succeeding the
Collection Period during which the Servicer becomes aware of, or receives
written notice of, such breach. The Servicer shall remit the Retransfer Amount
of such Contract as of the date of retransfer in the manner specified in Section
5.03. Except as provided in Section 7.02, the sole remedy of the Purchaser, the
Trustee or the Noteholders against the Servicer with respect to a breach of
Section 4.05 shall be to require the Servicer to acquire Contracts pursuant to
this Section 4.06. With respect to all Contracts purchased by the Servicer
pursuant to this Agreement, the Purchaser shall assign, without recourse,
representation or warranty (except as to the absence of liens, claims, or
encumbrances resulting from actions taken, or failed to be taken, by the
Purchaser), to the Servicer all the Purchaser's right, title and interest in and
to such Contracts and the related Contract Assets. The determination of
"material and adverse" as to the interest of the Purchaser or the Trustee in a
Contract would be made by the Purchaser or the Trustee (upon a Noteholders'
instruction pursuant to the Indenture) in determining whether notice would be
sent, and may be expected to include consideration of such matters as likelihood
of full repayment, enforceability of security for the loan and other similar
matters.
SECTION 4.07 Servicing Fee. The Servicing Fee for a Collection
Period shall be equal to the sum of (a) one-twelfth of the product of the
Servicing Fee Rate and the Pool Balance on the first day of the related
Collection Period (or in the case of the first Monthly Payment Date, the initial
Cut-Off Date) (except that in the case of a successor Servicer, the Servicing
Fee shall equal such amount as is arranged in accordance with Section 8.02) and
(b) net investment earnings on amounts on deposit in the Collection Account
during such Collection Period. In addition, the Servicer shall be entitled to
collect and retain any Administrative Fees with respect to the Contracts. The
Servicer shall be required to pay for its own account all expenses incurred by
it in connection with its activities hereunder (including fees and disbursements
of any subservicer or agent, the Trustee, Trustee's counsel and independent
accountants, taxes imposed on the Servicer, and expenses incurred in connection
with distributions and reports to Noteholders) except expenses in connection
with realizing upon Contracts under Section 4.03.
SECTION 4.08 Monthly Servicer Report. On or before 3:00 p.m.
(New York time) on the third Business Day preceding each Monthly Payment Date,
the Servicer shall deliver to the Purchaser, the Trustee, the Paying Agent and
the Rating Agency a Monthly Servicer Report substantially in the form of Exhibit
B hereto, for the Collection Period preceding such Determination Date,
containing all information necessary to make the deposits, withdrawals and
distributions pursuant to Section 5.04, and all information necessary for the
Trustee to send statements to Noteholders pursuant to Section 7.14 of the
Indenture. The Servicer shall also specify (i) each Contract which is
retransferred to the Seller or the Servicer, as the case may be, as of the last
day of such Collection Period, (ii) each Contract which the Servicer shall have
determined to be a Defaulted Contract during such Collection Period, (iii) each
Contract which has been prepaid in full during such Collection Period, (iv) the
aggregate Payahead Amounts with respect to the Contracts during such Collection
Period and all other information that the Trustee may require in order to make
determinations and calculations pursuant to the Indenture. The Trustee may rely
upon all information so furnished.
SECTION 4.09 Annual Statement as to Compliance.
(a) The Servicer shall deliver to the Purchaser, the Trustee
and the Rating Agency, within 45 days following the end of the Note Issuance
Period and within 90 days following December 31, 1999 and the end of each
calendar year thereafter during which any Note or other amount under the
Indenture is outstanding, an Officer's Certificate of the Servicer, stating that
(a) a review of
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the activities of the Servicer during the preceding calendar year (or shorter
period, in the case of the first such Officer's Certificate) of its performance
under this Agreement has been made under such officer's supervision and (b) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its obligations under this Agreement throughout such preceding
calendar year (or shorter period, in the case of the first such Officer's
Certificate), or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof.
(b) The Servicer or Seller, as applicable, shall deliver to
the Trustee, promptly after such party has obtained knowledge thereof, but in no
event later than five Business Days thereafter, an Officer's Certificate
specifying any event which with the giving of notice or lapse of time, or both,
would become an Event of Default under Section 8.01.
SECTION 4.10 Annual Accountants' Statement. The Servicer
shall cause an independent firm of qualified certified public accountants to
deliver to the Purchaser, the Rating Agency and the Trustee, within 120 days
following the Note Issuance Period and 120 days following December 31, 1998 and
the end of each calendar year thereafter during which any Note or other amount
under the Indenture is outstanding, a report addressed to the Board of Directors
of the Servicer, the Board of Directors of the Seller and to the Purchaser and
the Trustee, to the effect that such independent accountants have performed
certain agreed upon procedures with respect to information contained in the
Monthly Servicer Reports in the relevant period and with respect to the
information contained in the accounts and records relating to the servicing of
the Contracts, for such period, and report on any exceptions identified in their
work. The procedures shall be agreed upon with the Trustee, the Servicer and the
Purchaser and be consistent with professional auditing standards. The letter of
the independent certified public accountants shall also indicate that such
accounting firm is independent of the Servicer, the Seller and the Purchaser
within the meaning of the Code of Professional Ethics of the American Institute
of Certified Public Accountants.
SECTION 4.11 Access to Certain Information. The Servicer shall
provide (and shall cause each subservicer or agent to provide) access to the
Contract Files to the Purchaser and the Trustee when required by applicable
statutes or regulations to have access to such documentation. Access shall be
afforded without charge, but only upon reasonable request and during normal
business hours which does not unreasonably interfere with the Servicer's,
subservicer's or agent's, as applicable, normal operations or customer or
employee relations. Nothing in this Section 4.11 shall affect the obligation of
the Servicer and each subservicer or agent to observe any applicable law
prohibiting disclosure of information regarding the Obligors, and the failure of
the Servicer or any subservicer or agent to provide access to information as a
result of such obligation shall not constitute a breach of this Section 4.11.
SECTION 4.12 Weekly Servicer Verification. Not later than 3:00
p.m. (New York time) on the first Business Day of each week, commencing in the
week following the initial Contract Purchase Date, the Servicer will deliver to
the Purchaser and the Trustee a written statement verifying the amount delivered
by the Servicer from the Lock Box Account to the Trustee for deposit into the
Collection Account on each Business Day during the preceding week.
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ARTICLE V.
DISTRIBUTIONS; STATEMENTS
SECTION 5.01 Accounts. The Servicer shall maintain the Lock-Box Account
in accordance with the Lock Box Agreement and shall perform and comply with all
of the Servicer's obligations thereunder. The Lock-Box Account shall be an
account maintained with Bank of America or such other Lock-Box Bank as the
Servicer may select; provided, however, that the Servicer shall give the Trustee
prior written notice of any change in the location of the Lock-Box Account and
the Servicer shall give at least 10 days prior written notice of the new
location to each Obligor.
SECTION 5.02 Collections; Applications.
(a) The Servicer shall remit, or cause the Lock-Box Bank to
remit, to the Collection Account all payments by the Obligors on the Contracts
(including any Purchase Option Payment, any prepayments in full of a Contract
and any applicable Payahead Amounts related to such Collection Period) other
than Servicing Fees (to the extent that sufficient funds are allocated and
available for that purpose as provided in Section 5.04) and Administrative Fees
(which may be retained by the Servicer), and all Liquidation Proceeds and
Insurance Proceeds and Hedge Proceeds, as collected during the Collection
Period, as soon as practicable, but in no event later than the close of business
on the second Business Day after receipt thereof (except as may be otherwise
permitted in limited circumstances pursuant to Section 3.02(a) of the
Indenture).
(b) Notwithstanding the provisions of subsection (a) hereof,
the Servicer may retain, or will be entitled to be reimbursed from, amounts
otherwise payable into, or on deposit in, the Collection Account with respect to
a Collection Period, amounts previously deposited in the Collection Account but
later determined to have resulted from mistaken deposits or payments due before
the applicable Cut-Off Date or postings or checks returned for insufficient
funds (provided that the Servicer accounts for such amounts in the Monthly
Servicer Report for the related Collection Period). The amount to be retained or
reimbursed hereunder shall not be included in funds available for distribution
with respect to the related Monthly Payment Date.
(c) In those cases where a subservicer is servicing a Contract
pursuant to a subservicing agreement and where required by the Rating Agency to
maintain the rating on the Notes, the Servicer shall cause the subservicer to
remit to the Collection Account as soon as practicable, but in no event later
than the close of business on the second Business Day after receipt thereof by
the subservicer (but subject to the provisions of paragraph (b)), the amounts
referred to in Section 5.02(a) in respect of a Contract being serviced by the
subservicer.
(d) Pending their deposit into the Collection Account, all
collections, insurance Proceeds and Liquidation Proceeds shall be segregated by
book-entry or similar form of identification on the Servicer's books and records
and identified as the property of the Trustee.
SECTION 5.03 Additional Deposits. The Seller shall deposit, or
cause to be deposited, into the Collection Account the aggregate Retransfer
Amount pursuant to Section 3.03. All remittances shall be made to the Collection
Account in Automated Clearinghouse Corporation next-day funds or immediately
available funds, no later than 3:00 p.m., New York time, on the related Deposit
Date.
SECTION 5.04 Distributions. The Servicer shall direct and
instruct the Trustee to make the deposits, withdrawals and distributions to and
from the Collection Account as provided for in the Indenture.
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SECTION 5.05 Statements to Noteholders. At least three
Business Days prior to each Monthly Payment Date, the Servicer shall prepare and
deliver to the Trustee and the Rating Agency for distribution by the Trustee to
each Noteholder, a statement setting forth for the related Collection Period the
information specified to be furnished pursuant to Section 7.14 of the Indenture
on each Monthly Payment Date. Within a reasonable period of time after the end
of each calendar year, but not later than the latest date permitted by law or
otherwise necessary to permit the Trustee to act under the last paragraph of
Section 7.14 of the Indenture, the Servicer shall furnish to the Trustee a
statement prepared by the Servicer and delivered to the Trustee containing the
sum of the amounts determined in clauses (ii) and (iii) of Section 7.14 of the
Indenture for such calendar year. The Servicer shall also furnish any such other
information as the Trustee may be required to deliver pursuant to Section 7.14
of the Indenture.
ARTICLE VI.
THE SELLER
SECTION 6.01 Additional Representations of the Seller. The
Seller hereby makes the following representations as to itself on which the
Purchaser and the Trustee shall rely. The representations shall speak as of the
execution and delivery of this Agreement and as of each Contract Purchase Date,
and shall survive each transfer of the Trust Property to the Purchaser.
(i) Organization and Good Standing; Authorization. The Seller
has been duly incorporated and is validly existing in good standing under the
laws of its jurisdiction of incorporation, with power and authority to own its
assets and to transact the business in which it is currently engaged, and had at
all relevant times, and has, power, authority, and legal right to acquire, own,
assign and sell the Contracts and the other Trust Property.
(ii) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in each jurisdiction in which the failure to
obtain such qualification, licenses or approvals would have a material adverse
effect on the Trust Property or on the Seller's ability to perform its
obligations hereunder.
(iii) Power and Authority; Binding Obligations. The Seller has
the corporate power and authority to make execute, deliver and perform its
obligations under this Agreement, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement. When
executed and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Seller enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally, and by
the availability of equitable remedies.
(iv) No Violation. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not conflict with, result in any breach of
any of the terms and provisions of, or constitute (with or without notice or
lapse of time) a default under, the articles of incorporation, bylaws or other
constitutive documents of the Seller, or conflict with or breach any of the
terms or provisions of, or constitute (with or without notice or lapse of time)
a default under, any indenture, agreement or other instrument to which the
Seller is a party or by which it is bound or to which its
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properties are subject; nor result in the creation or imposition of any lien,
security interest, charge or encumbrance (except in favor of the Trustee for the
benefit of the Noteholders) upon any of the property or assets of the Seller or
any subsidiary thereof pursuant to the terms of any such indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument (other than this
Agreement) to which the Seller or any subsidiary thereof is a party or by which
the Seller or any subsidiary thereof is bound or to which any of the property or
assets of any of them is subject; nor violate any law or, to the best of the
Seller's knowledge, any order, rule or regulation applicable to the Seller of
any court or of any federal or state regulatory body, administrative agency, or
other governmental instrumentality having jurisdiction over the Seller or its
properties.
(v) No Proceedings. No litigation or administrative proceeding
of or before any court, tribunal or governmental body is currently pending or,
to the knowledge of the Seller, threatened against the Seller or any of its
properties or with respect to this Agreement or the Notes which, in the opinion
of the Seller, has a reasonable likelihood of resulting in a material adverse
effect on the Notes or the transactions contemplated by this Agreement.
(vi) No Consent Required. The Seller is not required to obtain
the consent of any other Person or any consent, license, approval or
authorization of, or make any registration or declaration with, any governmental
authority or agency in connection with the execution, delivery and performance
of this Agreement (except as have been obtained), other than as may be required
under the blue sky laws of any state.
(vii) Sale. This Agreement and each Bill of Sale will effect,
on each Contract Purchase Date, a valid sale, transfer, and assignment of the
Seller's interest in the Contracts and the related Contract Assets covered by
such Bill of Sale, enforceable against creditors of and purchasers from the
Seller.
(viii) Insolvency. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby were not
made in contemplation of the insolvency of the Seller or after the commission of
any act of insolvency by the Seller.
SECTION 6.02 Merger or Consolidation of Seller. Any entity (i)
into which the Seller may be merged or consolidated, (ii) which may result from
any merger, conversion or consolidation to which the Seller shall be a party, or
(iii) which may succeed to all or substantially all of the business of the
Seller, shall be the successor to the Seller hereunder without the execution or
filing of any document or any further act by any of the parties to this
Agreement. The Seller may not enter into any merger, conversion, sale of all or
substantially all of its assets or consolidation transactions unless (v) the
surviving entity shall execute an agreement of assumption to perform every
obligation of the Seller hereunder; (w) the Seller provides the Rating Agency
with notice of such foregoing event and the name of such surviving entity and
delivers to the Trustee a letter from the Rating Agency that such merger,
conversion or consolidation will not result in a reduction of the ratings for
the Notes; (x) immediately before and after giving effect to any such
transaction, no representation or warranty made pursuant to Section 3.02 or 6.01
shall have been breached (for purposes hereof, such representations and
warranties in Section 6.01 shall speak as of the date of consummation of such
transaction) and no event that, after notice or lapse of time, or both, would
become an Event of Default shall have occurred and be continuing; (y) the Seller
shall have delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel each stating that such consolidation, merger, or succession and such
agreement or assumption complies with this Section 6.02 and that all conditions
precedent, if any, provided for in the agreement relating to such transaction
have been complied with; and (z) the Seller shall have delivered to the Trustee
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an Opinion of Counsel, either (A) stating that, in the opinion of such counsel,
all financing statements and continuation statements and amendments thereto
have been executed and filed that are necessary fully to preserve and protect
the interest of the Trustee in the Trust Property as required herein, and
reciting the details of such filings, or (B) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and protect such
interest.
SECTION 6.03 Limitation on Liability of Seller and Others. The
Seller and any director, officer, employee or agent of the Seller may rely in
good faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Seller shall not be under any obligation under this Agreement to
appear in, prosecute, or defend any legal action that shall be unrelated to its
obligations under this Agreement.
SECTION 6.04 Covenants of Seller.
(a) The Seller shall execute and file such UCC financing
statements and cause to be executed and filed such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain, and protect the respective interests of the Purchaser and the Trustee
in the Contracts, the Equipment, the other Contract Assets and the other Trust
Property and in the proceeds thereof. The Seller shall deliver (or cause to be
delivered) to the Purchaser and the Trustee, upon request, file-stamped copies
of, or filing receipts for, any document filed as provided above, as soon as
available following such filing. In the event that the Seller fails to perform
its obligations under this subsection, the Purchaser or the Trustee may do so,
on the Seller's behalf, at the expense of the Seller. The Seller hereby grants
the Purchaser and the Trustee a power of attorney to effectuate the provisions
of the preceding sentence.
(b) The Seller shall not change its name, identity, or
corporate structure in any manner that would, could, or might make any UCC
financing statement or continuation statement filed by the Seller in accordance
with paragraph (a) above seriously misleading within the meaning of ss. 9-402(7)
of the UCC, unless it shall have given the Purchaser and the Trustee at least 60
days' prior written notice thereof and shall have promptly filed appropriate
amendments to all previously filed UCC financing statements or continuation
statements as requested by the Purchaser or the Trustee.
(c) The Seller shall give the Purchaser at least 60 days'
prior written notice of any relocation of its principal executive office if, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed UCC financing or
continuation statement or of any new UCC financing statement and shall promptly
file any such amendment as requested by the Purchaser or the Trustee. The Seller
shall at all times maintain each office from which it shall service Contracts,
and its principal executive office, within the United States of America. The
Seller shall pay all filing fees or taxes payable in respect of any UCC
financing or continuation statements required to be filed pursuant to this
Section 6.05.
(d) The Seller shall maintain accounts and records as to each
Contract accurately and in sufficient detail to permit the reader thereof to
know at any time the status of such Contract, including payments and recoveries
made and payments owing (and the nature of each).
(e) The Seller shall maintain its computer systems so that,
from and after the time of sale hereunder of the Contracts to the Purchaser, the
Seller's master computer records (including archives) that refer to a Contract
shall indicate clearly the interest of the Purchaser in such Contract and that
such Contract has been sold to the Purchaser and pledged by the Purchaser to the
Trustee. Indication of the Purchaser's ownership of a Contract (and the
Trustee's lien on the Contract) shall be deleted from
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or modified on the Seller's computer systems when, and only when, the Contract
shall have been paid in full or repurchased and the Retransfer Amount has been
paid.
(f) If at any time the Seller shall propose to sell, grant a
security interest in, or otherwise transfer any interest in other equipment
leases or installment sale contracts to any prospective purchaser, lender, or
other transferee, the Seller shall give to such prospective purchaser, lender,
or other transferee computer tapes, records, or print-outs (including any
restored from archives) that, if they shall refer in any manner whatsoever to
any Contract, shall indicate clearly that such Contract has been sold to the
Purchaser and pledged by the Purchaser to the Trustee.
(g) The Seller shall permit the Purchaser and the Trustee and
their respective agents upon reasonable notice at any time during normal
business hours which does not unreasonably interfere with its normal operations
or customer or employee relations, to confer with the Seller's officers and
relevant other personnel, to confer with the Seller's independent auditors and
to inspect, audit, and make copies of and abstracts from its records regarding
any Contract.
(h) Upon request by the Purchaser or the Trustee, the Seller
shall furnish to the Purchaser or the Trustee (as the case may be), within five
Business Days, a current composite Schedule of Contracts held by the Purchaser
as of the end of the most recent Collection Period.
(i) The Seller shall deliver to the Purchaser and the
Trustee, promptly after the execution and delivery of this Agreement and of
each amendment hereto, an Opinion of Counsel either (a) stating that, in the
opinion of such counsel, all UCC financing statements and continuation
statements necessary to preserve and protect fully the interest of the Purchaser
and the Trustee in the Contract Assets have been filed, or (b) stating that, in
the opinion of such counsel, no such action shall be necessary to preserve and
protect such interest and (c) stating that such amendment is in compliance with
the terms of this Agreement and the Indenture.
SECTION 6.05 Other Liens or Interests. Except for the
conveyances hereunder, the Seller will not sell, pledge, assign or transfer to
any other Person, or grant, create, incur, assume or suffer to exist any Lien on
the Contracts or any other Contract Assets or any interest therein, and the
Seller shall defend the right, title, and interest of the Purchaser and the
Trustee in, to and under the Contract and the other Contract Assets against all
claims of third parties claiming through or under the Seller; provided, however,
that the Seller's obligations to the Trustee under this Section 6.05 shall
terminate upon the termination of the Indenture pursuant to Section 11.01
thereof.
SECTION 6.06 Costs and Expenses. The Seller agrees to pay all
reasonable costs and disbursements in connection with the performance of its
obligations hereunder and under the Indenture.
SECTION 6.07 Indemnification.
(a) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee, and the Noteholders from and against any and all costs,
expenses, losses, damages, claims, and liabilities, arising out of or resulting
from any breach of any of the Seller's representations and warranties contained
herein or in any manner relating to or arising out of the transactions
contemplated by this Agreement.
(b) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee, and the Noteholders from and against any and all costs,
expenses, losses, damages, claims, and
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liabilities, arising out of or resulting from the use, ownership, operation or
sale by the Seller or any Affiliate thereof of any item of Equipment.
(c) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee, and the Noteholders from and against any taxes that may
at any time be asserted against such persons with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, general corporation, tangible or intangible personal property,
privilege, or license taxes (but not including any taxes asserted with respect
to, and as of the date of, the transfer and assignment of the Trust Property to
the Trustee or the issuance and original sale of the Notes, which shall be
indemnified by the Servicer pursuant to Section 7.02(ii) hereof and the
Indenture) and costs and expenses in defending against the same, arising by
reason of the acts to be performed by the Seller under this Agreement or imposed
against such Persons. In addition, the Trustee shall be indemnified by the
Seller for any liability or assessment against the Trustee resulting from an
error or omission in any tax or information return prepared by the Seller.
(d) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee and the Noteholders from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage, or liability arose out of, or was imposed upon
such persons through the gross negligence, willful misfeasance, or bad faith of
the Seller in the performance of its duties under this Agreement or by reason of
reckless disregard of the Seller's obligations and duties under this Agreement.
(e) The Seller shall indemnify, defend and hold harmless the
Purchaser, the Trustee and the Noteholders from and against any loss, liability
or expense incurred by reason of the violation by the Seller of federal or
state securities laws in connection with the registration or the sale of the
Notes.
Indemnification under this Section 6.07 shall include
reasonable fees and expenses of counsel plus expenses of litigation and shall
survive termination of the Indenture pursuant to Section 11.01 thereof and the
resignation and removal of the Trustee (unless such resignation or removal is
caused by the Trustee's gross negligence or willful misconduct). The indemnity
obligations hereunder shall be in addition to any obligation that the Seller may
otherwise have.
SECTION 6.08 Sale. Each of the Seller and the Purchaser agrees
to treat each conveyance pursuant to this Agreement and each Bill of Sale
delivered hereunder for all purposes (subject to consolidation for financial
accounting and tax purposes) as a sale of the Seller's interest in the Contracts
and related Contract Assets, including all of the Seller's right, title and
interest in and to the related Equipment, on all relevant books, records and
other applicable documents.
The execution and delivery of this Agreement shall constitute
an acknowledgement by the Seller and the Purchaser that each intends that the
assignment and transfer herein contemplated constitute an outright sale and
assignment to the Purchaser by the Seller of its interest in the Contracts, and
the other Contract Assets and not for security, conveying good title in such
interests free and clear of any liens, and that such interest shall not be a
part of the Seller's estate in the event of the bankruptcy or the occurrence of
another similar event, of, or with respect to, the Seller. In the event that
such conveyance is determined to be made as security for a loan made by the
Purchaser, the Trustee or the Noteholders to the Seller, the parties intend that
the Seller shall have granted to the Purchaser a security interest in all of the
Seller's right, title and interest in the Contract Assets and that this
Agreement shall constitute a security agreement under applicable law.
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SECTION 6.09 Accounting Statements. The Seller will cooperate
with the Purchaser and its independent public accountants in making available
all information and taking all steps, in each case reasonably necessary to
permit such accountants to deliver the letters required of them, if any, under
the Indenture.
ARTICLE VII.
THE SERVICER; REPRESENTATIONS AND INDEMNITIES
SECTION 7.01 Representations of the Servicer. The Servicer
hereby makes the following representations on which the Trustee shall rely. The
representations shall speak as of the execution and delivery of this Agreement,
and shall survive the transfer of the Contracts and the other Trust Property to
the Trustee.
(i) Organization and Good Standing. The Servicer has been
duly incorporated and is validly existing in good standing under the laws of its
jurisdiction of incorporation, with power and authority to own its assets and to
transact the business in which it is currently engaged, and to acquire, own,
sell, and service the Contracts and the other Trust Property and to hold the
Contract Files as custodian on behalf of the Trustee.
(ii) Due Oualification. The Servicer is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in each jurisdiction in which the failure to
obtain such qualifications, licenses or approvals would have a material adverse
effect on the Trust Property or on the Servicer's ability to perform its
obligations hereunder.
(iii) Power and Authority; Binding Obligations. The Servicer
has the corporate power and authority to make, execute, deliver and perform its
obligations under this Agreement, and has taken all necessary corporate action
to authorize the execution, delivery and performance of this Agreement. When
executed and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Servicer enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally, and by
the availability of equitable remedies.
(iv) No Violation. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not conflict with, result in any breach of
any of the terms and provisions of, or constitute (with or without notice or
lapse of time) a default under, the articles of incorporation or bylaws of the
Servicer, or conflict with or breach any of the terms or provisions of, or
constitute (with or without notice or lapse of time) a default under, any
indenture, agreement or other instrument to which the Servicer is a party or by
which it is bound or to which its properties are subject; nor result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such indenture, agreement or other instrument (other than this
Agreement); nor violate any law or, to the best of the Servicer's knowledge, any
order, rule, or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Servicer or its properties.
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(v) No Proceedings. No litigation or administrative proceeding
of or before any court, tribunal or governmental body is currently pending or,
to the knowledge of the Servicer, threatened, against the Servicer or any of its
properties or with respect to this Agreement or the Notes which, in the opinion
of the Servicer, has a reasonable likelihood of resulting in a material adverse
effect on the Notes or the transactions contemplated by this Agreement.
(vi) No Consent Required. The Servicer is not required to
obtain the consent of any other Person or any consent, license, approval or
authorization of, or make any registration or declaration with, any governmental
authority or agency in connection with the execution, delivery and performance
by the Servicer of this Agreement (except as have been obtained).
SECTION 7.02 Liability of Servicer; Indemnities. The Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Servicer or the Seller under this Agreement and
shall have no other obligations or liabilities hereunder.
(i) The Servicer shall indemnify, defend and hold harmless the
Trustee, the Noteholders and the Seller from and against any and all costs,
expenses, losses, damages, claims, and liabilities, arising out of or resulting
from the use, ownership, operation or sale by the Servicer or any Affiliate
thereof of an item of Equipment.
(ii) The Servicer shall indemnify, defend and hold harmless
the Trustee, the Noteholders and the Seller from and against any taxes that may
at any time be asserted against such persons with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, general corporation, tangible or intangible personal property,
privilege, or license taxes (but not including any taxes asserted with respect
to, and as of the date of, the transfer of the Contracts to the Purchaser or
asserted with respect to ownership of the Trust Property by the Purchaser, which
shall be indemnified by the Seller pursuant to Section 6.07(c) hereof) and costs
and expenses in defending against the same, arising by reason of the acts to be
performed by the Servicer under this Agreement or imposed against such Persons.
In addition, the Trustee shall be indemnified by the Servicer for any liability
or assessment against the Trustee resulting from any error or omission in any
tax or information return prepared by the Servicer.
(iii) The Servicer shall indemnify, defend and hold harmless
the Trustee, the Noteholders and the Seller from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage, or liability arose out of, or was imposed upon
such persons through the actions or omissions of the Servicer or the willful
misfeasance, gross negligence, or bad faith of the Servicer in the performance
of its duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement.
(iv) The Servicer shall indemnify, defend and hold harmless
the Trustee from and against all costs, expenses, losses, claims, damages, and
liabilities arising out of or incurred in connection with (x) any claims,
actions, suits or judgments asserted or imposed against it and arising out of
the transactions contemplated by this Agreement or the Indenture, (y) any breach
of any of the Servicer's representations or warranties contained herein and (z)
the acceptance, administration or performance of the trusts and duties herein
contained or set forth in the Indenture, except to the extent that such cost,
expense, loss, claim, damage or liability:
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(a) shall be due to the willful misfeasance, gross negligence
or bad faith of the Trustee; (b) relates to any tax other than the taxes with
respect to which the Servicer shall be required to indemnify the Trustee
pursuant to this Agreement or the Indenture; (c) shall arise from the Trustee's
breach of the Indenture; or (d) shall be one as to which the Seller has
reimbursed the Trustee.
For purposes of this Section, in the event of the termination
of the rights and obligations of the Servicer pursuant to Section 8.01, or a
resignation by the Servicer pursuant to this Agreement, such Servicer shall be
deemed to be the Servicer pending appointment of a successor Servicer pursuant
to Section 8.02. Furthermore, indemnities in this Section 7.02 from the Servicer
to the Trustee shall also include indemnities from the initial Servicer to the
Trustee in its capacity as successor Servicer hereunder; provided that no
failure or inability of the Servicer to provide or perform such indemnities
shall in any respect alter or affect the Trustee's obligations to act as
successor Servicer hereunder. For purposes of this Section, the reference to
Trustee includes any director, officer, employee or agent of the Trustee.
Indemnification under this Section 7.02 shall include
reasonable fees and expenses of counsel of each indemnified Person plus expenses
of litigation. If the Servicer or the Seller shall have made any indemnity
payments pursuant to this Section 7.02 and the recipient thereafter collects any
of such amounts from others, the recipient shall promptly repay such amounts to
the Servicer and/or the Seller, without interest. The indemnities under this
Section 7.02 shall survive the resignation or removal of the Servicer and the
Trustee, the termination of this Agreement and the termination of the Indenture
pursuant to Section 11.01 thereof.
SECTION 7.03 Merger or Consolidation of Servicer. Any entity
(i) into which the Servicer may be merged or consolidated, (ii) which may result
from any merger, conversion, or consolidation to which the Servicer shall be a
party, or (iii) which may succeed to all or substantially all of the business of
the Servicer, shall be the successor to the Servicer hereunder without the
execution or filing of any document or any further act on the part of any of the
parties to this Agreement. The Servicer may not enter into any merger,
conversion, sale of all or substantially all of its assets or consolidation
transaction unless (v) the surviving entity shall execute an agreement of
assumption to perform every obligation of the Servicer hereunder; (w) the
Servicer provides the Rating Agency with notice of such foregoing event and the
name of such surviving entity and delivers to the Trustee a letter from the
Rating Agency that such merger, conversion or consolidation will not result in a
reduction or withdrawal of the then current rating of either Class of Notes by
the Rating Agency; (x) immediately before and after giving effect to such
transaction, no representation or warranty made pursuant to Section 7.01 shall
have been breached (for purposes hereof, such representations and warranties in
Section 7.01 shall speak as of the date of consummation of such transaction) and
no event that, after notice or lapse of time, or both, would become an Event of
Default shall have occurred and be continuing; (y) the Servicer shall have
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger, or succession and such agreement or
assumption complies with this Section 7.03 and that all conditions precedent, if
any, provided for in the agreement relating to such transaction have been
complied with; and (z) the Servicer shall have delivered to the Trustee an
Opinion of Counsel either (A) stating that, in the opinion of such counsel, all
UCC financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary fully to preserve and protect the
interest of the Trustee in the Trust Property as required herein, and reciting
the details of such filings, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interest.
SECTION 7.04 Limitation on Liability of Servicer and Others.
(a) Neither the Servicer nor any agents of the Servicer shall be under any
liability to the Trustee or the Noteholders,
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except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or errors in judgment;
provided, however, that this provision shall not protect the Servicer or any
such agent against any liability that would otherwise be imposed by reason of
willful misfeasance, gross negligence, or bad faith in the performance of duties
or by reason of reckless disregard of obligations and duties under this
Agreement or a breach of any representation or warranty of the Servicer
contained herein.
(b) Except as provided in this Agreement, the Servicer shall
not be under any obligation to appear in, prosecute, or defend any legal action
that shall not be incidental to its duties to service the Contracts in
accordance with this Agreement; provided, however, that the Servicer may
undertake, in accordance with the terms hereof, at its expense, any reasonable
action that it may deem necessary or desirable in respect of this Agreement and
the rights and duties of the parties to this Agreement and the interests of the
Noteholders under this Agreement.
(c) The Servicer and any director or officer or employee or
agent of the Servicer may rely in good faith on the advice of counsel or on any
document of any kind, prima facie properly executed and submitted by any Person,
respecting any matters arising hereunder.
SECTION 7.05 Servicer Not to Resign. The Servicer shall not
resign from its obligations and duties under this Agreement except upon
determination that the performance of its duties shall no longer be permissible
under applicable law. Notice of any such determination permitting the
resignation of the Servicer shall be communicated to the Trustee and the Rating
Agency at the earliest practicable time (and, if such communication is not in
writing, shall be confirmed in writing at the earliest practicable time) and any
such determination permitting the resignation of the Servicer shall be evidenced
by an Opinion of Counsel (which counsel shall be outside counsel) to such effect
delivered to the Trustee concurrently with such notice. No such resignation
shall become effective until the Trustee or another successor Servicer shall
have assumed the responsibilities and obligations of the Servicer in accordance
with Section 8.02.
SECTION 7.06 Protection of Interest of Trust Property.
(a) The Servicer shall execute and file such financing
statements and cause to be executed and filed such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain, and protect the respective interests of the Purchaser under this
Agreement and of the Noteholders and the Trustee under the Indenture in the
Trust Property and in the proceeds thereof. The Servicer shall deliver (or cause
to be delivered) to the Trustee file-stamped copies, or filing receipts for, any
document filed as provided above, as soon as available following such filing,
upon request of the Trustee. In the event that the Servicer fails to perform its
obligations under this subsection, the Trustee may (but shall not be required
to) do so, on behalf of the Servicer, at the Servicer's expense. The Servicer
hereby irrevocably appoints the Trustee its attorney-in-fact, and grants the
Trustee a power of attorney, coupled with an interest and with full power or
substitution, to effectuate the provisions of the preceding sentence.
(b) The Servicer shall not change its name, identity, or
corporate structure in any manner that would, could, or might make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of ss. 9-402(7) of the UCC, unless it
shall have given the Trustee at least 60 days prior written notice thereof and
unless the Servicer shall execute and file amended financing statements or
continuation statements to cure such misleading effect.
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(c) The Servicer shall give the Trustee at least 60 days prior
written notice of any relocation of any of their respective principal executive
offices if, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement. The Servicer shall at
all times maintain each office from which it shall service Contracts, and the
Servicer shall keep at all times its principal executive office and the Contract
Files, within the United States of America. The Servicer, as applicable, shall
pay all filing fees or taxes payable in respect of any financing or continuation
statements required to be filed pursuant to this Section.
(d) The Servicer shall maintain (and shall cause any
subservicer to maintain) accounts and records as to each Contract accurately and
in sufficient detail to permit (i) the reader thereof to know at any time the
status of such Contract, including payments and recoveries made and payments
owing (and the nature of each) and (ii) reconciliation between payments or
recoveries on (or with respect to) each Contract and the amounts from time to
time deposited in the Collection Account in respect of such Contract.
(e) If at any time the Servicer shall propose to sell, grant a
security interest in, or otherwise transfer any interest in an equipment lease
to any prospective purchaser, creditor or other transferee, the Servicer shall
make available to such prospective purchaser, creditor, or other transferee
computer tapes, records, or print-outs (including any restored from archives)
that, if they shall refer in any manner whatsoever to any Contract, shall
indicate clearly that such Contract is owned by the Trustee.
(f) The Servicer shall permit (and shall cause any subservicer
to permit) the Trustee and its agents upon reasonable notice at any time during
normal business hours which does not unreasonably interfere with the Servicer's
(or such subservicer's) normal operations or customer or employee relations to
inspect, audit, and make copies of and abstracts from the Servicer's (or such
subservicer's) records regarding the Contracts.
ARTICLE VIII.
DEFAULT
SECTION 8.01 Events of Default. If any one of the following
events ("Events of Default") shall occur and be continuing:
(i) any failure by the Servicer or the Seller to deliver to
the Trustee, for distribution to Noteholders, any proceeds or payment required
to be so delivered under the terms of this Agreement or the Indenture, in each
case that continues unremedied for a period of three Business Days after the due
date thereof; or
(ii) failure on the part of the Servicer or the Seller duly to
observe or to perform in any material respect any other covenants or agreements
of the Servicer, or the Seller set forth in the Notes, in the Indenture or in
this Agreement, which failure shall (a) materially and adversely affect the
rights of the Noteholders and (b) continues unremedied for a period of 30 days
after the date on which written notice of such failure, requiring the same to be
remedied, shall have been given (1) to the Servicer by the Trustee or (2) to the
Trustee and the Servicer and the Seller (as the case may be) by the Noteholders
of Notes evidencing not less than a majority of the Note Principal Balance of
the Notes; or
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(iii) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Servicer or the Seller in
an involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Servicer or the Seller a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Servicer or the Seller under any applicable
federal or state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Servicer, or the Seller
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any of the foregoing unstayed
and in effect for a period of 90 consecutive days; or
(iv) the commencement by the Servicer or the Seller of a
voluntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Servicer or the
Seller in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable Federal or State law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Servicer or the Seller or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Servicer or the Seller
in furtherance of any such action; or
(v) a final nonappealable judgment of a court of competent
jurisdiction for more than $1,000,000 shall be entered against JLACC and shall
not be stayed, vacated, bonded, paid or discharged within 30 days; or
(vi) JLACC shall fail to pay, when and as the same shall
become due and payable (after giving effect to any applicable grace period), any
principal or interest, regardless of amount, due in respect of any indebtedness
of JLACC in a principal amount in excess of $5,000,000; provided, however, that
such failure to pay shall not constitute an Event of Default pursuant to this
clause if such non-payment is subject to good faith dispute by JLACC; or
(vii) as of the last day of any calendar month, the
Three-Month Average Default Ratio for the Contracts exceeds 4.0%, or the
Three-Month Average Delinquency Ratio for the Contracts exceeds 5.0%.
then, and in each and every case and so long as an Event of Default shall not
have been remedied, the Trustee acting at the written direction of the
Noteholders of Notes evidencing not less than 66-2/3% of the aggregate Note
Principal Balance, by notice given in writing to the Servicer (and to the
Trustee if given by the Noteholders), shall terminate all of the rights and
obligations of the Servicer under this Agreement and/or direct the Obligors to
make all payments under the Contracts directly to the Trustee. On or after the
termination of the Servicer hereunder, all authority and power of the Servicer
under this Agreement, whether with respect to the Notes or the Trust Property or
otherwise, shall pass to and be vested in the Successor pursuant to Section
8.02; and, without limitation, the Trustee shall be hereby authorized and
empowered to execute and deliver, on behalf of the predecessor Servicer, as
attorney-in-
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fact or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of the Contract Files or otherwise. The predecessor Servicer shall
cooperate with the successor Servicer and the Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement, including the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for deposit, shall have been deposited by the Servicer in
the Collection Account, or shall thereafter be received with respect to a
Contract or any other portion of the Trust Property. All reasonable costs and
expenses (including attorneys' fees) incurred by the Trustee and the successor
Servicer in connection with the transfer of servicing to the successor Servicer
and amending this Agreement to reflect such succession as Servicer pursuant to
this Section 8.01 shall be paid by the predecessor Servicer upon presentation of
reasonable documentation of such costs and expenses.
SECTION 8.02 Appointment of Successor Servicer.
(a) Upon the Servicer's receipt of notice of termination
pursuant to Section 8.01 or upon resignation of the Servicer pursuant to Section
7.05, the Trustee shall be the successor in all respects to the Servicer in its
capacity as Servicer under this Agreement, and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the Servicer by the terms and provisions of this Agreement; provided
that the Trustee as successor Servicer shall have no obligations whatsoever with
respect to Sections 3.03, 4.05(c), 4.06, 4.10, or 7.02 and shall not be deemed
at any time to have made any of the representations or warranties of the
Servicer.
(b) Without limiting any of the foregoing, under no
circumstance shall the Trustee (as successor Servicer) be deemed to have
incurred any obligation to make any advance hereunder or to repurchase or
substitute any Contracts.
(c) Prior to the time specified in Paragraph (a) of this
Section, the Trustee shall have no obligation to perform any back-up or standby
Servicer operations or functions.
(d) The Trustee shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the Servicer
would have been entitled to under this Agreement if no such notice of
termination or resignation had been given.
(e) The successor Servicer shall not be liable in any respect
for any duties, responsibilities, obligations or liabilities of the Servicer or
any predecessor Servicer arising prior to the date of the successor Servicer's
assumption of duties or appointment.
(f) In the event the Trustee becomes the successor Servicer,
the prior Servicer must agree to indemnify the Trustee against any claims or
expenses arising out of such prior servicing performance and, notwithstanding
the appointment of any successor Servicer, the initial Servicer shall continue
to be obligated in favor of the Trustee with regard to Section 7.02 hereof;
provided that no failure or inability of the initial Servicer to perform such
obligations shall in any respect alter or affect the Trustee's obligations to
act as successor Servicer hereunder.
(g) Notwithstanding the above, the Trustee shall, if it shall
be legally unable so to act, appoint, or petition a court of competent
jurisdiction to appoint, any established financial institution, having a net
worth of not less than $10,000,000 and whose regular business shall include the
servicing of equipment leases, as successor Servicer under this Agreement;
provided that, pending such appointment, the Trustee shall continue to act as
Servicer (unless it is legally unable to act as Servicer);
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and provided further that (unless the Trustee is legally unable to act as
Servicer, in which event the outgoing Servicer shall act as Servicer until the
appointment) the appointment of any such successor Servicer will not result in
the withdrawal or reduction of the outstanding rating assigned to the Notes of
either Class by the Rating Agency. In connection with such appointment, the
Trustee may make such arrangements for the compensation of such successor
Servicer out of payments on the Trust Property as it and such successor Servicer
shall agree; provided, however, that the amount of such compensation shall not
exceed a reasonable fee (taking into account the estimated costs of servicing
and a reasonable profit). Such reasonable fee shall be determined by the
Trustee, but shall not be greater in any month than the Servicing Fee would be
if the Servicing Fee Rate were 1.0% per annum, and provided such fee is paid
solely from the Collection Account in accordance with the priorities of payment
specified in Section 3.07(b) and the other provisions of the Indenture. The
Trustee and such successor Servicer shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. The Trustee
(unless the Trustee is legally unable to act as Servicer, in which event the
outgoing Servicer shall act as Servicer until the appointment, and the
acceptance of appointment) shall not be relieved of its duties as successor
Servicer under this Section 8.02 until the newly appointed successor Servicer
shall have assumed the responsibilities and obligations of the Servicer under
this Agreement.
(h) The outgoing Servicer shall provide the successor Servicer
With all files, computer tapes and software, ledgers and records, and access to
all Servicer locations and personnel, that (in each case) are necessary to
enable the successor Servicer to perform the Servicer's duties hereunder.
(i) Neither the Trustee nor any other successor Servicer shall
be deemed to be in default hereunder by reason of any failure to make, or any
delay in making any distribution hereunder or any portion thereof caused solely
by the failure or delay of the outgoing Servicer to deliver cash, documents,
files, computer tapes, ledgers or records to it or otherwise on account of the
inaccuracy of any information that it receives from the outgoing Servicer.
(j) Notwithstanding the foregoing provisions of this Section,
the Trustee upon becoming obligated to be successor Servicer hereunder may
designate another Person to instead be such successor Servicer, with the prior
written approval of each Noteholder and with a letter from the Rating Agency
stating that such designation would not result in the ratings on the Notes to be
withdrawn or downgraded; provided that such approvals are obtained from each
Noteholder and the Rating Agency and such Person agrees in writing to be the
successor Servicer in substantially such manner as the Trustee would have been
for all purposes of this Agreement.
SECTION 8.03 Notification to Noteholders. Upon any notice of
an Event of Default or upon any termination of the Servicer or appointment of a
successor Servicer pursuant to this Article VIII, the Trustee shall give written
notice within two Business Days thereof to Noteholders at their respective
addresses of record and to the Rating Agency.
SECTION 8.04 Waiver of Past Defaults. The Noteholders holding
Notes evidencing not less than 66-2/3% of the Note Principal Balance of all
Notes may, on behalf of all Noteholders, waive any default by the Servicer (or,
so long as JLACC is the Servicer, the Seller) in the performance of its
obligations hereunder and its consequences, except a default in the failure to
make any required deposits to or payments from the Collection Account in
accordance with this Agreement, which shall require the consent of 100% of the
Noteholders. Upon any such waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived.
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ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.01 Amendment. This Agreement may be amended in
writing by the Seller, the Servicer and the Purchaser, with the consent of the
Trustee, without prior notice to or the consent of any of the Noteholders, to
cure any ambiguity, to correct or supplement any provisions in this Agreement
which may be inconsistent with any other provision herein, or to add any other
provisions with respect to matters or questions arising under this Agreement
which are not inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel
delivered to the Trustee, adversely and materially affect the interests of the
Trustee or any Noteholder. A copy of any such amendment shall be delivered by
the Servicer to the Rating Agency promptly following the execution and delivery
thereof.
This Agreement may also be amended in writing from time to
time by the Seller, the Servicer and the Purchaser, subject to the receipt by
the Purchaser and the Trustee of notice in writing from the Rating Agency that
the execution and delivery of such amendment would not result in the reduction
or withdrawal of the then-current rating of the Notes of either Class by the
Rating Agency, with the consent of the Trustee acting with the consent of
Noteholders evidencing not less than 66-2/3% of the Note Principal Balance, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement, or of modifying in any manner the
rights of the Noteholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments of Contracts, or distributions that shall be
required to be made on any Note or (b) reduce the aforesaid percentage required
to consent to any such amendment, in each case without the consent of
Noteholders of all Notes then outstanding. Promptly after the execution of any
such amendment or consent, the Trustee shall furnish written notification of the
substance of such amendment or consent to each Noteholder. Further, any
amendment, modification or waiver of this Agreement which affects the rights,
duties or obligations of LTCB Trust Company (as Trustee or as successor
Servicer) or The Bank of New York (as Backup Trustee, Trustee or successor
Servicer) may only be effected with the prior written consent of (as applicable)
LTCB Trust Company or The Bank of New York, in their respective capacities.
SECTION 9.02 Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.
SECTION 9.03 Governing Law. This Agreement shall be construed
in accordance with the substantive laws of the State of New York (without regard
to conflicts of laws) and the obligations, rights, and remedies of the parties
under this Agreement shall be determined in accordance with such laws.
SECTION 9.04 Notices. All demands, notices, and communications
under this Agreement shall be in writing, personally delivered or mailed by
certified mail, telecopy or courier, return receipt requested, and shall be
deemed to have been duly given upon receipt
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(a) in the case of the Seller and the Servicer,
JLA Credit Corporation
12677 Alcosta Boulevard
Suite 430
San Ramon, California 94583
Attention: President
Telephone: (510) 277-3323
Telecopier: (510) 277-0565
(b) in the case of the Purchaser,
JLA Funding Corporation III
12677 Alcosta Boulevard
Suite 430
San Ramon, California 94583
Attention: Treasurer
Telephone: (510) 277-3314
Telecopier: (510) 327-0228
A copy of notice sent to either party hereto shall be sent by
first class mail, postage prepaid, to the Trustee at 165 Broadway, New York, New
York 10006, Attention: Corporate Trust Administration.
SECTION 9.05 Severability of Provisions. If any one or more
of the covenants, agreements, provisions, or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining covenants,
agreements, provisions, or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement or of
the Notes or the rights of the Noteholders thereof.
SECTION 9.06 Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Section 6.02 or Section 7.03,
this Agreement may not be assigned by the Seller or the Servicer without the
prior written consent of the Trustee and Noteholders of Notes evidencing not
less than 66-2/3% of the Note Principal Balance.
SECTION 9.07 Submission to Jurisdiction, Venue. The parties
hereto with respect to any action or claim brought against or by the Trustee
submit to jurisdiction in the state or federal courts in New York, New York, and
agree to New York, New York as the venue for any such claim or action. The
Purchaser hereby irrevocably designates and appoints Corporation Service Company
(the "Agent"), which on the date hereof has an office located at 80 State
Street, Albany, New York 12207, Tel.: (518) 433-4740, Fax: (518) 433-4741, as
its authorized agent upon whom process may be served in any such suit or
proceeding. The Purchaser further agrees that, to the extent permitted by
applicable law, service of process upon the Agent shall be deemed in every
respect effective service of process upon the Purchaser in any such suit or
proceeding. Each of the Seller and the Servicer hereby irrevocably designates
and appoints the Agent, as its authorized agent upon whom process may be served
in any suit or proceeding related to the transactions contemplated by this
Agreement. Each of the Seller and the Servicer further agrees that, to the
extent permitted by applicable law, service of process upon the Agent shall be
deemed in every respect effective service of process upon the Seller or the
Servicer in any suit or proceeding related to the transactions contemplated by
this Agreement.
36
<PAGE>
SECTION 9.08 No Bankruptcy Petition. Each of JLACC and the
Servicer covenants and agrees that, prior to the date which is one year and one
day after the payment in full of all debt securities issued by the Purchaser, it
will not institute against, or join any other Person in instituting against, the
Purchaser any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any federal or state bankruptcy or
similar law. The Purchaser represents, warrants, and covenants that it has
obtained, and will in the future obtain, a no-petition agreement from each and
every Person that enters into any agreement of any kind with the Purchaser.
SECTION 9.09 Rule 144A Information. For so long as the Notes
are "restricted securities" within the meaning of Rule 144A of the Securities
Act, the Seller and the Servicer agree to cooperate with each other to provide
to any Noteholder and to any prospective purchaser of Notes designated by such a
Noteholder, upon the request of such Noteholder or prospective purchaser, any
information that is required to be provided to such Noteholder or prospective
purchaser to satisfy Rule 144A(d)(4) (or any successor provision) under the
Securities Act. The Seller will be responsible for the physical delivery of any
such information so requested.
SECTION 9.10 Limited Recourse. Each of the Seller and the
Servicer agrees that any payments to be made by the Purchaser hereunder shall be
made only to the extent that the Purchaser has funds available for such purpose.
The parties hereto agree, further, that the obligations of the Purchaser to make
any payment pursuant to this Agreement shall be subject entirely to the
availability of funds to the Purchaser and to the priorities of payment
specified in the Indenture and no insufficiency of such available funds shall
constitute a claim against the Purchaser. The provisions of this Section shall
survive any termination of this Agreement.
SECTION 9.11 Trustee Rights. Each of the Seller and the
Servicer agrees that the Trustee and the Backup Trustee shall be a third party
beneficiary of this Agreement as if it were a party hereto with all
corresponding rights. In addition, each of the Seller and the Servicer expressly
acknowledges and agrees that all of the Purchaser's right, title and interest
in, to and under this Agreement, and each Bill of Sale delivered hereunder, is
being collaterally assigned and pledged by the Purchaser to the Trustee for the
benefit of the Noteholders pursuant to the Indenture in order to secure the
Purchaser's obligations under the Indenture and the Notes.
37
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Sale and
Servicing Agreement to be duly executed by their respective offices as of the
day and year first above written.
JLA CREDIT CORPORATION,
Seller and Servicer
By: /s/ Mitsamasa Sakka
---------------------------
Name: Mitsamasa Sakka
Title: President
JLA FUNDING CORPORATION III,
Purchaser
By: /s/ Steven A. Dietsch
-------------------------
Name: Steven A. Dietsch
Title: Treasurer
Consented and Agreed to:
LTCB TRUST COMPANY,
not in its individual capacity
but solely in its capacity
as Trustee
By:
-------------------------------
Name:
Title:
THE BANK OF NEW YORK,
not in its individual capacity
but solely in its capacity
as Backup Trustee
By:
---------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Sale and
Servicing Agreement to be duly executed by their respective offices as of the
day and year first above written.
JLA CREDIT CORPORATION,
Seller and Servicer
By:
-----------------------------
Name:
Title:
JLA FUNDING CORPORATION III,
Purchaser
By:
-----------------------------
Name:
Title:
Consented and Agreed to:
LTCB TRUST COMPANY,
not in its individual capacity
but solely in its capacity
as Trustee
By: /s/ Ronald N. Lamendola
---------------------------------
Name: Ronald N. Lamendola
Title: Senior Vice President
THE BANK OF NEW YORK,
not in its individual capacity
but solely in its capacity
as Backup Trustee
By:
----------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Sale and
Servicing Agreement to be duly executed by their respective offices as of the
day and year first above written.
JLA CREDIT CORPORATION,
Seller and Servicer
By:
------------------------------
Name:
Title:
JLA FUNDING CORPORATION III,
Purchaser
By:
------------------------------
Name:
Title:
Consented and Agreed to:
LTCB TRUST COMPANY,
not in its individual capacity
but solely in its capacity
as Trustee
By:
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK,
not in its individual capacity
but solely in its capacity
as Backup Trustee
By: /s/ Reyne A. Macadaeg
-----------------------------------
Name: Reyne A. Macadaeg
Title: Assistant Vice President
<PAGE>
EXHIBIT A
[FORM OF BILL OF SALE]
BILL OF SALE
FOR VALUE RECEIVED, JLA CREDIT CORPORATION, a Delaware
corporation (the "Seller"), hereby sells, transfers and assigns to JLA FUNDING
CORPORATION III, a Delaware corporation (the "Purchaser"), without recourse, all
of the right, title and interest of the Seller, whether now owned or hereafter
acquired, in, to and under all accounts, money, chattel paper, securities,
instruments, documents, deposit accounts, certificates of deposit, letters of
credit, advices of credit, banker's acceptances, uncertificated securities,
general intangibles, contract rights, goods and other property consisting of,
arising from or relating to the Contracts listed on Schedule I hereto (the
"Schedule of Contracts"), including, without limitation, (a) all Contract
Payments, Retransfer Amounts and other amounts due or becoming due with respect
thereto (other than any payments due pursuant to the terms of any Contract on or
before the last day of the calendar month preceding the date hereof or such
other date as is specified as the cut-off date in the attached Schedule of
Contracts (the "related Cut-Off Date"), (b) all rights of the Seller to or under
any guarantees of or collateral for the Obligor's obligations under any
Contract, (c) the amounts representing Security Deposit Offsets applied to
unpaid Contract Payments and Purchase Option Payments due on or to become due
after the applicable Cutoff Date, any guaranty relating to a Contract and all
moneys constituting collections on such Contracts from time to time on deposit
in the Lock-Box Account, (d) all rights of the Seller under any program
agreement, purchase agreement, assignment agreement, or other document pursuant
to which the Seller acquired an interest in any Contract and the Equipment
subject thereto and any support agreements or guarantees related thereto, and
(e) each Insurance Policy, if any, covering Equipment, including any Insurance
Proceeds received pursuant to such Insurance Policy after the applicable Cut-off
Date, and (f) all proceeds of any of the foregoing. The Seller hereby also
sells, transfers and assigns to the Purchaser all of the Seller's right, title
and interest in and to all Equipment covered by each of the Contracts listed in
the Schedule of Contracts and all proceeds thereof. The Seller warrants to the
Purchaser that the right, title and interest assigned hereby are not subject to
any lien, claim or encumbrance. Although the parties intend, and have expressly
so stated, that the conveyance of the Seller's right, title and interest in, to
and under the Contracts (including the related Equipment) pursuant to this Bill
of Sale shall constitute a purchase and sale and not a financing, in order to
protect the Purchaser in the event that, despite such express intention that the
transaction be treated as a sale, such conveyance is deemed to be a financing,
the Seller hereby grants to the Purchaser a first priority security interest in
all of the Seller's right, title and interest in, to and under the Contracts,
including all proceeds thereof, to secure the repayment of such financing, and
agrees that this Bill of Sale shall constitute a security agreement under
applicable law. All capitalized terms used in this Bill of Sale and not defined
herein shall have the meanings assigned to such terms in the Sale and Servicing
Agreement. The Seller hereby additionally represents and warrants to the
Purchaser that all representations and warranties of Seller with respect to the
Contracts in Section 3.02 of the Sale and Servicing Agreement are true and
correct as of the date hereof.
<PAGE>
IN WITNESS WHEREOF, the Seller has executed this Bill of Sale
as of the date set forth below.
Dated: JLA CREDIT CORPORATION,
----------------------- a Delaware corporation
By:
---------------------------
Name:
Title:
Accepted: JLA FUNDING CORPORATION III,
a Delaware corporation
By:
---------------------------
Name:
Title:
2
<PAGE>
---------------------------------
| KILPATRICK STOCKTON LLP |
| EXECUTION |
---------------------------------
================================================================================
RECEIVABLES FUNDING AGREEMENT
Dated as of July 14, 1999
Among
FIDELITY LEASING SPC IV, INC.
as the Borrower
FIDELITY LEASING, INC.
as the Servicer and the Originator
the LIQUIDITY LENDERS
named herein
VARIABLE FUNDING CAPITAL CORPORATION
as a CP Lender
FIRST UNION CAPITAL MARKETS CORP.
as the Administrative Agent and the VFCC Managing Agent
HARRIS TRUST AND SAVINGS BANK
as the Backup Servicer and the Collateral Custodian
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I DEFINITIONS............................................................................................1
Section 1.1 Certain Defined Terms.................................................................................1
Section 1.2 Other Terms..........................................................................................25
Section 1.3 Computation of Time Periods..........................................................................25
Section 1.4 Interpretation.......................................................................................25
ARTICLE II ADVANCES.............................................................................................26
Section 2.1 Advances; The Loan; Grant of Security................................................................26
Section 2.2 Procedures for Advances..............................................................................27
Section 2.3 Reduction of Facility Amount; Prepayments............................................................28
Section 2.4 Determination of Interest............................................................................29
Section 2.5 Lender Note..........................................................................................29
Section 2.6 Compensating Interest Payments.......................................................................29
Section 2.7 Settlement Procedures During the Revolving Period....................................................29
Section 2.8 Settlement Procedures During the Amortization Period.................................................31
Section 2.9 Collections and Allocations..........................................................................32
Section 2.10 Payments, Computations, Etc.........................................................................33
Section 2.11 Optional Prepayment in Full.........................................................................34
Section 2.12 Fees................................................................................................34
Section 2.13 Increased Costs; Capital Adequacy; Illegality.......................................................35
Section 2.14 Taxes...............................................................................................36
Section 2.15 Assignment of the Purchase Agreement................................................................38
Section 2.16 Substitution of Contracts...........................................................................39
ARTICLE III CONDITIONS OF THE ADVANCE...........................................................................40
Section 3.1 Conditions to Closing and Initial Advances...........................................................40
Section 3.2 Conditions Precedent to All Advances.................................................................41
Section 3.3 Delivery of Contract Files...........................................................................42
ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................................................................42
Section 4.1 Representations and Warranties of the Borrower.......................................................42
Section 4.2 Representations and Warranties of Borrower Relating to the Agreement and the Contracts...............49
Section 4.3 Representations and Warranties of the Servicer.......................................................50
Section 4.4 Representations and Warranties of the Backup Servicer and Collateral Custodian.......................52
</TABLE>
i
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ARTICLE V GENERAL COVENANTS.....................................................................................53
Section 5.1 Affirmative Covenants of the Borrower................................................................53
Section 5.2 Negative Covenants of the Borrower...................................................................56
Section 5.3 Covenants of the Borrower Relating to the Hedging of Contracts.......................................58
Section 5.4 Affirmative Covenants of the Servicer................................................................59
Section 5.5 Negative Covenants of the Servicer...................................................................60
Section 5.6 Affirmative Covenants of the Backup Servicer.........................................................61
Section 5.7 Negative Covenants of the Backup Servicer............................................................62
Section 5.8 Affirmative Covenants of the Collateral Custodian....................................................62
Section 5.9 Negative Covenants of the Collateral Custodian.......................................................63
Section 5.10 Release of Lien on Equipment........................................................................63
Section 5.11 Release of Ineligible Contracts.....................................................................63
Section 5.12 Retransfer of Assets................................................................................64
ARTICLE VI ADMINISTRATION AND SERVICING OF CONTRACTS............................................................65
Section 6.1 Designation of the Servicer..........................................................................65
Section 6.2 Duties of the Servicer...............................................................................65
Section 6.3 Authorization of the Servicer........................................................................67
Section 6.4 Collection of Payments...............................................................................67
Section 6.5 Servicer Advances....................................................................................69
Section 6.6 Realization Upon Defaulted Contract..................................................................69
Section 6.7 Maintenance of Insurance Policies....................................................................70
Section 6.8 Servicing Compensation...............................................................................71
Section 6.9 Payment of Certain Expenses by Servicer..............................................................71
Section 6.10 Reports.............................................................................................71
Section 6.11 Annual Statement as to Compliance...................................................................71
Section 6.12 Annual Independent Public Accountant's Servicing Reports............................................72
Section 6.13 Limitation on Liability of the Servicer and Others..................................................72
Section 6.14 The Servicer Not to Resign..........................................................................72
Section 6.15 Servicer Termination Events.........................................................................73
Section 6.16 Appointment of Successor Servicer...................................................................75
ARTICLE VII THE BACKUP SERVICER.................................................................................76
Section 7.1 Designation of the Backup Servicer...................................................................76
Section 7.2 Duties of the Backup Servicer........................................................................76
Section 7.3 Merger or Consolidation..............................................................................77
Section 7.4 Backup Servicing Compensation........................................................................78
Section 7.5 Backup Servicer Removal..............................................................................78
Section 7.6 Limitation on Liability..............................................................................78
Section 7.7 The Backup Servicer Not to Resign....................................................................79
</TABLE>
ii
<PAGE>
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ARTICLE VIII THE COLLATERAL CUSTODIAN...........................................................................79
Section 8.1 Designation of Collateral Custodian..................................................................79
Section 8.2 Duties of Collateral Custodian.......................................................................79
Section 8.3 Merger or Consolidation..............................................................................81
Section 8.4 Collateral Custodian Compensation....................................................................81
Section 8.5 Collateral Custodian Removal.........................................................................82
Section 8.6 Limitation on Liability..............................................................................82
Section 8.7 The Collateral Custodian Not to Resign...............................................................83
Section 8.8 Release of Documents.................................................................................84
Section 8.9 Return of Contract Files.............................................................................84
Section 8.10 Access to Certain Documentation and Information Regarding the Contracts.............................85
ARTICLE IX TERMINATION EVENTS AND REMEDIES......................................................................85
Section 9.1 Termination Events...................................................................................85
Section 9.2 Remedies.............................................................................................87
ARTICLE X INDEMNIFICATION.......................................................................................88
Section 10.1 Indemnities by the Borrower.........................................................................88
Section 10.2 Indemnities by the Servicer.........................................................................91
Section 10.3 Indemnities by the Collateral Custodian.............................................................91
Section 10.4 After-Tax Basis.....................................................................................92
ARTICLE XI THE ADMINISTRATIVE AGENT AND THE MANAGING AGENTS.....................................................92
Section 11.1 Authorization and Action............................................................................92
Section 11.2 Delegation of Duties................................................................................93
Section 11.3 Exculpatory Provisions..............................................................................93
Section 11.4 Reliance............................................................................................94
Section 11.5 Non-Reliance on Administrative Agent, Managing Agents and Other Lenders.............................95
Section 11.6 Reimbursement and Indemnification...................................................................95
Section 11.7 Administrative Agent and Managing Agents in their Individual Capacities.............................95
Section 11.8 Successor Administrative Agent or Managing Agent....................................................96
ARTICLE XII ASSIGNMENTS; PARTICIPATIONS.........................................................................96
Section 12.1 Assignments and Participations......................................................................96
ARTICLE XIII MISCELLANEOUS.....................................................................................100
Section 13.1 Amendments and Waivers.............................................................................100
Section 13.2 Notices, Etc.......................................................................................101
Section 13.3 Lender Percentage Share of Payments................................................................101
Section 13.4 No Waiver, Rights and Remedies.....................................................................101
</TABLE>
iii
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Section 13.5 Binding Effect; Benefit of Agreement...............................................................101
Section 13.6 Term of this Agreement.............................................................................102
Section 13.7 Governing Law; Consent to Jurisdiction; Waiver of Objection to Venue...............................102
Section 13.8 Waiver of Jury Trial...............................................................................102
Section 13.9 Costs, Expenses and Taxes..........................................................................102
Section 13.10 No Proceedings....................................................................................103
Section 13.11 Recourse Against Certain Parties..................................................................103
Section 13.12 Protection of Ownership Security Interests of the Lenders; Intent of Parties; Security Interest...104
Section 13.13 Confidentiality...................................................................................105
Section 13.14 Execution in Counterparts; Severability; Integration..............................................107
Section 13.15 Waiver of Setoff..................................................................................107
</TABLE>
iv
<PAGE>
EXHIBITS
--------
EXHIBIT A Form of Funding Request
EXHIBIT B Form of Lock-Box Agreement
EXHIBIT C Form of Assignment and Acceptance
EXHIBIT D Form of Monthly Report
EXHIBIT E Form of Servicer's Certificate
EXHIBIT F Form of Hedging Agreement (including Schedule and Confirmation)
EXHIBIT G Form of Officer's Certificate as to Solvency
EXHIBIT H Form of Officer's Closing Certificate
EXHIBIT I Form of Power of Attorney
EXHIBIT J Form of Trust Receipt and Initial Certification
EXHIBIT K Form of Trust Receipt and Final Certification
EXHIBIT L Form of Release of Contract File
EXHIBIT M Form of Lender Note
SCHEDULES
---------
SCHEDULE I Condition Precedent Documents
SCHEDULE II Lock-Box Banks and Lock-Box Accounts
SCHEDULE III Tradenames, Fictitious Names and "Doing Business As" Names
SCHEDULE IV Location of Contract Files
SCHEDULE V Contract List
SCHEDULE VI Forms of Contracts
SCHEDULE VII Eligible Contract Criteria
SCHEDULE VIII Portfolio Concentration Criteria
SCHEDULE IX Credit and Collection Policy
SCHEDULE X Commitment Amount of Each Liquidity Lender
v
<PAGE>
THIS RECEIVABLES FUNDING AGREEMENT (the "Agreement") is made as of July
14, 1999, among:
(1) FIDELITY LEASING SPC IV, INC., Delaware corporation, as the
borrower (the "Borrower");
(2) FIDELITY LEASING, INC., a Pennsylvania Corporation, as the servicer
(the "Servicer") and as the originator (the "Originator");
(3) the financial institutions listed on the signature pages of this
Agreement and any Assignment and Acceptance (as defined below) under the heading
"Liquidity Lenders" (the "Liquidity Lenders");
(4) VARIABLE FUNDING CAPITAL CORPORATION, a Delaware corporation
("VFCC"), as a CP Lender;
(5) FIRST UNION CAPITAL MARKETS CORP., a Virginia corporation ("FCMC"),
as the administrative agent (the "Administrative Agent") and as the VFCC
managing agent (the "VFCC Managing Agent");
(6) HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation
("Harris"), as collateral custodian (the "Collateral Custodian") and backup
servicer (the "Backup Servicer"); and
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
(a) Certain capitalized terms used throughout this Agreement are
defined above or in this Section 1.1.
(b) As used in this Agreement and its schedules, exhibits and other
attachments, unless the context requires a different meaning, the following
terms shall have the following meanings:
Accrual Period: For any Payment Date, the period from and including the 15th day
of each calendar month immediately preceding such Payment Date (or in the case
of the first Accrual Period, from and including the Closing Date) to the 14th
day of the calendar month immediately succeeding such Payment Date.
<PAGE>
ADCB: On any date of determination, the sum of the Discounted Contract Balance
of each Eligible Contract (excluding all Defaulted Contracts, Casualty Loss
Contracts, Early Termination Contracts and Contracts subject to a Warranty
Event) included in the Asset Pool as of the date of such determination.
Addition Date: With respect to any Additional Contracts, the date on which such
Additional Contracts become part of the Asset Pool.
Additional Contracts: All Contracts that become part of the Asset Pool after the
Closing Date.
Additional Cut-Off Date: Each date on and after which Collections on an
Additional Contract are to be transferred to the Asset Pool.
Adjusted Eurodollar Rate: For any Accrual Period, an interest rate per annum
equal to a fraction, expressed as a percentage and rounded upwards (if
necessary), to the nearest 1/100 of 1%, (i) the numerator of which is equal to
the LIBOR Rate for such Accrual Period and (ii) the denominator of which is
equal to 100% minus the Eurodollar Reserve Percentage for such Accrual Period.
Administration Agreement: That certain Amended and Restated Administration
Agreement, dated as of July 1, 1998, executed between VFCC and FCMC.
Administrative Agent: Defined in the preamble of the Agreement.
Advance: As defined in Section 2.1(a).
Advance Rate: 90%.
Advances Outstanding: On any day, the aggregate principal amount of Advances
outstanding on such day.
Affected Party: As defined in Section 2.13(a).
Affiliate: With respect to a Person, means any other Person that, directly or
indirectly, controls, is controlled by or under common control with such Person,
or is a director or officer of such Person. For purposes of this definition,
"control" (including the terms "controlling," "controlled by" and "under common
control with") when used with respect to any specified Person means the
possession, direct or indirect, of the power to vote 5% or more of the voting
securities of such Person or to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
Agent: The Administrative Agent and each Managing Agent.
Agent's Account: With respect to the VFCC Lender Group, special account (account
number ___________) in the name of the VFCC Managing Agent maintained at Bankers
Trust Company and with respect to each other Lender Group, the account specified
as the "Agent's Account" in the related Assignment and Acceptance.
2
<PAGE>
Aggregate Unpaids: At any time, an amount, equal to the sum of all accrued and
unpaid Interest, Advances Outstanding, Breakage Costs, Hedge Breakage Costs and
all other amounts owed by the Borrower hereunder or under any Hedging Agreement
(including, without limitation, payments in respect of the termination of any
such Hedging Agreement) or by the Borrower or any other Person under any fee
letter (including, without limitation, the Fee Letter) delivered in connection
with the transactions contemplated by this Agreement (whether due or accrued).
Alternative Rate: An interest rate per annum equal to the Adjusted Eurodollar
Rate; provided, however, that the Alternative Rate shall be the Base Rate if a
Eurodollar Disruption Event occurs.
Amortization Period: The period beginning on the Termination Date and ending on
the Collection Date.
Applicable Law: For any Person, all existing and future applicable laws, rules,
regulations (including proposed, temporary and final income tax regulations),
statutes, treaties, codes ordinances, permits, certificates, orders and licenses
of and interpretations by any Governmental Authority (including, without
limitation, usury laws, the Federal Truth in Lending Act, and Regulation Z and
Regulation B of the Board of Governors of the Federal Reserve System), and
applicable judgments, decrees, injunctions, writs, orders, or line action of any
Court, arbitrator or other administrative, judicial, or quasi-judicial tribunal
or agency of competent jurisdiction.
Asset: All right, title, and interest (whether now owned or hereafter acquired
or arising, and wherever located) of the Borrower in, to an under any of the
following: (i) the Existing Contracts and Additional Contracts, and all monies
due or to become due in payment under such Existing Contracts and Additional
Contracts on and after the related Cut-Off Date, including but not limited to
all Collections, but excluding any Scheduled Payments due prior to the related
Cut-Off Date and any Excluded Amounts; (ii) all Related Security with respect to
such Contracts; and (iii) all income and Proceeds of the foregoing.
Asset Pool: At any time, all then outstanding Assets.
Assignment and Acceptance: An assignment and acceptance entered into by a Lender
Group and any new Lender Group, each Liquidity Lender of which is an Eligible
Assignee, and accepted by the Administrative Agent, in substantially the form of
Exhibit C hereto.
Available Funds. With respect to any Payment Date, all amounts received in the
Collection Account during Collection Period that ended on the last day of
calendar month immediately preceding the calendar month in which such Payment
Date occurs, together with the Compensating Interest Payment for such Payment
Date.
3
<PAGE>
Average Floating Rate: On any Determination Date, the sum of (w) the Servicer
Fee Rate (x) the Backup Servicer Fee Rate, (y) the Program Fee Rate and (z) the
product of (i) the Interest for the preceding Accrual Period, (ii) one divided
by Average Advances Outstanding for such Determination Date, and (iii) 12.
Average Advances Outstanding: On any Determination Date, the sum of the Advances
Outstanding on each day during the related Collection Period divided by the
number of days for such Collection Period.
Average Aggregate Notional Balance: On any Determination Date, the sum of the
Aggregate Notional Balance on each day during the preceding Collection Period
divided by the number of days for such Collection Period.
Aggregate Notional Balance: On any day, the sum of the notional amounts related
to each Hedge Transaction in effect on such day.
Backup Servicer: Defined in Section 7.1(a).
Backup Servicer Fee Letter: The Backup Servicer Fee Letter, dated as of the date
hereof, among the Servicer, the Agents, and the Backup Servicer, as such letter
may be amended, modified, supplemented, restated or replaced from time to time.
Backup Servicer Fee Rate: The rate per annum set forth in the Backup Servicer
Fee Letter as the "Backup Servicer Fee Rate."
Backup Servicer Termination Notice: Defined in Section 7.5.
Backup Servicing Fee: Defined in Section 7.4.
Bankruptcy Code: The United States Bankruptcy Reform Act of 1978 (11 U.S.C.
ss. 101, et seq.), as amended from time to time.
Base Rate: On any date, a fluctuating interest rate per annum equal to the
higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 1.0%.
Benefit Plan: Any employee benefit plan as defined in Section 3(3) of ERISA in
respect of which the Borrower or any ERISA Affiliate of the Borrower is, or at
any time during the immediately preceding six years was, an "employer" as
defined in Section 3(5) of ERISA.
Blended Discount Rate: For any Determination Date, a rate per annum equal to the
weighted average (calculated based on the applicable Outstanding Balances) of
the Hedged Discount Rates as of such Determination Date.
B-Note: The promissory note, dated as of July 14, 1999, made by Fidelity Leasing
SPC IV, Inc. and payable to the order of First Union National Bank.
4
<PAGE>
B-Note Agreement: The Secured Subordinated Loan Agreement, dated as of July 14,
1999 among the Borrower, the Servicer and First Union National Bank.
B-Note Interest: "Interest" as defined in the B-Note Agreement.
B-Note Lender: The Lender under the B-Note Agreement.
Borrower: Defined in the preamble of this Agreement.
Borrower's Account: Such account or accounts as the Borrower may notify in
writing each Managing Agent from time to time.
Borrowing Base: On any date of determination, an amount equal to the product of
(a) the Advance Rate and (b) ADCB on such date on such date of determination.
Breakage Costs: Any amount or amounts as shall compensate a Lender for any loss,
cost or expense incurred by such Lender (as determined by such Lender (in such
Person's sole discretion)) as a result of a prepayment by the Borrower of
Interest or Advances Outstanding.
Business Day: Any day other than a Saturday or a Sunday on which (a) banks are
not required or authorized to be closed in New York City, Chicago, Illinois or
Charlotte, North Carolina, and (b) if the term "Business Day" is used in
connection with the determination of the LIBOR Rate, dealings in United States
dollar deposits are carried on in the London interbank market.
Casualty Loss: With respect to any item of Equipment, the loss, theft, damage
beyond repair or governmental condemnation or seizure of such item of Equipment.
Casualty Loss Contract: Any Contract where the related Equipment is or becomes
subject to a Casualty Loss.
Change-in-Control: Any of the following:
(a) The failure of Fidelity Leasing, Inc. to own (directly or through
wholly-owned subsidiaries), free and clear of all liens, at least 100% of the
outstanding voting stock of the Originator;
(b) the creation or imposition of any Lien on any shares of capital
stock of the Borrower; or
(c) the failure by Originator to own all of the issued and outstanding
capital stock of the Borrower.
Closing Date: July 16, 1999.
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Code: The Internal Revenue Code of 1986, as amended from time to time.
Collateral: As defined in Section 2.1(b).
Collateral Custodian: Defined in Section 8.1(a).
Collateral Custodian Fee: Defined in Section 8.4.
Collateral Custodian Fee Letter: The Collateral Custodian Fee Letter, dated as
of the date hereof, among the Originator, the Administrative Agent, the
Collateral Custodian, as such letter may be amended, modified, supplemented,
restated or replaced from time to time.
Collateral Custodian Fee Rate: The rate per annum set forth in the Collateral
Custodian Fee Letter as the "Collateral Custodian Fee Rate."
Collateral Custodian Termination Notice: Defined in Section 8.5.
Collection Account: Defined in Section 6.4(f).
Collection Date: The date following the Commitment Termination Date or
Termination Date on which the Aggregate Unpaids have been reduced to zero and
indefeasibly paid in full.
Collection Period: Each calendar month, except in the case of the first
Collection Period, which shall begin on the Closing Date and on last day of the
calendar month in which the Closing Date occurs.
Collections: (a) All cash collections and other cash proceeds of any Asset,
including, without limitation, Scheduled Payments, Prepayments, Insurance
Proceeds, Residual Proceeds and Recoveries but excluding any Excluded Amounts,
(b) any other funds received by the Borrower or the Servicer with respect to any
Contract or Related Security, and (c) all payments received pursuant to any
Hedging Agreement or Hedge Transaction.
Commercial Paper Notes: On any day, any short-term promissory notes issued by a
CP Lender with respect to financing an Advance hereunder.
Commitment: For each Liquidity Lender, the commitment of such Liquidity Lender
to fund Advances in an amount not to exceed the amount set forth opposite such
Liquidity Lender's name on Schedule X to this Agreement or as set forth in the
related Assignment and Acceptance, as such amount may be modified in accordance
with the terms hereof.
Commitment Termination Date: The earlier to occur of (a) July 15, 2000, or such
later date to which the Commitment Termination Date may be extended in the sole
discretion of each member of the related Lender Group in accordance with the
terms of Section 2.1(c) and (b) the occurrence of any Termination Event.
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Committed Facilities: As of any date, an irrevocable line of credit or other
similar credit facility maintained with a commercial lending institution,
commercial paper conduit or other similar institution upon which the Seller may
draw funds.
Compensating Interest Payment: For any Payment Date, an amount equal to the
product of (x) the difference of (i) the Average Advances Outstanding for the
related Determination Date and (ii) the Average Aggregate Notional Balance for
the related Determination Date, and (y) the difference of (i) the Average
Floating Rate for the related Determination Date and (ii) the Blended Discount
Rate for the related Determination Date, and (z) 1/12; provided, that if such
amount is a negative number, then the Compensating Interest Payment shall be
zero for such Payment Date.
Consolidated: With respect to any Person, the method of consolidation of the
financial statements of such Person and of particular items in such financial
statements in accordance with GAAP.
Contract: Any lease of Equipment in which the Borrower acquires any right, title
or interest from the Originator pursuant to the Purchase Agreement.
Contract Files: With respect to each Contract, the fully executed original
counterpart (for UCC purposes) of the Contract, an appropriate form of
acknowledgment evidencing delivery and acceptance of the Equipment related to
such Contract, executed by the Obligor or evidencing verbal confirmation of
delivery and acceptance by the Obligor, the original certificate of title or
other title document with respect to the related Equipment, each guaranty, if
any, the UCC filing and any assignments thereof, documents evidencing or related
to any Insurance Policy, as appropriate, copies of any documentation relating to
the purchase of the Equipment and otherwise such documents, if any, that the
Collateral Custodian holds, evidencing ownership of such Equipment (if
applicable) and all other documents originally delivered to the Borrower or held
by the Collateral Custodian with respect to any Contract.
Contract List: The Contract List provided by the Borrower to each Agent and the
Collateral Custodian, in the form of Schedule V hereto.
Contractual Obligation: With respect to any Person, means any provision of any
securities issued by such Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which such
Person is a party or by which it or any of its property is bound or is subject.
CP Lender: Collectively, VFCC and any other Person that is designated as a "CP
Lender" pursuant to an Assignment and Acceptance.
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CP Rate: With respect to a Lending Group, for any day during any Accrual Period,
the per annum rate equivalent to the weighted average of the per annum rates
paid or payable by the related CP Lender from time to time as interest on or
otherwise (by means of interest rate hedges or otherwise taking into
consideration any incremental carrying costs associated with short-term
promissory notes issued by such CP Lender maturing on dates other than those
certain dates on which such CP Lender is to receive funds) in respect of the
promissory notes issued by such CP Lender that are allocated, in whole or in
part, by the related Managing Agent (on behalf of such CP Lender) to fund or
maintain the Advances Outstanding during such period, as determined by the
related Managing Agent (on behalf of such CP Lender) and reported to the
Borrower and the Servicer, which rates shall reflect and give effect to (i) the
commissions of placement agents and dealers in respect of such promissory notes,
to the extent such commissions are allocated, in whole or in part, to such
promissory notes by such Managing Agent (on behalf of the related CP Lender) and
(ii) other borrowings by such CP Lender, including, without limitation,
borrowings to fund small or odd dollar amounts that are not easily accommodated
in the commercial paper market; provided, however, that if any component of such
rate is a discount rate, in calculating the CP Rate, the related Managing Agent
shall for such component use the rate resulting from converting such discount
rate to an interest bearing equivalent rate per annum.
Credit and Collection Policy: The written credit and collection policies of the
Originator and the Servicer in effect on the date hereof and set forth on
Schedule IX, as amended or supplemented from time to time in accordance with
Section 5.1(h) and Section 5.4(f).
Cut-Off Date: With respect to each Existing Contract, the date on and after
which Collections on such Existing Contract are to be transferred to the Asset
Pool, and with respect to each Additional Contract, the related Additional
Cut-Off Date.
Default Ratio: As of any Determination Date, the percentage equivalent of a
fraction, the numerator of which is equal to four (4) times the sum of the
Discounted Contract Balances of Contracts that became Defaulted Contracts (net
of Recoveries related thereto) during the Collection Period related to such
Determination Date and the immediately preceding two (2) Collection Periods and
the denominator of which is equal (i) to the sum of the ADCBs as of the
Determination Date related to such three (3) Collection Periods divided by 3
(ii) provided, however, the Default Ratio for the first Collection Period
following the Closing Date shall be calculated without reference to the two (2)
Collection Periods preceding such first Collection Period and the Default Ratio
for the second Collection Period following the Closing Date shall be calculated
based solely upon the first two (2) Collection Periods.
Defaulted Contract: (i) With respect to any Contract with respect to which the
related Equipment had an original acquisition cost of $150,000 or more (a) as to
which the Servicer has determined in accordance with its Credit and Collection
Policy that such Contract is not collectible or (b) as to which all or any
portion of any one or more Scheduled Payments remains unpaid for at least 180
days from the original due date for such payment, or (ii) with respect to any
Contract with respect to which the related Equipment had an original acquisition
cost of less than $150,000, (a) as to which the Servicer has determined in
accordance with its Credit and Collection Policy that such Contract is not
collectible or (b) as to which all or any portion of any one or more Scheduled
Payments remains unpaid for at least 120 days from the original due date for
such payment.
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Delinquency Ratio: As of any Determination Date, the percentage equivalent of a
fraction, the numerator of which is the average of the Discounted Contract
Balance of Delinquent Contracts as of such Determination Date and each of the
immediately preceding two (2) Determination Dates and the denominator of which
is equal to the sum of the ADCBs as of each such three (3) Determination Dates
provided, however, the Delinquency Ratio for the first Collection Period
following the Closing Date shall be calculated without reference to the two (2)
Collection Periods preceding such first Collection Period and the Delinquency
Ratio for the second Collection Period following the Closing Date shall be
calculated based solely upon the first two (2) Collection Periods.
Delinquent: A Contract in the Asset Pool (that is not a Defaulted Contract) as
to which, all or any portion of any one or more Scheduled Payments remains
unpaid for at least 61 days from the original due date for such payment.
Derivatives: Any exchange-traded or over-the-counter (i) forward, future,
option, swap, cap, collar, floor or foreign exchange contract or any combination
thereof, whether for physical delivery or cash settlement, relating to any
interest rate, interest rate index, currency, currency exchange rate, currency
exchange rate index, debt instrument, debt price, debt index, depository
instrument, depository price, depository index, equity instrument, equity price,
equity index, commodity, commodity price or commodity index, (ii) any similar
transaction, contract, instrument, undertaking or security, or (iii) any
transaction, contract, instrument, undertaking or security containing any of the
foregoing.
Determination Date: The last day of each Collection Period.
Discounted Contract Balance: With respect to any Contract, (i) as of the related
Cut-Off Date, the present value of all remaining Scheduled Payments becoming due
under such Contract after such Cut-Off Date discounted monthly at the related
Hedged Discount Rate and (ii) as of any other date of determination, the present
value of all remaining Scheduled Payments becoming due under such Contract after
such date of determination discounted monthly at the applicable Blended Discount
Rate.
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 the 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.
Early Termination Contract: Any Contract that the Servicer has allowed the
related Obligor to terminate prior to the date on which the final Scheduled
Payment is due thereunder.
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EBIT: For any accounting period, determined on a Consolidated basis, net income
(or net loss) plus any amount which, in the determination of net income (or net
loss) for such period, has been deducted for (a) interest expense and (b) income
tax expense, in each case determined in accordance with GAAP consistent with
those applied in the preparation of the financial statements referred to in
Section 6.10(c).
Eligible Assignee: (a) A Person whose short-term rating is at least A-1 from S&P
and P-1 from Moody's, or whose obligations under this Agreement are guaranteed
by a Person whose short-term rating is at least A-1 from S&P and P-1 from
Moody's and is otherwise acceptable to the Managing Agent for the related Lender
Group, or (b) such other Person satisfactory to the relevant CP Lender, Managing
Agent and each of the rating agencies rating the Commercial Paper Notes and
approved in writing by the Borrower, such approval not to be unreasonably
withheld.
Eligible Contract: On any date of determination, each Contract (i) for which the
Contract Files with respect thereto are in possession of the Collateral
Custodian and if such date of determination is on or before a Funding Date, each
Agent has received a trust receipt in the form of Exhibit J hereto in respect of
such Contracts and Contract Files or, if such date of determination is after a
Funding Date, each Agent has received a trust receipt in the form of Exhibit K
hereto in respect of such Contracts and Contract Files, (ii) that is a Contract
as to which the Lender has received a Funding Request and which is identified on
the Contract List delivered by the Borrower to the Collateral Custodian as part
of such Funding Request, and (iii) that satisfies each of the eligibility
requirements set forth on Schedule VII hereto.
Eligible Obligor: On any date of determination, any Obligor that (i) is a United
States resident with a billing address within the United States, (ii) is not the
subject of an Insolvency Proceeding, (iii) is not an individual who enters into
the Contract primarily for personal, family or household purposes, (iv) is not a
Governmental Authority, (v) has not acquired or leased the related Equipment for
resale, lease, re-lease or sublease is not a vendor or merchant with respect to
the related Equipment, and is the end user of the related Equipment.
Equipment: The tangible assets financed or leased by an Obligor pursuant to a
Contract and any security interest in such assets, such tangible assets to be
consistent with the Credit and Collection Policy.
ERISA: The United States Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
ERISA Affiliate: (a) Any corporation that is a member of the same controlled
group of corporations (within the meaning of Section 414(b) of the Code) as the
Borrower, (b) a trade or business (whether or not incorporated) under common
control (within the meaning of Section 414(c) of the Code) with the Borrower, or
(c) a member of the same affiliated service group (within the meaning of Section
414(m) of the Code) as the Borrower, any corporation described in clause (a)
above or any trade or business described in clause (b) above.
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Eurocurrency Liabilities: Defined in Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
Eurodollar Disruption Event: The occurrence of any of the following: (a) a
determination by a Lender that it would be contrary to law or to the directive
of any central bank or other governmental authority (whether or not having the
force of law) to obtain United States dollars in the London interbank market to
make, fund or maintain the Loan, (b) the failure of one or more of the Reference
Banks to furnish timely information for purposes of determining the Adjusted
Eurodollar Rate, (c) a determination by a Lender that the rate at which deposits
of United States dollars are being offered to such Lender in the London
interbank market does not accurately reflect the cost to such Lender of making,
funding or maintaining the Loan or (d) the inability of a Lender to obtain
United States dollars in the London interbank market to make, fund or maintain
the Loan.
Eurodollar Reserve Percentage: Of any Reference Bank for any period, for any
Capital means the percentage applicable during such period (or, if more than one
such percentage shall be so applicable, the daily average of such percentages
for those days in such period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for such Reference Bank with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities having
a term of one month.
Excluded Amounts: Any amount (a) received by the Servicer on or with respect to
any Asset in the Asset Pool and the related Equipment, which amount is
attributable to the payment of any tax, fee or other charge imposed by any
Governmental Authority on such Asset, the related Equipment or any amount
payable in respect thereof, (b) representing a reimbursement of insurance
premiums, (c) with respect to any Contract retransferred or substituted for upon
the occurrence of a Warranty Event or that is otherwise replaced by a Substitute
Contract, to the extent such amount is attributable to a time after the
effective date of such replacement and (d) received by the Servicer and
representing payment for services not financed by the related Contract, late
fees, insufficient funds changes (less any charges incurred by the Borrower in
respect thereof), inspection charges, collection fees (unless constituting
Residual Proceeds), delinquency fees, repossession fees (unless constituting
Liquidation Expenses), UCC fees, extension fees, documentation fees, maintenance
fees or charges or insurance fees.
Existing Contracts: Each Contract purchased by the Borrower under the Purchase
Agreement and owned by the Borrower on the Closing Date.
Facility: The financing facility established in favor of the Borrower pursuant
to this Agreement and the other Transaction Documents.
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Facility Amount: At any time, the lesser of (i) $300,000,000 and (ii) the
aggregate of the Maximum Lender Availabilities on such date of determination;
provided, however, on or after the Termination Date the "Facility Amount" shall
mean the Advances Outstanding.
Facility Availability: On any day, an amount equal to the excess, if any, of the
Borrowing Base over the sum of (i) the Advances Outstanding on such day and (ii)
the principal amount of Advances requested to be made on such day.
Federal Funds Rate: For any period, a fluctuating interest rate per annum equal
for each day during such period to the weighted average of the federal funds
rates as quoted by First Union and confirmed in Federal Reserve Board
Statistical Release H.15(519) or any successor or substitute publication
selected by First Union (or, if such day is not a Business Day, for the next
preceding Business Day), or, if, for any reason, such rate is not available on
any day, the rate determined, in the sole opinion of First Union, to be the rate
at which federal funds are being offered for sale in the national federal funds
market at 9:00 a.m. Charlotte, North Carolina time.
Fee Letter: The Fee Letter, dated as of the date hereof, among the Borrower, the
Servicer and the Agents, as such letter may be amended, modified, supplemented,
restated or replaced from time to time.
Fidelity: Fidelity Leasing Inc., in its individual capacity.
First Union: First Union National Bank, in its individual capacity.
Funding Date: Any day on which an Advance is made.
Funding Lender Group: As defined in Section 2.1(a).
Funding Request: A written notice, substantially in the form of Exhibit A
hereto, delivered pursuant to Section 2.2.
GAAP: Generally accepted accounting principles as in effect from time to time in
the United States.
Governmental Authority: Any nation or government, any state or other political
subdivision thereof, any central bank (or similar monetary or regulatory
authority) thereof, any body or entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any court or arbitrator having jurisdiction over such Person.
Grant: To grant, bargain, sell, warrant, alienate, remise, convey, assign,
transfer, mortgage, pledge, create and grant a security interest in and right of
set-off against, deposit, set over and confirm. A Grant of the Contracts or of
any other instrument shall include all rights, powers and options (but none of
the obligations) of the granting party thereunder, including without limitation
the immediate and continuing right to claim, collect, receive and receipt for
payments in respect of the Contracts, or any other payment due thereunder, to
give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring proceedings in the name
of the granting party or otherwise, and generally to do and receive anything
which the granting party is or may be entitled to do or receive thereunder or
with respect thereto.
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H.15: Federal Reserve Statistical Release H.15.
Hedge Breakage Costs: For any Hedge Transaction, any amount payable by the
Borrower for the early termination of that Hedge Transaction or any portion
thereof.
Hedge Collateral: Defined in Section 5.3(b).
Hedge Counterparty: Any entity that (a) on the date of entering into any Hedge
Transaction (i) is an interest rate swap dealer that is either a Lender or an
Affiliate of a Lender, or has been approved in writing by the Managing Agent of
the Lender Group of which such Lender or Affiliate of such Lender is a member
(which approval shall not be unreasonably withheld), and (ii) has a long-term
unsecured debt rating of not less than "A" by S&P and not less than "A-2" by
Moody's ("Long-term Rating Requirement") and a short-term unsecured debt rating
of not less than "A-1" by S&P and not less than "P-1" by Moody's ("Short-term
Rating Requirement"), and (b) in a Hedging Agreement (i) consents to the
assignment of the Borrower's rights under the Hedging Agreement to such Managing
Agent pursuant to Section 5.3(b) and (ii) agrees that in the event that Moody's
or S&P reduces its long-term unsecured debt rating below the Long-term Rating
Requirement, or reduces its short-term unsecured debt rating below the
Short-term Rating Requirement, it shall transfer its rights and obligations
under each Hedging Transaction to another entity that meets the requirements of
clause (a) and (b) hereof and has entered into a Hedging Agreement with the
Borrower on or prior to the date of such transfer.
Hedged Discount Rate: For any Contract, the sum, computed as of the Cut-Off Date
for such Contract, of: (i) the interest rate payable to the Hedge Counterparty
under the Hedge Transaction related to such Contract, (ii) the Program Fee Rate,
(iii) the Servicer Fee Rate, (iv) the Backup Servicer Fee Rate, and (v) if the
interest rate associated with the Hedge Agreement for such Contract is based on
a commercial paper rate, 0.12%.
Hedge Notional Amount: For any Advance, the aggregate notional amount in effect
on any day under all Hedge Transactions entered into pursuant to Section 5.3(a)
for that Advance.
Hedge Percentage: On any day 95%.
Hedge Transaction: Each interest rate swap transaction between the Borrower and
a Hedge Counterparty that is entered into pursuant to Section 5.3(a) and is
governed by a Hedging Agreement.
Hedging Agreement: Each agreement between the Borrower and a Hedge Counterparty
that governs one or more Hedge Transactions entered into pursuant to Section
5.3(a), which agreement shall consist of a "Master Agreement" in a form
published by the International Swaps and Derivatives Association, Inc., together
with a "Schedule" thereto substantially in the form of Exhibit F hereto or such
other form as the relevant Managing Agent shall approve in writing, and each
"Confirmation" thereunder confirming the specific terms of each such Hedge
Transaction.
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Increased Costs: Any amounts required to be paid by the Borrower to an Affected
Party pursuant to Section 2.13.
Indebtedness: With respect to any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of property or
services (other than current liabilities incurred in the ordinary course of
business and payable in accordance with customary trade practices) or that is
evidenced by a note, bond, debenture or similar instrument, (b) all obligations
of such Person under leases that shall have been or should be, in accordance
with generally accepted accounting principles, recorded as capital leases, (c)
all obligations of such Person in respect of acceptances issued or created for
the account of such Person, (d) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof, (e) all indebtedness,
obligations or liabilities of that Person in respect of Derivatives, and (f)
obligations under direct or indirect guaranties in respect of obligations
(contingent or otherwise) to purchase or otherwise acquire, or to otherwise
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kind referred to in clauses (a) through (e) above.
Indemnified Amounts: Defined in Section 10.1.
Indemnified Parties: Defined in Section 10.1.
Ineligible Contract: Defined in Section 5.11.
ISDA Definitions: The 1991 ISDA Definitions, and any supplements thereto
including the 1998 Supplement to the 1991 ISDA Definitions, prepared by the
International Swaps and Derivatives Association, Inc.
Insolvency Event: With respect to a specified Person, (a) the filing of a decree
or order for relief by a court having jurisdiction in the premises in respect of
such Person or any substantial part of its property in an involuntary case under
any applicable Insolvency Law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person 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 any such
law, or the consent by such Person to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or the
making by such Person of any general assignment for the benefit of creditors, or
the failure by such Person generally to pay its debts as such debts become due,
or the taking of action by such Person in furtherance of any of the foregoing.
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Insolvency Laws: The Bankruptcy Code and all other applicable 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 Proceeding: Any case, action or proceeding before any court or other
Governmental Authority relating to any Insolvency Event.
Instrument: Any "instrument" (as defined in Article 9 of the UCC), other than an
instrument that constitutes part of chattel paper.
Insurance Policy: With respect to any Contract, an insurance policy covering
physical damage to or loss of the related Equipment.
Insurance Proceeds: Any amounts payable or any payments made, to the Servicer
under any Insurance Policy.
Interest: For any Accrual Period and any Advance, the sum of the products (for
each day during such Accrual Period) of:
IR x P x 1
---
360
where:
IR = the Interest Rate applicable to such Advance; and
P = the principal amount of such Advance on such day;
provided, however, that (i) no provision of this Agreement shall require the
payment or permit the collection of Interest in excess of the maximum permitted
by applicable law, and (ii) Interest shall not be considered paid by any
distribution if at any time such distribution is rescinded or must otherwise be
returned for any reason.
Interest Expense: For any accounting period, the aggregate amount, determined in
accordance with GAAP, of interest and commitment, agency and other fees accrued,
paid or required to be paid during such period by Fidelity and its Subsidiaries
in respect of all Indebtedness (except to the extent such Indebtedness
represents capitalized interest, under the RLI Agreements), plus any payments
made in respect of interest rate hedging obligations.
Interest Rate: For any Accrual Period and for each Advance made by a Lender
(other than a Hedge Counterparty) for each day during such Accrual Period:
(a) to the extent the relevant Lender funded the applicable Advance
through the issuance of commercial paper, a rate equal to the CP Rate, or
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(b) to the extent the relevant Lender did not fund the applicable
Advance through the issuance of commercial paper, a rate equal to the
Alternative Rate.
Investment: With respect to any Person, any direct or indirect loan, advance or
investment by such Person in any other Person, whether by means of share
purchase, capital contribution, loan or otherwise, excluding the acquisition of
Assets pursuant to the Purchase Agreement and excluding commission, travel and
similar advances to officers, employees and directors made in the ordinary
course of business.
Issuer: Each CP Lender and any other Lender (other than a Hedge Counterparty),
whose principal business consists of issuing commercial paper or other
securities to fund its acquisition or maintenance of receivables, accounts,
instruments, chattel paper, general intangibles and other similar Assets.
Lender Note: As defined in Section 2.5.
Lenders: (i)Each CP Lender, (ii) each Liquidity Lender and (iii) for purposes of
security only each Hedge Counterparty that is either a Lender or an Affiliate of
a Lender if that Affiliate executes a counterpart of this Agreement agreeing to
be bound by the terms of this Agreement applicable to a Lender.
Lender Group: The VFCC Lender Group and each group of Managing Agent, CP Lender
and related Liquidity Lenders identified from time to time in an Assignment and
Acceptance as a "Lender Group," as the case may be.
Lender Group Availability: For any Lender Group, other than the VFCC Lender
Group, during the Revolving Period, the positive excess, if any, of such Lender
Group's Maximum Lender Availability over the portion of Advances Outstanding
with respect to such Lender Group and for the VFCC Lender Group, during the
Revolving Period, the positive excess, if any, of the VFCC Lender Availability
over the sum of the portion of Advances Outstanding made by the VFCC Lender
Group and the aggregate "Capital" of all "Asset Interests" (as such terms are
defined under the SPC I Agreement) sold pursuant to the SPC I Agreement and
outstanding on such day.
Lender Group Percentage: With respect to any Lender Group, a fraction the
numerator of which is the Advances Outstanding with respect to such Lender Group
and the denominator of which is the total Advances Outstanding.
Lender Group Share: With respect to any Lender Group, a fraction the numerator
of which is the Maximum Lender Availability for such Lender Group, and the
denominator of which is the Facility Amount.
Lender's Percentage Share: With respect to any Lender, a fraction the numerator
of which is the Advances Outstanding with respect to such Lender and the
denominator of which is the Advances Outstanding with respect to the Lender
Group of which such Lender is a member.
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Lender's Share: With respect to any Liquidity Lender, a fraction the numerator
of which is such Liquidity Lender's Commitment and the denominator of which is
the aggregate of the Commitments of all Liquidity Lenders with respect to the
Lender Group of which such Liquidity Lender is a member.
LIBOR Rate: For any Advance Outstanding and any day during any Accrual Period,
an interest rate per annum equal to:
(i) the posted rate for 30-day deposits in United States
Dollars appearing on Telerate page 3750 as of 11:00 a.m. (London time)
on the Business Day which is the second Business Day immediately
preceding the first day of the applicable Accrual Period; or
(ii) if no such rate appears on Telerate page 3750 at such
time and day, then the LIBOR Rate shall be determined by each Managing
Agent for its related Lender Group (each such determination, absent
manifest error, to be conclusive and binding on all parties hereto and
their assignees).
Lien: Any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind.
Liquidation Expenses: With respect to any Contract, the aggregate amount of all
out-of-pocket expenses reasonably incurred by the Servicer (including amounts
paid to any subservicer) and any reasonably allocated costs of internal counsel
(if any), in each case in accordance with the Servicer's customary procedures in
connection with the repossession, refurbishing and disposition of any related
Equipment upon or after the expiration or earlier termination of such Contract
and other out-of-pocket costs related to the liquidation of any such Equipment,
including the attempted collection of any amount owing pursuant to such Contract
if it is a Defaulted Contract.
Liquidity Lenders: Defined in the preamble of the Agreement.
Loan: The loan by any Lender to the Borrower pursuant to the provision of
Article II hereof.
Lock-Box: The post office box to which Collections are remitted for retrieval by
a Lock-Box Bank and deposited by such Lock-Box Bank into a Lock-Box Account the
details of which are contained in Schedule II.
Lock-Box Account: The account maintained for the purpose of receiving
Collections at a bank or other financial institution that has executed a
Lock-Box Agreement for the purpose of receiving Collections the details of which
are contained in Schedule II.
Lock-Box Agreement: A letter agreement, in substantially the form of Exhibit B,
between the Servicer and a Lock-Box Bank.
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Lock-Box Bank: Any of the banks or other financial institutions holding one or
more Lock-Box Accounts.
Managing Agent: The VFCC Managing Agent and such other managing agent identified
in an Assignment and Acceptance.
Material Adverse Effect: With respect to any event or circumstance, means a
material adverse effect on (a) the business, financial condition, operations,
performance or properties (in the aggregate) of the Originator or the Borrower,
(b) the validity, enforceability or collectibility of this Agreement or any
other Transaction Document or the validity, enforceability or collectibility of
the Contracts, (c) the rights and remedies of the Agents and the Lenders, (d)
the ability of the Borrower or the Servicer to perform its obligations under
this Agreement or any Transaction Document, or (e) the status, existence,
perfection, priority or enforceability of any Agent's or Lenders' interest in
the Assets.
Maximum Lender Availability: With respect to the VFCC Lender Group, the VFCC
Lender Availability and, with respect to any Lender Group that becomes a Lender
Group upon the execution and delivery of an Assignment and Acceptance, the
amount set forth therein as such Lender Group's Maximum Lender Availability
pursuant to any Assignment and Acceptance accepted by the Administrative Agent,
each as modified from time to time.
Minimum Overcollateralization: On any day, an amount equal to the product of (a)
100% minus the Advance Rate and (b) the ADCB on such day.
Monthly Report: Defined in Section 6.10(a).
Moody's: Moody's Investors Service, Inc., and any successor thereto.
Multiemployer Plan: A "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA that is or was at any time during the current year or the immediately
preceding five years contributed to by the Borrower or any ERISA Affiliate on
behalf of its employees.
Non-Funding Lender Group: As defined in Section 2.1(a).
Obligor: With respect to any Contract, the Person or Persons obligated to make
payments pursuant to a Contract, including any guarantor thereof.
Officer's Certificate: A certificate signed by any officer of the Borrower or
the Servicer, as the case may be, and delivered to the Collateral Custodian.
Opinion of Counsel: A written opinion of counsel, which opinion and counsel are
reasonably acceptable to each Agent.
Originator: Fidelity and certain subsidiaries of Fidelity named in the Purchase
Agreement.
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Outstanding Balance: Of any Contract at any time, the sum of all remaining
Scheduled Payments related thereto.
Overcollateralization: On any day, the excess, if any, of the ADCB on such day
over the Advances Outstanding on such day.
Payment Date: The 20th day of each calendar month or, if such day is not a
Business Day, the next succeeding Business Day.
Permitted Investments: Any one or more of the following types of investments:
(a) marketable obligations of the United States, the full and timely
payment of which are backed by the full faith and credit of the United States of
America and that have a maturity of not more than 270 days from the date of
acquisition;
(b) marketable obligations, the full and timely payment of which are
directly and fully guaranteed by the full faith and credit of the United States
and that have a maturity of not more than 270 days from the date of acquisition;
(c) bankers' acceptances and certificates of deposit and other
interest-bearing obligations (in each case having a maturity of not more than
270 days from the date of acquisition) denominated in dollars and issued by any
bank with capital, surplus and undivided profits aggregating at least
$100,000,000, the short-term obligations of which are rated of least A-1 by S&P
and P-1 by Moody's;
(d) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clauses (a), (b) and (c) above
entered into with any bank of the type described in clause (c) above;
(e) commercial paper rated at least A-1 by S&P and P-1 by Moody's; and
(f) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository institutions or
trust companies incorporated under the laws of the United States of America or
any state thereof (or domestic branches of any foreign bank) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided, however that at the time such investment, or
the commitment to make such investment, is entered into, the short-term debt
rating of such depository institution or trust company shall be at least A-1 by
S&P and P-1 by Moody's.
Permitted Liens: Liens for state, municipal or other local taxes if such taxes
shall not at the time be due and payable and Liens granted pursuant to the
Transaction Documents and/or the B-Note Agreement.
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Person: An individual, partnership, corporation (including a business trust),
limited liability company, joint stock company, trust, unincorporated
association, sole proprietorship, joint venture, government (or any agency or
political subdivision thereof) or other entity.
Portfolio Concentration Criteria: On any day, each of the concentration
limitations as set forth in Schedule VIII, which concentration limitations shall
be measured on the basis of a percentage of ADCB.
Prepaid Contract: Any Contract (other than a Defaulted Contract) that has
terminated or been prepaid in full or in part prior to its scheduled expiration
date, including a termination or prepayment because of a Casualty Loss.
Prepayment Amount: Defined in Section 6.4(b).
Prepayments: Any and all (i) partial or full prepayments on a Contract
(including, with respect to any Contract and any Collection Period, any
Scheduled Payment or portion thereof that is due in a subsequent Collection
Period that the Servicer has received, and expressly permitted the related
Obligor to make, in advance of its scheduled due date, and that will be applied
to such Scheduled Payment on such due date), (ii) cash proceeds realized from
the sale of Equipment under a Prepaid Contract, net of Liquidation Expenses, and
(iii) Recoveries.
Prime Rate: The rate announced by First Union from time to time as its prime
rate in the United States, such rate to change as and when such designated rate
changes. The Prime Rate is not intended to be the lowest rate of interest
charged by First Union in connection with extensions of credit to debtors.
Program Support Agreement: Any agreement entered into by any Program Support
Provider providing for the issuance of one or more letters of credit for the
account of any CP Lender, the issuance of one or more surety bonds for which any
CP Lender is obligated to reimburse the applicable Program Support Provider for
any drawings thereunder, the sale by any CP Lender to any Program Support
Provider of the applicable Certificate (or any interest therein or in any
portions thereof) and/or the making of loans and/or other extensions of credit
to any CP Lender in connection with such CP Lender's securitization program
(whether for liquidity or credit enhancement support), together with any letter
of credit, surety bond or other instrument issued thereunder.
Program Support Provider: Any Person now or hereafter extending credit, or
having a commitment to extend credit to or for the account of, or to make
purchases from, any CP Lender or issuing a letter of credit, surety bond or
other instrument to support any obligations arising under or in connection with
such CP Lender's securitization program.
Proceeds: With respect to any Asset, whatever is receivable or received when
such Asset is sold, liquidated, foreclosed, exchanged, or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes all rights to
payment with respect to any insurance relating to such Asset.
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Program Fee: As defined in the Fee Letter.
Program Fee Rate: On any day, the rate set forth in the Fee Letter as the
"Program Fee Rate."
Purchase Agreement: The Purchase and Sale Agreement, dated as of the date
hereof, between the Originators and the Borrower, as amended, modified,
supplemented or restated from time to time with the prior consent of the
Lenders.
Purchase Agreement Termination Date: As defined in the Purchase Agreement.
Qualified Institution: Defined in Section 6.4(f).
Rating Agency: Each of S&P, Moody's and any other rating agency that has been
requested to issue a rating with respect to the commercial paper notes issued by
the Issuer.
Records: All Contracts and other documents, books, records and other information
(including without limitation, computer programs, tapes, disks, punch cards,
data processing software and related property and rights) maintained with
respect to Assets and the related Obligors that the Borrower has itself
generated, in which the Borrower has acquired an interest pursuant to the
Purchase Agreement or in which the Borrower has otherwise obtained an interest.
Recoveries: With respect to a Defaulted Contract, proceeds from the sale of the
related Equipment, proceeds of any related Insurance Policy and any other
recoveries with respect to such Defaulted Contract, the related Equipment and
other related property, and amounts representing late fees and penalties, net of
Liquidation Expenses and amounts, if any, received that are required under such
Contract to be refunded to the related Obligor.
Reference Bank: Any bank that furnishes information for purposes of determining
the Adjusted Eurodollar Rate.
Register: Defined in Section 12.1(c).
Related Security: With respect to any Contract in the Asset Pool:
(a) all of the Borrower's interest in any Equipment related to such
Contract including all proceeds from any sale or other disposition of such
Equipment;
(b) all Contract Files related to such Contracts, and all right, title
and interest of the Borrower in and to the documents, agreements, and
instruments included in the Contract File, including without limitation, rights
of recovery of the Borrower against the Originator;
(c) all Insurance Policies and all rights of the Borrower in all
Insurance Policies;
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(d) all security interests, liens, guaranties, mortgages or other
encumbrances and property subject thereto from time to time purporting to secure
payment of any Contract, together with all UCC financing statements or similar
filings signed by an Obligor relating thereto;
(e) the Collection Account and all Lock Box Accounts, together with all
cash and investments in each of the foregoing other than amounts earned on
investments therein;
(f) all of the Borrower's right, title and interest in and to any
Hedging Agreement and any payment from time to time due thereunder;
(g) all of the Borrower's right, title and interest in and to the
Purchase Agreement and the assignment to the Administrative Agent of all UCC
financing statements filed by the Borrower against the Originator under or in
connection with the Purchase Agreement; and
(h) the proceeds of each of the foregoing.
Replaced Contract: Defined in Section 2.16(a).
Reporting Date: The date that is three (3) Business Days prior to each Payment
Date.
Required Lenders: On any day, Lenders that have made Advances in an aggregate
amount in excess of 75% of the Advances Outstanding.
Required Reduction Amount: On any day, an amount equal to the positive excess,
if any, of (a) the Advances Outstanding on such day over (b) the lesser of (i)
the Borrowing Base on such day and (ii) the Facility Amount on such day.
Required Reports: Collectively, the Monthly Report, the Servicer's Certificate
and the quarterly financial statement of the Servicer required to be delivered
to each Agent pursuant to Section 6.10(c) hereof.
Residual Proceeds: With respect to any Contract or any item of Equipment, the
net proceeds for the sale or other disposition of the Equipment upon the
expiration, or early termination, of the term of such Contract.
Responsible Officer: As to any Person any officer of such Person with direct
responsibility for the administration of this Agreement and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
Revolving Period: The period commencing on the Closing Date and ending on the
day immediately preceding the Termination Date.
RLI: Resource Leasing, Inc.
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RLI Agreements: Collectively, (i) the Subordination Agreement dated September
30, 1998 among RLI, Fidelity and First Union, (ii), the 1996 Note (iii), the
1998 Note (iv) the 1999 Note, and each other document related thereto, as the
same may be amended, replaced, supplemented or otherwise modified.
S&P: Standard & Poor's, a division of The McGraw Hill Companies, Inc., and any
successor thereto.
Scheduled Payments: With respect to any Contract, each monthly, quarterly,
annual or seasonal rent or financing (whether principal or principal and
interest) payment scheduled to be made by the Obligor thereof under the terms of
such Contract; in all cases, excluding any payment in the nature of, or
constituting, Residual Proceeds.
Servicer: Defined in Section 6.1(a).
Servicer Advance: An advance of Scheduled Payments made by the Servicer pursuant
to Section 6.5.
Servicer Fee Rate: On any day, the rate set forth in the Fee Letter as the
"Servicer Fee Rate."
Servicer Termination Event: Defined in Section 6.15.
Servicer Termination Notice: Defined in Section 6.15.
Servicer's Certificate: Defined in Section 6.10(b).
Servicing Fee: Defined in Section 2.12(b).
Solvent: As to any Person at any time, having a state of affairs such that all
of the following conditions are met: (a) the fair value of the property of such
Person is greater than the amount of such Person's liabilities (including
disputed, contingent and unliquidated liabilities) as such value is established
and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy
Code; (b) the present fair salable value of the property of such Person in an
orderly liquidation of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; (c) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's property would constitute unreasonably small capital.
SPC I Agreement: The Receivables Purchase Agreement dated as of June 24, 1998
among Fidelity Leasing SPC I, Inc., Fidelity, as the servicer, the Investors
named therein, VFCC, FCMC, First Union, and Harris Trust and Savings Bank.
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Structuring Fee: The structuring fee set forth in the Fee Letter.
Subordinated Debt: All debt of Fidelity Leasing, Inc. owed to RLI pursuant to
the RLI Agreements.
Subsidiary: A corporation of which the Originator and/or its Subsidiaries own,
directly or indirectly, such number of outstanding shares as have more than 50%
of the ordinary voting power for the election of directors.
Substitute Contract: On any day, an Eligible Contract that meets each of the
conditions for substitution set forth in Section 2.16.
Successor Servicer: Defined in Section 6.16(a).
Tangible Net Worth: The net worth as of any quarter of Fidelity, (ii) minus the
aggregate amount of all intangibles (e.g., surplus for write-ups of assets,
goodwill, intellectual property, leasehold improvements, deferred charges and
similar items) for that quarter and (iii) plus 100% of subordinated debt, all as
determined in accordance with GAAP, consistently applied.
Taxes: Any present or future taxes, levies, imposts, duties, charges,
assessments or fees of any nature (including interest, penalties, and additions
thereto) that are imposed by any Governmental Authority.
Termination Date: The date of the occurrence of a Termination Event pursuant to
Section 9.1.
Termination Event: Defined in Section 9.1.
Transaction Documents: This Agreement, the Purchase Agreement, the Hedging
Agreement, the Lock-Box Agreements, the Fee Letter, the Backup Servicer Fee
Letter, the Collateral Custodian Fee Letter, and any additional document the
execution of which is necessary or incidental to carrying out the terms of the
foregoing documents.
UCC: The Uniform Commercial Code as from time to time in effect in the
applicable jurisdiction or jurisdictions.
United States: The United States of America.
Unmatured Termination Event: Any event that, with the giving of notice or the
lapse of time, or both, would become a Termination Event.
Unreimbursed Servicer Advances: At any time, the amount of all previous Servicer
Advances (or portions thereof) as to which the Servicer has not been reimbursed
as of such time pursuant to Sections 2.7 and 2.8.
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Unused Fee: As defined in the Fee Letter.
VFCC Lender Availability: On any day, an amount equal to $300,000,000.
VFCC Lender Group: VFCC, FCMC (as Managing Agent for the VFCC Lender Group),
First Union and each of the Liquidity Lenders identified as a member of the VFCC
Lender Group on the signature pages hereto or on the signature page of an
Assignment and Acceptance.
VFCC Managing Agent: FCMC.
Warranty Event: As to any Asset in the Asset Pool, the discovery that as of the
related Cut-Off Date or Funding Date there had existed a breach of any
representation or warranty relating to such Contract and the continuance of such
breach through any applicable determination date or beyond any applicable cure
period.
Year 2000 Compatibility: As defined in Section 5.6(c).
1996 Note: The Subordinated Promissory Note, dated December 24, 1996 from
Fidelity to RLI in the principal sum of $4,000,000 plus accrued and unpaid
interest to date.
1998 Note: The Subordinated Promissory Note dated September 30, 1998 from
Fidelity to RLI in the principal sum of $1,006,696.06 plus accrued and unpaid
interest to date.
1999 Note: The Subordinated Promissory Note dated February 4, 1999 from Fidelity
to RLI in the principal sum of $38,000,000 plus accrued and unpaid interest to
date.
Section 1.2 Other Terms.
All accounting terms used but not specifically defined herein shall be
construed in accordance with GAAP. All terms used in Article 9 of the UCC in the
State of New York, and not used but specifically defined herein, are used herein
as defined in such Article 9.
Section 1.3 Computation of Time Periods.
Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
Section 1.4 Interpretation.
In each Transaction Document, unless a contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
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(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Transaction Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Transaction
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents, and reference to any
promissory note includes any promissory note that is an extension or
renewal thereof or a substitute or replacement therefor; and
(v) reference to any Applicable Law means such Applicable Law
as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision.
ARTICLE II
ADVANCES
Section 2.1 Advances; The Loan; Grant of Security
(a) On the terms and conditions hereinafter set forth by delivering to
each Managing Agent a Funding Request in accordance with Section 2.2(a), the
Borrower may, at its option, from time to time on any Business Day during the
Revolving Period, but no more frequently than twice every five (5) Business
Days, request that the Lenders make advances (each, an "Advance") to it in an
amount which, at any time, shall not exceed the Maximum Lender Availability
applicable to each Lender Group in effect on the related Funding Date. Following
receipt by the Managing Agents of a Funding Request, each Managing Agent shall
first decide whether the Advance will be made by the related CP Lender or by the
Liquidity Lenders in such Lender Group. If a Managing Agent decides that the
related CP Lender will make the Advance, it shall ask such CP Lender to make the
Lender Group Share of the Advance and such CP Lender may from time to time
during the Revolving Period, in its sole discretion, agree or decline to make
the Advance. If any CP Lender declines to make an Advance, then the Liquidity
Lenders in such Lender Group shall fund such Advance.
If on any Funding Date during the Revolving Period, any Lender Group
does not make available any portion or all of its Lender Group Share of such
Advance, then, subject to the next succeeding paragraph, the portion of such
Advance to be made by each other Lender Group (each, a "Funding Lender Group")
shall be increased on such Funding Date by an amount, if any, equal to the
product of (x) the portion of such Advance that was not made by any one or more
Lender Groups (each, a "Non-Funding Lender Group") and (y) a fraction the
numerator of which is the relevant Funding Lender Group's Maximum Lender
Availability and the denominator of which is the excess, if any, of (I) the sum
of all Lender Groups' Maximum Lender Availabilities over (II) the sum of the
Non-Funding Lender Groups' Maximum Lender Availabilities.
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Notwithstanding anything to the contrary herein, under no circumstances
shall any Liquidity Lender make any Advance on any Funding Date in excess of the
lesser of (i) such Lender's Share of the portion of the Lender Group Share of
the amount of the Advance which the CP Lender in such Lender Group declined to
make and (ii) the amount by which such Liquidity Lender's Commitment exceeds the
aggregate outstanding principal amount of Advances made by such Liquidity Lender
prior to such Funding Date. In no event shall any Lender have any obligation to
make any Advance such that, after giving effect to such Advance, Advances
Outstanding exceeds the Borrowing Base.
(b) In order to secure the payment of the Advances, Interest, Aggregate
Unpaids, and all other amounts payable with respect to the Loan and under the
Fee Letter, and in order to secure the performance and observance of all of the
covenants and conditions contained in this Agreement and in the Fee Letter, the
Borrower hereby Grants to the Administrative Agent, for the benefit of the
Lenders and the Hedge Counterparties, a first priority security interest in all
of its Assets, whether now existing or hereafter acquired or created, including
Collections, any and all replacements, substitutions, distributions on and
proceeds and products thereof (the "Collateral"). The Borrower shall mark its
records (including, without limitation, its computer records and tapes) to
evidence the Grant and the interest of the Administrative Agent on behalf of the
Lenders and the Hedge Counterparties in the Collateral.
(c) The Borrower may, within 60 days, but no later than 45 days, prior
to the then existing Commitment Termination Date, by written notice to each
Managing Agent, make written request for each Lender Group and its related
Lenders to extend the Commitment Termination Date for an additional period of
364 days. Each Managing Agent will give prompt notice to the relevant CP Lender
and its Liquidity Lenders of its receipt of such request for extension of the
Commitment Termination Date. Each Lender Group and its related Lenders shall
make a determination, in their sole discretion and after a full credit review,
not less than 15 days prior to the then applicable Commitment Termination Date
as to whether or not it will agree to extend the Commitment Termination Date;
provided, however, that the failure of a Lender Group to make a timely response
to the Borrower's request for extension of the Commitment Termination Date shall
be deemed to constitute a refusal by such Lender Group to extend the Commitment
Termination Date. The Commitment Termination Date shall only be extended upon
the consent of 100% of the Lenders in each Lender Group.
Section 2.2 Procedures for Advances
(a) In the case of the making of any Advance, each Funding Request
shall be delivered to each Managing Agent no later than 5:00 p.m. (Charlotte,
North Carolina time) two (2) Business Days prior to the proposed Funding Date
(with copies to the Administrative Agent and the Collateral Custodian).
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(b) Each Funding Request shall specify the aggregate amount of the
requested Advance, which shall be in an amount equal to at least $2,000,000;
provided, however that the first such Advance shall be in an amount equal to at
least $10,000,000. Each Funding Request shall be accompanied by (i) a Funding
Request prepared by the Servicer, setting forth the Advances Outstanding and
representing that all conditions precedent for a funding have been met,
including a representation by the Borrower that the requested Advance does not
on the Funding Date exceed the Facility Availability, (ii) a calculation of the
Borrowing Base as of the date the Advance is requested, and (iii) an updated
Contract List including each Contract that is subject to the requested Advance.
Each Funding Request shall be irrevocable.
(c) On the Funding Date following the satisfaction of the applicable
conditions set forth in this Section 2.2 and Article III, each Managing Agent on
behalf of the related Lender Group, shall make available to the Borrower or its
designee in same day funds, at the Borrower's Account, the related Lender Group
Share of the principal amount of such Advance.
Section 2.3 Reduction of Facility Amount; Prepayments.
(a) The Borrower may, upon at least two (2) Business Days' notice to
each Managing Agent (which notice shall be received no later than 5:00 p.m.
(Charlotte, North Carolina time)), terminate in whole or reduce in part the
portion of the Facility Amount that exceeds the sum of the aggregate Advances
Outstanding, accrued Interest, Breakage Costs and Hedge Breakage Costs and the
Commitment of each Liquidity Lender shall be reduced by its respective Lender's
Percentage Share; provided, however, that each partial reduction of the Facility
Amount shall be in an aggregate amount equal to $1,000,000 or an integral
multiple thereof. Each notice of reduction or termination pursuant to this
Section 2.3(a) shall be irrevocable.
(b) The Borrower may, subject to the provisions of Section 2.11, upon
two (2) Business Days' prior written notice (such notice to be received by each
Managing Agent no later than 5:00 p.m. (Charlotte, North Carolina time) on such
day) to each Managing Agent on behalf of each Lender Group, prepay any portion
of Advances Outstanding, provided, however, that the Borrower shall not make
more than one such prepayment in any Collection Period. On the date of such
prepayment, the Borrower shall remit to each Managing Agent cash in the amount
equal to the sum of (i) the Lender Group Percentage of the portion of Advances
Outstanding to be prepaid, (ii) Interest accrued thereon and (iii) Breakage
Costs; provided, however, that no such reduction shall be given effect unless
the Borrower has complied with the terms of any Hedging Agreement requiring that
one or more Hedge Transactions be terminated in whole or in part as the result
of any such reduction of the Advances Outstanding, and Borrower has paid all
Hedge Breakage Costs owing to the relevant Hedge Counterparty for any such
termination. Upon receipt of any such amounts, each Managing Agent shall apply
such amounts first, to the payment of accrued Interest, second to the reduction
of the Advances Outstanding, and third to the payment of any Breakage Costs.
Each notice of prepayment pursuant to this Section 2.3(b) shall be irrevocable.
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Section 2.4 Determination of Interest.
(a) Each Managing Agent shall determine the Interest (including unpaid
Interest, if any, due and payable on a prior Payment Date) to be paid to the
related Lender Group on each Payment Date for the Accrual Period and shall
advise the Servicer thereof on the first Business Day after the Accrual Period.
(b) Each Managing Agent shall initially determine the CP Rate and
Interest (including unpaid Interest, if any, due and payable on a prior Payment
Date) to be due on each Payment Date in respect of the applicable Lender Group
and for each Accrual Period and shall advise the Servicer thereof on the fifth
Business Day preceding such Payment Date relating to such Accrual Period. Prior
to the next succeeding Payment Date for such Accrual Period, each Managing Agent
shall redetermine the CP Rate and Interest (including unpaid Interest, if any,
due and payable on a prior Payment Date) to be due on such Payment Date in
respect of such Lender Group for such Accrual Period and the difference, if any,
between (i) the CP Rate and Interest as initially determined for such Accrual
Period and (ii) the CP Rate and Interest as redetermined on the Payment Date for
such Accrual Period. The amount owed in respect of Interest for the next
succeeding Accrual Period, as initially determined by each Managing Agent, shall
be either increased or decreased, if necessary and as appropriate, to reflect
such difference in Interest applicable to the related Lender Group for the most
recently completed Accrual Period.
Section 2.5 Lender Note.
Each Loan made by the members of a Lender Group hereunder shall be
evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit M, with appropriate insertions as to date and principal amount (a
"Lender Note"), payable to the order of the Managing Agent for such Lender Group
and in a principal amount equal to the Maximum Lender Availability for the
related Lender Group.
Section 2.6 Compensating Interest Payments.
On the Business Day immediately preceding each Payment Date, the
Originator shall deposit, or cause to be deposited, in the Collection Account
the Compensating Interest Payment for such Payment Date.
Section 2.7 Settlement Procedures During the Revolving Period.
On each Payment Date (a) during the Revolving Period and (b) following
the occurrence of the Commitment Termination Date pursuant to clause (a) of the
definition thereof, the Servicer shall pay to the following Persons, from (x)
the Collection Account, to the extent of Available Funds, and (y) Servicer
Advances received with respect to the immediately preceding Collection Period
that ended on the last day of the calendar month immediately preceding the
calendar month in which such Payment Date occurs, the following amounts in the
following order of priority:
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(i) FIRST, pro rata to each Hedge Counterparty, any amounts,
including any Hedge Breakage Costs, owing that Hedge Counterparty under
its respective Hedging Agreement in respect of any Hedge
Transaction(s), for the payment thereof;
(ii) SECOND, to the Servicer, in an amount equal to any
Unreimbursed Servicer Advances, for the payment thereof;
(iii) THIRD, to the Servicer, in an amount equal to any
accrued and unpaid Servicing Fees to the end of the preceding
Collection Period, for the payment thereof;
(iv) FOURTH, to the extent not paid for by Fidelity, to the
Backup Servicer, in an amount equal to any accrued and unpaid Backup
Servicing Fee, for the payment thereof;
(v) FIFTH, to the extent not paid for by Fidelity, to the
Collateral Custodian, in an amount equal to any accrued and unpaid
Collateral Custodian Fee, for the payment thereof;
(vi) SIXTH, to each Managing Agent for payment to each Lender
in the related Lender Group, an amount equal to the accrued and unpaid
Interest and Breakage Costs for the related Lender Group; provided,
however, if there are not sufficient funds to pay all Lenders in full
for all accrued and unpaid Interest and Breakage Costs, then each
Managing Agent shall receive for the benefit of the Lenders in the
related Lender Group an amount equal to the product of (A) the amount
available for distribution under this clause sixth and (B) the Lender
Group Percentage for such Lender Group;
(vii) SEVENTH, to each Managing Agent for the payment of each
Lender's Percentage Share, the related Lender Group Percentage of any
accrued and unpaid Program Fee and to the extent not paid for by
Fidelity, any Unused Fee; provided, however, if there are not
sufficient funds to pay all Lenders in full for all accrued and unpaid
Program Fees and Unused Fees, then each Managing Agent shall receive
for the benefit of the Lenders in the related Lender Group an amount
equal to the product of (A) the amount available for distribution under
this clause seventh and (B) the Lender Group Percentage for such Lender
Group;
(viii) EIGHTH, to the B-Note Lender, in an amount equal to the
accrued and unpaid B-Note Interest under the B-Note for such Accrual
Period;
(ix) NINTH, if the Advances Outstanding exceed the lesser of
(i) the Borrowing Base on such day or (ii) the Facility Amount on such
day, to each Managing Agent for the payment of each Lender's Percentage
Share, the related Lender Group Percentage of the aggregate Required
Reduction Amount; provided, however, if there are not sufficient funds
to pay all Lenders in full, then each Managing Agent shall receive for
the benefit of the Lenders in the related Lender Group an amount equal
to the product of (A) the amount available for distribution under this
clause NINTH, and (B) the Lender Group Percentage for such Lender
Group.
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(x) TENTH, to each Managing Agent, in the amount of any unpaid
Increased Costs and/or Taxes (if any) incurred by Lenders in the
related Lender Group for payment to such Lenders in respect thereof;
(xi) ELEVENTH, any remaining amounts shall be used to pay
amounts due and owing in respect of the B-Note to the extent not paid
pursuant to clause EIGHTH above;
(xii) TWELFTH, any remaining amount shall be distributed to
the Borrower.
Section 2.8 Settlement Procedures During the Amortization Period.
On each Payment Date during the Amortization Period, the Servicer shall
pay to the following Persons, from (x) the Collection Account, to the extent of
Available Funds, and (y) Servicer Advances received with respect to the
immediately preceding Collection Period, the following amounts in the following
order of priority:
(i) FIRST, pro rata to each Hedge Counterparty, any amounts,
including any Hedge Breakage Costs, owing that Hedge Counterparty under
its respective Hedging Agreement in respect of any Hedge
Transaction(s), for the payment thereof;
(ii) SECOND, to the Servicer, in an amount equal to any
Unreimbursed Servicer Advances, for the payment thereof;
(iii) THIRD, to the Servicer, in an amount equal to any
accrued and unpaid Servicing Fees to the end of the preceding
Collection Period, for the payment thereof;
(iv) FOURTH, to the extent not paid for by Fidelity, to the
Backup Servicer, in an amount equal to any accrued and unpaid Backup
Servicing Fee, for the payment thereof;
(v) FIFTH, to the extent not paid for by Fidelity, to the
Collateral Custodian, in an amount equal to any accrued and unpaid
Collateral Custodian Fee, for the payment thereof;
(vi) SIXTH, to each Managing Agent for payment to each Lender
in the related Lender Group, an amount equal to the accrued and unpaid
Interest and Breakage Costs for the related Lender Group; provided,
however, if there are not sufficient funds to pay all Lenders in full
for all accrued and unpaid Interest and Breakage Costs, then each
Managing Agent shall receive for the benefit of the Lenders in the
related Lender Group an amount equal to the product of (A) the amount
available for distribution under this clause sixth and (B) the Lender
Group Percentage for such Lender Group;
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(vii) SEVENTH, to each Managing Agent for the payment of each
Lender's Percentage Share, the related Lender Group Percentage of any
accrued and unpaid Program Fee and, to the extent not paid by Fidelity,
any Unused Fee; provided, however, if there are not sufficient funds to
pay all Lenders in full for all accrued and unpaid Program Fees and
Unused Fees, then each Managing Agent shall receive for the benefit of
the Lenders in the related Lender Group an amount equal to the product
of (A) the amount available for distribution under this clause seventh
and (B) the Lender Group Percentage for such Lender Group;
(viii) EIGHTH, to the B-Note Lender, in an amount equal to the
accrued and unpaid B-Note Interest under the B-Note for such Accrual
Period;
(ix) NINTH, to each Managing Agent, the Lender Group
Percentage of all remaining funds for the reduction to zero of the
Advances Outstanding;
(x) TENTH, to each Managing Agent, in the amount of any unpaid
Increased Costs and/or Taxes (if any) incurred by Lenders in the
related Lender Group for payment to such Lenders in respect thereof;
and
(xi) ELEVENTH, upon payment in full of the Advances
Outstanding and the payment in full of the Aggregate Unpaids, any
remaining amount shall be used to pay amounts due and owing in respect
of the B-Note to the extent not paid pursuant to clause EIGHTH above;
and
(xii) TWELFTH, any remaining amounts shall be distributed to
the Borrower.
Section 2.9 Collections and Allocations.
(a) Collections. The Servicer shall transfer, or cause to be
transferred, all Collections on deposit in the form of available funds in the
Lock Box Account to the Collection Account by the close of business on the
Business Day such Collections are received in the Lock Box Account. The Servicer
shall promptly (but in no event later than the second Business Day after the
receipt thereof) deposit all Collections received directly by it in the
Collection Account. The Servicer shall make such deposits or payments on the
date indicated herein by wire transfer, in immediately available funds.
(b) Initial Deposits. On the Closing Date and on each Addition Date
thereafter, the Servicer will deposit (in immediately available funds) into the
Collection Account all Collections received after the applicable Cut-Off Date
and through and including the Closing Date or Addition Date, as the case may be,
in respect of Contracts being transferred to the Asset Pool on such date.
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(c) Excluded Amounts. The Servicer may withdraw from the Collection
Account any deposits thereto constituting Excluded Amounts if the Servicer has,
prior to such withdrawal and consent, delivered to each Agent a report setting
forth the calculation, and identifying the type, of such Excluded Amounts in a
format reasonably satisfactory to each Managing Agent.
(d) Investment of Funds. Until the occurrence of a Termination Event,
to the extent there are uninvested amounts deposited in the Collection Account,
all amounts shall be invested in Permitted Investments selected by the Servicer
that mature no later than the next Business Day; from and after the occurrence
of a Termination Event, to the extent there are uninvested amounts in the
Collection Account, all amounts may be invested in Permitted Investments
selected by each Managing Agent that mature no later than the next Business Day.
All earnings (and losses) thereon shall be for the account of the Servicer.
Section 2.10 Payments, Computations, Etc.
(a) Unless otherwise expressly provided herein, all amounts to be paid
or deposited by the Borrower or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 a.m.
(Charlotte, North Carolina time) on the day when due in lawful money of the
United States in immediately available funds to the Agent's Account. The
Borrower shall, to the extent permitted by law, pay to the Lenders and Hedged
Counterparties interest on all amounts not paid or deposited when due hereunder
at 1% per annum above the Base Rate, payable on demand; provided, however, that
such interest rate shall not at any time exceed the maximum rate permitted by
Applicable Law. Such interest shall be retained by each Agent except to the
extent that such failure to make a timely payment or deposit has continued
beyond the date for distribution by each Managing Agent of such overdue amount
to the respective Lenders and Hedge Counterparties, in which case such interest
accruing after such date shall be for the account of, and distributed by each
Managing Agent, to the respective Lenders and Hedge Counterparties. All
computations of interest and all computations of Interest and other fees
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first but excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of Interest or any fee payable hereunder, as the case may
be.
(c) If any Advance requested by the Borrower and approved by a Lender
and the related Managing Agent pursuant to Section 2.2, is not, for any reason
whatsoever related to a default, nonperformance or attempted rescission of a
Funding Request by the Borrower made or effectuated, as the case may be, on the
date specified therefor, the Borrower shall indemnify such Lender against any
reasonable loss, cost or expense incurred by such Lender, including, without
limitation, any loss (including loss of anticipated profits, net of anticipated
profits in the reemployment of such funds in the manner determined by such
Lender), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund or maintain such
Advance.
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Section 2.11 Optional Prepayment in Full.
Upon thirty (30) days written notice to each Managing Agent, as agent
for the Lenders, the Borrower shall have the right to prepay in whole the
Advances Outstanding, provided that all Hedge Transactions have been terminated.
On the Payment Date next succeeding any such notice, the Borrower shall pay to
each Managing Agent, as agent for the Lenders, an amount equal to the applicable
Lender Group Percentage of the sum of (a) the Aggregate Unpaids, (b) all
Interest accrued and to accrue, as reasonably determined by such Managing Agent,
and (c) all accrued and unpaid Commitment Fees, Program Fees, Backup Servicing
Fees, Collateral Custodian fees, Increased Costs, Taxes, Hedge Breakage Costs,
Breakage Costs and any other amounts payable by the Borrower hereunder or under
or with respect to any Hedging Agreement, and the proceeds of such purchase will
be deposited into the Collection Account and paid in accordance with Section 2.7
or Section 2.8. Each notice of prepayment pursuant to this Section 2.11 shall be
irrevocable.
Section 2.12 Fees.
(a) The Borrower shall pay to each Agent on each Payment Date, monthly
in arrears, the Program Fee and the Unused Fee agreed to between the Borrower
and each Agent in the Fee Letter.
(b) The Servicer shall be entitled to receive a fee (the "Servicing
Fee"), monthly in arrears in accordance with Section 2.7(iii) or 2.8(iii), as
applicable, which fee shall be equal to (i) the product of (A) the Servicing Fee
Rate agreed to between the Servicer and the Agents in the Fee Letter, (B) ADCB
on the immediately preceding Determination Date (ii) divided by 12.
(c) The Backup Servicer shall be entitled to receive the Backup
Servicing Fee in accordance with Section 2.7(iv) or 2.8(iv), as applicable.
(d) The Collateral Custodian shall be entitled to receive the
Collateral Custodian fee in accordance with Section 2.7(v) or 2.8(v), as
applicable.
(e) The Borrower shall pay to the Administrative Agent, on the Closing
Date, the Structuring Fee in immediately available funds.
(f) The Borrower shall pay to Kilpatrick Stockton LLP, as counsel to
the Administrative Agent, on the Closing Date, its fees and out-of-pocket
expenses to the Closing Date in immediately available funds and shall pay all
additional reasonable fees and out-of-pocket expenses of Kilpatrick Stockton LLP
within ten (10) Business Days after receiving an invoice for such amounts.
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Section 2.13 Increased Costs; Capital Adequacy; Illegality.
(a) If either (i) the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the interpretation of any law or regulation or (ii) the compliance by a
Lender or any Affiliate thereof (each of which, an "Affected Party") with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), shall (A) subject an Affected Party to
any Tax (except for Taxes on the overall or branch net income, or franchise tax
imposed in lieu of a net income tax, of such Affected Party and Taxes subject to
Section 2.14), duty or other charge with respect to the Loan, or any right to
make Advances hereunder, or on any payment made hereunder, (B) impose, modify or
deem applicable any reserve requirement (including, without limitation, any
reserve requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any reserve requirement, if any, included in the
determination of Interest), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Affected Party or (C) impose any other condition affecting an Advance or a
Lender's rights hereunder, the result of which is to increase the cost to any
Affected Party or to reduce the amount of any sum received or receivable by an
Affected Party under this Agreement, then within ten days after demand by such
Affected Party (which demand shall be accompanied by a statement setting forth
the basis for such demand), the Borrower shall pay directly to such Affected
Party such additional amount or amounts as will compensate such Affected Party
for such additional or increased cost incurred or such reduction suffered.
(b) If either (i) the introduction of or any change in or in the
interpretation of any law, guideline, rule, regulation, directive or request or
(ii) compliance by any Affected Party with any law, guideline, rule, regulation,
directive or request from any central bank or other governmental authority or
agency (whether or not having the force of law), including, without limitation,
compliance by an Affected Party with any request or directive regarding capital
adequacy, has or would have the effect of reducing the rate of return on the
capital of any Affected Party as a consequence of its obligations hereunder or
arising in connection herewith to a level below that which any such Affected
Party could have achieved but for such introduction, change or compliance
(taking into consideration the policies of such Affected Party with respect to
capital adequacy) by an amount deemed by such Affected Party to be material,
then from time to time, within ten days after demand by such Affected Party
(which demand shall be accompanied by a statement setting forth the basis for
such demand), the Borrower shall pay directly to such Affected Party such
additional amount or amounts as will compensate such Affected Party for such
reduction.
(c) If as a result of any event or circumstance similar to those
described in clauses (a) or (b) of this section, any Affected Party is required
to compensate a bank or other financial institution providing liquidity support,
credit enhancement or other similar support to such Affected Party in connection
with this Agreement or the funding or maintenance of Advances hereunder, then
within ten days after demand by such Affected Party, the Borrower shall pay to
such Affected Party such additional amount or amounts as may be necessary to
reimburse such Affected Party for any amounts payable or paid by it.
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(d) In determining any amount provided for in this section, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this section shall submit to the Servicer a
written description as to such additional or increased cost or reduction and the
calculation thereof, which written description shall be conclusive absent
demonstrable error.
(e) If a Lender shall notify any Agent that a Eurodollar Disruption
Event as described in clause (a) of the definition of "Eurodollar Disruption
Event" has occurred, such Agent shall in turn so notify the Borrower, whereupon
all Advances Outstanding in respect of which Interest accrues at the Adjusted
Eurodollar Rate shall immediately be converted into Advances Outstanding in
respect of which Interest accrues at the Base Rate.
Section 2.14 Taxes.
(a) All payments made by an Obligor in respect of a Contract and all
payments made by the Borrower or the Servicer under this Agreement will be made
free and clear of and without deduction or withholding for or on account of any
Taxes. If, however, any Taxes are required to be withheld from any amounts
payable to any Agent or any Lender, then the amount payable to such Person will
be increased (such increase, the "Additional Amount") such that every net
payment made under this Agreement after deduction or withholding for or on
account of any Taxes (including, without limitation, any Taxes on such increase)
is not less than the amount that would have been paid had no such deduction or
withholding been deducted or withheld. The foregoing obligation to pay
Additional Amounts, however, will not apply with respect to net income or
franchise taxes imposed on a Lender or an Agent, respectively, with respect to
payments required to be made by the Borrower or Servicer under this Agreement,
by a taxing jurisdiction in which such Lender or Agent is organized, conducts
business or is paying taxes as of the Closing Date (as the case may be).
Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Agent for its own account or for the
account of each Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Agent and the Lenders for any
incremental taxes, interest or penalties that may become payable by the Agent or
any Lender as a result of any such failure. The agreements in this subsection
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
(b) The Borrower will indemnify each Agent and Lender for the full
amount of Taxes payable by such Person in respect of Additional Amounts and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. Any such Lender or Agent that makes a demand for an indemnity
payment under this Section 2.14(b) shall provide the Borrower with a certificate
of a responsible officer of such Lender or Agent stating that such tax is due
and owing and the amount to be paid by the Borrower and, if available, such
Lender or Agent shall provide the Borrower with a copy of or extract from
documentation furnished by the taxing authority relating to such Taxes. All
payments in respect of this indemnification shall be made within ten days from
the date a written demand therefor is delivered to the Borrower.
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(c) Within 30 days after the date of any payment by the Borrower of any
Taxes, the Borrower will furnish to each Managing Agent, at its address set
forth under its name on the signature pages hereof, appropriate evidence of
payment thereof.
(d) Each Agent and Lender that is not incorporated under the laws of
the United States of America or a state thereof shall:
(i) deliver to the Borrower and the related Managing Agent on
the date such Lender or Agent becomes a party hereto (A) two duly
completed copies of United States Internal Revenue Service Form W-8 BEN
or W-8 ECI or successor applicable form, as the case may be, and (B) an
Internal Revenue Service Form W-8 or W-9 or successor applicable form;
(ii) deliver to the Borrower and the related Managing Agent
two further copies of such forms or other appropriate certification of
such forms on or before the date that any such form expires or becomes
obsolete and after the occurrence of any event requiring a change in
the most recent form delivered to the Borrower; and
(iii) obtain such extensions of the time for filing and shall
renew such forms and certifications thereof as may reasonably be
requested by the Borrower or the related Managing Agent,
unless an event (including, without limitation, any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery otherwise
would be required which renders all such forms inapplicable or which would
prevent such Agent or Lender from duly completing and delivering any such form
and such Agent or Lender so advises the Borrower and the related Managing Agent.
For any period with respect to which a Lender or an Agent has failed to
provide the Borrower with the appropriate form, certificate or statement
described in clause (d) of this section (other than if such failure is due to a
change in law occurring after the date on which such form, certificate or
statement originally was required to be provided of this Agreement), such Agent
or Lender, as the case may be, shall not be entitled to indemnification under
clauses (a) or (b) of this section with respect to any Taxes until such forms
are so provided, at which time such Affected Party shall be entitled to
retroactive effect of the indemnification for Taxes provided for in subclause
(b) and the Borrower shall execute and deliver consistent with the facts and
which are reasonably necessary to assist such Lender or Agent in applying for
refunds of Taxes paid by the Borrower. If the form provided by an Agent or a
Lender at the time such Agent or Lender first become a party to this Agreement
indicates a United States interest withholding tax rate in excess of zero,
withholding tax at such a rate shall be considered excluded from Taxes unless
and until such Agent or Lender provides the appropriate form certifying that a
lesser rate applies, whereupon withholding tax at such lesser rate only shall be
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considered excluded from Taxes for periods governed by such form; provided,
however, that, if, at the date of the Assignment and Acceptance pursuant to
which a Lender assignee becomes a party to this Agreement, the Lender assignor
was subject to Taxes for which it was entitled to payments under subsection (a)
above in respect of United States withholding tax with respect to Interest paid
at such date, then, to such extent, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts otherwise
includable in Taxes) United States withholding tax, if any, applicable with
respect to the Lender assignee on such date. If any form or document referred to
in this subsection (d) requires the disclosure of information, other than
information necessary to compute the tax payable and information required on the
date hereof by Internal Revenue Service Form W-8 BEN or W-8 ECI or any successor
applicable form, as the case may be, that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrower and shall not
be obligated to include in such form or document such confidential information.
Within 30 days of the written request of the Borrower therefor, the
Agents and the Lenders as appropriate, shall execute and deliver consistent with
the facts and which are reasonably necessary to assist the Borrower in applying
for refunds of Taxes remitted hereunder; provided, however, that the Agents, the
Lenders and participants shall not be required to deliver such certificates,
forms or other documents if in their respective sole discretion it is determined
that the deliverance of such certificate, form or other document would have a
material adverse effect on the Agents, any Lender; and provided further,
however, that the Borrower shall reimburse the Agents or any such Lender for any
reasonable expenses incurred in the delivery of such certificate, form or other
document.
(e) If, in connection with an agreement or other document providing
liquidity support, credit enhancement or other similar support to the Lenders in
connection with this Agreement or the funding or maintenance of Advances
hereunder, the Lenders are required to compensate a bank or other financial
institution in respect of Taxes under circumstances similar to those described
in this section then within 10 days after demand by the Lenders, the Borrower
shall pay to the Lenders such additional amount or amounts as may be necessary
to reimburse the Lenders for any amounts paid by them.
(f) Promptly following the date on which a Lender or an Agent first
becomes a party to this Agreement, such Lender or Agent shall provide to the
Borrower an Internal Revenue Service Form W-9 or a successor applicable form.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this section shall survive the termination of this Agreement.
Section 2.15 Assignment of the Purchase Agreement.
The Borrower hereby assigns to the Administrative Agent, for the
ratable benefit of the Lenders and Hedge Counterparties hereunder, all of the
Borrower's right, title and interest in and to, but none of its obligations
under, the Purchase Agreement. The Borrower confirms that the Administrative
Agent on behalf of the Lenders and Hedge Counterparties shall have the sole
right to enforce the Borrower's rights and remedies under the Purchase Agreement
for the benefit of the Lenders and Hedge Counterparties.
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Section 2.16 Substitution of Contracts.
On any day prior to the occurrence of a Termination Event, the Borrower
may, and upon the request of the Administrative Agent shall, subject to the
conditions set forth in this Section 2.16, replace any Contract subject to a
Warranty Event or that becomes a Defaulted Contract, a Casualty Loss Contract or
an Early Termination Contract with one or more Eligible Contracts (each, a
"Substitute Contract"), provided that no such replacement shall occur unless
each of the following conditions is satisfied as of the date of such replacement
and substitution:
(a) the Borrower has previously recommended in writing to each Managing
Agent (with a copy to the Collateral Custodian) that the Contract be replaced
(each a "Replaced Contract");
(b) each Substitute Contract is an Eligible Contract on the date of
substitution;
(c) after giving effect to any such substitution, the aggregate
Advances Outstanding does not exceed the lesser of the (i) Borrowing Base and
(ii) the Facility Limit;
(d) the aggregate Discounted Contract Balance (at the applicable Hedged
Discount Rate) of such Substitute Contracts shall be equal to or greater than
the aggregate Discounted Contract Balances (at the Blended Discount Rate as of
the date of the substitution) of Replaced Contracts;
(e) such Substitute Contracts, at the time of substitution by the
Borrower, shall have approximately the same weighted average life as the
replaced Contracts;
(f) all representations and warranties of the Borrower contained in
Sections 4.1 and 4.2 shall be true and correct as of the date of substitution of
any such Substitute Contract;
(g) the substitution of any Substitute Contract does not cause a
Termination Event to occur;
(h) if the aggregate of the Discounted Contracted Balances of all
Substituted Contracts for Defaulted Contracts on such day and all prior days
does not exceed 5% of the ADCB on the date of such substitution;
(i) if the aggregate of the Discounted Contract Balances of all
Substituted Contracts on such day and all prior days excluding Substituted
Contracts which replace Early Termination Contracts does not exceed 10% of the
ADCB on the date of such substitution;
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(j) the Borrower shall deliver to each Managing Agent on the date of
such substitution a certificate of a Responsible Officer certifying that each of
the foregoing is true and correct as of such date; and
(k) after giving effect to any such substitution, none of the Portfolio
Concentration Criteria are exceeded.
In addition, the Borrower shall deliver to the Collateral Custodian the
related Contract File as required by Section 3.3. In connection with any such
substitution, the Administrative Agent on behalf of the Lenders and Hedge
Counterparties shall, automatically and without further action, be deemed to
release to the Borrower, free and clear of any Lien created pursuant to this
Agreement, all of the right, title and interest of the Administrative Agent on
behalf of the Lenders and Hedge Counterparties in, to and under such Replaced
Contract, and the Administrative Agent on behalf of the Lenders and Hedge
Counterparties shall be deemed to represent and warrant that it has the
corporate authority and has taken all necessary corporate action to accomplish
such transfer, but without any other representation and warranty, express or
implied. Any right of the Administrative Agent on behalf of the Lenders and
Hedge Counterparties to substitute any Contract in the Asset Pool pursuant to
this Section 2.16 shall be in addition to, and without limitation of, any other
rights and remedies that the Administrative Agent on behalf of the Lenders and
Hedge Counterparties or any Lender of Hedge Counterparty may have to require the
Borrower or the Servicer, as applicable, to substitute for, or accept retransfer
of, any Contract pursuant to the terms of this Agreement.
ARTICLE III
CONDITIONS OF THE ADVANCE
Section 3.1 Conditions to Closing and Initial Advances.
No Lender shall be obligated to make any Advance hereunder on the
occasion of the initial Advance, nor shall any Lender, Agent, the Backup
Servicer or the Collateral Custodian be obligated to take, fulfill or perform
any other action hereunder, until the following conditions have been satisfied,
in the sole discretion of, or waived in writing by, each Managing Agent:
(a) This Agreement and all other Transaction Documents or counterparts
hereof or thereof shall have been duly executed by, and delivered to, the
parties hereto and thereto and each Managing Agent shall have received such
other documents, instruments, agreements and legal opinions as each Managing
Agent reasonably shall request in connection with the transactions contemplated
by this Agreement, including all those listed in the Schedule of Documents,
attached hereto as Schedule I, as due on the Closing Date, each in form and
substance satisfactory to each Managing Agent.
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(b) Each Managing Agent shall have received (i) satisfactory evidence
that the Borrower and the Servicer have obtained all required consents and
approvals of all Persons, including all requisite Governmental Authorities, to
the execution, delivery and performance of this Agreement and other Transaction
Documents to which each is a party and the consummation of the transactions
contemplated hereby or thereby or (ii) an Officer's Certificate from each of the
Borrower and the Servicer in form and substance satisfactory to the Managing
Agents affirming that no such consents or approvals are required; it being
understood that the acceptance of such evidence or Officer's Certificate shall
in no way limit the recourse of any Agent or any Lender against the Originator
or the Seller for a breach of the Originator's or the Seller's representation or
warranty that all such consents and approvals have, in fact, been obtained.
(c) The Borrower and the Servicer shall each be in compliance in all
material respects with all Applicable Laws.
(d) The Borrower shall have paid all fees required to be paid by it on
the Closing Date, including all fees required hereunder and under the Fee Letter
to be paid as of such date, and shall have reimbursed each Lender and each Agent
for all fees, costs and expenses of closing the transactions contemplated
hereunder and under the other Transaction Documents, including the legal and
other document preparation costs incurred by any Lender and/or any Agent.
Section 3.2 Conditions Precedent to All Advances.
Each Advance (including the Initial Advance) and each reinvestment in
Eligible Contracts made pursuant to Section 2.4(a)(xi) shall be subject to the
further conditions precedent that:
(a) On the related Funding Date or date of such reinvestment, the
Borrower or the Servicer (if the Originator or an Affiliate of the Originator),
as the case may be, shall have certified in the related Funding Request that:
(i) The representations and warranties of such Person set
forth in Article IV are true and correct on and as of such date, before
and after giving effect to such Advance or reinvestment and to the
application of the proceeds therefrom, as though made on and as of such
date;
(ii) No event has occurred, or would result from such Advance
or reinvestment or from the application of the proceeds therefrom, that
constitutes a Termination Event;
(iii) Such Person is in material compliance with each of its
covenants set forth herein; and
(iv) No event has occurred that constitutes a Servicer
Termination Event.
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(b) (i) With respect to the initial Funding Date, each Agent shall have
received all Transaction Documents listed on the Schedule of Documents, attached
hereto as Schedule I, as due on the initial Funding Date, or counterparts
thereof, each of which has been duly executed by, and delivered to, the parties
hereto and each shall be in form and substance satisfactory to each Agent and
(ii) on any date of such reinvestment, each Managing Agent shall have received a
Funding Request in the form of Exhibit A;
(c) Neither the Commitment Termination Date nor the Termination Date
shall have occurred;
(d) Before and after giving effect to such borrowing and to the
application of proceeds therefrom, Advances Outstanding do not exceed the
Facility Amount or the Borrowing Base, as calculated on such date;
(e) [reserved];
(f) No claim has been asserted or proceeding commenced challenging
enforceability or validity of any of the Transaction Documents, excluding any
instruments, certificates or other documents relating to Loans that were the
subject of prior Advances;
(g) No event shall have occurred nor any circumstance arisen which has
had or could reasonably be expected to have a Material Adverse Effect since the
preceding Advance; and
(h) The Originator and Borrower shall have taken such other action,
including delivery of approvals, consents, opinions, documents, and instruments
to the Lender and the Agents as each may reasonably request.
Section 3.3 Delivery of Contract Files.
As a condition to each Advance or substitution of Substitute Contracts
made hereunder, the Borrower shall deliver to the Collateral Custodian, not more
than ten (10) days after such Advance or such substitution, the related Contract
Files; provided, however, the Borrower shall deliver to the Collateral Custodian
no less than one Business Day before such Advance or substitution the Contract
Files related to Eligible Contracts contributed to cause the
Overcollateralization to equal or exceed the Minimum Overcollateralization.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Organization and Good Standing. The Borrower has been duly
organized, and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with all requisite corporate power and authority
to own or lease its properties and conduct its business as such business is
presently conducted and now has all necessary power, authority and legal right
to acquire, own and sell the Assets in the Asset Pool.
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(b) Due Qualification. The Borrower is duly qualified to do business
and is in good standing as a corporation, and has obtained all necessary
licenses and approvals, in each jurisdiction in which the failure to so qualify
or have such licenses or approvals has not had and would not be reasonably
expected to have a Material Adverse Effect.
(c) Power and Authority; Due Authorization. The Borrower (i) has all
necessary power, authority and legal right to (A) execute and deliver this
Agreement and the other Transaction Documents to which it is a party, (B) carry
out the terms of the Transaction Documents to which it is a party, and (C) grant
each Asset and borrow each Advance on the terms and conditions herein provided
and (ii) has duly authorized by all necessary corporate action the execution,
delivery and performance of this Agreement and the other Transaction Documents
to which it is a party and the granting of the Assets and the borrowing of the
Advances on the terms and conditions herein provided.
(d) Binding Obligation. This Agreement and each other Transaction
Document to which the Borrower is a party constitutes a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its respective terms, except as may be limited by Insolvency Laws.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which it is a party and
the fulfillment of the terms hereof and thereof will not (i) conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, the Borrower's
certificate of incorporation or any Contractual Obligation of the Borrower, (ii)
result in the creation or imposition of any Lien upon any of the Borrower's
properties pursuant to the terms of any such Contractual Obligation, other than
the Transaction Documents, or (iii) violate any Applicable Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best knowledge of the Borrower, threatened
against the Borrower, before any Governmental Authority (i) asserting the
invalidity of this Agreement or any other Transaction Document to which the
Borrower is a party, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any other Transaction Document to
which the Borrower is a party or (iii) seeking any determination or ruling that
could, if adversely determined, reasonably be expected to have Material Adverse
Effect.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority (if any)
required for the due execution, delivery and performance by the Borrower of this
Agreement and any other Transaction Document to which the Borrower is a party
have been obtained.
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(h) Year 2000 Plan. The Borrower has initiated a review and assesment
of its computing systems and believes that all computer applications that are
material to its or any of its Affiliates' business or operations are reasonably
expected on a timely basis to be able to perform properly date sensitive
functions for all dates before, on and after January 1, 2000, except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(i) Bulk Sales. The execution, delivery and performance of this
Agreement do not require compliance with any "bulk sales" act or similar law by
Borrower.
(j) Solvency. The transactions under this Agreement and any other
Transaction Document to which the Borrower is a party do not and will not render
the Borrower not Solvent. The Originator has confirmed in writing to the
Borrower that, so long as the Borrower is Solvent, the Originator will not cause
the Borrower to file a voluntary petition under the Bankruptcy Code or any other
Insolvency Laws.
(k) Selection Procedures. Without regard to the eligibility
requirements set forth in the definitions of "Eligible Contract" and "Portfolio
Concentration Criteria," no procedures believed by the Borrower to be adverse to
the interests of the Lenders were utilized by the Borrower or the Originator in
identifying and/or selecting the Contracts in the Asset Pool. In addition, each
Contract shall have been underwritten in accordance with and satisfy the
standards of any Credit and Collection Policy that has been established by the
Borrower or the Originator and is then in effect.
(l) Taxes. The Borrower has filed or caused to be filed all tax returns
that are required to be filed by it. The Borrower has paid or made adequate
provisions for the payment of all Taxes and all assessments made against it or
any of its property (other than any amount of Tax the validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been provided on the
books of the Borrower), and no tax lien has been filed and, to the Borrower's
knowledge, no claim is being asserted, with respect to any such Tax, fee or
other charge.
(m) Exchange Act Compliance; Regulations T, U and X. None of the
transactions contemplated herein (including, without limitation, the use of the
proceeds from Advances) will violate or result in a violation of Section 7 of
the Securities Exchange Act, or any regulations issued pursuant thereto,
including, without limitation, Regulations T, U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II. The Borrower does not own
or intend to carry or purchase, and no proceeds of any Advance will be used to
carry or purchase, any "margin stock" within the meaning of Regulation U or to
extend "purchase credit" within the meaning of Regulation U.
(n) Quality of Title. Each Asset, together with the Contract related
thereto, shall, at all times, be owned by the Borrower free and clear of any
Lien except as provided herein. No effective financing statement or other
instrument similar in effect covering any Asset shall at any time be on file in
any recording office except such as may be filed (i) in favor of the Borrower in
accordance with the Purchase Agreement or (ii) in favor of the Administrative
Agent in accordance with this Agreement.
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(o) Security Interest. The Borrower has granted a security interest (as
defined in the UCC) to the Administrative Agent, for the benefit of the Lenders,
in the Assets and Collections, which is enforceable in accordance with
applicable law upon execution and delivery of this Agreement. Upon the filing of
UCC-1 financing statements naming the Administrative Agent as Lender and the
Borrower as debtor, the Administrative Agent, on behalf of the Lenders, shall
have a first priority perfected security interest in the Assets (except for any
Permitted Liens). All filings (including, without limitation, such UCC filings)
as are necessary in any jurisdiction to perfect the interest of the
Administrative Agent, for the benefit of the Lenders, in the Assets have been
(or prior to the applicable Advance will be) made.
(p) Reports Accurate. All Monthly Reports (if prepared by the Borrower,
or to the extent that information contained therein is supplied by the
Borrower), information, exhibit, financial statement, document, book, record or
report furnished or to be furnished by the Borrower to any Agent or a Lender in
connection with this Agreement is true, complete and correct in all material
respects.
(q) Location of Offices. The principal place of business and chief
executive office of the Borrower and the office where the Borrower keeps all the
Records are located at the address of the Borrower referred to in Section 13.2
hereof (or at such other locations as to which the notice and other requirements
specified in Section 5.2(g) shall have been satisfied).
(r) Lock-Boxes. The names and addresses of all the Lock-Box Banks,
together, with the account numbers of the Lock-Box Accounts of the Borrower at
such Lock-Box Banks and the names, addresses and account numbers of all accounts
to which Collections of the Assets outstanding before the initial Advance
hereunder have been sent, are specified in Schedule II (which shall be deemed to
be amended in respect of terminating or adding any Lock-Box Account or Lock-Box
Bank upon satisfaction of the notice and other requirements specified in Section
5.2(k)).
(s) Tradenames. Except as described in Schedule III, the Borrower has
no trade names, fictitious names, assumed names or "doing business as" names or
other names under which it has done or is doing business.
(t) Purchase Agreement. The Purchase Agreement is the only agreement
pursuant to which the Borrower purchases Assets.
(u) Value Given. The Borrower shall have given reasonably equivalent
value to the Originator in consideration for the transfer to the Borrower of the
Assets under the Purchase Agreement, no such transfer shall have been made for
or on account of an antecedent debt owed by the Originator to the Borrower, and
no such transfer is or may be voidable or subject to avoidance under any section
of the Bankruptcy Code.
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(v) Accounting. The Borrower accounts for the transfers to it from the
Originator of interests in Assets under the Purchase Agreement as sales of such
Assets in its books, records and financial statements, in each case consistent
with GAAP and with the requirements set forth herein.
(w) Special Purpose Entity. The Borrower has not and shall not:
(i) engage in any business or activity other than the purchase
and receipt of Contracts and related assets from the Originator under
the Purchase Agreement, the borrowing of Advances under the Transaction
Documents, entering into Hedge Agreements and Hedge Transactions and
such other activities as are incidental thereto;
(ii) acquire or own any material assets other than (A) the
Contracts and related Assets from the Originator under the Purchase
Agreement and (B) incidental property as may be necessary for the
operation of the Borrower;
(iii) merge into or consolidate with any Person or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise
dispose of all or substantially all of its assets or change its legal
structure, without in each case first obtaining each Managing Agent's
consent;
(iv) fail to preserve its existence as an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization or formation, or without the prior
written consent of each Managing Agent, amend, modify, terminate, fail
to comply with the provisions of its Articles or Certificate of
Incorporation, or fail to observe corporate formalities;
(v) own any subsidiary or make any investment in any Person
without the consent of each Managing Agent;
(vi) commingle its Assets with the assets of any of its
Affiliates, or of any other Person; provided, however, that Fidelity,
in its capacity as Servicer hereunder may commingle proceeds of the
Assets with proceeds of its own assets under the circumstances
contemplated by this Agreement relating to receipt of such proceeds in
a single lockbox account, provided that Fidelity maintains books and
records sufficient to readily identify the owner of such proceeds;
(vii) incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than
indebtedness to the Lenders hereunder, in conjunction with a repayment
of all Advances Outstanding owed to the Lenders, trade payables in the
ordinary course of its business, provided that such debt is not
evidenced by a note and paid when due and the B-Note;
(viii) become insolvent or fail to pay its debts and
liabilities from its assets as the same shall become due;
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(ix) fail to maintain its records, books of account and bank
accounts separate and apart from those of its principal and Affiliates,
and any other Person;
(x) enter into any contract or agreement with any of its
principals or Affiliates or any other Person, except upon terms and
conditions that are commercially reasonable and substantially similar
to those that would be available on an arms-length basis with third
parties other than any principal or Affiliates;
(xi) seek its dissolution or winding up in whole or in part;
(xii) fail to correct any known misunderstandings regarding
the separate identity of Borrower or any principal or Affiliate thereof
or any other Person;
(xiii) guarantee, become obligated for, or hold itself out to
be responsible for the debt of another Person;
(xiv) make any loan or advances to any third party, including
any principal or Affiliate, or hold evidence of indebtedness issued by
any other Person (other than cash and investment-grade securities);
(xv) fail to file its own separate tax return, or fail to file
a consolidated federal income tax return with any other Person;
(xvi) fail either to hold itself out to the public as a legal
entity separate and distinct from any other Person or to conduct its
business solely in its own name in order not (A) to mislead others as
to the identity with which such other party is transacting business, or
(B) to suggest that it is responsible for the debts of any third party
(including any of its principals or Affiliates);
(xvii) fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations;
(xviii) file or consent to the filing or any petition, either
voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or make
an assignment for the benefit of creditors;
(xix) share any common logo with or hold itself out as or be
considered as a department or division of (A) any of its principals or
Affiliates, (B) any Affiliate of a principal or (C) any other Person;
(xx) permit any transfer (whether in any one or more
transactions) of more than a 49% direct or indirect ownership interest
in the Borrower, unless the Borrower delivers to each Agent an
acceptable non-consolidation opinion;
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(xxi) fail to maintain separate financial statements, showing
its assets and liabilities separate and apart from those of any other
Person, or have its assets listed on the financial statement of any
other Person unless properly footnoted;
(xxii) fail to pay its own liabilities and expenses only out
of its own funds;
(xxiii) [reserved];
(xxiv) acquire the obligations or securities of its Affiliates
or stockholders;
(xxv) fail to allocate fairly and reasonably any overhead
expenses that are shared with an Affiliate, including paying for office
space and services performed by any employee of an Affiliate;
(xxvi) fail to use separate invoices and checks bearing its
own name;
(xxvii) pledge its assets for the benefit of any other Person,
other than with respect to payment of the indebtedness to the Lenders
hereunder;
(xxviii) fail at any time to have at least one (1) independent
director (the "Independent Director") that is not and has not been for
at least five (5) years a director, officer, employee, trade credit or
shareholder (or spouse, parent, sibling or child of the foregoing) of
(A) the Servicer, (B) the Borrower, (C) any principal of the Servicer,
(D) any Affiliate of the Servicer, or (E) any Affiliate of any
principal of the Servicer; provided, however, such Independent Director
may be an independent director of another special purpose entity
affiliated with the Servicer;
(xxix) fail to provide that the unanimous consent of all
directors (including the consent of the Independent Director) is
required for the Borrower to (A) dissolve or liquidate, in whole or
part, or institute proceedings to be adjudicated bankrupt or insolvent,
(B) institute or consent to the institution of bankruptcy or insolvency
proceedings against it, (C) file a petition seeking or consent to
reorganization or relief under any applicable federal or state law
relating to bankruptcy or insolvency, (D) seek or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for the Borrower, (E) make any
assignment for the benefit of the Borrower's creditors, (F) admit in
writing its inability to pay its debts generally as they become due, or
(G) take any action in furtherance of any of the foregoing; and
(xxx) take or refrain from taking, as applicable, each of the
activities specified in the non-consolidation opinion of Morgan, Lewis
& Bockius, LLP, delivered on the Closing Date, upon which the
conclusions expressed therein are based.
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(x) Confirmation from the Originator. The Borrower has received in
writing from the Originator confirmation that, so long as the Borrower is not
"insolvent" within the meaning of the Bankruptcy Code, the Originator will not
cause the Borrower to file a voluntary petition under the Bankruptcy Code or any
other bankruptcy or insolvency laws. Each of the Borrower and the Originator is
aware that in light of the circumstances described in the preceding sentence and
other relevant facts, the filing of a voluntary petition under the Bankruptcy
Code for the purpose of making the proceeds of any Advance or any other assets
of the Borrower available to satisfy claims of the creditors of the Originator
would not result in making such assets available to satisfy such creditors under
the Bankruptcy Code.
(y) Investment Company Act. The Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(z) ERISA. The present value of all benefits vested under all "employee
pension benefit plans," as such term is defined in Section 3 of ERISA,
maintained by the Borrower, or in which employees of the Borrower are entitled
to participate, as from time to time in effect (herein called the "Pension
Plans"), does not exceed the value of the assets of the Pension Plan allocable
to such vested benefits (based on the value of such assets as of the last annual
violation date). No prohibited transactions, accumulated funding deficiencies,
withdrawals or reportable events have occurred with respect to any Pension Plans
that, in the aggregate, could subject the Borrower to any material tax, penalty
or other liability. No notice of intent to terminate a Pension Plan has been
billed, nor has any Pension Plan been terminated under Section 4041(f) of ERISA,
nor has the Pension Benefit Guaranty Corporation instituted proceedings to
terminate, or appoint a trustee to administer a Pension Plan and no event has
occurred or condition exists that might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Pension Plan.
(aa) Accuracy of Representations and Warranties. Each representation or
warranty by the Borrower contained herein or in any certificate or other
document furnished by the Borrower pursuant hereto or in connection herewith is
true and correct in all material respects.
(bb) Representations and Warranties in Purchase Agreement. The
representations and warranties made by the Originator to the Borrower in the
Purchase Agreement are hereby remade by the Borrower on each date to which they
speak in the Purchase Agreement as if such representations and warranties were
set forth herein. For purposes of this Section 4.1(bb), such representations and
warranties are incorporated herein by reference as if made by the Borrower to
the each Agent and to each of the Lenders under the terms hereof mutatis
mutandis.
Section 4.2 Representations and Warranties of Borrower Relating to the
Agreement and the Contracts.
The Borrower hereby represents and warrants as follows:
(a) Binding Obligation, Valid Transfer and Security Interest.
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(i) This Agreement and each other Transaction Document to
which the Borrower is a party each constitute a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms, except as such enforceability may
be limited by Insolvency Laws and except as such enforceability may be
limited by general principles of equity (whether considered in a suit
at law or in equity).
(ii) This Agreement constitutes a grant of a security interest
in all Assets in the Asset Pool to the Administrative Agent for the
benefit of the Lenders, which upon the filing of the financing
statements described in Section 5.1(e) and, in the case of Contracts
added to the Asset Pool after the Closing Date, on the applicable date
of addition, shall be a first priority perfected security interest in
all Assets in the Asset Pool, subject only to Permitted Liens. Neither
the Borrower nor any Person claiming through or under Borrower shall
have any claim to or interest in the Collection Account, except for the
interest of the Borrower in such property as a debtor for purposes of
the UCC.
(b) Eligibility of Contracts. As of each Funding Date, (i) the
information contained in the related Funding Request delivered pursuant to
Section 2.2 is an accurate and complete listing in all material respects of all
the Contracts in the Asset Pool as of such Funding Date and the information
contained therein with respect to the identity of such Contracts and the amounts
owing thereunder is true and correct in all material respects as of the related
Cut-Off Date, (ii) each such Contract is an Eligible Contract, (iii) each such
Contract and the related Equipment is free and clear of any Lien of any Person
(other than Permitted Liens) and in compliance with all Applicable Law, (iv)
none of the Portfolio Concentration Criteria have been exceeded, (v) with
respect to each such Contract, all consents, licenses, approvals or
authorizations of or registrations or declarations with any Governmental
Authority required to be obtained, effected or given by the Borrower in
connection with the transfer of an interest in such Contract and the related
Equipment to the Administrative Agent for the benefit of the Lenders have been
duly obtained, effected or given and are in full force and effect and (vi) the
representations and warranties set forth in Section 4.2(a) are true and correct
with respect to each Contract transferred on such day as if made on such day.
Section 4.3 Representations and Warranties of the Servicer.
The Servicer represents and warrants as follows:
(a) Organization and Good Standing. The Servicer has been duly
organized and is validly existing as a corporation in good standing under the
laws of the Commonwealth of Pennsylvania, with all requisite corporate power and
authority to own or lease its properties and to conduct its business as such
business is presently conducted and to enter into and perform its obligations
pursuant to this Agreement.
(b) Due Qualification. The Servicer is duly qualified to do business as
a corporation and is in good standing as a corporation, and has obtained all
necessary licenses and approvals in each jurisdiction in which the failure to so
qualify or have such licenses or approvals has not had and would not be
reasonably expected to have a Material Adverse Effect.
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(c) Power and Authority; Due Authorization. The Servicer (i) has all
necessary power, authority and legal right to (A) execute and deliver this
Agreement and the other Transaction Documents to which it is a party, (B) carry
out the terms of the Transaction Documents to which it is a party, and (ii) has
duly authorized by all necessary corporate action the execution, delivery and
performance of this Agreement and the other Transaction Documents to which it is
a party.
(d) Binding Obligation. This Agreement and each other Transaction
Document to which the Servicer is a party constitutes a legal, valid and binding
obligation of the Servicer enforceable against the Servicer in accordance with
its respective terms, except as may be limited by Insolvency Laws.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which it is a party and
the fulfillment of the terms hereof and thereof will not (i) conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, the Servicer's
certificate of incorporation or any Contractual Obligation of the Servicer, (ii)
result in the creation or imposition of any Lien upon any of the Servicer's
properties pursuant to the terms of any such Contractual Obligation, other than
Transaction Documents, or (iii) violate any Applicable Law, the violation of
which could reasonably be expected to have a Material Adverse Effect.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best knowledge of the Servicer, threatened
against the Servicer, before any Governmental Authority (i) asserting the
invalidity of this Agreement or any other Transaction Document to which the
Servicer is a party, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any other Transaction Document to
which the Servicer is a party or (iii) seeking any determination or ruling that
could reasonably be expected to have Material Adverse Effect.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority (if any)
required for the due execution, delivery and performance by the Servicer of this
Agreement and any other Transaction Document to which the Servicer is a party
have been obtained, unless the failure to obtain any of such could not
reasonably be expected to have a Material Adverse Effect.
(h) Year 2000 Plan. The Servicer has initiated a review and assessment
of its computing systems and believes that all computer applications that are
material to its or any of its Affiliates' business or operations are reasonably
expected on a timely basis to be able to perform properly date sensitive
functions for all dates before, on and after January 1, 2000, except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(i) Reports Accurate. All Servicer Certificates and other written and
electronic information, exhibits, financial statements, documents, books,
records or reports furnished by the Servicer to any Agent or a Lender in
connection with this Agreement are accurate, true and correct.
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Section 4.4 Representations and Warranties of the Backup Servicer and
Collateral Custodian.
Each of the Backup Servicer and the Collateral Custodian represents and
warrants as follows:
(a) Organization and Good Standing. It has been duly organized, and is
validly existing as an Illinois banking corporation and in good standing under
the laws of State of Illinois, with all requisite power and authority to own or
lease its properties and to conduct its business as such business is presently
conducted and to enter into and perform its obligations pursuant to this
Agreement.
(b) Due Qualification. It is duly qualified to do business as an
Illinois banking corporation and is in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of its property and or the conduct of its business requires such
qualification, licenses or approvals except where the failure to so qualify or
have such licenses or approvals has not had, and would not be reasonably
expected to have, a Material Adverse Effect.
(c) Power and Authority; Due Authorization. It (i) has all necessary
power, authority and legal right to (A) execute and deliver this Agreement, (B)
carry out the terms of this Agreement, and (ii) has duly authorized by all
necessary action on its part the execution, delivery and performance of this
Agreement.
(d) Binding Obligation. This Agreement constitutes its legal, valid and
binding obligation enforceable against it in accordance with its terms.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof will not (i) conflict
with, result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under, it's
certificate of incorporation or any of its Contractual Obligations, (ii) result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such Contractual Obligation, other than this Agreement, or
(iii) violate any Applicable Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best knowledge of its knowledge, threatened,
against it, before any Governmental Authority (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, or (iii) seeking any determination
or ruling that could reasonably be expected to have Material Adverse Effect.
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(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority (if any)
required for the due execution, delivery and performance by it of this Agreement
have been obtained.
ARTICLE V
GENERAL COVENANTS
Section 5.1 Affirmative Covenants of the Borrower.
From the date hereof until the Collection Date:
(a) Compliance with Laws. The Borrower will comply in all material
respects with all Applicable Laws, including those with respect to the Contracts
and related Equipment in the Asset Pool.
(b) Preservation of Corporate Existence. The Borrower will preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified in good standing
as a foreign corporation in each jurisdiction where the failure to preserve and
maintain such existence, rights, franchises, privileges and qualification has
had, or could reasonably be expected to have, a Material Adverse Effect.
(c) Performance and Compliance with Contracts. The Borrower will, at
its expense, timely and fully perform and comply (or cause the Originator to
perform and comply pursuant to the Purchase Agreement) with all provisions,
covenants and other promises required to be observed by it under the Contracts
in the Asset Pool and all other agreements related to such Contracts.
(d) Keeping of Records and Books of Account. The Borrower will
maintain, or cause to be maintained on its behalf, and implement administrative
and operating procedures (including, without limitation, an ability to recreate
records evidencing Contracts in the event of the destruction of the originals
thereof), and keep and maintain all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Contracts and provide access to any Agent to such information on a periodic
basis, upon reasonable advance notice during normal business hours..
(e) Originator Assets. With respect to each Asset acquired by the
Borrower, the Borrower will (i) acquire such Asset pursuant to and in accordance
with the terms of the Purchase Agreement, (ii) take all action necessary to
perfect, protect and more fully evidence the Borrower's ownership of such Asset,
including, without limitation, (A) filing and maintaining, effective financing
statements (Form UCC-1) against the Originator in all necessary or appropriate
filing offices, and filing continuation statements, amendments or assignments
with respect thereto in such filing offices, and (B) executing or causing to be
executed such other instruments or notices as may be necessary or appropriate,
and (iii) take all additional action that the Administrative Agent may
reasonably request to perfect, protect and more fully evidence the respective
interests of the parties to this Agreement in the Assets.
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(f) Delivery of Collections. The Borrower will pay to the Servicer
promptly (but in no event later than one (1) Business Day after receipt) all
Collections received by Borrower in respect of the Contracts in the Asset Pool.
(g) Separate Corporate Existence. The Borrower shall be in compliance
with the special purpose entity requirements set forth in Section 4.1(w).
(h) Credit and Collection Policy. The Borrower will (a) comply with the
Credit and Collection Policy in regard to each Contract in the Asset Pool, and
(b) furnish to each Agent, prior to its effective date, prompt notice of any
changes in the Credit and Collection Policy. The Borrower will not agree to or
otherwise permit to occur any material change in the Credit and Collection
Policy without the prior consent of each Agent.
(i) Termination Events. The Borrower will provide each Agent with
immediate written notice of the occurrence of each Termination Event and in
addition, no later than three (3) Business Days following the occurrence of any
Termination Event, the Borrower will provide to the Administrative Agent a
written statement of the chief financial officer or chief accounting officer of
Borrower setting forth the details of such event and the action that the
Borrower proposes to take with respect thereto.
(j) Year 2000 Compatibility. The Borrower will modify its computer and
other systems used in connection with its obligations hereunder to operate in
such a manner such that on and after January 1, 2000 the Borrower can operate
its business in the same manner as it is operating on the date hereof. The
Borrower shall certify in writing to each Agent no later than August 31, 1999
that it is compliance with this Section 5.1(j).
(k) Taxes. The Borrower will file and pay, or cause to be filed and
paid on its behalf, any and all Taxes required to meet the obligations of the
Transaction Documents.
(l) Use of Proceeds. The Borrower will use the proceeds of the Advances
only to acquire Assets, run its day-to-day operations or to pay dividends to its
shareholders.
(m) [reserved].
(n) Adverse Claims. The Borrower will not create, or participate in the
creation of, or permit to exist, any Adverse Claims in relation to each Lock-Box
Account other than as disclosed and existing as of the date of this Agreement.
(o) Reporting. The Borrower will maintain, or cause to be maintained,
for itself a system of accounting established and administered in accordance
with GAAP and furnish to each Agent:
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(i) Monthly Reports. Not later than the third Business Day
preceding each Payment Date, a Monthly Report relating to the
immediately preceding Collection Period;
(ii) Income Tax Liability. Within ten (10) Business Days after
the receipt of revenue agent reports or other written proposals,
determinations or assessments of the Internal Revenue Service or any
other taxing authority which propose, determine or otherwise set forth
positive adjustments to the Tax liability of any Affiliated group
(within the meaning of section 1504(a)(l) of the Internal Revenue Code
of 1986 (as amended from time to time)) which equal or exceed
$1,000,000 in the aggregate, telephonic, telex or telecopied notice
(confirmed in writing within five (5) Business Days) specifying the
nature of the items giving rise to such adjustments and the amounts
thereof;
(iii) Tax Returns. Upon demand by to any Agent, copies of all
federal, state and local Tax returns and reports filed by the Borrower,
or in which the Borrower was included on a consolidated or combined
basis (excluding sales, use and like taxes);
(iv) Auditors' Management Letters. Promptly after any
auditors' management letters are received by the Borrower or by its
accountants which refer in whole or in part to any inadequacy, defect,
problem, qualification or other lack of fully satisfactory accounting
controls utilized by the Borrower;
(v) Representations. Forthwith upon receiving knowledge of
same, the Borrower shall notify each Agent if any representation or
warranty set forth in Section 4.1 or 4.2 was incorrect at the time it
was given or deemed to have been given and at the same time deliver to
each Agent a written notice setting forth in reasonable detail the
nature of such facts and circumstances. In particular, but without
limiting the foregoing, the Borrower shall notify the Lender in the
manner set forth in the preceding sentence before any Funding Date of
any facts or circumstances within the knowledge of the Borrower which
would render any of the said representations and warranties untrue at
the date when such representations and warranties were made or deemed
to have been made;
(vi) ERISA. Promptly after receiving notice of any "reportable
event" (as defined in Title IV of ERISA) with respect to the Borrower
(or any Affiliate thereof), a copy of such notice;
(vii) Proceedings. As soon as possible and in any event within
three Business Days after any executive officer of the Borrower
receives notice or obtains knowledge thereof, any settlement of,
material judgment (including a material judgment with respect to the
liability phase of a bifurcated trial) in or commencement of any labor
controversy (of a material nature), litigation, action, suit or
proceeding before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign,
affecting the Borrower or any of its Affiliates;
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(viii) Credit and Collection Policy. No later than March 31,
June 30, September 30 and December 31 of each calendar year, provide to
each Agent an updated copy of the Credit and Collection Policy, showing
all changes (all such changes to be highlighted or otherwise
conspicuously indicated) made thereto since the last copy of the Credit
and Collection Policy was delivered to such Agent; and
(ix) Notice of Material Events. Promptly upon becoming aware
thereof, notice of any other event or circumstances that, in the
reasonable judgment of the Borrower, is likely to have a Material
Adverse Effect.
(p) Other. The Borrower will furnish to any Agent promptly, from time
to time, such other information, documents, records or reports respecting the
Assets or the condition or operations, financial or otherwise, of Borrower or
Originator as such Agent may from time to time reasonably request in order to
protect the interests of any Agent or the Lenders under or as contemplated by
this Agreement.
Section 5.2 Negative Covenants of the Borrower.
From the date hereof until the Collection Date:
(a) Other Business. Borrower will not (i) engage in any business other
than the transactions contemplated by the Transaction Documents, (ii) incur any
indebtedness, obligation, liability or contingent obligation of any kind other
than pursuant to this Agreement, the B-Note or under any Hedging Agreement
required by Section 5.3(a), or (iii) form any Subsidiary or make any Investments
in any other Person.
(b) Contracts Not to be Evidenced by Instruments. The Borrower will
take no action to cause any Contract that is not, as of the Closing Date or as
of the date such Contract is added to the Asset Pool, as the case may be,
evidenced by an Instrument, to be so evidenced except in connection with the
enforcement or collection of such Contract.
(c) Security Interests. The Borrower will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer to exist
any Lien on any Contract in the Asset Pool or related Equipment, whether now
existing or hereafter arising, or any interest therein, and the Borrower will
not sell, pledge, assign or suffer to exist any Lien on its interest, if any,
hereunder. The Borrower will promptly notify each Agent of the existence of any
Lien on any Contract in the Asset Pool or related Equipment and the Borrower
shall defend the right, title and interest of the Administrative Agent as agent
for the Lenders in, to and under the Contracts in the Asset Pool and the related
Equipment, against all claims of third parties, provided, however, that nothing
in this Section 5.2(c) shall prevent or be deemed to prohibit the Borrower from
suffering to exist Permitted Liens upon any of the Contracts in the Asset Pool
or any related Equipment.
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(d) Mergers, Acquisitions, Sales, etc. The Borrower will not be a party
to any merger or consolidation, or purchase or otherwise acquire all or
substantially all of the assets or any stock of any class of, or any partnership
or joint venture interest in, any other Person, or, sell, transfer, convey or
lease all or any substantial part of its assets, or sell or assign with or
without recourse any Contracts or any interest therein (other than pursuant
hereto or to the Purchase Agreement).
(e) Deposits to Special Accounts. The Borrower will not deposit or
otherwise credit, or cause or permit to be so deposited or credited, to any
Lock-Box Account cash or cash proceeds other than Collections in respect of
Contracts in the Asset Pool; provided, however, that Fidelity in its capacity as
Servicer hereunder may commingle proceeds of the Assets with proceeds of
Fidelity's assets in a single lockbox account until such time following a
Termination Event that the Administrative Agent requires a separate Lock-Box
Account to be established into which only Collections may be deposited or
credited.
(f) Distributions. The Borrower shall not declare or pay, directly or
indirectly, any dividend or make any other distribution (whether in cash or
other property) with respect to the profits, assets or capital of the Borrower
or any Person's interest therein, or purchase, redeem or otherwise acquire for
value any of its capital stock now or hereafter outstanding, except that so long
as no Termination Event has occurred and is continuing or would result
therefrom, the Borrower may declare and pay cash or stock dividends on its
capital stock.
(g) Change of Name or Location of Contract Files. The Borrower shall
not (x) change its name, move the location of its principal place of business
and chief executive office, and the offices where it keeps the records from the
location referred to in Section 13.2 or (y) move, or consent to the Collateral
Custodian or Servicer moving, the Contract Files from the location thereof on
the Closing Date, unless the Borrower has given at least thirty (30) days'
written notice to each Agent and has taken all actions required under the UCC of
each relevant jurisdiction in order to continue the first priority perfected
security interest of the Administrative Agent, for the benefit of the Lenders,
in all Assets in the Asset Pool.
(h) Accounting of Advances. Other than for federal, state and local
income tax purposes, the Borrower will not account for or treat (whether in
financial statements or otherwise) the transactions contemplated by the Purchase
Agreement in any manner other than as the sale, or absolute assignment, of
Assets by the Originator to the Borrower.
(i) ERISA Matters. The Borrower will not (a) engage or permit any ERISA
Affiliate to engage in any prohibited transaction for which an exemption is not
available or has not previously been obtained from the United States Department
of Labor, (b) permit to exist any accumulated funding deficiency, as defined in
Section 302(a) of ERISA and Section 412(a) of the Code, or funding deficiency
with respect to any Benefit Plan other than a Multiemployer Plan, (c) fail to
make any payments to a Multiemployer Plan that the Borrower or any ERISA
Affiliate may be required to make under the agreement relating to such
Multiemployer Plan or any law pertaining thereto, (d) terminate any Benefit Plan
so as to result in any liability, or (e) permit to exist any occurrence of any
reportable event described in Title IV of ERISA.
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(f) Certificate of Incorporation; Purchase Agreement. The Borrower will
not amend, modify, waive or terminate any provision of its certificate of
incorporation or the Purchase Agreement, without the prior written consent of
each Agent.
(g) Changes in Payment Instructions to Obligors. The Borrower will not
add or terminate any bank as a Lock-Box Bank or any Lock-Box Account from those
listed in Schedule II or make any change, or permit Servicer to make any change,
in its instructions to Obligors regarding payments to be made to Borrower or
Servicer or payments to be made to any Lock-Box Bank, unless the Administrative
Agent shall has consented to such addition, termination or change and has
received duly executed copies of Lock-Box Agreements with each new Lock-Box Bank
or with respect to each new Lock-Box Account, as the case may be.
(h) Extension or Amendment of Contracts. The Borrower will not, except
as otherwise permitted in Section 6.4(a), extend, amend or otherwise modify, or
permit the Servicer to extend, amend or otherwise modify, the terms of any
Contract.
Section 5.3 Covenants of the Borrower Relating to the Hedging of
Contracts.
(a) On or prior to each Funding Date, the Borrower shall enter into one
or more Hedge Transactions for that Advance, provided that each such Hedge
Transaction shall:
(i) be entered into with a Hedge Counterparty and governed by
a Hedging Agreement;
(ii) have a schedule of monthly payment periods the first of
which commences on the Funding Date of that Advance and the last of
which ends on the last Scheduled Payment due to occur under the
Contracts to which that Advance relates;
(iii) have an amortizing notional amount such that the Hedge
Notional Amount in effect on any day shall be at least equal to the
Hedge Percentage of the Advances Outstanding on such day; and
(iv) provide for two series of monthly payments to be netted
against each other, one such series being payments to be made by the
Borrower to a Hedge Counterparty (solely on a net basis) by reference
to a fixed rate to be used in computing the Discount Rate for that
Advance, and the other such series being payments to be made by the
Hedge Counterparty to the related Managing Agent (solely on a net
basis) at a floating rate equal to either (x) "USD-LIBOR-BBA" (as
defined in the ISDA Definitions) or (y) "USD-CP-H.15" (as defined in
the ISDA Definitions), the net amount of which shall be paid into the
Collection Account (if payable by the Hedge Counterparty) or from the
Collection Account to the extent funds are available under Section 2.7
or 2.8, whichever is applicable, of this Agreement (if payable by the
Borrower);
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(b) As additional security hereunder, Borrower hereby assigns to the
Administrative Agent, for the benefit of the Lenders, all right, title and
interest of Borrower in each Hedging Agreement, each Hedge Transaction, and all
present and future amounts payable by a Hedge Counterparty to Borrower under or
in connection with the respective Hedging Agreement and Hedge Transaction(s)
with that Hedge Counterparty ("Hedge Collateral"), and grants a security
interest to the Administrative Agent, for the benefit of the Lenders, in the
Hedge Collateral. Borrower acknowledges that, as a result of that assignment,
Borrower may not, without the prior written consent of the Administrative Agent,
exercise any rights under any Hedging Agreement or Hedge Transaction, except for
Borrower's right under any Hedging Agreement to enter into Hedge Transactions in
order to meet the Borrower's obligations under Section 5.3(a) hereof. Nothing
herein shall have the effect of releasing the Borrower from any of its
obligations under any Hedging Agreement or any Hedge Transaction, nor be
construed as requiring the consent of any Agent or any Lender for the
performance by Borrower of any such obligations.
Section 5.4 Affirmative Covenants of the Servicer.
From the date hereof until the Collection Date:
(a) Compliance with Law. The Servicer will comply in all material
respects with all Applicable Laws, including those with respect to the Contracts
in the Asset Pool and related Equipment and Contract Files or any part thereof.
(b) Preservation of Corporate Existence. The Servicer will preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified in good standing
as a foreign corporation in each jurisdiction where the failure to preserve and
maintain such existence, rights, franchises, privileges and qualification has
had, or could reasonably be expected to have, a Material Adverse Effect.
(c) Obligations and Compliance with Contracts. The Servicer will duly
fulfill and comply with all obligations on the part of the Borrower to be
fulfilled or complied with under or in connection with each Contract in the
Asset Pool and will do nothing to impair the rights of the Administrative Agent
on behalf of the Lenders or of the Lenders in, to and under the Assets.
(d) Keeping of Records and Books of Account. The Servicer will maintain
and implement administrative and operating procedures (including without
limitation, an ability to recreate records evidencing Contracts in the event of
the destruction of the originals thereof), and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Contracts and provide access to such information to each Agent
on a periodic basis, upon reasonable advance notice during normal business
hours.
(e) Preservation of Security Interest. The Servicer will execute and
file such financing and continuation statements and any other documents that may
be required by any law or regulation of any Governmental Authority to preserve
and protect fully the security interest of the Administrative Agent for the
benefit of the Lenders in, to and under the Assets, including, without
limitation, with respect to any replacement of Equipment upon a Casualty Loss.
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(f) Credit and Collection Policy. The Servicer will (a) comply in all
material respects with the Credit and Collection Policy in regard to each
Contract in the Asset Pool, and (b) furnish to each Agent, prior to its
effective date, prompt notice of any material change in the Credit and
Collection Policy. The Servicer will not agree to or otherwise permit to occur
any material change in the Credit and Collection Policy.
(g) Termination Events. The Servicer will furnish to each Agent, as
soon as possible and in any event within three (3) Business Days after the
occurrence of each Termination Event, a written statement of the chief financial
officer or chief accounting officer of the Servicer setting forth the details of
such event and the action that the Servicer purposes to take with respect
thereto.
(h) Year 2000 Compatibility. The Servicer shall modify its computer and
other systems to operate in a manner such that on and after January 1, 2000 (i)
the Servicer can service the Contracts in accordance with the terms of this
Agreement and (ii) the Servicer can operate its business in the same manner as
it is opeation on the date hereof. The Servicer shall certify in wrting to each
Agent no later than August 31, 1999 that it is in compliance with this Section
5.4(d).
(i) Lock-Box and Lock-Box Accounts. Following receipt by the Borrower
of written notice after the occurrence of a Termination Event, the Borrower
shall (i) deliver to the Administrative Agent for the benefit of the Lenders,
executed copies of a Lock-Box Agreement substantially in the form of Exhibit B
or in such form as to which the Administrative Agent may consent and (ii)
instruct, or cause the Servicer to instruct all Obligors to deposit all
collection to the Lock-Box Accounts.
(j) Other. The Servicer will furnish to each Agent, promptly, from time
to time, such other information, documents, records or reports respecting the
Assets or the condition or operations, financial or otherwise, of Borrower or
the Servicer as any Agent may from time to time reasonably request in order to
protect the interests of any Agent or Lender under or as contemplated by this
Agreement.
Section 5.5 Negative Covenants of the Servicer.
From the date hereof until the Collection Date:
(a) Deposits to Special Accounts. The Servicer will not deposit or
otherwise credit, or cause or permit to be so deposited or credited, to any
Lock-Box Account cash or cash proceeds other than Collections in respect of
Contracts in the Asset Pool.
(b) Mergers, Acquisition, Sales, etc. The Servicer will not consolidate
with or merge into any other Person or convey or transfer its properties and
assets substantially as an entirety to any Person, unless the Servicer is the
surviving entity and unless:
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(i) the Servicer has delivered to each Agent and the Backup
Servicer an Officer's Certificate and an Opinion of Counsel each
stating that any consolidation, merger, conveyance or transfer comply
with this Section 5.5 and that all conditions precedent herein provided
for relating to such transaction have been complied with and, in the
case of the Opinion of Counsel, such matters as any Agent may
reasonably request;
(ii) the Servicer shall have delivered notice of such
consolidation, merger, conveyance or transfer to each Agent;
(iii) after giving effect thereto, no Termination Event or
Servicer Termination Event or event that with notice or lapse of time
would constitute either a Termination Event or a Servicer Termination
Event shall have occurred.
(c) Change of Name or Location of Contract Files. The Servicer shall
not (x) change its name, move the location of its principal place of business
and chief executive office, and the offices where it keeps records concerning
the Contracts from the location referred to in Section 13.2 or (y) move, or
consent to the Collateral Custodian moving, the Contract Files from the location
thereof on the Closing Date, unless the Servicer has given at least thirty (30)
days' written notice to each Agent and has taken all actions required under the
UCC of each relevant jurisdiction in order to continue the first priority
perfected security interest of the Administrative Agent as agent for the benefit
of the Lenders in all Assets in the Asset Pool.
(d) Change in Payment Instructions to Obligors. The Servicer will not
add or terminate any bank as a Lock-Box Bank or any Lock-Box Account from those
listed in Schedule II or make any change in its instructions to Obligors
regarding payments to be made to the Borrower or the Servicer or payments to be
made to any Lock-Box Bank, unless each Agent has consented to such addition,
termination or change and has received duly executed copies of Lock-Box
Agreements with each new Lock-Box Bank or with respect to each new Lock-Box
Account, as the case may be.
(e) Extension or Amendment of Contracts. The Servicer will not, except
as otherwise permitted in Section 6.4(a), extend, amend or otherwise modify the
terms of any Contract.
Section 5.6 Affirmative Covenants of the Backup Servicer.
From the date hereof until the Collection Date:
(a) Compliance with Law. The Backup Servicer will comply in all
material respects with all Applicable Laws.
(b) Preservation of Existence. The Backup Servicer will preserve and
maintain its existence, rights, franchises and privileges in the jurisdiction of
its formation, and qualify and remain qualified in good standing in each
jurisdiction where the failure to preserve and maintain such existence, rights
franchises, privileges and qualification has had a Material Adverse Effect.
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(c) Year 2000 Plan. The Backup Servicer has taken, or will by December
31, 1999 have taken, all steps necessary and appropriate to prevent any material
problems in its computer and information systems relating soley to its role as
Backup Servicer arising from or in connection with the information processing
challenges associated with the Year 2000 and the Backup Servicer shall continue
to take all steps outlined in its Year 2000 Readiness Disclosure dated April 8,
1999 to ensure Year 2000 computer readiness.
Section 5.7 Negative Covenants of the Backup Servicer.
From the date hereof until the Collection Date.
(a) No Changes in Backup Servicer Fee. The Backup Servicer will not
make any changes to the Backup Servicing Fee set forth in the Backup Servicer
and Collateral Custodian Fee Letter without the prior written approval of each
Agent.
Section 5.8 Affirmative Covenants of the Collateral Custodian.
From the date hereof until the Collection Date:
(a) Compliance with Law. The Collateral Custodian will comply in all
material respects with all Applicable Laws.
(b) Preservation of Existence. The Collateral Custodian will preserve
and maintain its existence, rights, franchises and privileges in the
jurisdiction of its formation and qualify and remain qualified in good standing
in each jurisdiction where failure to preserve and maintain such existence,
rights, franchises, privileges and qualification has had a Material Adverse
Effect.
(c) Location of Contract Files. The Contract Files shall remain at all
times in the possession of the Collateral Custodian at the address set forth
herein unless notice of a different address is given in accordance with the
terms hereof.
(d) Year 2000 Plan. The Collateral Custodian has taken, or will by
December 31, 1999 have taken, all steps necessary and appropriate to prevent any
material problems in its computer and information systems relating soley to its
role as Collateral Custodian arising from or in connection with the information
processing challenges associated with the Year 2000 and the Collateral Custodian
shall continue to take all steps outlined in its Year 2000 Readiness Disclosure
dated April 8, 1999 to ensure Year 2000 computer readiness.
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Section 5.9 Negative Covenants of the Collateral Custodian.
From the date hereof until the Collection Date:
(a) Contract Files. The Collateral Custodian will not dispose of any
documents constituting the Contract Files in any manner that is inconsistent
with the performance of its obligations as the Collateral Custodian pursuant to
this Agreement and will not dispose of any Contract except as contemplated by
this Agreement.
(b) No Changes in Collateral Custodian fee. The Collateral Custodian
will not make any changes to the Collateral Custodian fee set forth in the
Backup Servicer and Collateral Custodian Fee Letter without the prior written
approval of each Agent.
Section 5.10 Release of Lien on Equipment.
At the same time as (a) any Contract in the Collateral expires by its
terms and all amounts in respect thereof have been paid by the related Obligor
and deposited in the Collection Account or (b) any Contract becomes a Prepaid
Contract and all amounts in respect thereof have been paid by the related
Obligor and deposited in the Collection Account, the Administrative Agent on
behalf of the Lenders shall be deemed to release its interest in such Contract
and the related Equipment and, at the Servicer's sole expense, will take any
actions and execute any documents in respect of such release reasonably
requested by the Servicer; provided, however, that the Administrative Agent on
behalf of the Lenders will make no representation or warranty, express or
implied, with respect to any such Contract or Equipment. Nothing in this section
shall diminish the Servicer's obligations pursuant to Section 6.4 with respect
to the proceeds of any such sale.
Section 5.11 Release of Ineligible Contracts.
In the event of a breach of any representation or warranty set forth in
Section 4.2 with respect to a Contract in the Collateral (each such Contract, an
"Ineligible Contract"), no later than the earlier of (i) knowledge by the
Borrower of such Contract becoming an Ineligible Contract and (ii) receipt by
the Borrower from an Agent or Servicer of written notice thereof, the Borrower
shall either (a) accept the release of each such Ineligible Contract and any
related Equipment selected by the Servicer as to which such breach related, and
the Administrative Agent on behalf of the Lenders shall release to the Borrower,
without recourse, representation or warranty, all of its right, title and
interest in such Ineligible Contract; or (b) subject to the satisfaction of the
conditions in Section 2.13, substitute for such Ineligible Contract a Substitute
Contract. In any of the foregoing instances, the Borrower shall accept the
retransfer of each such Ineligible Contract, and the ADCB shall be reduced by
the Discounted Contract Balance of each such Ineligible Contract and, if
applicable, increased by the Discounted Contract Balance of each such Substitute
Contract. On and after the date of retransfer, the Ineligible Contract so
retransferred shall not be included in the Collateral and, as applicable, the
Substitute Contract shall be included in the Collateral. If no substitution is
made, then in consideration of such retransfer, without substitution, the
Borrower shall, on the date of retransfer of such Ineligible Contract, make a
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deposit to the Collection Account (for allocation pursuant to Sections 2.7 and
2.8, as applicable) in immediately available funds in an amount equal to the
Discounted Contract Balance of such Ineligible Contract. Upon each retransfer to
the Borrower of such Ineligible Contract, the Administrative Agent, on behalf of
the Lenders, shall automatically and without further action be deemed to release
to the Borrower, without recourse, representation or warranty, all the right,
title and interest of the Administrative Agent, on behalf of the Lenders, to and
under such Ineligible Contract and all monies due or to become due with respect
thereto, the related Equipment and all proceeds of such Ineligible Contract and
Recoveries and Insurance Proceeds relating thereto and all rights to security
for any such Ineligible Contract, and all proceeds and products of the
foregoing. The Administrative Agent, on behalf of the Lenders, shall, at the
sole expense of the Servicer execute such documents and instruments of release
as may be prepared by the Servicer on behalf of the Borrower and take other such
actions as shall reasonably be requested by the Borrower to effect the transfer
of such Ineligible Contract pursuant to this subsection.
Section 5.12 Retransfer of Assets.
In the event of a breach of any representation or warranty set forth in
Section 4.2 hereof which breach could reasonably be expected to have a Material
Adverse Effect, by notice then given in writing to the Borrower, any Agent may
direct the Borrower to accept the release of all of the Assets, in which case
the Borrower shall be obligated to accept release of such Assets on a Payment
Date specified by the Borrower (such date, the "Release Date") and to terminate
all Hedge Transactions prior to the Release Date. The Borrower shall deposit on
the Release Date an amount equal to the deposit amount provided below for such
Assets in the Collection Account for distribution to the Lenders and Hedge
Counterparties in accordance with Section 2.7 or 2.8, as applicable. The deposit
amount (the "Release Amount") for such release will be equal to the (a) sum of
(i) the Aggregate Unpaids, (ii) all Interest accrued and to accrue, as
reasonably determined by the related Managing Agent, and (iii) all Hedge
Breakage Costs and any other amounts payable by Borrower under or with respect
to any Hedging Agreement minus (b) the amount, if any, available in the
Collection Account on such Payment Date. On the Release Date, provided that full
Release Amount has been deposited into the Collection Account, the security
interest of the Lenders in the Assets shall be transferred to the Borrower; and
the Administrative Agent on behalf of the Lenders shall, at the sole expense of
the Servicer, execute and deliver such instruments of release, in each case
without recourse, representation or warranty, as shall be prepared and
reasonably requested by the Servicer on behalf of the Borrower. If any Agent
gives a notice directing the Borrower to accept such a release as provided
above, the obligation of Borrower to accept a release pursuant to this Section
5.12 shall constitute the sole remedy respecting a breach of the representations
and warranties contained in Section 4.2 available to the Lenders and each Agent
on behalf of the Lenders.
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ARTICLE VI
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 6.1 Designation of the Servicer.
(a) Initial Servicer. The servicing, administering and collection of
the Assets shall be conducted by the Person designated as the Servicer hereunder
from time to time in accordance with this Section 6.1. Until each Agent gives to
Fidelity a Servicer Termination Notice, Fidelity is hereby designated as, and
hereby agrees to perform the duties and responsibilities of, the Servicer
pursuant to the terms hereof.
(b) Successor Servicer. Upon the Originator's receipt of a notice from
the Agents of the designation of a new Servicer pursuant to the terms of Section
6.16, the Originator agrees that it will terminate its activities as Servicer
hereunder in a manner that the Agents reasonably believe will facilitate the
transition of the performance of such activities to a new Servicer, and the new
Servicer shall assume each and all of the Originator's obligations to service
and administer such Assets, on the terms and subject to the conditions herein
set forth, and the Originator shall use its best efforts to assist the new
Servicer in assuming such obligations.
(c) Subcontracts. The Servicer may, with the prior consent of each
Agent, subcontract with any other Person for servicing, administering or
collecting the Assets; provided, however, the prior consent of each Agent shall
not be required in connection with any subcontracting by the Servicer of (i) the
preparation and filing of UCC financing statements covering any Equipment or
(ii) the repossession of any Equipment in the event the Contract covering such
Equipment becomes a Defaulted Contract; provided, further, that the Servicer
shall remain liable for the performance of the duties and obligations of the
Servicer pursuant to the terms hereof and that any such subcontract may be
terminated upon the occurrence of a Servicer Termination Event.
(d) Servicing Programs. In the event that the Servicer uses any
software program in servicing the Assets that it licenses from a third party,
the Servicer shall use its best efforts to obtain whatever licenses or approvals
are necessary to allow each Agent or the Servicer to use such program if a
successor Servicer is appointed.
Section 6.2 Duties of the Servicer.
(a) Appointment. The Borrower hereby appoints the Servicer as its
agent, as from time to time designated pursuant to Section 6.1, to service the
Assets and enforce its respective rights in and under each Asset. The Servicer
hereby accepts such appointment and agrees to perform the duties and obligations
with respect thereto set forth herein. The Servicer and the Borrower hereby
acknowledge that each Agent and the Lenders are third party beneficiaries of the
obligations undertaken by the Servicer hereunder.
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(b) Duties. The Servicer shall take or cause to be taken all such
actions as may be necessary or advisable to collect each Contract in the Asset
Pool from time to time, all in accordance with Applicable Laws, using that
degree of skill and attention that a prudent person engaging in such activities
would exercise, but in any event shall not act with less skill or attention than
the Servicer exercises with respect to all comparable contracts that it services
for itself and others with reasonable care and diligence, and in accordance with
the Credit and Collection Policy. Without limiting the foregoing, the duties of
the Servicer shall include the following:
(i) preparing and submitting of claims to, and post-billing
liaison with, Obligors on Contracts;
(ii) maintaining all necessary servicing records with respect
to the Contracts and providing such reports to each Agent in respect of
the servicing of the Contracts (including information relating to its
performance under this Agreement) as may be required hereunder or as
any Agent may reasonably request;
(iii) maintaining and implementing administrative and
operating procedures (including, without limitation, an ability to
recreate servicing records evidencing the Contracts in the event of the
destruction of the originals thereof) and keeping and maintaining all
documents, books, records and other information reasonably necessary or
advisable for the collection of the Contract;
(iv) promptly delivering to any Agent or the Collateral
Custodian, from time to time, such information and servicing records
(including information relating to its performance under this
Agreement) as such Agent or the Collateral Custodian may from time to
time reasonably request;
(v) identifying each Contract clearly and unambiguously in its
servicing records to reflect that such Contract is owned by the
Borrower and that the Borrower is selling an undivided ownership
interest therein to the Lenders pursuant to this Agreement;
(vi) notifying each Agent of any material action, suit,
proceeding, dispute, offset deduction, defense or counterclaim that is
or is threatened to be (1) asserted by an Obligor with respect to any
Contract; or (2) reasonably expected to have a Material Adverse Effect;
(vii) notifying each Agent of any proposed change in the
Credit and Collections Policies that could have an adverse effect on
the collectibility of the Assets in the Asset Pool, on the Borrower or
on the interests of each Agent or any Lender; and
(viii) using its best efforts to maintain the perfected
security interest of the Administrative Agent, for the benefit of the
Lenders, in the Contracts;
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(c) The Lenders, each Agent and the Collateral Custodian shall not have
any obligation or liability with respect to any Contract in the Asset Pool, nor
shall any of them be obligated to perform any of the obligations of the Servicer
hereunder.
Section 6.3 Authorization of the Servicer.
(a) Each of the Borrower, the Managing Agents and the Administrative
Agent on behalf of the Lenders and each Hedge Counterparty hereby authorizes the
Servicer (including any successor thereto) to take any and all reasonable steps
in its name and on its behalf necessary or desirable and not inconsistent with
the sale of the Assets to the Lender, each Hedge Counterparty, and the
Collateral Custodian, in the determination of the Servicer, to collect all
amounts due under any and all Contracts, including, without limitation,
endorsing any of their names on checks and other instruments representing
Collections, executing and delivering any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Contracts and, after the delinquency
of any Contract and to the extent permitted under and in compliance with
Applicable Law, to commence proceedings with respect to enforcing payment
thereof, to the same extent as the Originator could have done if it had
continued to own such Contract. The Originator, the Borrower, the Managing
Agents and the Administrative Agent on behalf of the Lenders and each Hedge
Counterparty shall furnish the Servicer (and any successors thereto) with any
powers of attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder, and
shall cooperate with the Servicer to the fullest extent in order to ensure the
collectibility of the Contracts. In no event shall the Servicer be entitled to
make any Lender, any Hedge Counterparty, the Collateral Custodian or any Agent a
party to any litigation without such party's express prior written consent, or
to make the Borrower a party to any litigation (other than any routine
foreclosure or similar collection procedure) without the Managing Agent's
consent.
(b) After a Termination Event has occurred and is continuing, at any
Agent's direction the Servicer shall take such action as each Agent may deem
necessary or advisable to enforce collection of the Contracts; provided,
however, that any Agent may, at any time that a Termination Event has occurred
and is continuing, notify any Obligor with respect to any Contracts of the
assignment of such Contracts to each Agent and direct that payments of all
amounts due or to become due be made directly to such Agent or any servicer,
collection agent or lockbox or other account designated by any Agent and, upon
such notification and at the expense of the Borrower, such Agent may enforce
collection of any such Contracts and adjust, settle or compromise the amount or
payment thereof.
Section 6.4 Collection of Payments.
(a) Collection Efforts, Modification of Contracts. The Servicer will
use its ordinary and customary efforts that it uses for contracts owned by it
and/or serviced by it for third parties to collect all payments called for under
the terms and provisions of the Contracts in the Asset Pool as and when the same
become due in accordance with the Credit and Collection Policy, and will follow
those collection procedures that it follows with respect to all comparable
Contracts that it services for itself or others. The Servicer may in its
discretion, and in accordance with the Credit and Collection Policy, waive,
modify or otherwise vary any provision of a Contract.
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(b) Prepaid Contract. Prior to a Termination Event, the Servicer may
not permit a Contract in the Asset Pool to become a Prepaid Contract (which
shall not include a Contract that becomes a Prepaid Contract due to a Casualty
Loss), unless (x) the Servicer provides an Additional Contract or (y) such
prepayment will not result in the Collection Account receiving an amount (the
"Prepayment Amount") less than the sum of (A) the Discounted Contract Balance on
the date of such prepayment calculated using the applicable Blended Discount
Rate in effect on the date of such payment, (B) any outstanding Servicer
Advances thereon (and any accrued and unpaid interest thereon) and (C) all Hedge
Breakage Costs owing to the relevant Hedge Counterparty for any termination of
one or more Hedge Transactions, in whole or in part, as required by the terms of
any Hedging Agreement as the result of any such Contract becoming a Prepaid
Contract. After a Termination Event has occurred, the Servicer may not permit a
Contract in the Asset Pool to become a Prepaid Contract (which shall not include
a Contract that becomes a Prepaid Contract due to a Casualty Loss), unless the
Servicer collects an amount equal to the sum of (A) the Discounted Contract
Balance on the date of such prepayment calculated using the applicable Blended
Discount Rate in effect on the date of payment, (B) any outstanding Servicer
Advances thereon (and to the extent not included therein any accrued and unpaid
interest thereon) and (C) all Hedge Breakage Costs owing to the relevant Hedge
Counterparty for any termination of one or more Hedge Transactions, in whole or
in part, as required by the terms of any Hedging Agreement as the result of any
such Contract becoming a Prepaid Contract.
(c) Acceleration. The Servicer shall accelerate the maturity of all or
any Scheduled Payments under any Contract in the Asset Pool under which a
default under the terms thereof has occurred and is continuing (after the lapse
of any applicable grace period) promptly after such Contract becomes a Defaulted
Contract.
(d) Taxes and other Amounts. To the extent provided for in any Contract
in the Asset Pool, the Servicer will use its best efforts to collect all
payments with respect to amounts due for taxes, assessments and insurance
premiums relating to such Contracts and the Equipment and remit such amounts to
the appropriate Governmental Authority or insurer on or prior to the date such
payments are due.
(e) Payments to Lock-Box Account. On or before the Closing Date with
respect to the Contracts in the Asset Pool on the Closing Date and on or before
the date that any additional Contract is added to the Asset Pool after the
Closing Date, the Servicer shall have instructed all Obligors to make all
payments in respect of the Contracts in the Asset Pool to the Lock-Box or
directly to the Lock-Box Account.
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(f) Establishment of the Collection Account. The Servicer shall cause
to be established, on or before the Closing Date, and maintained in the name of
the Borrower, with an office or branch of a depository institution or trust
company a segregated corporate trust account entitled Collection Account (the
"Collection Account"); provided, however, that at all times such depository
institution or trust company shall be a depository institution organized under
the laws of the United States of America or any one of the States thereof or the
District of Columbia (or any domestic branch of a foreign bank), (i) (A) that
has either (1) a long-term unsecured debt rating of AA- or better by S&P and
AA-3 or better by Moody's or (2) a short-term unsecured debt rating or
certificate of deposit rating of A-1 or better by S&P or P-1 or better by
Moody's, (B) the parent corporation which has either (1) a long-term unsecured
debt rating of AA- or better by S&P and AA-3 or better by Moody's or (2) a
short-term unsecured debt rating or certificate of deposit rating of A-1 or
better by S&P and P-1 or better by Moody's or (C) is otherwise acceptable to the
Administrative Agent and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation (any such depository institution or trust company, a
"Qualified Institution").
(g) Adjustments. If (i) the Servicer makes a deposit into the
Collection Account in respect of a Collection of a Contract in the Asset Pool
and such Collection was received by the Servicer in the form of a check that is
not honored for any reason or (ii) the Servicer makes a mistake with respect to
the amount of any Collection and deposits an amount that is less than or more
than the actual amount of such Collection, the Servicer shall appropriately
adjust the amount subsequently deposited into the Collection Account to reflect
such dishonored check or mistake. Any Scheduled Payment in respect of which a
dishonored check is received shall be deemed not to have been paid.
Section 6.5 Servicer Advances.
For each Collection Period, if the Servicer determines that any
Scheduled Payment (or portion thereof) that was due and payable pursuant to a
Contract in the Asset Pool during such Collection Period was not received prior
to the last day of such Collection Period, the Servicer shall make an advance in
an amount up to the amount of such delinquent Scheduled Payment (or portion
thereof); in addition, if on any day there are not sufficient funds on deposit
in the Collection Account to pay accrued Interest of all Advances, the Servicer
shall make an advance in the amount necessary to pay such Interest (in either
case, any such advance, a "Servicer Advance"). Notwithstanding the preceding
sentence, (i) the Servicer shall be required to make a Servicer Advance with
respect to any Contract if, and only if, the Servicer determines (such
determination to be conclusive and binding) in good faith that such Servicer
Advance will ultimately be recoverable from future collections on, or the
liquidation of, the Asset Pool and payments by one or more Hedge Counterparties
under one or more Hedging Agreements, and (ii) the Servicer's obligation to make
a Servicer Advance for any Contract shall cease on the day such Contract becomes
a Defaulted Contract. The Servicer will deposit the Lender Group Share of any
Servicer Advances into the Collection Account on or prior to 11:00 a.m. (New
York City time) on the related Payment Date, in immediately available funds. The
Backup Servicer will not be responsible to make any Servicer Advances that have
accrued, but which were not made, before it became Successor Servicer hereunder.
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Section 6.6 Realization Upon Defaulted Contract.
The Servicer will use reasonable efforts to repossess or otherwise
comparably convert the ownership of any Equipment relating to a Defaulted
Contract and will act as sales and processing agent for Equipment that it
repossesses. The Servicer will follow such other practices and procedures as it
deems necessary or advisable and as are customary and usual in its servicing of
contracts and other actions by the Servicer in order to realize upon such
Equipment, which practices and procedures may include reasonable efforts to
enforce all obligations of Obligors and repossessing and selling such Equipment
at public or private sale in circumstances other than those described in the
preceding sentence. Without limiting the generality of the foregoing, the
Servicer may sell any such Equipment to the Servicer or its Affiliates for a
purchase price equal to the then fair market value thereof, any such sale to be
evidenced by a certificate of a Responsible Officer of the Servicer delivered to
each Agent setting forth the Contract, the Equipment, the sale price of the
Equipment and certifying that such sale price is the fair market value of such
Equipment. In any case in which any such Equipment has suffered damage, the
Servicer will not expend funds in connection with any repair or toward the
repossession of such Equipment unless it reasonably determines that such repair
and/or repossession will increase the Recoveries by an amount greater than the
amount of such expenses. The Servicer will remit to each Collection Account the
respective Lender Group Share of Recoveries received in connection with the sale
or disposition of Equipment relating to a Defaulted Contract.
Section 6.7 Maintenance of Insurance Policies.
The Servicer will use its best efforts to ensure that each Obligor
maintains an Insurance Policy with respect to the related Equipment in an amount
at least equal to the sum of the Discounted Contract Balance of the related
Contract and, at the request of any Agent, shall ensure that each such Insurance
Policy in respect of Equipment with an original acquisition cost in excess of
$75,000 names each Agent, for the benefit of the Lenders, as loss payee and as
an insured thereunder. Additionally, the Servicer will require that each Obligor
maintain property damage liability insurance during the term of each Contract in
amounts and against risks customarily insured against by the Obligor on
equipment owned by it. If an Obligor fails to maintain property damage
insurance, the Servicer may purchase and maintain such insurance on behalf of,
and at the expense of, the Obligor. In connection with its activities as
Servicer, the Servicer agrees to present, on behalf of each Managing Agent as
agent for the Lenders, claims to the insurer under each Insurance Policy and any
such liability policy, and to settle, adjust and compromise such claims, in each
case, consistent with the terms of each Contract. The Servicer's Insurance
Policies with respect to the related Equipment will insure against liability for
personal injury and property damage relating to such Equipment, will name each
Managing Agent as agent for the Lenders as loss payee and as an insured
thereunder and will contain a breach of warranty clause.
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Section 6.8 Servicing Compensation.
As compensation for its servicing activities hereunder and
reimbursement for its expenses, the Servicer shall be entitled to receive the
Servicing Fee to the extent of funds available therefor pursuant to the
provisions of Section 2.4(iii) or 2.5(iii), as applicable.
Section 6.9 Payment of Certain Expenses by Servicer.
The Servicer will be required to pay all expenses incurred by it in
connection with its activities under this Agreement, including fees and
disbursements of independent accountants, Taxes imposed on the Servicer,
expenses incurred in connection with payments and reports pursuant to this
Agreement, and all other fees and expenses not expressly stated under this
Agreement for the account of the Borrower, but excluding Liquidation Expenses
incurred as a result of activities contemplated by Section 6.6. The Servicer
will be required to pay all reasonable fees and expenses owing to any bank or
trust company in connection with the maintenance of the Collection Account and
the Lock-Box Account. The Servicer shall be required to pay such expenses for
its own account and shall not be entitled to any payment therefor other than the
Servicing Fee.
Section 6.10 Reports.
(a) Monthly Report. On each Reporting Date, the Servicer will provide
to the Borrower, each Agent, the Collateral Custodian and the Backup Servicer, a
monthly statement (a "Monthly Report"), with respect to the related Collection
Period, signed by a Responsible Officer of the Servicer and substantially in the
form of Exhibit D.
(b) Servicer's Certificate. Together with each Monthly Report, the
Servicer shall submit to the Lender and the Backup Servicer a certificate (a
"Servicer's Certificate"), signed by a Responsible Officer of the Servicer and
substantially in the form of Exhibit E.
(c) Financial Statements. The Servicer will submit to the Lender and
the Backup Servicer, within 45 days of the end of each of its fiscal quarters,
commencing September 30, 1999, unaudited financial statements (including an
analysis of delinquencies and losses for each fiscal quarter) as of the end of
each such fiscal quarter. The Servicer will submit to the Lender, within 90 days
of the end of each of its fiscal years, commencing December 31, 1999 audited
financial statements (including an analysis of delinquencies and losses for each
fiscal year describing the causes thereof and sufficient to determine whether a
Termination Event or a Servicer Termination Event has occurred or is reasonably
likely to occur and otherwise reasonably satisfactory to each Agent) as of the
end of each such fiscal year.
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Section 6.11 Annual Statement as to Compliance.
The Servicer will provide to each Agent and the Backup Servicer, within
90 days following the end of each fiscal year of the Servicer, commencing with
the fiscal year ending on September 30, 1999, an annual report signed by a
Responsible Officer of the Servicer certifying that (a) a review of the
activities of the Servicer, and the Servicer's performance pursuant to this
Agreement, for the period ending on the last day of such fiscal year has been
made under such Person's supervision and (b) the Servicer has performed or has
caused to be performed in all material respects all of its obligations under
this Agreement throughout such year and no Servicer Termination Event has
occurred and is continuing (or if a Servicer Termination Event has so occurred
and is continuing, specifying each such event, the nature and status thereof and
the steps necessary to remedy such event, and, if a Servicer Termination Event
occurred during such year and no notice thereof has been given to each Agent,
specifying such Servicer Termination Event and the steps taken to remedy such
event).
Section 6.12 Annual Independent Public Accountant's Servicing Reports.
The Servicer will cause a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer) to
furnish to each Agent and the Backup Servicer, within 90 days following the end
of each fiscal year of the Servicer, commencing with the fiscal year ending on
September 30, 1999, a report relating to such fiscal year to the effect that (A)
such firm has reviewed certain documents and records relating to the servicing
of the Contracts included in the Collateral, and (B) based on such examination,
such firm is of the opinion that the Monthly Reports and Servicer's Certificates
delivered during such year were prepared in compliance with this Agreement,
except for such exceptions as it believes to be immaterial and such other
exceptions as will be set forth in such firm's report. The accountants preparing
such report shall obtain the prior agreement of each Agent as to the methodology
and procedures to be used by such accountants in preparing such report. In the
event such firm requires any Agent or the Backup Servicer to agree to the
procedures performed by such firm, the Servicer shall direct any Agent or the
Backup Servicer in writing to so agree; it being understood and agreed that any
Agent or the Backup Servicer will deliver such letter of agreement in conclusive
reliance upon the direction of the Servicer, and any Agent or the Backup
Servicer makes no independent inquiry or investigation as to, and shall have no
obligation or liability in respect of, the sufficiency, validity or correctness
of such procedures.
Section 6.13 Limitation on Liability of the Servicer and Others
Except as provided herein, neither the Servicer nor any of the
directors or officers or employees or agents of the Servicer shall be under any
liability to any Agent, the Lenders or any other Person for any action taken or
for refraining from the taking of any action pursuant to this Agreement whether
arising from express or implied duties under this Agreement; provided, however,
that this provision shall not protect the Servicer or any such Person against
any liability that would otherwise be imposed by reason of its willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of its willful misconduct hereunder.
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Section 6.14 The Servicer Not to Resign.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except upon the Servicer's determination that (i) the performance
of its duties hereunder is or becomes impermissible under Applicable Law and
(ii) there is no reasonable action that the Servicer could take to make the
performance of its duties hereunder permissible under Applicable Law. Any such
determination permitting the resignation of the Servicer shall be evidenced as
to clause (i) above by an Opinion of Counsel to such effect delivered to each
Agent and the Backup Servicer. No such resignation shall become effective until
a Successor Servicer shall have assumed the responsibilities and obligations of
the Servicer in accordance with Section 6.2.
Section 6.15 Servicer Termination Events.
If any one of the following events (a "Servicer Termination Event")
shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit as required by this Agreement;
(b) any failure by the Servicer to give instructions or notice to any
Agent as required by this Agreement, or to deliver any required Monthly Report
or other Required Reports hereunder on or before the date occurring two Business
Days after the date such instruction of notice or report is required to be made
or given, as the case may be, under the terms of this Agreement;
(c) any 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 this Agreement or the other Transaction Documents to which the Servicer
is a party which has a Material Adverse Effect on the Lenders, which continues
unremedied for a period of 30 days after the earlier 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 any Agent or Lender and (ii) the date on
which the Servicer becomes aware thereof;
(d) any representation, warranty or certification made by the Servicer
in any Transaction Document or in any certificate delivered pursuant to any
Transaction Document shall prove to have been incorrect when made, which has a
Material Adverse Effect on the Lenders and which continues to be unremedied for
a period of 30 days after the earlier 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 by any Agent or Lender and (ii) the date on which the
Servicer becomes aware thereof;
(e) an Insolvency Event shall occur with respect to the Servicer;
(f) any material delegation of the Servicer's duties that is not
permitted by Section 7.1;
(g) any financial or Asset information reasonably requested by the
Administrative Agent or the Lender as provided herein is not reasonably provided
as requested;
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(h) the rendering against the Servicer of one or more final judgments,
decrees or orders for the payment of money in excess of United States $1,000,000
individually or in the aggregate, and the continuance of such judgment, decree
or order unsatisfied and in effect for any period of more than 61 consecutive
days without a stay of execution;
(i) the failure of the Servicer to make any payment due with respect to
aggregate recourse debt or other obligations with an aggregate principal amount
exceeding United States $5,000,000 or the occurrence of any event or condition
that would permit acceleration of such recourse debt or other obligations if
such event or condition has not been waived;
(j) any change in the control of the Servicer that takes the form of
either a merger or consolidation in which the Servicer is not the surviving
entity; or
(k) If Fidelity is the Servicer,
(i) the Tangible Net Worth of the Servicer shall (A) prior to
an initial public offering by the Servicer, on any day be less than
$30,000,000, which amount shall be increased each calendar quarter,
beginning July 1, 1999 for the quarter ended June 30, 1999, by an
amount equal to (1) 75% of the immediately preceding quarter's net
income (with no downward adjustment for losses) and (2) 100% of any
proceeds from any new equity or (B) subsequent to an initial public
offering by the Servicer, on any day be less than the sum of (1) total
shareholder's equity immediately prior to such initial public offering,
calculated in accordance with GAAP (2) the net proceeds of such initial
public offering and (3) the amount of Subordinated Debt that RLI
converts into equity after such initial public offering minus the sum
of (x) intangibles calculated in accordance with GAAP and (y)
$2,000,000; provided, however that the amount of Subordinated Debt that
RLI converts into equity pursuant to clause (B)(3) above shall be at
least $30,000,000; provided, further that the amount under this clause
(B) shall be increased each calendar quarter after such initial public
offering by an amount equal to 75% of net income;
(ii) the Servicer shall make any payment on the Subordinated
Debt prior to the Collection Date;
(iii) the sum of the balances outstanding under the 1996 Note
and the 1998 Note shall at any time be less than $5,000,000 and/or the
balance outstanding under the 1999 Note shall at any time be less than
$38,000,000;
(iv) the Servicer shall amend, modify, restate, supplement or
otherwise modify the RLI Agreements without the prior written consent
of the Administrative Agent;
(v) the Servicer shall cease to maintain Committed Facilities
of $400,000,000 and such failure continues to be unremedied for a
period of 30 days after the earlier to occur of (1) the date on which
written notice of such failure requiring the same to be remedied shall
have been given to the Servicer by the Buyer or any Agent and (2) the
date on which the Servicer becomes aware thereof;
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(vi) the ratio of EBIT to Interest Expense of the Servicer and
its Subsidiaries shall be less than 1:15 at any time; or
(l) any other financial information reasonably requested by the Lenders
or any Agent in accordance with this Agreement is not reasonably provided as
requested;
then notwithstanding anything herein to the contrary, so long as any such
Servicer Termination Event shall not have been remedied, within any applicable
cure period prior to the date of the Servicer Termination Notice (defined
below), any Agent, by written notice to the Servicer (with a copy to the Backup
Servicer) (a "Servicer Termination Notice"), may terminate all of the rights and
obligations of the Servicer as Servicer under this Agreement.
Section 6.16 Appointment of Successor Servicer.
(a) On and after the receipt by the Servicer of a Servicer Termination
Notice pursuant to Section 6.15, the Servicer shall continue to perform all
servicing functions under this Agreement until the date specified in the
Servicer Termination Notice or otherwise specified by any Agent in writing or,
if no such date is specified in such Servicer Termination Notice or otherwise
specified by such Agent, until a date mutually agreed upon by the Servicer and
each Agent. The Agents may at the time described in the immediately preceding
sentence in its sole discretion, appoint the Backup Servicer as the Servicer
hereunder, and the Backup Servicer shall on such date assume all obligations of
the Servicer hereunder, and all authority and power of the Servicer under this
Agreement shall pass to and be vested in the Backup Servicer. In the event that
the Agents does not so appoint the Backup Servicer, there is no Backup Servicer
or the Backup Servicer is unable to assume such obligations on such date, the
Agents shall as promptly as possible appoint a successor servicer (the
"Successor Servicer"), and such Successor Servicer shall accept its appointment
by a written assumption in a form acceptable to each Agent. In the event that a
Successor Servicer has not accepted its appointment at the time when the
Servicer ceases to act as Servicer, the Administrative Agent shall petition a
court of competent jurisdiction to appoint any established financial institution
having a net worth of not less than United States $50,000,000 and whose regular
business includes the servicing of Contracts as the Successor Servicer
hereunder.
(b) Upon its appointment, the Backup Servicer (subject to Section
6.16(a)) or the Successor Servicer, as applicable, shall be the successor in all
respects to the Servicer with respect to servicing functions under this
Agreement and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof, and all references in this Agreement to the Servicer shall be deemed to
refer to the Backup Servicer or the Successor Servicer, as applicable.
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(c) All authority and power granted to the Servicer under this
Agreement shall automatically cease and terminate upon termination of this
Agreement and shall pass to and be vested in the Borrower and, without
limitation, the Borrower is hereby authorized and empowered to execute and
deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all
documents and other instruments, and to do and accomplish all other acts or
things necessary or appropriate to effect the purposes of such transfer of
servicing rights. The Servicer agrees to cooperate with the Borrower in
effecting the termination of the responsibilities and rights of the Servicer to
conduct servicing on the Contracts in the Asset Pool.
(d) Upon the Backup Servicer receiving notice that it is required to
serve as the Servicer hereunder pursuant to the foregoing provisions of this
Section 6.16, the Backup Servicer will promptly begin the transition to its role
as Servicer.
ARTICLE VII
THE BACKUP SERVICER
Section 7.1 Designation of the Backup Servicer.
(a) Initial Backup Servicer. The backup servicing role with respect to
the Assets in the Asset Pool shall be conducted by the Person designated as
Backup Servicer hereunder from time to time in accordance with this Section 7.1.
Until any Agent shall give to Harris Trust and Savings Bank a Backup Servicer
Termination Notice, Harris Trust and Savings Bank is hereby designated or, and
hereby agrees to perform the duties and obligations of a Backup Servicer
pursuant to the terms hereof.
(b) Successor Backup Servicer. Upon Harris Trust and Savings Bank's
receipt of a notice from any Agent of the designation of a new Backup Servicer
pursuant to the provisions of Section 7.5, Harris Trust and Savings Bank agrees
that it will terminate its activities as Backup Servicer hereunder.
Section 7.2 Duties of the Backup Servicer.
(a) Appointment. The Borrower and each Agent, on behalf of the Lenders
each hereby appoints Harris Trust and Savings Bank to act as Backup Servicer,
for the benefit of the Agents, and the Lenders, as from time to time designated
pursuant to Section 7.1. The Backup Servicer hereby accepts such appointment and
agrees to perform the duties and obligations with respect thereto set forth
herein.
(b) Duties. On or before the initial Funding Date, and until its
removal pursuant to Section 7.5, the Backup Servicer shall perform, on behalf of
the Agents and the Lenders, the following duties and obligations:
(i) On or before the Closing Date, the Backup Servicer shall
accept from the Servicer delivery of the information required to be set
forth in the Monthly Reports in hard copy and on computer tape;
provided, however, the computer tape is in an MS-DOS, PC readable ASCII
format or format to be agreed upon by the Backup Servicer and the
Servicer on or prior to closing.
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(ii) Not later than 12:00 noon New York time two (2) Business
Days prior to each Reporting Date, the Backup Servicer shall accept
delivery of tape from the Servicer, which shall include but not be
limited to the following information: (x) for each Contract in the
Asset Pool, the name and number of the related Obligor, the collection
status, the contract status, the date of each Scheduled Payment and the
outstanding principal balance and (y) the ADCB (the "Tape").
(iii) Prior to the related Payment Date, the Backup Servicer
shall review the Monthly Report to ensure that it is complete on its
face and that the following items in such Monthly Report have been
accurately calculated, if applicable, and reported: (A) the ADCB, (B)
the Backup Servicing Fee, (C) the average ADCB, (D) the Contracts that
are 30 - 60 days past due, (E) the Contracts that are 61 - 90 days past
due, (F) the Contracts that are 90+ days past due, (G) the Delinquency
Ratio, and (H) the Default Ratio. The Backup Servicer shall notify each
Agent and the Servicer of any disagreements with the Monthly Report
based on such review not later than the Business Day preceding such
Payment Date to such Persons.
(iv) If the Servicer disagrees with the report provided under
paragraph (i) above by the Backup Servicer or if the Servicer or any
subservicer has not reconciled such discrepancy, the Backup Servicer
agrees to confer with the Servicer to resolve such disagreement on or
prior to the next succeeding Determination Date and shall settle such
discrepancy with the Servicer if possible, and notify each Agent of the
resolution thereof. The Servicer hereby agrees to cooperate at its own
expense, with the Backup Servicer in reconciling any discrepancies
herein. If within 20 days after the delivery of the report provided
under paragraph (i) above by the Backup Servicer, such discrepancy is
not resolved, the Backup Servicer shall promptly notify each Agent of
the continued existence of such discrepancy. Following receipt of such
notice by each Agent, the Servicer shall deliver to each Agent, the
Lenders, and the Backup Servicer no later than the related Payment Date
a certificate describing the nature and amount of such discrepancies
and the actions the Servicer proposes to take with respect thereto.
(c) Reliance on Tape. With respect to the duties described in Section
7.2(b), the Backup Servicer, is entitled to rely conclusively, and shall be
fully protected in so relying, on the contents of each Tape, including, but not
limited to, the completeness and accuracy thereof, provided by the Servicer.
Section 7.3 Merger or Consolidation.
Any Person (i) into which the Backup Servicer may be merged or
consolidated, (ii) that may result from any merger or consolidation to which the
Backup Servicer shall be a party, or (iii) that may succeed to the properties
and assets of the Backup Servicer substantially as a whole, which Person in any
of the foregoing cases executes an agreement of assumption to perform every
obligation of the Backup Servicer hereunder, shall be the successor to the
Backup Servicer under this Agreement without further act on the part of any of
the parties to this Agreement.
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Section 7.4 Backup Servicing Compensation.
As compensation for its back-up servicing activities hereunder, the
Backup Servicer shall be entitled to receive a Backup Servicing Fee as agreed to
between the Backup Servicer, the Borrower and the Agents in the Backup Servicing
Fee Letter (the "Backup Servicing Fee") in accordance with Sections 2.7(iv) or
2.8(iv) as applicable. The Backup Servicer's entitlement to receive the Backup
Servicing Fee shall cease on the earliest to occur of: (i) it becoming the
Successor Servicer, (ii) its removal as Backup Servicer pursuant to Section 7.5,
or (iii) the termination of this Agreement. The Backup Servicer shall be
entitled to receive the Servicing Fee upon becoming the Successor Servicer.
Section 7.5 Backup Servicer Removal.
The Backup Servicer may be removed, with or without cause, by the
Agents by notice given in writing to the Backup Servicer (the "Backup Servicer
Termination Notice"). In the event of any such removal, a replacement Backup
Servicer may be appointed by (i) the Servicer, acting with the consent of each
Agent or (ii) if no such replacement is appointed within 30 days following such
removal, by the Agents.
Section 7.6 Limitation on Liability.
(a) The Backup Servicer undertakes to perform only such duties and
obligations as are specifically set forth in this Agreement, it being expressly
understood by all parties hereto that there are no implied duties or obligations
of the Backup Servicer hereunder. Without limiting the generality of the
foregoing, the Backup Servicer, except as expressly set forth herein, shall have
no obligation to supervise, verify, monitor or administer the performance of the
Servicer. The Backup Servicer may act through its agents, attorneys and
custodians in performing any of its duties and obligations under this Agreement,
it being understood by the parties hereto that the Backup Servicer will be
responsible for any misconduct or negligence on the part of such agents,
attorneys or custodians acting on the routine and ordinary day-to-day operations
for and on behalf of the Backup Servicer. Neither the Backup Servicer nor any of
its officers, directors, employees or agents shall be liable, directly or
indirectly, for any damages or expenses arising out of the services performed
under this Agreement other than damages or expenses that result from the gross
negligence or willful misconduct of it or them or the failure to perform
materially in accordance with this Agreement.
(b) The Backup Servicer shall not be liable for any obligation of the
Servicer contained in this Agreement or for any errors of the Servicer contained
in any computer tape, certificate or other data or document delivered to the
Backup Servicer hereunder or on which the Backup Servicer must rely in order to
perform its obligations hereunder, and the Lenders, the Agents, the Collateral
Custodian and the Backup Servicer each agree to look only to the Servicer to
perform such obligations. The Backup Servicer shall have no responsibility and
shall not be in default hereunder or incur any liability for any failure, error,
malfunction or any delay in carrying out any of their respective duties under
this Agreement if such failure or delay results from the Backup Servicer acting
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in accordance with information prepared or supplied by a Person other than the
Backup Servicer or the failure of any such other Person to prepare or provide
such information. The Backup Servicer shall have no responsibility, shall not be
in default and shall incur no liability for (i) any act or failure to act of any
third party, including the Servicer (ii) any inaccuracy or omission in a notice
or communication received by the Backup Servicer from any third party, (iii) the
invalidity or unenforceability of any Asset or Contract under Applicable Law,
(iv) the breach or inaccuracy of any representation or warranty made with
respect to any Contract, or (v) the acts or omissions of any successor Backup
Servicer.
Section 7.7 The Backup Servicer Not to Resign.
Without (A) the prior written consent of each Agent and (B) the
assumption by a successor Backup Servicer of the responsibilities and
obligations of the Backup Servicer hereunder, the Backup Servicer shall not
resign from the obligations and duties hereby imposed on it except upon the
Backup Servicer's determination that (i) the performance of its duties hereunder
is or becomes impermissible under Applicable Law and (ii) there is no reasonable
action that the Backup Servicer could take to make the performance of its duties
hereunder permissible under Applicable Law. Any such determination permitting
the resignation of the Backup Servicer shall be evidenced as to clause (i) above
by an Opinion of Counsel to such effect delivered to the Administrative Agent.
No such resignation shall become effective until a successor Backup Servicer
shall have assumed the responsibilities and obligations of the Backup Servicer
hereunder.
ARTICLE VIII
THE COLLATERAL CUSTODIAN
Section 8.1 Designation of Collateral Custodian.
(a) Initial Collateral Custodian. The role of collateral custodian with
respect to the Contract Files shall be conducted by the Person designated as
Collateral Custodian hereunder from time to time in accordance with this Section
8.1. Until the Agents shall give to Harris Trust and Savings Bank a Collateral
Custodian Termination Notice, Harris Trust and Savings Bank is hereby designated
as, and hereby agrees to perform the duties and obligations of, Collateral
Custodian pursuant to the terms hereof.
(b) Successor Collateral Custodian. Upon Harris Trust and Savings
Bank's receipt of a written notice from the Agents of the designation of a new
collateral Custodian pursuant to the provisions of Section 8.5, Harris Trust and
Savings Bank agrees that it will terminate its activities as Collateral
Custodian hereunder.
Section 8.2 Duties of Collateral Custodian.
(a) Appointment. The Borrower and each Agent each hereby appoints
Harris Trust and Savings Bank to act as Collateral Custodian, for the benefit of
the Administrative Agent, as agent for the Lenders. The Collateral Custodian
hereby accepts such appointment and agrees to perform the duties and obligation
with respect thereto set forth herein.
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(b) Duties. On or before the initial Funding Date, and until its
removal pursuant to Section 8.5, the Collateral Custodian shall perform on
behalf of the Administrative Agent, as agent for the Lenders, the following
duties and obligations:
(i) The Collateral Custodian shall take and retain custody of
the Contract Files delivered by the Borrower pursuant to Section 3.3
hereof in accordance with the terms and conditions of this Agreement,
all for the benefit of the Lenders and subject to the Lien thereon in
favor of the Administrative Agent. Upon receipt of the Contract Files,
the Collateral Custodian shall execute and deliver to the
Administrative Agent, with copies to each Agent, the Borrower and the
Servicer a Trust Receipt and Initial Certification in the form attached
as Exhibit K. Within five (5) Business Days of its receipt of any
Contract File, the Collateral Custodian shall review the related
Contract to verify that such Contract has been executed and has no
missing or mutilated pages and to confirm (in reliance on the related
contract number and lessee name) that such Contract is referenced on
the related Contract List and shall execute and deliver to the
Administrative Agent, with copies to each Agent, the Borrower and the
Servicer a Trust Receipt and Final Certification in the form attached
as Exhibit L. In order to facilitate the foregoing review by the
Collateral Custodian, in connection with each delivery of Contract
Files hereunder to the Collateral Custodian, the Servicer shall provide
to the Collateral Custodian an electronic file (in EXCEL or a
comparable format) that contains the related Contract List or that
otherwise contains the Contract number and the name of the Obligor with
respect to each related Contract. If, at the conclusion of such review,
the Collateral Custodian shall determine that such Contract is not
executed or in proper form on its face, or that it is not referenced on
such Contract List, the Collateral Custodian shall promptly notify the
Borrower, the Servicer and each Agent of such determination by
providing a written report to such persons setting forth, with
particularity, the lack of execution of such Contract (to be attached
as a schedule to the Trust Receipt and Final Certification), that such
Contract has missing or mutilated pages, or the fact that such Contract
was not referenced on the related Contract List. In addition, unless
instructed otherwise in writing by the Borrower or the Servicer within
10 days of the Collateral Custodian's delivery of such report, the
Collateral Custodian shall return any Contract not referenced on such
Contract List to the Borrower. Other than the foregoing, the Collateral
Custodian shall not have any responsibility for reviewing any Contract
File.
(ii) In taking and retaining custody of the Contract Files,
the Collateral Custodian shall be deemed to be acting as the agent of
the Agents and the Lenders; provided, however, that the Collateral
Custodian makes no representations as to the existence, perfection or
priority of any Lien on the Contract Files or the instruments therein;
and provided, further, that the Collateral Custodian's duties as agent
shall be limited to those expressly contemplated herein.
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(iii) All Contract Files shall be kept in fireproof vaults or
cabinets at the locations specified on Schedule IV attached hereto, or
at such other office as shall be specified to each Agent by the
Collateral Custodian in a written notice delivered at least 45 days
prior to such change. All Contract Files shall be placed together in a
separate file cabinet with an appropriate identifying label and
maintained in such a manner so as to permit retrieval and access. All
Contract Files shall be clearly segregated from any other documents or
instruments maintained by the Collateral Custodian. The Collateral
Custodian shall clearly indicate that such Contract Files are the sole
property of the Borrower and that the Borrower has granted an interest
therein to the Administrative Agent on behalf of the Lenders.
(iv) In performing its duties, the Collateral Custodian shall
use the same degree of care and attention as it employs with respect to
similar Contracts that it holds as Collateral Custodian; provided,
however, no such appointment shall relieve the Collateral Custodian of
any liability hereunder.
(c) Insurance. The Collateral Custodian will, at its own expense, (i)
maintain Financial Institution Bond Insurance (Form #24 or the equivalent) in
such amounts, with such coverage and subject to such deductibles as are
customary for insurance typically maintained by banks that act as collateral
custodians in similar transactions or (ii) provided the Collateral Custodian
maintains a long-term debt rating of A from Moody's, self-insure with such
coverage as is customary for self-insurance maintained by banks that act as
collateral custodians in similar transactions. A certificate issued by an
officer of the Collateral Custodian as to any such bond or policy shall be
furnished to each of the Agents, the Borrower or the Servicer on request.
Section 8.3 Merger or Consolidation.
Any Person (i) into which the Collateral Custodian may be merged or
consolidated, (ii) that may result from any merger or consolidation to which the
Collateral Custodian shall be a party, or (iii) that may succeed to the
properties and assets of the Collateral Custodian substantially as a whole,
which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of the Collateral Custodian hereunder, shall be the
successor to the Collateral Custodian under this Agreement without further act
of any of the parties to this Agreement.
Section 8.4 Collateral Custodian Compensation.
As compensation for its collateral custodian activities hereunder, the
Collateral Custodian shall be entitled to a Collateral Custodian Fee (the
"Collateral Custodian Fee") from the Servicer. To the extent that such
Collateral Custodian fee is not paid by the Servicer, the Collateral Custodian
shall be entitled to receive the unpaid balance of its Collateral Custodian fee
to the extent of funds available therefor pursuant to the provision of Section
2.7(v) or 2.8(v), as applicable. The Collateral Custodian's entitlement to
receive the Collateral Custodian fee shall cease on the earlier to occur of: (i)
its removal as Collateral Custodian pursuant to Section 8.5 or (ii) the
termination of this Agreement.
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Section 8.5 Collateral Custodian Removal.
The Collateral Custodian may be removed, with or without cause, by the
Administrative Agent by notice given in writing to the Collateral Custodian (the
"Collateral Custodian Termination Notice"); provided, however, notwithstanding
its receipt of a Collateral Custodian Termination Notice, the Collateral
Custodian shall continue to act in such capacity until a successor Collateral
Custodian has been appointed, has agreed to act as Collateral Custodian
hereunder, and has received all Contract Files held by the previous Collateral
Custodian.
Section 8.6 Limitation on Liability.
(i) The Collateral Custodian may conclusively rely on and
shall be fully protected in acting upon any certificate, instrument,
opinion, notice, letter telegram or other document delivered to it by
the Borrower, the Servicer, the Backup Servicer or any Agent hereunder
in good faith and in the absence of any gross negligence or willful
misconduct that it reasonably believes to be genuine and that has been
signed by a Responsible Officer. The Collateral Custodian may rely
conclusively on and shall be fully protected in acting upon (A) the
written instructions of any designated officer of any Agent or (B) the
verbal instructions of the such Agent, and the Collateral Custodian
shall have no liability hereunder except as may result from its gross
negligence or willful misconduct.
(ii) The Collateral Custodian may consult counsel satisfactory
to it and the advice or opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with the advice or opinion of such counsel; provided, however, that
nothing contained in this sentence shall limit the liability of the
Collateral Custodian for its own gross negligence or willful
misconduct.
(iii) The Collateral Custodian shall not be liable for any
error of judgment, or for any act done or step taken or omitted by it,
in good faith, or for any mistakes of fact or law, or for anything that
it may do or refrain from doing in connection herewith except in the
case of its willful misconduct or grossly negligent performance or
omission.
(iv) The Collateral Custodian makes no warranty or
representation and shall have no responsibility (except as expressly
set forth in this Agreement) as to the content, enforceability,
completeness, validity, sufficiency, value, genuineness, ownership or
transferability of the Contracts, and will not be required to and will
not make any representations as to the validity or value (except as
expressly set forth in this Agreement) of any of the Contracts;
provided, however, that nothing contained in this sentence shall limit
the liability of the Collateral Custodian for its own gross negligence
or willful misconduct. The Collateral Custodian shall not be obligated
to take any legal action hereunder that might in its judgment involve
any expense or liability unless it has been furnished with an indemnity
reasonably satisfactory to it.
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(v) The Collateral Custodian shall have no duties or
responsibilities except such duties and responsibilities as are
specifically set forth in this Agreement and no covenants or
obligations shall be implied in this Agreement against the Collateral
Custodian.
(vi) The Collateral Custodian shall not be required to expend
or risk its own funds in the performance of its duties hereunder unless
it shall have reasonable grounds to believe that such funds will be
repaid or its receives an indemnity satisfactory to it.
(vii) It is expressly agreed and acknowledged that the
Collateral Custodian is not guaranteeing performance of or assuming any
liability for the obligations of the other parties hereto or any
parties to the Contracts.
(viii) Whenever in the administration of the provisions of
this Agreement the Collateral Custodian shall deem it necessary or
desirable that a matter be provided or established prior to taking or
suffering any action to be taken hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in
the absence of gross negligence or bad faith on the part of the
Collateral Custodian, be deemed to be conclusively proved and
established by a certificate signed by any Managing Agent's officers,
as the case may be, and delivered to the Collateral Custodian and such
certificate, in the absence of gross negligence or bad faith on the
part of the Collateral Custodian, shall be full warrant to the
Collateral Custodian for any action taken, suffered or omitted by it
under the provisions of this Agreement upon the faith thereof.
(ix) The Collateral Custodian may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents, attorneys, custodians or nominees appointed with due
care.
Section 8.7 The Collateral Custodian Not to Resign.
Without (A) 30 days prior written notice to each Agent, the Borrower
and the Servicer, (B) the assumption by a successor Collateral Custodian of all
of the responsibilities and obligations of the Collateral Custodian hereunder,
(C) the delivery of all the Contract Files by the Collateral Custodian, at its
cost, to such successor Collateral Custodian and (D) the delivery by such
successor Collateral Custodian to each Agent of a Trust Receipt and Final
Certification substantially in the form attached as Exhibit L, the Custodian
shall not resign from the obligations and duties hereby imposed on it except
upon the Custodian's determination that (i) the performance of its duties
hereunder is or becomes impermissible under Applicable Law and (ii) there is no
reasonable action that the Custodian could take to make the performance of its
duties hereunder permissible under Applicable Law. Any such determination
permitting the resignation of the Custodian shall be evidenced as to clause (i)
above by an Opinion of Counsel to such effect delivered to each Agent, the
Borrower and the Servicer. No such resignation shall become effective until a
successor Collateral Custodian shall have assumed the responsibilities and
obligations of the Custodian hereunder.
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Section 8.8 Release of Documents.
(a) Release for Servicing. From time to time and as appropriate for the
enforcement or servicing any of the Contracts, the Collateral Custodian is
hereby authorized, upon written receipt from the Servicer of a request for
release of documents and receipt in the form annexed hereto as Exhibit G, to
release to the Servicer the related Contract File or the documents set forth in
such request and receipt to the Servicer. All documents so released to the
Servicer shall be held by the Servicer in trust for the benefit of the
Administrative Agent in accordance with the terms of this Agreement. The
Servicer shall return to the Collateral Custodian the Contract File or other
such documents when the Servicer's need therefor in connection with such
foreclosure or servicing no longer exists, unless the Contract shall be
liquidated, in which case, upon receipt of an additional request for release of
documents and receipt certifying such liquidation from the Servicer to the
Collateral Custodian in the form annexed hereto as Exhibit G, the Servicer's
request and receipt submitted pursuant to the first sentence of this subsection
shall be released by the Collateral Custodian to the Servicer.
(b) Limitation on Release. The foregoing provision respecting release
to the Servicer of the Contract Files and documents by the Collateral Custodian
upon request by the Servicer shall be operative only to the extent that at any
time the Collateral Custodian shall not have released to the Servicer active
Contract Files (including those requested) pertaining to more than 15 Contracts
at the time being serviced by the Servicer under this Agreement. Any additional
Contract Files or documents requested to be released by the Servicer may be
released only upon written authorization of each Agent. The limitations of this
paragraph shall not apply to the release of Contract Files to the Servicer
pursuant to the immediately succeeding subsection.
(c) Release for Payment. Upon receipt by the Collateral Custodian of
the Servicer's request for release of documents and receipt in the form annexed
hereto as Exhibit G (which certification shall include a statement to the effect
that all amounts received in connection with such payment or repurchase have
been credited to the Collection Account as provided in this Agreement), the
Collateral Custodian shall promptly (and in all cases, within five (5) Business
Days) release the related Contract File to the Servicer.
Section 8.9 Return of Contract Files.
The Borrower may, with the prior written consent of each Agent (such
consent not to be unreasonably withheld), require that the Collateral Custodian
return each Contract File (a) delivered to the Collateral Custodian in error,
(b) for which a Substitute Contract has been substituted in accordance with
Section 2.16, (c) as to which the lien on the related Equipment has been so
released pursuant to Section 5.10, (d) that has been retransferred to the
Borrower pursuant to Section 5.11 or 5.12 or (e) that is required to be
redelivered to the Borrower in connection with the termination of this
Agreement, in each case by submitting to the Collateral Custodian and each Agent
a written request in the form of Exhibit G hereto (signed by both the Borrower
and each Agent) specifying the Contracts to be so returned and reciting that the
conditions to such release have been met (and specifying the section or sections
of this Agreement being relied upon for such release). The Collateral Custodian
shall upon its receipt of each such request for return executed by the Borrower
and each Agent promptly, but in any event within 5 Business Days, return the
Contract Files so requested to the Borrower.
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Section 8.10 Access to Certain Documentation and Information Regarding
the Contracts.
(a) The Collateral Custodian and the Servicer shall each provide to
each Agent access to the Contract Files and all other documentation regarding
the Contracts in the Asset Pool and the related Equipment in its possession such
cases where such Agent is required in connection with the enforcement of the
rights or interests of the Lenders, or by applicable statutes or regulations to
review such documentation, such access being afforded without charge but only
(i) upon reasonable advance written notice, (ii) during normal business hours
and (iii) subject to the Servicer's and Collateral Custodian's normal security
and confidentiality procedures in effect from time to time.
(b) Any Agent may conduct a sample audit of the Contracts and Contract
Files once each year (or, if the Termination Date has occurred as the result of
the occurrence of a Termination Event, at the discretion of each Agent) in
conjunction with a review the Servicer's collection and administration of the
Contracts in order to assess compliance by the Servicer with the Servicer's
written policies and procedures, as well as with this Agreement and may conduct
an audit of the Contracts and Contract Files in conjunction with such a review.
For so long as the Servicer employs Grant Thornton LLP or another accounting
firm acceptable to the Lender, to conduct a similar review at least annually,
the Lenders will bear the cost of any additional audit by any Managing Agent or
any other Lender designated appropriate. Such review shall be reasonable in
scope and shall be completed in a reasonable period of time.
ARTICLE IX
TERMINATION EVENTS AND REMEDIES
Section 9.1 Termination Events.
Each of the following events shall constitute a Termination Event (a
"Termination Event") under this Agreement:
(a) as of any Reporting Date, the Delinquency Ratio for the preceding
Determination Date exceeds 3.0%;
(b) as of any Reporting Date, the Default Ratio for the preceding
Determination Date exceeds 2.75%;
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(c) the Overcollateralization is less than the Minimum
Overcollateralization, and the Borrower does not, within five (5) Business Days,
contribute Eligible Contracts and/or pay down the Advances Outstanding in an
amount sufficient to cause the Overcollateralization to equal or exceed the
Minimum Overcollateralization;
(d) the Borrower is not in compliance with the Portfolio Concentration
Criteria, and such noncompliance is not cured on or prior to the next Payment
Date;
(e) a Servicer Termination Event occurs and is continuing;
(f) (i) failure on the part of the Borrower to make any payment or
deposit required by the terms of this Agreement on the day such payment or
deposit is required to be made or
(ii) failure on the part of the Borrower to observe or perform
any of its covenants or agreements set forth in this Agreement, which
failure has a material adverse effect on the interests of the Agents or
any Lender and which continues unremedied for a period of 30 days or
more after the earlier of (A) written notice thereof shall have been
given by any Agent to Borrower or (B) the Borrower shall have otherwise
become aware of such failure; provided, that only a five Business Day
cure period shall apply in the case of a failure by the Borrower to
observe its covenants not to grant a security interest or otherwise
intentionally create a Lien on the Contracts;
(g) any representation or warranty made by the Borrower in this
Agreement or any information required to be given by the Borrower to any Agent
to identify Contracts pursuant to this Agreement, shall prove to have been
incorrect in any material respect when made or delivered and which continues to
be incorrect in any material respect for a period of 30 days after the earlier
of (A) written notice thereof shall have been given by any Agent to Borrower or
(B) the Borrower shall have otherwise become aware of such failure;
(h) the occurrence of an Insolvency Event relating to the Borrower;
(i) the Borrower shall become, or become controlled by, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "40 Act") or the arrangements contemplated by this Agreement shall require
registration as an "investment company" within the meaning of the 40 Act;
(j) a regulatory, tax or accounting body has ordered that the
activities of the Borrower or any Affiliate of the Borrower, contemplated hereby
be terminated or, as a result of any other event or circumstance, the activities
of the Borrower contemplated hereby may reasonably be expected to cause the
Borrower or any of its respective Affiliates to suffer materially adverse
regulatory, accounting or tax consequences; or
(k) a Purchase Agreement Termination Event shall have occurred.
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Section 9.2 Remedies.
(a) Upon the occurrence of a Termination Event the Termination Date
shall be deemed to have occurred automatically. Upon the occurrence of a
Termination Event other than that referred to in Section 9.1(h) in addition to
the other remedies provided for herein, each Managing Agent and the Lenders may
declare the Advances Outstanding and all other Aggregate Unpaids to be
immediately due and payable, together with all Interest thereon and fees and
expenses accruing under this Agreement, and shall have all rights and remedies
provided under the UCC and other applicable laws, which rights shall be
cumulative. Upon the occurrence of a Termination Event referred to in Section
9.1(h), in addition to the remedies provided herein, such amounts referenced in
the immediately preceding sentence shall immediately and automatically become
due and payable without any further action by any Person. Upon such declaration
or such automatic acceleration, the balance then outstanding under this
Agreement shall become immediately due and payable, without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower and the Servicer.
(b) Upon the occurrence of a Termination Event, and in addition to the
remedies provided herein, the Administrative Agent, as agent for the Lenders,
shall have the right to obtain physical possession of the Servicer's records and
all other files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come into the
possession of the Borrower or any third party acting for the Borrower, and the
Borrower shall deliver to the Administrative Agent, as agent for the Lenders,
such assignments as the Administrative Agent shall request. The Borrower shall
be responsible for paying any fees of any Servicer resulting from the
termination of a Servicer due to a Termination Event. The Administrative Agent,
as agent for the Lenders, shall have the right to demand transfer of all
servicing rights and obligations to a new servicer acceptable to the
Administrative Agent (such new servicer shall receive a servicing fee or any
other amounts necessary to assure the ability of the Administrative Agent to
find an appropriate successor servicer). The Administrative Agent, as agent for
the Lenders shall be entitled to specific performance of all agreements of the
Borrower contained in this Agreement.
(c) Without limiting the generality of the foregoing provisions of this
Section 9.2, the Administrative Agent, as agent for the Lenders, without demand
of performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Borrower or any other Person (each and all of which demands, presentments,
protests, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell (on a servicing
released basis, at the Administrative Agent's option), lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Administrative Agent shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
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sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in the Borrower, which right or equity is
hereby waived or released. The Borrower further agrees, at the Administrative
Agent's request, to assemble the Collateral and make it available to the
Administrative Agent or Lender at places which the Administrative Agent shall
reasonably select, whether at the Borrower's premises or elsewhere. Each Lender
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of such Lender hereunder, including without limitation reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the amounts owing
to such Lender hereunder in respect of Advances Outstanding, Interest, fees,
expenses, indemnification, Breakage Costs, Hedge Breakage Costs or otherwise, in
such order as such Lender may elect, and only after such application and after
the payment by such Lender of any other amount required or permitted by any
provision of law, including without limitation Section 9-504(1)(c) of the UCC,
need such Lender to account for the surplus, if any, to the Borrower. To the
extent permitted by applicable law, the Borrower waives all claims, damages and
demands it may acquire against any Agent or Lender arising out of the exercise
by the Administrative Agent of any of its rights hereunder, other than those
claims, damages and demands arising from the gross negligence or willful
misconduct of the Administrative Agent. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency (together with
all Interest thereon and fees and expenses accruing under this Agreement) if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the amounts owing to any Lender and the fees and disbursements of any
attorneys employed by such Lender to collect such deficiency.
(d) The Administrative Agent's duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
manner as the Administrative Agent, deals with similar property for its own
account. Neither the Agents, the Lenders nor any of their respective directors,
officers or employees shall be liable for failure to demand, collect or realize
upon all or any part of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Borrower or otherwise.
ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnities by the Borrower.
Without limiting any other rights which any Agent, the Backup Servicer,
the Collateral Custodian, the Lenders or any of their respective Affiliates may
have hereunder or under applicable law, the Borrower hereby agrees to indemnify
any Agent, the Backup Servicer, the Collateral Custodian, the Lenders, and each
of their respective Affiliates and officers, directors, employees and agents
thereof (each of the foregoing Persons being referred to as an "Indemnified
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Party") from and against any and all damages, losses, claims, liabilities and
related costs and expenses, including reasonable attorneys' fees and
disbursements (all of the foregoing being collectively referred to as
"Indemnified Amounts") awarded against or incurred by any of them, but excluding
allocations of overhead expenses of any such Indemnified Party or other
non-monetary damages of any such Indemnified Party, arising out of or as a
result of this Agreement or the Grant of the Collateral or in respect of any
Asset or any Contract, excluding, however, Indemnified Amounts to the extent
resulting from negligence or willful misconduct on the part of any Agent, the
Backup Servicer, the Collateral Custodian, such Lenders or such Affiliate. If
the Borrower has made any indemnity payment pursuant to this Section 10.1 and
such payment fully indemnified the recipient thereof and the recipient
thereafter collects any payments from others in respect of such Indemnified
Amounts then, the recipient shall repay to the Borrower an amount equal to the
amount it has collected from others in respect of such indemnified amounts.
Without limiting the foregoing, the Borrower shall indemnify each Indemnified
Party for Indemnified Amounts relating to or resulting from:
(a) any Contract treated as or represented by the Borrower to be an
Eligible Contract which is not at the applicable time an Eligible Contract;
(b) reliance on any representation or warranty made or deemed made by
the Borrower, the Servicer (if the Originator or one of its Affiliates) or any
of their respective officers under or in connection with this Agreement, which
shall have been false or incorrect in any material respect when made or deemed
made or delivered;
(c) the failure by the Borrower or the Servicer (if the Originator or
one of its Affiliates) to comply with any term, provision or covenant contained
in this Agreement or any agreement executed in connection with this Agreement,
or with any applicable law, rule or regulation with respect to any Asset, the
related Contract, or the nonconformity of any Asset, the related Contract with
any such applicable law, rule or regulation;
(d) the failure to vest and maintain vested in the relevant Lender or
to transfer to such Lender, an undivided ownership interest in the Assets,
together with all Collections, free and clear of any Adverse Claim whether
existing as of the Closing Date or at any time thereafter;
(e) the failure to maintain, as of the close of business on each
Business Day prior to the Termination Date, an amount of Advances Outstanding
which is less than or equal to the lesser of (i) the Facility Limit on such
Business Day, or (ii) the Borrowing Base on such Business Day;
(f) the failure to file, or any delay in filing, financing statements
or other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Assets which are, or
are purported to be, Collateral, whether at the time of any Grant or at any
subsequent time;
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(g) any dispute, claim, offset or defense (other than the discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Asset which is,
or is purported to be, Collateral (including, without limitation, a defense
based on such Asset or the related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its terms),
or any other claim resulting from the sale of the merchandise or services
related to such Asset or the furnishing or failure to furnish such merchandise
or services;
(h) any failure of the Borrower or the Servicer (if the Originator or
one of its Affiliates) to perform its duties or obligations in accordance with
the provisions of this Agreement or any failure by the Originator, the Borrower
or any Affiliate thereof to perform its respective duties under the Contracts;
(i) any products liability claim or personal injury or property damage
suit or other similar or related claim or action of whatever sort arising out of
or in connection with merchandise or services which are the subject of any Asset
or Contract;
(j) the failure by Borrower to pay when due any Taxes for which the
Borrower is liable, including without limitation, sales, excise or personal
property taxes payable in connection with the Collateral;
(k) any repayment by any Agent or a Lender of any amount previously
distributed in reduction of Advances Outstanding or payment of Interest or any
other amount due hereunder or under any Hedging Agreement, in each case which
amount such Agent or Lender believes in good faith is required to be repaid;
(l) the commingling of Collections of Assets in the Collateral at any
time with other funds;
(m) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Advances or reinvestments or the ownership
of the Collateral or in respect of any Asset or Contract;
(n) any failure by the Borrower to give reasonably equivalent value to
the Originator in consideration for the transfer by the Originator to the
Borrower of any Assets or any attempt by any Person to void or otherwise avoid
any such transfer under any statutory provision or common law or equitable
action, including, without limitation, any provision of the Bankruptcy Code; or
(o) the failure of the Borrower, the Originator or any of their
respective agents or representatives to remit Collections to the Servicer or any
Managing Agent.
Any amounts subject to the indemnification provisions of this Section
10.1 shall be paid by the Borrower solely pursuant to the provisions of Sections
2.7 and 2.8 hereof, as the case may be, to the Administrative Agent within two
Business Days following the Administrative Agent's demand therefor. If for any
reason the indemnification provided above in this Section 10.1 is unavailable to
the Indemnified Party or is insufficient to hold an Indemnified Party harmless,
then Fidelity shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, claim, damage or liability in such proportion as
is appropriate to reflect not only the relative benefits received by such
Indemnified Party on the one hand and the Borrower on the other hand but also
the relative fault of such Indemnified Party as well as any other relevant
equitable considerations.
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The parties agree that the provisions of this Section 10.1 shall not be
interpreted to provide recourse to Fidelity for any loss by reason of the
exercise by or against any Obligor of any Insolvency Law or any default by any
Obligor as a result of such Obligor's financial inability to make payments under
the related Lease.
Section 10.2 Indemnities by the Servicer.
(a) Without limiting any other rights that any such Person may have
hereunder or under Applicable Law, the Servicer hereby agrees to indemnify each
Indemnified Party, forthwith on demand, from and against any and all Indemnified
Amounts awarded against or incurred by any such Indemnified Party by reason of
any acts, omissions or alleged acts or omissions of the Servicer, including, but
not limited to (i) any representation or warranty made by the Servicer under or
in connection with any Transaction Document, any Monthly Report, Servicer's
Certificate or any other information or report delivered by or on behalf of the
Servicer pursuant hereto, which shall have been false, incorrect or misleading
in any material respect when made or deemed made, (ii) the failure by the
Servicer to comply with any Applicable Law, (iii) the failure of the Servicer to
comply with its duties or obligations in accordance with the Agreement, or (iv)
any litigation, proceedings or investigation against the Servicer. The
provisions of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof.
(b) Any amounts subject to the indemnification provisions of this
Section 10.2 shall be paid by the Servicer to the relevant Managing Agent within
five (5) Business Days following such Agent's demand therefor.
(c) The Servicer shall have no liability for making indemnification
hereunder to the extent any such indemnification constitutes recourse for
uncollectible or uncollected Contracts.
(d) The obligations of the Servicer under this Section 10.2 shall
survive the resignation or removal of any Agent, the Backup Servicer or the
Collateral Custodian and the termination of this Agreement.
(e) Any indemnification pursuant to this Section 10.2 shall not be
payable from the Assets.
Section 10.3 Indemnities by the Collateral Custodian.
(a) Without limiting any other rights that any such Person may have
hereunder or under Applicable Law, the Collateral Custodian hereby agrees to
indemnify each Indemnified Party, the Borrower and the Servicer, from and
against any and all Indemnified Amounts awarded against or incurred by any of
them arising out of or relating to any loss or destruction of the Contract
Files, or any document contained therein, delivered to the Collateral Custodian
pursuant to the terms of this Agreement.
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(b) Any amounts subject to the indemnification provisions of this
Section 10.3 shall be paid by the Collateral Custodian to the relevant Managing
Agent within five (5) Business Days following such Agent's demand therefor.
(c) The obligations of the Collateral Custodian under this Section 10.3
shall survive the resignation or removal of any Agent, and the Servicer and the
termination of this Agreement.
Section 10.4 After-Tax Basis.
Indemnification under Sections 10.1, 10.2 and 10.3 shall be in an
amount necessary to make the Indemnified Party whole after taking into account
any tax consequences to the Indemnified Party of the receipt of the indemnity
provided hereunder, including the effect of such tax refund or benefit on the
amount of tax measured by net income or profits that is or was payable by the
Indemnified Party.
ARTICLE XI
THE ADMINISTRATIVE AGENT AND THE MANAGING AGENTS
Section 11.1 Authorization and Action.
(a) Each Lender hereby designates and appoints the Administrative Agent
as Administrative Agent hereunder, and authorizes the Administrative Agent to
take such actions as agent on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms of this Agreement together
with such powers as are reasonably incidental thereto. The Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of
the Administrative Agent shall be read into this Agreement or otherwise exist
for the Administrative Agent. In performing its functions and duties hereunder,
the Administrative Agent shall act solely as agent for the Lenders and does not
assume nor shall be deemed to have assumed any obligation or relationship of
trust or agency with or for the Borrower or any of its successors or assigns.
The Administrative Agent shall not be required to take any action which exposes
the Administrative Agent to personal liability or which is contrary to this
Agreement or applicable law. The appointment and authority of the Administrative
Agent hereunder shall terminate at the indefeasible payment in full of the
Aggregate Unpaids.
(b) Each member of a Lender Group hereby designates and appoints the
Person designated on the signature page or the applicable Assignment and
Acceptance as the Managing Agent for such Lender Group as its Managing Agent
hereunder, and authorizes such Managing Agent to take such actions as agent on
its behalf and to exercise such powers as are delegated to such Managing Agent
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by the terms of this Agreement together with such powers as are reasonably
incidental thereto. No Managing Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Liquidity Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities on the part of a Managing Agent shall be read into
this Agreement or otherwise exist for a Managing Agent. In performing its
functions and duties hereunder, each Managing Agent shall act solely as agent
for the Lenders in such Lender Group and does not assume nor shall be deemed to
have assumed any obligation or relationship of trust or agency with or for the
Borrower or any of its successors or assigns. The VFCC Managing Agent shall not
be required to take any action which exposes such Managing Agent to personal
liability or which is contrary to this Agreement or applicable law. The
appointment and authority of each Managing Agent hereunder shall terminate at
the indefeasible payment in full of the Aggregate Unpaids.
Section 11.2 Delegation of Duties.
(a) The Administrative Agent may execute any of its duties under this
Agreement by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact selected by it with reasonable care.
(b) Each Managing Agent may execute any of its duties under this
Agreement by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. No Managing
Agent shall be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
Section 11.3 Exculpatory Provisions.
(a) Neither the Administrative Agent nor any of its directors,
officers, agents or employees shall be (i) liable for any action lawfully taken
or omitted to be taken by it or them under or in connection with this Agreement
(except for its, their or such Person's own gross negligence or willful
misconduct or, in the case of the Administrative Agent, the breach of its
obligations expressly set forth in this Agreement), or (ii) responsible in any
manner to any of the Lenders or the other Agents for any recitals, statements,
representations or warranties made by the Borrower contained in this Agreement
or in any certificate, report, statement or other document referred to or
provided for in, or received under or in connection with, this Agreement for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other document furnished in connection herewith, or for
any failure of the Borrower to perform its obligations hereunder, or for the
satisfaction of any condition specified in Article III. The Administrative Agent
shall not be under any obligation to any Lender or any other Agent to ascertain
or to inquire as to the observance or performance of any of the agreements or
covenants contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Borrower. The Administrative Agent shall not
be deemed to have knowledge of any Termination Event unless it has received
notice from the Borrower, the Servicer, another Agent or a Lender.
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(b) No Managing Agent or any of its respective directors, officers,
agents or employees shall be (i) liable for any action lawfully taken or omitted
to be taken by it or them under or in connection with this Agreement (except for
its, their or such Person's own gross negligence or willful misconduct or, in
the case of such Managing Agent, the breach of its obligations expressly set
forth in this Agreement), or (ii) responsible in any manner to the
Administrative Agent or any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower contained in this Agreement
or in any certificate, report, statement or other document referred to or
provided for in, or received under or in connection with, this Agreement or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or any other document furnished in connection herewith, or for
any failure of the Borrower to perform its obligations hereunder, or for the
satisfaction of any condition specified in Article III. No Managing Agent shall
be under any obligation to the Administrative Agent or any Lender to ascertain
or to inquire as to the observance or performance of any of the agreements or
covenants contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Borrower. No Managing Agent shall be deemed
to have knowledge of any Termination Event unless the Managing Agent has
received notice from the Borrower, the Administrative Agent or a Lender.
Section 11.4 Reliance.
(a) The Administrative Agent shall in all cases be entitled to rely,
and shall be fully protected in relying, upon any document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent shall in all cases be fully justified in failing or
refusing to take any action under this Agreement or any other document furnished
in connection herewith unless it shall first receive such advice or concurrence
of the Required Lenders or all of the Lenders, as applicable, as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders.
The Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, in accordance with a request of the Required Lenders or
all of the Lenders, as applicable, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
(b) Each Managing Agent shall in all cases be entitled to rely, and
shall be fully protected in relying, upon any document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the such Managing Agent. Each Managing
Agent shall in all cases be fully justified in failing or refusing to take any
action under this Agreement or any other document furnished in connection
herewith unless such Managing Agent shall have received such assurances from the
members of its Lender Group as it deems satisfactory, including, without
limitation such indemnification from such members.
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Section 11.5 Non-Reliance on Administrative Agent, Managing Agents and
Other Lenders.
Each Lender expressly acknowledges that no Agent nor any of its
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to it and that no act by
any Agent shall be deemed hereafter taken, including, without limitation, any
review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by such Agent. Each Lender represents and warrants to
the Administrative Agent and to the Managing Agents that it has and will,
independently and without reliance upon any Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Borrower
and made its own decision to enter into this Agreement or Hedging Agreement, as
the case may be.
Section 11.6 Reimbursement and Indemnification.
Each Liquidity Lender agrees to reimburse and indemnify the
Administrative Agent, the related Managing Agent and each of their respective
officers, directors, employees, representatives and agents ratably according to
their Lender Percentage Share, to the extent not paid or reimbursed by the
Borrower (i) for any amounts for which such Managing Agent, acting in its
capacity as Managing Agent for such Liquidity Lender's Lender Group, or the
Administrative Agent, acting in its capacity as Administrative Agent, is
entitled to reimbursement by the Borrower hereunder and (ii) for any other
expenses incurred by such Managing Agent, in its capacity as Managing Agent for
such Liquidity Lender's Lender Group, or the Administrative Agent, in its
capacity as Administrative Agent and acting on behalf of the Lenders, in
connection with the administration and enforcement of this Agreement.
Section 11.7 Administrative Agent and Managing Agents in their
Individual Capacities.
Each Agent and each of their respective Affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Borrower or any Affiliate of the Borrower as though such Agent, were not the an
Agent, hereunder. With respect to the acquisition of interests in the Loan
pursuant to this Agreement, each, the Managing Agents and each of their
respective Affiliates shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not an Agent, and the
terms "Liquidity Lender," "Lender," "Liquidity Lenders" and "Lenders" shall
include each Agent, as the case may be, in its individual capacity.
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Section 11.8 Successor Administrative Agent or Managing Agent.
(a) The Administrative Agent may, upon 5 days' notice to the Borrower,
the Servicer and the Lenders, and the Administrative Agent will, upon the
direction of all of the Lenders (other than the Administrative Agent, in its
individual capacity) resign as Administrative Agent. If the Administrative Agent
shall resign, then the Required Lenders during such 5-day period shall appoint
from among the Lenders a successor agent. If for any reason no successor
Administrative Agent is appointed by the Required Lenders during such 5-day
period, then effective upon the expiration of such 5-day period, the Lenders
shall perform all of the duties of the Administrative Agent hereunder and the
Borrower shall make all payments in respect of the Aggregate Unpaids or under
any fee letter delivered by the Originator to the Administrative Agent and the
Lenders directly to the applicable Lenders and for all purposes shall deal
directly with the Lender. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Article XI and Article
XII shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent under this Agreement.
(b) Each Managing Agent may, upon 5 days' notice to the Borrower, the
Servicer, the Administrative Agent and the Liquidity Lenders in the related
Lender Group, and each Managing Agent will, upon the direction of all of the
Liquidity Lenders in such Lender Group (other than such Managing Agent, in its
individual capacity) resign as Managing Agent. If the Managing Agent shall
resign, then such Lender Group during such 5-day period shall appoint from among
the Liquidity Lenders a successor Managing Agent. If for any reason no successor
Managing Agent is appointed by such Lender Group during such 5-day period, then
effective upon the expiration of such 5-day period, the Liquidity Lenders in
such Lender Group shall perform all of the duties of the Managing Agent
hereunder and all payments in respect of the Aggregate Unpaids. After any
retiring Managing Agent's resignation hereunder as Managing Agent, the
provisions of this Article XI and Article XII shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Managing Agent under
this Agreement.
ARTICLE XII
ASSIGNMENTS; PARTICIPATIONS
Section 12.1 Assignments and Participations.
(a) Each Lender may upon at least 30 days' notice to the Administrative
Agent, the related CP Lender and Managing Agent and, if such Lender Group is
required to do so, to any applicable nationally recognized statistical rating
organization, assign to one or more banks or other entities all or a portion of
its rights and obligations under this Agreement; provided, however, that (i)
each such assignment shall be of a constant, and not a varying percentage of all
of the assigning Lender's rights and obligations under this Agreement, (ii) the
amount of the Loan of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than the lesser of (A)
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$15,000,000 or an integral multiple of $1,000,000 in excess of that amount and
(B) the full amount of the assigning Lender's Loan, (iii) each such assignment
shall be to an Eligible Assignee, (iv) the parties to each such assignment shall
execute and deliver to the Administration Agent, the Borrower and the related
Managing Agent, for its acceptance and recording in the Register, an Assignment
and Acceptance, together with a processing and recordation fee of $1,500 to each
of the Administration Agents and the related Managing Agent, (v) the parties to
each such assignment shall have agreed to reimburse the Administrative Agent,
the related Managing Agent and the related CP Lender or all fees, costs and
expenses (including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for each of the Administrative Agent, the related Managing
Agent and the related CP Lender incurred by such CP Lender and Managing Agent,
respectively, in connection with such assignment and (vi) there shall be no
increased costs, expenses or taxes incurred by such CP Lender and Managing Agent
upon such assignment or participation. Upon such execution, delivery and
acceptance by the related Managing Agent and the recording by such Agent, from
and after the effective date specified in each Assignment and Acceptance, which
effective date shall be the date of acceptance thereof by the related Managing
Agent, unless a later date is specified therein, (i) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of an Lender hereunder and (ii) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement (and, in the case of
an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the related
CP Lender or the performance or observance by the related CP Lender of any of
its obligations under this Agreement or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of such financial statements and
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the related Managing
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assigning Lender and such assignee confirm that such assignee is an Eligible
Assignee; (vi) such assignee appoints and authorizes the related Managing Agent
to take such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to such agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of this Agreement are required to be performed by it as an Lender.
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(c) On behalf of the Borrower, the related Managing Agent shall
maintain at its address referred to herein a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the recordation of
the names and addresses of the Lenders, the participants and the Commitment of,
and the interest of, the Loan owned by each Liquidity Lender from time to time
(the "Register"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the related CP Lender, the Borrower
and the Liquidity Lenders may treat each Person whose name is recorded in the
Register as an Liquidity Lender hereunder for all purposes of this Agreement.
The Register shall be available for inspection by the related CP Lender, the
related Managing Agent or any Liquidity Lender at any reasonable time and from
time to time upon reasonable prior notice.
(d) Subject to the provisions of Section 12.1(a), upon its receipt of
an Assignment and Acceptance executed by an assigning Lender and an assignee,
the related Managing Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit C hereto, accept such
Assignment and Acceptance, and the related Managing Agent shall then (i) record
the information contained therein in the Register and (ii) give prompt notice
thereof to the related CP Lender.
(e) Each Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the Loan owned by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment hereunder)
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and provided, further, that the Person
acquiring such participation shall be approved by the Managing Agent for the
related Lender Group. Notwithstanding anything herein to the contrary, each
participant shall have the rights of a Lender (including any right to receive
payment) under Sections 2.13 and 2.14; provided, however, that no participant
shall be entitled to receive payment under either such Section in excess of the
amount that would have been payable under such Section by the Borrower to the
Lender granting its participation had such participation not been granted, and
no Liquidity Lender granting a participation shall be entitled to receive
payment under either such Section in an amount which exceeds the sum of (i) the
amount to which such Lender is entitled under such Section with respect to any
portion of the Loan owned by such Lender which is not subject to any
participation plus (ii) the aggregate amount to which its participants are
entitled under such Sections with respect to the amounts of their respective
participations. With respect to any participation described in this Section
12.1, the participant's rights as set forth in the agreement between such
participant and the applicable Lender to agree to or to restrict such Lender's
ability to agree to any modification, waiver or release of any of the terms of
this Agreement or to exercise or refrain from exercising any powers or rights
which such Lender may have under or in respect of this Agreement shall be
limited to the right to consent to any of the matters set forth in Section 13.1
of this Agreement.
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If any participant is organized under the laws of any jurisdiction
other than the United States or any state thereof, the assigning Lender,
concurrently with the sale of a participating interest to such participant,
cause such participant (1) to represent to the assigning Lender (for the benefit
of the assigning Lender, the related Managing Agent and the Borrower) that under
applicable law and treaties no taxes will be required to be withheld by the
related Managing Agent, the Borrower or the assigning Lender with respect to any
payments to be made to such participant in respect of its participation in the
Loans and (2) to agree (for the benefit of the assigning Lender, the related
Managing Agent and the Borrower) that it will deliver the tax forms and other
documents required to be delivered pursuant to Section 2.14(d) and comply from
time to time with all applicable U.S. laws and regulations with respect to
withholding tax exemptions
(f) Each Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 12.1, disclose
to the assignee or participant or proposed assignee or participant any
information relating to the Borrower or the related CP Lender furnished to such
Liquidity Lender by or on behalf of the Borrower or the related CP Lender.
(g) In the event (i) a Lender ceases to qualify as an Eligible
Assignee, or (ii) an Liquidity Lender makes demand for compensation pursuant to
Section 2.13 or Section 2.14, any CP Lender may, and, prior to the occurrence of
a Termination Event upon the direction of the Borrower the Managing Agent for
the related Lender Group, shall, notwithstanding any provision to the contrary
herein, replace such Lender with an Eligible Assignee by giving three Business
Days' prior written notice to such Lender. In the event of the replacement of an
Lender, such Lender agrees (A) to assign all of its rights and obligations
hereunder to an Eligible Assignee selected by the related CP Lender upon payment
to such Lender of the amount of such Lender's Advances Outstanding together with
any accrued and unpaid Interest thereon and all other amounts owing to such
Lender hereunder and (B) to execute and deliver an Assignment and Acceptance and
such other documents evidencing such assignment as shall be necessary or
reasonably requested by the related CP Lender or the related Managing Agent. In
the event that any Lender ceases to qualify as an Eligible Assignee, such
affected Lender agrees (I) to give the related Managing Agent, the Borrower and
the related CP Lender prompt written notice thereof and (II) subject to the
following proviso, to reimburse the related Managing Agent, the Borrower, the
related CP Lender and the relevant assignee for all fees, costs and expenses
(including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for each of the related Managing Agent, the Borrower and the related
CP Lender and such assignee) incurred by the related Managing Agent, the
Borrower, the related CP Lender and such assignee, respectively, in connection
with any assignment made pursuant to this Section 12.1(g) by such affected
Lender; provided, however, that such affected Liquidity Lender's liability for
such costs, fees and expenses shall be limited to the amount of any up-front
fees paid to such affected Lender at the time that it became a party to this
Agreement.
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(h) Nothing herein shall prohibit any Lender from pledging or assigning
as collateral any of its rights under this Agreement to any Federal Reserve Bank
in accordance with applicable law and any such pledge or collateral assignment
may be made without compliance with Section 12.1(a) or Section 12.1(b).
(i) Notwithstanding any provision herein or in any other Transaction
Document to the contrary at any time, if any CP Lender so elects such CP Lender
hereby irrevocably may from time to time assign its interest in the related
Certificate in whole or in part or may from time to time assign an undivided
interest in or sell a participation in any portion or all of the Advances made
by such CP Lender, to any of its Program Support Providers in accordance with
the terms of the applicable Program Support Agreement.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Amendments and Waivers.
(a) Except as provided in this Section 13.1, no amendment, waiver or
other modification of any provision of this Agreement shall be effective without
the written agreement of the Borrower, the Administrative Agent and each Lender
Group; provided, however, that no such amendment, waiver or modification
affecting the rights or obligations of any Hedge Counterparty, any Lender Group,
the Administrative Agent, the Backup Servicer or the Collateral Custodian shall
be effective as against such party, as the case may be, without the written
agreement of such party. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No amendment, waiver or other modification of this Agreement shall:
(i) without the consent of each affected Lender in the related
Lender Group, (A) extend the Commitment Termination Date or the date of
any payment or deposit of Collections by the Borrower or the Servicer,
(B) reduce the rate or extend the time of payment of Interest (or any
component thereof), (C) reduce any fee payable to the related Managing
Agent for the benefit of such CP Lenders and Liquidity Lenders, (D)
except pursuant to Article XII hereof, change the amount of the Loan of
any CP Lender or Liquidity Lender, a Lender's Percentage Share or an
Liquidity Lender's Commitment, (E) amend, modify or waive any provision
of the definition of Required Lender or this Section 13.1(b), (F)
consent to or permit the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement or (G) amend or
modify any defined term (or any defined term used directly or
indirectly in such defined term) used in clauses (A) through (E) above
in a manner which would circumvent the intention of the restrictions
set forth in such clauses; or
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(ii) without the written consent of any Agent, amend, modify
or waive any provision of this Agreement if the effect thereof is to
affect the rights or duties of such Agent.
(c) Notwithstanding the foregoing provisions of this Section 13.1,
without the consent of the Liquidity Lenders, each Managing Agent may, with the
consent of the Borrower amend this Agreement solely to add additional Persons as
Liquidity Lenders hereunder. Any modification or waiver shall apply to each of
the Lenders equally and shall be binding upon the Borrower, the Lenders and each
Managing Agent.
Section 13.2 Notices, Etc.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or delivered,
as to each party hereto, at its address set forth under its name on the
signature pages hereof or specified in such party's Assignment and Acceptance or
at such other address as shall be designated by such party in a written notice
to the other parties hereto. All such notices and communications shall be
effective, upon receipt, or in the case of (a) notice by mail, five days after
being deposited in the United States mail, first class postage prepaid, (b)
notice by telex, when telexed against receipt of answer back, or (c) notice by
facsimile copy, when verbal communication of receipt is obtained, except that
notices and communications pursuant to Article II shall not be effective until
received with respect to any notice sent by mail or telex.
Section 13.3 Lender Percentage Share of Payments.
If any Lender, whether by setoff or otherwise, has payment made to it
with respect to any portion of the Aggregate Unpaids owing to such Lender (other
than payments received pursuant to Section 10.1 in a greater proportion than
that received by any other Lender), such Lender agrees, promptly upon demand, to
purchase for cash without recourse or warranty a portion of the Aggregate
Unpaids held by the other Lenders so that after such purchase each Lender will
hold its Lender Percentage Share of the Aggregate Unpaids; provided, however,
that if all or any portion of such excess amount is thereafter recovered from
such Lender, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, but without interest.
Section 13.4 No Waiver, Rights and Remedies.
No failure on the part of any Agent, the Collateral Custodian, the
Backup Servicer or a Lender to exercise, and no delay in exercising, any right
or remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right. The rights and remedies
herein provided are cumulative and not exclusive of any rights and remedies
provided by law.
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Section 13.5 Binding Effect; Benefit of Agreement.
This Agreement shall be binding upon and inure to the benefit of the
Borrower, each Agent, the Backup Servicer, the Collateral Custodian, the Lenders
and their respective successors and permitted assigns and, in addition, the
provisions of Sections 2.7 and 2.8 shall inure to the benefit of each Hedge
Counterparty.
Section 13.6 Term of this Agreement.
This Agreement, including, without limitation, the Borrower's
obligation to observe its covenants set forth in Article V, and the Servicer's
obligation to observe its covenants set forth in Articles V and VI, shall remain
in full force and effect until the Collection Date; provided, however, that the
rights and remedies with respect to any breach of any representation and
warranty made or deemed made by the Borrower pursuant to Articles III and IV and
the indemnification and payment provisions of Article X and Article XI and the
provisions of Section 13.9 and Section 13.10 shall be continuing and shall
survive any termination of this Agreement.
Section 13.7 Governing Law; Consent to Jurisdiction; Waiver of
Objection to Venue.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND EACH HEDGE
COUNTERPARTY HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL
COURT LOCATED WITHIN THE STATE OF NEW YORK, NEW YORK COUNTY. EACH OF THE PARTIES
HERETO AND EACH LENDER HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY
OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
Section 13.8 Waiver of Jury Trial.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO
AND EACH HEDGE COUNTERPARTY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
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Section 13.9 Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted to the
Indemnified Parties under Article X hereof, the Borrower agrees to pay on demand
all costs and expenses of each Agent, the Backup Servicer, the Collateral
Custodian and the Lenders incurred in connection with the preparation,
execution, delivery, administration (including periodic auditing), amendment or
modification of, or any waiver or consent issued in connection with, this
Agreement and the other documents to be delivered hereunder or in connection
herewith (excluding any Hedging Agreement), including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for each Agent with
respect thereto and with respect to advising such Agent as to its rights and
remedies under this Agreement and the other documents to be delivered hereunder
or in connection herewith (excluding any Hedging Agreement), and all costs and
expenses, if any (including reasonable counsel fees and expenses), incurred by
any Agent, the Backup Servicer, the Collateral Custodian or the Lenders in
connection with the enforcement of this Agreement and the other documents to be
delivered hereunder or in connection herewith (including any Hedging Agreement).
(b) The Borrower shall pay on demand any and all stamp, sales, excise
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing and recording of this Agreement, the other
documents to be delivered hereunder or any agreement or other document providing
liquidity support, credit enhancement or other similar support to the Lender in
connection with this Agreement or the funding or maintenance of Advances
hereunder.
(c) The Borrower shall pay on demand all costs and expenses incurred by
the Managing Agents in connection with periodic audits of the Borrower's or the
Servicer's books and records and the cost of rating such Issuer's commercial
paper with respect to financing its Advances hereunder by independent financial
rating agencies.
Section 13.10 No Proceedings.
Each of the parties hereto, and each Hedge Counterparty hereby agrees
that it will not institute against, or join any other Person in instituting
against, any CP Lender any proceedings of the type referred to in the definition
of Insolvency Event hereunder until one year and one day have elapsed since the
last day on which any Commercial Paper Notes remained outstanding. Each of the
parties hereto (other than the Lenders) hereby agrees that it will not institute
against, or join any other Person in instituting against the Borrower any
Insolvency Proceeding so long as there shall not have elapsed one year and one
day since the Collection Date; each Lender agrees that without the prior written
consent of the Required Lenders, it will not institute against, nor join any
other Person in instituting against the Borrower any Insolvency Proceeding.
Section 13.11 Recourse Against Certain Parties.
(a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of any Lender as contained in this Agreement or any other
agreement, instrument or document entered into by it pursuant hereto or in
connection herewith shall be had against any administrator of such Lender or any
incorporator, affiliate, stockholder, officer, employee or director of such
Lender or of any such administrator, as such, by the enforcement of any
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assessment or by any legal or equitable proceeding, by virtue of any statute or
otherwise; it being expressly agreed and understood that the agreements of such
Lender contained in this Agreement and all of the other agreements, instruments
and documents entered into by it pursuant hereto or in connection herewith are,
in each case, solely the corporate obligations of such Lender, provided that, in
the case of any CP Lender, such liabilities shall be paid only after the
repayment in full of all Commercial Paper Notes and all other liabilities
contemplated in the program documents with respect to such CP Lender, and that
no personal liability whatsoever shall attach to or be incurred by any
administrator of such Lender or any incorporator, stockholder, affiliate,
officer, employee or director of such Lender or of any such administrator, as
such, or any of them, under or by reason of any of the obligations, covenants or
agreements of such Lender contained in this Agreement or in any other such
instrument, document or agreement, or which are implied therefrom, and that any
and all personal liability of every such administrator of such Lender and each
incorporator, stockholder, affiliate, officer, employee or director of such
Lender or of any such administrator, or any of them, for breaches by such Lender
of any such obligations, covenants or agreements, which liability may arise
either at common law or in equity, by statute or constitution, or otherwise, is
hereby expressly waived as a condition of, and in consideration for, the
execution of this Agreement.
(b) Notwithstanding anything contained in this Agreement, no CP Lender
shall have any obligation to pay any amount required to be paid by it hereunder
to any of the Agents, any Liquidity Lender, the Collateral Custodian, or the
Backup Servicer in excess of any amount available to such CP Lender after paying
or making provision for the payment of its Commercial Paper Notes. All payment
obligations of each CP Lender hereunder are contingent upon the availability of
funds in excess of the amounts necessary to pay Commercial Paper Notes; and each
of the Agents, each Liquidity Lender, the Collateral Custodian, and the Backup
Servicer agrees that they shall not have a claim under Section 101(5) of the
Bankruptcy Code if and to the extent that any such payment obligation exceeds
the amount available to such CP Lender to pay such amounts after paying or
making provision for the payment of its Commercial Paper Notes.
(c) The provisions of this Section 13.11 shall survive the termination
of this Agreement.
Section 13.12 Protection of Ownership Security Interests of the
Lenders; Intent of Parties; Security Interest.
(a) The Borrower agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that may reasonably be necessary or desirable, or that any Agent may
reasonably request, to perfect, protect or more fully evidence the Grant and the
interest of the Administrative Agent, as agent for the Lenders in and to the
Collateral, or to enable the Administrative Agent, the Hedge Counterparties or
the Lenders to exercise and enforce their rights and remedies hereunder.
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(b) If the Borrower or the Servicer fails to perform any of its
obligations hereunder after five Business Days' notice from any Agent, any Agent
or any Lender may (but shall not be required to) perform, or cause performance
of, such obligation; and such Agent's or such Lender costs and expenses incurred
in connection therewith shall be payable by the Borrower (if the Servicer that
fails to so perform is the Borrower or an Affiliate thereof) as provided in
Article X, as applicable. The Borrower irrevocably authorizes the Administrative
Agent and appoints the Administrative Agent as its attorney-in-fact to act on
behalf of the Borrower (i) to execute on behalf of the Borrower as debtor and to
file financing statements necessary or desirable in the Agents' sole discretion
to perfect and to maintain the perfection and priority of the interest of each
member of each Lender Group in the Assets and (ii) to file a carbon,
photographic or other reproduction of this Agreement or any financing statement
with respect to the Assets as a financing statement in such offices as the
related Managing Agent or the Administrative Agent deems necessary or desirable
to perfect and to maintain the perfection and priority of the interests of the
in the Assets. This appointment is coupled with an interest and is irrevocable.
(c) The parties hereto intend that this Agreement constitutes a
security agreement and the transactions effected hereby constitute secured loans
by the Lenders to the Borrower under applicable law. For such purpose, the
Borrower hereby transfers, conveys, assigns and grants to the Administrative
Agent, for the benefit of the Lenders and Hedge Counterparties, a continuing
security interest in all Assets, all Collections, all Hedging Agreements and the
proceeds of the foregoing to secure the repayment of all Advances Outstanding,
all payments at any time due or accrued in respect of the Interest, all
Aggregate Unpaids, and all other payments at any time due (whether accrued or
due) by the Borrower hereunder (including without limit any amount owing under
Article X hereof), under any Hedging Agreement (including, without limitation,
payments in respect of the termination of any such Hedging Agreement) or under
any fee letter to any Agent and each Lender.
(d) The Servicer shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the right, title and interest of the Administrative
Agent on behalf of the Lenders and the Hedge Counterparties in and to the Assets
to be promptly recorded, registered and filed, and at all times to be kept
recorded, registered and filed, all in such manner and in such places as may be
required by law fully to preserve and protect the right, title and interest of
the Administrative Agent hereunder to all property comprising the Assets. The
Servicer shall deliver to each Agent file-stamped copies of, or filing receipts
for, any document recorded, registered or filed as provided above, as soon as
available following such recording, registration or filing. The Borrower shall
cooperate fully with the Servicer in connection with the obligations set forth
above and will execute any and all documents reasonably required to fulfill the
intent of this Section 13.12.
Section 13.13 Confidentiality.
(a) Each of the Agents, the Lenders, the Servicer, the Collateral
Custodian, the Backup Servicer and the Borrower shall maintain and shall cause
each of its employees and officers to maintain the confidentiality of the
Agreement and all information with respect to the other parties, including all
information regarding the business of the Borrower and the Servicer hereto and
their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein,
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except that each such party and its officers and employees may (i) disclose such
information to its external accountants, attorneys, investors, potential
investors and the agents of such Persons ("Excepted Persons"), provided,
however, that each Excepted Person shall, as a condition to any such disclosure,
agree for the benefit of each Agent, the Lenders, the Servicer, the Collateral
Custodian, the Backup Services and the Borrower that such information shall be
used solely in connection with such Excepted Person's evaluation of, or
relationship with, the Borrower and its affiliates, (ii) disclose the existence
of the Agreement, but not the financial terms thereof, (iii) disclose such
information as is required by an applicable law or an order of an judicial or
administrative proceeding and (iv) disclose the Agreement and such information
in any suit, action, proceeding or investigation (whether in law or in equity or
pursuant to arbitration) involving any of the Transaction Documents or any
Hedging Agreement for the purpose of defending itself, reducing its liability,
or protecting or exercising any of its claims, rights, remedies, or interests
under or in connection with any of the Transaction Documents or any Hedging
Agreement. It is understood that the financial terms that may not be disclosed
except in compliance with this Section 13.13(a) include, without limitation, all
fees and other pricing terms, and all Termination Events, Servicer Termination
Events, and priority of payment provisions.
(b) Anything herein to the contrary notwithstanding, the Borrower and
the Servicer each hereby consents to the disclosure of any nonpublic information
with respect to it (i) to each Agent, the Collateral Custodian, the Backup
Servicer or the Lenders by each other, (ii) by the Agents or the Lenders to any
prospective or actual assignee or participant of any of them or (iii) by the
Agents, or a Lender to any Rating Agency, Commercial Paper dealer or provider of
a surety, guaranty or credit or liquidity enhancement to a Lender and to any
officers, directors, employees, outside accountants and attorneys of any of the
foregoing, provided each such Person is informed of the confidential nature of
such information. In addition, the Lenders, and each Agent may disclose any such
nonpublic information as required pursuant to any law, rule, regulation,
direction, request or order of any judicial, administrative or regulatory
authority or proceedings (whether or not having the force or effect of law).
(c) Notwithstanding anything herein to the contrary, the foregoing
shall not be construed to prohibit (i) disclosure of any and all information
that is or becomes publicly known, (ii) disclosure of any and all information
(A) if required to do so by any applicable statute, law, rule or regulation, (B)
to any government agency or regulatory body having or claiming authority to
regulate or oversee any respects of the Collateral Custodian's or Backup
Servicer's business or that of their affiliates, (C) pursuant to any subpoena,
civil investigative demand or similar demand or request of any court, regulatory
authority, arbitrator or arbitration to which the Collateral Custodian or Backup
Servicer or an affiliate or an officer, director, employer or shareholder
thereof is a party, (D) in any preliminary or final offering circular,
registration statement or contract or other document pertaining to the
transactions contemplated herein approved in advance by the Borrower or Servicer
or (E) to any affiliate, independent or internal auditor, agent, employee or
attorney of the Collateral Custodian or Backup Servicer having a need to know
the same, provided that the Collateral Custodian or Backup Servicer advises such
recipient of the confidential nature of the information being disclosed, or
(iii) any other disclosure authorized by the Borrower or Servicer.
106
<PAGE>
Section 13.14 Execution in Counterparts; Severability; Integration.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings
other than any fee letter delivered by the Originator to the Agent and the
Lenders.
Section 13.15 Waiver of Setoff.
Each of the parties thereto (other than the CP Lenders) hereby waives
any right of setoff it may have or to which it may be entitled under this
Agreement from time to time against any CP Lender or its assets.
[Remainder of Page Intentionally Left Blank.]
107
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER: FIDELITY LEASING SPC IV, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
1255 Wright's Lane
West Chester, Pennsylvania 19380
Attention:
Facsimile No.:
Confirmation No.:
THE SERVICER: FIDELITY LEASING, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
1255 Wright's Lane
West Chester, Pennsylvania 19380
Attention: _____________________
Facsimile No.: _____________________
Confirmation No.: 610-719-4515
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
VFCC LIQUIDITY LENDERS: FIRST UNION NATIONAL BANK
By:__________________________________________
Name:________________________________________
Title:_______________________________________
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit
Administration
Facsimile No.: (704) 374-3254
Confirmation No: (704) 374-4001
VFCC
LIQUIDITY LENDERS: FIRST UNION NATIONAL BANK
By:__________________________________________
Name:________________________________________
Title:_______________________________________
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Bill A. Shirley, Jr.
Facsimile No.: _____________________
Confirmation No.: _____________________
2
<PAGE>
VFCC: VARIABLE FUNDING CAPITAL
CORPORATION
By: First Union Capital Markets Corp.,
as attorney-in-fact
By:__________________________________________
Name:________________________________________
Title:_______________________________________
Variable Funding Capital Corporation
c/o First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: CP Lender Administration
Facsimile No.: (704) 383-6036
Confirmation No.: (704) 383-9343
With respect to notices required pursuant to Section 13.2, a copy of notices
sent to VFCC shall be sent to:
Lord Securities Corp.
2 Wall Street, 19th Floor
New York, New York 10005
Attention: Vice President
Facsimile No.: (212) 346-9012
Confirmation No.: (212) 346-9008
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
3
<PAGE>
THE ADMINISTRATIVE AGENT FIRST UNION CAPITAL MARKETS CORP.
AND VFCC MANAGING AGENT:
By:__________________________________________
Name:________________________________________
Title:_______________________________________
First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: CP Lender Administration
Facsimile No.: (704) 383-6036
Telephone No.: (704) 383-9343
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
4
<PAGE>
THE COLLATERAL CUSTODIAN: HARRIS TRUST AND SAVINGS BANK
AND BACKUP SERVICER: as Collateral Custodian and Backup Servicer
By______________________________________
Title:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention:
Facsimile: (312) 461-3525
Telephone: (312) 461-2532
5
<PAGE>
SCHEDULE I
CONDITION PRECEDENT DOCUMENTS
As required by Section 3.1(a) of the Agreement, each of the following items must
be delivered to the Agents prior to the date of the initial funding
A copy of this Agreement duly executed by the Borrower, the Servicer,
the CP Lenders, the Liquidity Lenders, the Collateral Custodian, the
Backup Servicer and each Agent;
A copy of the Purchase Agreement duly executed by the Borrower and the
Servicer;
A copy of the Hedging Agreement duly executed by the Borrower and First
Union National Bank;
A copy of the Fee Letter duly executed by the Servicer and the
Borrower;
A copy of the Backup Servicer Fee Letter duly executed by the Servicer
and the Backup Servicer;
A copy of the Collateral Custodian Fee Letter duly executed by the
Servicer and the Collateral Custodian;
Certificates of the Secretary or Assistant Secretary of each of the
Borrower and Servicer, each dated the date of this Agreement,
certifying (i) the names and true signatures of the incumbent officers
of such Person authorized to sign this Agreement and the other
documents to be delivered by it hereunder (on which certificate each
Agent and the Lenders may conclusively rely until such time as each
Agent shall receive from the Borrower or the Servicer, as the case may
be, a revised certificate meeting the requirements of this paragraph),
(ii) that the certified copy of the certificate of incorporation of
such Person attached thereto is a complete and correct copy and that
such certificate of incorporation has not been amended, modified or
supplemented and is in full force and effect, (iii) that the copy of
the bylaws of such Person attached thereto is a complete and correct
copy and that such bylaws have not been amended, modified or
supplemented and are in full force and effect, and (iv) the resolutions
attached thereto of such Person's board of directors approving and
authorizing the execution, delivery and performance by such Person of
this Agreement and the documents related thereto;
Good standing certificate for the Borrower issued by the Secretary of
State of Delaware and the Commonwealth of Pennsylvania;
6
<PAGE>
Good standing certificate for the Servicer issued by the Secretary of
the Commonwealth of Pennsylvania;
Acknowledgment copies of proper financing statements (the "Facility
Financing Statements"), describing the Assets and naming the Borrower
as debtor and the Administrative Agent, as agent for the Lenders, as
secured party, or other, similar instruments or documents, as may be
necessary or, in the opinion of the Administrative Agent or the
Lenders, desirable under the UCC of all appropriate jurisdictions or
any comparable law to perfect the Lenders' interests in all Assets;
Acknowledgment copies of proper financing statements, if any, necessary
to release all security interests and other rights of any Person in the
Assets previously granted by the Borrower;
Certified completed copies of requests for information or copies (or a
similar search report certified by a party acceptable to the Agents),
dated a date reasonably near to the date of the initial Purchase,
listing all effective financing statements that name the Borrower
(under its present name and any previous name) as debtor and that are
filed in the jurisdictions in which the Facility Financing Statements
were filed, together with copies of such financing statements, and
similar search reports with respect to federal tax liens in all
appropriate jurisdictions (none of which, other than the financing
statements filed pursuant to the Transaction Documents shall cover any
of the Assets); and
Satisfactory results of review and audit of the Servicer's collection,
operating and reporting systems, Credit and Collection Policy,
historical receivables data and accounts, including satisfactory
results of a review of the Servicer's operating location(s) and
satisfactory review and approval of the Eligible Contracts existing on
the date of the initial funding under the Agreement.
Such powers of attorney as the Administrative Agent shall reasonably
request.
Officer's Certificates from the Borrower and the Servicer certifying as
to solvency and the satisfaction of other closing conditions.
Opinions of Morgan, Lewis & Bockius LLP, special counsel to the
Servicer and the Borrower, relating to the effect that:
(1) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, with corporate power and authority to own its
properties and conduct its business as currently conducted, and is
qualified to do business as a foreign corporation in good standing
in each jurisdiction in which it owns or leases substantial
properties or in which the conduct of its business requires such
qualification;
7
<PAGE>
(2) The Borrower has or had at all relevant times full power,
authority and legal right to exercise, deliver and perform its
obligations under this Agreement and each other Transaction Document
to which the Borrower is a party, and has or had at all relevant
times full power, authority and legal right to acquire, own and
transfer the Assets and the other property transferred by it to any
Agent pursuant to this Agreement;
(3) Each of the Transaction Documents to which the Borrower is
a party has been duly authorized, executed and delivered by the
Borrower and is a valid and binding agreement, enforceable against
the Borrower in accordance with its terms, except to the extent that
enforcement thereof may be limited by (A) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
creditors' rights generally, (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding
at law or in equity) and (C) the qualification that certain remedial
provisions of the Transaction Documents may be unenforceable in
whole or in part, but the inclusion of such provisions does not
affect the validity of such Transaction Documents, and such
Transaction Documents, together with applicable law, contain
adequate remedial provisions for the practical realization of the
benefits of the security created thereby;
(4) The grant of the security interest in the Assets by the
Borrower to the Administrative Agent, as agent for the Lenders, the
compliance by the Borrower with all of the provisions of the
Agreement and the other Transaction Documents to which the Borrower
is a party and the consummation of the transactions contemplated in
the Agreement, and the other Transaction Documents to which the
Borrower is a party will not (A) conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Borrower
is a party or by which the Borrower is bound or to which any of the
property or assets of the Borrower are subject, (B) result in any
violation of the provisions of any order known to such counsel of
any Governmental Authority having jurisdiction over the Borrower or
any of its properties or (C) result in any violation of the
provisions of the charter or the bylaws of the Borrower or any
statute or any rule or regulation of any Governmental Authority
having jurisdiction over the Borrower or any of its properties;
(5) No authorization, approval, consent or order of, or filing
with, any Governmental Authority is required of the Borrower in
connection with the consummation of the transactions contemplated in
the Transaction Documents, except such as have been obtained;
8
<PAGE>
(6) To the best of such counsel's knowledge and information,
there are no legal or governmental proceedings pending or threatened
(A) asserting the invalidity of any Transaction Document, (B)
seeking to prevent the consummation by the Borrower of any of the
transactions contemplated by the Transaction Documents or (C) that
might materially and adversely affect the performance by the
Borrower of its obligations under the Transaction Documents to which
it is a party;
(7) The provisions of this Agreement are effective to create a
valid security interest in the Assets in favor of the Administrative
Agent as agent for the Lenders and such security interest is
perfected and prior to all other creditors of and Lenders from the
Borrower;
(8) The Borrower is not required to be registered as an
"investment company" under the Investment Company Act of 1940, as
amended;
(9) The Servicer is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, with corporate power and authority to own its
properties and conduct its business as currently conducted, and is
qualified to do business as a foreign corporation in good standing
in each jurisdiction in which it owns or leases substantial
properties or in which the conduct of its business requires such
qualification;
(10) The Servicer has or had at all relevant times full power,
authority and legal right to exercise, deliver and perform its
obligations under this Agreement and the other Transaction Documents
to which it is a party, and has or had at all relevant times full
power, authority and legal right to acquire, own and transfer the
Assets and the other property transferred by it to the Borrower
pursuant to the Purchase Agreement;
(11) To the best of such counsel's knowledge and information,
there are no legal or governmental proceedings pending or threatened
(A) asserting the invalidity of any Transaction Document, (B)
seeking to prevent the consummation by the Servicer of any of the
transactions contemplated by the Purchase Agreement or this
Agreement or (C) that might materially and adversely affect the
performance by the Servicer of its obligations under the Transaction
Documents to which it is a party;
9
<PAGE>
(12) Each of the Transaction Documents to which the Servicer
is a party has been duly authorized, executed and delivered by the
Servicer and is a valid and binding agreement, enforceable against
the Servicer in accordance with its terms, except to the extent that
enforcement thereof may be limited by (A) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
creditors' rights generally, (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding
at law or in equity) and (C) the qualification that certain remedial
provisions of the Transaction Documents may be unenforceable in
whole or in part, but the inclusion of such provisions does not
affect the validity of such Transaction Documents, and such
Transaction Documents, together with applicable law, contain
adequate remedial provisions for the practical realization of the
benefits of the security created thereby;
(13) The grant of the security interest in the Assets by the
Servicer to the Borrower pursuant to the Purchase Agreement and the
assignment thereof to the Administrative Agent as agent for the
Lenders, the compliance by the Servicer with all of the provisions
of the Transaction Documents to which it is a party and the
consummation of the transactions contemplated in such Transaction
Documents will not (A) conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Servicer
is a party or by which the Servicer is bound or to which any of the
property or assets of the Servicer are subject, (B) result in any
violation of the provisions of any order known to such counsel of
any Governmental Authority having jurisdiction over the Servicer or
any of its properties or (C) result in any violation of the
provisions of the charter or the bylaws of the Servicer or any
statute or any rule or regulation of any Governmental Authority
having jurisdiction over the Servicer or any of its properties;
(14) No authorization, approval, consent or order of, or
filing with, any Governmental Authority is required of the Servicer
in connection with the consummation of the transactions contemplated
in the Transaction Documents, except such as have been obtained;
(15) The provisions of the Purchase Agreement are effective to
create a valid security interest in the Assets in favor of the
Borrower and such security interest is perfected and prior to all
other creditors of and Lenders from the Servicer; and
(16) Such other matters as any Agent may reasonably request,
including without limitation, the "true sale" of the Assets from the
Servicer to the Borrower and the "non-consolidation" of the Borrower
with the Servicer.
Such other approvals, opinions or documents as the Agents may
reasonably request.
10
<PAGE>
SCHEDULE II
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
First Union National Bank
Account Number ______________
P.O. Box 8500-9805
Philadelphia, PA 19178-9805
<PAGE>
SCHEDULE III
TRADENAMES, FICTITIOUS NAMES AND "DOING BUSINESS AS" NAMES
None.
<PAGE>
SCHEDULE IV
LOCATION OF CONTRACT FILES
Harris Trust and Savings Bank
111 West Monroe Street, Lower Level West
Chicago, Illinois 60603
<PAGE>
SCHEDULE V
LIST OF CONTRACTS
[to be provided by Fidelity]
<PAGE>
SCHEDULE VI
FORMS OF CONTRACTS
[See Attached]
<PAGE>
SCHEDULE VII
ELIGIBLE CONTRACT CRITERIA
On any day, an Eligible Contract is each Contract with respect to which
each of the following is true:
(i) the information furnished to any Agent or Lender with respect to
the Contract and the Equipment related thereto is true and correct in all
material respects;
(ii) immediately prior to the Grant hereunder of the Contract and any
related Equipment (or security interest therein), the Contract was owned by the
Borrower free and clear of all Liens;
(iii) no Scheduled Payment related to the Contract is (A) more than 60
days delinquent, (B) a payment as to which the Servicer has failed to make a
Servicer Advance, (C) a payment as to which the related Equipment has been or is
in the process of being repossessed, (D) a payment as to which the related
Equipment has been charged-off in accordance with the Credit and Collection
Policy, or (E) a payment due on other than a fixed periodic basis;
(iv) the Contract is not a Defaulted Contract;
(v) no provision of the Contract has been waived, altered, modified or
extended in any respect except as allowed under the Credit and Collection Policy
and no payment terms of the Contract have been rewritten or extended;
(vi) the Contract is a valid and binding payment obligation of the
Obligor and is enforceable in accordance with its terms (except as may be
limited by applicable Insolvency Laws and the availability of equitable
remedies);
(vii) the Contract is not and will not be subject to rights of
rescission, setoff, counterclaim or defense and no such rights have been
asserted or threatened with respect to the Contract;
(viii) the Contract, at the time it becomes subject to the Grant
hereunder to the Administrative Agent on behalf of the Lenders does not violate
the laws of the United States or any state in any manner which would create
liability for any Lender or which would materially and adversely affect the
enforceability or collectibility of such Contract;
(ix) the Contract and any related Equipment have not been sold,
transferred, assigned or pledged by the Borrower to any other Person and any
Equipment related to such Contract is owned by the Borrower free and clear of
any Liens of any third parties (except for any Permitted Liens);
<PAGE>
(x) the Contract constitutes chattel paper, an account, an instrument
or a general intangible as defined under the UCC and if the Contract constitutes
"chattel paper" for purposes of the UCC, there is not more than one "secured
party's original" counterpart of the Contract, which original is in the
possession of the Collateral Custodian;
(xi) all filings necessary to evidence the conveyance or transfer to
the Administrative Agent of the Contract and all right, title and interest in
the related Equipment have been made in all appropriate Jurisdictions;
(xii) the Obligor is not the subject of bankruptcy or other insolvency
proceedings;
(xiii) except for those Obligors as may be otherwise permitted under
the Portfolio Concentration Criteria, the Obligor's billing address is in the
United States, the Contract is a U.S. dollar-denominated obligation, and the
Contract is secured by Collateral physically located within the United States;
(xiv) 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 Closing Date);
(xv) the obligations of the related Obligor under the Contract are
irrevocable, unconditional, non-cancelable, and due and payable on a fixed,
periodic basis (without the right to set off for any reason and net of any
maintenance or cost per copy charges);
(xvi) the Contract has a remaining term to maturity of not greater than
60 months, provided, however, that in accordance with the Portfolio
Concentration Criteria up to 10% or $5,000,000 (by ADCB) may have a remaining
term to maturity of not greater than 96 months;
(xvii) [reserved];
(xviii) the Obligor under the Contract is required to maintain casualty
insurance with respect to the related Equipment in accordance with the
Servicer's normal requirements and, in the case of fire, theft, liability,
collision, and other insurance in an amount equal to the higher of (A) that
required by law, (B) that required in accordance with the Credit and Collection
Policy, and (C) that maintained in accordance with industry standards;
(xix) the Contract is not a "consumer lease" as defined in Section
2A-103(1)(e) of the UCC;
(xx) the Contract is not subject to any guarantee by the Servicer nor
has the Borrower or the Originator established any specific credit reserve with
respect to the related Obligor;
<PAGE>
(xxi) the Contract (A) provides that the Originator, the Borrower or
the Servicer may accelerate all remaining Scheduled Payments if the Obligor is
in default under any of its obligations under such Contract and (B) does not
permit the Obligor thereof to utilize its security deposit to offset any
remaining Scheduled Payment;
(xxii) the Obligor under the Contract is required to maintain the
Equipment in good working order and bear all costs of operating the Equipment
(including the payment of Taxes);
(xxiii) no provision of such Contract permits a payment in respect of
any early termination thereof in an amount less than the amount calculated in
accordance with the definition of Prepayment Amount;
(xxiv) the Contract has not been terminated as a result of a Casualty
Loss to the related Equipment or for any other reason;
(xxv) the Discounted Contract Balance of such Contract, when aggregated
with the Discounted Contract Balance of each other Contract having the same
Obligor, does not exceed any Portfolio Concentration Criteria;
(xxvi) the Discounted Contract Balance of such Contract does not
include the amount of any security deposit held by the Servicer or the Borrower;
(xxvii) such Contract provides that in the event of a Casualty Loss,
the Obligor is required to pay an amount not less than the present value of all
remaining Scheduled Payments discounted at the applicable Blended Discount Rate
plus any past due amounts as of the date of determination;
(xxviii) the Obligor thereunder has represented to the Originator that
such Obligor has accepted the related Equipment and has had a reasonable
opportunity to inspect and test such Equipment and the Originator has not been
notified of any defects therein;
(xxix) all payments in respect of a Contract will be made free and
clear of, and without deduction or withholding for or on account of, any Taxes,
unless such withholding or deduction is required by law;
(xxx) the Obligor is an Eligible Obligor and is otherwise acceptable to
the Administrative Agent in its reasonable discretion.
<PAGE>
SCHEDULE VIII
PORTFOLIO CONCENTRATION CRITERIA
-------------------------------------------------------------------------------
Concentration Limit
-------------------------------------------------------------------------------
Single Obligor (including affiliates) 1.5%*
-------------------------------------------------------------------------------
Top 25 Obligors (including affiliates) 15%
-------------------------------------------------------------------------------
Obligors with billing addresses in Texas 20%
-------------------------------------------------------------------------------
Obligors with billing addresses in California 35%
-------------------------------------------------------------------------------
Obligors with billing addresses in New York 15%
-------------------------------------------------------------------------------
Obligors with billing addresses in Florida 15%
-------------------------------------------------------------------------------
Obligors with billing addresses in all other states 10%
-------------------------------------------------------------------------------
Obligors domiciled in the United States with 1.0%
Equipment located outside of the United States
-------------------------------------------------------------------------------
Municipal Contracts or other Gov't related 1.0%
-------------------------------------------------------------------------------
Remaining Term of Contract in excess of 60 months, 10%**
but no more than 96 months
-------------------------------------------------------------------------------
Non-monthly fixed payments 10%
-------------------------------------------------------------------------------
*Concentrations in any single Obligor (including its affiliates) may,
at any time that the ADCB is $100,000,000 or less and for a period of
no more than 60 consecutive days, be the greater of (a) 1.5% and (b)
$1,500,000.
**Concentrations in Contracts with remaining terms of between 61 and 96
months may, at any time that the ADCB is $50,000,000 or less and for a
period of no more than 60 consecutive days, be the greater of (a) 10%
and (b) $5,000,000.
<PAGE>
SCHEDULE IX
CREDIT AND COLLECTION POLICY OF FIDELITY LEASING, INC.
[See attached.]
<PAGE>
SCHEDULE X
COMMITMENT AMOUNT OF EACH LENDER GROUP
VFCC Lender Group $300,000,000
<PAGE>
EXHIBIT A
FORM OF FUNDING REQUEST
(including Borrowing Base Certificate)
Fidelity Leasing SPC IV, Inc.
First Union Capital Markets Corp.
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Ladies and Gentlemen:
This Borrower Notice is delivered to you under Section 2.2(a) of that certain
Receivables Funding Agreement dated as of July 14, 1999 (the "Agreement") among
Fidelity Leasing SPC IV, Inc., as the Borrower, Fidelity Leasing, Inc., as the
servicer and the originator, Variable Funding Capital Corporation, as a CP
Lender (as defined therein), the liquidity lenders named therein, First Union
Capital Markets Corp., as the administrative agent and the VFCC Managing Agent
(as defined therein), Harris Trust and Savings Bank, as the backup servicer and
collateral custodian. All capitalized undefined terms used herein have the
meaning assigned thereto in the Agreement.
Each of the undersigned, each being a duly elected officer of the Borrower and
the Servicer, respectively, holding the office set forth below such officer's
name, hereby certifies as follows:
1. The Borrower hereby requests an Advance in the principal amount of
$_____________.
2. The Borrower hereby requests that such Advance be made on the following
date: _____________.
3. Attached to this Borrower Notice is a true, correct and complete
calculation of the Borrowing Base and all components thereof.
4. Attached to this Borrower Notice is a true, correct and complete
[supplement to the] Contract List[, reflecting all Contracts which will
become part of the Collateral on the date hereof,] each Contract
reflected thereon being an Eligible Contract.
5. All of the conditions applicable to the Advance requested herein as set
forth in the Agreement have been satisfied as of the date hereof and
will remain satisfied to the date of such Advance, including:
<PAGE>
(i) The representations and warranties of such Person set
forth in the Agreement, as the case may be, are true and correct on and
as of such date, before and after giving effect to such Advance and to
the application of the proceeds therefrom, as though made on and as of
such date;
(ii) No event has occurred, or would result from such Advance
or from the application of the proceeds therefrom, which constitutes an
Unmatured Termination Event or Termination Event;
(iii) Such Person is in material compliance with each of its
covenants set forth herein; and
(iv) No event has occurred which constitutes a Servicer
Termination Event.
IN WITNESS WHEREOF, the undersigned has executed the Funding Request
this______ day of _____________, _____.
FIDELITY LEASING SPC IV, INC.,
as Borrower
By:___________________________________
Name:
Title:
FIDELITY LEASING, INC.,
as Servicer
By:___________________________________
Name:
Title:
[attach Borrowing Base Certificate]
<PAGE>
EXHIBIT B
FORM OF LOCK-BOX AGREEMENT
[Date]
[Name and address of Lock-Box Bank]
Re: Fidelity Leasing, Inc.
Lock-Box No. ____________
Lock-Box Account No.____________
Ladies and Gentlemen:
Fidelity Leasing SPC IV, Inc. (the "Assignor") hereby notifies
you that in connection with certain transactions involving the Assignor's
accounts receivable, the Assignor will transfer exclusive ownership and control
of its lock-box number __________ (the "Lock-Box") and the corresponding
lock-box account no. ____________ maintained with you (the "Lock-Box Account")
to First Union Capital Markets Corp., as Administrative Agent (the "Agent").
These transfers will become effective upon your receipt of a notice of
effectiveness, substantially in the form attached hereto as Attachment 1 (the
"Notice of Effectiveness"), which shall be delivered via facsimile transmission
to your attention.
In connection with the foregoing, the Assignor and the Agent
hereby instruct you, beginning on the date of receipt of the Notice of
Effectiveness: (i) to collect the monies, checks, instruments and other items of
payment mailed to the Lock-Box, (ii) to deposit into the Lock-Box Account all
such monies, checks, instruments and other items of payment (unless otherwise
instructed by the Agent) and (iii) to transfer all funds deposited and collected
in the Lock-Box Account pursuant to instructions given to you by the Agent from
time to time.
You are hereby further instructed: (i) that unless and until
the Agent notifies you to the contrary, you shall make such transfers from the
Lock-Box Account at such times and in such manner as the Assignor, in its
capacity as servicer for the Agent, shall from time to time instruct to the
extent such instructions are not inconsistent with the instructions set forth
herein, and (ii) to permit the Assignor (in its capacity as servicer for the
Agent) and the Agent to obtain upon request any information relating to the
Lock-Box Account, including, without limitation, any information regarding the
balance or activity of the Lock-Box Account.
<PAGE>
The Assignor also hereby notifies you that, beginning on the
date of receipt by facsimile of the Notice of Effectiveness from the Agent,
notwithstanding anything herein or elsewhere to the contrary, the Agent shall
irrevocably be entitled to exercise any and all rights in respect of or in
connection with the Lock-Box and the Lock-Box Account, including, without
limitation, the right to specify when payments are to be made out of or in
connection with the Lock-Box and the Lock-Box Account. The Agent acts as agent
for persons having a continuing interest in all of the checks and their proceeds
and all monies and earnings, if any, thereon in the Lock-Box Account, and you
shall be the Agent's agent for the purpose of holding and collecting such
property. The monies, checks, instruments and other items of payment mailed to
the Lock-Box and the funds deposited into the Lock-Box Account will not be
subject to deduction, set-off, banker's lien, or any other right in favor of any
person other than the Agent (except that you may set off (i) all amounts due to
you in respect of your customary fees and expenses for the routine maintenance
and operation of the Lock-Box Account, and (ii) the face amount of any checks
returned unpaid because of uncollected or insufficient funds).
This Agreement may not be terminated at any time by the
Assignor or you, without the prior written consent of the Agent. Neither this
Agreement nor any provision hereof may be changed, amended, modified or waived
orally but only by an instrument in writing signed by the Agent and the
Assignor.
You shall not assign or transfer your rights or obligations
hereunder (other than to the Agent) without the prior written consent of the
Agent and the Assignor. Subject to the preceding sentence, this Agreement shall
be binding upon each of the parties hereto and their respective successors and
assigns, and shall inure to the benefit of, and be enforceable by, the Agent,
each of the parties hereto and their respective successors and assigns.
You hereby represent that the person signing this Agreement on
your behalf is duly authorized by you to so sign.
You agree to give the Agent and the Assignor prompt notice if
the Lock-Box or the Lock-Box Account becomes subject to any writ, judgment,
warrant of attachment, execution or similar process.
Any notice, demand or other communication required or
permitted to be given hereunder shall be in writing and may be (a) personally
served, (b) sent by courier service, (c) telecopied or (d) sent by United States
mail and shall be deemed to have been given when (a) delivered in person, (b)
delivered by courier service, (c) upon receipt of the telecopy or (d) three
Business Days after deposit in the United States mail (registered or certified,
with postage prepaid and properly addressed), provided, however, that notices to
the Agent hereunder shall not be effective until actually received by the Agent.
For the purposes hereof, (i) the addresses of the parties hereto shall be as set
forth below each party's name below, or, as to each party, at such other address
as may be designated by such party in a written notice to the other party and
the Agent, and (ii) the address of the Agent shall be One First Union Center,
TW-9, Charlotte, North Carolina 28288, Attn.: Conduit Administration or at such
other address as may be designated by the Agent in a written notice to each of
the parties hereto.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
Please agree to the terms of, and acknowledge receipt of, this
Agreement by signing in the space provided below.
Very truly yours,
FIDELITY LEASING, INC.
By: _________________________________
Name:
Title:
1255 Wright's Lane
West Chester, PA 19380
Attention:
Facsimile No:
ACKNOWLEDGED AND AGREED:
[NAME OF LOCK-BOX BANK]
By: __________________________________
Name:
Title:
Date: ________________________________
[Address of Lock-Box Bank]
Attention:
Facsimile No:
<PAGE>
ATTACHMENT 1
NOTICE OF EFFECTIVENESS
VIA FACSIMILE TRANSMISSION
- --------------------------
TO: [Name of Lock-Box Bank]
DATED: [Date]
ATTENTION:
Re: Lock-Box No. _______________
Lock-Box Account No. ___________________
Gentlemen:
Pursuant to the Lock-Box Agreement between Fidelity Leasing,
Inc. and you, dated as of ________ (the "Agreement"), we hereby give you notice
that the transfers of the above-referenced Lock-Box and the Lock-Box Account, as
described in the Agreement, are effective as of the date hereof. You are hereby
instructed to comply immediately with the instructions set forth in the
Agreement and, until we notify you to the contrary, to transfer all funds
deposited and collected in the Lock-Box Account to account number ________ at
______________________________.
FIRST UNION CAPITAL MARKETS CORP.,
as Agent
By:___________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
[Name of Lock-Box Bank]
By:_________________________________
Name:
Title:
Date:_______________________________
[Address of Lock-Box Bank]
[Attention:]
Telecopy #:
<PAGE>
EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated __________
Reference is made to the Receivables Funding Agreement dated
as of July 14, 1999 (the "Agreement") among Fidelity Leasing SPC IV, Inc., as
the Borrower, Fidelity Leasing, Inc., as the servicer and the originator,
Variable Funding Capital Corporation, as a CP Lender (as defined therein), the
liquidity lenders named therein, First Union Capital Markets Corp., as the
administrative agent and the VFCC Managing Agent (as defined therein), Harris
Trust and Savings Bank, as the backup servicer and collateral custodian. Except
as otherwise provided herein, capitalized terms used herein will have the
meanings ascribed to them in the Agreement.
__________________ (the "Assignor") and ___________________
(the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in
and to all of the Assignor's rights and obligations under the Agreement as of
the date hereof which represents the percentage interest specified in Section 1
of Schedule 1 of all outstanding rights and obligations of the Assignor under
the Agreement, including, without limitation, such interest in the Assignor's
Commitment and the Advances made by the Assignor. After giving effect to such
sale and assignment, the Assignee's Commitment and the amount of Advances made
by the Assignee will be as set forth in Section 2 of Schedule 1.
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Agreement or any other instrument or document
furnished pursuant thereto; and (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of [Name of CP
Lender] or the performance or observance by [Name of CP Lender] of any of its
obligations under the Agreement or any other instrument or document furnished
pursuant thereto.
<PAGE>
3. The Assignee (i) confirms that it has received a copy of
the Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Managing Agents, the
Assignor or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Agreement; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Administrative Agent and the
Managing Agent for the related Lender Group each to take such action as agent on
its behalf and to exercise such powers under the Agreement as are delegated to
the Administrative Agent and such Managing Agent, respectively, by the terms
thereof, together with such powers as are reasonably incidental thereto; and (v)
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Agreement are required to be performed by
it as an Investor.
4. Following the execution of this Assignment and Acceptance
by the Assignor and the Assignee, it will be delivered to the related Managing
Agent for acceptance and recording by such Managing Agent. The effective date of
this Assignment and Acceptance (the "Transfer Date") shall be the date of
acceptance thereof by such Managing Agent, unless a later date is specified in
Section 3 of Schedule 1 hereof.
5. Upon such acceptance by such Managing Agent and upon such
recording by such Managing Agent, as of the Transfer Date, (i) the Assignee
shall be a party to the Agreement and, to the extent provided in this Assignment
and Acceptance, have the rights and obligations of a Lender thereunder and (ii)
the Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Agreement.
6. Upon such acceptance by the related Managing Agent and upon
such recording by such Managing Agent, from and after the Transfer Date, such
Managing Agent shall make, or cause to be made, all payments under the Agreement
in respect of the interest assigned hereby (including, without limitation, all
payments of principal and interest with respect thereto) to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in payments under
the Agreement for periods prior to the Transfer Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
[NAME OF ASSIGNOR]
By:______________________________________
Name:
Title:
Address for notices
[Address]
[NAME OF ASSIGNEE]
By:______________________________________
Name:
Title:
Address for notices
[Address]
Acknowledged and accepted
this ___ day of ___________, ____
[NAME OF CP LENDER] MANAGING AGENT
as Managing Agent
By:____________________________________
Name:
Title:
Acknowledged and accepted
this ___ day of ___________, ____
FIRST UNION CAPITAL MARKETS CORP.,
as Administrative Agent
By:____________________________________
Name:
Title:
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated _________
Section 1.
Percentage Interest: ________%
Section 2.
Assignee's Commitment: $____________
Aggregate Outstanding Advances
Owing to the Assignee: $____________
Section 3.
Transfer Date: ___________________
<PAGE>
EXHIBIT D
FORM OF MONTHLY REPORT
[See Attached.]
<PAGE>
EXHIBIT E
FORM OF SERVICER'S CERTIFICATE
This Servicer's Certificate is delivered pursuant to the provisions of
Section 6.10(b) of the Receivables Funding Agreement dated as of July 14, 1999
(the "Agreement") among Fidelity Leasing SPC IV, Inc., as the Borrower, Fidelity
Leasing, Inc., as the servicer and the originator, Variable Funding Capital
Corporation, as a CP Lender (as defined therein), the liquidity lenders named
therein, First Union Capital Markets Corp., as the administrative agent and the
VFCC Managing Agent (as defined therein), Harris Trust and Savings Bank, as the
backup servicer and collateral custodian. This Servicer's Certificate relates to
that applicable monthly period [month/year] (the "Monthly Period") and
applicable payment date [date] (the "Payment Date") and the Monthly Report for
such Monthly Period, which Monthly Report is set forth on attached Schedule A.
A. Capitalized terms used and not otherwise defined herein have the
meanings assigned them in the Agreement. References hereto to certain
subsections are references to the respective subsections of the
Agreement.
B. The Servicer is the Servicer under the Agreement.
C. The undersigned hereby certifies to each Agent and the Lenders that
all of the foregoing information set forth on the attached Schedule A
is true and accurate in all material respects as of the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Servicer's
Certificate to be duly executed this ____ day of ____________,
___________.
FIDELITY LEASING, INC.,
as Servicer
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT F
FORM OF HEDGING AGREEMENT
[See Attached]
<PAGE>
EXHIBIT G
FORM OF
OFFICER'S CERTIFICATE AS TO SOLVENCY
The undersigned, a duly elected __________________ of
[Fidelity Leasing SPC IV, Inc.][Fidelity Leasing, Inc.] (the "Corporation"),
hereby certifies in connection with (i) that certain Purchase and Sale Agreement
(the "Purchase Agreement") dated as of __________, by and between the
Corporation and [Fidelity Leasing SPC IV, Inc.] [Fidelity Leasing, Inc.], and
(ii) that certain Receivables Funding Agreement dated as of July 14, 1999 (the
"Agreement") among Fidelity Leasing SPC IV, Inc., as the borrower, Fidelity
Leasing, Inc., as the servicer and the originator, Variable Funding Capital
Corporation, as a CP Lender (as defined therein), the liquidity lenders named
therein, First Union Capital Markets Corp., as the administrative agent and the
VFCC Managing Agent (as defined therein), Harris Trust and Savings Bank, as the
backup servicer and collateral custodian, (iii) that certain Secured
Subordinated Loan Agreement dated as of July 14, 1999 among Fidelity Leasing SPC
IV, Inc., as the borrower, Fidelity Leasing, Inc., as the servicer and the
originator, and First Union National Bank, as the Lender, as follows:
1. Capitalized terms used and not otherwise defined herein
shall have the respective meanings ascribed to them in the Purchase Agreement,
the Agreement and the Secured Subordinated Loan Agreement.
2. Both before and after giving effect to (a) the transactions
contemplated by the Purchase Agreement, the Agreement, the Secured Subordinated
Loan Agreement and the other Transaction Documents and (b) the payment and
accrual of all transaction costs in connection with the foregoing, the
Corporation is and will be Solvent.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this ______ day of _____________, ______.
By:______________________________________
Name:
Title:
<PAGE>
EXHIBIT H
FORM OF
OFFICER'S CLOSING CERTIFICATE
The undersigned, a duly elected ________________ of [Fidelity
Leasing SPC IV, Inc.][Fidelity Leasing, Inc.] (the "Corporation"), hereby
certifies in connection with (i) that certain Purchase and Sale Agreement dated
as of July 14,, 1999 (the "Purchase Agreement"), by and between Fidelity
Leasing, Inc., as seller and Fidelity Leasing SPC IV, Inc., as purchaser, (ii)
that certain Receivables Funding Agreement dated as of July 14, 1999 (the
"Agreement") among Fidelity Leasing SPC IV, Inc., as the borrower, Fidelity
Leasing, Inc., as the servicer and the originator, Variable Funding Capital
Corporation, as a CP Lender (as defined therein), the liquidity lenders named
therein, First Union Capital Markets Corp., as the administrative agent and the
VFCC Managing Agent (as defined therein), Harris Trust and Savings Bank, as the
backup servicer and collateral custodian, and (iii) that certain Secured
Subordinated Loan Agreement dated as of July 14, 1999 among Fidelity Leasing SPC
IV, Inc., as the borrower, Fidelity Leasing, Inc., as the servicer and the
orginator and First Union National Bank, as the Lender and (iv) the other
Transaction Documents, as follows:
1. Capitalized terms herein and not otherwise defined shall
have the respective meanings ascribed to them in the Agreement, the Purchase
Agreement, and the Secured Subordinated Loan Agreement .
2. Each of the representations and warranties of the
Corporation contained in the Transaction Documents is true and correct on and as
of the date hereof as though made on and as of such date (except to the extent
any such representation and warranty relates solely to an earlier date), and no
event has occurred and is continuing, or would result from the transactions
effected pursuant thereto as of the Closing Date, that constitutes or would
constitute a Termination Event or an Unmatured Termination Event.
3. The Corporation is in material compliance with all
Applicable Laws.
4. Except as otherwise indicated on a schedule to a
Transaction Document, or as otherwise consented to by the Administrative Agent
in writing, the Corporation has delivered to each Agent true and correct copies
of all documents required to be delivered by it to such Agent pursuant to the
Transaction Documents, all such documents are complete and correct in all
material respects on and as of the date hereof, and each and every other
contingency to the closing of the transactions contemplated by the Transaction
Documents has been performed.
<PAGE>
5. No Liens have arisen or been granted with respect to any of
the Collateral other than Permitted Liens.
IN WITNESS WHEREOF, I have signed and delivered this Officer's
Certificate this _____ day of ________, ________.
By:_________________________________
Name:
Title:
<PAGE>
EXHIBIT I
FORM OF POWER OF ATTORNEY
This Power of Attorney is executed and delivered by [Name of
Borrower/Servicer] ("Grantor") to First Union Capital Markets Corp., as
Administrative Agent ("Attorney"), pursuant to that Receivables Funding
Agreement dated as of July 14, 1999 (the "Agreement") among Fidelity Leasing SPC
IV, Inc., as the borrower, Fidelity Leasing, Inc., as the servicer and the
originator, Variable Funding Capital Corporation, as a CP Lender (as defined
therein), the liquidity lenders named therein, First Union Capital Markets
Corp., as the administrative agent and the VFCC Managing Agent (as defined
therein), Harris Trust and Savings Bank, as the backup servicer and collateral
custodian and the other Transaction Documents. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Agreement.
No person to whom this Power of Attorney is presented, as authority for Attorney
to take any action or actions contemplated hereby, shall inquire into or seek
confirmation from Grantor as to the authority of Attorney to take any action
described below, or as to the existence of or fulfillment of any condition to
this Power of Attorney, which is intended to grant to Attorney unconditionally
the authority to take and perform the actions contemplated herein, and Grantor
irrevocably waives any right to commence any suit or action, in law or equity,
against any person or entity that acts in reliance upon or acknowledges the
authority granted under this Power of Attorney. The power of attorney granted
hereby is coupled with an interest and may not be revoked or canceled by Grantor
until all Aggregate Unpaids have been indefeasibly paid in full and Attorney has
provided its written consent thereto.
Grantor hereby irrevocably constitutes and appoints Attorney
(and all officers, employees or agents designated by Attorney), with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in its place and stead and in its name or in Attorney's own
name, from time to time in Attorney's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of the
Agreement, and, without limiting the generality of the foregoing, hereby grants
to Attorney the power and right, on its behalf, without notice to or assent by
it, solely upon the occurrence and during the continuance of any Termination
Event, to do the following: (a) open mail for Grantor, and ask, demand, collect,
give acquittances and receipts for, take possession of, or endorse and receive
payment of, any checks, drafts, notes, acceptances, or other instruments for the
payment of moneys due, and sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, and notices in connection with any of the Assets;
(b) effect any repairs to any of the Assets, or continue or obtain any insurance
and pay all or any part of the premiums therefor and costs thereof, and make,
settle and adjust all claims under such policies of insurance, and make all
determinations and decisions with respect to such policies; (c) pay or discharge
any taxes, Liens, or other encumbrances levied or placed on or threatened
against the Assets; (d) defend any suit, action or proceeding brought against
<PAGE>
Grantor relating to the Assets if Grantor does not defend such suit, action or
proceeding or if Attorney believes that it is not pursuing such defense in a
manner that will maximize the recovery to Attorney, and settle, compromise or
adjust any suit, action, or proceeding described above and, in connection
therewith, give such discharges or releases as Attorney may deem appropriate;
(e) file or prosecute any claim, litigation, suit or proceeding relating to the
Assets in any court of competent jurisdiction or before any arbitrator, or take
any other action otherwise deemed appropriate by Attorney for the purpose of
collecting any and all such moneys due to Grantor whenever payable and to
enforce any other right in respect of the Assets; (f) sell, transfer, pledge,
make any agreement with respect to, or otherwise deal with, any of the Assets,
and execute, in connection with such sale or action, any endorsements,
assignments or other instruments of conveyance or transfer in connection
therewith; and (g) cause the certified public accountants then engaged by
Grantor to prepare and deliver to Attorney at any time and from time to time,
promptly upon Attorney's request, any reports required to be prepared by or on
behalf of Grantor under the Agreement or any other Transaction Document, all as
though Attorney were the absolute owner of its property for all purposes, and to
do, at Attorney's option and Grantor's expense, at any time or from time to
time, all acts and other things that Attorney reasonably deems necessary to
perfect, preserve, or realize upon the Assets and the Liens of the
Administrative Agent as agent for the Secured Parties thereon, all as fully and
effectively as it might do. Grantor hereby ratifies, to the extent permitted by
law, all that said attorneys shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, this Power of Attorney is executed by
Grantor, and Grantor has caused its seal to be affixed pursuant to the authority
of its board of directors as of this ____ day of ___________, _______.
[FIDELITY LEASING SPC IV, INC.]
[FIDELITY LEASING, INC.]
(CORPORATE SEAL)
By:_________________________________
Name:
Title:
Sworn to and subscribed before
me this _____ day of ______________, ______
___________________________________________
Notary Public
[NOTARY SEAL]
<PAGE>
EXHIBIT J
FORM OF
TRUST RECEIPT AND INITIAL CERTIFICATION
[Delivery Date]
BY FACSIMILE: (704) 383-6036
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Re: Receivables Funding Agreement dated as of July 14, 1999 (the
"Agreement") among Fidelity Leasing SPC IV, Inc., as the
borrower, Fidelity Leasing, Inc., as the servicer and the
originator, Variable Funding Capital Corporation, as a CP
Lender (as defined therein), the liquidity lenders named
therein, First Union Capital Markets Corp., as the
administrative agent and the VFCC Managing Agent (as defined
therein), Harris Trust and Savings Bank, as the backup
servicer and collateral custodian.
Ladies and Gentlemen:
In accordance with the provisions of Section 8.2(b) of the above-referenced
Agreement, the undersigned, as the Collateral Custodian, hereby certifies as to
each Contract in the Contract List dated _______________ attached hereto that it
has received all related Contract documents with respect to such Contract. The
Collateral Custodian makes no representations as to (i) the validity, legality,
enforceability, sufficiency, due authorization or genuineness of any such
documents or (ii) the collectibility, insurability, effectiveness or suitability
of any such Contract.
The Collateral Custodian hereby confirms that it is holding each such Contract
document as agent and bailee of, and custodian for the exclusive use and
benefit, and subject to the sole direction, of the Administrative Agent pursuant
to the terms and conditions of the Agreement.
The Collateral Custodian will accept and act on instructions with respect to the
Contracts subject hereto upon surrender of this Trust Receipt and Initial
Certification at its office at Harris Trust and Savings Bank, 111 West Monroe
Street, Lower Level West, Chicago, Illinois 60603.
<PAGE>
Capitalized terms used herein shall have the meanings ascribed to them in the
Agreement.
HARRIS TRUST AND SAVINGS BANK
as Collateral Custodian
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT K
FORM OF
TRUST RECEIPT AND FINAL CERTIFICATION
Trust Receipt #__________
[Delivery Date]
BY FACSIMILE: (704) 383-6036
- -----------------------------
FIRST UNION CAPITAL MARKETS CORP.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attn: Conduit Administration
Re: Receivables Funding Agreement dated as of July 14, 1999 (the
"Agreement") among Fidelity Leasing SPC IV, Inc., as the
borrower, Fidelity Leasing, Inc., as the servicer and the
originator, Variable Funding Capital Corporation, as a CP
Lender (as defined therein), the liquidity lenders named
therein, First Union Capital Markets Corp., as the
administrative agent and the VFCC Managing Agent (as defined
therein), Harris Trust and Savings Bank, as the backup
servicer and collateral custodian.
Ladies and Gentlemen:
Ladies and Gentlemen:
In accordance with the provisions of Section 8.2(b) of the Agreement, the
undersigned, as Collateral Custodian, hereby certifies that, as to each Contract
listed in the Contract List dated ___________, it has reviewed such Contract
delivered to it pursuant to Section 3.3 of the Agreement and has determined
that, except as noted in the attached Schedule I: (i) all related Contract
documents required to be delivered to it pursuant to the Agreement are in its
possession, (ii) such documents have been reviewed by it and have not been
mutilated, damaged, torn or otherwise physically altered, have no missing pages,
and relate to such Contract, and (iii) based on its examination, and only as to
the foregoing documents, the information set forth in the Contract List
respecting such Contract accurately reflects the information set forth in
Collateral Custodian's Contract File. The Collateral Custodian has made no
independent examination of such documents beyond the review specifically
required in the above-referenced Agreement. The Collateral Custodian makes no
representations as to: (i) the validity, legality, sufficiency, enforceability
or genuineness of any such documents or (ii) the collectibility, insurability,
effectiveness or suitability of any Contract.
S-1
<PAGE>
The Collateral Custodian hereby confirms that it is holding each such Contract
File as agent and bailee of, and custodian for the exclusive use and benefit,
and subject to the sole direction, of the Administrative Agent pursuant to the
terms and conditions of the Agreement.
The Collateral Custodian will accept and act on instructions with respect to the
Contracts subject hereto upon surrender of this Trust Receipt and Final
Certification at its office at Harris Trust and Savings Bank, 111 West Monroe
Street, Lower Level West, Chicago, Illinois 60603.
Capitalized terms used herein shall have the meanings ascribed to them in the
Agreement.
HARRIS TRUST AND SAVINGS BANK,
as Collateral Custodian
By:___________________________
Name:
Title:
S-2
<PAGE>
EXHIBIT L
FORM OF
REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT
[Delivery Date]
BY FACSIMILE: (312) 461-1522
- -----------------------------
Harris Trust and Savings Bank
111 West Monroe Street, Lower Level West
Chicago, Illinois 60603
Re: Receivables Funding Agreement dated as of July 14, 1999 (the
"Agreement") among Fidelity Leasing SPC IV, Inc., as the
borrower, Fidelity Leasing, Inc., as the servicer and the
originator, Variable Funding Capital Corporation, as a CP
Lender (as defined therein), the liquidity lenders named
therein, First Union Capital Markets Corp., as the
administrative agent and the VFCC Managing Agent (as defined
therein), Harris Trust and Savings Bank, as the backup
servicer and collateral custodian.
Ladies and Gentlemen:
In connection with the administration of the Contracts held by you as Collateral
Custodian on behalf of the Administrative Agent under the Agreement, we request
the release, and acknowledge receipt, of the Contract File for the Contract
described below, for the reason indicated.
Obligor's Name Address & Zip Code:
Contract Number:
Reason for Requesting Documents (check one)
____ 1. Contract Paid in Full. (The Servicer hereby certifies that all amounts
received in connection therewith have been credited to the Collection Account.)
____ 2. Contract Liquidated By ____________________________ (The Servicer hereby
certifies that all proceeds of foreclosure, insurance, condemnation or other
liquidation have been finally received and credited to the Collection Account.)
S-3
<PAGE>
____ 3. Contract in Foreclosure.
____ 4. Other (explain)______________________.
If box 1 or 2 above is checked, and if all or part of the Contract File was
previously released to us, please return to us our previous request and receipt
on file with you, as well as any additional documents in your possession
relating to the specified Contract.
If box 3 or 4 above is checked, upon our return of all of the above documents to
you as the Collateral Custodian, please acknowledge your receipt by signing in
the space indicated below, and returning this form.
FIDELITY LEASING, INC.
By:__________________________
Name:
Title:
Date:
Acknowledgment of documents returned to the Collateral Custodian:
HARRIS TRUST AND SAVINGS BANK
as Collateral Custodian
By:___________________________
Name:
Title:
S-4
<PAGE>
EXHIBIT M
FORM OF NOTE
$___________________ _____________, 1999
FOR VALUE RECEIVED, Fidelity Leasing SPC IV, Inc., a Delaware
corporation (the "Borrower"), promises to pay to __________________________, as
managing agent for the _____________Lender Group (the "_____________ Managing
Agent") the principal sum of __________________________DOLLARS
($_____________________) or, if less, the unpaid principal amount of the
aggregate loans ("Advances") made by the ___________ Lenders (as defined below)
to the Borrower pursuant to the Receivables Funding Agreement (as defined
below), as set forth on the attached Schedule, as specified in Section 2.7 and
Section 2.8 of the Agreement, and to pay interest on the unpaid principal amount
of each Advance on each day that such unpaid principal amount is outstanding at
the Interest Rate related to such Advance as provided in the Agreement on each
Payment Date and each other dates specified in the Agreement.
This Note is issued pursuant to the Receivables Funding Agreement dated
as of [_______________] (the "Agreement") among Fidelity Leasing SPC IV, Inc.,
as the Borrower, Fidelity Leasing, Inc., as the servicer and the originator,
Variable Funding Capital Corporation, as a CP Lender (as defined therein), the
liquidity lenders named therein, First Union Capital Markets Corp., as the
administrative agent and the VFCC Managing Agent (as defined therein), Harris
Trust and Savings Bank, as the backup servicer and collateral custodian.
Capitalized terms used but not defined in this Note are used with the meanings
ascribed to them in the Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Agreement or in
any other document (to the extent such other charges would constitute interest
for the purpose of any applicable law limiting interest that may be charged on
this Note), exceeds the highest rate of interest permissible under applicable
law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would
be exceeded the rate of interest under this Note shall be equal to the Maximum
Lawful Rate. If at any time thereafter the rate of interest payable under this
Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay
interest under this Note at the Maximum Lawful Rate until such time as the total
interest paid by the Borrower is equal to the total interest that would have
been paid had applicable law not limited the interest rate payable under this
Note. In no event shall the total interest received by the Lenders under this
Note exceed the amount which such Lenders could lawfully have received had the
interest due under this Note been calculated since the date of this Note at the
Maximum Lawful Rate.
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<PAGE>
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the manner and at the address specified for such
purpose as provided in Article 13.2 of the Agreement, or in such manner or at
such other address as the holder of this Note shall have specified in writing to
the Borrower for such purpose, without the presentation or surrender of this
Note or the making of any notation on this Note.
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus [1.0%], in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Agreement. Any portion or all
of the principal amount of this Note may be prepaid, together with interest
thereon (and as set forth in the Agreement, certain costs and expenses of the
VFCC Lenders) at the time and in the manner set forth in, but subject to the
provisions of, the Agreement.
Except as provided in the Agreement, the Borrower expressly waives
presentment, demand, diligence, protest and all notices of any kind whatsoever
with respect to this Note.
All amounts evidenced by this Note, the Lender or Lenders in the
____________ Lender Group making such Advance and all payments and prepayments
of the principal hereof and the respective dates and maturity dates thereof
shall be endorsed by the Managing Agent on the schedule attached hereto and made
a part hereof or on a continuation thereof which shall be attached hereto and
made a part hereof, or otherwise recorded by the Managing Agent in its internal
records; provided, however, that the failure of the Managing Agent to make such
a notation shall not in any way limit or otherwise affect the obligations of the
Borrower under this Note as provided in the Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by such Lender and represented by this Note and the indebtedness evidenced
by this Note.
S-6
<PAGE>
This Note is secured by the security interests granted pursuant to
Section 2.1(b) of the Agreement. The holder of this Note and the Administrative
Agent, as agent for the Lenders, is entitled to the benefits of the Agreement
and may enforce the agreements of the Borrower contained in the Agreement and
exercise the remedies provided for by, or otherwise available in respect of, the
Agreement, all in accordance with, and subject to the restrictions contained in,
the terms of the Agreement. If an Termination Event shall occur and be
continuing, the unpaid balance of the principal of all Advances, together with
accrued interest thereon, shall be declared, and become due and payable in the
manner and with the effect provided in the Agreement.
This Note is one of the Notes referred to in the Agreement. This Note
shall be construed in accordance with and governed by the laws of the State of
New York.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
FIDELITY LEASING SPC IV, INC.
By:______________________________
Name:
Title:
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<PAGE>
Schedule to Note
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
------ ---------- --------- --------- -----------
S-9
<PAGE>
-----------------------
KILPATRICK STOCKTON LLP
EXECUTION
-----------------------
================================================================================
PURCHASE AND SALE AGREEMENT
Dated as of July 14, 1999
Between
FIDELITY LEASING SPC IV, INC.,
as Buyer
--------
and
FIDELITY LEASING, INC.
as Seller
---------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I GENERAL................................................................................................1
Section 1.1 Certain Defined Terms........................................................................1
Section 1.2 Other Definitional Provisions................................................................2
ARTICLE II SALE, TRANSFER AND ASSIGNMENT.........................................................................3
Section 2.1 Sale, Transfer and Assignment................................................................3
Section 2.2 Purchase Price...............................................................................4
Section 2.3 Payment of Purchase Price....................................................................4
Section 2.4 Deliveries and Undertakings in Connection with Sale..........................................4
ARTICLE III CONDITIONS PRECEDENT.................................................................................6
Section 3.1 Conditions Precedent to Initial Purchase.....................................................6
Section 3.2 Conditions Precedent to the Buyer's Obligations Regarding Contracts..........................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................7
Section 4.1 Seller's Representations and Warranties......................................................7
Section 4.2 Seller's Representations and Warranties Regarding the Contracts.............................12
Section 4.3 Representations and Warranties of the Buyer.................................................14
ARTICLE V COVENANTS.............................................................................................15
Section 5.1 Affirmative Covenants of Seller.............................................................15
Section 5.2 Negative Covenants of Seller................................................................19
ARTICLE VI SUBSTITUTION OF CONTRACTS............................................................................21
Section 6.1 Substitution of Contracts...................................................................22
ARTICLE VII PURCHASE TERMINATION EVENTS.........................................................................23
Section 7.1 Purchase Termination Events.................................................................23
ARTICLE VIII INDEMNIFICATION....................................................................................25
Section 8.1 Indemnification by the Seller...............................................................25
Section 8.2 Assignment of Indemnities...................................................................26
ARTICLE IX MISCELLANEOUS PROVISIONS.............................................................................27
Section 9.1 Amendment...................................................................................27
Section 9.2 Governing Law; Waiver of Jury Trial.........................................................27
Section 9.3 Notices.....................................................................................27
Section 9.4 Severability of Provisions..................................................................28
Section 9.5 Assignment..................................................................................28
Section 9.6 Further Assurances..........................................................................28
Section 9.7 No Waiver; Cumulative Remedies..............................................................29
Section 9.8 Counterparts................................................................................29
Section 9.9 Binding Effect; Third-Party Beneficiaries...................................................29
Section 9.10 Merger and Integration.....................................................................29
Section 9.11 Headings and Exhibits......................................................................30
Section 9.12 Merger or Consolidation of, or Assumption of the Obligations of, the Seller................30
Section 9.13 Costs, Expenses and Taxes..................................................................30
Section 9.14 Recourse Against Certain Parties...........................................................31
Section 9.15 Setoff.....................................................................................32
Section 9.16 Rights of Inspection.......................................................................32
Section 9.17 Termination................................................................................33
</TABLE>
LIST OF EXHIBITS AND SCHEDULES
Schedule I List of Contracts
Schedule II Tradenames, Fictitious Names and "Doing Business As" Names
Exhibit A Form of Assignment
Annex I Conditions Precedent Documents
-i-
<PAGE>
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is dated as of July
14, 1999 by and between FIDELITY LEASING, INC. a Pennsylvania corporation (the
"Seller"), and FIDELITY LEASING SPC IV, INC. a Delaware corporation (the
"Buyer").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Buyer desires to purchase from the Seller and the Seller
desires to sell to the Buyer certain contracts originated or purchased by the
Seller in its normal course of business, together with, among other things, the
related rights of payment thereunder.
NOW, THEREFORE, it is hereby agreed by and between the Buyer and the
Seller as follows:
ARTICLE I
GENERAL
Section 1.1 Certain Defined Terms.
---------------------
Certain capitalized terms used throughout this Agreement are defined
above or in this Section 1.1. In addition, capitalized terms used but not
defined herein have the meanings given to such terms in the Receivables Funding
Agreement (as defined below).
Financial Projections: Financial projections for both RLI and the Seller
substantially similar to those received by the Administrative Agent on May 27,
1999, which project the data for their respective balance sheets, statements of
cash flow and income statements for two (2) years (on a quarterly basis),
together with the underlying assumptions used therein and pro forma covenant
compliance.
Leverage Ratio: The ratio of (1) Total Liabilities to (2) Tangible Net Worth.
Purchase: Defined in Section 2.1.
Purchase Date: Any day on which any Purchased Asset is acquired by the Buyer
pursuant to the terms of this Agreement including any Substitution Date.
Purchase Price: Defined in Section 2.2.
Purchased Assets: Defined in Section 2.1(a).
<PAGE>
Purchased Contracts: The Contracts listed on Schedule I hereto as such Schedule
I may be amended, supplemented, restated or replaced from time to time.
Receivables Funding Agreement: The Receivables Funding Agreement, dated as of
July 14, 1999 by and among the Buyer, as a seller thereunder, Seller, as
servicer and originator, the liquidity lenders named therein, Variable Funding
Capital Corporation, as a CP Lender (as defined therein), Harris Trust and
Savings Bank, as collateral custodian and backup servicer, First Union Capital
Markets Corp., as administrative agent and VFCC Managing Agent (as defined
therein).
Sale Papers: Defined in Section 4.1(a).
Servicer: Initially, Fidelity Leasing, Inc. in its capacity as the Servicer
under the Receivables Funding Agreement, and its permitted successors and
assigns, and thereafter any Person appointed as successor as provided therein to
service the Assets thereunder.
Substitution Date: Any date on which the Seller transfers a Substitute Contract
to the Buyer.
Total Liabilities: All liabilities of Fidelity minus non-recourse debt,
determined in accordance with GAAP, consistently applied.
Section 1.2 Other Definitional Provisions.
-----------------------------
The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement or any Sale Paper shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
Section, Subsection, Schedule and Exhibit references contained in this Agreement
are references to Sections, Subsections, Schedules and Exhibits in or to this
Agreement unless otherwise specified. In the event that any term or provision
contained herein shall conflict with or be inconsistent with any term or
provision contained in the Receivables Funding Agreement, the terms and
provisions contained herein shall govern with respect to this Agreement. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP. All terms used in Article 9 of the UCC of the State of New
York, and not specifically defined herein, are used herein as defined in such
Article 9. All hourly references herein shall refer to New York City time.
Unless otherwise stated in this Agreement, in the computation of a period of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding." Except as otherwise indicated, all agreements defined in this
Agreement refer to the same as from time to time amended or supplemented or as
the terms of such agreements are waived or modified in accordance with their
terms.
2
<PAGE>
ARTICLE II
SALE, TRANSFER AND ASSIGNMENT
Section 2.1 Sale, Transfer and Assignment.
-----------------------------
(a) On each Purchase Date the Seller will sell, transfer, assign, set
over and otherwise convey to the Buyer, and the Buyer will purchase and take
from the Seller, without recourse, all right, title and interest of the Seller
in, to and under the following property, whether now existing or hereafter
created or acquired (the "Purchased Assets"):
(i) the Contracts that are owned by the Seller and that are
listed on the applicable Contract List, together with all Collections
and all monies due or to become due in payment of such Contracts after
the related Cut-Off Date, and any payments in respect of a Casualty
Loss or early termination, but excluding any Scheduled Payments due on
or prior to the related Cut-Off Date and any Excluded Amounts;
(ii) the Equipment related to such Contracts including all
Proceeds from any sale or other disposition of such Equipment;
(iii) the Contract Files related to such Contracts;
(iv) all payments made or to be made in the future
specifically with respect to such Contracts or the Obligor thereunder
and under any guarantee or similar credit enhancement with respect to
such Contracts;
(v) all Insurance Proceeds with respect to such Contracts; and
(vi) all income and Proceeds of the foregoing.
(b) The Seller shall on or prior to any Purchase Date execute and
deliver to the Buyer a written assignment from the Seller to the Buyer
substantially the form of Exhibit A hereto. From and after such Purchase Date,
the Contracts listed on such assignment shall be deemed to be Contracts
hereunder. The foregoing sale, transfer, assignment, set-over and conveyance
does not constitute and is not intended to result in a creation or an assumption
by the Buyer of any obligation of the Seller or any other Person in connection
with the Contracts or under any agreement or instrument relating thereto
including, without limitation, any obligation to any Obligor.
(c) On or before any Purchase Date with respect to the Contracts to be
acquired by the Buyer on that date, the Seller shall provide the Buyer with an
Officer's Certificate certifying as follows: (i) each such Contract is, as of
such Purchase Date, an Eligible Contract, (ii) no selection procedures believed
by the Seller to be materially adverse to the interest of the Buyer were
utilized in selecting such Contracts from the available Eligible Contracts in
the Seller's portfolio, (iii) such Contracts and all proceeds thereof will be
conveyed to the Buyer free and
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<PAGE>
clear of any Lien of any Person claiming through or under the Seller or any of
its Affiliates, except for Permitted Liens, (iv) as of such Purchase Date, (A)
no Insolvency Event with respect to the Seller has occurred, (B) the Buyer is
not insolvent and (C) the sale of such Contracts to the Buyer has not been made
in contemplation of the occurrence of any Insolvency Event with respect to the
Seller, and (v) as of such Purchase Date, no Termination Event with respect to
the Seller has occurred.
Section 2.2 Purchase Price.
--------------
The purchase price for each Contract sold to the Buyer by the Seller
under this Agreement (the "Purchase Price") shall be a dollar amount equal to
the Discounted Contract Balance determined as of the related Cut-Off Date.
Section 2.3 Payment of Purchase Price.
-------------------------
(a) The Purchase Price for each Contract existing on the initial
Purchase Date shall be paid or provided for on the initial Purchase Date by
payment of such amount as specified in a certificate of a Responsible Officer of
the Seller dated the date of such initial Purchase Date in immediately available
funds. The remaining balance (if any) shall be deemed paid through a
contribution to capital of the Buyer by the Seller.
(b) The Purchase Price for any portion of the Contracts sold by the
Seller on any subsequent Purchase Date shall be paid either (i) in immediately
available funds or (ii) if the Buyer does not have sufficient funds to pay the
full amount of the Purchase Price, by means of a capital contribution by the
Seller to the Buyer.
(c) Unless otherwise specified herein, all payments of the Purchase
Price of any Contract sold hereunder shall be made not later than 3:00 p.m. on
the date specified therefor in lawful money of the United States of America in
same day funds by depositing such amounts in the bank account designated in
writing by the Seller to the Buyer.
(d) Notwithstanding any provision herein to the contrary, the Seller
may on any Purchase Date, elect to designate all or a portion of the Contracts
proposed to be transferred to the Buyer on such date as a capital contribution
to the Buyer. In such event, the Purchase Price payable with respect to such
transfer shall be reduced by the aggregate principal balance of the contributed
Contracts or portions thereof; provided, however, that Contracts contributed to
the Buyer as capital shall otherwise constitute Purchased Assets for purposes of
this Agreement.
Section 2.4 Deliveries and Undertakings in Connection with Sale.
---------------------------------------------------
(a) The Seller agrees (i) to record and file, at its own expense, any
financing statements (and continuation statements with respect to such financing
statements when applicable) with respect to the Purchased Assets, meeting the
requirements of applicable state law in such manner and in such jurisdictions as
are necessary to perfect, and maintain the perfection of, the sale of the
Purchased Assets from the Seller to the Buyer, (ii) that such financing
statements shall name the Seller, as seller, and the Buyer, as purchaser, of the
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<PAGE>
Purchased Assets and (iii) to deliver a file-stamped copy of such financing
statements or other evidence of such filings (excluding continuation statements,
which shall be delivered as filed) to the Buyer on or prior to the initial
Purchase Date and (if any additional filing is applicable) on or prior to any
subsequent Purchase Date.
(b) The Seller will deliver to the Buyer, or its designee, all chattel
paper and instruments (as each such term is defined in the UCC), if any,
representing or evidencing any of the Contracts or other Purchased Assets.
(c) If the Seller discovers or is notified by the Buyer, the Collateral
Custodian or the Administrative Agent that any Contracts are missing or
defective (for example, but not by way of limitation, mutilated, damaged,
defaced, incomplete, improperly dated, clearly forged or otherwise physically
altered) or, with respect to titled Equipment, that the certificate of title
naming the Seller as the owner and naming the Administrative Agent, as agent of
the Purchasers, as first lienholder is not in the Contract File, the Seller
shall correct or cure such omission, defect or other irregularity within 30 days
from the date the Seller discovered, or is so notified of such omission or
defect. Otherwise, the Seller shall replace such Contract with a Substitute
Contract in accordance with Section 6.1 hereof.
(d) In connection with the sale of the Purchased Assets, the Seller
further agrees that it will, at its own expense, indicate clearly and
unambiguously in its computer files, on or prior to each Purchase Date, that
such Purchased Assets have been sold to the Buyer pursuant to this Agreement.
The Seller further agrees to deliver to the Buyer on each Purchase Date, a
computer file or microfiche list containing a true and complete list of all
Contracts, identified by account number and Outstanding Balance as of the
related Cut-Off Date. Such file or list shall be marked as Schedule I to this
Agreement, shall be delivered to the Buyer as confidential and proprietary, and
is hereby incorporated into and made a part of this Agreement as such Schedule I
may be supplemented and amended from time to time.
(e) It is the intention of the parties hereto that the conveyance of
the Contracts and the other Purchased Assets by the Seller to the Buyer as
provided in Section 2.1 be, and be construed as, an absolute sale, without
recourse, of the Contracts and the other Purchased Assets by the Seller to the
Buyer. Furthermore, it is not intended that such conveyance be deemed a pledge
of the Contracts and the other Purchased Assets by the Seller to the Buyer to
secure a debt or other obligation of the Seller. If, however, notwithstanding
the intention of the parties, the conveyance provided for in Section 2.1 is
determined to be a transfer for security, then this Agreement shall also be
deemed to be a "security agreement" within the meaning of Article 9 of the UCC
and the Seller hereby grants to the Buyer a "security interest" within the
meaning of Article 9 of the UCC in all of the Seller's right, title and interest
in and to the Contracts and the other Purchased Assets, now existing and
hereafter created, to secure a loan in an amount equal to the aggregate Purchase
Price and each of the Seller's other payment obligations under this Agreement.
(f) In order to secure the performance by the Seller of its covenants
and obligations hereunder, the Seller irrevocably authorizes the Buyer at any
time and from time to time in the sole discretion of the Buyer, and appoints the
Buyer as its attorney-in-fact to act on behalf of the
5
<PAGE>
Seller to take all such steps or actions and to execute and deliver all
instruments, agreements, deeds, memoranda and other documents that may be
necessary to perfect and protect the Buyer's title to and interest in the
specific Purchased Assets which have been transferred to the Buyer by it or to
enable the Buyer to exercise or enforce any of its rights hereunder. This
appointment is coupled with an interest and is irrevocable.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to Initial Purchase.
----------------------------------------
On or prior to the Closing Date, the Seller shall have delivered to the
Buyer each of the items specified on Annex I hereto.
Section 3.2 Conditions Precedent to the Buyer's Obligations Regarding
---------------------------------------------------------
Contracts.
- ---------
The obligations of the Buyer to purchase Purchased Assets from the
Seller on any Purchase Date shall be subject to the satisfaction of the
following conditions:
(a) all representations and warranties of the Seller contained in
Sections 4.1 and 4.2 shall be true and correct on and as of such date as though
made on and as of such date;
(b) on and as of such date, the Seller shall have performed all
obligations required to be performed by it on or prior to such date pursuant to
the provisions of this Agreement;
(c) no event has occurred and is continuing, or would result from such
purchase which constitutes a Termination Event under the Receivables Funding
Agreement;
(d) no law or regulation shall prohibit, and no order, judgment or
decree of any federal, state or local court or governmental body, agency or
instrumentality shall prohibit or enjoin, the making of any such purchase by the
Buyer in accordance with the provisions hereof; and
(e) all corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents (including, without limitation,
records of corporate proceedings, approvals and opinions) relevant to the
transactions herein contemplated as the Buyer may reasonably have requested.
6
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties.
---------------------------------------
The Seller represents and warrants to the Buyer, as of each Purchase
Date, that:
(a) Organization and Good Standing. The Seller is a corporation duly
organized and validly existing in good standing under the laws of the
Commonwealth of Pennsylvania, with all requisite corporate power and authority
to own or lease its properties and conduct its business as such business is
presently conducted and to execute enter into and perform its obligations under
this Agreement and each other document or instrument to be delivered by the
Seller hereunder (collectively, the "Sale Papers").
(b) Due Qualification. The Seller is duly qualified to do business and
is in good standing as a corporation and has obtained all necessary licenses and
approvals, in each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals has not had and would not be reasonably expected to have
a material adverse effect on its ability to perform its obligations hereunder or
under the Sale Papers.
(c) Power and Authority; Due Authorization. The Seller (i) has all
necessary power, authority and legal right to (A) execute and deliver this
Agreement and each of the Sale Papers, (B) carry out the terms of this Agreement
and Transaction Documents to which it is a party, and (ii) has duly authorized
by all necessary corporate action the execution, delivery and performance of
this Agreement, each of the Sale Papers and the other Transaction Documents to
which it is a party.
(d) Binding Obligation. This Agreement, the Sale Papers and each other
Transaction Document to which the Seller is a party constitutes a legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as may be limited by Insolvency
Laws.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which it is a party and
the fulfillment of the terms hereof and thereof will not (i) conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, the Seller's
certificate of incorporation or any Contractual Obligation of the Seller, (ii)
result in the creation or imposition of any Lien upon any of the Seller's
properties pursuant to the terms of any such Contractual Obligation, other than
Transaction Documents, or (iii) violate, in any material respect, any Applicable
Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best knowledge of the Seller, threatened
against the Seller, before any Governmental Authority (i) asserting the
invalidity of this Agreement, the Sale Papers or any other Transaction
7
<PAGE>
Document to which the Seller is a party, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, the Sale
Papers or any other Transaction Document to which the Seller is a party or (iii)
seeking any determination or ruling that could reasonably be expected to be
adversely determined, and if adversely determined, would materially and
adversely affect the performance by the Seller of its obligations under this
Agreement, any other Transaction Document or any of the Sale Papers.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority required
in connection with the execution and delivery of this Agreement and the Sale
Papers, the performance of the transactions contemplated by this Agreement and
the Sale Papers and the fulfillment of or terms hereof and thereof, have been
obtained.
(h) Bulk Sales. The execution, delivery and performance of this
Agreement do not require compliance with any "bulk sales" law by the Seller.
(i) Solvency. The Seller is solvent and will not become insolvent after
giving effect to the transactions contemplated by this Agreement; the Seller is
paying its debts as they mature; the Seller has not incurred debts beyond its
ability to pay as they mature; and the Seller, after giving effect to the
transactions contemplated by this Agreement, will have an adequate amount of
capital to conduct its business in the foreseeable future.
(j) Selection Procedures. No selection procedures believed by the
Seller to be materially adverse to the interests of the Buyer were utilized by
the Seller in selecting the Contracts to be sold, assigned, transferred,
set-over and otherwise conveyed hereunder.
(k) Use of Proceeds. No proceeds of the sale of any Contract hereunder
received by the Seller will be used by the Seller to purchase or carry any
margin security.
(l) Investment Company Act. The Seller is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or the
Seller is otherwise exempt from all provisions of such Act.
(m) Other Names. The legal name of the Seller is as set forth in this
Agreement and within the preceding five years the Seller has not used, and the
Seller currently does not use, any tradenames, fictitious names, assumed names
or "doing business as" names other than those set forth on Schedule II hereto.
(n) Place of Business. The principal place of business and chief
executive office of the Seller are located at the address of the Seller referred
to on the signature page of this Agreement or at such other locations as have
been indicated to the Buyer and the Administrative Agent in writing, and there
are now no, and during the past four months there have not been any, except as
have been disclosed to the Buyer and the Administrative Agent in writing, other
locations where the Seller is located (as that term is used in the UCC of the
jurisdiction where such principal place of business is located) or keeps
records.
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(o) No Liens. The Seller owns each Purchased Asset, together with the
Contract related thereto, to be sold by it hereunder free and clear of any Lien
except as provided herein, and upon the sale, transfer or assignment hereunder,
the Buyer shall (i) become the owner of each Purchased Asset then existing or
thereafter arising, free and clear of any Lien except as provided herein or (ii)
acquire a first priority perfected security interest in such Purchased Asset in
accordance with Section 2.4(e). No effective financing statement or other
instrument similar in effect covering any Purchased Asset or the Collections
with respect thereto shall at any time be on file in any recording office except
such as may be filed in favor of the Buyer relating to this Agreement or
otherwise as provided under the Receivables Funding Agreement.
(p) Security Interest. The Seller has granted a security interest to
the Buyer in the Purchased Assets, which is enforceable in accordance with the
UCC. Upon the filing of financing statements naming the Buyer as secured party
and the Seller as debtor, the Buyer shall have a first priority perfected
security interest in the Purchased Assets under the UCC. All filings (including,
without limitation, such UCC filings) as are necessary in any jurisdiction to
perfect the interest of the Buyer in the Purchased Assets have been (or prior to
the applicable Purchase hereunder will be) made.
(q) Separate Entity. The Buyer is operated as an entity with assets and
liabilities distinct from those of the Seller and any Affiliates thereof, and
the Seller hereby acknowledges that each Agent and the Lenders under the
Receivables Funding Agreement are entering into the transactions contemplated by
the Receivables Funding Agreement in reliance upon the Buyer's identity as a
separate legal entity from the Seller and from each such Affiliate of the
Seller.
(r) Value Given. The cash payments received by the Seller in respect of
the Purchase Price of each Contract sold hereunder constitutes reasonably
equivalent value in consideration for the transfer to the Buyer of such Contract
under this Agreement, such transfer was not made for or on account of an
antecedent debt owed by the Seller to the Buyer, and such transfer was not and
is not voidable or subject to avoidance under any section of the Bankruptcy
Code.
(s) Reports Accurate. Each report (if prepared by the Seller, or to the
extent that information contained therein is supplied by the Seller), exhibit,
financial statement, document, book, or record furnished or to be furnished by
the Seller to the Buyer in connection with this Agreement is and will be true,
complete and correct in all respects as of the date it is or shall be dated and
(except as otherwise disclosed to the Buyer at such time) as of the date so
furnished.
(t) Exchange Act Compliance. No proceeds of the sale of any Purchased
Assets will be used by the Seller to acquire any security in any transaction
which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as
amended.
(u) Accuracy of Representations and Warranties. Each representation or
warranty by the Seller contained herein or in any certificate or other document
furnished by the Seller pursuant hereto or in connection herewith is true and
correct in all material respects.
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(v) Compliance with Laws; Consents. The Seller complies and has
complied in all material respects with all applicable laws, rules, regulations,
and orders with respect to it, its business and properties (including without
limitation, all applicable environmental requirements) and all restrictions
contained in any indenture, loan or credit agreement, mortgage, security
agreement, bond, note or other agreement or instrument binding on or affecting
the Seller or its property, and has and maintains all permits, licenses,
authorizations, registrations, approvals and consents of all Persons and
Governmental Authorities (the "Consents") for (A) the activities and business of
the Seller as currently conducted and as proposed to be conducted, (B) the
ownership, use, operation and maintenance by the Seller of its properties,
facilities and assets and (C) the performance by the Seller of this Agreement
and the other Transaction Documents to which the Seller is a party and that have
been executed and delivered on or prior to such Purchase Date. Without limiting
the generality of the prior representation, no condition exists or event has
occurred which, in itself or with the giving of notice or lapse of time or both,
would result in the suspension, revocation, impairment, forfeiture or
non-renewal of any Consent applicable to the Seller, except where such
conditions or events would not, separately or in the aggregate, have a material
adverse effect on (1) the performance by the Seller of its obligations under
this Agreement or any of the other Transaction Documents to which the Seller is
a party and that have been executed and delivered on or prior to such Purchase
Date, (2) the validity or enforceability of this Agreement or any of the other
Transaction Documents to which the Seller is a party and that have been executed
and delivered on or prior to such Transfer Date, (3) the Contracts or the other
Purchased Assets or the interests of the Buyer or Lenders therein, or (4) the
federal income tax attributes of the sale and assignment or contribution of the
Contracts.
(w) Taxes. The Seller has filed on a timely basis all tax returns
(federal, state and local) required to be filed and has paid or made adequate
provisions for the payment of all taxes, fees, assessments and other
governmental charges due from the Seller. No tax lien or similar adverse claim
has been filed, and no claim is being asserted, with respect to any such tax,
fee, assessment, or other governmental charge. Any taxes, fees, assessments and
other governmental charges payable by the Seller in connection with the
execution and delivery of this Agreement and the other Transaction Documents to
which the Seller is a party and that have been executed and delivered on or
prior to such Purchase Date and the transactions contemplated hereby or thereby
have been paid or shall have been paid when due, at or prior to such Purchase
Date.
(x) Material Adverse Effect. There has occurred no event which has or
is reasonably likely to have a material adverse effect on the Seller's
operations, including its ability to perform its obligations under this
Agreement or the other Transaction Documents to which the Seller is a party and
that have been executed and delivered on or prior to such Purchase Date in its
individual capacity, as Servicer or otherwise, since the date of the
consolidated and consolidating balance sheets of the Seller required to be
delivered by the Servicer to the Agents pursuant to the Receivables Funding
Agreement;
(y) Intellectual Property. The Seller is licensed or otherwise has the
lawful right to use all patents, trademarks, service marks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted which are material to its
financial condition, business, operations and assets, individually or taken as a
whole.
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(z) Financial Statements. (A) The audited balance sheets of the Seller
as of September 30, 1999 delivered prior to such Purchase Date, have been
certified without qualification by the Seller's independent certified public
accountants, and copies of which have been furnished to the Buyer and each
Agent, are complete and correct in all material respects and fairly present the
financial condition, business, operations and assets of the Seller as of the
date thereof, all in accordance with GAAP, (B) the unaudited balance sheets for
each fiscal quarter in the period since the most recent balance sheets referred
to in clause (A) above and ended at least 45 days prior to the date thereof,
copies of which have been furnished to the Buyer and each Agent, are complete
and correct in all material respects and fairly present the financial condition,
business, operations and assets of the Seller as of the last day of such fiscal
quarters for the periods ended on such dates, all in accordance with GAAP, and
(C) since the last date for which a balance sheet of the Seller has been
delivered to the Buyer and each Agent, there has been no material adverse change
in any such condition, business, operations or assets.
(aa) ERISA Liabilities. The Seller has not incurred and does not expect
to incur any liabilities (except for premium payments arising in the ordinary
course of business) to the PBGC under ERISA, each pension plan or profit sharing
plan to which the Seller or any Affiliate is a party has been administered and
fully funded in accordance with the obligations of the Seller under law and as
set forth in such plan, and the Seller has complied with the applicable
provisions of ERISA in effect as of such Purchase Date.
(bb) Business Decision. The Seller has valid business reasons for
transferring its interests in the Contracts rather than obtaining a loan with
the Contracts as collateral.
(cc) Maintain Books and Records. The articles of incorporation or
bylaws of the Seller require it to maintain (A) books and records of account,
and (B) minutes of the meetings and other proceedings of its shareholders.
(dd) Year 2000 Plan. The Seller has initiated a review and assesment of
its computing systems and believes that all computer applications that are
material to its or any of its Affiliates' business or operations are reasonably
expected on a timely basis to be able to perform properly date sensitive
functions for all dates before, on and after January 1, 2000, except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(ee) Representations and Warranties for Benefit of the Agents. Each of
the representations and warranties of the Seller contained in this Agreement,
the Sale Papers and the other Transaction Documents to which it is a party and
that have been executed and delivered on or prior to such Purchase Date is true
and correct in all material respects, and the Seller hereby makes each such
representation and warranty to, and for the benefit of each Agent and the
Lenders as if the same were set forth in full herein.
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It is understood and agreed that the representations and warranties
provided in this Section 4.1 shall survive (x) the sale and assignment or
contribution of the Purchased Assets to the Buyer, (y) any subsequent transfer
of the Purchased Assets by the Buyer (including its grant of a first-priority
perfected security interest in, to and under the Purchased Assets pursuant to
the Receivables Funding Agreement) and (z) the termination of this Agreement and
the Receivables Funding Agreement, and shall continue so long as any Purchased
Asset shall remain outstanding. Upon discovery by the Seller or the Buyer of a
breach of any of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice thereof to the other
and to each Agent immediately upon obtaining knowledge of such breach.
Section 4.2 Seller's Representations and Warranties Regarding the
Contracts.
The Seller hereby represents and warrants to the Buyer, as of each
Purchase Date with respect to the Contracts transferred to the Buyer on such
date that:
(a) Eligibility of Contracts. As of the applicable Cut-Off Date, (i)
the Contract List and the computer file or microfiche or written list delivered
in connection therewith is an accurate and complete listing of all the Contracts
transferred hereunder and the information contained therein with respect to the
identity of such Contracts and the amounts owing thereunder is true, correct and
complete, (ii) each such Contract is an Eligible Contract, (iii) each such
Contract and the Seller's interest in the related Equipment, as appropriate, has
been transferred to the Buyer free and clear of any Lien of any Person (other
than Permitted Liens) and in compliance, in all material respects, with all
Requirements of Law applicable to the Seller and (iv) with respect to each such
Contract, all material consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required to be
obtained, effected or given by the Seller in connection with the transfer of
such Contract and the related Equipment to the Buyer have been duly obtained,
effected or given and are in full force and effect.
(b) No Fraud. Each such Contract was originated without any fraud or
material misrepresentation on the part of the Seller or, to the best of the
Seller's knowledge, on the part of the Obligor.
(c) Compliance with Laws. All requirements of applicable federal, state
and local laws, and regulations thereunder including, without limitation (to the
extent applicable), those relating to usury, truth-in-lending, real estate
settlement procedure, land sales, the offer and sale of securities, consumer
credit protection and equal credit opportunity or disclosure, in respect of such
Contract and the financing of the related financed assets thereunder, have been
complied with in all material respects, and such Contract and the financing of
the related financed assets thereunder complied at the time such Contract was
originated or made and now comply in all respects with all applicable legal
requirements.
(d) Binding Contracts. Based upon due and diligent investigation and
inquiry by the Seller, each Contract represents the genuine, legal, valid and
binding obligation of the Obligor thereon, enforceable in accordance with its
terms, except as enforceability may be limited by Insolvency Laws and by
equitable limitations on the availability of specific remedies, regardless
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of whether such enforceability is considered in a proceeding in equity or at
law. Based upon due and diligent investigation and inquiry by the Seller, all
parties to each such Contract had full legal capacity to execute and deliver
such document and, as to Obligor parties owning any of the financed assets, to
grant the security interest purported to be granted thereby. All amounts
represented to be payable under the Contract are, in fact, payable in accordance
with the provisions thereof.
(e) Solvent Obligor. The Seller has no knowledge nor has it received
any notice that any Obligor in respect of any such Contract is then a debtor in
any state or federal bankruptcy or insolvency proceeding.
(f) Marked Files. The Seller's (or Seller's servicer's) servicing
records relating to such Contract are clearly and unambiguously marked to show
that such Contract is being assigned to the Buyer on and as of the related
Purchase Date.
(g) Contract File. There exists a Contract File delivered to the Buyer
for delivery to the Collateral Custodian upon the related Purchase Date. Each
document in the related Contract File which is required to be signed by an
Obligor has been signed by such Obligor in the appropriate spaces. All blanks on
any form executed by an Obligor or the related seller have been properly
completed in all material respects, and each form has otherwise been correctly
prepared in all material respects.
(h) No Waiver, Relief or Modification. The financed assets and other
collateral, if any, securing related Contract have not been released from any
such lien in whole or in part, except by instruments or documents identified in
the Contract File delivered to the Custodian. No provisions of such Contract
have been waived, altered or modified in any respect since its origination,
except by instruments or documents identified in the Contract File delivered to
the Custodian.
(i) Origination Valid. No such Contract was originated in, is subject
to the laws of, any jurisdiction the laws of which would make unlawful, void or
voidable the pledge, transfer and assignment of such Contract.
(j) Title to Contracts. The Seller is the sole owner of and has good,
valid and indefeasible title to each such Contract and is conveying and
assigning such Contract as of the Purchase Date free and clear of any Lien and
any other encumbrance, and the Seller has not done anything to convey any right
to any Person other than the Buyer that would result in such Person having a
right to payments due under the Contract or otherwise to impair the rights of
the Seller or the Buyer in such Contract or the proceeds thereof except only for
any Liens which have been released as of the Purchase Date.
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(k) Filings Made. All filings required to be made in any jurisdiction
in order to perfect the Seller's ownership interest in such Contract and the
conveyance thereof to the Buyer have been, or promptly following the Purchase
Date shall be, submitted for filing to be recorded with all appropriate
governmental authorities in all jurisdictions in which such filings are
required.
(l) No Default. To the best of the Seller's knowledge there exists no
existing or ongoing material default, breach, violation or event of default
under the terms of such Contract, and no condition exists or event has occurred
and is continuing that with notice, the lapse of time or both would constitute a
default, breach, violation or event of default under the terms of such Contract,
and there has been no waiver of any of the foregoing.
(m) Insurance. The Seller will use its best efforts to ensure that each
Obligor maintains an Insurance Policy with respect to the related Equipment in
an amount at least equal to the sum of the Discounted Contract Balance of the
related Contract and, at the request of any Agent, shall ensure that each such
Insurance Policy in respect of Equipment with an original acquisition cost in
excess of $75,000 names each Agent, for the benefit of the Lenders, as loss
payee and as an insured thereunder. Additionally, the Seller will require that
each Obligor maintain property damage liability insurance during the term of
each Contract in amounts and against risks customarily insured against by the
Obligor on equipment owned by it.
It is understood and agreed that the representations and warranties
provided in this Section 4.2 shall survive (x) the sale and assignment or
contribution of the Purchased Assets to the Buyer, (y) any subsequent transfer
of the Purchased Assets by the Buyer (including its grant of a first-priority
perfected security interest in, to and under the Purchased Assets pursuant to
the Receivables Funding Agreement) and (z) the termination of this Agreement and
the Receivables Funding Agreement, and shall continue so long as any Purchased
Asset shall remain outstanding. Upon discovery by the Seller or the Buyer of a
breach of any of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice thereof to the other
and to each Agent immediately upon obtaining knowledge of such breach.
Section 4.3 Representations and Warranties of the Buyer.
-------------------------------------------
The Buyer hereby represents and warrants to the Seller, as of each
Purchase Date, that:
(a) Organization and Good Standing. The Buyer is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own or lease its
properties and conduct its business as such properties is presently conducted
and now has all necessary power, authority and legal right to acquire own and
sell the Assets, and to execute, deliver and perform its obligations under this
Agreement, the Transaction Documents and each of the Sale Papers.
(b) Due Qualification. The Buyer is duly qualified to do business and
is in good standing as a corporation, and has obtained all necessary licenses
and approvals, in each jurisdiction in which failure to so qualify or have such
licenses and approvals has not had and would not be reasonably expected to have
a material adverse effect on its ability to perform its obligations hereunder or
under the Sale Papers.
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(c) Due Authorization. The execution and delivery of this Agreement and
each of the Sale Papers and the consummation of the transactions provided for
herein or therein have been duly authorized by the Buyer by all necessary
corporate action on the part of the Buyer.
(d) No Conflicts. The execution and delivery of this Agreement and each
of the Sale Papers, the performance of the transactions contemplated hereby or
thereby and the fulfillment of the terms hereof and thereof will not conflict
with, result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under, any
indenture, contract, agreement, mortgage, deed of trust, or other instrument to
which the Buyer is a party or by which it or any of its property is bound.
(e) No Violation. The execution and delivery of this Agreement and each
of the Sale Papers, the performance of the transactions contemplated hereby and
thereby, and the fulfillment of the terms hereof and thereof (including, without
limitation, the purchase of Purchased Assets by the Buyer in accordance with the
provisions of this Agreement) will not conflict with or violate any Applicable
Law.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Buyer, threatened against the Buyer, before any
court, regulatory body, administrative agency, or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Agreement or any of the
Sale Papers, (ii) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or any of the Sale Papers, or (iii) seeking any
determination or ruling that could reasonably be expected to be adversely
determined, and if adversely determined, would materially and adversely affect
the performance by the Buyer of its obligations under this Agreement or any of
the Sale Papers.
ARTICLE V
COVENANTS
Section 5.1 Affirmative Covenants of Seller.
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(a) Compliance with Laws; Preservation of Corporate Existence;
Maintenance of Licenses. The Seller hereby agrees to comply in all material
respects with all Applicable Laws, the Contracts, the Equipment and the other
Purchased Assets. The Seller shall perform each of its obligations under this
Agreement and the other Transaction Documents to which it is a party and that
have been executed and delivered and that remain in full force and effect. The
Seller will maintain its corporate existence, rights, franchises, qualifications
and privileges. The Seller shall maintain all licenses, permits, charters and
registrations which are material to the conduct of its business and which have
any continuing effect on the status or value of any Purchased Asset.
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(b) Delivery of Collections. The Seller agrees to deliver to the
Servicer or otherwise deposit or cause to be deposited into the Collection
Account promptly (but in no event later than two (2) Business Days after
receipt) all Collections received by the Seller. Until so deposited, all such
Collections shall be held in trust for the Managing Agents by the Seller.
(c) Fulfill Contract Obligations. The Seller will duly fulfill all
obligations on its part to be fulfilled under or in connection with each
Contract, will not change or modify the terms of the Contracts except as
expressly permitted by the terms of the Transaction Documents and will do
nothing to impair the rights of the Buyer, any Agent or the Lenders in the
Contract or the other Purchased Assets. In the event that the rights of the
Seller under any Contract, any guaranty of the related Obligor's obligations
under any Contract, or any Insurance Policy are not assignable or have not, in
fact, been assigned to the Buyer or to the Administrative Agent, the Seller will
enforce such rights on behalf of the Buyer and the Administrative Agent.
(d) Accounting of Transfers. For federal income tax, reporting and
accounting purposes, the Seller will treat the transfer of each Purchased Asset
as an absolute sale and assignment or capital contribution, as the case may be,
of its full right, title and interest in such Purchased Asset to the Buyer.
(e) Notice of Adverse Claim. The Seller shall advise the Buyer and the
Administrative Agent promptly, in reasonable detail, (i) of any material adverse
claim known to it made or asserted against any of the Purchased Assets, (ii) of
any determination that a Contract was not an Eligible Contract at the time of
transfer hereunder, and (iii) of the occurrence of any event which would have a
material adverse effect on the aggregate value of the Purchased Assets or on the
validity of the transfers under this Agreement.
(f) Notice of Material Event. The Seller shall promptly inform the
Buyer and the Administrative Agent in writing of the occurrence of any of the
following:
(i) the submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against
the Seller or with respect to or in connection with all or any portion
of the Purchased Assets, involving potential damages or penalties in an
uninsured amount in excess of $100,000 in the aggregate;
(ii) any change in the location of the Seller's principal
office or any change in the location of the Seller's books and records;
(iii) the commencement or threat of any rule making or
disciplinary proceedings or any proceedings instituted by or against
the Seller in any federal, state or local court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if
adversely determined, would have a material adverse effect with respect
to the Seller;
(iv) the commencement of any proceedings by or against the
Seller under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other
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similar law now or hereafter in effect or of any proceeding in which a
receiver, liquidator, conservator, trustee or similar official shall
have been, or may be, appointed or requested for the Seller or any of
its assets; or
(v) the receipt of notice that (A) the Seller is being placed
under regulatory supervision, or (B) any license, permit, charter,
registration or approval necessary for the conduct of the Seller's
business with respect to any Purchased Asset is to be, or may be,
suspended or revoked, or (C) the Seller is to cease and desist any
practice, procedure or policy employed by the Seller in the conduct of
its business, if such cessation may have a material adverse effect with
respect to the Seller.
(g) Separate Identity. The Seller agrees that:
(i) the Seller shall maintain corporate records and books of
account separate from those of the Buyer;
(ii) the annual financial statements of the Seller shall
disclose the effects of the Seller's transactions in accordance with
GAAP and the annual financial statements of the Seller shall not
reflect in any way that the assets of the Buyer could be available to
pay creditors of the Seller or any other Affiliate of the Seller;
(iii) the resolutions, agreements and other instruments
underlying the transactions described in this Agreement shall be
continuously maintained by the Seller as official records;
(iv) the Seller shall maintain an arm's-length relationship
with the Buyer and will not hold itself out as being liable for the
debts of the Buyer;
(v) the Seller shall keep its assets and its liabilities
wholly separate from those of the Buyer (except to the extent that such
Assets may be commingled by the Seller in its capacity as Servicer
under the Receivables Funding Agreement);
(vi) the Seller will conduct its business solely in its own
name or registered assumed name through its duly authorized officers or
agents so as not to mislead others as to the identity of the Seller;
and
(vii) the Seller will avoid the appearance of conducting
business on behalf of the Buyer or that the assets of the Seller are
available to pay the creditors of the Buyer.
(h) Cooperation with Requests for Information or Documents. The Seller
will cooperate fully, but at the Buyer's sole cost and expense, with all
reasonable requests of the Buyer regarding the provision of any information or
documents, necessary or desirable, including the provision of such information
or documents in electronic or machine-readable format, to allow each of the
Lenders and the Agents to carry out its responsibilities under the Transaction
Documents.
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(i) Payment, Performance and Discharge of Obligations. The Seller will
pay, perform and discharge all of its obligations and liabilities, including,
without limitation, all taxes, assessments and governmental charges upon its
income and properties when due the non-payment, performance or discharge of
which would have a material adverse effect, unless and to the extent only that
such obligations, liabilities, taxes, assessments and governmental charges shall
be contested in good faith and by appropriate proceedings and that, to the
extent required by GAAP, proper and adequate book reserves relating thereto are
established by the Seller and then only to the extent that a bond is filed in
cases where the filing of a bond is necessary to avoid the creation of an
adverse claim against any of its properties.
(j) Copies of Other Information. The Seller will deliver to the Buyer
and each Agent:
(i) promptly, but in any event within ten (10) Business Days
after the filing thereof, a copy of (a) each report or other filing
made by the Seller or any Subsidiary with the Securities and Exchange
Commission (the "SEC") and required by the SEC to be delivered to the
shareholders of the Seller or any such Subsidiary, and (b) each report
and final registration statement of the Seller or any Subsidiary filed
with the SEC; and
(ii) promptly, from time to time, such other information,
documents, records or reports respecting the Contracts or the
conditions or operations, financial or otherwise, of the Seller
(including, without limitation, reports and notices relating to the
Seller's actions under and compliance with ERISA and the Investment
Company Act) as the Buyer or any Agent may from time to time request in
order to perform their obligations hereunder or under any other
Transaction Document or to protect the interests of the Buyer under or
as contemplated by this Agreement and the other Transaction Documents.
(k) Credit and Collection Policy. The Seller will (i) comply in all
material respects with the Credit and Collection Policy in regard to each
Contract in the Asset Pool, and (ii) furnish to the Buyer and each Agent, prior
to its effective date, prompt notice of any material change in the Credit and
Collection Policy. The Seller will not agree to or otherwise permit to occur any
material change in the Credit and Collection Policy.
(l) Financial Projections. The Seller shall deliver to the
Administrative Agent the Financial Projections no later than 30 days after the
Closing Date.
(m) RLI Debt. After an initial public offering, the Seller and RLI
shall convert $30,000,000 from Subordinated Debt to equity in the Seller;
provided, however, the Seller shall obtain the prior written consent of the
Administrative Agent (which consent shall not be unreasonably withheld) with
respect to any terms concerning the Subordinated Debt that is not converted into
equity pursuant to this clause (m).
(n) Year 2000 Compatibility. The Seller shall modify its computer and
other systems to operate in a manner such that on and after January 1, 2000 (i)
the Seller can service the
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Contracts in accordance with the terms of this Agreement and (ii) the Seller can
operate its business in the same manner as it is opeation on the date hereof.
The Seller shall certify in wrting to the Servicer, Backup Servicer or any Agent
no later than August 31, 1999 that it is in compliance with this Section 5.1(n).
Section 5.2 Negative Covenants of Seller.
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(a) Contracts Not to be Evidenced by Promissory Notes. The Seller will
take no action to cause any Contract which is not as of the applicable Purchase
Date evidenced by an instrument to be so evidenced except in connection with the
enforcement or collection of such Contract.
(b) Security Interests. Except for the transfers hereunder, the Seller
will not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien on any Contract or related Equipment
transferred hereunder (other than Permitted Liens), whether now existing or
hereafter transferred hereunder, or any interest therein, and Seller will not
sell, pledge, assign or suffer to exist any Lien on its interest, if any,
hereunder, other than Permitted Liens. The Seller will immediately notify the
Buyer of the existence of any Lien on any Contract or related Equipment
transferred hereunder; and the Seller shall defend the right, title and interest
of the Buyer in, to and under the Contracts and related Equipment transferred
hereunder, against all claims of third parties; provided, however, that nothing
in this Section 5.2(b) shall prevent or be deemed to prohibit the Seller from
suffering to exist Permitted Liens upon any of the Contracts or related
Equipment transferred hereunder.
(c) Activities of the Seller. The Seller shall not engage in any
business or activity of any kind with the Buyer, or enter into any transaction
or indenture, mortgage, instrument, agreement, contract, lease or other
undertaking with the Buyer, which is not directly related to the transactions
contemplated and authorized by this Agreement, the Receivables Funding Agreement
and the certificate of incorporation of the Buyer.
(d) Guarantees. The Seller shall not become or remain liable, directly
or contingently, in connection with any Indebtedness or other liability of the
Buyer, whether by guarantee, endorsement (other than endorsements of negotiable
instruments for deposit or collection in the ordinary course of business),
agreement to purchase or repurchase, agreement to supply or advance funds, or
otherwise.
(e) Merger; Sales. The Seller shall not enter into any transaction of
merger or consolidation, or liquidate or dissolve itself (or suffer any
liquidation or dissolution), or acquire or be acquired by any Person, or convey,
sell, lease or otherwise dispose of all or substantially all of its property or
business, except as provided for in this Agreement and the Transaction
Documents.
(f) Location of Seller, Records; Instruments. The Seller (x) shall not
move outside the Commonwealth of Pennsylvania, the location of its chief
executive office, without 30 days' prior written notice to the Buyer and each
Agent and (y) shall not move the location of the
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Contract Files from the locations thereof on the initial Purchase Date, without
30 days' prior written notice to the Buyer and the Agents and (z) will promptly
take all actions required (including, but not limited to, all filings and other
acts necessary or advisable under the UCC) of each relevant jurisdiction in
order to continue the first priority perfected security interest of the Buyer in
all Purchased Assets transferred hereunder. The Seller will give the Buyer and
the Agents prompt notice of a change within the Commonwealth of Pennsylvania of
the location of its chief executive office. The Seller shall, for not less than
two years or for such longer period as may be required by law, from the date on
which any Contract arose, maintain the Records with respect to each Contract,
including records of all payments received. The Seller will permit
representatives of the Buyer, the Servicer or any Agent at any time and from
time to time during normal business hours of the Seller, as the Buyer, the
Servicer or such Agent shall reasonably request (but at any time if a
Termination Event shall have occurred and be continuing), (i) to inspect and
make copies of and abstracts from such records (at the sole cost and expense of
the Seller, the Servicer or such Agent, as the case may be), and (ii) to visit
the properties of the Seller utilized in connection with the collection,
processing or servicing of the Contracts for the purpose of examining such
Records, and to discuss matters relating to the Contracts, Purchased Assets or
the Seller's performance under this Agreement or the affairs, finances and
accounts of the Seller with any of its officers or employees having knowledge of
such matters. In connection therewith, the Seller agrees to render to any Agent
such clerical and other assistance as may reasonably be requested with regard to
the foregoing. Further, the Seller or any Agent may institute procedures to
permit it at its expense to confirm the Obligor outstanding balances in respect
of any Contracts. If a Termination Event under the Receivables Funding Agreement
shall have occurred and be continuing, promptly upon request therefor, the
Seller shall assist the Buyer in delivering to the Agents records reflecting
activity through the close of business on the Business Day immediately preceding
such Termination Event.
(g) ERISA Matters. The Seller will not (a) engage in any prohibited
transaction for which an exemption is not available or has not previously been
obtained from the United States Department of Labor; (b) permit to exist any
accumulated funding deficiency, as defined in Section 302(a) of ERISA and
Section 412(a) of the Code, or funding deficiency with respect to any Benefit
Plan other than a Multiemployer Plan; (c) fail to make any payments to an
Multiemployer Plan that the Seller may be required to make under the agreement
relating to such Multiemployer Plan or any law pertaining thereto; (d) terminate
any Benefit Plan so as to result in any liability; or (e) permit to exist any
occurrence of any reportable event described in Title IV of ERISA which
represents a material risk of a liability of the Seller under ERISA or the Code.
(h) Nature of Business. The Seller will engage in no business with the
Buyer other than the sale and transfer of Purchased Assets hereunder and the
other transactions permitted or contemplated by this Agreement.
(i) Change in the Purchase and Sale Agreement. The Seller will not
amend, modify, waive or terminate any terms or conditions of this Agreement
except as provided herein.
(j) Special Purpose Entity. The Seller agrees that, for a period of one
year and one day after the Aggregate Unpaids have been paid in full, the Seller
will not cause the Buyer to file
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a voluntary petition or institute, cause to be instituted or join in any
involuntary petition or proceeding under the Bankruptcy Code or any other
bankruptcy or insolvency laws. It is the intention of the Seller that the
Purchased Assets be acquired by the Buyer and that the beneficial interest in
and legal title to the Purchased Assets not be part of the Seller's estate in
the event of the filing of a bankruptcy petition by or against the Seller under
any bankruptcy law.
(k) No Further Transfers. The Seller shall not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or suffer to
exist any adverse claim upon or with respect to, or assign any right to receive
income in respect of any Contract transferred hereunder, or upon or with respect
to the account in which any Collections of any such Contract are deposited.
(l) No Modification. The Seller shall not extend, amend, forgive,
discharge, compromise, cancel or otherwise modify the terms of any Purchased
Asset from and after its Purchase Date.
(m) No Change in Payment Instructions. The Seller shall not, after any
Purchase Date, make any change in its instructions to Obligors regarding
payments to be made to the Buyer or payments to be deposited to the account into
which any Collections in respect of any Contracts are deposited.
(n) Articles of Incorporation and Bylaws. The Seller shall not amend,
supplement or otherwise modify in any material respect its articles of
incorporation or bylaws (or permit any of the foregoing) in any way which would
result in a breach of any representation or warranty or a violation of any
covenant or obligation hereunder.
(o) Failure to Take Action. The Seller shall not (i) take any action,
or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under this Agreement or the
Transaction Documents that are material to the rights, benefits or obligations
of the Buyer or the Lenders (however, nothing herein shall be construed to
constitute a guarantee of collectibility by the Seller); (ii) take any action,
or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights with respect to the Contracts; or
(iii) fail to pay any tax, assessment, charge, fee or other obligation of the
Seller with respect to the Contracts, or fail to defend any action, if such
failure to pay or defend may adversely affect the validity or enforceability of
the assignment of the Contracts to the Buyer hereunder or the right, title or
interest which the Seller had in the Contracts prior to their assignment to the
Buyer hereunder.
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ARTICLE VI
SUBSTITUTION OF CONTRACTS
Section 6.1 Substitution of Contracts.
-------------------------
On any day prior to the occurrence of a Purchase Termination Event, the
Buyer may, and upon the request of the Administrative Agent shall, subject to
the conditions set forth in this Section 6.1, request that any Contract subject
to a Warranty Event or that becomes a Defaulted Contract, a Casualty Loss
Contract or an Early Termination Contract be replaced with one or more Eligible
Contracts (each, a "Substitute Contract"), provided that no such replacement
shall occur unless each of the following conditions is satisfied as of the date
of such replacement and substitution:
(a) the Buyer has previously notified the Buyer in writing (with a copy
to each Agent and the Collateral Custodian) that the Contract to be replaced
should be replaced;
(b) each Substitute Contract is an Eligible Contract on the date of
substitution;
(c) after giving effect to any such substitution, the aggregate
Advances Outstanding does not exceed the lesser of the (i) Borrowing Base and
(ii) the Facility Limit;
(d) the aggregate Discounted Contract Balance (at the applicable Hedged
Discount Rate) of such Substitute Contracts shall be equal to or greater than
the aggregate Discounted Contract Balances (at the Blended Discount Rate as of
the date of the substitution) of Replaced Contracts;
(e) such Substitute Contracts, at the time of substitution by the
Seller, shall have approximately the same weighted average life as the replaced
Contracts;
(f) all representations and warranties of the Seller contained in
Sections 4.1 and 4.2 of the shall be true and correct as of the date of
substitution of any such Substitute Contract;
(g) the substitution of any Substitute Contract does not cause a
Termination Event to occur;
(h) if the aggregate of the Discounted Contracted Balances of all
Substituted Contracts for Defaulted Contracts on such day and all prior days
does not exceed 5% of the ADCB on the date of such substitution;
(i) if the aggregate of the Discounted Contract Balances of all
Substituted Contracts on such day and all prior days excluding Substituted
Contracts which replace Early Termination Contracts does not exceed 10% of the
ADCB on the date of such substitution;
(j) the Seller shall deliver to the Buyer and each Managing Agent on
the date of such substitution a certificate of a Responsible Officer certifying
that each of the foregoing is true and correct as of such date; and
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(k) after giving effect to any such substitution, none of the Portfolio
Concentration Criteria are exceeded.
In connection with any such substitution, the Buyer shall,
automatically and without further action, be deemed to transfer to the Seller,
free and clear of any Lien created pursuant to this Agreement, all of the right,
title and interest of the Buyer in, to and under such Replaced Contract, and the
Buyer shall be deemed to represent and warrant that it has the corporate
authority and has taken all necessary corporate action to accomplish such
transfer, but without any other representation or warranty, express or implied.
Any right of the Buyer to substitute any Contract pursuant to this Section 6.1
shall be in addition to, and without limitation of, any other rights or remedies
that the Buyer may have to require the Seller to substitute for, or accept
retransfer of, any Contract pursuant to the terms of this Agreement.
ARTICLE VII
PURCHASE TERMINATION EVENTS
Section 7.1 Purchase Termination Events.
---------------------------
Each of the following events shall constitute a Purchase Termination
Event (a "Purchase Termination Event") under this Agreement:
(a) either Abraham Bernstein or Crit DeMent shall cease to be employed
by the Seller in a senior management position and a successor satisfactory to
the Managing Agents is not appointed within 60 days;
(b) the Tangible Net Worth of the Servicer shall (i) prior to an
initial public offering by the Servicer, on any day be less than $30,000,000,
which amount shall be increased each calendar quarter, beginning July 1, 1999
for the quarter ended June 30, 1999, by an amount equal to (A) 75% of the
immediately preceding quarter's net income (with no downward adjustment for
losses) and (B) 100% of any proceeds from any new equity or (ii) subsequent to
an initial public offering by the Servicer, on any day be less than the sum of
(A) total shareholder's equity immediately prior to such initial public
offering, calculated in accordance with GAAP (B) the net proceeds of such
initial public offering and (C) the amount of Subordinated Debt that RLI
converts into equity after such initial public offering minus the sum of (x)
intangibles calculated in accordance with GAAP and (y) $2,000,000; provided,
however that the amount of Subordinated Debt that RLI converts into equity
pursuant to clause (ii)(C) above shall be at least $30,000,000; provided,
further that the amount under this clause (ii) shall be increased each calendar
quarter after such initial public offering by an amount equal to 75% of net
income;
(c) the Seller shall make any payment on the Subordinated Debt prior to
the Collection Date;
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(d) the sum of the balances outstanding under the 1996 Note and the
1998 Note shall at any time be less than $5,000,000 and/or the balance
outstanding under the 1999 Note shall at any time be less than $38,000,000;
(e) the Seller shall amend, modify, restate, supplement or otherwise
modify the RLI Agreements without the prior written consent of the
Administrative Agent;
(f) the Seller shall to cease maintain Committed Facilities of
$400,000,000 and such failure continues to be unremedied for a period of 30 days
after the earlier 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 Seller by
the Buyer or any Agent and (ii) the date on which the Seller becomes aware
thereof;
(g) the ratio of EBIT to Interest Expense of the Seller and its
Subsidiaries shall be less than 1:15 at any time;
(h) on any day, the Leverage Ratio of the Originator shall be 6.0 or
more;
(i) failure on the part of the Seller to observe or perform any of its
covenants or agreements set forth in this Agreement, which failure has a
material adverse effect on the interests of the Buyer, the Agents or any Lender
and which continues unremedied for a period of 30 days or more after the earlier
of (A) written notice thereof shall have been given by the Buyer or any Agent to
the Seller or (B) the Seller shall have otherwise become aware of such failure;
provided, that only a five Business Day cure period shall apply in the case of a
failure by the Seller to observe its covenants not to grant a security interest
or otherwise intentionally create a Lien on the Contracts other than pursuant to
the Transaction Documents;
(j) any representation, warranty or certification made by the Seller in
this Agreement, any Sale Paper or any other Transaction Document to which it is
a party or in any certificate delivered pursuant thereto shall prove to have
been incorrect when made, which has a Material Adverse Effect on the Lenders and
which continues to be unremedied for a period of 30 days after the earlier 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 Seller by the Buyer or any
Agent and (ii) the date on which the Seller becomes aware thereof;
(k) the occurrence of an Insolvency Event relating to the Seller;
(l) the rendering against the Seller of one or more final judgments,
decrees or orders for the payment of money in excess of U.S. $1,000,000
individually or in the aggregate, and the continuance of such judgment, decree
or order unsatisfied and in effect for any period of more than 61 consecutive
days without a stay of execution;
(m) the failure of the Seller to make any payment due with respect to
aggregate recourse debt or other obligations with an aggregate principal amount
exceeding U.S. $5,000,000 or the occurrence of any event or condition that would
permit acceleration of such recourse debt or other obligations if such event or
condition has not been waived;
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(n) any change in the control of the Seller other than in accordance
with Section 9.12;
(o) any other financial information reasonably requested by the Buyer
or any Agent in accordance with this Agreement is not reasonably provided as
requested.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification by the Seller.
-----------------------------
Without limiting any other rights that the Buyer, any Agent, the Backup
Servicer, the Collateral Custodian, the Lenders, any assignee of the Buyer or
any of such Persons' respective shareholders, officers, employees, agents, or
Affiliates (each an "Indemnified Party") may have hereunder or under applicable
law, the Seller hereby agrees to indemnify each Indemnified Party from and
against any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts"), but
excluding allocations of overhead expenses or other non-monetary damages,
arising out of or as a result of this Agreement or the making of any Advance or
in respect of any Asset or any Contract, excluding, however, (a) Indemnified
Amounts to the extent resulting from the gross negligence or willful misconduct
on the part of the applicable Indemnified Party, and (b) recourse (except with
respect to payment and performance of obligations provided for in this
Agreement) for Defaulted Contracts. Without limiting the foregoing, the Seller
shall indemnify each Indemnified Party for Indemnified Amounts relating to or
resulting from:
(i) any Purchased Asset treated as or represented by the
Seller to be an Eligible Contract which is not at the applicable time
an Eligible Contract;
(ii) reliance on any representation or warranty made or deemed
made by the Seller or any of its officers under or in connection with
this Agreement, which shall have been false or incorrect in any
material respect when made or deemed made or delivered;
(iii) the failure by the Seller to comply with any term,
provision or covenant contained in this Agreement or any agreement
executed in connection with this Agreement, or with any applicable law,
rule or regulation with respect to any Asset, the related Contract, or
the nonconformity of any Asset, the related Contract with any such
applicable law, rule or regulation;
(iv) the failure to vest and maintain vested in the Buyer or
to transfer to the Buyer the Assets, together with all Collections,
free and clear of any adverse claim whether existing at the time of any
Purchase or at any time thereafter;
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(v) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of
any applicable jurisdiction or other applicable laws with respect to
any Purchased Assets, whether at the time of any Purchase or at any
subsequent time;
(vi) any dispute, claim, offset or defense (other than the
discharge in bankruptcy of the Obligor) of the Obligor to the payment
of any Asset which is, or is purported to be, a Purchased Asset
(including, without limitation, a defense based on such Asset or the
related Contract not being a legal, valid and binding obligation of
such Obligor enforceable against it in accordance with its terms), or
any other claim resulting from the sale of the merchandise or services
related to such Asset or the furnishing or failure to furnish such
merchandise or services;
(vii) any failure of the Seller to perform its duties or
obligations in accordance with the provisions of this Agreement or any
failure by the Seller or any Affiliate thereof to perform its
respective duties under the Contracts;
(viii) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with merchandise or
services which are the subject of any Asset or Contract;
(ix) the failure by Seller to pay when due any Taxes for which
the Seller is liable, including without limitation, sales, excise,
transfer or personal property taxes payable in connection with the
Purchased Assets;
(x) the commingling of Collections of Purchased Assets at any
time with other funds;
(xi) any investigation, litigation or proceeding related to
this Agreement or the use of proceeds of Purchases or reinvestments or
the ownership of the Purchased Assets or in respect of any Asset or
Contract; or
(xii) any attempt by any Person to void or otherwise avoid any
Purchase under any statutory provision or common law or equitable
action, including, without limitation, any provision of the Bankruptcy
Code.
The parties hereto agree that the provisions of Section 8.1 shall not
be interpreted to provide recourse to the Seller against loss by reason of the
bankruptcy or insolvency (or other credit condition) of, or default by, the
related Obligor on any Contract.
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Section 8.2 Assignment of Indemnities.
-------------------------
The Seller acknowledges that, pursuant to the Receivables Funding
Agreement, the Buyer may assign its rights of indemnity granted hereunder to the
Lenders, each Agent. Upon such assignment, the Lenders and each Agent, as
applicable, shall have all rights of the Buyer hereunder and may in turn assign
such rights. The Seller agrees that, upon such assignment, any of the Lenders,
any Agent or the assignee of any such Person, as applicable, may enforce
directly, without joinder of the Buyer, the indemnities set forth in this
Article VIII.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment.
---------
This Agreement and any other Sale Papers and the rights and obligations
of the parties hereunder may not be amended, waived or changed orally, but only
by an instrument in writing signed by the Buyer and the Seller, with the prior
written consent of the Agents. The Buyer shall provide not less than 10 Business
Days' prior written notice of any such amendment to the Agents.
Section 9.2 Governing Law; Waiver of Jury Trial.
-----------------------------------
(o) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICTS OF
LAWS PROVISIONS. EACH OF THE PARTIES HERETO HEREBY AGREES TO THE JURISDICTION OF
ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES
HERETO HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
(p) THE PARTIES HERETO EACH HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED
IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 9.3 Notices.
-------
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including facsimile, telex and
express mail) and mailed or telecommunicated, or delivered as to each party
hereto, at its address set forth under its name on the signature page hereof or
at such other address as shall be designated by such party in a written notice
to the other parties hereto. All such notices and communications shall not be
effective until received by the party to whom such notice or communication is
addressed.
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Section 9.4 Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement or any of the Sale Papers shall for any reason whatsoever be held
invalid, then such covenants, agreements, provisions, or terms shall be deemed
severable from the remaining covenants, agreements, provisions, or terms of this
Agreement and the Sale Papers and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or any of the Sale
Papers.
Section 9.5 Assignment.
----------
(a) Notwithstanding anything to the contrary contained herein, this
Agreement may not be assigned by the Buyer or the Seller except as permitted by
this Section 9.5 or by the Receivables Funding Agreement. Simultaneously with
the execution and delivery of this Agreement, the Buyer shall assign all of its
right, title and interest herein to the Administrative Agent as agent for the
Lenders under the Receivables Funding Agreement as provided in the Receivables
Funding Agreement, to which assignment the Seller hereby expressly consents.
Upon assignment, the Seller agrees to perform its obligations hereunder for the
benefit of the Administrative Agent as agent for the Lenders under the
Receivables Funding Agreement and the Administrative Agent, as agent for the
Lenders under the Receivables Funding Agreement and the Administrative Agent, in
such capacity shall be a third party beneficiary hereof. The Administrative
Agent as agent for the Lenders under the Receivables Funding Agreement upon such
assignment may enforce the provisions of this Agreement, exercise the rights of
the Buyer and enforce the obligations of the Seller hereunder without joinder of
the Buyer.
(b) This Agreement may not be assigned by the Seller except in
connection with a merger or consolidation of the Seller with or into, or
disposition of the Seller's properties and assets to, another Person; provided,
however, that any such merger, consolidation or disposition shall satisfy the
requirements of Section 9.12. In connection with any permitted assignment of
this Agreement by the Seller other than to the Agent, the Seller shall deliver
to the Buyer and the Agent an Officer's Certificate that such assignment
complies with this Section 9.5, and shall cause such assignee to execute an
agreement supplemental hereto, in form and substance satisfactory to the Seller,
pursuant to which such assignee shall expressly assume and agree to the
performance of every covenant and obligation of the Seller hereunder, to provide
for the delivery of an Opinion of Counsel that such supplemental agreement is
legal, valid and binding with respect to such assignee, and to take such other
actions and execute such other instruments as may reasonably be required to
effectuate such assignment.
Section 9.6 Further Assurances.
------------------
The Buyer and the Seller agree to do and perform, from time to time,
any and all acts and to execute any and all further instruments required or
reasonably requested by the other party more fully to effect the purposes of
this Agreement and the Sale Papers, including, without limitation, the execution
of any financing statements, continuation statements, termination statements,
releases or equivalent documents relating to the Contracts for filing under the
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provisions of the UCC or other laws of any applicable jurisdiction. In addition,
the Seller agrees to reasonably cooperate with S&P or Moody's in connection with
any review of the transactions contemplated hereby or by the Transaction
Documents which may be undertaken by S&P or Moody's after the date hereof. The
Seller hereby authorizes the Buyer and the Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any one of the Purchased Assets without the signature of the Seller where
permitted by law. A carbon, photographic or other reproduction of this Agreement
or any notice or financing statement covering the Purchased Assets or any part
thereof shall be sufficient as a notice or financing statement where permitted
by law.
Section 9.7 No Waiver; Cumulative Remedies.
------------------------------
No failure to exercise and no delay in exercising, on the part of the
Buyer or the Seller, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exhaustive of any rights, remedies, powers and privileges provided by law.
Section 9.8 Counterparts.
------------
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Agreement by facsimile shall be effective as
delivery of a manually executed counterpart of this Agreement.
Section 9.9 Binding Effect; Third-Party Beneficiaries.
-----------------------------------------
This Agreement shall inure to the benefit of and the obligations
hereunder shall be binding upon the parties hereto and their respective
successors and permitted assigns. The Administrative Agent, as agent for the
Lenders pursuant to Section 9.5, and any other permitted assigns shall be
third-party beneficiaries of this Agreement, but, in the absence of such other
permitted assigns, no party (other than the Administrative Agent, as agent for
the Lenders) is intended as a third party beneficiary hereof.
Section 9.10 Merger and Integration.
----------------------
Except as specifically stated otherwise herein, this Agreement and the
Sale Papers set forth the entire understanding of the parties relating to the
subject matter hereof, there are no other agreements between the parties for
transactions relating to or similar to the transactions contemplated by this
Agreement, and all prior understandings, written or oral, are superseded by this
Agreement.
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Section 9.11 Headings and Exhibits.
---------------------
The headings herein are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any provision hereof. The
schedules and exhibits attached hereto and referred to herein shall constitute a
part of this Agreement and are incorporated into this Agreement for all
purposes.
Section 9.12 Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, the Seller.
- --------------------------
The Seller shall not consolidate with or merge into any other
corporation or Person or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the Person formed by such consolidation or into which the
Seller is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Seller substantially as an entirety
shall be, if the Seller is not the surviving entity, organized and
existing under the laws of the United States of America or any State or
the District of Columbia and shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Buyer in form
satisfactory to the Buyer and the Administrative Agent, the performance
of every covenant and obligation of the Seller hereunder (to the extent
that any right, covenant or obligation of the Seller, as applicable
hereunder, is inapplicable to the successor entity, such successor
entity shall be subject to such covenant or obligation, or shall
benefit from such right, as would apply, to the extent practicable, to
such successor entity);
(ii) the Seller shall have delivered to the Buyer and the
Administrative Agent an Officer's Certificate that such consolidation,
merger, conveyance or transfer and such supplemental agreement comply
with this Section 9.12 and that all conditions precedent herein
provided for relating to such transaction have been complied with and
an Opinion of Counsel satisfactory to the Buyer and the Administrative
Agent that such supplemental agreement is legal, valid and binding with
respect to the successor entity, that the entity surviving such
consolidation, conveyance or transfer is organized and existing under
the laws of the United States of America or any State or the District
of Columbia, and that all UCC filings or amendments necessary to
preserve the interest of the Buyer and the Administrative Agent
following such consolidation, merger, transfer or conveyance have been
made; and
(iii) after giving effect thereto, no Termination Event under
the Receivables Funding Agreement or an event which with notice or
lapse of time or both would constitute such a Termination Event
thereunder shall have occurred.
Section 9.13 Costs, Expenses and Taxes.
-------------------------
(a) The Seller agrees to pay on demand all costs and expenses of the
Buyer incurred in connection with the preparation, execution, delivery,
administration (including periodic auditing), amendment or modification of, or
any waiver or consent issued in connection with,
30
<PAGE>
this Agreement and the other documents to be delivered hereunder or in
connection herewith, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Buyer with respect thereto and with
respect to advising the Buyer as to its rights and remedies under this Agreement
and the other documents to be delivered hereunder or in connection herewith, and
all costs and out-of-pocket expenses, if any (including reasonable counsel fees
and expenses), incurred by the Buyer in connection with the enforcement of this
Agreement and the other documents to be delivered hereunder or in connection
herewith.
(b) The Seller shall pay on demand any and all stamp, sales, excise,
transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of this Agreement
or any agreement or other document delivered in connection with this Agreement.
Section 9.14 Recourse Against Certain Parties.
--------------------------------
(a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Seller as contained in this Agreement or any other
agreement, instrument or document entered into by it pursuant hereto or in
connection herewith shall be had against any administrator of the Seller or any
incorporator, officer, employee or director of the Seller or of any such
administrator, as such, by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise; it being expressly
agreed and understood that the agreements of the Seller contained in this
Agreement and all of the other agreements, instruments and documents entered
into by it pursuant hereto or in connection herewith are, in each case, solely
the corporate obligations of the Seller, and that no personal liability
whatsoever shall attach to or be incurred by any administrator of the Seller or
any incorporator, officer, employee or director of the Seller or of any such
administrator, as such, or any other them, under or by reason of any of the
obligations, covenants or agreements of the Seller contained in this Agreement
or in any other such instruments, documents or agreements, or which are implied
therefrom, and that any and all personal liability of every such administrator
of the Seller and each incorporator, officer, employee or director of the Seller
or of any such administrator, or any of them, for breaches by the Seller of any
such obligations, covenants or agreements, which liability may arise either at
common law or at equity, by statute or constitution, or otherwise, is hereby
expressly waived as a condition of and in consideration for the execution of
this Agreement. The provisions of this Section 9.14(a) shall survive the
termination of this Agreement.
(b) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Buyer as contained in this Agreement or any other agreement,
instrument or document entered into by it pursuant hereto or in connection
herewith shall be had against any administrator of the Buyer or any
incorporator, officer, employee or director of the Buyer or of any such
administrator, as such, by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise; it being expressly
agreed and understood that the agreements of the Buyer contained in this
Agreement and all of the other agreements, instruments and documents entered
into by it pursuant hereto or in connection herewith are, in each case, solely
the corporate
31
<PAGE>
obligations of the Buyer, and that no personal liability whatsoever shall attach
to or be incurred by any administrator of the Buyer or any incorporator,
officer, employee or director of the Buyer or of any such administrator, as
such, or any other them, under or by reason of any of the obligations, covenants
or agreements of the Buyer contained in this Agreement or in any other such
instruments, documents or agreements, or which are implied therefrom, and that
any and all personal liability of every such administrator of the Buyer and each
incorporator, officer, employee or director of the Buyer or of any such
administrator, or any of them, for breaches by the Buyer of any such
obligations, covenants or agreements, which liability may arise either at common
law or at equity, by statute or constitution, or otherwise, is hereby expressly
waived as a condition of and in consideration for the execution of this
Agreement. The provisions of this Section 9.14 (b) shall survive the termination
of this Agreement.
Section 9.15 Setoff.
------
(a) The Seller's obligations under this Agreement shall not be affected
by any right of setoff, counterclaim, recoupment, defense or other right the
Seller might have against the Buyer, VFCC, the Administrative Agent, any Lender
or any assignee, all of which rights are hereby waived by the Seller.
(b) The Buyer shall have the right to set-off against the Seller any
amounts to which the Seller may be entitled and to apply such amounts to any
claims the Buyer may have against the Seller from time to time under this
Agreement. Upon any such set-off, the Buyer shall give notice of the amount
thereof and the reasons therefor to the Seller.
Section 9.16 Rights of Inspection.
--------------------
The Buyer and its representatives and assigns may conduct at any
reasonable time, with reasonable notice, and from time to time, and the Seller
will fully cooperate with, a reasonable number of field examinations and audits
of the inventory, Contracts and business affairs of the Seller each calendar
year. Each such inspection shall be at the sole expense of the Buyer and its
representatives and successors and assigns; provided, however, that following a
Purchase Termination Event, the Seller shall reimburse the Buyer or its
representative, successor or assign for its reasonable expenses incurred in
connection with two (2) such inspections per calendar year. The Buyer and its
representatives and successors and assigns acknowledge that in exercising the
rights and privileges conferred in this Section 9.16 it or its representatives
or assigns may, from time to time, obtain knowledge of information, practices,
books, correspondence and records of a confidential nature and in which the
Seller has a proprietary interest. The Buyer and its representatives and
successors and assigns agree that (i) they shall retain in strict confidence and
shall use their best efforts to ensure that their representatives retain in
strict confidence and will not disclose without the prior written consent of the
Seller any or all of such information, practices, books, correspondence and
records furnished to them and (ii) that they will not, and will use their best
efforts to ensure that their representatives and assigns will not, make any use
whatsoever (other than for the purposes contemplated by this Agreement) of any
of such information, practices, books, correspondence and records without the
prior written consent of the Seller, unless such information is generally
available to the public or is required by law to be disclosed.
32
<PAGE>
Section 9.17 Termination.
-----------
This Agreement shall continue in full force and effect until the
occurrence of a Purchase Termination Event; provided, however, that all
representations, warranties, remedies and indemnities of the Seller herein shall
survive the termination of this Agreement.
[Signatures to Follow]
33
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement
to be duly executed by their respective officers as of the day and year first
above written.
FIDELITY LEASING SPC IV, INC.
By: _________________________
Name:
Title:
1255 Wright's Lane
West Chester, PA 19380
Attention:
Fax:
Phone:
FIDELITY LEASING, INC.
By:__________________________
Name:
Title:
1255 Wright's Lane
West Chester, PA 19380
Attention:
Fax:
Phone:
<PAGE>
SCHEDULE I
LIST OF CONTRACTS
[to be provided by Fidelity].
--------------------------
<PAGE>
SCHEDULE II
TRADENAMES, FICTITIOUS NAMES AND
"DOING BUSINESS AS" NAMES
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT
ASSIGNMENT, dated as of ____________ from FIDELITY LEASING, INC. (the
"Seller") to FIDELITY LEASING SPC IV (the "Buyer").
1. We refer to the Purchase and Sale Agreement, dated as of July 14,
1999 (the "Agreement"), by and between the Seller and the Buyer. All capitalized
terms used herein shall have the meanings set forth in the Agreement.
2. The Seller does hereby convey, set over and assign to the Buyer,
without recourse, all of the Seller's right, title and interest in and to the
following, in each case whether now or hereafter existing or in which the Seller
now has or hereafter acquires an interest and wherever the same may be located
(collectively, the "Purchased Assets"):
(i) the Contracts that are owned by the Seller and that are
listed on the applicable Contract List, together with all Collections
and all monies due or to become due in payment of such Contracts after
the related Cut-Off Date, and any payments in respect of a Casualty
Loss or early termination, but excluding any Scheduled Payments due on
or prior to the related Cut-Off Date and any Excluded Amounts;
(ii) the Equipment related to such Contracts including all
proceeds from any sale or other disposition of such Equipment;
(iii) the Contract Files related to such Contracts;
(iv) all payments made or to be made in the future
specifically with respect to such Contracts or the Obligor thereunder
and under any guarantee or similar credit enhancement with respect to
such Contracts;
(v) all Insurance Proceeds with respect to such Contracts; and
(vi) all income and Proceeds of the foregoing.
3. Simultaneously with the execution and delivery hereof the Seller has
delivered to or at the direction of the Buyer such endorsements and assignments,
made without recourse, of the Contract Files as are necessary to properly
complete the absolute assignment of the Purchased Assets to the Buyer.
4. THIS CERTIFICATE OF ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CHOICE OF LAW PROVISIONS.
IN WITNESS WHEREOF, the Seller has caused this Assignment to be
executed by its authorized officer as of the date first above written.
FIDELITY LEASING, INC.
By:_______________________
Name:
Title:
<PAGE>
ANNEX I
Conditions Precedent Documents
(i) Copies of resolutions of the board of directors of the Seller
approving the execution, delivery and performance of the Agreement and the
transactions contemplated hereby, certified by the Secretary or an Assistant
Secretary of the Seller.
(ii) A copy of an officially certified document evidencing the due
organization and good standing of the Seller in each applicable jurisdiction.
(iii) Copies of the certificate or articles of incorporation and
by-laws of the Seller certified by the secretary or an assistant secretary of
the Seller.
(iv) Filed UCC-1 financing statements executed by the Seller as debtor,
naming the Buyer as secured party, listing the Purchased Assets and the related
security, whether now existing or hereafter acquired, as collateral, meeting the
requirements of the laws of each jurisdiction in which it is necessary or
desirable, or in which the Seller is required by applicable law, and in such
manner as is necessary or desirable, to perfect the conveyance of the Purchased
Assets and the related security to the Buyer.
(v) Opinions of counsel to the Seller, dated the Closing Date, in form
and substance satisfactory to the Buyer.
(vi) Executed counterparts of this Agreement executed on behalf of the
Seller.
(vii) A certificate from a Responsible Officer of the Seller dated the
Closing Date certifying (A) that the representations, warranties and covenants
of the Seller contained in this Agreement, and the statements contained in any
certificate furnished thereunder by the Seller are true and correct as of the
Closing Date; (B) that no proceeding is pending which would prohibit
consummation of the transactions contemplated hereby and (C) the names and
signatures of the incumbent officers of the Seller authorized to sign this
Agreement and each other document to be delivered by it hereunder.
(viii) The initial Contract List.
<PAGE>
-----------------------------------
KILPATRICK STOCKTON LLP
EXECUTION
-----------------------------------
================================================================================
SECURED SUBORDINATED LOAN AGREEMENT
Dated as of July 14, 1999
Among
FIDELITY LEASING SPC I, INC.
as the Borrower
---------------
FIDELITY LEASING, INC.
as the Servicer
---------------
and
FIRST UNION NATIONAL BANK
as the Lender
-------------
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
SECTION 1.1 CERTAIN DEFINED TERMS.................................................................................1
SECTION 1.2 OTHER TERMS...........................................................................................6
SECTION 1.3 COMPUTATION OF TIME PERIODS...........................................................................6
SECTION 1.4 INTERPRETATION........................................................................................6
ARTICLE II ADVANCES..............................................................................................7
SECTION 2.1 ADVANCES; THE LOAN; GRANT OF SECURITY.................................................................7
SECTION 2.2 PROCEDURES FOR ADVANCES...............................................................................8
SECTION 2.3 PREPAYMENTS...........................................................................................8
SECTION 2.4 INTEREST..............................................................................................9
SECTION 2.5 NOTE..................................................................................................9
SECTION 2.6 PAYMENTS, COMPUTATIONS, ETC..........................................................................10
SECTION 2.7 INCREASED COSTS; CAPITAL ADEQUACY; ILLEGALITY........................................................10
SECTION 2.8 TAXES................................................................................................12
ARTICLE III CONDITIONS OF THE ADVANCE...........................................................................13
SECTION 3.1 CONDITIONS TO CLOSING AND INITIAL ADVANCES...........................................................13
SECTION 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES.................................................................13
SECTION 3.3 DELIVERY OF CONTRACT FILES...........................................................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................................................................15
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE BORROWER.......................................................15
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE SERVICER.......................................................15
ARTICLE V GENERAL COVENANTS.....................................................................................15
SECTION 5.1 AFFIRMATIVE COVENANTS OF THE BORROWER................................................................15
SECTION 5.2 RELEASE OF LIEN ON EQUIPMENT.........................................................................16
SECTION 5.3 RELEASE OF INELIGIBLE CONTRACTS......................................................................16
ARTICLE VI ADMINISTRATION AND SERVICING OF CONTRACTS............................................................16
ARTICLE VII TERMINATION EVENTS AND REMEDIES.....................................................................17
SECTION 7.1 TERMINATION EVENTS...................................................................................17
SECTION 7.2 REMEDIES.............................................................................................17
ARTICLE VIII INDEMNIFICATION....................................................................................19
SECTION 8.1 INDEMNITIES BY THE BORROWER..........................................................................19
SECTION 8.2 INDEMNITIES BY THE SERVICER..........................................................................21
SECTION 8.3 AFTER-TAX BASIS......................................................................................22
ARTICLE IX PARTICIPATIONS.......................................................................................22
SECTION 9.1 PARTICIPATIONS.......................................................................................22
ARTICLE X MISCELLANEOUS.........................................................................................23
SECTION 10.1 AMENDMENTS AND WAIVERS..............................................................................23
SECTION 10.2 NOTICES, ETC........................................................................................23
SECTION 10.3 NO WAIVER, RIGHTS AND REMEDIES......................................................................24
SECTION 10.4 TERM OF THIS AGREEMENT..............................................................................24
SECTION 10.5 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE................................24
SECTION 10.6 WAIVER OF JURY TRIAL................................................................................24
SECTION 10.7 COSTS, EXPENSES AND TAXES...........................................................................24
SECTION 10.8 RECOURSE AGAINST CERTAIN PARTIES....................................................................25
SECTION 10.9 PROTECTION OF SECURITY INTEREST OF THE LENDER.......................................................26
SECTION 10.10 CONFIDENTIALITY....................................................................................26
SECTION 10.11 EXECUTION IN COUNTERPARTS; SEVERABILITY; INTEGRATION...............................................27
</TABLE>
i
<PAGE>
EXHIBITS
--------
EXHIBIT A Form of Funding Request
EXHIBIT B Form of Note
SCHEDULES
---------
SCHEDULE I Condition Precedent Documents
ii
<PAGE>
-----------------------------------
KILPATRICK STOCKTON LLP
EXECUTION
-----------------------------------
THIS SECURED SUBORDINATED LOAN AGREEMENT (the "Agreement") is made as
of July 14, 1999, among:
(1) FIDELITY LEASING SPC I, INC., Delaware corporation, as the borrower
(the "Borrower");
(2) FIDELITY LEASING, INC., a Pennsylvania Corporation, as the servicer
(the "Servicer"); and
(3) FIRST UNION NATIONAL BANK, a national banking association, as the
lender (the "Lender").
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
---------------------
(a) Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Receivables Purchase Agreement (as defined
below); provided, however, for the purposes hereof, any changes in the
definition of any capitalized term defined in the Receivables Purchase Agreement
shall not be given effect hereunder unless the Lender shall have given its
written consent to each such change.
Additional Interest: For any Accrual Period and any Advance, the sum of the
products (for each day during such Accrual Period) of:
AIR x P x 1
---
360
where:
AIR = the Additional Interest Rate applicable to such Advance; and
P = the principal amount of such Advance on such day;
provided, however, that (i) no provision of this Agreement shall require the
payment or permit the collection of Additional Interest in excess of the maximum
permitted by applicable law, and (ii) Additional Interest shall not be
considered paid by any distribution if at any time such distribution is
rescinded or must otherwise be returned for any reason.
Additional Interest Rate: As set forth in the B-Note Fee Letter.
<PAGE>
Adjusted Eurodollar Rate: For any day, an interest rate per annum equal to a
fraction, expressed as a percentage and rounded upwards (if necessary), to the
nearest 1/100 of 1%, (i) the numerator of which is equal to the LIBOR Rate for
such day and (ii) the denominator of which is equal to 100% minus the Eurodollar
Reserve Percentage for such day.
Advance: As defined in Section 2.1(a).
Advances Outstanding: On any day, the sum of (i) the aggregate principal amount
of Advances outstanding on such day and (ii) all unpaid amounts of Capitalized
Interest.
Affected Party: As defined in Section 2.7(a).
Aggregate Advances Outstanding: On any day, an amount equal to the sum of (i)
the Advances Outstanding on such day, (ii) the Advances Outstanding under the
SPC IV Subordinated Note Facility on such day and (iii) the principal amount of
all Advances requested by the Borrower, but not yet made, under the SPC IV
Subordinated Note Facility.
Aggregate Unpaids: At any time, an amount, equal to the sum of all accrued and
unpaid Interest, all accrued and unpaid Additional Interest, Advances
Outstanding and all other amounts owed by the Borrower hereunder or by the
Borrower or any other Person under any fee letter (including, without
limitation, the Fee Letter) delivered in connection with the transactions
contemplated by this Agreement (whether due or accrued).
Base Rate: On any date, a fluctuating interest rate per annum equal to the
higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 1.0%.
B-Note Fee Letter: That certain fee letter entered into by the Borrower and
First Union on the Closing Date, as amended, supplemented, replaced or restated
or modified from time to time.
Borrower: Defined in the preamble of this Agreement.
Borrower's Account: The account of the Borrower set forth from time to time in a
certificate executed by a responsible officer of the Borrower and delivered to
the Lender.
Borrowing Base: On any day, an amount equal to the product of (a) the lesser of
(i) the positive excess, if any, of 92% over the Advance Rate and (ii) and 2.0%
and (b) the Notional Balance.
Borrowing Excess: Exists on any day on which the Advances Outstanding for such
day exceeds the Borrowing Base for such day.
Breakage Costs: Any amount or amounts as shall compensate the Lender for any
loss, cost or expense incurred by the Lender (as determined by the Lender, in
the Lender's sole discretion) as a result of a prepayment by the Borrower under
Section 2.3 or as a result of any acceleration pursuant to Section 7.2.
2
<PAGE>
Business Day: Any day other than a Saturday or a Sunday on which (a) banks are
not required or authorized to be closed in New York City or Charlotte, North
Carolina, and (b) if the term "Business Day" is used in connection with the
determination of the LIBOR Rate, dealings in United States dollar deposits are
carried on in the London interbank market.
Capitalized Interest: As defined in Section 2.4(a).
Closing Date: July 16, 1999.
Collection Date: The date following the Termination Date on which the Aggregate
Unpaids have been reduced to zero and indefeasibly paid in full.
Commitment: The commitment of the Lender to fund Advances in an amount not to
exceed the Loan Limit.
Commitment Termination Date: The earlier to occur of (a) July 15, 2000, or such
later date to which the Commitment Termination Date may be extended in the sole
discretion of the Lender in accordance with the terms of Section 2.1(c) and (b)
the Termination Date.
D&P: Duff & Phelps Credit Rating Company, LLC and any successor thereto.
Facility: The financing facility established in favor of the Borrower pursuant
to this Agreement and the other Transaction Documents.
Facility Availability: On any day, an amount equal to the lesser of (a) the Loan
Limit and (b) the excess, if any, of the Borrowing Base over the sum of (i) the
Advances Outstanding on such day and (ii) the principal amount of Advances
requested to be made on such day.
Fee Letter: The Fee Letter, dated as of the date hereof, among the Borrower, the
Servicer and the Lender, as such letter may be amended, modified, supplemented,
restated or replaced from time to time.
Fidelity: Fidelity Leasing Inc., in its individual capacity.
First Union: First Union National Bank, in its individual capacity.
Funding Date: Any day on which an Advance is made.
Funding Request: A written notice, substantially in the form of Exhibit A
hereto, delivered pursuant to Section 2.2.
Interest: For any Accrual Period and any Advance, the sum of the products (for
each day during such Accrual Period) of:
3
3
<PAGE>
IR x P x 1
---
360
where:
IR = the Interest Rate applicable to such Advance; and
P = the principal amount of such Advance on such day;
provided, however, that (i) no provision of this Agreement shall require the
payment or permit the collection of Interest in excess of the maximum permitted
by applicable law, and (ii) Interest shall not be considered paid by any
distribution if at any time such distribution is rescinded or must otherwise be
returned for any reason.
Interest Rate: For any Accrual Period and for each Advance a rate per annum
equal to the Adjusted Eurodollar Rate plus 2.0% per annum.
LIBOR Rate: For any Advance Outstanding and any day during any Accrual Period,
an interest rate per annum equal to:
(i) the posted rate for 30-day deposits in United States
Dollars appearing on Telerate page 3750 as of 11:00 a.m. (Charlotte,
North Carolina time) on such day; or
(ii) if no such rate appears on Telerate page 3750 at such
time and day, then the LIBOR Rate shall be determined by First Union
(such determination, absent manifest error, to be conclusive and
binding on all parties hereto and their assignees).
Loan: The loan by the Lender to the Borrower pursuant to the provisions of
Article II hereof.
Loan Limit: An amount equal to $10,000,000 less the sum of (x) the Aggregate
Advances Outstanding on such day and (y) the unpaid principal balance of all
Structured Loans outstanding on such day (including the unpaid principal balance
of all Structured Loans related to the SPC IV Subordinated Note Facility).
Minimum Structured Loan Interest Rate: As defined in the B-Note Fee Letter.
Net Remaining Available Funds: On any Payment Date, all Available Funds
remaining after making all distributions required to be made pursuant to
Sections 2.7(a) (i) through (xii), Sections 2.8(b) (i) through (xii), but only
to the extent that funds are not required for distribution to the "Seller"
thereunder pursuant to the proviso clause of Section 2.8(b)(xiv), in which case
Net Remaining Available Funds shall be limited to the amounts available, if any,
after making such distribution to the "Seller" thereunder pursuant to such
proviso clause or Sections 2.9(b) (i) through (xii), as the case may be, of the
Receivables Purchase Agreement.
Notional Balance: On any day, the ADCB.
4
<PAGE>
Prime Rate: The rate announced by First Union from time to time as its prime
rate in the United States, such rate to change as and when such designated rate
changes. The Prime Rate is not intended to be the lowest rate of interest
charged by First Union in connection with extensions of credit to debtors.
Receivables Funding Agreement: The Receivables Funding Agreement, dated as of
July 14, 1999, among the Borrower, Fidelity, as the servicer and originator, the
liquidity lenders named therein, Variable Funding Capital Corporation, as a CP
Lender, First Union Capital Markets Corp., as the VFCC Managing Agent and the
Administrative Agent and Harris Trust and Savings Bank as the collateral
custodian and the backup servicer.
Receivables Purchase Agreement: The Receivables Purchase Agreement, dated as of
June 24, 1998, among Fidelity Leasing SPC I, Inc., as the borrower, Fidelity, as
the servicer, the Investors named therein, Variable Funding Capital Corporation,
as a purchaser, First Union Capital Markets Corp., as the deal agent, First
Union, as the liquidity agent and Harris Trust and Savings Bank as the
collateral custodian and the backup servicer.
Remaining Available Funds: On any Payment Date, all Available Funds remaining
after making all distributions required to be made pursuant to Sections 2.7(a)
(i) through (ix), Sections 2.8(b) (i) through (ix) or Sections 2.9(b) (i)
through (ix), as the case may be, of the Receivables Purchase Agreement.
Securitization Facility: As the context may require, the facility evidenced by
the Receivables Funding Agreement and/or the Receivables Purchase Agreement.
SPC IV Subordinated Note Facility: The committed subordinated loan facility
established for the Borrower pursuant to the Secured Subordinated Loan
Agreement, dated as of July 14, 1999, by and between Fidelity Leasing SPC IV,
Inc., Fidelity and the Lender, as amended, modified, supplemented, restated or
revised.
Structured Loan: Any subordinated debt, including any subordinated certificate,
issued by the Borrower or any Affiliate of the Borrower in connection with any
Term Takeout, which subordinated debt or certificate is issued or sold to, or
acquired by, the Lender or any of its Affiliates in connection with the closing
of such Term Takeout; provided; however, that such subordinated note or
certificate shall only constitute a Structured Loan for purposes hereof if (i)
the Lender or an Affiliate of the Lender has approved such subordinated debt or
certificate (including its terms and conditions) in writing and as a "Structured
Loan", (ii) the net proceeds of such Term Takeout, after paying all issuance
costs related to such Term Takeout are not sufficient to pay all amounts
hereunder and under the Receivables Purchase Agreement due in connection with
such Term Takeout and (iii) the interest rate on such Structured Loan is at
least equal to the Minimum Structured Loan Interest Rate.
5
<PAGE>
Term Takeout: Any transaction, whether a whole-loan sale, a term securitization
or any other financing that results in a repayment of all or a portion of the
Advances Outstanding under the Receivables Purchase Agreement.
Termination Date: The earliest of (a) the date of the occurrence of a
Termination Event pursuant to Section 7.1, and (b) the Commitment Termination
Date.
Termination Event: Defined in Section 7.1.
Transaction Documents: This Agreement, the Receivables Purchase Agreement, the
Purchase Agreement, the Hedging Agreement, the Lock-Box Agreements, the Fee
Letter, the Backup Servicer Fee Letter, the Collateral Custodian Fee Letter, and
any additional document the execution of which is necessary or incidental to
carrying out the terms of the foregoing documents.
Section 1.2 Other Terms.
-----------
All accounting terms used but not specifically defined herein shall be
construed in accordance with GAAP. All terms used in Article 9 of the UCC in the
State of New York, and not used but specifically defined herein, are used herein
as defined in such Article 9.
Section 1.3 Computation of Time Periods.
---------------------------
Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
Section 1.4 Interpretation.
--------------
In each Transaction Document, unless a contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Transaction Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Transaction
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents, and reference to any
promissory note includes any promissory note that is an extension or
renewal thereof or a substitute or replacement therefor; and
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(v) reference to any Applicable Law means such Applicable Law
as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision.
ARTICLE II
ADVANCES
Section 2.1 Advances; The Loan; Grant of Security
-------------------------------------
(a) On the terms and conditions hereinafter set forth by delivering to
the Lender a Funding Request in accordance with Section 2.2(a), the Borrower
may, at its option, from time to time on any Business Day prior to the
occurrence of the Commitment Termination Date, but no more frequently than twice
every five (5) Business Days, request that the Lender make advances (each, an
"Advance") to it in an amount which, at any time, shall not exceed the Loan
Limit in effect on the related Funding Date. On each Funding Date, the Lender
shall make such Advance; provided, however that the Lender shall have no
obligation to make any Advance on any Funding Date (i) in excess of the Facility
Availability on such Funding Date or (ii) after giving effect to such Advance,
Advances Outstanding would exceed the Borrowing Base.
(b) In order to secure the payment of the Advances, Interest,
Additional Interest, Aggregate Unpaids, and all other amounts payable with
respect to the Loan and under the Fee Letter, and in order to secure the
performance and observance of all of the covenants and conditions contained in
this Agreement and in the Fee Letter, the Borrower hereby Grants to the Lender,
a second priority security interest in all of the Assets. The Borrower shall
mark its records (including, without limitation, its computer records and tapes)
to evidence the Grant and the interest of the Lender in the Assets.
(c) The Borrower may, within 60 days, but no later than 45 days, prior
to the then existing Commitment Termination Date, by written notice to the
Lender, make written request for the Lender to extend the Commitment Termination
Date for an additional period of 364 days. The Lender shall make a
determination, in its sole discretion and after a full credit review, not less
than 15 days prior to the then applicable Commitment Termination Date as to
whether or not it will agree to extend the Commitment Termination Date;
provided, however, that the failure of the Lender to make a timely response to
the Borrower's request for extension of the Commitment Termination Date shall be
deemed to constitute a refusal by the Lender to extend the Commitment
Termination Date.
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Section 2.2 Procedures for Advances
-----------------------
(a) In the case of the making of any Advance, each Funding Request
shall be delivered to the Lender no later than 5:00 p.m. (Charlotte, North
Carolina time) two (2) Business Days prior to the proposed Funding Date (with a
copy to the Administrative Agent).
(b) Each Funding Request shall specify the aggregate amount of the
requested Advance. Each Funding Request shall be accompanied by (i) a Funding
Request prepared by the Servicer, setting forth the Advances Outstanding and
representing that all conditions precedent for a funding have been met,
including a representation by the Borrower that the requested Advance does not
on the Funding Date exceed either the Borrowing Base or the Facility
Availability, (ii) calculations of the Borrowing Base and the Facility
Availability as of the date the Advance is requested, and (iii) an updated
Contract List including each Contract that is subject to the requested Advance.
Each Funding Request shall be irrevocable.
(c) On the Funding Date following the satisfaction of the applicable
conditions set forth in this Section 2.2 and Article III, the Lender shall make
available to the Borrower or its designee in same day funds, at the Borrower's
Account, the principal amount of such Advance.
Section 2.3 Repayments.
----------
(a) Optional Prepayments. The Borrower may, upon two (2) Business Days'
prior written notice (such notice to be received by the Lender no later than
5:00 p.m. (Charlotte, North Carolina time) on such day) to the Lender, prepay
any portion of Advances Outstanding. On the date of such prepayment, the
Borrower shall remit to the Lender cash in the amount equal to the sum of (i)
the portion of the principal of Advances Outstanding to be prepaid, (ii)
Interest accrued thereon, (iii) Additional Interest accrued thereon, if any, and
(iv) all Breakage Costs related thereto.
Upon thirty (30) days written notice to the Lender, the Borrower shall
have the right to prepay in whole the Advances Outstanding. On the date of such
prepayment, the Borrower shall remit to the Lender cash in the amount equal to
the sum of (i) the Advances Outstanding, (ii) Interest accrued thereon, (iii)
Additional Interest accrued thereon and (iv) all Breakage Costs related thereto.
(b) Mandatory Prepayments. The Advances Outstanding shall be subject to
mandatory repayment in full on the date (i) each Term Takeout closes, such
repayment may be a combination of cash and Structured Loans; provided that
Structured Loans may be used only to the extent that the proceeds of the Term
Takeout, after paying issuance costs thereof and the purchase price of the
assets related thereto, are not sufficient to repay all Advances Outstanding
(including, without limitation, any related breakage costs) and (ii) that
Fidelity Leasing, Inc. or of its Affiliates issues to any Person (other than
Fidelity Leasing, Inc.'s parent company) any equity security, incurs any
Indebtedness or issues any option to any Person to acquire any such equity
security or Indebtedness, in any such case in excess of $20,000,000 (such amount
to be calculated as the sum of the gross offering price of any equity or option
and the gross proceeds of any indebtedness).
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<PAGE>
The Advances Outstanding shall be subject to mandatory repayment in
part each month on the related Payment Date in an amount (x) prior to the
occurrence of a Termination Event, equal to the sum of (i) an amount sufficient
to reduce the Advances Outstanding to the Borrowing Base and (ii) the
Capitalized Interest and (y) on and after the occurrence of a Termination Event,
equal to all Net Remaining Available Funds; provided, however, that if a
Termination Event occurred as a result the occurrence of any event described
under Section 7.1(a) or (b) and such event is cured for period of three (3)
consecutive months, then so long as such Termination Event remains cured, the
mandatory repayment for Payment Dates thereafter shall be the amount described
in clause (x) above.
On the date of any such mandatory repayment, the Borrower shall remit
to the Lender cash in the amount equal to the sum of (i) the portion of the
principal of Advances Outstanding to be prepaid, (ii) Interest accrued thereon,
(iii) Additional Interest accrued thereon and (iv) all Breakage Costs related
thereto.
(c) Upon receipt of any such amounts paid in respect of any prepayment
that is not made on a Payment Date, the Lender shall apply such amounts first,
to the payment of the Breakage Costs, second, to the payment of all accrued and
unpaid Interest and Additional Interest on the amount of the Advances
Outstanding so prepaid, third, to the reduction of any Capitalized Interest
Outstanding, and fourth to the reduction of the Advances Outstanding.
Section 2.4 Interest.
--------
(a) The Borrower shall pay, from Remaining Available Funds, accrued and
unpaid Interest on all Advances Outstanding, in arrears for each Accrual Period,
on each Payment Date. The Borrower shall pay, from Net Remaining Available
Funds, accrued and unpaid Additional Interest on all Advances Outstanding, in
arrears for each applicable Accrual Period, on each applicable Payment Date. To
the extent that Remaining Available Funds are not sufficient to pay in full all
accrued and unpaid Interest for an Accrual Period on any Payment Date, the
amount of such accrued and unpaid Interest that is not so paid shall increase
the Advances Outstanding and to the extent that Net Remaining Available Funds
are not sufficient to pay in full all accrued and unpaid Additional Interest for
an Accrual Period on any applicable Payment Date, the amount of such accrued and
unpaid Additional Interest that is not so paid shall increase the Advances
Outstanding (such increases, whether due to an inability to pay all accrued and
unpaid Interest or Additional Interest are referred to as "Capitalized
Interest").
(b) On any Payment Date on which any amount of Capitalized Interest
remains unpaid, the Borrower shall, from Net Remaining Available Funds (after
paying all accrued and unpaid Interest for the related Accrual Period), pay all
such Capitalized Interest.
Section 2.5 Note.
----
Each Loan made by the Lender hereunder shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit B, with
appropriate insertions as to date and principal amount (a "Note"), payable to
the order of the Lender and in a principal amount equal to the Loan Limit.
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<PAGE>
Section 2.6 Payments, Computations, Etc.
---------------------------
(a) Unless otherwise expressly provided herein, all amounts to be paid
or deposited by the Borrower or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 a.m.
(Charlotte, North Carolina time) on the day when due in lawful money of the
United States in immediately available funds to the Lender. The Borrower shall,
to the extent permitted by law, pay to the Lender interest on all amounts not
paid or deposited when due hereunder at 1% per annum above the Base Rate,
payable on demand; provided, however, that such interest rate shall not at any
time exceed the maximum rate permitted by Applicable Law. All computations of
interest and all computations of Interest, Additional Interest and other fees
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first but excluding the last day) elapsed.
(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of Interest, Additional or any fee payable hereunder, as
the case may be.
(c) If any Advance requested by the Borrower and approved by the Lender
pursuant to Section 2.2, is not, for any reason whatsoever related to a default,
nonperformance or attempted recession of a Funding Request by the Borrower made
or effectuated, as the case may be, on the date specified therefor, the Borrower
shall indemnify the Lender against any reasonable loss, cost or expense incurred
by the Lender, including, without limitation, any loss (including loss of
anticipated profits, net of anticipated profits in the reemployment of such
funds in the manner determined by the Lender), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender to fund or maintain such Advance.
(d) All amounts of Remaining Available Funds shall be applied to the
payment of accrued and unpaid Interest. All amounts of Net Remaining Available
Funds shall be applied first, to the payment of any unpaid Breakage Costs,
second, to the payment of all accrued and unpaid Additional Interest, third, to
the reduction of any Capitalized Interest Outstanding, and fourth to the
reduction of the Advances Outstanding.
Section 2.7 Increased Costs; Capital Adequacy; Illegality.
---------------------------------------------
(a) If either (i) the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the interpretation of any law or regulation or (ii) the compliance by
the Lender or any of its Affiliates (each of which, an "Affected Party") with
any guideline or request from any central bank or other Governmental
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<PAGE>
Authority (whether or not having the force of law), shall (A) subject an
Affected Party to any Tax (except for Taxes on the overall or branch net income,
or franchise tax imposed in lieu of a net income tax, of such Affected Party and
Taxes subject to Section 2.8), duty or other charge with respect to the Loan, or
any right to make Advances hereunder, or on any payment made hereunder, (B)
impose, modify or deem applicable any reserve requirement (including, without
limitation, any reserve requirement imposed by the Board of Governors of the
Federal Reserve System, but excluding any reserve requirement, if any, included
in the determination of Interest or Additional Interest), special deposit or
similar requirement against assets of, deposits with or for the amount of, or
credit extended by, any Affected Party or (C) impose any other condition
affecting an Advance or a Lender's rights hereunder, the result of which is to
increase the cost to any Affected Party or to reduce the amount of any sum
received or receivable by an Affected Party under this Agreement, then within
ten days after demand by such Affected Party (which demand shall be accompanied
by a statement setting forth the basis for such demand), the Borrower shall pay
directly to such Affected Party such additional amount or amounts as will
compensate such Affected Party for such additional or increased cost incurred or
such reduction suffered.
(b) If either (i) the introduction of or any change in or in the
interpretation of any law, guideline, rule, regulation, directive or request or
(ii) compliance by any Affected Party with any law, guideline, rule, regulation,
directive or request from any central bank or other governmental authority or
agency (whether or not having the force of law), including, without limitation,
compliance by an Affected Party with any request or directive regarding capital
adequacy, has or would have the effect of reducing the rate of return on the
capital of any Affected Party as a consequence of its obligations hereunder or
arising in connection herewith to a level below that which any such Affected
Party could have achieved but for such introduction, change or compliance
(taking into consideration the policies of such Affected Party with respect to
capital adequacy) by an amount deemed by such Affected Party to be material,
then from time to time, within ten days after demand by such Affected Party
(which demand shall be accompanied by a statement setting forth the basis for
such demand), the Borrower shall pay directly to such Affected Party such
additional amount or amounts as will compensate such Affected Party for such
reduction.
(c) In determining any amount provided for in this section, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this section shall submit to the Servicer a
written description as to such additional or increased cost or reduction and the
calculation thereof, which written description shall be conclusive absent
demonstrable error.
(d) If the Lender shall notify the Borrower that a Eurodollar
Disruption Event as described in clause (a) of the definition of "Eurodollar
Disruption Event" has occurred, whereupon all Advances Outstanding in respect of
which Interest or Additional Interest accrues at the Adjusted Eurodollar Rate
shall immediately be converted into Advances Outstanding in respect of which
Interest or Additional Interest accrues at the Base Rate.
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<PAGE>
Section 2.8 Taxes.
-----
(a) All payments made by the Borrower under this Agreement will be made
free and clear of and without deduction or withholding for or on account of any
Taxes. If, however, any Taxes are required to be withheld from any amounts
payable to the Lender, then the amount payable to the Lender will be increased
(such increase, the "Additional Amount") such that every net payment made under
this Agreement after deduction or withholding for or on account of any Taxes
(including, without limitation, any Taxes on such increase) is not less than the
amount that would have been paid had no such deduction or withholding been
deducted or withheld. The foregoing obligation to pay Additional Amounts,
however, will not apply with respect to net income or franchise taxes imposed on
the Lender with respect to payments required to be made by the Borrower under
this Agreement, by a taxing jurisdiction in which the Lender is organized,
conducts business or is paying taxes as of the Closing Date (as the case may
be).
Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Lender a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure. The agreements in this subsection shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder.
(b) The Borrower will indemnify the Lender for the full amount of Taxes
payable by the Lender in respect of Additional Amounts and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. The Lender, upon making a demand for an indemnity payment under this
Section 2.14(b), shall provide the Borrower with a certificate of a responsible
officer of the Lender stating that such tax is due and owing and the amount to
be paid by the Borrower and, if available, the Lender shall provide the Borrower
with a copy of or extract from documentation furnished by the taxing authority
relating to such Taxes. All payments in respect of this indemnification shall be
made within ten days from the date a written demand therefor is delivered to the
Borrower.
(c) Within 30 days after the date of any payment by the Borrower of any
Taxes, the Borrower will furnish to the Lender appropriate evidence of payment
thereof.
(d) Promptly following the closing date the Lender shall provide to the
Borrower an Internal Revenue Service Form W-9 or a successor applicable form.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this section shall survive the termination of this Agreement.
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ARTICLE III
CONDITIONS OF THE ADVANCE
Section 3.1 Conditions to Closing and Initial Advances.
------------------------------------------
The Lender shall not be obligated to make any Advance hereunder on the
occasion of the initial Advance, nor shall the Lender be obligated to take,
fulfill or perform any other action hereunder, until the following conditions
have been satisfied, in the sole discretion of, or waived in writing by, the
Lender:
(a) This Agreement and all other Transaction Documents or counterparts
hereof or thereof shall have been duly executed by, and delivered to, the
parties hereto and thereto and the Lender shall have received such other
documents, instruments, agreements and legal opinions as the Lender reasonably
shall request in connection with the transactions contemplated by this
Agreement, including all those listed in the Schedule of Documents, attached
hereto as Schedule I, as due on the Closing Date, each in form and substance
satisfactory to the Lender.
(b) The Lender shall have received (i) satisfactory evidence that the
Borrower and the Servicer have obtained all required consents and approvals of
all Persons, including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and other Transaction Documents to
which each is a party and the consummation of the transactions contemplated
hereby or thereby or (ii) an Officer's Certificate from each of the Borrower and
the Servicer in form and substance satisfactory to the Lender affirming that no
such consents or approvals are required; it being understood that the acceptance
of such evidence or Officer's Certificate shall in no way limit the recourse of
the Lender against the Originator or the Seller for a breach of the Originator's
or the Seller's representation or warranty that all such consents and approvals
have, in fact, been obtained.
(c) The Borrower and the Servicer shall each be in compliance in all
material respects with all Applicable Laws.
(d) The Borrower shall have paid all fees required to be paid by it on
the Closing Date, including all fees required hereunder and under the Fee Letter
to be paid as of such date, and shall have reimbursed each Lender and each Agent
for all fees, costs and expenses of closing the transactions contemplated
hereunder and under the other Transaction Documents, including the legal and
other document preparation costs incurred by the Lender.
Section 3.2 Conditions Precedent to All Advances.
------------------------------------
Each Advance shall be subject to the further conditions precedent that:
(a) On the related Funding Date, the Borrower or the Servicer (if the
Originator or an Affiliate of the Originator), as the case may be, shall have
certified in the related Funding Request that:
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(i) The representations and warranties of such Person set
forth in Article IV are true and correct on and as of such date, before
and after giving effect to such Advance or reinvestment and to the
application of the proceeds therefrom, as though made on and as of such
date;
(ii) No event has occurred, or would result from such Advance
or reinvestment or from the application of the proceeds therefrom, that
constitutes a Termination Event;
(iii) Such Person is in material compliance with each of its
covenants set forth herein; and
(iv) No event has occurred that constitutes a Servicer
Termination Event.
(b) With respect to the initial Funding Date, the Lender shall have
received all Transaction Documents listed on the Schedule of Documents, attached
hereto as Schedule I, as due on the initial Funding Date, or counterparts
thereof, each of which has been duly executed by, and delivered to, the parties
hereto and each shall be in form and substance satisfactory to each Agent;
(c) The Termination Date shall not have occurred;
(d) Before and after giving effect to such borrowing and to the
application of proceeds therefrom, Advances Outstanding do not exceed the
Facility Amount or the Borrowing Base, as calculated on such date;
(e) After giving effect to such Advance, the Borrower shall have
entered into one or more Hedge Transactions have an amortizing notional amount
such that the Hedge Notional Amount in effect on any day shall be equal to at
least 97% of the Advances Outstanding under the Receivables Purchase Agreement
on such day;
(f) No claim has been asserted or proceeding commenced challenging
enforceability or validity of any of the Transaction Documents, excluding any
instruments, certificates or other documents relating to the Loan that were the
subject of prior Advances;
(g) No event shall have occurred nor any circumstance arisen which has
had or could reasonably be expected to have a Material Adverse Effect since the
preceding Advance; and
(h) The Originator and Borrower shall have taken such other action,
including delivery of approvals, consents, opinions, documents, and instruments
to the Lender may reasonably request.
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Section 3.3 Delivery of Contract Files.
--------------------------
As a condition to each Advance made hereunder, the Borrower shall
deliver to the Collateral Custodian, not more than ten (10) days after such
Advance or such substitution, the related Contract Files.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Borrower.
----------------------------------------------
The Borrower repeats, for the benefit of the Lender, each of the
representations and warranties made by the Borrower pursuant to Sections 4.1 and
4.2 of the Receivables Purchase Agreement, each as if set forth in full herein;
provided, however, that no amendment, modification, waiver, deletion,
restatement or other change to any of such Sections or provisions thereof shall
have effect for the purposes of this Agreement unless the Lender shall have
given its written consent thereto.
Section 4.2 Representations and Warranties of the Servicer.
----------------------------------------------
The Servicer repeats, for the benefit of the Lender, each of the
representations and warranties made by the Servicer pursuant to Section 4.3 of
the Receivables Purchase Agreement, each as if set forth in full herein;
provided, however, that no amendment, modification, waiver, deletion,
restatement or other change to any of such Section or provisions thereof shall
have effect for the purposes of this Agreement unless the Lender shall have
given its written consent thereto.
ARTICLE V
GENERAL COVENANTS
Section 5.1 Affirmative Covenants of the Borrower.
-------------------------------------
The Borrower agrees, for the benefit of the Lender, from the date
hereof until the Collection Date, to comply with each of the affirmative
covenants made by it pursuant to the provisions of Section 5.1 of the
Receivables Purchase Agreement, each of the negative covenants made by it
pursuant to the provisions of Section 5.2 of the Receivables Purchase Agreement
and each of the covenants regarding the hedging of the Contracts set forth in
Section 5.3 of the Receivables Purchase Agreement, each as if set forth in full
herein; provided, however, that no amendment, modification, waiver, deletion,
restatement or other change to any of such Section or the provisions thereof
shall have effect for purposes of this Agreement unless the Lender shall have
given its written consent thereto.
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Section 5.2 Release of Lien on Equipment.
----------------------------
At the same time as (a) any Contract in the Assets expires by its terms
and all amounts in respect thereof have been paid by the related Obligor and
deposited in the Collection Account or (b) any Contract becomes a Prepaid
Contract and all amounts in respect thereof have been paid by the related
Obligor and deposited in the Collection Account, the Lender shall be deemed to
release its interest in such Contract and the related Equipment and, at the
Servicer's sole expense, will take any actions and execute any documents in
respect of such release reasonably requested by the Servicer; provided, however,
that the Lender will make no representation or warranty, express or implied,
with respect to any such Contract or Equipment. Nothing in this section shall
diminish the Servicer's obligations pursuant to Section 6.4 of the Receivables
Purchase Agreement with respect to the proceeds of any such sale.
Section 5.3 Release of Ineligible Contracts.
-------------------------------
On and after the date of retransfer of any Ineligible Contract under
the terms of the Receivables Purchase Agreement, the Ineligible Contract so
retransferred shall not be included in the Assets and, as applicable, the
Substitute Contract shall be included in the Assets. Upon each retransfer to the
Borrower of such Ineligible Contract, the Lender, shall automatically and
without further action be deemed to release to the Borrower, without recourse,
representation or warranty, all the right, title and interest of the Lender, to
and under such Ineligible Contract and all monies due or to become due with
respect thereto, the related Equipment and all proceeds of such Ineligible
Contract and Recoveries and Insurance Proceeds relating thereto and all rights
to security for any such Ineligible Contract, and all proceeds and products of
the foregoing. The Lender, shall, at the sole expense of the Servicer execute
such documents and instruments of release as may be prepared by the Servicer on
behalf of the Borrower and take other such actions as shall reasonably be
requested by the Borrower to effect the transfer of such Ineligible Contract
pursuant to this subsection.
ARTICLE VI
ADMINISTRATION AND SERVICING OF CONTRACTS
The Servicer agrees, for the benefit of the Lender from the date hereof
until the Collection Date, unless the Servicer's obligations are earlier
terminated pursuant to the provisions of the Receivables Purchase Agreement, to
comply with each of the affirmative covenants made by it pursuant to the
provisions of Section 5.4 of the Receivables Purchase Agreement, each of the
negative covenants made by it, pursuant to the provisions of Section 5.5 of the
Receivables Purchase Agreement and each of the other agreements made by the
Servicer under the Receivables Purchase Agreement, including without limitation,
pursuant to Section 2.6 and Article VI of the Receivables Purchase Agreement,
each as if set forth in full herein; provided, however that no amendment,
modification, waiver, deletion, restatement or other change to any of such
Sections or Article or the provisions thereof shall have effect for purposes of
the Agreement unless the Lender shall have given its written consent thereto. In
additional, the Servicer agrees to deliver a copy of each report, certificate or
other document to the Lender on each day on which it delivers any such report,
certificate or other document to any party under the Receivables Purchase
Agreement.
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ARTICLE VII
TERMINATION EVENTS AND REMEDIES
Section 7.1 Termination Events.
------------------
Each of the following events shall constitute a Termination Event (a
"Termination Event") under this Agreement:
(a) as of any Reporting Date, the Delinquency Ratio for the preceding
Determination Date exceeds 2.5%;
(b) as of any Reporting Date, the Default Ratio for the preceding
Determination Date exceeds 2.25%;
(c) the occurrence of the Termination Date under the Receivables
Purchase Agreement;
(d) the date on which a Borrowing Excess has been in existence for at
least 30 consecutive days; or
(e) the occurrence of a Termination Event under the SPC IV Subordinated
Note Facility.
Section 7.2 Remedies.
--------
(a) Upon the occurrence of a Termination Event, the Termination Date
shall be deemed to have occurred automatically. Upon the occurrence of a
Termination Event, in addition to the other remedies provided for herein, the
Lender may declare the Advances Outstanding and all other Aggregate Unpaids to
be immediately due and payable and shall have all rights and remedies provided
under the UCC and other applicable laws, which rights shall be cumulative. Upon
such acceleration, the balance then outstanding under this Agreement shall
become immediately due and payable, without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Upon the occurrence of a Termination Event and following the
Collection Date under the Receivables Purchase Agreement, and in addition to the
remedies provided herein, the Lender, shall have the right to obtain physical
possession of the Servicer's records and all other files of the Borrower
relating to the Assets and all documents relating to the Assets which are then
or may thereafter come into the possession of the Borrower or any third party
acting for the Borrower, and the Borrower shall deliver to the Lender, such
assignments as the Lender shall request.
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(c) Without limiting the generality of the foregoing provisions of this
Section 7.2, the Lender, following the occurrence of the Collection Date under
the Receivables Purchase Agreement, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Borrower or any other
Person (each and all of which demands, presentments, protests, advertisements
and notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Assets, or any part thereof, and/or
may forthwith sell (on a servicing released basis, at the Lender's option),
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Assets or any part thereof (or contract to do any of the foregoing),
in one or more parcels or as an entirety at public or private sale or sales, at
any exchange, broker's board or office of the Lender or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Assets so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby waived or
released. The Borrower further agrees, at the Lender's request, to assemble the
Assets and make it available to the Lender at places which the Lender shall
reasonably select, whether at the Borrower's premises or elsewhere. The Lender
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Assets or in any way relating to the Assets or the rights of the
Lender hereunder, including without limitation reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the amounts owing to the
Lender hereunder in respect of Advances Outstanding, accrued and unpaid
Interest, Additional Interest, fees, expenses, indemnification, Breakage Costs,
or otherwise, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required or
permitted by any provision of law, including without limitation Section
9-504(1)(c) of the UCC, need the Lender to account for the surplus, if any, to
the Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Assets
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Borrower shall
remain liable for any deficiency (together with all Interest and Additional
Interest thereon and fees and expenses accruing under this Agreement) if the
proceeds of any sale or other disposition of the Assets are insufficient to pay
the amounts owing to the Lender and the fees and disbursements of any attorneys
employed by such Lender to collect such deficiency.
(d) The Lender's duty with respect to the custody, safekeeping and
physical preservation of the Assets in its possession, under Section 9-207 of
the UCC or otherwise, shall be to deal with it in the same manner as the Lender,
deals with similar property for its own account. Neither the Lender nor any of
its respective directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Assets or for any delay
in doing so or shall be under any obligation to sell or otherwise dispose of any
Assets upon the request of the Borrower or otherwise.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnities by the Borrower.
---------------------------
Without limiting any other rights which the Agent, the Lender or any of
their respective Affiliates may have hereunder or under applicable law, the
Borrower hereby agrees to indemnify the Agent, the Lender, and each of their
respective Affiliates and officers, directors, employees and agents thereof
(each of the foregoing Persons being referred to as an "Indemnified Party") from
and against any and all damages, losses, claims, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them, but excluding allocations of overhead
expenses of any such Indemnified Party or other non-monetary damages of any such
Indemnified Party, arising out of or as a result of this Agreement or the Grant
of the Assets or in respect of any Asset or any Contract, excluding, however,
Indemnified Amounts to the extent resulting from negligence or willful
misconduct on the part of the Agent, the Lender or such Affiliate. If the
Borrower has made any indemnity payment pursuant to this Section 8.1 and such
payment fully indemnified the recipient thereof and the recipient thereafter
collects any payments from others in respect of such Indemnified Amounts then,
the recipient shall repay to the Borrower an amount equal to the amount it has
collected from others in respect of such indemnified amounts. Without limiting
the foregoing, the Borrower shall indemnify each Indemnified Party for
Indemnified Amounts relating to or resulting from:
(a) any Contract treated as or represented by the Borrower to be an
Eligible Contract which is not at the applicable time an Eligible Contract;
(b) reliance on any representation or warranty made or deemed made by
the Borrower, the Servicer (if the Originator or one of its Affiliates) or any
of their respective officers under or in connection with this Agreement, which
shall have been false or incorrect in any material respect when made or deemed
made or delivered;
(c) the failure by the Borrower or the Servicer (if the Originator or
one of its Affiliates) to comply with any term, provision or covenant contained
in this Agreement or any agreement executed in connection with this Agreement,
or with any applicable law, rule or regulation with respect to any Asset, the
related Contract, or the nonconformity of any Asset, the related Contract with
any such applicable law, rule or regulation;
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(d) the failure to vest and maintain vested in the Lender or to
transfer to the Lender, a second priority perfected security interest in the
Assets, together with all Collections, free and clear of any Adverse Claim
(other than claims arising under or with respect to the Receivables Purchase
Agreement and the other Transaction Documents) whether existing as of the
Closing Date or at any time thereafter;
(e) the failure to maintain, as of the close of business on each
Business Day prior to the Termination Date, an amount of Advances Outstanding
which is less than or equal to the lesser of (i) the Facility Limit on such
Business Day, or (ii) the Borrowing Base on such Business Day;
(f) the failure to file, or any delay in filing, financing statements
or other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Assets which are, or
are purported to be, Assets, whether at the time of any Grant or at any
subsequent time;
(g) any dispute, claim, offset or defense (other than the discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Asset which is,
or is purported to be, Assets (including, without limitation, a defense based on
such Asset or the related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its terms),
or any other claim resulting from the sale of the merchandise or services
related to such Asset or the furnishing or failure to furnish such merchandise
or services;
(h) any failure of the Borrower or the Servicer (if the Originator or
one of its Affiliates) to perform its duties or obligations in accordance with
the provisions of this Agreement or any failure by the Originator, the Borrower
or any Affiliate thereof to perform its respective duties under the Contracts;
(i) any products liability claim or personal injury or property damage
suit or other similar or related claim or action of whatever sort arising out of
or in connection with merchandise or services which are the subject of any Asset
or Contract;
(j) the failure by Borrower to pay when due any Taxes for which the
Borrower is liable, including without limitation, sales, excise or personal
property taxes payable in connection with the Assets;
(k) any repayment by the Lender of any amount previously distributed in
reduction of Advances Outstanding or payment of Interest, Additional Interest or
any other amount due hereunder or under any Hedging Agreement, in each case
which amount the Lender believes in good faith is required to be repaid;
(l) the commingling of Collections of Assets in the Assets at any time
with other funds;
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(m) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Advances or reinvestments or the ownership
of the Assets or in respect of any Asset or Contract;
(n) any failure by the Borrower to give reasonably equivalent value to
the Originator in consideration for the transfer by the Originator to the
Borrower of any Assets or any attempt by any Person to void or otherwise avoid
any such transfer under any statutory provision or common law or equitable
action, including, without limitation, any provision of the Bankruptcy Code; or
(o) the failure of the Borrower, the Originator or any of their
respective agents or representatives to remit Collections to the Servicer or the
Lender.
Any amounts subject to the indemnification provisions of this Section
8.1 shall be paid by the Borrower within two Business Days following demand
therefor. If for any reason the indemnification provided above in this Section
8.1 is unavailable to the Indemnified Party or is insufficient to hold an
Indemnified Party harmless, then Fidelity shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party on the one hand and the Borrower on
the other hand but also the relative fault of such Indemnified Party as well as
any other relevant equitable considerations.
The parties agree that no provision of this Section 8.1 shall be
construed to provide recourse to Fidelity for any loss by reason of the exercise
by or against any obligor of any Insolvency Law or any default by any obligor as
a result of a credit reason.
Section 8.2 Indemnities by the Servicer.
---------------------------
(a) Without limiting any other rights that any such Person may have
hereunder or under Applicable Law, the Servicer hereby agrees to indemnify each
Indemnified Party, forthwith on demand, from and against any and all Indemnified
Amounts awarded against or incurred by any such Indemnified Party by reason of
any acts, omissions or alleged acts or omissions of the Servicer, including, but
not limited to (i) any representation or warranty made by the Servicer under or
in connection with any Transaction Document, any Monthly Report, Servicer's
Certificate or any other information or report delivered by or on behalf of the
Servicer pursuant hereto, which shall have been false, incorrect or misleading
in any material respect when made or deemed made, (ii) the failure by the
Servicer to comply with any Applicable Law, (iii) the failure of the Servicer to
comply with its duties or obligations in accordance with the Receivables
Purchase Agreement or this Agreement, or (iv) any litigation, proceedings or
investigation against the Servicer. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof.
(b) Any amounts subject to the indemnification provisions of this
Section 8.2 shall be paid by the Servicer to the Lender within five (5) Business
Days following such Agent's demand therefor.
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(c) The Servicer shall have no liability for making indemnification
hereunder to the extent any such indemnification constitutes recourse for
uncollectible or uncollected Contracts.
(d) The obligations of the Servicer under this Section 8.2 shall
survive the resignation or removal of the Servicer and the termination of this
Agreement.
(e) Any indemnification pursuant to this Section 10.2 shall not be
payable from the Assets.
Section 8.3 After-Tax Basis.
---------------
Indemnification under Sections 8.1 and 8.2 shall be in an amount
necessary to make the Indemnified Party whole after taking into account any tax
consequences to the Indemnified Party of the receipt of the indemnity provided
hereunder, including the effect of such tax refund or benefit on the amount of
tax measured by net income or profits that is or was payable by the Indemnified
Party.
ARTICLE IX
PARTICIPATIONS
Section 9.1 Participations.
--------------
(a) The Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the Loan owned by it). Notwithstanding anything herein to the contrary, each
participant shall have the rights of the Lender (including any right to receive
payments) under Sections 2.7 and 2.8; provided, however, that no participant
shall be entitled to receive payment under either such Section in excess of the
amount that would have been payable under such Section by the Borrower to the
Lender granting its participation had such participation not been granted. With
respect to any participation described in this Section 9, the participant's
rights as set forth in the agreement between such participant and the Lender to
agree to or to restrict such Lender's ability to agree to any modification,
waiver or release of any of the terms of this Agreement or to exercise or
refrain from exercising any powers or rights which such Lender may have under or
in respect of this Agreement shall be limited to the right to consent to any of
the matters set forth in Section 10 of this Agreement.
(b) The Lender may, in connection with any participation or proposed
participation pursuant to this Section 9, disclose to the participant or
proposed assignee or participant any information relating to the Borrower
furnished to the Lender by or on behalf of the Borrower.
(c) Nothing herein shall prohibit the Lender from pledging or assigning
as collateral any of its rights under this Agreement to any Federal Reserve Bank
in accordance with applicable law and any such pledge or collateral assignment
may be made without compliance with Section 9.
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ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments and Waivers.
----------------------
(a) Except as provided in this Section 10.1, no amendment, waiver or
other modification of any provision of this Agreement shall be effective without
the written agreement of the Borrower and the Lender.
Section 10.2 Notices, Etc.
------------
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or delivered,
as to each party hereto, at its address set forth under its name on the
signature pages hereof or at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall be effective, upon receipt, or in the case of (a) notice by
mail, five days after being deposited in the United States mail, first class
postage prepaid, (b) notice by telex, when telexed against receipt of answer
back, or (c) notice by facsimile copy, when verbal communication of receipt is
obtained, except that notices and communications pursuant to Article II shall
not be effective until received with respect to any notice sent by mail or
telex.
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Section 10.3 No Waiver, Rights and Remedies.
------------------------------
No failure on the part of the Lender to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right. The
rights and remedies herein provided are cumulative and not exclusive of any
rights and remedies provided by law.
Section 10.4 Term of this Agreement.
----------------------
This Agreement, including, without limitation, the Borrower's
obligation to observe its covenants set forth in Article V, and the Servicer's
obligation to observe its covenants set forth in Articles VI, shall remain in
full force and effect until the Collection Date; provided, however, that the
rights and remedies with respect to any breach of any representation and
warranty made or deemed made by the Borrower pursuant to Articles III and IV and
the indemnification and payment provisions of Article VII and the provisions of
Section 10.9 and Section 10.10 shall be continuing and shall survive any
termination of this Agreement.
Section 10.5 Governing Law; Consent to Jurisdiction; Waiver of
-------------------------------------------------
Objection to Venue.
- ------------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY AGREES TO
THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK, NEW YORK COUNTY. EACH OF THE PARTIES HERETO AND EACH LENDER HEREBY
WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE
OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT.
Section 10.6 Waiver of Jury Trial.
--------------------
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF
THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
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Section 10.7 Costs, Expenses and Taxes.
-------------------------
(a) In addition to the rights of indemnification granted to the
Indemnified Parties under Article VIII hereof, the Borrower agrees to pay on
demand all costs and expenses of the Lender incurred in connection with the
preparation, execution, delivery, administration (including periodic auditing),
amendment or modification of, or any waiver or consent issued in connection
with, this Agreement and the other documents to be delivered hereunder or in
connection herewith, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and remedies under this
Agreement and the other documents to be delivered hereunder or in connection
herewith (excluding any Hedging Agreement), and all costs and expenses, if any
(including reasonable counsel fees and expenses), incurred by the Lender in
connection with the enforcement of this Agreement and the other documents to be
delivered hereunder or in connection herewith.
(b) The Borrower shall pay on demand any and all stamp, sales, excise
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing and recording of this Agreement, the other
documents to be delivered hereunder or any agreement or other document providing
liquidity support, credit enhancement or other similar support to the Lender in
connection with this Agreement or the funding or maintenance of Advances
hereunder.
(c) The Borrower shall pay on demand all costs and expenses incurred by
the Lender in connection with periodic audits of the Borrower's or the
Servicer's books and records.
Section 10.8 Recourse Against Certain Parties.
--------------------------------
No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Lender as contained in this Agreement or any other
agreement, instrument or document entered into by it pursuant hereto or in
connection herewith shall be had against any administrator of the Lender or any
incorporator, affiliate, stockholder, officer, employee or director of the
Lender or of any such administrator, as such, by the enforcement of any
assessment or by any legal or equitable proceeding, by virtue of any statute or
otherwise; it being expressly agreed and understood that the agreements of the
Lender contained in this Agreement and all of the other agreements, instruments
and documents entered into by it pursuant hereto or in connection herewith are,
in each case, solely the corporate obligations of the Lender, and that no
personal liability whatsoever shall attach to or be incurred by any
administrator of the Lender or any incorporator, stockholder, affiliate,
officer, employee or director of the Lender or of any such administrator, as
such, or any of them, under or by reason of any of the obligations, covenants or
agreements of the Lender contained in this Agreement or in any other such
instrument, document or agreement, or which are implied therefrom, and that any
and all personal liability of every such administrator of the Lender and each
incorporator, stockholder, affiliate, officer, employee or director of the
Lender or of any such administrator, or any of them, for breaches by the Lender
of any such obligations, covenants or agreements, which liability may arise
either at common law or in equity, by statute or constitution, or otherwise, is
hereby expressly waived as a condition of, and in consideration for, the
execution of this Agreement.
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(d) The provisions of this Section 10.8 shall survive the termination
of this Agreement.
Section 10.9 Protection of Security Interest of the Lender.
---------------------------------------------
(a) The Borrower agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that may reasonably be necessary or desirable, or that the Lender may
reasonably request, to perfect, protect or more fully evidence the Grant and the
interest of the Lender in and to the Assets, or to enable the Lender to exercise
and enforce its rights and remedies hereunder.
(b) If the Borrower or the Servicer fails to perform any of its
obligations hereunder after five Business Days' notice from the Lender, the
Lender may (but shall not be required to) perform, or cause performance of, such
obligation; and the Lender's costs and expenses incurred in connection therewith
shall be payable by the Borrower (if the Servicer that fails to so perform is
the Borrower or an Affiliate thereof) as provided in Article VIII, as
applicable. The Borrower irrevocably authorizes the Lender and appoints the
Lender as its attorney-in-fact to act on behalf of the Borrower (i) to execute
on behalf of the Borrower as debtor and to file financing statements necessary
or desirable in the Agents' sole discretion to perfect and to maintain the
perfection and priority of the interest of the Lender in the Assets and (ii) to
file a carbon, photographic or other reproduction of this Agreement or any
financing statement with respect to the Assets as a financing statement in such
offices as the Lender deems necessary or desirable to perfect and to maintain
the perfection and priority of the interests of the in the Assets. This
appointment is coupled with an interest and is irrevocable.
(c) The Servicer shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the right, title and interest of the Lender in and
to the Assets to be promptly recorded, registered and filed, and at all times to
be kept recorded, registered and filed, all in such manner and in such places as
may be required by law fully to preserve and protect the right, title and
interest of the Lender hereunder to all property comprising the Assets. The
Servicer shall deliver to the Lender file-stamped copies of, or filing receipts
for, any document recorded, registered or filed as provided above, as soon as
available following such recording, registration or filing. The Borrower shall
cooperate fully with the Servicer in connection with the obligations set forth
above and will execute any and all documents reasonably required to fulfill the
intent of this Section 10.9.
Section 10.10 Confidentiality.
---------------
(a) The Lender, the Servicer and the Borrower shall maintain and shall
cause each of its employees and officers to maintain the confidentiality of the
Agreement and all information with respect to the other parties, including all
information regarding the business of the Borrower and the Servicer hereto and
their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein,
except that
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each such party and its officers and employees may (i) disclose such information
to its external accountants, attorneys, investors, potential investors and the
agents of such Persons ("Excepted Persons"), provided, however, that each
Excepted Person shall, as a condition to any such disclosure, agree for the
benefit of the Lender, the Servicer, and the Borrower that such information
shall be used solely in connection with such Excepted Person's evaluation of, or
relationship with, the Borrower and its affiliates, (ii) disclose the existence
of the Agreement, but not the financial terms thereof, (iii) disclose such
information as is required by an applicable law or an order of an judicial or
administrative proceeding and (iv) disclose the Agreement and such information
in any suit, action, proceeding or investigation (whether in law or in equity or
pursuant to arbitration) involving any of the Transaction Documents or any
Hedging Agreement for the purpose of defending itself, reducing its liability,
or protecting or exercising any of its claims, rights, remedies, or interests
under or in connection with any of the Transaction Documents or any Hedging
Agreement. It is understood that the financial terms that may not be disclosed
except in compliance with this Section 10.10(a) include, without limitation, all
fees and other pricing terms, and all Termination Events, Servicer Termination
Events, and priority of payment provisions.
(b) Anything herein to the contrary notwithstanding, the Borrower and
the Servicer each hereby consents to the disclosure of any nonpublic information
with respect to it (i) by the Lender to any prospective or actual participant of
any of them or (ii) by the Lender to any Rating Agency and to any officers,
directors, employees, outside accountants and attorneys of any of the foregoing,
provided each such Person is informed of the confidential nature of such
information. In addition, the Lender may disclose any such nonpublic information
as required pursuant to any law, rule, regulation, direction, request or order
of any judicial, administrative or regulatory authority or proceedings (whether
or not having the force or effect of law).
(c) Notwithstanding anything herein to the contrary, the foregoing
shall not be construed to prohibit (i) disclosure of any and all information
that is or becomes publicly known, (ii) disclosure of any and all information
(A) if required to do so by any applicable statute, law, rule or regulation, (B)
to any government agency or regulatory body having or claiming authority to
regulate or oversee any respects of the Lender's business or that of their
affiliates, (C) pursuant to any subpoena, civil investigative demand or similar
demand or request of any court, regulatory authority, arbitrator or arbitration
to which the Lender or an affiliate or an officer, director, employer or
shareholder thereof is a party, (D) in any preliminary or final offering
circular, registration statement or contract or other document pertaining to the
transactions contemplated herein approved in advance by the Borrower or Servicer
or (E) to any affiliate, independent or internal auditor, agent, employee or
attorney of the Lender having a need to know the same, provided that the Lender
advises such recipient of the confidential nature of the information being
disclosed, or (iii) any other disclosure authorized by the Borrower or Servicer.
Section 10.11 Execution in Counterparts; Severability; Integration.
-----------------------------------------------------
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings
other than any fee letter delivered by the Originator to the Agent and the
Lenders.
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-----------------------------------
KILPATRICK STOCKTON LLP
EXECUTION
-----------------------------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER: FIDELITY LEASING SPC I, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
1255 Wrights Lane
West Chester, Pennsylvania 19380
Attention: Mr. John Dale
Facsimile No.: 610-719-4534
Confirmation No.: 610-719-4515
THE SERVICER: FIDELITY LEASING, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
1255 Wrights Lane
West Chester, Pennsylvania 19380
Attention: Mr. John Dale
Facsimile No.: 610-719-4534
Confirmation No.: 610-719-4515
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
LENDER: FIRST UNION NATIONAL BANK
By: ________________________________
Name: ______________________________
Title: _____________________________
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit
Administration
Facsimile No.: (704) 374-3254
Confirmation No: (704) 374-4001
<PAGE>
SCHEDULE I
CONDITION PRECEDENT DOCUMENTS
As required by Section 3.1(a) of the Agreement, in addition to each of the
documents listed on Schedule I of the Receivables Funding Agreement, each of the
following items must be delivered to the Lender prior to the date of the initial
funding:
A copy of this Agreement duly executed by the Borrower, the
Servicer and the Lender;
A copy of the Fee Letter duly executed by the Borrower and the
Lender;
Acknowledgment copies of proper financing statements (the
"Facility Financing Statements"), describing the Assets and
naming the Borrower as debtor and the Lender, as secured
party, or other, similar instruments or documents, as may be
necessary or, in the opinion of the Lender, desirable under
the UCC of all appropriate jurisdictions or any comparable law
to perfect the Lenders' interests in all Assets;
Such other certificates, approvals, opinions or documents as
the Lender may reasonably request.
<PAGE>
EXHIBIT A
FORM OF FUNDING REQUEST
(including Borrowing Base Certificate)
Fidelity Leasing SPC I, Inc.
First Union National Bank
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Ladies and Gentlemen:
This Borrower Notice is delivered to you under Section 2.2(a) of that certain
Secured Subordinated Loan Agreement dated as of July 14, 1999 (the "Agreement")
among Fidelity Leasing SPC I, Inc., as the Borrower, Fidelity Leasing, Inc., as
the servicer and the originator and First Union National Bank, as the lender.
All capitalized undefined terms used herein have the meaning assigned thereto in
the Agreement.
Each of the undersigned, each being a duly elected officer of the Borrower and
the Servicer, respectively, holding the office set forth below such officer's
name, hereby certifies as follows:
1. The Borrower hereby requests an Advance in the principal amount of
$_____________.
2. The Borrower hereby requests that such Advance be made on the following date:
_____________.
3. Attached to this Borrower Notice is a true, correct and complete calculation
of the Borrowing Base and all components thereof.
4. Attached to this Borrower Notice is a true, correct and complete [supplement
to the] Contract List[, reflecting all Contracts which will become part of
the Collateral on the date hereof,] each Contract reflected thereon being an
Eligible Contract.
5. All of the conditions applicable to the Advance requested herein as set forth
in the Agreement have been satisfied as of the date hereof and will remain
satisfied to the date of such Advance, including:
(i) The representations and warranties of such Person
set forth in the Agreement, as the case may be, are true and
correct on and as of such date, before and after giving effect
to such Advance and to the application of the proceeds
therefrom, as though made on and as of such date; before and
after giving effect to such Advance and to the application of
the proceeds therefrom, as though made on and as of such date;
<PAGE>
(ii) No event has occurred, or would result from such
Advance or from the application of the proceeds therefrom,
which constitutes a Termination Event; and
(iii) Such Person is in material compliance with each
of its covenants set forth herein.
IN WITNESS WHEREOF, the undersigned has executed the Funding
Request this ___ day of ______________, ____.
FIDELITY LEASING SPC I, INC.,
as Borrower
By: ________________________________
Name:
Title:
FIDELITY LEASING, INC.,
as Servicer
By: ________________________________
Name:
Title:
[attach Borrowing Base Certificate]
<PAGE>
EXHIBIT B
FORM OF NOTE
$10,000,000 July 15, 1999
FOR VALUE RECEIVED, Fidelity Leasing SPC I, Inc., a Delaware
corporation (the "Borrower"), promises to pay to First Union National Bank, as
lender (the "Lender") the principal sum of TEN MILLION DOLLARS ($10,000,000) or,
if less, the unpaid principal amount of the aggregate loans ("Advances") made by
the Lender (as defined below) to the Borrower pursuant to the Agreement (as
defined below), as set forth on the attached Schedule, as specified in Section
2.6 of the Agreement, and to pay Interest and Additional Interest, as
applicable, on the unpaid principal amount of each Advance on each day that such
unpaid principal amount is outstanding as provided in the Agreement on each
Payment Date and each other dates specified in the Agreement.
This Note is issued pursuant to the Secured Subordinated Loan Agreement
dated as of July 14, 1999 (the "Agreement") among Fidelity Leasing SPC I, Inc.,
as the Borrower, Fidelity Leasing, Inc., as the servicer and the originator and
First Union National Bank. Capitalized terms used but not defined in this Note
are used with the meanings ascribed to them in the Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Agreement or in
any other document (to the extent such other charges would constitute interest
for the purpose of any applicable law limiting interest that may be charged on
this Note), exceeds the highest rate of interest permissible under applicable
law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would
be exceeded the rate of interest under this Note shall be equal to the Maximum
Lawful Rate. If at any time thereafter the rate of interest payable under this
Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay
interest under this Note at the Maximum Lawful Rate until such time as the total
interest paid by the Borrower is equal to the total interest that would have
been paid had applicable law not limited the interest rate payable under this
Note. In no event shall the total interest received by the Lender under this
Note exceed the amount which the Lender could lawfully have received had the
interest due under this Note been calculated since the date of this Note at the
Maximum Lawful Rate.
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the manner and at the address specified for such
purpose as provided in Article 2.6 of the
<PAGE>
Agreement, or in such manner or at such other address as the holder of this Note
shall have specified in writing to the Borrower for such purpose, without the
presentation or surrender of this Note or the making of any notation on this
Note.
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus 1.0%, in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Agreement. Any portion or all
of the principal amount of this Note may be prepaid, together with interest
thereon (and as set forth in the Agreement, certain costs and expenses of the
Lender) at the time and in the manner set forth in, but subject to the
provisions of, the Agreement.
Except as provided in the Agreement, the Borrower expressly waives
presentment, demand, diligence, protest and all notices of any kind whatsoever
with respect to this Note.
All amounts evidenced by this Note and all payments and prepayments of
the principal hereof and the respective dates and maturity dates thereof shall
be endorsed by the Lender on the schedule attached hereto and made a part hereof
or on a continuation thereof which shall be attached hereto and made a part
hereof, or otherwise recorded by the Lender in its internal records; provided,
however, that the failure of the Lender to make such a notation shall not in any
way limit or otherwise affect the obligations of the Borrower under this Note as
provided in the Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by the Lender and represented by this Note and the indebtedness evidenced
by this Note.
This Note is secured by the security interests granted pursuant to
Section 2.1(b) of the Agreement. The holder of this Note and the Lender, is
entitled to the benefits of the Agreement and may enforce the agreements of the
Borrower contained in the Agreement and exercise the remedies provided for by,
or otherwise available in respect of, the Agreement, all in accordance with, and
subject to the restrictions contained in, the terms of the Agreement. If an
Termination Event shall occur and be continuing, the unpaid balance of the
principal of all Advances, together with accrued interest thereon, shall be
declared, and become due and payable in the manner and with the effect provided
in the Agreement.
<PAGE>
This Note is one of the Notes referred to in the Agreement. This Note
shall be construed in accordance with and governed by the laws of the State of
New York.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
FIDELITY LEASING SPC I, INC.
By: ________________________________
Name:
Title:
<PAGE>
Schedule to Note
----------------
<TABLE>
<CAPTION>
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
------ --------- ------- --------- ------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
-----------------------------
| KILPATRICK STOCKTON LLP |
| EXECUTION |
-----------------------------
================================================================================
SECURED SUBORDINATED LOAN AGREEMENT
Dated as of July 14, 1999
Among
FIDELITY LEASING SPC IV, INC.
as the Borrower
FIDELITY LEASING, INC.
as the Servicer
and
FIRST UNION NATIONAL BANK
as the Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS............................................................................................1
SECTION 1.1 CERTAIN DEFINED TERMS.................................................................................1
SECTION 1.2 OTHER TERMS...........................................................................................6
SECTION 1.3 COMPUTATION OF TIME PERIODS...........................................................................6
SECTION 1.4 INTERPRETATION........................................................................................6
ARTICLE II ADVANCES..............................................................................................7
SECTION 2.1 ADVANCES; THE LOAN; GRANT OF SECURITY.................................................................7
SECTION 2.2 PROCEDURES FOR ADVANCES...............................................................................7
SECTION 2.3 PREPAYMENTS...........................................................................................8
SECTION 2.4 INTEREST..............................................................................................9
SECTION 2.5 NOTE..................................................................................................9
SECTION 2.6 PAYMENTS, COMPUTATIONS, ETC...........................................................................9
SECTION 2.7 INCREASED COSTS; CAPITAL ADEQUACY; ILLEGALITY........................................................10
SECTION 2.8 TAXES................................................................................................11
ARTICLE III CONDITIONS OF THE ADVANCE...........................................................................12
SECTION 3.1 CONDITIONS TO CLOSING AND INITIAL ADVANCES...........................................................12
SECTION 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES.................................................................13
SECTION 3.3 DELIVERY OF CONTRACT FILES...........................................................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................................................................15
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE BORROWER.......................................................15
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE SERVICER.......................................................15
ARTICLE V GENERAL COVENANTS.....................................................................................15
SECTION 5.1 AFFIRMATIVE COVENANTS OF THE BORROWER................................................................15
SECTION 5.2 RELEASE OF LIEN ON EQUIPMENT.........................................................................15
SECTION 5.3 RELEASE OF INELIGIBLE CONTRACTS......................................................................16
ARTICLE VI ADMINISTRATION AND SERVICING OF CONTRACTS............................................................16
ARTICLE VII TERMINATION EVENTS AND REMEDIES.....................................................................17
SECTION 7.1 TERMINATION EVENTS...................................................................................17
SECTION 7.2 REMEDIES.............................................................................................17
ARTICLE VIII INDEMNIFICATION....................................................................................19
SECTION 8.1 INDEMNITIES BY THE BORROWER..........................................................................19
SECTION 8.2 INDEMNITIES BY THE SERVICER..........................................................................21
SECTION 8.3 AFTER-TAX BASIS......................................................................................22
ARTICLE IX PARTICIPATIONS.......................................................................................22
SECTION 9.1 PARTICIPATIONS.......................................................................................22
ARTICLE X MISCELLANEOUS.........................................................................................23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 10.1 AMENDMENTS AND WAIVERS..............................................................................23
SECTION 10.2 NOTICES, ETC........................................................................................23
SECTION 10.3 NO WAIVER, RIGHTS AND REMEDIES......................................................................23
SECTION 10.4 TERM OF THIS AGREEMENT..............................................................................23
SECTION 10.5 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE................................23
SECTION 10.6 WAIVER OF JURY TRIAL................................................................................24
SECTION 10.7 COSTS, EXPENSES AND TAXES...........................................................................24
SECTION 10.8 RECOURSE AGAINST CERTAIN PARTIES....................................................................25
SECTION 10.9 PROTECTION OF SECURITY INTEREST OF THE LENDER.......................................................25
SECTION 10.10 CONFIDENTIALITY....................................................................................26
SECTION 10.11 EXECUTION IN COUNTERPARTS; SEVERABILITY; INTEGRATION...............................................27
</TABLE>
ii
<PAGE>
EXHIBITS
--------
EXHIBIT A Form of Funding Request
EXHIBIT B Form of Note
SCHEDULES
---------
SCHEDULE I Condition Precedent Documents
<PAGE>
-----------------------------
| KILPATRICK STOCKTON LLP |
| EXECUTION |
-----------------------------
THIS SECURED SUBORDINATED LOAN AGREEMENT (the "Agreement") is made as
of July 14, 1999, among:
(1) FIDELITY LEASING SPC IV, INC., Delaware corporation, as the
borrower (the "Borrower");
(2) FIDELITY LEASING, INC., a Pennsylvania Corporation, as the servicer
(the "Servicer"); and
(3) FIRST UNION NATIONAL BANK, a national banking association, as the
lender (the "Lender").
IT IS AGREED as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
(a) Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Receivables Funding Agreement (as defined
below); provided, however, for the purposes hereof, any changes in the
definition of any capitalized term defined in the Receivables Funding Agreement
shall not be given effect hereunder unless the Lender shall have given its
written consent to each such change.
Additional Interest: For any Accrual Period and any Advance, the sum of the
products (for each day during such Accrual Period) of:
AIR x P x 1
----
360
where:
AIR = the Additional Interest Rate applicable to such Advance; and
P = the principal amount of such Advance on such day;
provided, however, that (i) no provision of this Agreement shall require the
payment or permit the collection of Additional Interest in excess of the maximum
permitted by applicable law, and (ii) Additional Interest shall not be
considered paid by any distribution if at any time such distribution is
rescinded or must otherwise be returned for any reason.
Additional Interest Rate: As set forth in the B-Note Fee Letter.
<PAGE>
Adjusted Eurodollar Rate: For any day, an interest rate per annum equal to a
fraction, expressed as a percentage and rounded upwards (if necessary), to the
nearest 1/100 of 1%, (i) the numerator of which is equal to the LIBOR Rate for
such day and (ii) the denominator of which is equal to 100% minus the Eurodollar
Reserve Percentage for such day.
Advance: As defined in Section 2.1(a).
Advances Outstanding: On any day, the sum of (i) the aggregate principal amount
of Advances outstanding on such day and (ii) all unpaid amounts of Capitalized
Interest.
Affected Party: As defined in Section 2.7(a).
Aggregate Advances Outstanding: On any day, an amount equal to the sum of (i)
the Advances Outstanding on such day, (ii) the Advances Outstanding under the
SPC I Subordinated Note Facility on such day and (iii) the principal amount of
all Advances requested by the Borrower, but not yet made, under the SPC I
Subordinated Note Facility.
Aggregate Unpaids: At any time, an amount, equal to the sum of all accrued and
unpaid Interest, all accrued and unpaid Additional Interest, Advances
Outstanding and all other amounts owed by the Borrower hereunder or by the
Borrower or any other Person under any fee letter (including, without
limitation, the Fee Letter) delivered in connection with the transactions
contemplated by this Agreement (whether due or accrued).
Base Rate: On any date, a fluctuating interest rate per annum equal to the
higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 1.0%.
B-Note Fee Letter: That certain fee letter entered into by the Borrower and
First union on the Closing Date, as amended, supplemented, replaced, restated or
modified from time to time.
Borrower: Defined in the preamble of this Agreement.
Borrower's Account: The account of the Borrower set forth from time to time in a
certificate executed by a responsible officer of the Borrower and delivered to
the Lender.
Borrowing Base: On any day, an amount equal to the product of (a) the lesser of
(i) the positive excess, if any, of 92% over the Advance Rate and (ii) 2.0% and
(b) the Notional Balance.
Borrowing Excess: Exists on any day on which the Advances Outstanding for such
day exceeds the Borrowing Base for such day.
Breakage Costs: Any amount or amounts as shall compensate the Lender for any
loss, cost or expense incurred by the Lender (as determined by the Lender, in
the Lender's sole discretion) as a result of a prepayment by the Borrower under
Section 2.3 or as a result of any acceleration pursuant to Section 7.2.
2
<PAGE>
Business Day: Any day other than a Saturday or a Sunday on which (a) banks are
not required or authorized to be closed in New York City or Charlotte, North
Carolina, and (b) if the term "Business Day" is used in connection with the
determination of the LIBOR Rate, dealings in United States dollar deposits are
carried on in the London interbank market.
Capitalized Interest: As defined in Section 2.4(a).
Closing Date: July 16, 1999.
Collection Date: The date following the Termination Date on which the Aggregate
Unpaids have been reduced to zero and indefeasibly paid in full.
Commitment: The commitment of the Lender to fund Advances in an amount not to
exceed the Loan Limit.
Commitment Termination Date: The earlier to occur of (a) July 15, 2000, or such
later date to which the Commitment Termination Date may be extended in the sole
discretion of the Lender in accordance with the terms of Section 2.1(c) and (b)
the Termination Date.
D&P: Duff & Phelps Credit Rating Company, LLC and any successor thereto.
Facility: The financing facility established in favor of the Borrower pursuant
to this Agreement and the other Transaction Documents.
Facility Availability: On any day, an amount equal to the lesser of (a) the Loan
Limit and (b) the excess, if any, of the Borrowing Base over the sum of (i) the
Advances Outstanding on such day and (ii) the principal amount of Advances
requested to be made on such day.
Fee Letter: The Fee Letter, dated as of the date hereof, among the Borrower, the
Servicer and the Lender, as such letter may be amended, modified, supplemented,
restated or replaced from time to time.
Fidelity: Fidelity Leasing Inc., in its individual capacity.
First Union: First Union National Bank, in its individual capacity.
Funding Date: Any day on which an Advance is made.
Funding Request: A written notice, substantially in the form of Exhibit A
hereto, delivered pursuant to Section 2.2.
Interest: For any Accrual Period and any Advance, the sum of the products (for
each day during such Accrual Period) of:
3
<PAGE>
IR x P x 1
---
360
where:
IR = the Interest Rate applicable to such Advance; and
P = the principal amount of such Advance on such day;
provided, however, that (i) no provision of this Agreement shall require the
payment or permit the collection of Interest in excess of the maximum permitted
by applicable law, and (ii) Interest shall not be considered paid by any
distribution if at any time such distribution is rescinded or must otherwise be
returned for any reason.
Interest Rate: For any Accrual Period and for each Advance a rate per annum
equal to the Adjusted Eurodollar Rate plus 2.0% per annum.
LIBOR Rate: For any Advance Outstanding and any day during any Accrual Period,
an interest rate per annum equal to:
(i) the posted rate for 30-day deposits in United States
Dollars appearing on Telerate page 3750 as of 11:00 a.m. (Charlotte,
North Carolina time) on such day; or
(ii) if no such rate appears on Telerate page 3750 at such
time and day, then the LIBOR Rate shall be determined by First Union
(such determination, absent manifest error, to be conclusive and
binding on all parties hereto and their assignees).
Loan: The loan by the Lender to the Borrower pursuant to the provisions of
Article II hereof.
Loan Limit: An amount equal to $10,000,000 less the sum of (x) the Aggregate
Advances Outstanding on such day and (y) the unpaid principal balance of all
Structured Loans outstanding on such day (including all Structured Loans related
to the SPC I Subordinated Note Facility).
Minimum Structured Loan Interest Rate: As defined in the B-Note Fee Letter.
Net Remaining Available Funds: On any Payment Date, all Available Funds
remaining after making all distributions required to be made pursuant to
Sections 2.7 (i) through (x) and Sections 2.8 (i) through (x), as the case may
be, of the Receivables Funding Agreement.
Notional Balance: On any day, the ADCB.
Prime Rate: The rate announced by First Union from time to time as its prime
rate in the United States, such rate to change as and when such designated rate
changes. The Prime Rate is not intended to be the lowest rate of interest
charged by First Union in connection with extensions of credit to debtors.
4
<PAGE>
Receivables Funding Agreement: The Receivables Funding Agreement, dated as of
July 14, 1999, among the Borrower, Fidelity, as the servicer and originator, the
liquidity lenders named therein, Variable Funding Capital Corporation, as a CP
lender, First Union Capital Markets Corp., as the VFCC managing agent and the
administrative agent and Harris Trust and Savings Bank as the collateral
custodian and the backup servicer.
Receivables Purchase Agreement: The Receivables Purchase Agreement, dated as of
June 24, 1998, among Fidelity Leasing SPC I, Inc., as the borrower, Fidelity, as
the servicer, the Investors named therein, Variable Funding Capital Corporation,
as a purchaser, First Union Capital Markets Corp., as the deal agent, First
Union, as the liquidity agent and Harris Trust and Savings Bank as the
collateral custodian and the backup servicer.
Remaining Available Funds: On any Payment Date, all Available Funds remaining
after making all distributions required to be made pursuant to Sections 2.7 (i)
through (vii) and Sections 2.8 (i) through (vii), as the case may be, of the
Receivables Funding Agreement.
Securitization Facility: As the context may require, the facility evidenced by
the Receivables Funding Agreement and/or the Receivables Purchase Agreement.
SPC I Subordinated Note Facility: The committed subordinated loan facility
established for the Borrower pursuant to the Secured Subordinated Loan
Agreement, dated as of July 14, 1999, by and between Fidelity Leasing SPC I,
Inc., Fidelity and the Lender, as amended, modified, supplemented, restated or
revised.
Structured Loan: Any subordinated debt, including any subordinated certificate,
issued by the Borrower or any Affiliate of the Borrower in connection with any
Term Takeout, which subordinated debt or certificate is issued or sold to, or
acquired by, the Lender or any of its Affiliates in connection with the closing
of such Term Takeout; provided; however, that such subordinated note or
certificate shall only constitute a Structured Loan for purposes hereof if (i)
the Lender or an Affiliate of the Lender has approved such subordinated debt or
certificate (including its terms and conditions) in writing and as a "Structured
Loan", (ii) the net proceeds of such Term Takeout, after paying all issuance
costs related to such Term Takeout are not sufficient to pay all amounts
hereunder and under the Receivables Funding Agreement due in connection with
such Term Takeout and (iii) the interest rate on such Structured Loan is at
least equal to the Minimum Structured Loan Interest Rate.
Term Takeout: Any transaction, whether a whole-loan sale, a term securitization
or any other financing that results in a repayment of all or a portion of the
Advances Outstanding under the Receivables Funding Agreement.
Termination Date: The earliest of (a) the date of the occurrence of a
Termination Event pursuant to Section 7.1, and (b) the Commitment Termination
Date.
Termination Event: Defined in Section 7.1.
5
<PAGE>
Transaction Documents: This Agreement, the Receivables Funding Agreement, the
Purchase Agreement, the Hedging Agreement, the Lock-Box Agreements, the Fee
Letter, the Backup Servicer Fee Letter, the Collateral Custodian Fee Letter, and
any additional document the execution of which is necessary or incidental to
carrying out the terms of the foregoing documents.
Section 1.2 Other Terms.
All accounting terms used but not specifically defined herein shall be
construed in accordance with GAAP. All terms used in Article 9 of the UCC in the
State of New York, and not used but specifically defined herein, are used herein
as defined in such Article 9.
Section 1.3 Computation of Time Periods.
Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
Section 1.4 Interpretation.
In each Transaction Document, unless a contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Transaction Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Transaction
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents, and reference to any
promissory note includes any promissory note that is an extension or
renewal thereof or a substitute or replacement therefor; and
(v) reference to any Applicable Law means such Applicable Law
as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision.
6
<PAGE>
ARTICLE II
ADVANCES
Section 2.1 Advances; The Loan; Grant of Security
(a) On the terms and conditions hereinafter set forth by delivering to
the Lender a Funding Request in accordance with Section 2.2(a), the Borrower
may, at its option, from time to time on any Business Day prior to the
occurrence of the Commitment Termination Date, but no more frequently than twice
every five (5) Business Days, request that the Lender make advances (each, an
"Advance") to it in an amount which, at any time, shall not exceed the Loan
Limit in effect on the related Funding Date. On each Funding Date, the Lender
shall make such Advance; provided, however that the Lender shall have no
obligation to make any Advance on any Funding Date (i) in excess of the Facility
Availability on such Funding Date or (ii) after giving effect to such Advance,
Advances Outstanding would exceed the Borrowing Base.
(b) In order to secure the payment of the Advances, Interest,
Additional Interest, Aggregate Unpaids, and all other amounts payable with
respect to the Loan and under the Fee Letter, and in order to secure the
performance and observance of all of the covenants and conditions contained in
this Agreement and in the Fee Letter, the Borrower hereby Grants to the Lender,
a second priority security interest in all of the Collateral. The Borrower shall
mark its records (including, without limitation, its computer records and tapes)
to evidence the Grant and the interest of the Lender in the Collateral.
(c) The Borrower may, within 60 days, but no later than 45 days, prior
to the then existing Commitment Termination Date, by written notice to the
Lender, make written request for the Lender to extend the Commitment Termination
Date for an additional period of 364 days. The Lender shall make a
determination, in its sole discretion and after a full credit review, not less
than 15 days prior to the then applicable Commitment Termination Date as to
whether or not it will agree to extend the Commitment Termination Date;
provided, however, that the failure of the Lender to make a timely response to
the Borrower's request for extension of the Commitment Termination Date shall be
deemed to constitute a refusal by the Lender to extend the Commitment
Termination Date.
Section 2.2 Procedures for Advances
(a) In the case of the making of any Advance, each Funding Request
shall be delivered to the Lender no later than 5:00 p.m. (Charlotte, North
Carolina time) two (2) Business Days prior to the proposed Funding Date (with a
copy to the Administrative Agent).
(b) Each Funding Request shall specify the aggregate amount of the
requested Advance. Each Funding Request shall be accompanied by (i) a Funding
Request prepared by the Servicer, setting forth the Advances Outstanding and
representing that all conditions precedent for a funding have been met,
including a representation by the Borrower that the requested Advance does not
on the Funding Date exceed either the Borrowing Base or the Facility
Availability, (ii) calculations of the Borrowing Base and the Facility
Availability as of the date the Advance is requested, and (iii) an updated
Contract List including each Contract that is subject to the requested Advance.
Each Funding Request shall be irrevocable.
7
<PAGE>
(c) On the Funding Date following the satisfaction of the applicable
conditions set forth in this Section 2.2 and Article III, the Lender shall make
available to the Borrower or its designee in same day funds, at the Borrower's
Account, the principal amount of such Advance.
Section 2.3 Prepayments.
(a) Optional Prepayments. The Borrower may, upon two (2) Business Days'
prior written notice (such notice to be received by the Lender no later than
5:00 p.m. (Charlotte, North Carolina time) on such day) to the Lender, prepay
any portion of Advances Outstanding. On the date of such prepayment, the
Borrower shall remit to the Lender cash in the amount equal to the sum of (i)
the portion of the principal of Advances Outstanding to be prepaid, (ii)
Interest accrued thereon, (iii) Additional Interest accrued thereon, if any, and
(iv) all Breakage Costs related thereto.
Upon thirty (30) days written notice to the Lender, the Borrower shall
have the right to prepay in whole the Advances Outstanding. On the date of such
prepayment, the Borrower shall remit to the Lender cash in the amount equal to
the sum of (i) the Advances Outstanding, (ii) Interest accrued thereon, (iii)
Additional Interest accrued thereon and (iv) all Breakage Costs related thereto.
(b) Mandatory Repayments. The Advances Outstanding shall be subject to
mandatory repayment in full on the date (i) each Term Takeout closes, such
repayment may be a combination of cash and Structured Loans; provided that
Structured Loans may be used only to the extent that the proceeds of the Term
Takeout, after paying issuance costs thereof and the purchase price of the
assets related thereto, are not sufficient to repay all Advances Outstanding
(including, without limitation, any related breakage costs) and (ii) that
Fidelity Leasing, Inc. or of its Affiliates issues to any Person (other than
Fidelity Leasing, Inc.'s parent company) any equity security, incurs any
Indebtedness or issues any option to any Person to acquire any such equity
security or Indebtedness, in any such case in excess of $20,000,000 (such amount
to be calculated as the sum of the gross offering price of any equity or option
and the gross proceeds of any indebtedness).
The Advances Outstanding shall be subject to mandatory repayment in
part each month on the related Payment Date in an amount (x) prior to the
occurrence of a Termination Event, equal to the sum of (i) an amount sufficient
to reduce the Advances Outstanding to the Borrowing Base and (ii) the
Capitalized Interest and (y) on and after the occurrence of a Termination Event,
equal to all Net Remaining Available Funds; provided, however, that if a
Termination Event occurred as a result the occurrence of any event described
under Section 7.1(a) or (b) and such event is cured for period of three (3)
consecutive months, then so long as such Termination Event remains cured, the
mandatory repayment for Payment Dates thereafter shall be the amount described
in clause (x) above.
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On the date of any such mandatory repayment, the Borrower shall remit
to the Lender cash in the amount equal to the sum of (i) the portion of the
principal of Advances Outstanding to be prepaid, (ii) Interest accrued thereon,
(iii) Additional Interest accrued thereon and (iv) all Breakage Costs related
thereto.
(c) Upon receipt of any such amounts paid in respect of any prepayment
that is not made on a Payment Date, the Lender shall apply such amounts first,
to the payment of the Breakage Costs, second, to the payment of all accrued and
unpaid Interest and Additional Interest on the amount of the Advances
Outstanding so prepaid, third, to the reduction of any Capitalized Interest
Outstanding, and fourth to the reduction of the Advances Outstanding.
Section 2.4 Interest.
(a) The Borrower shall pay, from Remaining Available Funds, accrued and
unpaid Interest on all Advances Outstanding, in arrears for each Accrual Period,
on each Payment Date. The Borrower shall pay, from Net Remaining Available
Funds, accrued and unpaid Additional Interest on all Advances Outstanding, in
arrears for each applicable Accrual Period, on each applicable Payment Date. To
the extent that Remaining Available Funds are not sufficient to pay in full all
accrued and unpaid Interest for an Accrual Period on any Payment Date, the
amount of such accrued and unpaid Interest that is not so paid shall increase
the Advances Outstanding and to the extent that Net Remaining Available Funds
are not sufficient to pay in full all accrued and unpaid Additional Interest for
an Accrual Period on any applicable Payment Date, the amount of such accrued and
unpaid Additional Interest that is not so paid shall increase the Advances
Outstanding (such increases, whether due to an inability to pay all accrued and
unpaid Interest or Additional Interest are referred to as "Capitalized
Interest").
(b) On any Payment Date on which any amount of Capitalized Interest
remains unpaid, the Borrower shall, from Net Remaining Available Funds (after
paying all accrued and unpaid Interest for the related Accrual Period), pay all
such Capitalized Interest.
Section 2.5 Note.
Each Loan made by the Lender hereunder shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit B, with
appropriate insertions as to date and principal amount (a "Note"), payable to
the order of the Lender and in a principal amount equal to the Loan Limit.
Section 2.6 Payments, Computations, Etc.
(a) Unless otherwise expressly provided herein, all amounts to be paid
or deposited by the Borrower or the Servicer hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00 a.m.
(Charlotte, North Carolina time) on the day when due in lawful money of the
United States in immediately available funds to the Lender. The Borrower shall,
to the extent permitted by law, pay to the Lender interest on all amounts not
paid or deposited when due hereunder at 1% per annum above the Base Rate,
payable on demand; provided, however, that such interest rate shall not at any
time exceed the maximum rate permitted by Applicable Law. All computations of
interest and all computations of Interest, Additional Interest and other fees
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first but excluding the last day) elapsed.
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(b) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of Interest, Additional or any fee payable hereunder, as
the case may be.
(c) If any Advance requested by the Borrower and approved by the Lender
pursuant to Section 2.2, is not, for any reason whatsoever related to a default,
nonperformance or attempted recession of a Funding Request by the Borrower made
or effectuated, as the case may be, on the date specified therefor, the Borrower
shall indemnify the Lender against any reasonable loss, cost or expense incurred
by the Lender, including, without limitation, any loss (including loss of
anticipated profits, net of anticipated profits in the reemployment of such
funds in the manner determined by the Lender), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender to fund or maintain such Advance.
(d) All amounts of Remaining Available Funds shall be applied to the
payment of accrued and unpaid Interest. All amounts of Net Remaining Available
Funds shall be applied first, to the payment of any unpaid Breakage Costs,
second, to the payment of all accrued and unpaid Additional Interest, third, to
the reduction of any Capitalized Interest Outstanding, and fourth to the
reduction of the Advances Outstanding.
Section 2.7 Increased Costs; Capital Adequacy; Illegality.
(a) If either (i) the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the interpretation of any law or regulation or (ii) the compliance by
the Lender or any of its Affiliates (each of which, an "Affected Party") with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), shall (A) subject an Affected Party to
any Tax (except for Taxes on the overall or branch net income, or franchise tax
imposed in lieu of a net income tax, of such Affected Party and Taxes subject to
Section 2.8), duty or other charge with respect to the Loan, or any right to
make Advances hereunder, or on any payment made hereunder, (B) impose, modify or
deem applicable any reserve requirement (including, without limitation, any
reserve requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any reserve requirement, if any, included in the
determination of Interest or Additional Interest), special deposit or similar
requirement against assets of, deposits with or for the amount of, or credit
extended by, any Affected Party or (C) impose any other condition affecting an
Advance or a Lender's rights hereunder, the result of which is to increase the
cost to any Affected Party or to reduce the amount of any sum received or
receivable by an Affected Party under this Agreement, then within ten days after
demand by such Affected Party (which demand shall be accompanied by a statement
setting forth the basis for such demand), the Borrower shall pay directly to
such Affected Party such additional amount or amounts as will compensate such
Affected Party for such additional or increased cost incurred or such reduction
suffered.
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(b) If either (i) the introduction of or any change in or in the
interpretation of any law, guideline, rule, regulation, directive or request or
(ii) compliance by any Affected Party with any law, guideline, rule, regulation,
directive or request from any central bank or other governmental authority or
agency (whether or not having the force of law), including, without limitation,
compliance by an Affected Party with any request or directive regarding capital
adequacy, has or would have the effect of reducing the rate of return on the
capital of any Affected Party as a consequence of its obligations hereunder or
arising in connection herewith to a level below that which any such Affected
Party could have achieved but for such introduction, change or compliance
(taking into consideration the policies of such Affected Party with respect to
capital adequacy) by an amount deemed by such Affected Party to be material,
then from time to time, within ten days after demand by such Affected Party
(which demand shall be accompanied by a statement setting forth the basis for
such demand), the Borrower shall pay directly to such Affected Party such
additional amount or amounts as will compensate such Affected Party for such
reduction.
(c) In determining any amount provided for in this section, the
Affected Party may use any reasonable averaging and attribution methods. Any
Affected Party making a claim under this section shall submit to the Servicer a
written description as to such additional or increased cost or reduction and the
calculation thereof, which written description shall be conclusive absent
demonstrable error.
(d) If the Lender shall notify the Borrower that a Eurodollar
Disruption Event as described in clause (a) of the definition of "Eurodollar
Disruption Event" has occurred, whereupon all Advances Outstanding in respect of
which Interest or Additional Interest accrues at the Adjusted Eurodollar Rate
shall immediately be converted into Advances Outstanding in respect of which
Interest or Additional Interest accrues at the Base Rate.
Section 2.8 Taxes.
(a) All payments made by the Borrower under this Agreement will be made
free and clear of and without deduction or withholding for or on account of any
Taxes. If, however, any Taxes are required to be withheld from any amounts
payable to the Lender, then the amount payable to the Lender will be increased
(such increase, the "Additional Amount") such that every net payment made under
this Agreement after deduction or withholding for or on account of any Taxes
(including, without limitation, any Taxes on such increase) is not less than the
amount that would have been paid had no such deduction or withholding been
deducted or withheld. The foregoing obligation to pay Additional Amounts,
however, will not apply with respect to net income or franchise taxes imposed on
the Lender with respect to payments required to be made by the Borrower under
this Agreement, by a taxing jurisdiction in which the Lender is organized,
conducts business or is paying taxes as of the Closing Date (as the case may
be).
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Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Lender a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure. The agreements in this subsection shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder.
(b) The Borrower will indemnify the Lender for the full amount of Taxes
payable by the Lender in respect of Additional Amounts and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. The Lender, upon making a demand for an indemnity payment under this
Section 2.14(b), shall provide the Borrower with a certificate of a responsible
officer of the Lender stating that such tax is due and owing and the amount to
be paid by the Borrower and, if available, the Lender shall provide the Borrower
with a copy of or extract from documentation furnished by the taxing authority
relating to such Taxes. All payments in respect of this indemnification shall be
made within ten days from the date a written demand therefor is delivered to the
Borrower.
(c) Within 30 days after the date of any payment by the Borrower of any
Taxes, the Borrower will furnish to the Lender appropriate evidence of payment
thereof.
(d) Promptly following the closing date the Lender shall provide to the
Borrower an Internal Revenue Service Form W-9 or a successor applicable form.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this section shall survive the termination of this Agreement.
ARTICLE III
CONDITIONS OF THE ADVANCE
Section 3.1 Conditions to Closing and Initial Advances.
The Lender shall not be obligated to make any Advance hereunder on the
occasion of the initial Advance, nor shall the Lender be obligated to take,
fulfill or perform any other action hereunder, until the following conditions
have been satisfied, in the sole discretion of, or waived in writing by, the
Lender:
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(a) This Agreement and all other Transaction Documents or counterparts
hereof or thereof shall have been duly executed by, and delivered to, the
parties hereto and thereto and the Lender shall have received such other
documents, instruments, agreements and legal opinions as the Lender reasonably
shall request in connection with the transactions contemplated by this
Agreement, including all those listed in the Schedule of Documents, attached
hereto as Schedule I, as due on the Closing Date, each in form and substance
satisfactory to the Lender.
(b) The Lender shall have received (i) satisfactory evidence that the
Borrower and the Servicer have obtained all required consents and approvals of
all Persons, including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and other Transaction Documents to
which each is a party and the consummation of the transactions contemplated
hereby or thereby or (ii) an Officer's Certificate from each of the Borrower and
the Servicer in form and substance satisfactory to the Lender affirming that no
such consents or approvals are required; it being understood that the acceptance
of such evidence or Officer's Certificate shall in no way limit the recourse of
the Lender against the Originator or the Seller for a breach of the Originator's
or the Seller's representation or warranty that all such consents and approvals
have, in fact, been obtained.
(c) The Borrower and the Servicer shall each be in compliance in all
material respects with all Applicable Laws.
(d) The Borrower shall have paid all fees required to be paid by it on
the Closing Date, including all fees required hereunder and under the Fee Letter
to be paid as of such date, and shall have reimbursed each Lender and each Agent
for all fees, costs and expenses of closing the transactions contemplated
hereunder and under the other Transaction Documents, including the legal and
other document preparation costs incurred by the Lender.
Section 3.2 Conditions Precedent to All Advances.
Each Advance shall be subject to the further conditions precedent that:
(a) On the related Funding Date, the Borrower or the Servicer (if the
Originator or an Affiliate of the Originator), as the case may be, shall have
certified in the related Funding Request that:
(i) The representations and warranties of such Person set
forth in Article IV are true and correct on and as of such date, before
and after giving effect to such Advance or reinvestment and to the
application of the proceeds therefrom, as though made on and as of such
date;
(ii) No event has occurred, or would result from such Advance
or reinvestment or from the application of the proceeds therefrom, that
constitutes a Termination Event;
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(iii) Such Person is in material compliance with each of its
covenants set forth herein; and
(iv) No event has occurred that constitutes a Servicer
Termination Event.
(b) With respect to the initial Funding Date, the Lender shall have
received all Transaction Documents listed on the Schedule of Documents, attached
hereto as Schedule I, as due on the initial Funding Date, or counterparts
thereof, each of which has been duly executed by, and delivered to, the parties
hereto and each shall be in form and substance satisfactory to each Agent;
(c) The Termination Date shall not have occurred;
(d) Before and after giving effect to such borrowing and to the
application of proceeds therefrom, Advances Outstanding do not exceed the
Facility Amount or the Borrowing Base, as calculated on such date;
(e) After giving effect to such Advance, the Borrower shall have
entered into one or more Hedge Transactions have an amortizing notional amount
such that the Hedge Notional Amount in effect on any day shall be equal to at
least 97% of the Advances Outstanding under the Receivables Funding Agreement on
such day;
(f) No claim has been asserted or proceeding commenced challenging
enforceability or validity of any of the Transaction Documents, excluding any
instruments, certificates or other documents relating to the Loan that were the
subject of prior Advances;
(g) No event shall have occurred nor any circumstance arisen which has
had or could reasonably be expected to have a Material Adverse Effect since the
preceding Advance; and
(h) The Originator and Borrower shall have taken such other action,
including delivery of approvals, consents, opinions, documents, and instruments
to the Lender may reasonably request.
Section 3.3 Delivery of Contract Files.
As a condition to each Advance made hereunder, the Borrower shall
deliver to the Collateral Custodian, not more than ten (10) days after such
Advance or such substitution, the related Contract Files.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Borrower.
The Borrower repeats, for the benefit of the Lender, each of the
representations and warranties made by the Borrower pursuant to Sections 4.1 and
4.2 of the Receivables Funding Agreement, each as if set forth in full herein;
provided, however, that no amendment, modification, waiver, deletion,
restatement or other change to any of such Sections or provisions thereof shall
have effect for the purposes of this Agreement unless the Lender shall have
given its written consent thereto.
Section 4.2 Representations and Warranties of the Servicer.
The Servicer repeats, for the benefit of the Lender, each of the
representations and warranties made by the Servicer pursuant to Section 4.3 of
the Receivables Funding Agreement, each as if set forth in full herein;
provided, however, that no amendment, modification, waiver, deletion,
restatement or other change to any of such Section or provisions thereof shall
have effect for the purposes of this Agreement unless the Lender shall have
given its written consent thereto.
ARTICLE V
GENERAL COVENANTS
Section 5.1 Affirmative Covenants of the Borrower.
The Borrower agrees, for the benefit of the Lender, from the date
hereof until the Collection Date, to comply with each of the affirmative
covenants made by it pursuant to the provisions of Section 5.1 of the
Receivables Funding Agreement, each of the negative covenants made by it
pursuant to the provisions of Section 5.2 of the Receivables Funding Agreement
and each of the covenants regarding the hedging of the Contracts set forth in
Section 5.3 of the Receivables Funding Agreement, each as if set forth in full
herein; provided, however, that no amendment, modification, waiver, deletion,
restatement or other change to any of such Section or the provisions thereof
shall have effect for purposes of this Agreement unless the Lender shall have
given its written consent thereto.
Section 5.2 Release of Lien on Equipment.
At the same time as (a) any Contract in the Collateral expires by its
terms and all amounts in respect thereof have been paid by the related Obligor
and deposited in the Collection Account or (b) any Contract becomes a Prepaid
Contract and all amounts in respect thereof have been paid by the related
Obligor and deposited in the Collection Account, the Lender shall be deemed to
release its interest in such Contract and the related Equipment and, at the
Servicer's sole expense, will take any actions and execute any documents in
respect of such release reasonably requested by the Servicer; provided, however,
that the Lender will make no representation or warranty, express or implied,
with respect to any such Contract or Equipment. Nothing in this section shall
diminish the Servicer's obligations pursuant to Section 6.4 of the Receivables
Funding Agreement with respect to the proceeds of any such sale.
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Section 5.3 Release of Ineligible Contracts.
On and after the date of retransfer of any Ineligible Contract under
the terms of the Receivables Funding Agreement, the Ineligible Contract so
retransferred shall not be included in the Collateral and, as applicable, the
Substitute Contract shall be included in the Collateral. Upon each retransfer to
the Borrower of such Ineligible Contract, the Lender, shall automatically and
without further action be deemed to release to the Borrower, without recourse,
representation or warranty, all the right, title and interest of the Lender, to
and under such Ineligible Contract and all monies due or to become due with
respect thereto, the related Equipment and all proceeds of such Ineligible
Contract and Recoveries and Insurance Proceeds relating thereto and all rights
to security for any such Ineligible Contract, and all proceeds and products of
the foregoing. The Lender, shall, at the sole expense of the Servicer execute
such documents and instruments of release as may be prepared by the Servicer on
behalf of the Borrower and take other such actions as shall reasonably be
requested by the Borrower to effect the transfer of such Ineligible Contract
pursuant to this subsection.
ARTICLE VI
ADMINISTRATION AND SERVICING OF CONTRACTS
The Servicer agrees, for the benefit of the Lender from the date hereof
until the Collection Date, unless the Servicer's obligations are earlier
terminated pursuant to the provisions of the Receivables Funding Agreement, to
comply with each of the affirmative covenants made by it pursuant to the
provisions of Section 5.4 of the Receivables Funding Agreement, each of the
negative covenants made by it, pursuant to the provisions of Section 5.5 of the
Receivables Funding Agreement and each of the other agreements made by the
Servicer under the Receivables Funding Agreement, including without limitation,
pursuant to Section 2.6 and Article VI of the Receivables Funding Agreement,
each as if set forth in full herein; provided, however that no amendment,
modification, waiver, deletion, restatement or other change to any of such
Sections or Article or the provisions thereof shall have effect for purposes of
the Agreement unless the Lender shall have given its written consent thereto. In
additional, the Servicer agrees to deliver a copy of each report, certificate or
other document to the Lender on each day on which it delivers any such report,
certificate or other document to any party under the Receivables Funding
Agreement.
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ARTICLE VII
TERMINATION EVENTS AND REMEDIES
Section 7.1 Termination Events.
Each of the following events shall constitute a Termination Event (a
"Termination Event") under this Agreement:
(a) as of any Reporting Date, the Delinquency Ratio for the preceding
Determination Date exceeds 2.5%;
(b) as of any Reporting Date, the Default Ratio for the preceding
Determination Date exceeds 2.25%;
(c) the occurrence of the Termination Date under the Receivables
Funding Agreement;
(d) the date on which a Borrowing Excess has been in existence for at
least 30 consecutive days; or
(e) the occurrence of a Termination Event under the SPC I Subordinated
Note Facility.
Section 7.2 Remedies.
(a) Upon the occurrence of a Termination Event, the Termination Date
shall be deemed to have occurred automatically. Upon the occurrence of a
Termination Event, in addition to the other remedies provided for herein, the
Lender may declare the Advances Outstanding and all other Aggregate Unpaids to
be immediately due and payable and shall have all rights and remedies provided
under the UCC and other applicable laws, which rights shall be cumulative. Upon
such acceleration, the balance then outstanding under this Agreement shall
become immediately due and payable, without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Upon the occurrence of a Termination Event and following the
Collection Date under the Receivables Funding Agreement, and in addition to the
remedies provided herein, the Lender, shall have the right to obtain physical
possession of the Servicer's records and all other files of the Borrower
relating to the Collateral and all documents relating to the Collateral which
are then or may thereafter come into the possession of the Borrower or any third
party acting for the Borrower, and the Borrower shall deliver to the Lender,
such assignments as the Lender shall request.
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(c) Without limiting the generality of the foregoing provisions of this
Section 7.2, the Lender, following the occurrence of the Collection Date under
the Receivables Funding Agreement, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Borrower or any other
Person (each and all of which demands, presentments, protests, advertisements
and notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell (on a servicing released basis, at the Lender's
option), lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels or as an entirety at public or private sale
or sales, at any exchange, broker's board or office of the Lender or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Borrower, which right or equity is hereby waived
or released. The Borrower further agrees, at the Lender's request, to assemble
the Collateral and make it available to the Lender at places which the Lender
shall reasonably select, whether at the Borrower's premises or elsewhere. The
Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Lender hereunder, including without limitation reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the amounts owing to
the Lender hereunder in respect of Advances Outstanding, accrued and unpaid
Interest, Additional Interest, fees, expenses, indemnification, Breakage Costs,
or otherwise, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required or
permitted by any provision of law, including without limitation Section
9-504(1)(c) of the UCC, need the Lender to account for the surplus, if any, to
the Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Borrower shall
remain liable for any deficiency (together with all Interest and Additional
Interest thereon and fees and expenses accruing under this Agreement) if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the amounts owing to the Lender and the fees and disbursements of any
attorneys employed by such Lender to collect such deficiency.
(d) The Lender's duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the UCC or otherwise, shall be to deal with it in the same manner as the
Lender, deals with similar property for its own account. Neither the Lender nor
any of its respective directors, officers or employees shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Borrower or otherwise.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnities by the Borrower.
Without limiting any other rights which the Agent, the Lender or any of
their respective Affiliates may have hereunder or under applicable law, the
Borrower hereby agrees to indemnify the Agent, the Lender, and each of their
respective Affiliates and officers, directors, employees and agents thereof
(each of the foregoing Persons being referred to as an "Indemnified Party") from
and against any and all damages, losses, claims, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them, but excluding allocations of overhead
expenses of any such Indemnified Party or other non-monetary damages of any such
Indemnified Party, arising out of or as a result of this Agreement or the Grant
of the Collateral or in respect of any Asset or any Contract, excluding,
however, Indemnified Amounts to the extent resulting from negligence or willful
misconduct on the part of the Agent, the Lender or such Affiliate. If the
Borrower has made any indemnity payment pursuant to this Section 8.1 and such
payment fully indemnified the recipient thereof and the recipient thereafter
collects any payments from others in respect of such Indemnified Amounts then,
the recipient shall repay to the Borrower an amount equal to the amount it has
collected from others in respect of such indemnified amounts. Without limiting
the foregoing, the Borrower shall indemnify each Indemnified Party for
Indemnified Amounts relating to or resulting from:
(a) any Contract treated as or represented by the Borrower to be an
Eligible Contract which is not at the applicable time an Eligible Contract;
(b) reliance on any representation or warranty made or deemed made by
the Borrower, the Servicer (if the Originator or one of its Affiliates) or any
of their respective officers under or in connection with this Agreement, which
shall have been false or incorrect in any material respect when made or deemed
made or delivered;
(c) the failure by the Borrower or the Servicer (if the Originator or
one of its Affiliates) to comply with any term, provision or covenant contained
in this Agreement or any agreement executed in connection with this Agreement,
or with any applicable law, rule or regulation with respect to any Asset, the
related Contract, or the nonconformity of any Asset, the related Contract with
any such applicable law, rule or regulation;
(d) the failure to vest and maintain vested in the Lender or to
transfer to the Lender, a second priority perfected security interest in the
Assets, together with all Collections, free and clear of any Adverse Claim
(other than claims arising under or with respect to the Receivables Funding
Agreement and the other Transaction Documents) whether existing as of the
Closing Date or at any time thereafter;
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(e) the failure to maintain, as of the close of business on each
Business Day prior to the Termination Date, an amount of Advances Outstanding
which is less than or equal to the lesser of (i) the Facility Limit on such
Business Day, or (ii) the Borrowing Base on such Business Day;
(f) the failure to file, or any delay in filing, financing statements
or other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Assets which are, or
are purported to be, Collateral, whether at the time of any Grant or at any
subsequent time;
(g) any dispute, claim, offset or defense (other than the discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Asset which is,
or is purported to be, Collateral (including, without limitation, a defense
based on such Asset or the related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with its terms),
or any other claim resulting from the sale of the merchandise or services
related to such Asset or the furnishing or failure to furnish such merchandise
or services;
(h) any failure of the Borrower or the Servicer (if the Originator or
one of its Affiliates) to perform its duties or obligations in accordance with
the provisions of this Agreement or any failure by the Originator, the Borrower
or any Affiliate thereof to perform its respective duties under the Contracts;
(i) any products liability claim or personal injury or property damage
suit or other similar or related claim or action of whatever sort arising out of
or in connection with merchandise or services which are the subject of any Asset
or Contract;
(j) the failure by Borrower to pay when due any Taxes for which the
Borrower is liable, including without limitation, sales, excise or personal
property taxes payable in connection with the Collateral;
(k) any repayment by the Lender of any amount previously distributed in
reduction of Advances Outstanding or payment of Interest, Additional Interest or
any other amount due hereunder or under any Hedging Agreement, in each case
which amount the Lender believes in good faith is required to be repaid;
(l) the commingling of Collections of Assets in the Collateral at any
time with other funds;
(m) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Advances or reinvestments or the ownership
of the Collateral or in respect of any Asset or Contract;
(n) any failure by the Borrower to give reasonably equivalent value to
the Originator in consideration for the transfer by the Originator to the
Borrower of any Assets or any attempt by any Person to void or otherwise avoid
any such transfer under any statutory provision or common law or equitable
action, including, without limitation, any provision of the Bankruptcy Code; or
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<PAGE>
(o) the failure of the Borrower, the Originator or any of their
respective agents or representatives to remit Collections to the Servicer or the
Lender.
Any amounts subject to the indemnification provisions of this Section
8.1 shall be paid by the Borrower within two Business Days following demand
therefor. If for any reason the indemnification provided above in this Section
8.1 is unavailable to the Indemnified Party or is insufficient to hold an
Indemnified Party harmless, then Fidelity shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnified Party on the one hand and the Borrower on
the other hand but also the relative fault of such Indemnified Party as well as
any other relevant equitable considerations.
The parties agree that no provision of this Section 8.1 shall be
construed to provide recourse to Fidelity for any loss by reason of the exercise
by or against any obligor of any Insolvency Law or any default by any obligor as
a result of a credit reason.
Section 8.2 Indemnities by the Servicer.
(a) Without limiting any other rights that any such Person may have
hereunder or under Applicable Law, the Servicer hereby agrees to indemnify each
Indemnified Party, forthwith on demand, from and against any and all Indemnified
Amounts awarded against or incurred by any such Indemnified Party by reason of
any acts, omissions or alleged acts or omissions of the Servicer, including, but
not limited to (i) any representation or warranty made by the Servicer under or
in connection with any Transaction Document, any Monthly Report, Servicer's
Certificate or any other information or report delivered by or on behalf of the
Servicer pursuant hereto, which shall have been false, incorrect or misleading
in any material respect when made or deemed made, (ii) the failure by the
Servicer to comply with any Applicable Law, (iii) the failure of the Servicer to
comply with its duties or obligations in accordance with the Receivables Funding
Agreement or this Agreement, or (iv) any litigation, proceedings or
investigation against the Servicer. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof.
(b) Any amounts subject to the indemnification provisions of this
Section 8.2 shall be paid by the Servicer to the Lender within five (5) Business
Days following such Agent's demand therefor.
(c) The Servicer shall have no liability for making indemnification
hereunder to the extent any such indemnification constitutes recourse for
uncollectible or uncollected Contracts.
(d) The obligations of the Servicer under this Section 8.2 shall
survive the resignation or removal of the Servicer and the termination of this
Agreement.
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(e) Any indemnification pursuant to this Section 10.2 shall not be
payable from the Assets.
Section 8.3 After-Tax Basis.
Indemnification under Sections 8.1 and 8.2 shall be in an amount
necessary to make the Indemnified Party whole after taking into account any tax
consequences to the Indemnified Party of the receipt of the indemnity provided
hereunder, including the effect of such tax refund or benefit on the amount of
tax measured by net income or profits that is or was payable by the Indemnified
Party.
ARTICLE IX
PARTICIPATIONS
Section 9.1 Participations.
(a) The Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the Loan owned by it). Notwithstanding anything herein to the contrary, each
participant shall have the rights of the Lender (including any right to receive
payments) under Sections 2.7 and 2.8; provided, however, that no participant
shall be entitled to receive payment under either such Section in excess of the
amount that would have been payable under such Section by the Borrower to the
Lender granting its participation had such participation not been granted. With
respect to any participation described in this Section 9, the participant's
rights as set forth in the agreement between such participant and the Lender to
agree to or to restrict such Lender's ability to agree to any modification,
waiver or release of any of the terms of this Agreement or to exercise or
refrain from exercising any powers or rights which such Lender may have under or
in respect of this Agreement shall be limited to the right to consent to any of
the matters set forth in Section 10 of this Agreement.
(b) The Lender may, in connection with any participation or proposed
participation pursuant to this Section 9, disclose to the participant or
proposed assignee or participant any information relating to the Borrower
furnished to the Lender by or on behalf of the Borrower.
(c) Nothing herein shall prohibit the Lender from pledging or assigning
as collateral any of its rights under this Agreement to any Federal Reserve Bank
in accordance with applicable law and any such pledge or collateral assignment
may be made without compliance with Section 9.
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ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments and Waivers.
(a) Except as provided in this Section 10.1, no amendment, waiver or
other modification of any provision of this Agreement shall be effective without
the written agreement of the Borrower and the Lender.
Section 10.2 Notices, Etc.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telex communication and
communication by facsimile copy) and mailed, telexed, transmitted or delivered,
as to each party hereto, at its address set forth under its name on the
signature pages hereof or at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall be effective, upon receipt, or in the case of (a) notice by
mail, five days after being deposited in the United States mail, first class
postage prepaid, (b) notice by telex, when telexed against receipt of answer
back, or (c) notice by facsimile copy, when verbal communication of receipt is
obtained, except that notices and communications pursuant to Article II shall
not be effective until received with respect to any notice sent by mail or
telex.
Section 10.3 No Waiver, Rights and Remedies.
No failure on the part of the Lender to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right. The
rights and remedies herein provided are cumulative and not exclusive of any
rights and remedies provided by law.
Section 10.4 Term of this Agreement.
This Agreement, including, without limitation, the Borrower's
obligation to observe its covenants set forth in Article V, and the Servicer's
obligation to observe its covenants set forth in Articles VI, shall remain in
full force and effect until the Collection Date; provided, however, that the
rights and remedies with respect to any breach of any representation and
warranty made or deemed made by the Borrower pursuant to Articles III and IV and
the indemnification and payment provisions of Article VII and the provisions of
Section 10.9 and Section 10.10 shall be continuing and shall survive any
termination of this Agreement.
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Section 10.5 Governing Law; Consent to Jurisdiction; Waiver of
Objection to Venue.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY AGREES TO
THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK, NEW YORK COUNTY. EACH OF THE PARTIES HERETO AND EACH LENDER HEREBY
WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE
OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT.
Section 10.6 Waiver of Jury Trial.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF
THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
Section 10.7 Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification granted to the
Indemnified Parties under Article VIII hereof, the Borrower agrees to pay on
demand all costs and expenses of the Lender incurred in connection with the
preparation, execution, delivery, administration (including periodic auditing),
amendment or modification of, or any waiver or consent issued in connection
with, this Agreement and the other documents to be delivered hereunder or in
connection herewith, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and remedies under this
Agreement and the other documents to be delivered hereunder or in connection
herewith (excluding any Hedging Agreement), and all costs and expenses, if any
(including reasonable counsel fees and expenses), incurred by the Lender in
connection with the enforcement of this Agreement and the other documents to be
delivered hereunder or in connection herewith.
(b) The Borrower shall pay on demand any and all stamp, sales, excise
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing and recording of this Agreement, the other
documents to be delivered hereunder or any agreement or other document providing
liquidity support, credit enhancement or other similar support to the Lender in
connection with this Agreement or the funding or maintenance of Advances
hereunder.
(c) The Borrower shall pay on demand all costs and expenses incurred by
the Lender in connection with periodic audits of the Borrower's or the
Servicer's books and records.
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<PAGE>
Section 10.8 Recourse Against Certain Parties.
No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of the Lender as contained in this Agreement or any other
agreement, instrument or document entered into by it pursuant hereto or in
connection herewith shall be had against any administrator of the Lender or any
incorporator, affiliate, stockholder, officer, employee or director of the
Lender or of any such administrator, as such, by the enforcement of any
assessment or by any legal or equitable proceeding, by virtue of any statute or
otherwise; it being expressly agreed and understood that the agreements of the
Lender contained in this Agreement and all of the other agreements, instruments
and documents entered into by it pursuant hereto or in connection herewith are,
in each case, solely the corporate obligations of the Lender, and that no
personal liability whatsoever shall attach to or be incurred by any
administrator of the Lender or any incorporator, stockholder, affiliate,
officer, employee or director of the Lender or of any such administrator, as
such, or any of them, under or by reason of any of the obligations, covenants or
agreements of the Lender contained in this Agreement or in any other such
instrument, document or agreement, or which are implied therefrom, and that any
and all personal liability of every such administrator of the Lender and each
incorporator, stockholder, affiliate, officer, employee or director of the
Lender or of any such administrator, or any of them, for breaches by the Lender
of any such obligations, covenants or agreements, which liability may arise
either at common law or in equity, by statute or constitution, or otherwise, is
hereby expressly waived as a condition of, and in consideration for, the
execution of this Agreement.
(d) The provisions of this Section 10.8 shall survive the termination
of this Agreement.
Section 10.9 Protection of Security Interest of the Lender.
(a) The Borrower agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that may reasonably be necessary or desirable, or that the Lender may
reasonably request, to perfect, protect or more fully evidence the Grant and the
interest of the Lender in and to the Collateral, or to enable the Lender to
exercise and enforce its rights and remedies hereunder.
(b) If the Borrower or the Servicer fails to perform any of its
obligations hereunder after five Business Days' notice from the Lender, the
Lender may (but shall not be required to) perform, or cause performance of, such
obligation; and the Lender's costs and expenses incurred in connection therewith
shall be payable by the Borrower (if the Servicer that fails to so perform is
the Borrower or an Affiliate thereof) as provided in Article VIII, as
applicable. The Borrower irrevocably authorizes the Lender and appoints the
Lender as its attorney-in-fact to act on behalf of the Borrower (i) to execute
on behalf of the Borrower as debtor and to file financing statements necessary
or desirable in the Agents' sole discretion to perfect and to maintain the
perfection and priority of the interest of the Lender in the Assets and (ii) to
file a carbon, photographic or other reproduction of this Agreement or any
financing statement with respect to the Assets as a financing statement in such
offices as the Lender deems necessary or desirable to perfect and to maintain
the perfection and priority of the interests of the in the Assets. This
appointment is coupled with an interest and is irrevocable.
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(c) The Servicer shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the right, title and interest of the Lender in and
to the Assets to be promptly recorded, registered and filed, and at all times to
be kept recorded, registered and filed, all in such manner and in such places as
may be required by law fully to preserve and protect the right, title and
interest of the Lender hereunder to all property comprising the Assets. The
Servicer shall deliver to the Lender file-stamped copies of, or filing receipts
for, any document recorded, registered or filed as provided above, as soon as
available following such recording, registration or filing. The Borrower shall
cooperate fully with the Servicer in connection with the obligations set forth
above and will execute any and all documents reasonably required to fulfill the
intent of this Section 10.9.
Section 10.10 Confidentiality.
(a) The Lender, the Servicer and the Borrower shall maintain and shall
cause each of its employees and officers to maintain the confidentiality of the
Agreement and all information with respect to the other parties, including all
information regarding the business of the Borrower and the Servicer hereto and
their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein,
except that each such party and its officers and employees may (i) disclose such
information to its external accountants, attorneys, investors, potential
investors and the agents of such Persons ("Excepted Persons"), provided,
however, that each Excepted Person shall, as a condition to any such disclosure,
agree for the benefit of the Lender, the Servicer, and the Borrower that such
information shall be used solely in connection with such Excepted Person's
evaluation of, or relationship with, the Borrower and its affiliates, (ii)
disclose the existence of the Agreement, but not the financial terms thereof,
(iii) disclose such information as is required by an applicable law or an order
of an judicial or administrative proceeding and (iv) disclose the Agreement and
such information in any suit, action, proceeding or investigation (whether in
law or in equity or pursuant to arbitration) involving any of the Transaction
Documents or any Hedging Agreement for the purpose of defending itself, reducing
its liability, or protecting or exercising any of its claims, rights, remedies,
or interests under or in connection with any of the Transaction Documents or any
Hedging Agreement. It is understood that the financial terms that may not be
disclosed except in compliance with this Section 10.10(a) include, without
limitation, all fees and other pricing terms, and all Termination Events,
Servicer Termination Events, and priority of payment provisions.
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<PAGE>
(b) Anything herein to the contrary notwithstanding, the Borrower and
the Servicer each hereby consents to the disclosure of any nonpublic information
with respect to it (i) by the Lender to any prospective or actual participant of
any of them or (ii) by the Lender to any Rating Agency and to any officers,
directors, employees, outside accountants and attorneys of any of the foregoing,
provided each such Person is informed of the confidential nature of such
information. In addition, the Lender may disclose any such nonpublic information
as required pursuant to any law, rule, regulation, direction, request or order
of any judicial, administrative or regulatory authority or proceedings (whether
or not having the force or effect of law).
(c) Notwithstanding anything herein to the contrary, the foregoing
shall not be construed to prohibit (i) disclosure of any and all information
that is or becomes publicly known, (ii) disclosure of any and all information
(A) if required to do so by any applicable statute, law, rule or regulation, (B)
to any government agency or regulatory body having or claiming authority to
regulate or oversee any respects of the Lender's business or that of their
affiliates, (C) pursuant to any subpoena, civil investigative demand or similar
demand or request of any court, regulatory authority, arbitrator or arbitration
to which the Lender or an affiliate or an officer, director, employer or
shareholder thereof is a party, (D) in any preliminary or final offering
circular, registration statement or contract or other document pertaining to the
transactions contemplated herein approved in advance by the Borrower or Servicer
or (E) to any affiliate, independent or internal auditor, agent, employee or
attorney of the Lender having a need to know the same, provided that the Lender
advises such recipient of the confidential nature of the information being
disclosed, or (iii) any other disclosure authorized by the Borrower or Servicer.
Section 10.11 Execution in Counterparts; Severability; Integration.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings
other than any fee letter delivered by the Originator to the Agent and the
Lenders.
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-----------------------------
| KILPATRICK STOCKTON LLP |
| EXECUTION |
-----------------------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER: FIDELITY LEASING SPC IV, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
1255 Wrights Lane
West Chester, Pennsylvania 19380
Attention: Mr. John Dale
Facsimile No.: 610-719-4534
Confirmation No.: 610-719-4515
THE SERVICER: FIDELITY LEASING, INC.
By: ____________________________
Name: __________________________
Title: _________________________
1255 Wrights Lane
West Chester, Pennsylvania 19380
Attention: Mr. John Dale
Facsimile No.: 610-719-4534
Confirmation No.: 610-719-4515
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
LENDER: FIRST UNION NATIONAL BANK
By:______________________________
Name: ___________________________
Title: __________________________
First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention: Capital Markets Credit
Administration
Facsimile No.: (704) 374-3254
Confirmation No: (704) 374-4001
<PAGE>
SCHEDULE I
CONDITION PRECEDENT DOCUMENTS
As required by Section 3.1(a) of the Agreement, in addititon to each of the
documents listed on Schedule I of the Receivables Funding Agreement, each of the
following items must be delivered to the Lender prior to the date of the initial
funding:
A copy of this Agreement duly executed by the Borrower, the Servicer
and the Lender;
A copy of the Fee Letter duly executed by the Borrower and the Lender;
Acknowledgment copies of proper financing statements (the "Facility
Financing Statements"), describing the Assets and naming the Borrower
as debtor and the Lender, as secured party, or other, similar
instruments or documents, as may be necessary or, in the opinion of the
Lender, desirable under the UCC of all appropriate jurisdictions or any
comparable law to perfect the Lenders' interests in all Assets;
Such other certificates, approvals, opinions or documents as the Lender
may reasonably request.
<PAGE>
EXHIBIT A
FORM OF FUNDING REQUEST
(including Borrowing Base Certificate)
Fidelity Leasing SPC IV, Inc.
First Union National Bank
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Ladies and Gentlemen:
This Borrower Notice is delivered to you under Section 2.2(a) of that certain
Secured Subordinated Loan Agreement dated as of July 14, 1999 (the "Agreement")
among Fidelity Leasing SPC IV, Inc., as the Borrower, Fidelity Leasing, Inc., as
the servicer and the originator and First Union National Bank, as the lender.
All capitalized undefined terms used herein have the meaning assigned thereto in
the Agreement.
Each of the undersigned, each being a duly elected officer of the Borrower and
the Servicer, respectively, holding the office set forth below such officer's
name, hereby certifies as follows:
1. The Borrower hereby requests an Advance in the principal amount of
$_____________.
2. The Borrower hereby requests that such Advance be made on the following date:
_____________.
3. Attached to this Borrower Notice is a true, correct and complete calculation
of the Borrowing Base and all components thereof.
4. Attached to this Borrower Notice is a true, correct and complete [supplement
to the] Contract List[, reflecting all Contracts which will become part of
the Collateral on the date hereof,] each Contract reflected thereon being an
Eligible Contract.
5. All of the conditions applicable to the Advance requested herein as set forth
in the Agreement have been satisfied as of the date hereof and will remain
satisfied to the date of such Advance, including:
(i) The representations and warranties of such Person
set forth in the Agreement, as the case may be, are true and
correct on and as of such date, before and after giving effect
to such Advance and to the application of the proceeds
therefrom, as though made on and as of such date;
<PAGE>
(ii) No event has occurred, or would result from such
Advance or from the application of the proceeds therefrom,
which constitutes a Termination Event; and
(iii) Such Person is in material compliance with each
of its covenants set forth herein.
IN WITNESS WHEREOF, the undersigned has executed the Funding Request
this______ day of______________, _____.
FIDELITY LEASING SPC IV, INC.,
as Borrower
By:__________________________________
Name:
Title:
FIDELITY LEASING, INC.,
as Servicer
By:__________________________________
Name:
Title:
[attach Borrowing Base Certificate]
<PAGE>
EXHIBIT B
FORM OF NOTE
$10,000,000 July 15, 1999
FOR VALUE RECEIVED, Fidelity Leasing SPC IV, Inc., a Delaware
corporation (the "Borrower"), promises to pay to First Union National Bank, as
lender (the "Lender") the principal sum of TEN MILLION DOLLARS ($10,000,000) or,
if less, the unpaid principal amount of the aggregate loans ("Advances") made by
the Lender (as defined below) to the Borrower pursuant to the Agreement (as
defined below), as set forth on the attached Schedule, as specified in Section
2.6 of the Agreement, and to pay Interest and Additional Interest, as
applicable, on the unpaid principal amount of each Advance on each day that such
unpaid principal amount is outstanding as provided in the Agreement on each
Payment Date and each other dates specified in the Agreement.
This Note is issued pursuant to the Secured Subordinated Loan Agreement
dated as of July 14, 1999 (the "Agreement") among Fidelity Leasing SPC IV, Inc.,
as the Borrower, Fidelity Leasing, Inc., as the servicer and the originator and
First Union National Bank. Capitalized terms used but not defined in this Note
are used with the meanings ascribed to them in the Agreement.
Notwithstanding any other provisions contained in this Note, if at any
time the rate of interest payable by the Borrower under this Note, when combined
with any and all other charges provided for in this Note, in the Agreement or in
any other document (to the extent such other charges would constitute interest
for the purpose of any applicable law limiting interest that may be charged on
this Note), exceeds the highest rate of interest permissible under applicable
law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would
be exceeded the rate of interest under this Note shall be equal to the Maximum
Lawful Rate. If at any time thereafter the rate of interest payable under this
Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay
interest under this Note at the Maximum Lawful Rate until such time as the total
interest paid by the Borrower is equal to the total interest that would have
been paid had applicable law not limited the interest rate payable under this
Note. In no event shall the total interest received by the Lender under this
Note exceed the amount which the Lender could lawfully have received had the
interest due under this Note been calculated since the date of this Note at the
Maximum Lawful Rate.
<PAGE>
Payments of the principal of, and interest on, Advances represented by
this Note shall be made by the Borrower to the holder hereof by wire transfer of
immediately available funds in the manner and at the address specified for such
purpose as provided in Section 2.6 of the Agreement, or in such manner or at
such other address as the holder of this Note shall have specified in writing to
the Borrower for such purpose, without the presentation or surrender of this
Note or the making of any notation on this Note.
If any payment under this Note falls due on a day which is not a
Business Day, then such due date shall be extended to the next succeeding
Business Day and interest shall be payable on any principal so extended at the
applicable Interest Rate.
If all or a portion of (i) the principal amount hereof or (ii) any
interest payable thereon or (iii) any other amounts payable hereunder shall not
be paid when due (whether at maturity, by acceleration or otherwise), such
overdue amount shall bear interest at a rate per annum that is equal to the Base
Rate plus 1.0%, in each case from the date of such non-payment to (but
excluding) the date such amount is paid in full.
Portions or all of the principal amount of the Note shall become due
and payable at the time or times set forth in the Agreement. Any portion or all
of the principal amount of this Note may be prepaid, together with interest
thereon (and as set forth in the Agreement, certain costs and expenses of the
Lender) at the time and in the manner set forth in, but subject to the
provisions of, the Agreement.
Except as provided in the Agreement, the Borrower expressly waives
presentment, demand, diligence, protest and all notices of any kind whatsoever
with respect to this Note.
All amounts evidenced by this Note and all payments and prepayments of
the principal hereof and the respective dates and maturity dates thereof shall
be endorsed by the Lender on the schedule attached hereto and made a part hereof
or on a continuation thereof which shall be attached hereto and made a part
hereof, or otherwise recorded by the Lender in its internal records; provided,
however, that the failure of the Lender to make such a notation shall not in any
way limit or otherwise affect the obligations of the Borrower under this Note as
provided in the Agreement.
The holder hereof may sell, assign, transfer, negotiate, grant
participations in or otherwise dispose of all or any portion of any Advances
made by the Lender and represented by this Note and the indebtedness evidenced
by this Note.
This Note is secured by the security interests granted pursuant to
Section 2.1(b) of the Agreement. The holder of this Note and the Lender, is
entitled to the benefits of the Agreement and may enforce the agreements of the
Borrower contained in the Agreement and exercise the remedies provided for by,
or otherwise available in respect of, the Agreement, all in accordance with, and
subject to the restrictions contained in, the terms of the Agreement. If an
Termination Event shall occur and be continuing, the unpaid balance of the
principal of all Advances, together with accrued interest thereon, shall be
declared, and become due and payable in the manner and with the effect provided
in the Agreement.
<PAGE>
This Note is the Note referred to in the Agreement. This Note shall be
construed in accordance with and governed by the laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as on the
date first written above.
FIDELITY LEASING SPC IV, INC.
By:_____________________________
Name:
Title:
<PAGE>
Schedule to Note
Name Date of Principal Principal Outstanding
of Advance or Amount of Amount of Principal
Lender Repayment Advance Repayment Amount
------ ---------- --------- --------- -----------
<PAGE>
FIDELITY LEASING, INC.
1999 KEY EMPLOYEE STOCK OPTION PLAN
This is the 1999 Key Employee Stock Option Plan of Fidelity Leasing,
Inc., effective as of _____________ ___, 1999.
Section 1. Definitions. As used in the Plan the following terms shall
have the following assigned meanings:
(a) Board of Directors. Board of Directors shall mean the Board of
Directors of the Company.
(b) Code. Code shall mean the Internal Revenue Code of 1986, as
amended.
(c) Company. Company shall mean Fidelity Leasing, Inc., its successors
and assigns and any corporation which (i) substitutes a new Option or Stock
Appreciation Right for an old Option or Stock Appreciation Right granted under
the Plan; (ii) assumes an Option or Stock Appreciation Right under the Plan; or
(iii) becomes a parent or subsidiary of the Company by reason of a corporate
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation within the meaning of ss.424(a) of the Code.
(d) Committee. Committee shall mean that subcommittee of the Board of
Directors known as the Compensation Committee which is duly authorized by the
Board of Directors to administer the Plan.
(e) Disability. Disability shall mean "permanent and total disability"
as defined in ss.22(e)(3) of the Code
(f) Eligible Employee. Eligible Employee shall mean a common law
employee of the Company whose initiative and effort have contributed or may in
the future contribute to the Company's success.
(g) Fair Market Value. As used herein, the "fair market value" of a
Share shall be (i) if the Company is a public company whose Shares are traded on
a stock exchange or on NASDAQ, the closing price for the Shares on a given day
or, if there is no sale on such day, then the last sale price on the last
previous date on which a sale is reported; or (ii) if the Company is not a
public company, the greater of fully-diluted book value per Share for the
previous fiscal year or ten times after-tax earning per Share for the last
fiscal year prior to the date of determination.
(h) Incentive Stock Option. Incentive Stock Option shall mean an Option
granted under the Plan which qualifies under ss.422 of the Code.
(i) Nonqualified Stock Option. Nonqualified Stock Option shall mean any
Option granted under the Plan which does not qualify as an Incentive Stock
Option and which is specifically designated at the time it is granted as an
Option which is not an Incentive Stock Option.
(j) Option. Option shall mean either an Incentive Stock Option or a
Nonqualified Stock Option granted under the Plan.
<PAGE>
(k) Option Agreement. Option Agreement shall mean any definitive
written agreement between the Company and an Eligible Employee which complies
with the Plan and which pertains to the grant of an Option and/or Stock
Appreciation Right to an Eligible Employee under the Plan.
(l) Option Price. Option Price shall mean the purchase price which an
Optionee must pay to the Company to acquire Shares on the exercise of an Option.
(m) Optionee. Optionee shall mean an Eligible Employee to whom an
Option or Stock Appreciation Right is granted under the Plan.
(n) Plan. Plan shall mean the 1999 Key Employee Stock Option Plan of
the Company.
(o) Securities Acts. Securities Acts shall mean the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, and all
applicable federal and state securities law, or any successors thereto.
(p) Shares. Shares shall mean shares of the Company's common stock, no
par value, and (i) any stock or securities of the Company into which such common
stock is converted, (ii) any stock or securities of the Company which are
distributed with respect to such common stock and (iii) the stock and securities
of any other corporation into which such common stock is converted as a result
of the Company's engaging in any transaction described in ss.424(a) of the Code.
(q) Stock Appreciation Right. Stock Appreciation Right shall mean a
right granted to an Optionee which, upon the surrender of an Option, entitles
the Optionee to receive payment from the Company in an amount equal to the
excess of the aggregate Fair Market Value of Shares subject to such Option,
determined at the time of such surrender, over the aggregate Option Price
applicable to such Shares.
Section 2. Purpose of the Plan. The purpose of the Plan is to advance
the interests of the Company and its shareholders by providing a means through
which Eligible Employees may be given an opportunity to benefit from both the
purchase of Shares under Options and the exercise of Stock Appreciation Rights
so that the Company may retain and attract personnel upon whose judgment,
initiative and efforts the successful conduct of the Company and its business
largely depends.
Section 3. Shares Subject to the Plan. The aggregate number of Shares
for which Options or Stock Appreciation Rights may be granted under the Plan
shall be 775,000; provided, however, that whatever number of Shares shall remain
reserved for issuance under the Plan at the time of any stock split, stock
dividend or other change in the Company's capitalization shall be appropriately
and proportionately adjusted to reflect such stock dividend, stock split or
change in capitalization. Any Shares which are subject to the Plan shall be made
available from the authorized but unissued or reacquired Shares of the Company.
Any Shares for which an Option is granted hereunder that are released from any
Option for any reason, other than the exercise of a Stock Appreciation Right
granted under the Plan, shall become available for other Options granted under
the Plan.
2
<PAGE>
Section 4. Administration of the Plan. The Plan shall be administered
by the Committee. The Committee shall consist of at least two members of the
Board of Directors, none of whom shall be eligible to receive Options or Stock
Appreciation Rights under the Plan. The Board of Directors, acting as a body,
may from time to time, remove members from, or add members to, the Committee.
The Committee shall elect one of its members as Chairman, and shall hold
meetings at such times and in such places as it shall deem advisable. All
actions of the Committee shall be taken by a majority vote of all of its members
present at any properly convened meeting of the Committee. Any action of the
Committee may be taken by written instrument signed by a majority of all of its
members and any actions so taken shall be fully effective as if they had been
taken by a majority vote of the members of the Committee at a duly convened
meeting. The Committee may appoint a secretary to take minutes of its meetings
and the Committee shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
Subject to the provisions of the Plan, the Committee shall at its
discretion:
(a) Determine who among the Eligible Employees shall be granted Options
and Stock Appreciation Rights and the number of Shares to be subject to each
Option or Stock Appreciation Right;
(b) Determine the time or times at which Options and Stock Appreciation
Rights shall be granted;
(c) Determine the Option Price of the Shares subject to each Option or
Stock Appreciation Right;
(d) Determine the time or times when each Option or Stock Appreciation
Right shall become exercisable and the term of such Option or Stock Appreciation
Right;
(e) Grant cash bonuses which are conditioned upon an Optionee's
exercise of Options granted under the Plan;
(f) Authorize payment of the Option Price in cash, Shares or a
combination of cash and Shares; and
(g) Interpret the provisions of the Plan or any Option or Stock
Appreciation Right granted under the Plan, including all attendant Option
Agreements, and any such interpretation shall be final, conclusive and binding
upon the Company and all Optionees.
Section 5. Granting of Options. The Committee may from time to time
designate the number of Shares which shall be subject to each Option and the
type of Option. The Committee shall direct an appropriate officer of the Company
to execute and deliver Option Agreements to Eligible Employees reflecting the
grant of Options.
Section 6. Grant of Stock Appreciation Rights. The Committee may from
time to time designate who among the Eligible Employees are to be granted Stock
3
<PAGE>
Appreciation Rights under the Plan, the number of Shares to which such Stock
Appreciation Rights shall be subject and the terms and conditions affecting such
Stock Appreciation Rights. The Committee shall direct an appropriate officer of
the Company to execute and deliver Option Agreements to such Eligible Employees
reflecting the grant of the Stock Appreciation Rights. The Committee may
determine the form of the payment (i.e., Shares, cash or a combination of Shares
and cash) to be received by such Eligible Employee upon the exercise of a Stock
Appreciation Right. Shares which are the subject of any Option that is
surrendered in connection with the exercise of a Stock Appreciation Right shall
not be available for the grant of future Options under the Plan.
Section 7. Terms and Conditions Common to All Option Agreements. Each
Option Agreement shall be evidenced by a written agreement executed by the
Optionee and the Company in such form as the Committee shall from time to time
approve. The Option Agreement shall contain such terms and conditions as the
Committee shall deem appropriate, subject to the following:
(a) Optionee's Employment. The Option Agreement may provide that the
Optionee agrees to remain an employee of, and render services to, the Company
for a specified period of time as condition to the Optionee's exercise of the
Option or Stock Appreciation Right. The Option Agreement shall not impose any
obligation on the Company to retain the Optionee as an employee for any period
or adversely affect the Optionee's "employment at will" or contractual status,
as the case may be, with the Company.
(b) Number of Shares. The Option Agreement shall set forth the number
of Shares which are subject to Options and/or Stock Appreciation Rights granted
to the Optionee under the Plan.
(c) No Obligation to Exercise. The Option Agreement shall not obligate
the Optionee to exercise any Option or Stock Appreciation Right.
(d) Term of Options and Stock Appreciation Rights. The Option Agreement
shall establish the period during which each Option and Stock Appreciation Right
is exercisable; provided, however, that no Option Agreement shall provide for
the exercise of any Option or Stock Appreciation Right after the expiration of
the ten (10) year period immediately following the date upon which such Option
or Stock Appreciation Right is granted.
(e) Exercise of Options and Stock Appreciation Rights. The Option
Agreement shall provide for (and may limit or restrict) the date or dates upon
which any Option or Stock Appreciation Right granted under the Plan may be
exercised. The Option Agreement may provide for the exercise of Options and
Stock Appreciation Rights in installments and upon such terms and conditions as
the Committee may determine. The Option Agreement shall also provide that,
during a period of not less than twelve (12) months immediately following the
date upon which an Optionee receives a "hardship withdrawal" from a retirement
plan qualifying under ss.401(k) of the Code, all rights of the Optionee to
exercise Options granted under the Plan shall be suspended.
(f) Transferability of Options and Stock Appreciation Rights. The
Option Agreement shall provide that, during the lifetime of an Optionee, the
4
<PAGE>
Options and Stock Appreciation Rights granted to the Optionee under the Plan
shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee; provided, however, that the Option Agreement may
provide for transferability or assignability of Options and Stock Appreciation
Rights by will or under the applicable laws of descent and distribution.
(g) Adjustments. The grant of an Option or Stock Appreciation Right
under the Plan shall not affect the right or power of the Company to make
adjustments, classifications, reorganizations or changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
Section 8. Terms and Conditions Common to All Options. An Option
Agreement which evidences the grant of an Option shall contain such terms and
conditions as the Committee shall deem appropriate, subject to Section 7 and the
following:
(a) Payment of Option Price. The Option Agreement shall provide that
the Option Price shall be payable in full upon the exercise of an Option and
must be paid in cash, by check or by the surrender of Shares (if approved by the
Committee); provided, however, that Shares may not be surrendered in payment of
the Option Price if such surrender of Shares will adversely affect the continued
qualification of any Incentive Stock Option (whether or not granted under the
Plan). No stock certificate representing Shares shall be issued until full
payment therefor has been received by the Company.
(b) Death or Disability of Optionee. The Option Agreement shall provide
that if an Optionee should die or suffer a Disability while an employee of the
Company or within a period of three (3) months immediately following the
termination of the Optionee's employment with the Company, the Optionee's Option
privileges shall cease; provided, however, that the Option Agreement may provide
that the Option privileges which were immediately exercisable by the Optionee at
the time of the Optionee's death or Disability may be exercised by the Optionee
or either the Optionee's personal representative or designated beneficiary, as
the case may be, during a period not exceeding one (1) year following the date
upon which the earlier of the Optionee's Disability or death occurred, but in no
event after the total term of the Option as set forth in the Option Agreement.
(c) Registration. The Option Agreement may provide for the issuance of
Shares which are registered under the Securities Acts. The Plan shall not
obligate the Company to issue Shares which are registered under the Securities
Acts. The Option Agreement may provide that if the Shares are issued upon the
exercise of an Option, and such Shares are not registered under the Securities
Acts, that the Company may grant to the Optionee certain rights to cause such
Shares to be so registered and to require the Optionee to deliver to the Company
sufficient representations and investment letters as may be reasonably required
by the Company in order to assure that the Company's issuance of Shares to such
Optionee is either exempt from registration under the Securities Acts or does
not constitute a violation of the Securities Acts, which determination shall be
made by counsel selected by the Committee.
5
<PAGE>
Section 9. Terms and Conditions of Incentive Stock Options. Each Option
Agreement which evidences the grant of an Incentive Stock Option shall contain
such terms and conditions as the Committee shall deem appropriate, subject to
Sections 7 and 8, and the following:
(a) Option Price. The Option Agreement shall set forth the Option Price
(per Share) as determined by the Committee, which Option Price shall not be less
than one hundred percent (100%) of the Fair Market Value of the Shares on the
date the Option is granted; provided, however, that any Incentive Stock Option
that is granted to Eligible Employee who, at the time such Incentive Stock
Option is granted, is deemed for the purposes of ss.422 of the Code to own
Shares possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of a parent or subsidiary of the
Company, shall be granted at an Option Price of at least one hundred ten percent
(110%) of the Fair Market Value of such Shares.
(b) Term of Incentive Stock Options Granted Ten Percent Shareholders.
If an Incentive Stock Option is granted to an Eligible Employee who, at the time
such Incentive Stock Option is granted, is deemed for the purposes of ss.422 of
the Code to own Shares possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of a parent or
subsidiary of the Company, then the term of such Incentive Stock Option shall be
limited to five (5) years.
(c) Other Termination of Employment. The Option Agreement may provide
that if an Optionee shall cease to be employed by the Company for any reason
other than the Optionee's death or Disability the Optionee's Option privileges
shall cease; provided, however, that the Option Agreement may provide that the
Option privileges which were immediately exercisable by the Optionee on the date
of the Optionee's termination of employment with the Company may be exercised by
the Optionee during a period not exceeding three (3) months following the date
of such termination, but in no event after the total term of the Incentive Stock
Option as set forth in the Option Agreement.
(d) Notice of Disqualifying Disposition. The Option Agreement may
provide that if an Optionee shall sell or otherwise dispose of Shares which were
acquired by the Optionee through the exercise of an Incentive Stock Option and
such disposition occurs within two (2) years of the date upon which the
Incentive Stock Option was granted or within one (1) year following the date the
Shares were transferred to the Optionee upon the exercise of such Incentive
Stock Option, such Optionee shall give written notice to the Company which
notice shall contain each of the following items:
(i) The number of Shares sold or otherwise disposed,
(ii) The date or dates of such sale or disposition,
(iii) The selling price for each Share sold or disposed, and
(iv) The Option Price applicable to each Share sold or disposed.
6
<PAGE>
The written notice required by this Subsection 9(d) must be received by
the Company within fifteen (15) days of any disqualifying disposition.
(e) $100,000 Per Year Limitation. The Option Agreement shall provide
that aggregate Fair Market Value of Shares (determined as of the date such
Incentive Stock Options were granted) with respect to which Incentive Stock
Option are exercisable for the first time by any Optionee during any calendar
year (under the Plan and all other incentive stock option plans sponsored by the
Company) shall not exceed $100,000.
Section 10. Terms and Conditions of Nonqualified Stock Options. Each
Option Agreement which evidences the grant of a Nonqualified Stock Option shall
contain such terms and conditions as the Committee shall deem appropriate,
subject to Sections 7 and 8, and the following:
(a) Designation as a Nonqualified Stock Option. The Option Agreement
shall provide that under no circumstances shall the Nonqualified Stock Option be
deemed to qualify as an Incentive Stock Option.
(b) No Interference with Incentive Stock Options. The Option Agreement
shall contain no provisions which adversely affects the qualification of any
Option which is intended to be an Incentive Stock Option under ss.422 of the
Code.
(c) Withholding. The Option Agreement shall provide that there shall be
deducted from each distribution of Shares receivable by the Optionee on the
exercise of a Nonqualified Stock Option the amount of withholding or other taxes
required to be withheld by any governmental authority. Such withholding may be
accomplished by either (i) the Optionee's deposit of cash with the Company in an
amount equal to the required withholding amount (the "Deposit Method") or (ii)
the Optionee's surrender, in the exercise of a Stock Appreciation Right, of
Options covering a sufficient number of Shares so that the distribution of cash
upon the exercise of such Stock Appreciation Right will provide the Company with
the required withholding amount (the "SAR Method"). The selection between the
Deposit Method and the SAR Method shall be made by the Optionee and such
selection shall be contained in the Optionee's timely notice of exercise of the
Optionee's Nonqualified Stock Option. If the Optionee fails to properly select
between the two withholding alternatives, the Company shall select which method
to use.
(d) Option Price. The Option agreement shall set forth the Option Price
(per Share) as determined by the Committee.
(e) Other Termination of Employment. The Option Agreement may provide
that if an Optionee shall cease to be employed by the Company for any reason
other than the Optionee's death or Disability, the Optionee's Option privileges
shall cease; provided, however, that the Option Agreement may provide that the
Option privileges which were immediately exercisable by the Optionee on the date
of the Optionee's termination of employment with the Company may be exercised by
the Optionee during a period not exceeding one (1) year following the date of
such termination, but in no event after the total term of the Option is set
forth in the Option Agreement.
7
<PAGE>
Section 11. Terms and Conditions of Stock Appreciation Rights. Each
Option Agreement which evidences the grant of Stock Appreciation Rights shall
contain such terms and conditions as the Committee shall deem appropriate,
subject to Section 7, and the following:
(a) No Interference with Incentive Stock Options. The Option Agreement
pursuant to which Stock Appreciation Rights are granted shall contain no
provision which adversely affects the qualification of any Option intended to be
an Incentive Stock Option under ss.422 of the Code. To that end, (i) any Stock
Appreciation Right which is exercised in connection with the cancellation or
surrender of an Incentive Stock Option may only be exercisable when the Fair
Market Value of each Share which is the subject matter of the Incentive Stock
Option exceeds the Option Price, (ii) the Stock Appreciation Right may be
transferred only when the underlying Incentive Stock Option is otherwise
transferable and (iii) the exercise of the Stock Appreciation Right must have
the same economic and tax consequences to the Optionee as would arise as a
result of the exercise of the Incentive Stock Option followed immediately by a
sale of the acquired Shares.
(b) Withholding. The Option Agreement shall provide that there shall be
deducted from any distribution resulting from the exercise of a Stock
Appreciation Right that amount which equals the withholding or other taxes
required to be withheld by any governmental authority.
Section 12. Rights as a Shareholder. An Optionee or a transferee of an
Option shall have no rights as a shareholder of the Company with respect to any
Shares which are subject to an Option until the issuance of the stock
certificates representing such Shares.
Section 13. Modification, Extension and Renewal of Options. Subject to
the terms and conditions of the Plan, the Committee may modify, extend or renew
outstanding Options granted under the Plan or accept the surrender of
outstanding Options and authorize the granting of new Options in substitution
therefor. Shares which are the subject matter of lapsed Options may be granted
in Options to other Eligible Employees at any time during the term of this Plan.
Notwithstanding the foregoing, no modification of an Option shall, without the
consent of the Optionee, alter or impair the rights or obligations of any
Optionee with respect to any Option granted under the Plan.
Section 14. Indemnification of Committee. In addition to such other
rights of indemnification as they may have as members of the Board of Directors,
members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys fees, actually and necessarily incurred
by them in connection with the defense of any action, suit or other proceeding
through which any of them may be a party as a result of any action or failure to
act under or in connection with the Plan, any Option Agreement or any Option or
Stock Appreciation Right granted thereunder, and against all amounts paid in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid in satisfaction of a judgment in any
such action, suit or other proceeding; provided, however, that no member of the
Committee shall be indemnified for any such expenses or amounts relating to
matters as to which it is determined in such action, suit or other proceeding
that such member of the Committee is liable for gross negligence or wanton
misconduct in the performance of the member's duties.
8
<PAGE>
Section 15. Amendment and Termination of the Plan. The Company, by
action of the Board of Directors, reserves the right to amend, modify or
terminate this Plan at any time or, by action of the Board of Directors and with
the written consent of the affected Optionee, to amend, modify or terminate any
outstanding Option Agreement, except that the Company may not, without further
shareholder approval, increase the total number of Shares for which Options may
be granted under the Plan, change the employees or class of employees who are
Eligible Employees or materially increase the benefits accruing to Optionees
under the Plan. Moreover, no action may be taken by the Company without the
written consent of the affected Optionee which will impair the validity of any
Option or Stock Appreciation Right then outstanding or which will prevent an
Incentive Stock Option from continuing to qualify under ss.422 of the Code.
Section 16. Effective Date of Plan. This Plan shall be effective upon
its adoption by the Board of Directors and its approval by the Company's
shareholders. Any Options or Stock Appreciation Rights granted under the Plan
prior to the date of approval by the shareholders shall be void if such approval
is not obtained within one (1) year of the approval of the Board of Directors.
Section 17. Expiration of Plan. Options may be granted under the Plan
at any time on or prior to the date which is ten (10) years immediately
following effective date of the Plan.
<PAGE>
Fidelity Leasing, Inc.
Statement of Computation of earnings per share
<TABLE>
<CAPTION>
Period from
March 4, 1996
(Inception)
through
September 30, Year Ended September 30, Nine Months Ended June 30,
------------- ------------------------------ -----------------------------
1998 Pro 1999 Pro
1996 1997 1998 Forma 1998 1999 Forma
------------- ------------------------------ -----------------------------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before cumulative effect of a change
in accounting principle (295) 960 2,406 6,325 1,819 1,498 2,893
------- ------ ------ ----- ------ ------ -----
Cumulative effect of a change
in accounting principle - - - - - (413) (413)
Net income (loss) (295) 960 2,406 6,325 1,819 1,085 2,480
======= ====== ====== ===== ====== ====== =====
Weighted average shares outstanding 6,311 6,311 6,311 6,311 6,311 6,311 6,311
======= ====== ====== ===== ====== ====== =====
Income (loss) per common share
before cumulative effect of a change
in accounting principle - basic $ (0.05) $ 0.15 $ 0.38 $ 1.00 $ 0.29 $ 0.24 $ 0.46
======= ====== ====== ====== ====== ====== ======
Net income (loss) per common share - basic $ (0.05) $ 0.15 $ 0.38 $ 1.00 $ 0.29 $ 0.17 $ 0.39
======= ====== ====== ====== ====== ====== ======
Weighted average shares 6,356 6,672 7,242 7,242 7,240 7,236 7,236
======= ====== ====== ====== ====== ====== ======
Income (loss) per common share
before cumulative effect of a change
in accounting principle - diluted $ (0.05) $ 0.14 $ 0.33 $ 0.87 $ 0.25 $ 0.21 $ 0.40
======= ====== ====== ====== ====== ====== ======
Net income (loss) per common share - diluted $ (0.05) $ 0.14 $ 0.33 $ 0.87 $ 0.25 $ 0.15 $ 0.34
======= ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
- - Fidelity Leasing, Inc.
- Fidelity Leasing Canada Inc.
- FL Canada Leasing Inc.
- FL Sales Canada Inc.
- FL Sales, Inc.
- Reseller Finance Corporation
- Reseller Finance Corporation
- Fidelity Leasing SPC I, Inc.
- Fidelity Leasing SPC II, Inc.
- Fidelity Leasing SPE III, LLC
- Fidelity Leasing SPC IV, Inc.
- Fidelity Equipment Lease Depositor I, LLC
- Fidelity Leasing SPC IV, Inc.
- JLA Credit Corporation
- JLA Funding Corp.
- JLA Funding Corp. II
- JLA Funding Corp. III
<PAGE>
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP
We have issued our report dated April 9, 1999 accompanying the consolidated
financial statements of JLA Credit Corporation as of December 31, 1998 and for
the year then ended contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts".
/s/Grant Thornton LLP
Cleveland, Ohio
September 15, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF GRANT THORNTON LLP
We have issued our report dated December 7, 1998 accompanying the consolidated
financial statements of Fidelity Leasing, Inc. as of and for the years ended
September 30, 1998 and 1997 and for the period March 4, 1996 (inception) through
September 30, 1996 contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts".
/s/Grant Thornton LLP
Cleveland, Ohio
September 15, 1999
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
- ----------------------------
San Francisco, California
September 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 16,510
<SECURITIES> 0
<RECEIVABLES> 366,146
<ALLOWANCES> 9,700
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,938
<DEPRECIATION> 988
<TOTAL-ASSETS> 402,219
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 4,192
<TOTAL-LIABILITY-AND-EQUITY> 402,219
<SALES> 0
<TOTAL-REVENUES> 26,262
<CGS> 0
<TOTAL-COSTS> 23,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,497
<INTEREST-EXPENSE> 11,102
<INCOME-PRETAX> 2,742
<INCOME-TAX> 1,244
<INCOME-CONTINUING> 1,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (413)
<NET-INCOME> 1,085
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
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0
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