SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
December 31, 1996 0-19516
SUNRISE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1632858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5500 Wayzata Boulevard, Suite 725
Golden Valley, Minnesota 55416
(Address of principal executive offices)
Registrant's telephone number, including area code
(612) 593-1904
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
7,188,721 shares of Common Stock, $.01 par value as of February 7, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of December 31, 1996 and March 31,
1996.
Consolidated Statements of Operations for three month and nine
month periods ended December 31, 1996 and 1995.
Consolidated Statements of Cash Flows for the nine month periods
ended December 31, 1996 and 1995.
Notes to Consolidated Financial Statements.
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
--------------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,381,000 $ 1,629,000
Accounts receivable, less allowance for doubtful accounts
of $782,000 and $626,000 2,465,000 3,537,000
Income taxes receivable -- 1,157,000
Inventory held for sale 178,000 123,000
Loans receivable, less allowance for possible losses of $2,867,000
and $2,773,000 10,885,000 14,074,000
Investment in leasing operations:
Direct financing leases 52,513,000 65,165,000
Operating leases, less accumulated depreciation of
$22,655,000 and $19,927,000 38,642,000 28,962,000
Equipment held for lease 10,588,000 6,474,000
Initial direct costs 563,000 670,000
--------------- ----------------
Total investment in leasing operations 102,306,000 101,271,000
--------------- ----------------
Furniture and fixtures, less accumulated depreciation
of $496,000 and $396,000 431,000 515,000
Other assets 605,000 172,000
Goodwill and non-compete agreement, less
accumulated amortization of $83,000 and $50,000 574,000 607,000
--------------- ----------------
Total assets $ 119,825,000 $ 123,085,000
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Financing arrangements:
Borrowings under lines of credit $ 17,274,000 $ 18,298,000
Note payable to King Management Corporation -- 4,127,000
Securitized borrowings (Note 5) 11,315,000 --
Recourse participations in loans receivable 1,055,000 4,582,000
Discounted lease rentals 44,376,000 56,520,000
--------------- ----------------
Total financing arrangements 74,020,000 83,527,000
--------------- ----------------
Accounts payable 6,617,000 4,837,000
Accrued liabilities 4,032,000 3,919,000
Accrued income taxes 1,484,000 --
Deferred tax liability 1,498,000 1,498,000
--------------- ----------------
Total liabilities 87,651,000 93,781,000
--------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share, authorized
17,500,000 shares, 7,189,000 shares issued
and outstanding at both dates 72,000 72,000
Capital stock, undesignated, par value $.01 per share,
authorized 2,500,000 shares, none issued or outstanding -- --
Additional paid-in capital 25,601,000 25,601,000
Retained earnings 6,501,000 3,631,000
Total shareholders' equity 32,174,000 29,304,000
--------------- --------------
Total liabilities and shareholders' equity $ 119,825,000 $ 123,085,000
================ ===============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
--------------------------------- ------------------------------
1996 1995 1996 1995
----------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Operating leases $ 7,205,000 $ 5,268,000 $ 19,071,000 $ 16,328,000
Direct financing leases 1,790,000 2,445,000 6,011,000 7,318,000
Equipment sales 2,067,000 1,684,000 6,868,000 7,891,000
Interest Income 168,000 553,000 565,000 1,813,000
Fee income 64,000 77,000 187,000 307,000
--------------- --------------- --------------- ---------------
Total Revenues 11,294,000 10,027,000 32,702,000 33,657,000
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES
Depreciation 4,066,000 3,318,000 10,904,000 10,390,000
Interest 1,797,000 2,063,000 5,110,000 6,303,000
Provision for lease and loan losses 206,000 494,000 632,000 1,252,000
Cost of equipment sold 1,924,000 1,324,000 5,990,000 6,950,000
Compensation expense 876,000 776,000 2,659,000 2,554,000
Other operating expenses 785,000 733,000 1,886,000 2,019,000
--------------- --------------- --------------- ---------------
Total Costs and Expenses 9,654,000 8,708,000 27,181,000 29,468,000
--------------- --------------- --------------- ---------------
INCOME FROM OPERATIONS
BEFORE PROVISION
FOR INCOME TAXES 1,640,000 1,319,000 5,521,000 4,189,000
PROVISION FOR INCOME TAXES 789,000 530,000 2,651,000 1,677,000
--------------- --------------- --------------- ---------------
NET INCOME $ 851,000 $ 789,000 $ 2,870,000 $ 2,512,000
================= =============== ================= ===============
NET INCOME PER COMMON
AND COMMON
EQUIVALENT SHARE $ 0.12 $ 0.11 $ 0.40 $ 0.35
============== =============== =============== ==============
WEIGHTED AVERAGE NUMBER
OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 7,220,000 7,189,000 7,198,000 7,191,000
=============== =============== =============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended December 31,
1996 1995
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,870,000 $ 2,513,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for lease and loan losses 632,000 1,252,000
Depreciation and amortization 10,947,000 10,429,000
Change in operating assets and liabilities:
Accounts receivable 916,000 (1,293,000)
Income taxes receivable 1,157,000 --
Other assets (368,000) (52,000)
Inventory held for sale (55,000) 77,000
Accounts payable 1,780,000 (1,104,000)
Accrued liabilities 113,000 478,000
Accrued income taxes 1,484,000 5,000
--------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 19,476,000 12,305,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in loans receivable (1,381,000) (39,909,000)
Principal portion of loans receivable collected 4,476,000 42,225,000
Purchase of equipment for lease (32,262,000) (35,942,000)
Principal portion of direct financing leases collected 19,970,000 19,192,000
Purchase of furniture and fixtures (21,000) (98,000)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (9,218,000) (14,532,000)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on lines of credit 16,250,000 26,820,000
Payments on lines of credit (17,274,000) (26,430,000)
Proceeds from discounted lease financing 8,363,000 28,426,000
Payments on discounted lease financing (20,506,000) (19,040,000)
Proceeds from participations in loans receivable -- 280,000
Payments on participations in loans receivable (3,527,000) (1,803,000)
Proceeds from note payable to King Holding Corporation 1,955,000 224,000
Payments on note payable to King Holding Corporation (6,082,000) (5,947,000)
Proceeds from Securitized borrowings 13,000,000 --
Payments on Securitized borrowings (1,685,000) --
---------------- ---------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (9,506,000) 2,530,000
---------------- ---------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 752,000 303,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,629,000 2,398,000
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,381,000 $ 2,701,000
=============== ===============
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
<PAGE>
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1996 and 1995 (Unaudited)
1. ACCOUNTING POLICIES
In the opinion of management the accompanying financial statements contain
all adjustments necessary to present fairly the financial position of
Sunrise Resources, Inc. and Subsidiaries (the "Company") as of December
31, 1996 and March 31, 1996, the Company's results of operations for
the three months and nine months ended December 31, 1996 and 1995, and
the Company's cash flows for the nine months ended December 31, 1996
and 1995. All such adjustments are of a normal and recurring nature.
These statements should be read in conjunction with the Notes to the
Financial Statements contained in the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1996, filed with the
Securities and Exchange Commission, and with Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing
on pages 9 through 16 of this quarterly report. Results for the interim
periods are not necessarily indicative of sales trends or future
results and performance.
2. INCOME TAXES
Income tax expense has been provided based on management's estimate of
the annualized effective tax rate of 48% for the three and nine month
periods ended December 31, 1996, and 40% for the three and nine month
periods ended December 31, 1995.
3. LOANS RECEIVABLE
Loans by Collateral Type
The composition of the loans receivable portfolio by collateral type was
as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
--------------- -------------
<S> <C> <C>
Commercial loans, collateralized primarily by receivables $ 474,000 $ 1,282,000
Commercial loans, collateralized by equipment, marketable
securities and other 5,341,000 7,563,000
Real estate loans 1,048,000 4,205,000
Impaired loans 8,346,000 8,150,000
Non-recourse participations (1,365,000) (4,216,000)
--------------- ---------------
13,844,000 16,984,000
Less:
Allowance for possible loan losses (2,867,000) (2,773,000)
Unearned fees from loan origination (92,000) (137,000)
--------------- ---------------
$ 10,885,000 $ 14,074,000
=============== ===============
</TABLE>
<PAGE>
Loan Portfolio Activity and Allowance for Possible Loan Losses -
As of December 31, 1996 and March 31, 1996, the Company's recorded
investment in impaired and other loans and the related valuation
allowances were as follows:
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1996
------------------------------------ ----------------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
<S> <C> <C> <C> <C>
Impaired loans -
Nonaccrual $ 8,121,000 $ 2,642,000 $ 7,925,000 $ 2,514,000
Other 225,000 225,000 225,000 225,000
Performing loans 6,863,000 -- 13,050,000 34,000
Nonrecourse participations (1,365,000) -- ( 4,216,000) --
----------------- -------------- ---------------- ---------------
$ 13,844,000 $ 2,867,000 $ 16,984,000 $ 2,773,000
=============== ============= ============== ==============
</TABLE>
The activity in the allowance for possible loan losses during the three
and nine month periods ended December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
-------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balance, beginning of period $2,837,000 $2,760,000 $2,773,000 $2,125,000
Provisions for loan losses 30,000 396,000 94,000 1,031,000
Write-offs -- (372,000) -- (372,000)
------------ ------------- ------------ -------------
Balance, end of period $2,867,000 $2,784,000 $2,867,000 $2,784,000
============ ============= ============ =============
</TABLE>
The average investment in impaired loans for the three and nine month periods
ended December 31, 1996 and 1995 was $8.4 million, $12.5 million, $8.2 million
and $9.4 million, respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, at which
time payments received are recorded as reductions of principal. The Company did
not recognize any interest income on impaired loans for the respective three and
nine month periods ended December 31, 1996 and 1995.
When, in the opinion of management, a reasonable doubt exists as to the
collectibility of interest or fee income, the accrual of such income is
discontinued and uncollected income accruals are reversed. During the three and
nine months ended December 31, 1996 and 1995, the Company did not recognize fee
and interest income totaling $135,000, $250,000, $405,000 and $986,000,
respectively, relating to the impaired loans referred to in the preceding
paragraph.
<PAGE>
4. DISCOUNTED LEASE RENTALS
Discounted lease rentals consist of the following:
December 31, March 31,
1996 1996
--------------- ---------------
Non-recourse $ 36,697,000 $ 43,969,000
Recourse 7,679,000 12,551,000
--------------- ---------------
$ 44,376,000 $ 56,520,000
=============== ===============
5. FINANCING ARRANGEMENTS
Lines of Credit -
The Company has a $25 million line of credit facility with a bank for use
in its normal operations. Advances under this line of credit are
subject to a borrowing base limitation of $24.6 million at December 31,
1996. The balance outstanding as of quarter end was $17.3 million.
Advances under the line are at prime, and are collateralized by
substantially all unencumbered assets of the Company.
Related Party Securitization
On October 31, 1996, the Company, Sunrise Leasing Corporation ("Sunrise
Leasing") and Sunrise Funding Corporation I (a newly formed wholly-owned
special purpose subsidiary of Sunrise Leasing)("Sunrise Funding"), entered
into an agreement with a subsidiary of Dougherty Dawkins, Inc. to place up
to $20 million of notes issued by Sunrise Funding to private institutional
investors. Dougherty Dawkins, Inc. is an investment banking firm of which
Thomas Strand, a director of the Company, is Vice Chairman. The notes are
secured by certain leases contributed to Sunrise Funding by Sunrise
Leasing. This securitization facility was closed on November 8, 1996, with
an initial funding of $13,000,000. The funds were used to pay off the $3.1
million of loans from The King Management Corporation, to pay accrued legal
expenses, interest and fees in connection with the financing, and to repay
$9.4 million under the Company's bank line of credit. This reduction to the
outstanding bank line of credit makes credit available to fund additional
equipment purchases.
6. COMMITMENTS AND CONTINGENCIES
Litigation -
Peter King has commenced arbitration proceedings against the Company
relating to the February 1995 merger of the Company with The P.J. King
Companies, Inc. (d/b/a International Leasing Corporation) ("ILC") on the
basis that, in his view, problems underlying the net investment in several
direct financing loans and leases arose prior to the merger and were not
disclosed. He has also asserted other claims regarding valuation of certain
other assets of the Company at the time of the merger. In addition to
seeking money damages or additional shares of the Company Common Stock, Mr.
King is attempting to obtain rescission of the merger. Such an attempt,
which is being strongly resisted by the Company, could if he is successful
result in Mr. King and his affiliates reacquiring ownership of ILC's vendor
leasing business as it existed in February 1995 and as it has been expanded
since February 1995 and all other ILC assets and liabilities. The matter is
currently scheduled to be completed during the Company's fourth quarter of
fiscal 1997.
On August 15, 1996, a lessee of the Company filed for protection under
Chapter 11 of the Bankruptcy Code. The Bankruptcy court has approved the
lessee's motion to reject its lease with the Company. After having made a
$6.8 million provision for loss on lease receivables pertaining to this
customer in fiscal 1995, the Company's net investment in the lease is
approximately $163,000 as of December 31, 1996. The Company believes the
value of the leased equipment will be adequate to cover the Company's net
investment.
<PAGE>
7. EVENTS SUBSEQUENT TO DECEMBER 31, 1996
On January 31, 1997, Sunrise Leasing Corporation through its wholly-owned
subsidiary Sunrise Funding Corporation I, completed the remaining
$7,000,000 funding on the securitization facility with a subsidiary of
Dougherty Dawkins, Inc. These notes are secured by certain leases
contributed to the subsidiary by Sunrise Leasing Corporation. These funds
were used to reduce the debt outstanding under the Company's bank line of
credit. This reduction to the outstanding bank line of credit makes credit
available to fund additional equipment purchases.
ITEM 2. Management's discussion and analysis of financial condition and results
of operations.
Revenues
The Company classifies its lease transactions, as required by the Statement of
Financial Accounting Standards No. 13 ("FASB 13"), as either direct financing or
operating leases. Revenue, costs and resulting income are recognized during each
of the accounting periods during the term of the lease. The allocation of income
among the accounting periods within a lease term will vary depending upon the
lease classification.
The Company segregates the sources of its revenue into five categories for
financial statement purposes: (i) operating leases; (ii) direct financing
leases; (iii) sales of new and used equipment; (iv) interest income; and (v) fee
income.
Operating Leases. All leases that are not classified as direct financing leases
are treated as operating leases. Monthly payments from these leases are
recognized as leasing revenue. The Company's cost of the leased equipment is
recorded on the balance sheet and is depreciated on a straight-line basis over
the lease term to the Company's estimate of residual value. Revenue and the
related depreciation expense for operating leases are recorded evenly over the
term of the lease. The related interest expense declines over the term of the
lease as the principal is reduced, with the resultant net margin being lower in
the early periods of the lease and higher in the later periods.
<PAGE>
Direct Financing Leases. These leases transfer substantially all benefits and
risks of equipment ownership to the lessee. 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 by 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 value of the leased equipment at inception of the lease.
Direct financing leases consist of future lease payments plus the residual value
(collectively referred to as the "gross investment"). Residual value is the
estimated fair market value at the time of lease termination. The difference
between the gross investment in the lease and the cost (or carrying amount, if
different) of the leased equipment is recorded as unearned revenue. The "net
investment" in the lease is the gross investment less unearned revenue. The
unearned revenue is amortized to leasing revenue over the lease term to produce
a constant percentage return on the net investment whether or not the lease is
discounted to a financial institution.
Equipment Sales. Revenue from equipment sales transactions is recognized by the
Company at the time title to the equipment passes to the customer. Leases that
entitle the customer to purchase the leased equipment for a nominal sum at the
end of the lease term and which are discounted on a nonrecourse basis at the
lease commencement date, thereby leaving the Company with no interest in the
transaction, are treated by the Company as a sale of equipment.
Interest Income. Interest income is accrued on unimpaired loans receivable under
the effective interest method. Interest income is not recognized on loans which
have been identified by the Company as impaired.
Fee Income. The Company earns fee income principally for arranging leases
between unrelated parties. These fees are recognized at the closing of such
transactions. At lease termination, the Company may also be entitled to
additional fee income equal to a portion of the net proceeds from a subsequent
lease or sale of the equipment. The Company's portion of such net proceeds, if
any, is reported as fee income at the time of the subsequent lease or sale of
equipment.
Cash Flows from Leases
Cash flows are not affected by how a particular lease is classified, but are
affected by the Company's decision on how its investment in a particular lease
will be financed. When the Company discounts lease payments on a nonrecourse or
recourse basis with a financial institution, the discounted future lease
payments are received up-front, and are recorded on the Company's balance sheet
as discounted lease rentals. If, however, the Company chooses not to discount
the remaining lease payments, the total lease payments are received by the
Company over the lease term.
<PAGE>
Sunrise Financial Resources, Inc.
The Board of Directors made the determination in fiscal 1996 to discontinue the
SFR business. The Company has sold the SFR asset-based lending accounts and
certain of its SFR commercial accounts. Management believes the loan portfolio
is reflected at its estimated liquidation value as of December 31, 1996.
Results of Operations for the Three and Nine Months Ended December 31, 1996
and 1995
Total revenue for the three-month period ended December 31, 1996 increased $1.3
million, or 12.6%, compared to the corresponding period in fiscal 1996. Total
revenue for the nine month period ended December 31, 1996 decreased $1.0
million, or 2.8%, compared to the same period in fiscal 1996 primarily as a
result of lower equipment sales. Operating lease revenue continues to show
sustained growth with increases of $1.9 million (36.8%) and $2.7 million (16.8%)
over the three and nine month period ended December 31, 1996 as compared to the
same period in fiscal 1996. This was due to the increase in activity in the
Company's vendor leasing programs. Direct finance leasing revenues continue to
decrease as new leases are being added to the end-user portfolio at a rate
slower than the run-off of existing leases and the sales efforts have been
focused more on vendor leases which are typically not recorded as direct finance
leases. Equipment sales, although increasing slightly for the three month period
ended December 31, 1996, have decreased $1.0 million (13.0%) for the nine month
period ended December 31, 1996 as compared to the same period in fiscal 1996.
The decrease is attributable to a lower amount of equipment coming off lease.
Interest income and fee income continue to decline as the Company continues to
wind down the SFR business.
<PAGE>
Total leasing revenues were as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
------------- -------------- -------------- -------------
Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C>
Leasing Revenues:
Vendor $ 5.5 61% $ 3.4 44% $ 14.3 57% $ 10.0 42%
Direct 3.5 39 4.3 56 10.7 43 13.6 58
--- -- --- -- ---- -- ---- ----
Total $ 9.0 100% $ 7.7 100% $ 25.0 100% $ 23.6 100%
======= ==== ====== ==== ======= ==== ======= ====
As a percent of total revenues 79.6% 76.9% 76.7% 70.2%
========== ========== ========== ===========
</TABLE>
Margins from leasing activities (leasing revenue, less depreciation and interest
expense) were 34.8% and 36.2%, and 30.2% and 29.4% for the three and nine month
periods of fiscal 1997 and fiscal 1996, respectively. Margins will fluctuate
from period to period based upon the mix of direct financing and operating
leases. Margins will also be affected by the age of direct finance and operating
leases in the current portfolio.
In order to limit the impact of any interest rate fluctuations on its leasing
transactions, the Company continually monitors its lease rate factors relative
to interest rates on borrowed funds. The lease rate factors are adjusted
periodically on new leases to correspond to any change in interest rates on
borrowed funds supporting the related transactions.
Revenue from equipment sales increased $383,000 for the three-month period ended
December 31, 1996 and decreased $1,023,000 for the nine-month period ended
December 31, 1996 as compared to the corresponding periods in fiscal 1996. This
decrease is primarily a result of lower off-lease sales coming from the vendor
leasing business. The gross margins of this activity were 6.9% and 12.8% of
sales revenue for the three and nine month periods of fiscal 1997, compared to
21.4% and 11.9% for the corresponding period in fiscal 1996. These favorable
gross margins over the nine month period were the result of establishing more
conservative residuals on equipment that is now coming off-lease. A few
individual loss transactions caused lower three month margins and lowered
anticipated margins for the nine month period. Gross margins will also vary
depending on the Company's ability to purchase equipment at competitive prices
and to negotiate attractive selling prices for such equipment.
<PAGE>
Interest income decreased $385,000 (69.6%) and $1,248,000 (68.8%) for the three
and nine month periods of fiscal 1997 as compared to the corresponding period in
fiscal 1996. This decrease was caused by the liquidation of a significant part
of the SFR loan portfolio which coincided with the Company's decision to
discontinue its commercial and asset-based lending business.
Fee income decreased $13,000 (16.9%) and $120,000 (39.1%) for the three and nine
month periods of fiscal 1997 as compared to the same period in fiscal 1996. This
decrease was primarily the result of the fiscal 1996 cessation of SFR lending
activities.
Total costs and expenses increased $946,000 (10.9%) for the three month period
ended December 31, 1996 as compared to the same period in fiscal 1996. Total
costs and expenses for the nine month period decreased $2.3 million (7.7%) as
compared to the same period in fiscal 1996. In the current three month period
the Company incurred a significant increase in legal fees relating to the
Company's dispute with King Management Corporation. The Company anticipates that
its legal costs should decrease significantly in fiscal 1998. The decrease in
the nine month period related to lower interest expense from lower average debt
balances.
Depreciation expense increased $748,000 (22.6%) and $514,000 (5.0%) for the
three and nine month periods ended December 31, 1996 as compared to the
corresponding period in fiscal 1996. This increase was due to an increase in
vendor equipment operating leases that were added in the third quarter due to an
increase in activity from the vendor leasing programs.
Interest expense decreased $266,000 (12.9%) and $1,193,000 (18.9%) for the three
and nine month periods of fiscal 1997 as compared to the corresponding period in
fiscal 1996. The decrease in interest expense reflects lower average borrowings
during the period.
Compensation expense increased $105,000 (4.1%) for the nine month period ended
December 31, 1996, compared to the same period in fiscal 1996. The increase was
the result of increased personnel associated with the expansion of the Company's
services as well as accruals for year-end merit compensation. Compensation
expense for the three and nine month periods of fiscal 1996 included one-time
charges of $66,000 and $350,000 which were part of severance agreements payable
to former employees of the Company.
Other operating expenses decreased $133,000 (6.6%) for the nine month period of
fiscal 1997 as compared to the corresponding period in fiscal 1996. Other
operating expenses increased $52,000 (7.1%) for the three month period ended
December 31, 1996 as compared to the same period in fiscal 1996. Most operating
expenses have decreased as a direct result of the Company's efforts to control
operating costs and reduce overhead, but a significant increase in legal fees
and associated arbitration costs relating to the dispute with King Management
Corporation caused an increase in operating expenses for the most recent
quarter.
<PAGE>
Income tax provision as a percentage of income before taxes was 48.1% and 48.0%
and 40.2% and 40.0% for the three and nine month periods ended December 31, 1996
and 1995, respectively. The increase in the tax rate in the current fiscal
period is due to the potential unrealizability of certain alternative minimum
tax credits.
As a result of the foregoing factors, net income increased $62,000 (7.9%) and
$357,000 (14.2%) for the three and nine month periods of fiscal 1997 as compared
to the corresponding periods in fiscal 1996.
Liquidity and Capital Resources
General
The Company uses a combination of its credit lines and internally generated cash
flows to finance, on an interim basis, the acquisition of equipment for lease or
sale. Generally, upon commencement of a lease, the Company attempts to assign
the remaining lease payment stream to a financial institution on a discounted,
nonrecourse basis. In this manner, the Company finances a substantial portion of
the equipment cost on a long-term basis and attempts to limit its risk, if any,
to its equity investment in the equipment. The discounted lease proceeds
received by the Company are used to reduce borrowings under the Company's credit
lines. Where the Company finances the equipment cost either internally or on a
recourse basis, the Company assumes the entire risk on its investment in the
loan or equipment. Recently, Sunrise Leasing Corporation's wholly-owned
subsidiary, Sunrise Funding Corporation I, has securitized its lease receivables
and related residuals (the "Securitized Facility"). The Company anticipates that
it may attempt to enter into similar transactions to finance a portion of its
vendor program leases in the future. See Note 5 to Consolidated Financial
Statements under Item 1 above.
At December 31, 1996, the Company had total borrowings outstanding of $74.0
million, of which 49.6% were nonrecourse. These borrowings consisted of $44.4
million of discounted lease rentals (79.1% of which were recourse and 20.9% of
which were non-recourse), $17.3 million of borrowings under bank lines of
credit, $11.3 million under the Securitized Facility and $1.0 million in
recourse participations in SFR loans receivable.
As of December 31, 1996, the Company had a total investment in leasing
operations of $102.3 million. The Company's investment in leasing operations was
financed through $36.7 million of non-recourse discount lease financing, $7.7
million of recourse discount lease financing, and $57.9 million generated by
internal funds and recourse bank lines of credit. The Company's vendor leasing
business is funded exclusively with internal funds and recourse bank lines of
credit. The marginal increase in investment in leasing operations was due to an
increase in new equipment installations and upgrades. The Company's investment
in leasing operations includes equipment held for lease, which consists of
equipment for which a lease has been signed but which has not yet commenced. The
amount of equipment held for lease fluctuates significantly depending on the
dollar amounts and commencement dates of the Company's leases.
Net cash provided by operating activities was $19.5 million for the nine months
ended December 31, 1996. Accounts payable increased $1.8 million due to a
general increase in the Company's lease portfolio and other business activities.
The Company expects to fund similar requirements through internally generated
funds, as well as borrowings under its lines of credit. The Company also expects
to realize additional cash from the future remarketing of leased equipment.
Equipment expenditures of $32.3 million for the first nine months of fiscal 1997
were financed through $19.5 million of cash flows from operations, through the
discounting of $8.4 million of noncancelable lease rentals to various financial
institutions at fixed rates, through the securitization of leases for an initial
$13.0 million, and through the use of the Company's lines of credit. The Company
does not have any material commitments for capital expenditures, other than
equipment held for lease.
<PAGE>
Investments in loans receivable were $1.4 million for the first nine months of
fiscal 1997 and were financed primarily through internally generated funds and
use of short-term borrowings under the Company's lines of credit.
Inflation has not been a significant factor in the Company's business in any of
the periods presented.
Financing Sources
The Company maintains a $25 million line of credit. Of this amount, $17.3
million had been utilized as of December 31, 1996. On January 31, 1997, the
Company repaid $7.0 million on this line of credit with funds obtained through
the additional securitization of leases with a subsidiary of Dougherty Dawkins.
Advances under the line are collateralized by substantially all of the Company's
assets. The interest rate is at prime, and the Company is subject to certain
financial and other covenants relating to net worth ratios and liquidity
requirements. The Company's line of credit matured September 30, 1996. The line
was renewed as of October 1, 1996 and was extended under identical terms for a
twelve month period maturing on September 30, 1997. See "Outlook".
As of March 31, 1996, the Company was not in compliance with a recourse
discounted loan agreement and had not repaid a note payable to The King
Management Corporation which matured in February 1996. These events resulted in
an event of noncompliance under cross-default provisions of the Company's bank
line of credit agreement. On November 8, 1996, all debt outstanding to The King
Management Corporation was repaid in full which resulted in eliminating all
related defaults under that facility. In addition, on November 8, 1996, the
Company amended the terms of its recourse discounted loan agreement,
simultaneously receiving a waiver of all events of non-compliance under that
agreement.
The Company has recently entered into an agreement with a subsidiary of
Dougherty Dawkins, Inc. to place up to $20 million of notes issued by a
subsidiary of the Company to private institutional investors. This
Securitization Facility was closed on November 8, 1996, with an initial funding
of $13 million. The funds were primarily used to repay the $3.1 million of loans
from The King Management Corporation and to pay down the Company's bank line of
credit. On January 31, 1997, the Company completed the final phase of this
funding for $7.0 million and used the proceeds to pay down its line of credit.
See Note 7 to Consolidated Financial Statements under Item 1 above. As a result
of closing this financing, the Company decided not to pursue a previously
proposed $10 million financing from The King Management Corporation. However,
the Company believes that if its business grows as anticipated, additional
financing will be required, and it is currently discussing such financing with
several sources. The ability to obtain such financing will depend, at least in
part, on the outcome of the arbitration hearing on the claims of the former ILC
shareholders relating to the February 1995 merger of ILC, as discussed in
"Outlook".
Liquidity
Based on its completion of the Securitized Facility and its recent success in
obtaining additional discount financing, the Company believes that it will be
able to finance its anticipated equipment purchasing commitments for the
remainder of fiscal 1997. In order to fund its anticipated commitments in fiscal
1998, the Company will require additional financing facilities. Although there
is no assurance that the Company will be able to obtain such financing,
management is cautiously optimistic that it will be able to obtain financing as
required to fund its equipment purchase commitments in fiscal 1998.
<PAGE>
Over the past year or more, the Company has continued to monitor several problem
leases and loans. See "Note 6 to Consolidated Financial Statements for
information on significant lessee bankruptcy." While there continues to be
several loans payable to the Company as to which the Company could be forced to
take additional write-offs, management does not believe that any such write-offs
would be material or that they would create new covenant violations on current
credit facilities or otherwise limit or reduce the Company's access to credit. A
lessee under a significant equipment lease with the Company previously agreed to
increase its monthly rental payments from $159,000 to $199,000 beginning in
November 1996. The additional monthly rent of $40,000 has not been paid despite
demand, and there is no guarantee that it will be. The Company believes the
lessee will continue to make the $159,000 monthly payments, but if there is a
total default by the lessee, the Company would be required to write off the
remaining lease balance which would have a materially adverse affect on the
Company's financial statements.
Outlook
The statements contained in this Outlook section are based on current
expectations. The statements are forward looking and actual results may differ
materially.
The Company's strategy is to continue to focus on and expand its vendor leasing
business while maintaining its equipment leasing business. Since January 1,
1996, the Company has been engaged in doing leasing business with five new
vendors. It has signed agreements with three of these vendors and is negotiating
agreements with the other two vendors and believes agreement will eventually be
reached with them. The Company is also in various stages of negotiations with
several other vendors, but there is no assurance that the Company will ever do
any leasing business with such vendors or that agreements will be entered into
with them. Management is optimistic that the Company's vendor leasing business
will continue to grow. The Company's ability to continue to expand its vendor
business is dependent on its success in obtaining the necessary financing to
fund its current vendors and new vendors. While management is cautiously
optimistic about the Company's ability to finance equipment purchases in fiscal
1998, the Company's ability to obtain such financing may depend on the outcome
of the arbitration with ILC shareholders and the avoidance of additional
material write-offs on problem loans and leases still outstanding.
The forward looking statements contained in this Outlook, in particular the
statements regarding growth of the Company's vendor leasing business, the
Company's ability to finance this business, and management's belief that any
future loan or lease write off will not be material, involve a number of risks
and uncertainties in addition to the factors discussed above, including the
following:
Highly Competitive Industry. The data processing equipment leasing business is
highly competitive. The Company competes with numerous companies, including
leasing companies, commercial banks and financial institutions, some of which
the company relies on to obtain capital to finance its leases. Most of the
Company's competitors are significantly larger and have substantially greater
resources than the Company. Because of its relative lack of capital, the Company
typically chooses not to compete with large leasing companies for those leases
in which the cost of the equipment greatly exceeds the amount of nonrecourse
financing available.
<PAGE>
Future Growth. The Company's ability to grow at an acceptable rate is dependent
to a great extent on the expansion of its vendor leasing programs. As of
December 31, 1996, the Company has only two significant vendor leasing programs
and has signed agreements for four other vendor leasing programs. While the
Company believes it has the ability and capacity to develop other large vendor
leasing programs, there is no assurance that it will be successful in this
regard or that it will be able to generate acceptable revenue growth.
Risk of Additional Loan and Lease Write-Offs. While the Company believes that
its current reserves are adequate, it continues to monitor closely several
restricted loans and a material lease. There is no assurance that such loans or
such lease will not go into default or that they are adequately secured. Any
future losses on such loans incurred in excess of the Company's reserves would
likely materially affect the Company's future earnings.
Arbitration. The claims of the former ILC shareholders regarding the merger of
ILC and Sunrise Leasing Corporation are currently being heard in a binding
arbitration scheduled to be completed and a ruling made by the end of fiscal
1997. The ILC shareholders are seeking rescission and/or substantial damages
which, if granted, would be in the form of additional shares of Company stock
thereby materially diluting the holdings of current shareholders. The ILC
shareholders are seeking to rescind the merger with the Company and to obtain
control of the Company's entire vendor leasing business. The Company does not
believe that rescission is the proper remedy, but if rescission is granted, the
Company does not believe the rescission will cover vendors which became
customers of the Company subsequent to the merger.
Financing. The Company's growth and profitability are dependent to a great
extent on the willingness of banks and other financial institutions to lend the
Company money to finance the purchase of equipment to be leased. To date, the
Company has financed its equipment and vendor leasing businesses primarily
through the sale of equity to the public, cash flow from operations, bank lines
of credit, non-recourse discount lease financing, recourse discount lease
financing and a securitization of certain lease receivables and related
residuals. The Company normally seeks to fund its traditional equipment business
with non-recourse discount financing. There is no assurance that banks will be
willing to continue to finance the Company's equipment leasing transactions on a
non-recourse basis and any adverse change in the willingness of banks to finance
the Company's lease transactions on a non-recourse basis could affect its future
equipment leasing revenue. The Company's vendor leasing business to date has
been financed with internally-generated cash flow, bank lines of credit and a
significant securitization program. The Company will seek to finance its future
vendor leasing business in part with transactions similar to securitization
programs. To the extent such financing programs are not available, the Company
will assume a significantly higher degree of risk because the lender has direct
recourse against the Company for the amount of any default. A default on a lease
with a significant lease balance could have a material adverse impact on the
Company.
Major Customers/Vendors. As of December 31, 1996, $23,283,000 in leasing
operations and loans receivable balances were funded internally or with recourse
obligations held by 15 customers having balances outstanding in amounts greater
than $500,000. Total investments in leases and loans receivables to customers
considered highly leveraged or with cash flows from operations inadequate to
service existing obligations were $33,905,000 or 31.0% of the portfolio as of
December 31, 1996. Defaults by such customers would result in a significant loss
to the Company, to the extent such amounts are not already reserved. In
addition, as these leases and loans are funded internally or through recourse
financing, the Company would be obligated to repay the remaining principal
balance to the financial institution out of internally generated funds while
receiving no cash payments from the lessee/borrower.
In addition, 48.2% and 46.9% of the Company's leasing revenue for the three and
nine month periods ended December 31,1996 was generated through a single vendor
leasing program. Should this program terminate, the Company would continue to
realize related revenues for a period of up to three years. The Company believes
that during this period it would be able to replace this business. If, however,
the Company would be unable to replace this business, the Company's future
financial results could be materially and adversely affected.
<PAGE>
Residual Values of Leased Equipment. The value of the data processing equipment
leased by the Company to its customers represents a substantial portion of the
Company's capital. At the inception of each lease, the Company estimates the
residual value of the leased equipment, which is the estimated market value of
the equipment at the end of the initial lease term. The actual realized residual
value of leased equipment may differ from its estimated residual value,
resulting in profit or loss when the leased equipment is sold or leased again at
the end of the initial lease term. If a lessee defaults on a lease which has
been discounted by the Company to a financial institution, the financial
institution may foreclose on its security interest in the leased equipment and
the Company may not realize any portion of such residual value. In addition,
data processing equipment is subject to rapid technological obsolescence typical
of the computer industry. While the Company's experience to date has generally
resulted in actual residual values in excess of estimated residual values, a
greater than expected decrease in the market value of data processing or other
equipment leased by the Company could materially and adversely affect the
Company's financial condition and profitability.
PART II-OTHER INFORMATION
- --------------------------------------------------------------------------
ITEM 1. In June of 1995 the former ILC shareholders advised the Company that
they were reserving their rights in connection with the merger of the
Company and ILC in February 1995. The claims of the former ILC
shareholders have gone to arbitration and are scheduled to be completed
during the Company's fourth quarter of fiscal 1997. See Note 6 to
Financial Statements at Part I, Item 1, above.
ITEM 2. Changes in Securities - NONE
ITEM 3. Defaults on Senior Securities - See Note 5 to Financial Statements
at Part I, Item 1, above.
ITEM 4. Submission of Matters to a Vote of Security Holders - NONE
ITEM 5. Other Information - NONE
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
See Exhibit Index immediately following the signature page.
b. Form 8-K
There have been no Current Reports on Form 8-K filed on
behalf of the Company during the quarter ended December 31,
1996.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNRISE RESOURCES, INC.
Date: February 14, 1997 By: /s/ Errol Carlstrom
Errol Carlstrom, President
and Chief Executive
Officer (Principal executive
officer)
By: /s/ Barry J. Schwach
Barry J. Schwach
Executive Vice President of
Finance and Administration and
Chief Financial Officer
(Principal financial officer)
By: /s/ Paul R. Wotta
Paul R. Wotta
Controller (Principal accounting
officer)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
Commission File No.: 0-19516
For the quarter ended
December 31, 1996
SUNRISE RESOURCES, INC.
Exhibit
Number Description
3.1 Restated Articles of Incorporation, as amended - incorporated
by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the year ended March 31, 1995.
3.2 Restated Bylaws--incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-18, Reg. No.
33-42477C.
4.1 Specimen of Common Stock Certificate--incorporated by
reference to Exhibit 4 to Amendment No. 1 to the Company's
Registration Statement on Form S-18, Reg. No. 33-42477C.
10.1 Purchase Agreement dated October 31, 1996 by and
among the Company, Sunrise Funding Corporation I,
Sunrise Leasing Corporation and Dougherty Funding, Inc.
10.2 Lease Receivables-Backed Note, Series 1996-1 dated November 8,
1996 in the principal amount of $20,000,000 by Sunrise Funding
Corporation I in favor of Dougherty Funding, Inc.
10.3 Indenture amount Sunrise Funding Corporation I, Sunrise
Leasing Corporation and Norwest Bank Minnesota, National
Association dated November 1, 1996
10.4 Contribution Agreement dated November 1, 1996 between Sunrise
Leasing Corporation and Sunrise Funding Corporation I
10.5 Servicing Agreement dated November 1, 1996 between Sunrise
Funding Corporation I and Sunrise Leasing Corporation
10.6* Severance Agreement and Release dated as of November 12, 1996
between the Company and William B. King
10.7 Portfolio Purchase Agreement and Guaranty dated November 27,
1996 between Sunrise Leasing Corporation and The CIT Group
11.1 Per Share Earnings Computations
27.0 Financial Data Schedule (filed with electronic version only)
*Management contract or other compensatory plan.
Sunrise Funding Corporation I
Sunrise Leasing Corporation
Sunrise Resources, Inc.
$20,000,000
Lease Receivables-Backed Notes, Series 1996-1
Issue price: 100%
October 31, 1996
Purchase Agreement
Dougherty Funding, Inc.
90 South 7th Street, Suite 4300
Minneapolis, Minnesota 55402-4114
Ladies and Gentlemen:
Sunrise Funding Corporation I, a Minnesota corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to Dougherty Funding, Inc. (the "Purchaser") $20,000,000 aggregate principal
amount of its Lease Receivables-Backed Notes, Series 1996-1 (the "Securities").
Sunrise Leasing Corporation, a Minnesota corporation ("Sunrise Leasing"), is a
wholly-owned subsidiary of Sunrise Resources, Inc., a Minnesota corporation
("Sunrise").
1. Representations and Warranties of Sunrise, Sunrise Leasing and the
Company. Each of Sunrise, Sunrise Leasing and the Company, jointly and
severally, represents and warrants to, and agrees with the Purchaser that:
(a) Each of Sunrise, Sunrise Leasing and the Company agrees to
prepare a private placement memorandum in connection with the offering of the
Securities (the private placement memorandum and all other documents annexed to
or incorporated by reference in the private placement memorandum are hereinafter
called the "Private Placement Memorandum"). The Private Placement Memorandum,
any preliminary private placement memorandum (the "Preliminary Private Placement
Memorandum") and any amendments or supplements thereto will not, as of their
respective dates, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) Each of Sunrise, Sunrise Leasing and the Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of the state of its incorporation. Each of Sunrise, Sunrise Leasing and the
Company is duly qualified to transact business as a foreign corporation and is
in good standing under the laws of all other jurisdictions where the ownership
or leasing of their respective properties or the conduct of their respective
<PAGE>
businesses requires such qualification, except where the failure to be so
qualified would not result in a material liability or disability to Sunrise,
Sunrise Leasing and the Company, taken as a whole.
(c) Each of Sunrise, Sunrise Leasing and the Company has and will
have full power (corporate and other) to own or lease their respective
properties and conduct their respective businesses as presently conducted; and
each of Sunrise, Sunrise Leasing and the Company has full power (corporate and
other) to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it.
(d) The Securities have been duly and validly authorized and, when
issued and authenticated in accordance with the Indenture, to be dated as of
November 1, 1996 (the "Indenture"), among the Company, Sunrise Leasing, as
Servicer, and Norwest Bank Minnesota, National Association, as Trustee (the
"Trustee"), and delivered pursuant to this Agreement against payment of the
consideration specified in this Agreement, the Securities will be duly executed,
authenticated, issued and delivered and will constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms
and entitled to the benefits provided by the Indenture, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(e) Each of the Contribution Agreement, the Servicing Agreement and
the Indenture has been duly authorized by each of Sunrise, Sunrise Leasing and
the Company, as applicable, and, when executed and delivered by the other
parties thereto, each of the Contribution Agreement, the Servicing Agreement and
the Indenture will constitute a valid and legally binding obligation of each of
Sunrise, Sunrise Leasing and the Company, as applicable, enforceable against
each of Sunrise, Sunrise Leasing and the Company, as applicable, in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and the Securities, the Contribution Agreement, the Servicing
Agreement and the Indenture will conform to the descriptions thereof in the
Private Placement Memorandum.
(f) The financial statements and schedules of Sunrise and its
consolidated subsidiaries, and the related notes thereto, included in the
Preliminary Private Placement Memorandum, on file with the Securities and
Exchange Commission or otherwise provided to the Purchaser present fairly the
consolidated financial position of Sunrise and its consolidated subsidiaries as
of the respective dates of such financial statements, and the consolidated
results of operations and cash flows of Sunrise and its consolidated
subsidiaries for the respective periods covered thereby, all in conformity with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed in the Preliminary Private Placement
Memorandum.
<PAGE>
(g) Arthur Andersen LLP, who have audited certain financial
statements of Sunrise and its consolidated subsidiaries and delivered their
report with respect to the audited financial statements and schedules included
in the Preliminary Private Placement Memorandum or otherwise provided to the
Purchaser, are independent public accountants as such term is used in the
Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the related published rules and
regulations thereunder.
(h) The execution and delivery of this Agreement have been duly
authorized by each of Sunrise, Sunrise Leasing and the Company, and this
Agreement has been duly executed and delivered by each of Sunrise, Sunrise
Leasing and the Company.
(i) Except as set forth in the Disclosure Schedule, no legal or
governmental proceedings are pending to which Sunrise, Sunrise Leasing or the
Company is a party or to which the property of Sunrise, Sunrise Leasing or the
Company is subject, the determination of which any of Sunrise, Sunrise Leasing
or the Company expects (after giving effect to any applicable insurance,
reinsurance or revenues therefor), individually or in the aggregate, to have a
material adverse effect on the financial position, stockholders' equity or
results or operations of Sunrise and its subsidiaries taken as a whole; and no
such proceedings have been threatened against any of Sunrise, Sunrise Leasing or
the Company or with respect to any of their respective properties.
(j) The issuance, offering and sale of the Securities to the
Purchaser by the Company pursuant to this Agreement, the compliance by Sunrise,
Sunrise Leasing and the Company with the other provisions of this Agreement, the
Securities, the Servicing Agreement, the Contribution Agreement and the
Indenture and the consummation of the other transactions herein contemplated do
not (i) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained and such as may be required under state securities or Blue Sky laws or
(ii) conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which Sunrise, Sunrise Leasing
or the Company is a party or by which Sunrise, Sunrise Leasing or the Company or
any of their respective properties are bound, or the charter documents or bylaws
of Sunrise, Sunrise Leasing or the Company, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental authority
or any arbitrator applicable to Sunrise, Sunrise Leasing or the Company.
(k) Since the respective dates as of which information is or will be
given in the Preliminary Private Placement Memorandum, except as otherwise
stated therein, (i) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of Sunrise and its subsidiaries considered as one enterprise, whether
<PAGE>
or not arising in the ordinary course of business, (ii) there have been no
transactions entered into by Sunrise or its subsidiaries, other than those in
the ordinary course of business, which are material with respect to Sunrise and
its subsidiaries considered as one enterprise, and (iii) there has been no
dividend or distribution of any kind declared, paid or made by Sunrise or any of
its subsidiaries on any of its shares of capital stock, except as will be
described in the Preliminary Private Placement Memorandum.
(l) The Company is not an "investment company" as defined under the
Investment Company Act of 1940, as amended.
(m) Each of Sunrise, Sunrise Leasing and the Company has obtained any
permits, consents and authorizations required to be obtained by it under
applicable federal, state, local and foreign laws or regulations in order to
conduct its business as presently conducted, including, but not limited to,
those under laws or regulations relating to the protection of the environment or
concerning the handling, storage, disposal or discharge of toxic materials
(collectively, "Environmental Laws") (except where the failure to obtain or
maintain such permits, consents and authorizations would not result in a
material liability or disability to Sunrise, Sunrise Leasing or the Company),
and any such permits, consents and authorizations remain in full force and
effect. Each of Sunrise, Sunrise Leasing and the Company are in compliance with
the Environmental Laws in all material respects, and there is no pending or, to
Sunrise's, Sunrise Leasing's or the Company's knowledge, threatened, action or
proceeding against Sunrise, Sunrise Leasing or the Company alleging violations
of the Environmental Laws.
(n) No statement, representation, warranty or covenant made by
Sunrise, Sunrise Leasing or the Company in this Agreement or made in any
certificate or document required by this Agreement to be delivered to the
Purchasers was or will be, when made, inaccurate, untrue or incorrect.
(o) None of Sunrise, Sunrise Leasing or the Company is involved in
any material labor dispute nor, to the best knowledge of Sunrise, Sunrise
Leasing or the Company, is any such dispute threatened.
(p) None of Sunrise, Sunrise Leasing or the Company or, to the best
knowledge of Sunrise, Sunrise Leasing or the Company, any employee or agent of
Sunrise, Sunrise Leasing or the Company, has made any payment of funds of
Sunrise, Sunrise Leasing or the Company or received or retained any funds in
violation of any law, rule or regulation.
(q) Each of Sunrise, Sunrise Leasing and the Company is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the business in which it is
engaged; none of Sunrise, Sunrise Leasing or the Company has been refused any
insurance coverage sought or applied for; and none of Sunrise, Sunrise Leasing
or the Company has any reason to believe that it will not be able to renew its
<PAGE>
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of Sunrise, Sunrise Leasing and the Company, except as described in or
contemplated by the Preliminary Private Placement Memorandum or as otherwise
disclosed to the Purchaser.
(r) Except as set forth in the Disclosure Schedule, no default
exists, and no event has occurred which, with notice or lapse of time or both,
would constitute a default under charter documents or by-laws or a default in
the due performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which Sunrise, Sunrise Leasing or the Company is a party or by which Sunrise,
Sunrise Leasing or the Company or any of their respective properties is bound or
may be affected in any material adverse respect with regard to property,
business or operations of Sunrise, Sunrise Leasing and the Company.
(s) None of Sunrise, Sunrise Leasing, the Company or any person
acting on their behalf has offered or sold the Securities by means of any
general solicitation or general advertising within the meaning of Rule 502(c)
under the Act; and none of Sunrise, Sunrise Leasing or the Company shall take
any action to cause the resale of the Securities by the Purchasers to violate
Section 5 of the Act.
(t) None of Sunrise, Sunrise Leasing, the Company, or any person
acting on their behalf has offered, sold, contracted to sell or otherwise
disposed of any securities (as defined in the Act) that are or will be
integrated with the sale of the Securities in a manner that would require
registration of the Securities under the Act.
(u) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale of the
Securities) will violate or result in a violation of Section 7 of the Exchange
Act or any regulation promulgated thereunder, including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System.
(v) Each of Sunrise, Sunrise Leasing and the Company owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, registrations and copyrights necessary
for the conduct of such business except to the extent that the failure to so
obtain, file, own or possess would not materially and adversely affect
Sunrise's, Sunrise Leasing's or the Company's ability to carry on its business
as presently conducted.
2. Agreements to Sell and Purchase. Subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, at the
Purchase Price (as defined below), the principal amount $20,000,000 of the
Securities at a purchase price of 100% of the aggregate principal amount (the
"Purchase Price").
<PAGE>
3. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to, and agrees with the Company, Sunrise Leasing
and Sunrise as to itself, that:
(a) The Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Act.
(b) The Purchaser will not offer or sell any of the Securities in any
jurisdiction except under circumstances that will result in compliance with the
applicable laws thereof, and the Purchaser will take whatever action is required
to permit its resale, if any, of the Securities. The Purchaser understands that
no action has been taken to permit a public offering in any jurisdiction where
action would be required for such purpose.
(c) The Purchaser will offer or sell the Notes only to persons who
are institutional "accredited investors" under the Act and only in accordance
with Rule 502(c) of Regulation D promulgated under the Act.
(d) The Purchaser will not offer or sell any of the Notes by means of
any form of general solicitation or general advertisement, including but not
limited to (x) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, (y) any seminar or meeting if any person other than an
"accredited investor" attends or is invited to attend or whose attendees have
been invited by any general solicitation or general advertising and (z) any
letter, circular, notice or other written communication unless such
communication is directed solely to investors identified as "accredited
investors."
4. Payment of the Purchase Price for the Securities shall be made by
the Purchaser or on its behalf by immediately available funds. The time and date
of such delivery and payment shall be the later of (i) 9:00 a.m., Minneapolis
time, on November 6, 1996 or (ii) or at such other place and time and date as
the Purchaser and the Company may agree upon in writing. Such time and date for
delivery of the Securities is herein called the "Closing Date."
Payment for the Securities shall be made against delivery of the Notes
(as defined in the Indenture), registered in the name of the Purchaser.
Sunrise or the Company shall pay any transfer taxes payable in
connection with the initial delivery of the Securities to the Purchaser.
5. Agreements of Sunrise, Sunrise Leasing and the Company. Each of
Sunrise, Sunrise Leasing and the Company covenants and agrees:
(a) To deliver to the Purchaser the Preliminary Private Placement
Memorandum and to advise the Purchaser promptly of any amendment or supplement
<PAGE>
thereto, including the Private Placement Memorandum, after the Closing Date and
furnish the Purchaser with copies thereof if the Purchaser holds the Notes on
such date.
(b) At any time when the Company is neither subject to Section 13 or
15(d) of the Exchange Act nor exempt from Section 12(g) of the Exchange Act
pursuant to Rule 12g3-2(b) under the Exchange Act and so long as the Securities
are outstanding and are "restricted securities" within the meaning of Rule
144(a)(3) under the Act, for the benefit of holders from time to time of
Securities, to furnish at its expense, upon request, to holders of the
Securities and prospective purchasers of the Securities information satisfying
the requirement of subsection (d)(4) of Rule 144A under the Act (or any
successor thereto).
(c) Proceeds from the sale of the Securities shall be used solely as
described in the Preliminary Private Placement Memorandum under "Use of
Proceeds."
6. Expenses. Sunrise, Sunrise Leasing or the Company will pay all
costs and expenses incident to the performance of its obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 10 hereof, including all
costs and expenses incident to (i) the printing or other production of all
documents with respect to the transactions, including any costs of printing the
Preliminary Private Placement Memorandum or the Private Placement Memorandum and
any amendments or supplements thereto, this Agreement, the Indenture, the
Servicing Agreement, the Contribution Agreement and any Blue Sky memoranda; (ii)
all arrangements relating to the delivery to the Purchasers of copies of the
foregoing documents; (iii) the fees and disbursements of counsel, accountants
and any other experts or advisors retained by the Purchaser, Sunrise, Sunrise
Leasing or the Company, including the Placement Agent; (iv) the preparation,
issuance and delivery to the Purchaser of any certificates evidencing the
Securities, including transfer agent's and registrar's fees; (v) the
qualification of the Securities under state securities and Blue Sky laws,
including filing fees and fees and disbursements of counsel for the Purchaser
relating thereto; (vi) any fees charged by securities rating services for rating
the Securities; (vii) the fees and expenses of the Trustee and any agent of the
Trustee and the fees and disbursements of counsel for the Trustee; (viii) any
transfer taxes in connection with the initial delivery of the Securities to the
Purchaser; and (ix) all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section.
If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Purchaser set forth in Section 7
hereof is not satisfied, because this Agreement is terminated pursuant to
Section 10 hereof or because of any failure, refusal or inability on the part of
Sunrise, Sunrise Leasing and the Company to perform all obligations and satisfy
all conditions on their part to be performed or satisfied hereunder other than
by reason of a default by the Purchaser, one of Sunrise, Sunrise Leasing or the
Company will reimburse the Purchaser upon demand for all out-of-pocket expenses
(including fees and disbursements of counsel) that shall have been incurred by
<PAGE>
them in connection with the proposed purchase and sale of the Securities. None
of Sunrise, Sunrise Leasing or the Company shall not in any event be liable to
the Purchaser for the loss of anticipated profits from the transactions covered
by this Agreement.
7. Conditions to the Purchaser's Obligations. The obligations of the
Purchaser to purchase and pay for the Securities shall be subject to the
accuracy of the representations and warranties of Sunrise, Sunrise Leasing and
the Company contained herein as of the date hereof and as of the Closing Date as
if made on and as of the Closing Date, to the accuracy of the statements of
officers of Sunrise, Sunrise Leasing and the Company made pursuant to the
provisions hereof, to the performance by Sunrise, Sunrise Leasing and the
Company of its covenants and agreements hereunder and to the following
additional conditions:
(a) You shall have received opinions, dated the Closing Date, of
Fredrikson & Byron, P.A., counsel for the Company, in form and substance
satisfactory to you.
(b) You shall have received from the Company, Sunrise Leasing and
Sunrise a final version of the Preliminary Private Placement Memorandum (in a
form satisfactory as to form and substance to the Placement Agent) and executed
copies of the Indenture, the Contribution Agreement and the Servicing Agreement.
(c) Except as set forth in the Disclosure Statement, (i) neither
Sunrise nor any of its subsidiaries shall have sustained since the date of the
latest audited financial statements included in the Preliminary Private
Placement Memorandum or otherwise provided to the Purchaser any material loss or
interference with the business of Sunrise and its subsidiaries taken as a whole
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court, arbitration or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Preliminary Private Placement Memorandum; (ii) since the respective dates as of
which information is given in the Preliminary Private Placement Memorandum there
shall not have been any material increase in debt of Sunrise or its subsidiaries
on a consolidated basis or any material change, or any development involving a
prospective material change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of Sunrise and
its subsidiaries taken as a whole; and (iii) without limitation of clause (i) or
(ii), since the respective dates as of which information is given in the
Preliminary Private Placement Memorandum, there shall not have been any material
change, or any development involving a prospective material change, (A) in or
affecting Sunrise's and its subsidiaries' consolidated investments, or (B) in or
affecting Sunrise's and its subsidiaries' future funding commitments on a
consolidated basis as to any of the foregoing, otherwise than as set forth or
contemplated in the Preliminary Private Placement Memorandum, the effect of
which, in any such case described in clause (i), (ii) or (iii), is in the
Purchaser's sole judgment made in good faith so material and adverse as to make
it impracticable or inadvisable to proceed with the purchase of the Securities
on the terms and in the manner contemplated in this Agreement.
<PAGE>
(d) There shall not have been any formal or informal inquiry by, or
communication with, the Commission or any state regulatory agency into the
offering of the Securities, the purchase of the Securities pursuant to this
Agreement and the resale of the Securities as contemplated by the Preliminary
Private Placement Memorandum, or any public disclosures that may have been made
with respect thereto, which formal or informal inquiry or communication may make
it reasonably impracticable or inadvisable to proceed with the purchase of the
Securities pursuant to this Agreement or the resale of the Securities on the
terms and in the manner contemplated in the Preliminary Private Placement
Memorandum as amended or supplemented.
(e) Each of Sunrise, Sunrise Leasing and the Company shall have
furnished or caused to be furnished to you at the Closing Date a certificate or
certificates of corporate officers of Sunrise, Sunrise Leasing and the Company
satisfactory to you as to the accuracy of the representations and warranties of
each of Sunrise, Sunrise Leasing and the Company herein at and as of the Closing
Da^sas to the performance in all material respects by each of Sunrise, Sunrise
Leasing and the Company of all of its obligations hereunder to be performed at
or prior to the Closing Date, as to the matters set forth in subsection (d) of
this Section and as to such other matters as you may reasonably request.
8. Indemnification and Contribution. (a) Each of Sunrise, Sunrise
Leasing and the Company agrees to indemnify and hold harmless the Purchaser and
each person, if any, who controls the Purchaser within the meaning of the Act
and the Exchange Act insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by Sunrise,
Sunrise Leasing or the Company to the Purchaser or its counsel, including,
without limitation, any statement in Section 1 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Preliminary Private Placement Memorandum, the Private
Placement Memorandum or any amendment or supplement thereto or (B) any
application or other document, or any amendment or supplement thereto, executed
by Sunrise, Sunrise Leasing or the Company or based upon written information
furnished by or on behalf of Sunrise, Sunrise Leasing or the Company filed in
any jurisdiction in order to qualify the Securities under the securities or Blue
Sky laws thereof or filed with any securities association (each an
"Application") or
(iii) the omission or alleged omission to state in the Preliminary
Private Placement Memorandum, the Private Placement Memorandum or any amendment
or supplement thereto or any Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse, as incurred, the Purchaser and each controlling person for any legal
or other expenses reasonably incurred by such Purchaser or controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action.
<PAGE>
(b) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Purchaser in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party, unless
such indemnified party waived its rights under this Section 8 in which case the
indemnified party may effect such a settlement without such consent.
9. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of Sunrise, Sunrise Leasing, the
Company, their officers and the Purchaser set forth in this Agreement or made by
or on behalf of them, respectively, pursuant to this Agreement shall remain in
full force and effect, regardless of (i) any investigation made by or on behalf
of Sunrise, Sunrise Leasing, the Company or the Purchaser, any of their
officers, agents or any controlling person referred to in Section 8 hereof and
(ii) delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6 and 8 hereof
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
<PAGE>
10. Termination. This Agreement may be terminated with respect to the
Securities in the sole discretion of the Purchaser by notice to Sunrise, Sunrise
Leasing and the Company prior to the Closing Date in the event that Sunrise,
Sunrise Leasing and the Company shall have failed, refused or been unable to
perform all obligations and satisfy all conditions on its part to be performed
or satisfied hereunder at or prior thereto or, if at or prior to the Closing
Date, the Purchaser determines in its sole discretion (which determination shall
be conclusive absent manifest error) that:
(i) trading in the common stock of Sunrise shall have been suspended
by the Commission or trading generally on the NASDAQ national market system or
any national securities exchange shall have been suspended;
(ii) a banking moratorium shall have been declared by New York or
United States authorities;
(iii) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (C) any other calamity or crisis having an effect on the financial
markets that makes it impracticable or inadvisable to proceed with the offering
or the delivery of the Securities as contemplated by the Preliminary Private
Placement Memorandum; or
(iv) any public announcement by Sun Microsystems Inc. that might
materially affect the value of the equipment being acquired by the Issuer in
connection with the issuance of the Securities.
11. Notices. All communications hereunder shall be in writing and, if
sent to the Purchaser, shall be mailed or delivered or sent by facsimile and
confirmed in writing to: Dougherty Funding, Inc., 90 South 7th Street, Suite
4300, Minneapolis, Minnesota 55402 (facsimile (612) 673-0584), Attention:
Gregory H. Gac; if sent to Sunrise, shall be mailed, delivered or sent by
facsimile and confirmed in writing at 5500 Wayzata Boulevard, Suite 725, Golden
Valley, Minnesota 55416 (facsimile (612) 513-3299), Attention: President; if
sent to Sunrise Leasing, shall be mailed, delivered or sent by facsimile and
confirmed in writing to: Sunrise Leasing Corporation, 5500 Wayzata Boulevard,
Suite 725, Golden Valley, Minnesota 55416 (facsimile (612) 513-3299), Attention:
President; if sent to the Company, shall be mailed, delivered or sent by
facsimile and confirmed in writing to: Sunrise Funding Corporation I, 5500
Wayzata Boulevard, Suite 725, Golden Valley, Minnesota 55416 (telephone (612)
513-3280), Attention: President.
12. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the Purchaser, Sunrise, Sunrise Leasing, the Company and
their respective successors and legal representatives, and nothing express or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
<PAGE>
the indemnities of Sunrise, Sunrise Leasing and the Company contained in Section
8 of this Agreement shall also be for the benefit of any person or persons who
control the Purchaser within the meaning of the Act or the Exchange Act. No
purchaser of Securities from the Purchaser shall be deemed a successor because
of such purchase.
13. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of Minnesota, without giving
effect to any provisions relating to conflicts of laws.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute an agreement binding on the
Company and the Purchaser.
Very truly yours,
SUNRISE FUNDING CORPORATION I
By /s/ R. Bradley Pike
Name: R. Bradley Pike
Title: President
SUNRISE RESOURCES, INC.
By /s/ Barry J. Schwach
Name: Barry J. Schwach
Title: Chief Financial Officer
SUNRISE LEASING CORPORATION
By /s/ Barry J. Schwach
Name: Barry J. Schwach
Title: Chief Financial Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
DOUGHERTY FUNDING, INC.
By /s/ Mark Landreville
Name: Mark Landreville
Title:
NOTE
THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), AND THIS NOTE HAS NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS NOTE
IS SUBJECT TO CERTAIN RESTRICTIONS AND CONDITIONS SET FORTH IN THE INDENTURE
UNDER WHICH THIS NOTE IS ISSUED (A COPY OF WHICH IS AVAILABLE FROM THE TRUSTEE
UPON REQUEST). TRANSFER OF THIS NOTE IS FURTHER LIMITED BY THE REQUIREMENT THAT
FOLLOWING ANY TRANSFER HEREOF THERE WILL BE NO MORE THAN 100 BENEFICIAL OWNERS
(WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT) OF SECURITIES (INCLUDING THE
NOTES AND ANY OTHER SECURITIES) OF THE ISSUER.
DUE TO THE PROVISIONS FOR THE PAYMENT OF PRINCIPAL CONTAINED HEREIN, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF. ANYONE PURCHASING THIS NOTE MAY ASCERTAIN THE OUTSTANDING
PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE TRUSTEE.
No. R-1 $20,000,000
SUNRISE FUNDING CORPORATION I
Lease Receivables-Backed Note, Series 1996-1
Delivery Date: November 8, 1996 Stated Maturity: January 1, 2000
SUNRISE FUNDING CORPORATION I, a corporation duly organized and existing under
the laws of the State of Minnesota (the "Issuer," which term includes any
successor entity under the Indenture referred to below), for value received,
hereby promises to pay to Dougherty Funding, Inc., or registered assigns, the
principal sum of Twenty Million and no/100 Dollars ($20,000,000) in monthly
installments beginning on December 15, 1996 (the "Initial Payment Date"), and to
pay interest monthly in arrears on the unpaid portion of said principal sum
(and, to the extent that the payment of such interest shall be legally
enforceable, on any overdue installment of interest on this Note) on the
fifteenth day of each calendar month or, if such fifteenth day is not a Business
Day, the Business Day immediately following (each, a "Payment Date"), for the
period from and including November 8, 1996 through the day immediately preceding
the Initial Payment Date, and thereafter, monthly from and including the most
recent Payment Date through the day immediately preceding the next Payment Date,
at a rate equal to (i) the sum of (a) the prime rate, as determined by First
Bank National Association and (b) 0.75% per annum, until the date the Holders of
<PAGE>
at least a majority in principal amount of the Notes give the Issuer notice that
the Notes will change to have a fixed rate of interest (which date must be a
Payment Date) (such Payment Date referred to herein as the "Mode Change Date"),
or (ii) after the Mode Change Date, a fixed rate equal to the rate of interest
that is in effect as of the Mode Change Date. Until the Mode Change Date, the
Note Interest Rate shall be calculated on the basis of a 360-day year and the
actual number of days elapsed, and after the Mode Change Date, the Note Interest
Rate shall be calculated on the basis of a 360-day year consisting of 12 months
of 30 days each. Each monthly installment of principal payable on this Note
shall be an amount equal to the pro rata share of the Principal Distribution
Amount, as such term is defined in the Indenture described herein. Any remaining
unpaid portion of the principal amount of this Note shall be due and payable no
later than the Stated Maturity referred to above. The interest and principal so
payable on any Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Note is registered on the Record Date for such Payment
Date, which shall be the close of business on the last day of the month prior to
such Payment Date (whether or not a Business Day).
The principal and interest on this Note are payable by check mailed by
first-class mail to the Person whose name appears as the Registered Holder of
this Note on the Note Register at the address of such Person as it appears on
the Note Register, or by wire transfer in immediately available funds to the
account specified in writing to the Trustee by the Person whose name appears as
the Registered Holder of this Note on the Note Register received at least five
Business Days prior to the Record Date for the Payment Date on which wire
transfers will commence, 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. Funds represented by checks returned undelivered will be held for
payment to the Person entitled thereto, subject to the terms of the Indenture,
at the office or agency in the United States of America designated as such by
the Issuer for such purpose pursuant to the Indenture.
This Note is one of a duly authorized issue of Notes of the Issuer
designated as its Lease Receivables-Backed Notes, Series 1996-1 (herein called
the "Notes") issued under an Indenture (referred to herein as the "Indenture"),
dated as of November 1, 1996, among the Issuer, Sunrise Leasing Corporation, as
Servicer, and Norwest Bank Minnesota, National Association, as Trustee (the
"Trustee," which term includes any successor Trustee under such Indenture).
Reference is hereby made to the Indenture for a statement of the respective
rights thereunder of the Issuer, the Trustee and the Holders of the Notes, and
the terms upon which the Notes are authenticated and delivered. All terms used
in this Note which are defined in the Indenture shall have the meanings assigned
to them in the Indenture.
The Notes are secured by certain Lease Contracts, Lease Receivables,
the related Equipment and by certain other Collateral described in the
Indenture. The Trust Estate secures the Notes equally and ratably without
prejudice, priority or distinction between any Note and any other Note by reason
of time of issue or otherwise, and also secures the payment of certain other
amounts and certain other obligations as described in the Indenture.
Unless earlier declared due and payable by reason of an Event of
Default, the Notes are payable only at the time and in the manner provided in
<PAGE>
the Indenture and are not redeemable or prepayable at the option of the Issuer
before such time, except that the Notes shall be redeemable at the option of the
Issuer, in whole but not in part, at any time after the Outstanding principal
amount of Notes declines to 10% or less of the original principal amount of the
Notes at a redemption price equal to the Outstanding principal amount thereof
plus accrued interest thereon through the last day of the Due Period immediately
preceding the date of redemption. If an Event of Default shall occur and be
continuing, the principal of all the Notes may become or be declared due and
payable in the manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer upon surrender of this Note for registration of transfer at the
office or agency of the Issuer in the United States of America maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Trustee and duly executed by
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Notes of the same Stated Maturity of authorized denominations and
for the same initial aggregate principal amount will be issued to the designated
transferees.
Prior to due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes whether or
not this Note be overdue, and neither the Issuer, the Trustee, nor any such
agent shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer, the Trustee and the Servicer with the consent of the Holders
of a majority in aggregate principal amount of Notes at the time Outstanding
under the Indenture. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time Outstanding under the Indenture, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange therefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
The Notes are issuable only in registered form without coupons in such
authorized denominations as provided in the Indenture and subject to certain
limitations therein set forth.
This Note and the Indenture shall be governed by and construed in
accordance with the internal laws of the State of Minnesota, without regard to
conflicts of laws principles.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note,
<PAGE>
but solely from the Collateral pledged to the Trustee under the Indenture at the
times, place and rate, and in the coin or currency, herein prescribed.
Notwithstanding anything else to the contrary contained in this Note or the
Indenture, the obligation of the Issuer to pay the principal of and interest on
this Note is not a general obligation of the Issuer, nor its officers or
directors, but is limited solely to the Collateral pledged under the Indenture.
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.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, Sunrise Funding Corporation I has caused this Note
to be signed, manually, by its President.
By: /s/ R. Bradley Pike
President
<PAGE>
This is one of the Notes described in the within-mentioned Indenture.
Dated: November 8, 1996
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By: /s/ Thomas Wraalstad
Authorized Signatory
INDENTURE
among
SUNRISE FUNDING CORPORATION I
("Issuer")
and
SUNRISE LEASING CORPORATION
("Servicer")
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
("Trustee")
Dated as of November 1, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Parties 1
Preliminary Statement 1
Granting Clause 1
Article One Definitions 2
Section 1.01. Definitions 2
Article Two Note Form 14
Section 2.01. Forms 14
Article Three The Notes 14
Section 3.01. Denomination 14
Section 3.02. Execution, Authentication, Delivery and Dating 15
Section 3.03. Temporary Notes 15
Section 3.04. Registration, Registration of Transfer and Exchange 15
Section 3.05. Limitation on Transfer and Exchange 17
Section 3.06. Mutilated, Destroyed, Lost or Stolen Notes 17
Section 3.07. Payment of Principal and Interest; Principal and
Interest Rights Preserved 18
Section 3.08. Persons Deemed Owner 19
Section 3.09. Cancellation 19
Article Four Original Issuance of Notes; Substitutions of
Collateral 20
Section 4.01. Conditions to Original Issuance of Notes 20
Section 4.02. Security for Notes 21
Section 4.03 Substitution and Purchase of Lease Receivables 21
Section 4.04. Releases 23
Section 4.05. Trust Estate 23
Section 4.06. Notice of Release 24
Section 4.07. Opinions as to Trust Estate 24
Article Five Satisfaction and Discharge 24
Section 5.01. Satisfaction and Discharge of Indenture 24
Section 5.02. Application of Trust Money 24
Article Six Defaults and Remedies 25
Section 6.01. Events of Default 25
Section 6.02. Acceleration of Maturity; Rescission and Annulment 26
Section 6.03. Collection of Indebtedness and Suits for Enforcement
by Trustee 27
Section 6.04. Remedies 27
Section 6.05. Optional Preservation of Trust Estate 28
<PAGE>
Section 6.06. Trustee May File Proofs of Claim 28
Section 6.07. Trustee May Enforce Claims Without Possession of Notes 29
Section 6.08. Application of Money Collected 29
Section 6.09. Limitation on Suits 30
Section 6.10. Unconditional Right of Noteholders to Receive
Principal and Interest 31
Section 6.11. Restoration of Rights and Remedies 31
Section 6.12. Rights and Remedies Cumulative 31
Section 6.13. Delay or Omission; Not Waiver 31
Section 6.14. Control by Noteholders 31
Section 6.15 Waiver of Past Defaults 32
Section 6.16. Undertaking for Costs 32
Section 6.17. Waiver of Stay or Extension Laws 33
Section 6.18. Sale of Trust Estate 33
Section 6.19. Action on Notes 34
Article Seven The Trustee 34
Section 7.01. Certain Duties and Responsibilities 34
Section 7.02. Notice of Default 36
Section 7.03. Certain Rights of Trustee 36
Section 7.04. Not Responsible for Recitals or Issuance of Notes 37
Section 7.05. May Hold Notes 38
Section 7.06. Money Held in Trust 38
Section 7.07. Compensation and Reimbursement 38
Section 7.08. Corporate Trustee Required; Eligibility 39
Section 7.09. Resignation and Removal; Appointment of Successor 40
Section 7.10. Acceptance of Appointment by Successor 40
Section 7.11. Merger, Conversion, Consolidation or Succession to
Business of Trustee 41
Section 7.12. Co-Trustees and Separate Trustees 41
Section 7.13. Rights with Respect to the Servicer 42
Section 7.14. Appointment of Authenticating Agent 43
Section 7.15. Trustee to Hold Lease Contracts 44
Article Eight Optional Purchase of Receivables 44
Section 8.01. Optional Purchase of All Receivables 44
Article Nine Supplemental Indentures 45
Section 9.01. Supplemental Indentures Without Consent of Noteholders 45
Section 9.02. Supplemental Indentures with Consent of Noteholders 46
Section 9.03. Execution of Supplemental Indentures 47
Section 9.04. Effect of Supplemental Indentures 47
Section 9.05. Reference in Notes to Supplemental Indentures 47
<PAGE>
Article Ten Redemption of the Notes 47
Section 10.01. Redemption at the Option of the Issuer; Election to
Redeem 47
Section 10.02. Notice to Trustee 48
Section 10.03. Notice of Redemption by the Issuer 48
Section 10.04. Deposit of the Redemption Price 48
Section 10.05. Notes Payable on Redemption Date 48
Article Eleven Representations, Warranties and Covenants 49
Section 11.01. Representations and Warranties 49
Section 11.02. Covenants 52
Section 11.03. Other Matters as to the Issuer 59
Article Twelve Accounts and Accountings 59
Section 12.01. Collection of Money 59
Section 12.02. Collection Account 59
Section 12.03. Pre-Funding Account 61
Section 12.04. Reports by Trustee to Noteholders 63
Article Thirteen Provisions of General Application 64
Section 13.01. Acts of Noteholders 64
Section 13.02. Notices, etc., to Trustee, Issuer and Servicer 64
Section 13.03. Notices to Noteholders; Waiver 65
Section 13.04. Effect of Headings and Table of Contents 65
Section 13.05. Successors and Assigns 65
Section 13.06. Separability 65
Section 13.07. Benefits of Indenture 65
Section 13.08. Legal Holidays 66
Section 13.09. Governing Law 66
Section 13.10. Counterparts 66
Section 13.11. Obligation 66
Section 13.12. Compliance Certificates and Opinions 66
Signatures 68
<PAGE>
Exhibit A Form of Investment Letter
Exhibit B Form of Supplement for Grant of Interests in Substitute Lease
Contracts
Exhibit C Form of Supplement for Grant of Interests in Subsequent Lease
Contracts
Exhibit D Form of Note
Schedule A Lease Schedule
<PAGE>
INDENTURE, dated as of November 1, 1996 (herein, as amended and
supplemented from time to time as permitted hereby, called this "Indenture"),
among SUNRISE FUNDING CORPORATION I, a Minnesota corporation (herein, together
with its permitted successors and assigns, called the "Issuer"), SUNRISE LEASING
CORPORATION, a Minnesota corporation, as servicer (herein, together with its
permitted successors and assigns, called the "Servicer"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as trustee (the
"Trustee").
Preliminary Statement
The Issuer has duly authorized the execution and delivery of this
Indenture to provide for the issuance of the Issuer's Lease Receivables-Backed
Notes, Series 1996-1 (the "Notes"). All covenants and agreements made by the
Issuer, the Servicer and the Trustee herein are for the benefit and security of
the Holders of the Notes. The Issuer, the Servicer and the Trustee are entering
into this Indenture, and the Trustee is accepting the trusts created hereby, for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
All things necessary to make this Indenture a valid agreement of the
Issuer, the Servicer and the Trustee in accordance with its terms have been
done.
Granting Clause
To secure the payment of the principal of and interest on the Notes in
accordance with their terms, the payment of all of the sums payable under this
Indenture and the performance of the covenants contained in this Indenture, the
Issuer hereby Grants to the Trustee, solely in trust and as collateral security
as provided in this Indenture, for the ratable benefit of the Holders of the
Notes, all of the Issuer's rights, title and interest in and to the following
whether now owned or hereafter acquired and any and all benefits accruing to the
Issuer from: (a) the Lease Receivables, Lease Contracts and the related
Equipment, including all proceeds of the Lease Contracts, Lease Receivables and
the related Equipment and all payments received on or with respect to the Lease
Contracts, Lease Receivables and the related Equipment and due after the related
Cut-Off Date; (b) the Lease Contract Files; (c) all rights and interests of the
Issuer under each Insurance Policy related to the Lease Contracts and Insurance
Proceeds; (d) the Contribution Agreement; (e) the Purchase Agreement; (f) the
Servicing Agreement; (g) the Vendor Agreements; (h) all amounts from time to
time on deposit in the Collection Account, the Pre-Funding Account and the
Lockbox Account (including any Eligible Investments and other property in such
accounts); and (i) proceeds of the foregoing (including, but not by way of
limitation, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part or are
included in the proceeds of any of the foregoing) (all of the foregoing being
hereinafter referred to as the "Collateral" or "Trust Estate").
<PAGE>
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions hereof and agrees to perform the duties herein
required to the best of its ability to the end that the interests of the
Noteholders may be adequately and effectively protected.
Article One
Definitions
Section 1.01. Definitions. Except as otherwise expressly provided
herein or unless the context otherwise requires, the following terms have the
respective meanings set forth below for all purposes of this Indenture, and the
definitions of such terms are equally applicable both to the singular and plural
forms of such terms.
"Act." With respect to any Noteholder, the meaning specified in Section
13.01.
"Affiliate." With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Implicit Principal Balance." On any date, the aggregate of
the Implicit Principal Balances, plus any anounts in the Pre-Funding Account.
"Authenticating Agent." Any entity appointed by the Trustee pursuant to
Section 7.14 hereof.
"Available Cash." The amount available in the Collection Account after
payment of all amounts required by clauses (i) through (iii) of Section 12.02(d)
hereof.
"Board of Directors." Either the board of directors of the Issuer or of
the Servicer, as the context requires, or any duly authorized committee of such
Board.
"Board Resolution." A copy of a resolution delivered to the Trustee and
certified by the Secretary or an Assistant Secretary of the Issuer or of the
Servicer, as the case may be, to have been duly adopted by its respective Board
of Directors and to be in full force and effect on the date of such
certification.
"Business Day." Any day other than 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 of the Trustee is located are authorized or obligated by
law or executive order to close.
"Calculated Residual." For purposes of determining the Implicit
Principal Balance of a Lease Contract, the related Equipment shall be valued at
60%, 40%, 20% and 0% of cost for Lease Contracts with original terms up to and
including 12 months, 24 months, 36 months and 48 months respectively.
<PAGE>
"Calculation Date." The last day of a Due Period, except that with
respect to the initial Payment Date, the Calculation Date shall mean the Initial
Cut-Off Date.
"Closing Date." November 8, 1996, the date that the Transaction
Documents are originally executed and delivered by the parties thereto.
"Code." The Internal Revenue Code of 1986, as amended.
"Collateral." The meaning specified in the Granting Clause of this
Indenture.
"Collection Account." The trust account or accounts created and
maintained pursuant to Section 12.02 hereof.
"Contribution Agreement." The Contribution Agreement, dated as of
November 1, 1996, between the Issuer and the Contributor, as amended and
supplemented from time to time, together with the Lease Asset Assignment and the
Subsequent Lease Asset Assignment executed in connection therewith.
"Contributor." Sunrise Leasing Corporation, a Minnesota corporation,
and its permitted successors and assigns.
"Corporate Trust Office." The principal corporate trust office of the
Trustee located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota
55479-0070, Attention: Corporate Trust Services--Asset-Backed Administration, or
at such other address as the Trustee may designate from time to time by notice
to the Noteholders and the Issuer, or the principal corporate trust office of
any successor Trustee.
"Customer." The lessee under each related Lease Contract, including any
guarantor of such lessee, and their respective successors and assigns.
"Cut-Off Date." With respect to Initial Lease Contracts, the Initial
Lease Receivables and the related Equipment, the Initial Cut-Off Date, and with
respect to the Subsequent Lease Contracts, the Subsequent Lease Receivables and
the related Equipment, the Subsequent Cut-Off Date.
"Default." Any occurrence or circumstance which with notice or the
lapse of time or both would become an Event of Default.
"Defaulted Lease Contract." A Lease Contract shall become a Defaulted
Lease Contract at the earlier of (i) the Calculation Date on which any Scheduled
Payment with respect to such Lease Contract has not been received and remains
unpaid for a period of 120 or more days from the date such Scheduled Payment is
due or (ii) the day the Servicer determines in accordance with its customary
practices that it shall not make a Servicer Advance because the Servicer has
determined that any such Servicer Advance would be unrecoverable.
<PAGE>
"Delinquent Lease Contract." A Lease Contract (a) as to which a
Scheduled Payment was not received when due by the Servicer and remains unpaid
as of the Calculation Date and (b) which is not a Defaulted Lease Contract.
"Delivery Date." The date on which the Notes are originally issued in
accordance with Section 4.01 hereof.
"Determination Date." The second Business Day preceding each Payment
Date.
"Disclosure Schedule": That certain disclosure schedule of the Issuer,
Sunrise Resources, Inc., and the Servicer delivered in connection with
Transaction Documents.
"Discount Rate." With respect to the Lease Contracts, 10.0% per annum.
"Due Date." With respect to each Lease Receivable the date of the month
on which payment is due thereunder.
"Due Period." As to any Determination Date or Payment Date, as the case
may be, the period beginning on the first day and ending on the last day of the
calendar month preceding the month in which such Determination Date or Payment
Date, as the case may be, occurs.
"Eligible Account." A segregated account, which may be an account
maintained with the Trustee, which is either (a) maintained with a depository
institution or trust company whose long term unsecured debt obligations are
rated at least BBB+ by S&P and Baa1 by Moody's, provided, that if only one such
rating agency rates such institution, such single rating of BBB+ if by S&P, or
of Baa1 if by Moody's shall suffice, or (b) a segregated trust account or
similar account maintained with a federally or state chartered depository
institution subject to regulations regarding fiduciary funds on deposit
substantially similar to 12 C.F.R. ss. 9.10(b).
"Eligible Investments." Any and all of the following:
(i) direct obligations of, and obligations fully guaranteed by, the
United States of America, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Federal Home Loan Banks or any agency
or instrumentality of the United States of America the obligations of which are
backed by the full faith and credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of deposit of,
banker's acceptances issued by or federal funds sold by any depository
institution or trust company (including the Trustee or its agent acting in their
respective commercial capacities) incorporated under the laws of the United
States of America or any State thereof and subject to supervision and
examination by federal and/or state authorities, so long as at the time of such
investment or contractual commitment providing for such investment, such
depository institution or trust company has a short term unsecured debt rating
<PAGE>
of A-1+ or P-1 (or its equivalent) of S&P or Moody's and provided that each such
investment has an original maturity of no more than 180 days, and (B) any other
demand or time deposit or deposit which is fully insured by the Federal Deposit
Insurance Corporation;
(iii) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
State thereof which has a long term unsecured debt rating in the highest
available rating category of S&P or Moody's at the time of such investment;
(iv) commercial paper having an original maturity of less than 180 days
and issued by an institution having a short term unsecured debt rating in the
highest available rating category of S&P or Moody's at the time of such
investment;
(v) a guaranteed investment contract issued by an insurance company or
other corporation having a long term unsecured debt rating or a claims paying
ability rated in the highest available rating category of S&P or Moody's at the
time of such investment; and
(vi) money market funds having ratings in the highest or second highest
available rating category of S&P or Moody's at the time of such investment which
invest only in other Eligible Investments; any such money market funds which
provide for demand withdrawals being conclusively deemed to satisfy any maturity
requirement for Eligible Investments set forth in this Indenture.
Any Eligible Investments may be purchased by or through the Trustee or any of
its Affiliates.
"Equipment." The equipment leased to the Customers pursuant to the
Lease Contracts.
"Event of Default." The meaning specified in Section 6.01 hereof.
"Final Due Date." With respect to each Lease Receivable, the last Due
Date specified in the related Lease Contract.
"Final Payment Date." The date on which the final principal payment on
the Notes becomes due and payable as therein or herein provided, whether at the
Stated Maturity or by acceleration or redemption.
"Funding Period." The period beginning on the Closing Date and ending
on the first to occur of (a) the Subsequent Transfer Date, (b) the date on which
an Event of Default, a Servicer Event of Default or a Trigger Event occurs and
(c) the close of business on January 31, 1997.
"Grant." To grant, bargain, sell, warrant, alienate, remise, release,
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
<PAGE>
Lease Contracts, the Lease Receivables 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
Lease Contracts, the Lease Receivables and the related Equipment, 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.
"Guaranty Amounts." Any and all amounts paid by the guarantor indicated
on the applicable Lease Contract.
"Holder" or "Noteholder." The person in whose name a Note or
Certificate is registered in the Note Register.
"Implicit Principal Balance." With respect to each Lease Receivable as
of any Determination Date, the present value of the sum of (i) the remaining
stream of Scheduled Payments due with respect to such Lease Receivable after the
applicable Calculation Date (reduced by the Servicer Fee) and (ii) the
Calculated Residual, based upon discounting such Scheduled Payments as so
reduced and upon discounting the Calculated Residual to such Calculation Date at
the Discount Rate, at the same frequency as the Payment Dates; except that on
the Calculation Date (w) on or immediately following the deposit into the
Collection Account of Insurance Proceeds equal to the outstanding Implicit
Principal Balance of the related Lease Contract, or the Purchase Price of a
repurchased Lease Contract, or on or immediately following the delivery of a
Substitute Lease Contract, (x) immediately on or after the date that a Lease
Contract has become a Defaulted Lease Contract, (y) immediately preceding the
Final Payment Date or (z) immediately on or after the date which is 90 days
after the Final Due Date with respect to a Lease Contract if the related
Equipment has not been sold, released or otherwise disposed by the Servicer, the
Implicit Principal Balance of each such related Lease Receivable shall be zero.
To the extent that the Final Due Date of any Lease Receivable is later than the
Stated Maturity, any Scheduled Payments due on such Lease Receivable after the
Calculation Date immediately preceding the Stated Maturity shall not be taken
into account in calculating the Implicit Principal Balance of such Lease
Receivable.
"Indenture" or "this Indenture." This instrument as originally executed
as from time to time supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this Indenture to designated
"Articles," "Sections," "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
Indenture as originally executed, or if amended or supplemented, as so amended
and supplemented. The words "herein," "hereof," "hereunder" and other words of
similar import, when not related to a specific subdivision of this Indenture,
refer to this Indenture as a whole and not to any particular Article, Section,
Subsection or other subdivision.
<PAGE>
"Independent." When used with respect to any specified Person means
such a Person, who (1) is in fact independent of the Issuer, (2) does not have
any direct financial interest or any material indirect financial interest in the
Issuer or in any Affiliate of the Issuer and (3) is not connected with the
Issuer as an officer, employee, promoter, underwriter, Trustee, partner,
director, or person performing similar functions. Whenever it is herein provided
that any Independent Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by an Issuer Order and approved by the
Trustee in the exercise of reasonable care, and such opinion or certificate
shall state that the signer has read this definition and that the signer is
Independent within the meaning hereof.
"Initial Cut-Off Date." November 1, 1996.
"Initial Lease Contract." Any Lease Contact transferred to the Issuer
and pledged to the Trustee on the Closing Date.
"Initial Lease Receivable." The Lease Receivable related to an Initial
Lease Contract.
"Initial Payment Date." December 15, 1996, the first Payment Date
following the Delivery Date.
"Insurance Policy." With respect to an item of Equipment and a Lease
Contract, any insurance policy maintained by the Customer pursuant to the
related Lease Contract that covers physical damage to the Equipment (including
policies procured by the Issuer or the Servicer on behalf of the Customer).
"Insurance Proceeds." With respect to an item of Equipment and a Lease
Contract, any amount received during the related Due Period pursuant to an
Insurance Policy issued with respect to such Equipment and the related Lease
Contract, net of any costs of collecting such amounts not otherwise reimbursed.
"Insurer." Any finance company or other insurer providing any Insurance
Policy.
"Issuer." Sunrise Funding Corporation I, a Minnesota corporation, until
a successor Person shall have become the Issuer pursuant to the applicable
provisions of this Indenture, and thereafter "Issuer" shall mean such successor
Person.
"Issuer Order" and "Issuer Request." A written order or request signed
in the name of the Issuer by its Chairman of the Board, President, or a Vice
President, and delivered to the Trustee.
"Lease Acquisition Consideration." The meaning specified in the
Contribution Agreement.
"Lease Asset Assignment." The Lease Asset Assignment and Assumption
Agreement entered into on the Closing Date in connection with the execution of
the Contribution Agreement.
<PAGE>
"Lease Contract Files." The meaning specified in the Contribution
Agreement.
"Lease Contracts." The lease contracts (and all rights with respect
thereto, including all guaranties and other agreements or arrangements of
whatever character from time to time supporting or securing payment of any lease
contract and all rights with respect to any agreements or arrangements with the
vendors, dealers or manufacturers of the Equipment to the extent specifically
related to any lease contract) certain interests in which are acquired by the
Issuer from time to time pursuant to the Contribution Agreement and identified
on the Lease Schedule attached hereto as Schedule A, including Substitute Lease
Contracts and Subsequent Lease Contracts, and any amendments, riders and annexes
thereto; provided that, from and after the date on which a Lease Receivable
relating to a Lease Contract is purchased or substituted by the Issuer or the
Contributor in accordance with Section 4.03 hereof, such Lease Contract shall no
longer constitute a "Lease Contract" for purposes of the Transaction Documents.
"Lease Receivables." With respect to any Lease Contract, all of, and
the right to receive all of (i) the Scheduled Payments, (ii) any Guaranty
Amounts, (iii) any Insurance Proceeds, (iv) any Residual Proceeds and (v) any
Recoveries.
"Lease Schedule." The listing of Lease Contracts and Lease Receivables
on Schedule A hereto, which shall include with respect to each Lease Contract
listed on such schedule: (a) a number identifying such Lease Contract, (b) the
Implicit Principal Balance of the related Lease Receivable as of the related
Cut-Off Date, (c) the Customer, (d) the State of the Customer's billing address,
(e) the original and remaining term, (f) the Scheduled Payment and (g) the zip
code of the Customer's billing address, as such schedule may be amended upon any
purchase or substitution of Lease Contracts made in accordance with the terms of
the Transaction Documents.
"Lien." Any mortgage, deed of trust, pledge, hypothecation, assignment,
participation or equity interest, deposit arrangement, encumbrance, charge, lien
(statutory or other), preferences priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
"Lockbox Account." The meaning specified in the Servicing Agreement.
"Mode Change Date." The date on which the mode of the Notes changes
from a floating rate of interest to a fixed rate. Such date shall be specified
in a written notice from the Holders of a majority in principal amount of the
Notes Outstanding to the Issuer, the Servicer and the Trustee.
"Monthly Servicer's Report." The report prepared by the Servicer
pursuant to Section 4.01 of the Servicing Agreement.
<PAGE>
"Moody's." Moody's Investors Service, Inc. and its successors in
interest.
"Note" or "Notes." The Lease Receivables-Backed Notes authenticated and
delivered under this Indenture.
"Noteholder" or "Holder." The Person in whose name a Note is registered
in the Note Register.
"Note Interest Rate." (i) Until the Mode Change Date, the sum of (a)
the Prime Rate and (b) 0.75% per annum, and (ii) after the Mode Change Date, a
fixed rate equal to the Note Interest Rate determined pursuant to clause (i) in
effect on the Mode Change Date.
"Note Register" and "Note Registrar." The respective meanings specified
in Section 3.04 hereof.
"Officer's Certificate." A certificate signed by the Chairman of the
Board, the President, a Vice President, the Treasurer, the Controller, an
Assistant Controller or the Secretary of the company on whose behalf the
certificate is delivered, and delivered to the Trustee, which certificate shall
comply with the applicable requirements of Section 13.12 hereof. Unless
otherwise specified, any reference in this Indenture to an Officer's Certificate
shall be to an Officer's Certificate of the Issuer.
"Opinion of Counsel." A written opinion of Independent counsel who may,
except as otherwise expressly provided in this Indenture, be counsel for the
Issuer and who shall be reasonably satisfactory to the Trustee and which opinion
shall comply with the applicable requirements of Section 13.12 hereof.
"Outstanding." With respect to the Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes for whose payment money in the necessary amount has
been theretofore irrevocably deposited with the Trustee or any Paying
Agent (other than the Issuer) in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or any
provision therefor, satisfactory to the Trustee, has been made); and
(iii) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture,
unless proof satisfactory to the Trustee is presented that any such
Notes are held by a bona fide purchaser;
provided, however, that for purposes of determining whether the Holders of the
requisite principal amount of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Notes
<PAGE>
owned by the Issuer or any other obligor upon such Notes, any Affiliate of the
Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only such Notes which the Trustee knows to be so owned shall
be so disregarded.
"Overdue Payment." With respect to a Due Period and a Delinquent Lease
Contract, all payments due in a prior Due Period that the Servicer receives from
or on behalf of a Customer during such Due Period on such Delinquent Lease
Contract, including any Servicing Charges.
"Paying Agent." The Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 7.08 hereof and is
authorized by the Issuer pursuant to Section 11.15(o) hereof to pay the
principal of, or interest on, any Notes on behalf of the Issuer.
"Payment Date." The fifteenth day of each calendar month (or if such
day is not a Business Day, the next succeeding Business Day) commencing on the
Initial Payment Date.
"Person." Any individual, corporation, partnership, association,
joint-stock company, trust (including any beneficiary thereof), unincorporated
organization or government or any agency or political subdivision thereof.
"Placement Agent." Dougherty Dawkins, Inc. and its successors in
interest.
"Pre-Funded Amount." $7,000,000.
"Pre-Funding Account." The trust account created and maintained
pursuant to Section 12.03 hereof.
"Prime Rate." The prime rate per annum of interest as announced by
First Bank National Association.
"Principal Distribution Amount." With respect to each Payment Date, (a)
for any Payment Date prior to the Stated Maturity, an amount equal to the
Available Cash and (b) on the Stated Maturity, an amount equal to the aggregate
principal amount of Outstanding Notes as of such date.
"Proceeding." Any suit in equity, action at law or other judicial or
administrative proceeding.
"Purchase and Substitution Limit." With respect to the Lease Contracts,
15% of the Aggregate Implicit Principal Balance.
"Purchase Price." With respect to any Lease Contract or interest
therein for which payment has been made in order to repurchase or have released
<PAGE>
from the lien of the Trustee, pursuant to Section 3.03 of the Contribution
Agreement, Section 4.03(d) hereof or Section 3.10 of the Servicing Agreement,
the sum of (i) the Implicit Principal Balance as of the Calculation Date
immediately succeeding the date on which such Lease Contract is repurchased and
(ii) any Scheduled Payments with respect to the Lease Contract due on or prior
to such Calculation Date, but not received through such date.
"Record Date." The close of business on the last day of the month
preceding the applicable Payment Date, whether or not a Business Day, except
with respect to the Initial Payment Date for the Notes, the Record Date shall be
the Delivery Date.
"Recoveries." For any Due Period occurring during or after the date on
which any Lease Contract becomes a Defaulted Lease Contract and with respect to
such Defaulted Lease Contract, all payments that the Servicer received from or
on behalf of a Customer during such Due Period in respect of such Defaulted
Lease Contract or from liquidation or re-leasing of the related Equipment,
including but not limited to Scheduled Payments, Overdue Payments, Guaranty
Amounts, and Insurance Proceeds, as reduced by (i) any unreimbursed Servicer
Advances with respect to such Lease Contract and (ii) any reasonably incurred
out-of-pocket expenses incurred by the Servicer in enforcing such Defaulted
Lease Contract.
"Redemption Date." A date fixed pursuant to Section 10.01 hereof.
"Redemption Price." With respect to any Note, and as of any Redemption
Date, the Outstanding principal amount of such Note, together with interest
accrued thereon through the Redemption Date at the related Note Interest Rate
(exclusive of installments of interest and principal maturing on or prior to the
Redemption Date, payment of which shall have been made or duly provided for to
the Holder of such Note on the applicable Record Date or as otherwise provided
in this Indenture).
"Redemption Record Date." With respect to any redemption of any Note, a
date fixed pursuant to Section 10.01 hereof.
"Registered Holder." The Person whose name appears on the Note Register
on the applicable Record Date or Redemption Record Date.
"Reinvestment Income." Any interest or other earnings earned on all or
part of the Trust Estate.
"Residual Proceeds." With respect to a Lease Contract that is not a
Defaulted Lease Contract and the related Equipment, the net proceeds (including
Insurance Proceeds) of any sale, re-lease (including any lease renewal) or other
disposition of such Equipment.
"Responsible Officer." When used with respect to the Trustee, any
officer assigned to the Corporate Trust Department (or any successor thereto),
including any Vice President, Assistant Vice President, Trust Officer, Assistant
Secretary or any other officer of the Trustee customarily performing functions
<PAGE>
similar to those performed by any of the above designated officers and having
direct responsibility for the administration of this Indenture, 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.
"Sale." The meaning specified in Section 6.18 hereof.
"Scheduled Payment." With respect to a Payment Date and a Lease
Contract, the sum of the periodic payment (exclusive of any amounts in respect
of taxes) set forth in such Lease Contract due from the Customer in the related
Due Period, calculated without regard to any modification granted pursuant to
Section 3.01(b)(v) of the Servicing Agreement.
"Scheduled Payment Date": With respect to any Lease Contract, the date
payments are due from the lessee thereunder.
"Servicer." Initially, Sunrise Leasing Corporation, and any successor
Servicer appointed pursuant to Section 6.02 of the Servicing Agreement.
"Servicer Advance." The meaning set forth in Section 3.04 of the
Servicing Agreement.
"Servicer Fee." $10.00 per Lease Contract per Scheduled Payment, the
amount payable to the Servicer as the Servicer Fee on each Payment Date.
"Servicing Agreement." The Servicing Agreement, dated as of November 1,
1996, by and among the Issuer, the Servicer and the Trustee, as amended or
supplemented from time to time.
"Servicing Charges." The sum of (i) all late payment charges paid by
Customers on Delinquent Lease Contracts after payment in full of any Scheduled
Payments due in a prior Due Period and Scheduled Payments for the related Due
Period and (ii) any other incidental charges or fees received from a Customer,
including, but not limited to, late fees, collection fees and bounced check
charges.
"Servicing Officers." The meaning set forth in the Servicing Agreement.
"S & P." Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc., a corporation organized and existing under the laws of the
State of Delaware, and its successors in interest.
"State." Any state of the United States of America and, in addition,
the District of Columbia and Puerto Rico.
"Stated Maturity." January 1, 2000.
"Subsequent Cut-Off Date." The Cut-Off Date specified in the Subsequent
Lease Assignment Agreement.
<PAGE>
"Subsequent Lease Assignment Agreement." The Subsequent Lease Asset
Assignment and Assumption Agreement, pursuant to which the Contributor will
transfer the Subsequent Lease Contracts and related assets to the Issuer on the
Subsequent Transfer Date.
"Subsequent Lease Contract." A Lease Contract transferred to the Issuer
on the Subsequent Transfer Date.
"Subsequent Lease Receivable." The Lease Receivable relating to a
Subsequent Lease Contract.
"Subsequent Transfer Date." The date, if any, during the Funding Period
on which the Contributor transfers additional Lease Contracts, Lease Receivables
and the related Equipment to the Issuer for pledge to the Trustee pursuant to
the Transaction Documents.
"Substitute Lease Contract." The meaning specified in the Contribution
Agreement.
"Transaction Documents." This Indenture, the Servicing Agreement, the
Contribution Agreement and the Notes.
"Trigger Event." Any of the following events as of any Determination
Date: (1) the sum of the Scheduled Payments which were not received by the
Servicer within 60 days of when due and which remain unpaid as of the related
Calculation Date divided by the sum of the Scheduled Payments due during the
related Due Period exceeds 9.0%; (2) the aggregate of the Implicit Principal
Balances of the Lease Contracts which are Defaulted Contracts as of the related
Calculation Date divided by the Aggregate Implicit Principal Balance as of the
related Calculation Date exceeds 3.0%; (3) there occurs a Servicer Event of
Default pursuant to Section 6.01(a)(vii) or (viii) of the Servicing Agreement;
(4) the net worth of the Servicer as of its latest audited or unaudited
financial statements shall be less than $10 million; or (5) the aggregate
Residual Proceeds received by the Servicer from the Closing Date through the
related Calculation Date divided by the aggregate Calculated Residual for each
item of Equipment for which the Servicer has received Residual Proceeds is less
than 110%.
"Trustee." Norwest Bank Minnesota, National Association, 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.
"Trust Estate." The meaning specified in the Granting Clause of this
Indenture.
"Trustee Fee." The fee payable on each Payment Date to the Trustee in
consideration for the Trustee's performance of its duties pursuant to this
Indenture as Trustee, in an amount equal to the product of one-twelfth of the
Trustee Fee Rate and on any Payment Date, the aggregate principal amount of
Outstanding Notes on the preceding Payment Date after giving effect to
distributions on such date (or, in the case of the Initial Payment Date, the
initial aggregate principal amount of the Notes).
"Trustee Fee Rate." $12,000 per annum.
<PAGE>
"UCC." The Uniform Commercial Code as it may from time to time be in
effect in the applicable State.
"Vendor Agreements." The agreements relating to the Equipment between
the manufacturer of the Equipment and the Contributor or one of its Affiliates,
together with all amendments and supplements thereto.
"Vice President." With respect to the Issuer or the Trustee, any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president."
Article Two
Note Form
Section 2.01. Forms. The Notes together with the certificate of
authentication shall be in substantially the forms set forth in Exhibit D
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon, as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
The definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any manner acceptable to the Trustee and the
initial purchasers of the Notes, all as determined by the officers executing
such Notes, as evidenced by their execution of such Notes.
Article Three
The Notes
Section 3.01. Denomination. The aggregate principal amount of Notes
which may be authenticated and delivered under this Indenture is limited to an
aggregate principal amount of $20,000,000 (except for Notes authenticated and
delivered upon registration of transfer or in exchange for or in lieu of, other
Notes pursuant to Sections 3.03, 3.04, 3.06 or 9.05 hereof). The Notes shall be
issuable only as registered Notes without coupons in the denominations of
$100,000 and any integral multiple of $1,000 in excess thereof; provided,
however, that, the foregoing shall not restrict or prevent the transfer in
accordance with Sections 3.04 and 3.05 hereof of any Note with a remaining
outstanding principal amount of less than $100,000.
Section 3.02. Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by its President or one of its Vice
Presidents under its corporate seal imprinted (if it has one) or otherwise
reproduced thereon. The signature of these officers on the Notes must be manual.
<PAGE>
Notes bearing the manual signatures of individuals who were at any time
the proper officers of the Issuer shall bind the Issuer, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication or delivery of such Notes or did not hold offices at the date of
authentication or delivery of such Notes.
Each Note shall bear on its face the Delivery Date and be dated as of
the date of its authentication.
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 or by any Authenticating Agent by the manual signature
of one of its authorized officers, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
Section 3.03. Temporary Notes. Pending the preparation of definitive
Notes, the Issuer may execute, and upon Issuer Order, the Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such variations as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 11.02(n) hereof, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Notes, the Issuer
shall execute and the Trustee shall authenticate and deliver in exchange
therefor one or more definitive Notes of any authorized denominations and of a
like initial aggregate principal amount and Stated Maturity. Until so exchanged,
the temporary Notes shall in all respects be entitled to the same benefits under
this Indenture as definitive Notes.
Section 3.04. Registration, Registration of Transfer and Exchange. (a)
The Issuer shall cause to be kept initially at the Corporate Trust Office of the
Trustee a register (the "Note Register"), in which, subject to such reasonable
regulations as it may prescribe, the Issuer shall provide for the registration
of Notes and the registration of transfers of Notes. Norwest Bank Minnesota,
National Association, Sixth Street and Marquette Avenue, Minneapolis, Minnesota
55479-0070, is hereby appointed "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. The Trustee shall have the
right to rely conclusively upon a certificate of the Note Registrar as to the
names and addresses of the holders of the Notes and the principal amounts and
numbers of such Notes as held. Upon request of any Holder, the Trustee shall, to
the extent it may lawfully do so, furnish such Holder with a list of the names
and addresses of all Holders entered on the Note Register indicating the
principal amount and serial number, if any, of each Note held by each Holder.
<PAGE>
(b) Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 11.02(n)
hereof and subject to the conditions set forth in Section 3.05 hereof, the
Issuer shall execute, and the Trustee or its agent shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations, and of a like aggregate principal
amount and Stated Maturity.
(c) At the option of the Holder, Notes may be exchanged for other Notes
of any authorized denominations and of a like aggregate principal amount and
Stated Maturity, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute, and the Trustee or its agent shall authenticate and deliver, the Notes
which the Noteholder making the exchange is entitled to receive.
(d) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of such transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Issuer or the Note Registrar) be duly
endorsed or be accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Note Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer 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, other than
exchanges pursuant to Section 3.03 or 9.05 hereof not involving any registration
of transfer.
Notwithstanding anything else to the contrary contained in this
Indenture, the obligation of the Issuer to pay the principal of and interest on
the Notes is not a general obligation of the Issuer, but is limited solely to
the Collateral pledged under this Indenture.
Section 3.05. Limitation on Transfer and Exchange. The Notes will not
be registered or qualified under the Securities Act of 1933, as amended (the
"1933 Act"), or the securities laws of any State. No transfer of any Note shall
be made unless that transfer is made in a transaction which does not require
registration or qualification under the 1933 Act or under applicable State
securities laws. In the event that a transfer is to be made without registration
or qualification, such Noteholder's prospective transferee shall either (i)
deliver to the Trustee an investment letter substantially in the form set forth
on Exhibit A hereto (the "Investment Letter") or (ii) deliver to the Trustee an
opinion of counsel that the transfer is exempt from the 1933 Act and will not
result in the Issuer being required to register as an "investment company" under
the Investment Company Act of 1940, as amended. Neither the Issuer nor the
Trustee is obligated to register or qualify the Notes under the 1933 Act or any
other securities law.
<PAGE>
No transfer or exchange of any Note shall be made if, after such
transfer, there would be more than 100 beneficial owners (within the meaning of
the Investment Company Act of 1940, as amended) of (i) the Notes, (ii) the
membership interests and (iii) all other securities of the Issuer. For purposes
of determining whether after a transfer of a Note there would be more than 100
beneficial owners of the securities of the Issuer for purposes of the Investment
Company Act of 1940, as amended, the Trustee shall rely upon the representations
of each Holder contained in the Investment Letter and upon information provided
by the Issuer to the Trustee. At the request of the Trustee, the Issuer shall
promptly provide the Trustee with the number of beneficial owners of all
securities of the Company (except, so long as the Trustee is the Note Registrar,
the Notes); provided, however, that in determining the number of such beneficial
owners, the Issuer may rely upon the representations of such beneficial owners
contained in any letter delivered to the Issuer in connection with each such
beneficial owner's acquisition of such security. The Issuer shall deliver any
such letter to the Trustee.
The Trustee shall have no liability to the Trust Estate or any
Noteholder arising from a transfer of any such Note in reliance upon a
certification described in this Section 3.05.
Section 3.06. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Note Registrar, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note, and
(ii) there is delivered to the Trustee such security or indemnity as may be
required by the Trustee to save the Issuer and the Trustee or any agent of any
of them harmless, then, in the absence of notice to the Issuer or the Note
Registrar that such Note has been acquired by a bona fide purchaser, the Issuer
shall execute and, upon its request, the Trustee shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Note, a new Note of the same tenor, initial principal amount and Stated
Maturity, bearing a number not contemporaneously outstanding. If after the
delivery of such new Note, a bona fide purchaser of the original Note in lieu of
which such new Note was issued presents for payment such original Note, the
Issuer and the Trustee shall be entitled to recover such new Note from the
person to whom it was delivered or any person taking therefrom, 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 expenses incurred
by the Issuer or the Trustee or any agent of any of them in connection
therewith. If any such mutilated, destroyed, lost or stolen Note shall have
become or shall be about to become due and payable, or shall have become subject
to redemption in full, instead of issuing a new Note, the Issuer may pay such
Note without surrender thereof, except that any mutilated Note shall be
surrendered.
Upon the issuance of any new Note under this Section 3.06, the Issuer
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 3.06, in lieu of any
destroyed, lost or stolen Note, shall constitute an original additional
contractual obligation of the Issuer, 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 duly issued hereunder.
<PAGE>
The provisions of this Section 3.06 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 3.07. Payment of Principal and Interest; Principal and
Interest Rights Preserved'. (a) The Notes shall bear interest on the unpaid
principal amount thereof from and including the Closing Date at the applicable
Note Interest Rate (calculated on the basis of a 360-day year and the actual
number of days elapsed when the Note Interest Rate is a floating rate, and
calculated on the basis of a 360-day year consisting of 12 months of 30 days
each when the Note Interest Rate is a fixed rate) through the day immediately
preceding the Initial Payment Date and thereafter, monthly from and including
the most recent Payment Date through and including the day immediately preceding
the next Payment Date, and (to the extent that the payment of such interest
shall be legally enforceable) on any overdue installment of interest from the
date such interest became due and payable (giving effect to any applicable grace
periods provided herein) until fully paid. Interest shall be due and payable in
arrears on each Payment Date, with each payment of interest calculated as
described above on the unpaid principal amount of the Outstanding Notes on the
immediately preceding Payment Date (after the distributions on the Notes on such
date) or, with respect to interest payable on the Initial Payment Date, on the
principal amount of the Outstanding Notes on the Delivery Date; provided,
however, that in making any interest payment, if the interest calculation with
respect to any Note shall result in a portion of such payment being less than
$.01, then such payment shall be decreased to the nearest whole cent, and no
subsequent adjustment shall be made in respect thereof.
(b) The principal of each Note shall be payable in installments ending
no later than the Stated Maturity unless such Note becomes due and payable at an
earlier date by declaration of acceleration, call for redemption or otherwise.
All reductions in the principal amount of any Note effected by payments of
installments of principal made on any Payment Date shall be binding upon all
future 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. Each installment of principal payable on the
Notes shall be in an amount equal to the Principal Distribution Amount. The
principal payable on the Notes shall be paid on each Payment Date beginning on
the Initial Payment Date and ending on the Final Payment Date for the Notes on a
pro rata basis based upon the face amount of each Note; provided, however, that
if as a result of such proration a portion of such principal would be less than
$.01, then such payment shall be decreased to the nearest whole cent, and such
portion shall be applied to the next succeeding principal payment.
(c) The principal of and interest on the Notes are payable by check
mailed by first-class mail to the Person whose name appears as the Registered
Holder of such Note on the Note Register at the address of such Person as it
appears on the Note Register or, if requested by such Registered Holder who
holds Notes in an aggregate principal amount greater than $500,000, by wire
transfer in immediately available funds to the account specified in writing to
<PAGE>
the Trustee by such Registered Holder at least five Business Days prior to the
Record Date for the Payment Date on which wire transfers will commence, in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts. Except as set forth in
the final sentence of this Section 3.07(c), all payments on the Notes shall be
paid without any requirement of presentment. The Issuer shall notify the Trustee
at the close of business on the Record Date next preceding the Payment Date on
which the Issuer expects that the final installment of principal of such Note
will be paid that the Issuer expects that such final installment will be paid on
such Payment Date. In addition, the Issuer shall specify the place or places
where any Note may be presented and surrendered for final payment. Notice of
final payment on any Note shall be mailed by the Trustee to the Holder of such
Note in accordance with Section 12.05(a) hereof. Funds representing any such
checks returned undeliverable shall be held in accordance with Section 11.02(o).
Each Noteholder shall surrender its Note to the Trustee prior to payment of the
final installment of principal of such Note.
Section 3.08. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee and any agent of
the Issuer or the Trustee shall treat the Person in whose name any Note is
registered as the owner of such Note for the purpose of receiving payments of
principal of and interest on such Note and for all other purposes whatsoever,
whether or not such Note be overdue, and neither the Issuer, the Trustee nor any
agent of the Issuer or the Trustee shall be affected by notice to the contrary.
Section 3.09. Cancellation. All Notes surrendered to the Trustee for
payment, registration of transfer or exchange (including Notes surrendered to
any Person other than the Trustee which shall be delivered to the Trustee) 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 3.09, except
as expressly permitted by this Indenture. All cancelled Notes held by the
Trustee shall be disposed of by the Trustee as is customary with its standard
practice, and the Trustee shall so certify such disposal to the Issuer.
Article Four
Original Issuance of Notes; Substitutions of Collateral
Section 4.01. Conditions to Original Issuance of Notes. (a) The Trustee
shall, upon receipt of, and in accordance with, an Issuer Order and upon the
satisfaction of the conditions set forth below, authenticate and deliver the
Notes on the Delivery Date. The Outstanding Notes shall be equally and ratably
entitled, with all other Notes as provided herein, to the benefits of this
Indenture without preference, priority or distinction, all in accordance with
the terms and provisions of this Indenture.
(b) The obligation of the Trustee to authenticate, execute and deliver
the Notes is subject to the satisfaction of the following conditions:
(i) the Issuer shall have executed the Notes to be
authenticated and delivered on the Delivery Date and shall have
delivered such Notes to the Trustee on or prior to the Delivery Date;
<PAGE>
(ii) the Issuer shall have delivered to the Trustee (A) on or
prior to the Delivery Date the original executed counterpart of each
Lease Contract constituting "chattel paper" for purposes of Sections
9-105(1)(b), 9-305 and 9-308 of the UCC identified in the Lease
Schedule on the Closing Date; and (B) the Lease Contract File relating
to such Lease Contract;
(iii) the Issuer and the Servicer shall have delivered to the
Trustee on or prior to the Delivery Date an Officer's Certificate dated
as of the Delivery Date of each of the Issuer and the Servicer,
stating, as applicable, that (A) such Person is not in Default under
this Indenture or the Servicing Agreement and that the issuance of the
Notes will not result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, such Person's certificate
of incorporation, by-laws or other organizational documents, as
applicable, or any material indenture, mortgage, deed of trust or other
agreement or instrument to which such Person is a party or by which it
is bound, or any order of any court or administrative agency entered in
any proceeding to which such Person is a party or by which it may be
bound or to which it may be subject; and (B) that all conditions
precedent provided in this Indenture relating to the authentication and
delivery of the Notes have been complied with;
(iv) each of the Issuer and the Servicer shall have delivered
to the Trustee on or prior to the Delivery Date a Board Resolution of
its board of directors authorizing, as applicable, the execution,
delivery and performance of this Indenture and the other Transaction
Documents and the transactions contemplated hereby and thereby,
certified by an officer of the Issuer or the Servicer, as applicable;
(v) each of the Issuer and the Servicer shall have delivered
to the Trustee on or prior to the Delivery Date a copy of an officially
certified document, dated not more than 30 days prior to the Delivery
Date, evidencing its due organization and good standing;
(vi) each of the Issuer and the Servicer shall have delivered
to the Trustee on or prior to the Delivery Date copies of its charter
and by-laws certified by its Secretary or an Assistant Secretary;
(vii) the Servicer shall have delivered to the Trustee on or
prior to the Delivery Date a certificate listing the Servicing Officers
of the Servicer as of the Delivery Date; and
(viii) the Issuer shall have delivered to the Trustee on or
prior to the Delivery Date an executed copy of the Servicing Agreement
and the Contribution Agreement and all amendments and supplements
thereto.
Section 4.02. Security for Notes. (a) Filing. The Issuer shall deliver
to the Trustee, within 10 days of the Delivery Date, evidence of filing with the
Secretary of State of the State of the Issuer's chief executive office of UCC-1
financing statements executed by the Issuer, as debtor, and naming the Trustee
<PAGE>
for the benefit of the Noteholders as secured party, and the Trust Estate as
collateral. From time to time, the Servicer shall, at its own expense, take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Trustee's interests in the Lease Contracts, the Lease
Receivables and the Equipment against all other Persons, including, without
limitation, the filing of financing statements, amendments thereto and
continuation statements, the execution of transfer instruments and the making of
notations on or taking possession of all records or documents of title.
(b) Name Change or Relocation. If any change in the Issuer's name,
identity, structure or the location of its principal place of business or chief
executive office occurs, then the Issuer shall deliver 30 days' prior written
notice of such change or relocation to the Servicer and the Trustee and no later
than the effective date of such change or relocation, the Servicer shall file
such amendments or statements as may be required to preserve and protect the
Trustee's interests in the Trust Estate.
(c) Chief Executive Office. During the term of this Indenture, the
Issuer will maintain its chief executive office and principal place of business
in one of the States of the United States.
(d) Costs and Expense. The Servicer agrees to pay all reasonable costs
and disbursements in connection with the perfection and the maintenance of
perfection, as against all third parties, of the Trustee's right, title and
interest in and to the Trust Estate.
Section 4.03 Substitution and Purchase of Lease Receivables. (a) If at
any time the Issuer or the Trustee obtains knowledge (within the meaning of
7.01(e) hereof), discovers or is notified by the Servicer that any of the
representations and warranties of the Contributor in the Contribution Agreement
were incorrect at the time as of which such representations and warranties were
made, then the Person discovering such defect, omission, or circumstance shall
promptly notify the other parties to this Indenture.
(b) In the event any representation or warranty of the Contributor in
the Contribution Agreement is incorrect and materially and adversely affects the
value of a Lease Contract, the related Lease Receivable or the related
Equipment, or the interests of the Holders of the Notes, or in the event of any
breach of any of the representations and warranties set forth in Sections
3.01(a)(ii), 3.01(a)(v), 3.01(a)(vii) or 3.01(a)(xviii) of the Contribution
Agreement, then the Issuer shall require the Contributor pursuant to the
Contribution Agreement to eliminate or otherwise cure the circumstance or
condition which has caused such representation or warranty to be incorrect
within 30 days of discovery or notice thereof. If the Contributor fails or is
unable to cure such circumstance or condition in accordance with the
Contribution Agreement then the Issuer shall require the Contributor to
substitute or purchase pursuant to the Contribution Agreement any Lease
Receivable related to any Lease Contract as to which such representation or
warranty is incorrect within the time specified in Section 3.03 of the
Contribution Agreement. The proceeds of a purchase shall be remitted by the
Issuer to the Servicer for deposit by the Servicer in the Collection Account
pursuant to Section 3.03(a) of the Contribution Agreement.
<PAGE>
(c) If a Responsible Officer of the Trustee receives written notice of,
or to the extent a Responsible Officer of the Trustee has actual knowledge of,
any failure of the Issuer to enforce the purchase or substitution obligation of
the Contributor under the Contribution Agreement, the Trustee shall so notify
each Noteholder. The Trustee shall be responsible for enforcing such obligation
of the Contributor if so directed by a majority in principal balance of the
Noteholders.
(d) With respect to (i) any Lease Contract to be prepaid or terminated
early pursuant to Section 3.10 of the Servicing Agreement and (ii) any Defaulted
Lease Contract or Delinquent Lease Contract, the Issuer shall be entitled to
purchase the Lease Receivable related to such Lease Contract or to deliver a
Substitute Lease Receivable meeting the same requirements as those specified in
Section 3.04 of the Contribution Agreement for substitutions and purchases by
the Contributor upon breaches of a representation or warranty by the Contributor
thereunder; provided, however, that the sum of (A) the cumulative Implicit
Principal Balance of prepaid or early terminated Lease Contracts which are
substituted by the Issuer (measured as of the date of substitution) and (B) the
cumulative Implicit Principal Balance of Defaulted Lease Contracts and
Delinquent Lease Contracts which are purchased or substituted by the Issuer
(measured as of the date of substitution) shall not exceed the Purchase and
Substitution Limit.
(e) The Issuer shall provide to the Trustee, or with respect to item
(ii) below the Trustee, on the date of delivery of any Substitute Lease Contract
the items listed in (i) and (ii) below and, at the end of each calendar quarter,
the items listed in (iii) below with respect to any Substitute Lease Contracts
substituted during such period:
(i) a supplement to the Contribution Agreement substantially
in the form of Annex A to the Contribution Agreement and Exhibit B
hereto, subjecting such Substitute Lease Contract to the provisions
thereof and hereof and providing with respect to such Substitute Lease
Contract the information set forth in the Lease Schedule;
(ii) the original executed counterpart of the Lease Contract
and the Lease Contract File relating to such Substitute Lease Contract;
and
(iii) evidence that UCC financing statements have been filed
with respect to such Substitute Lease Contract in accordance with
Section 4.02 hereof.
Section 4.04. Releases. (a) The Issuer shall be entitled to obtain a
release from the lien of this Indenture for any Lease Contract, the related
Lease Receivable and the related Equipment at any time (i) after a payment by
the Contributor or the Issuer of the Purchase Price of the Lease Receivable,
(ii) after a Substitute Lease Contract is substituted for such Lease Contract,
or (iii) upon the termination of a Lease Contract following the sale or other
disposition (but not a re-lease) of the related Equipment in accordance with
Section 3.01(b)(vii) of the Servicing Agreement, if the Issuer delivers to the
Trustee an Officer's Certificate (A) identifying the Lease Receivable and the
related Lease Contract and Equipment to be released, (B) requesting the release
<PAGE>
thereof, (C) setting forth the amount deposited in the Collection Account with
respect thereto, in the event a Lease Contract, the related Lease Receivable and
the related Equipment are being released from the lien of this Indenture
pursuant to (i) or (iii) above, and (D) certifying that the amount deposited in
the Collection Account equals (x) the Purchase Price of the Lease Receivable
related to such Lease Contract, in the event a Lease Contract, the related Lease
Receivable and the related Equipment are being released from the lien of this
Indenture pursuant to (i) above or (y) in the event of a release from the lien
of this Indenture pursuant to (iii) above, the entire amount of Recoveries or
Residual Proceeds received with respect to such Lease Contract, the related
Lease Receivable and related Equipment; provided, however, that upon the
termination of a Lease Contract, any residual proceeds from the related
Equipment shall be placed in the Collection Account prior to the Trustee or the
Issuer releasing the Equipment from the security interest granted to the Trustee
by the Issuer pursuant to this Indenture or to the Issuer by the Contributor
pursuant to the Contribution Agreement.
(b) Upon satisfaction of the conditions specified in subsection (a)
above or upon satisfaction of the Issuer's obligations under Section 4.03 hereof
with respect to a Lease Contract, the Trustee shall release from the lien of
this Indenture the Lease Contract, the related Lease Receivable and the related
Equipment described in the Issuer's request for release and shall deliver, to or
upon the order of the Issuer, such Lease Contract and the related Lease Contract
File.
Section 4.05. Trust Estate. The Trustee may, and when required by the
provisions of Articles Four, Six and Twelve hereof shall, execute instruments to
release property from the lien of this Indenture, or convey the Trustee's
interest in the same, in a manner and under circumstances which are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Trustee as provided in this Article Four shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any monies.
Section 4.06. Notice of Release. The Trustee shall be entitled to
receive at least 10 days' notice of any action to be taken pursuant to Section
4.04(a) hereof, accompanied by copies of any instruments involved.
Section 4.07. Opinions as to Trust Estate. On the Closing Date, the
Issuer shall furnish to the Trustee an Opinion of Counsel either stating that,
in the opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any UCC financing statements and continuation statements, as are necessary to
perfect and make effective the first priority lien and security interest in
favor of the Trustee, for the benefit of the Noteholders, created by this
Indenture and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
<PAGE>
Article Five
Satisfaction and Discharge
Section 5.01. Satisfaction and Discharge of Indenture. (a) Following
payment in full of (i) the Notes, (ii) the fees and charges of the Trustee and
(iii) all other obligations of the Issuer under this Indenture, and the release
by the Trustee of the Trust Estate in accordance with Section 5.01(b) hereof,
this Indenture shall be discharged.
(b) In connection with the discharge of this Indenture and the release
of the Trust Estate, the Trustee shall release from the lien of this Indenture
and shall deliver, to or upon the order of the Issuer all property remaining in
the Trust Estate and shall execute and file, at the expense of the Issuer, UCC
financing statements evidencing such discharge and release.
Section 5.02. Application of Trust Money. Subject to the last paragraph
of Section 11.02(o) hereof, all monies deposited with the Trustee pursuant to
Section 5.01 hereof shall be held in trust and applied by the Trustee, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent as the Trustee may determine, to the
Persons entitled thereto, of the principal and interest for whose payment such
money has been deposited with the Trustee; but such money need not be segregated
from other funds except to the extent required herein or to the extent required
by law.
Article Six
Defaults and Remedies
Section 6.01. Events of Default. "Event of Default" wherever used
herein means any one of the following events:
(1) default in the payment of any interest upon any Note that
continues for two Business Days after the same becomes due and payable;
or
(2) default in the payment of any principal of any Note that continues
for two Business Days after the same becomes due and payable; or
(3) default in the observance or performance of any covenant
or agreement of the Issuer made in this Indenture or the Servicing
Agreement (other than a covenant or warranty default, the observance or
performance of which is elsewhere in this Section 6.01 specifically
dealt with), or any representation or warranty of the Issuer made in
this Indenture, the Servicing Agreement or in any certificate or other
writing delivered pursuant hereto or thereto or in connection herewith
or therewith proving to have been incorrect in any material respect as
of the time when the same shall have been made and such default shall
continue or not be cured, or the circumstance or condition in respect
of which such representation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days after
(except for defaults relating to Sections 4.03 and 11.02(a), (b), (l),
(q) and (s) hereof, which shall have no additional grace period) there
shall have been given, by registered or certified mail, to the Issuer
<PAGE>
by the Trustee or to the Issuer and the Trustee by the Holders of at
least 25% of the aggregate principal amount of the Outstanding Notes, a
written notice specifying such default or incorrect representation or
warranty and requiring it to be remedied; or
(4) the Issuer becomes subject to registration as an
"investment company" under the Investment Company Act of 1940, as
amended; or
(5) the filing of a petition or the entry of a decree or order
for relief by a court having jurisdiction in the premises in respect of
the Issuer under the federal Bankruptcy Code or any other applicable
federal or State bankruptcy, insolvency, reorganization, liquidation or
other similar law now or hereafter in effect or any arrangement with
creditors or appointing a receiver, liquidator, assignee, trustee, or
sequestrator (or other similar official) for the Issuer or for any
substantial part of its property in an involuntary case, or ordering
the winding up or liquidation of the Issuer's affairs, and the
continuance of any such petition undismissed or of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(6) the institution by the Issuer of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by the Issuer to
the institution of bankruptcy or insolvency proceedings against the
Issuer, or the filing by the Issuer of a petition or answer or consent
seeking reorganization or relief under the federal Bankruptcy Code or
any other applicable federal or State bankruptcy, insolvency,
reorganization, liquidation or other similar law now or hereafter in
effect, or the consent by the Issuer to the filing of any such petition
or to the appointment of or possession by a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or other similar
official) of the Issuer or of any substantial part of the Issuer's
property, or the making by the Issuer of any assignment for the benefit
of creditors, or the admission by it in writing of its inability, or
the failure by it generally, to pay its debts as they become due, or
the taking of corporate action by the Issuer in furtherance of any such
action; or
(7) the impairment of the validity of any security interest of
the Trustee in the Trust Estate, except as expressly permitted, or
creation of any encumbrance not otherwise permitted which is not
released within 60 days of its creation.
Section 6.02. Acceleration of Maturity; Rescission and Annulment'. If
an Event of Default with respect to the Notes at the time Outstanding occurs and
is continuing, then the Trustee may, and in every such case, at the direction of
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes, the Trustee shall, declare the principal of all the Notes to
be immediately due and payable, by notice given in writing to the Issuer (and to
the Trustee if given by Noteholders), and upon any such declaration, such
principal shall become immediately due and payable without any presentment,
demand, protest or other notice of any kind (except such notices as shall be
expressly required by the provisions of this Indenture), all of which are hereby
expressly waived.
At any time after such a declaration of acceleration has been made, but
before any Sale of the Trust Estate has been made or a judgment or decree for
<PAGE>
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of not less than 66-2/3% in aggregate principal
amount of the Outstanding Notes, by written notice to the Issuer and the
Trustee, may rescind and annul such declaration and its consequences (except
that in the case of a payment default on the Notes, the consent of all the
Noteholders shall be required to rescind and annul such a declaration and its
consequences) if:
(1) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all
Notes,
(B) the principal of any Notes which has become due
otherwise than by such declaration of acceleration and
interest thereon at the rate borne by such Notes from the time
such principal first became due until the date when paid, and
(C) all sums paid or advanced, together with interest
thereon, by the Trustee or any Noteholder hereunder and the
reasonable compensation, expenses, disbursements and advances
of the Trustee and the Noteholders, their agents and counsel
incurred in connection with the enforcement of this Indenture
to the date of such payment or deposit; and
(2) all Events of Default, other than the nonpayment of the
principal of the Notes which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 6.15
hereof.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 6.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Issuer covenants that if an Event of Default shall occur and be
continuing and the Notes have been declared due and payable and such declaration
has not been rescinded and annulled, the Issuer will, upon demand of the
Trustee, pay to the Trustee, for the benefit of the Holders of the Notes, the
whole amount then due and payable on the Notes for principal and interest, with
interest upon the overdue principal at the rate borne by the Notes and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Issuer fails to pay such amount forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust may, institute
Proceedings for the collection of the sums so due and unpaid, and prosecute such
Proceeding to judgment or final decree, and enforce the same against the Issuer
and collect the monies adjudged or decreed to be payable in the manner provided
by law out of the property of the Issuer, wherever situated.
<PAGE>
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 6.04. Remedies. If an Event of Default shall have occurred and
be continuing, the Trustee may do one or more of the following:
(a) institute Proceedings for the collection of all amounts
then due and payable on the Notes or under this Indenture, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer the monies adjudged due;
(b) take possession of and sell the Trust Estate securing the
Notes or any portion thereof or rights or interest therein, at one or
more Sales called and conducted in any manner permitted by law;
(c) institute any Proceedings from time to time for the
complete or partial foreclosure of the lien created by this Indenture
with respect to the Trust Estate securing the Notes;
(d) during the continuance of a default under a Lease
Contract, exercise any of the rights of the lessor under such Lease
Contract; and
(e) exercise any remedies of a secured party under the UCC or
any applicable law and take any other appropriate action to protect and
enforce the rights and remedies of the Trustee or the Holders of the
Notes hereunder;
provided, however, that without the consent of all the Holders of Outstanding
Notes, the Trustee may not sell or otherwise liquidate any portion of the Trust
Estate unless the proceeds of such Sale or liquidation distributable to the
Noteholders are sufficient to discharge in full the amounts then due and unpaid
upon the Notes for principal and interest.
Section 6.05. Optional Preservation of Trust Estate. If (i) an Event of
Default shall have occurred and be continuing with respect to the Notes and (ii)
no Notes have been declared due and payable, or such declaration and its
consequences have been annulled and rescinded, the Trustee may in its sole
discretion, if it determines it to be in the best interests of the Holders of
the Notes or upon request from the Holders of a majority in principal amount of
the Outstanding Notes, elect, by giving written notice of such election to the
Issuer, to take possession of and retain the Trust Estate securing the Notes
intact, collect or cause the collection of the proceeds thereof and make and
apply all payments and deposits and maintain all accounts in respect of such
Notes in accordance with the provisions of Article Twelve of this Indenture. If
the Trustee is unable to or is stayed from giving such notice to the Issuer for
any reason whatsoever, such election shall be effective as of the time of such
determination or request, as the case may be, notwithstanding any failure to
give such notice, and the Trustee shall give such notice upon the removal or
<PAGE>
cure of such inability or stay (but shall have no obligation to effect such
removal or cure). Any such election may be rescinded with respect to any portion
of the Trust Estate securing the Notes remaining at the time of such rescission
by written notice to the Trustee and the Issuer from the Holders of a majority
in principal amount of the Outstanding Notes.
Section 6.06. Trustee May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial Proceeding relating to
the Issuer or any other obligor upon any of the Notes or the property of the
Issuer 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 Issuer for the payment of overdue principal or
interest) shall be entitled and empowered to intervene in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of
the Notes issued hereunder 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, its agents and counsel and
any other amounts due the Trustee under Section 7.07 hereof) and of the
Noteholders allowed in such judicial Proceeding, and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, or 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 to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
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 Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such Proceeding.
Section 6.07. Trustee May Enforce Claims Without Possession of Notes.
(a) In all Proceedings brought by the Trustee (and also any Proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all of the
Noteholders, and it shall not be necessary to make any Noteholder a party to any
such Proceedings.
(b) All rights of actions and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
<PAGE>
the Notes or the production thereof in any Proceeding relating thereto, and any
such Proceedings instituted by the Trustee shall be brought in its own name as
Trustee of an express trust, and any recovery whether by judgment, settlement or
otherwise shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the benefit of the Holders of the Notes and shall be distributed as set
forth in Section 6.08 hereof.
Section 6.08. Application of Money Collected. If the Notes have been
declared due and payable following an Event of Default and such declaration has
not been rescinded or annulled, any money collected by the Trustee with respect
to the Notes pursuant to this Article Six or otherwise and any other money that
may be held thereafter by the Trustee as security for the Notes shall be applied
in the following order, at the date or dates fixed by the Trustee and, in case
of the distribution of such money on account of principal or interest, upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
First: To the payment to the Trustee of the Trustee Fee then
due and to the Trustee its costs incurred in connection with enforcing
the remedies provided for in this Article Six;
Second: To the payment of (i) if Sunrise Leasing Corporation
or an Affiliate thereof is not the Servicer, all amounts due the
Servicer pursuant to Section 3.09 of the Servicing Agreement and
Section 12.02(d)(ii) hereof and (ii) the amount necessary to reimburse
the Servicer for any unrecovered Servicer Advances;
Third: To the payment of the amounts then due and unpaid upon
the Notes for interest, with interest (to the extent such interest has
been collected by the Trustee or a sum sufficient therefor has been so
collected and payment thereof is legally enforceable at the respective
rate or rates prescribed therefor in the Notes) on overdue principal,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for interest;
Fourth: To the payment of the remaining outstanding principal
balance of the Notes ratably without preference or priority of any
kind;
Fifth: To the payment to the Trustee of any other amounts due
to the Trustee as expressly provided herein and in the Servicing
Agreement;
Sixth: To reimburse the Noteholders for any costs or expenses
incurred in connection with any enforcement action with respect to this
Indenture or the Notes;
Seventh: To the payment of (i) if Sunrise Leasing Corporation
or an Affiliate thereof is the Servicer, all amounts due the Servicer
pursuant to Section 3.09 of the Servicing Agreement and Section
12.02(d)(ii) hereof and (ii) any other amounts due the Servicer as
expressly provided herein and in the Servicing Agreement;
<PAGE>
Eighth: To the payment of any surplus to or at the written
direction of the Issuer or any other person legally entitled thereto.
Section 6.09. Limitation on Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 66-2/3% in principal amount
of the Outstanding Notes shall have made written request to the Trustee
to institute Proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of security or indemnity has failed to institute any
such Proceedings; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
66-2/3% or more in principal amount of the Outstanding Notes; it being
understood and intended that no one or more Holders of Notes 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 Holders of Notes, or to obtain or to seek to obtain
priority or preference over any other Holders of Notes or to enforce
any right under this Indenture, except in the manner herein provided
and for the equal and ratable benefit of all the Holders of Notes.
Section 6.10. Unconditional Right of Noteholders to Receive Principal
and Interest. Notwithstanding any other provision in this Indenture, the
Noteholders shall have the right, which is absolute and unconditional, to
receive payment of the principal and interest on such Note as such principal and
interest becomes due and payable, and to institute any Proceeding for the
enforcement of any such payment, and such right shall not be impaired without
the consent of such Noteholder.
Section 6.11. 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 case, the Issuer, the Trustee and the Noteholders shall,
subject to any determination in such Proceeding, 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.
<PAGE>
Section 6.12. 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 3.06 hereof, 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 6.13. 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 Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any acquiescence therein.
Every right and remedy given by this Article Six 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 6.14. Control by Noteholders. The Holders of 66-2/3% in
principal amount of the Outstanding 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; provided
that:
(1) such direction shall not be in conflict with any rule of
law or with this Indenture including, without limitation, any provision
hereof which expressly provides for greater percentage of principal of
Outstanding Notes;
(2) any direction to the Trustee by the Noteholders to
undertake a private Sale of the Trust Estate shall be by the Holders of
all Outstanding Notes, unless the condition set forth in Section
6.18(b)(ii) hereof is met;
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; provided,
however, that, subject to Section 7.01 hereof, the Trustee need not
take any action which a Responsible Officer or Officers of the Trustee
in good faith determines might involve it in personal liability or be
unjustly prejudicial to the Noteholders not consenting; and
(4) the Trustee has been furnished reasonable indemnity
against costs, expenses and liabilities which it might incur in
connection therewith as provided in Section 7.01(f) hereof.
Section 6.15 Waiver of Past Defaults. The Holders of 66-2/3% in
principal amount of the Outstanding Notes may on behalf of the Holders of all
the Notes waive any past Default hereunder and its consequences, except a
Default:
<PAGE>
(1) in the payment of the principal of, or premium, if any, or
interest on any Note, or a Default described in Sections 6.01(5) and
(6) hereof, or
(2) in respect of a covenant or provision hereof which under
Article Nine hereof cannot be modified or amended without the consent
of the Holder of each Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.16. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, 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, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 6.16 shall not apply to
any suit instituted by the Trustee, or to any suit instituted by any Noteholder
or group of Noteholders, holding in the aggregate more than 50% in principal
amount of the Outstanding Notes, or to any suit instituted by any Noteholder for
the enforcement of the payment of the principal of or interest on any Note on or
after the Stated Maturity.
Section 6.17. Waiver of Stay or Extension Laws. The Issuer 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 Issuer (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 6.18. Sale of Trust Estate. (a) The power to effect any sale (a
"Sale") of any portion of the Trust Estate pursuant to Section 6.04 hereof shall
not be exhausted by any one or more Sales as to any portion of the Trust Estate
remaining unsold, but shall continue unimpaired until the entire Trust Estate
securing the Notes shall have been sold or all amounts payable on the Notes and
under this Indenture with respect thereto shall have been paid. The Trustee may
from time to time postpone any 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 to a third party the Trust Estate, or any portion
thereof unless:
<PAGE>
(i) the Holders of all Outstanding Notes, consent to or direct
the Trustee to make such Sale; or
(ii) the proceeds of such Sale would not be less than the sum
of all amounts due to the Trustee hereunder and the entire unpaid
principal amount of the Notes and interest due or to become due thereon
on the Payment Date next succeeding such Sale.
(c) The Trustee or the Noteholders may bid for and acquire any portion
of the Trust Estate in connection with a public Sale thereof, and in lieu of
paying cash therefor, any Noteholder may make settlement for the purchase price
by crediting against amounts owing on the Notes of such Holder or other amounts
owing to such Holder secured by this Indenture, that portion of the net proceeds
of such Sale to which such Holder would be entitled, after deducting the
reasonable costs, charges and expenses incurred by the Trustee or the
Noteholders in connection with such Sale. The Notes need not be produced in
order to complete any such Sale, or in order for the net proceeds of such Sale
to be credited against the Notes. The Trustee or the Noteholders may hold,
lease, operate, manage or otherwise deal with any property so acquired in any
manner permitted by law.
(d) The Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Trust Estate in
connection with a Sale thereof. In addition, the Trustee is hereby irrevocably
appointed the agent and attorney-in-fact of the Issuer to transfer and convey
its interest in any portion of the Trust Estate in connection with a Sale
thereof, and to take all action necessary to effect such Sale. 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 monies.
(e) The method, manner, time, place and terms of any Sale of all or any
portion of the Trust Estate shall be commercially reasonable.
Section 6.19. Action on Notes. The Trustee's right to seek and recover
judgment on the Notes or under this Indenture shall not be affected by the
seeking, obtaining or application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Trustee or the Noteholders shall be impaired by the recovery of any judgment
by the Trustee against the Issuer or by the levy of any execution under such
judgment upon any portion of the Trust Estate or upon any of the assets of the
Issuer.
Article Seven
The Trustee
Section 7.01. Certain Duties and Responsibilities. (a) Except during
the continuance of an Event of Default known to the Trustee as provided in
subsection (e) below:
<PAGE>
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith or negligence 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; but in the case of any such certificates or opinions,
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
and to determine whether or not they conform to the requirements of
this Indenture.
(b) In case an Event of Default known to the Trustee as provided in
subsection (e) below has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture, and shall use the
same degree of care and skill in its exercise, as a reasonable person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct or bad faith, except that:
(i) this subsection (c) shall not be construed to limit the
effect of subsection (a) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) 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 direction the Holders of a majority (or other such percentage
as may be required by the terms hereof) in principal amount of the
Outstanding Notes in accordance with Section 6.14 hereof relating to
the time, method and place of conducting any Proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture, the Contribution Agreement or
the Servicing Agreement; and
(iv) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any 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, provided that nothing herein contained shall excuse the Trustee for
failure to perform its duties as Trustee in accordance with subsections
(a) and (b) of this Section 7.01.
(d) 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 shall be subject to the provisions of this
Section 7.01.
<PAGE>
(e) For all purposes under this Indenture, the Trustee shall not be
deemed to have notice of any Event of Default described in Section 6.01(4),
6.01(5) or 6.01(6) hereof or any Default described in Section 6.01(3) hereof
unless a Responsible Officer assigned to and working in the Trustee's corporate
trust department has actual knowledge thereof or unless written notice of any
event which is in fact such an Event of Default or Default is received by the
Trustee by a Responsible Officer at the Corporate Trust Office, and such notice
references the Notes, the Issuer, the Trust Estate or this Indenture.
(f) The Trustee shall be under no obligation to institute any suit, or
to take any remedial proceeding under this Indenture, or to enter any appearance
or in any way defend in any suit in which it may be made defendant, or to take
any steps in the execution of the trusts hereby created or in the enforcement of
any rights and powers hereunder until it shall be indemnified to its
satisfaction against any and all costs and expenses, outlays and counsel fees
and other reasonable disbursements and against all liability, except liability
resulting from the Trustee's negligence or willful misconduct as adjudicated, in
connection with any action so taken.
(g) Notwithstanding any extinguishment of all right, title and interest
of the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration of the maturity of the Notes, whether
such extinguishment occurs through a Sale of the Trust Estate to another person,
the acquisition of the Trust Estate (or the proceeds thereof) by the Trustee or
the Noteholders, the rights of the Trustee and the Noteholders shall continue to
be governed by the terms of this Indenture.
(h) Notwithstanding anything to the contrary contained herein, the
provisions of subsections (e) through (g), inclusive, of this Section 7.01 shall
be subject to the provisions of subsections (a) through (c), inclusive, of this
Section 7.01.
(i) The Trustee shall provide the reports and accountings as required
pursuant to Section 12.04 hereof.
Section 7.02. Notice of Default. Promptly after the occurrence of any
Default known to the Trustee (within the meaning of Section 7.01(e) hereof)
which is continuing and has not been promptly cured or waived, the Trustee shall
transmit by mail to all Holders of Notes, as their names and addresses appear on
the Note Register, notice of such Default.
Section 7.03. Certain Rights of Trustee. Except to the extent of the
obligation of the Trustee in Section 7.01(a)(ii) to examine documents to ensure
their compliance with this Indenture, and subject to the standards of care set
forth in Section 7.01(c),
(a) 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, bond, note or other
obligation, paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
<PAGE>
(b) any request or direction of the Issuer mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order and any resolution
of the Board of Directors may, and at the Trustee's request, shall be
sufficiently evidenced by a Board Resolution;
(c) 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;
(d) the Trustee may consult with counsel and the written advice of such
counsel selected by the Trustee with due care or any Opinion of 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 reliance thereon;
(e) 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;
(f) 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, bond, note or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Issuer, upon
reasonable notice and at reasonable times personally or by agent or attorney;
and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney, appointed with due care by it
hereunder.
Section 7.04. Not Responsible for Recitals or Issuance of Notes. (a)
The recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as the statements of the Issuer, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or condition of the Trust Estate or any
part thereof, or as to the title of the Issuer thereto or as to the security
afforded thereby or hereby, or as to the validity or genuineness of any
securities at any time pledged and deposited with the Trustee hereunder or as to
the validity or sufficiency of this Indenture or of the Notes. The Trustee shall
not be accountable for the use or application by
<PAGE>
the Issuer of Notes or the proceeds thereof or of any money paid to the Issuer
or upon Issuer Order under any provisions hereof.
(b) Except as otherwise expressly provided herein and without limiting
the generality of the foregoing, the Trustee shall have no responsibility or
liability for or with respect to the existence or validity of any Equipment or
Lease Contract, the perfection of any security interest (whether as of the date
hereof or at any future time), the maintenance of or the taking of any action to
maintain such perfection, the validity of the assignment of any portion of the
Trust Estate to the Trustee or of any intervening assignment, the review of any
Lease Contract (it being understood that the Trustee has not reviewed and does
not intend to review the substance or form of any such Lease Contract), the
performance or enforcement of any Lease Contract, the compliance by the Issuer,
the Contributor or the Servicer with any covenant or the breach by the Issuer,
the Contributor or the Servicer of any warranty or representation made hereunder
or in any related document or the accuracy of any such warranty or
representation, any investment of monies in the Collection Account or any loss
resulting therefrom, the acts or omissions of the Issuer, the Contributor, the
Servicer or any Customer, any action of the Servicer taken in the name of the
Trustee, or the validity of the Servicing Agreement or the Contribution
Agreement.
(c) The Trustee shall not have any obligation or liability under any
Lease Contract or with respect to any other Lease Assets by reason of or arising
out of this Indenture or the granting of a security interest in such Lease
Contract or any other Lease Assets hereunder or the receipt by the Trustee of
any payment relating to any Lease Contract or any other Lease Assets pursuant
hereto, nor shall the Trustee be required or obligated in any manner to perform
or fulfill any of the obligations of the Contributor under or pursuant to any
Lease Contract or any other Lease Assets, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it, or
the sufficiency of any performance by any party, under any Lease Contract, or
with respect to any other Lease Assets.
Section 7.05. May Hold Notes. The Trustee, the Servicer, any Paying
Agent, the Note Registrar, any Authenticating Agent or any other agent of the
Issuer, in its individual or any other capacity, may become the owner or pledgee
of Notes, and if operative, may otherwise deal with the Issuer with the same
rights it would have if it were not Trustee, Servicer, Paying Agent, Note
Registrar, Authenticating Agent or such other agent.
Section 7.06. Money Held in Trust. Money and investments held in trust
by the Trustee or any Paying Agent hereunder shall be held in one or more trust
accounts hereunder but need not be segregated from other funds except to the
extent required herein or required by law. The Trustee or any Paying Agent shall
be under no liability for interest on any money received by it hereunder except
as otherwise agreed with the Issuer or otherwise specifically provided herein.
Section 7.07. Compensation and Reimbursement. The Issuer agrees:
(i) to pay the Trustee monthly its fee for all services
rendered by it hereunder as Trustee, in the amount of the Trustee Fee
(which compensation shall not otherwise be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
<PAGE>
(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable out-of-pocket
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture or Servicing Agreement
(including the reasonable compensation and the expenses and
disbursements of the Trustee's agents and counsel), except any such
expense, disbursement or advance as may be attributable to its
negligence, bad faith or willful misconduct; and
(iii) to indemnify and hold harmless the Trust Estate and the
Trustee from and against any loss, liability, expense, damage or injury
sustained or suffered pursuant to this Indenture by reason of any acts,
omissions or alleged acts or omissions arising out of activities of the
Trust Estate or the Trustee (including without limitation any violation
of any applicable laws by the Issuer as a result of the transactions
contemplated by this Indenture), including, but not limited to, any
judgment, award, settlement, reasonable attorneys' fees and other
expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Issuer shall
not indemnify the Trustee if such loss, liability, expense, damage or
injury is due to the Trustee's gross negligence or willful misconduct,
willful misfeasance or bad faith in the performance of duties. Any
indemnification pursuant to this Section 7.07 shall only be payable
from the assets of the Issuer and shall not be payable from the assets
of the Trust Estate. The provisions of this indemnity shall run
directly to and be enforceable by an injured person subject to the
limitations hereof and this indemnification agreement shall survive the
termination of this Indenture.
Upon the occurrence of an Event of Default resulting in an acceleration
of maturity of the Notes that has not been rescinded and annulled, the Trustee
shall have, as security for the performance of the Issuer under this Section
7.07, a lien ranking senior to the lien of the Notes with respect to which any
claim of the Trustee under this Section 7.07 arose upon all property and funds
held or collected as part of the Trust Estate by the Trustee in its capacity as
such. The Trustee shall not institute any Proceeding seeking the enforcement of
such lien against any Trust Estate unless (i) such Proceeding is in connection
with a proceeding in accordance with Article Six hereof for enforcement of the
lien of this Indenture for the benefit of the Holders of the Notes secured by
such Trust Estate after the occurrence of an Event of Default (other than an
Event of Default due solely to a breach of this Section 7.07) and a resulting
declaration of acceleration of maturity of such Notes that has not been
rescinded and annulled, or (ii) such Proceeding does not result in or cause a
Sale or other disposition of such Trust Estate. All monies so collected by the
Trustee shall be applied in accordance with Section 6.08 hereof and the Trustee
shall receive amounts pursuant to Section 6.08 hereof only to the extent that
payment thereof will not result in a subsequent Event of Default caused by such
payments to the Trustee.
<PAGE>
Section 7.08. Corporate Trustee Required; Eligibility. There shall at
all times be a trustee hereunder which shall be a corporation or association
organized and doing business under the laws of the United States of America or
of any state, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $100,000,000, or be a member
of a consolidated bank holding company with a combined capital and surplus of at
least $100,000,000, subject to supervision or examination by Federal or state
authority and having an office within the United States of America, and, except
with respect to the initial Trustee hereunder, which shall have a commercial
paper or other short-term rating of the highest short term rating categories by
S&P or Moody's, or otherwise acceptable to the Holders of 66-2/3% in principal
amount of the Outstanding Notes. 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 purposes of this
Section 7.08, 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. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 7.08, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article Seven.
Section 7.09. 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 Seven shall become effective until the acceptance of
appointment by the successor Trustee under Section 7.10 hereof.
(b) The Trustee may resign at any time by giving 30 days' written
notice thereof to the Issuer and to each Noteholder. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor Trustee.
(c) The Trustee may be removed by the Act of the Holders of 66-2/3% in
principal amount of the Outstanding Notes by notice to the Trustee, at any time
if one of the following events have occurred:
(i) the Trustee shall cease to be eligible under Section 7.08
hereof and shall fail to resign after written request therefor by the
Issuer or by any Noteholder, or
(ii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, or
(iii) the Trustee has failed to perform its duties hereunder
in any material respect, or has breached any representation of warranty
made hereunder in any material respect.
(d) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause
with respect to the Notes, the Issuer by a Board Resolution, shall promptly
appoint a successor Trustee. If the Issuer shall fail to appoint a successor
Trustee within 90 days of notice of removal or resignation, then the Holders of
66-2/3% in principal amount of the Outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee with respect
to the Notes.
<PAGE>
(e) The Issuer shall give notice in the manner provided in Section
13.04 hereof of each resignation and each removal of the Trustee and each
appointment of a successor Trustee with respect to the Notes. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
Section 7.10. Acceptance of Appointment by Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer
and 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 Issuer or the successor Trustee, such retiring
Trustee shall, upon payment of its reasonable out-of-pocket costs and expenses,
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, subject nevertheless to its lien, if any,
provided for in Section 7.07 hereof. Upon request of any such successor Trustee,
the Issuer 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.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article
Seven.
Section 7.11. Merger, Conversion, Consolidation or Succession to
Business of Trustee. 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 corporation succeeding to all or substantially all of 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 Seven, 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 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 7.12. Co-Trustees and Separate Trustees. At any time or times,
for the purpose of meeting the legal requirements of any jurisdiction in which
any of the Trust Estate may at the time be located, the Issuer, and the Trustee
shall have power to appoint, and, upon the written request of the Trustee, or of
the Holders of Notes representing at least 25% of the aggregate principal amount
of the Outstanding Notes, the Issuer 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 Estate, 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 7.12. If the Issuer does not join in such
appointment within 15 days after the receipt by it of a request so to do, or in
case an Event of Default has occurred and is continuing, the Trustee alone shall
have power to make such appointment.
<PAGE>
Should any written instrument from the Issuer be reasonably 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 Issuer.
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 by, 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 Issuer evidenced by a Board
Resolution, may accept the resignation of or remove any co-Trustee or
separate Trustee, appointed under this Section 7.12, and, in case an
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 Issuer. Upon the
written request of the Trustee, the Issuer 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 that has so
resigned or been removed may be appointed in the manner provided in
this Section 7.12;
(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 nor shall the Trustee be liable by
reason of any act or omission of any co-Trustee or separate Trustee
selected by the Trustee with due care or appointed in accordance with
directions to the Trustee pursuant to Section 6.14 hereof; and
<PAGE>
(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 7.13. Rights with Respect to the Servicer. The Trustee's rights
and obligations with respect to the Servicer shall be governed by the Servicing
Agreement.
Section 7.14. Appointment of Authenticating Agent. The Trustee may
appoint an Authenticating Agent or Agents with respect to the Notes which shall
be authorized to act on behalf of the Trustee to authenticate Notes issued upon
original issue or upon exchange, registration of transfer or pursuant to Section
3.06 hereof, and Notes so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Notes by the Trustee or the
Trustee's certificate of authentication or the delivery of Notes to the Trustee
for authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent
and delivery of the Notes to the Authenticating Agent on behalf of the Trustee.
Each Authenticating Agent shall be acceptable to the Issuer and the Noteholders
and shall at all times be a corporation having a combined capital and surplus of
not less than the equivalent of $50,000,000 and subject to supervision or
examination by federal or state authority or the equivalent foreign authority,
in the case of an Authenticating Agent who is not organized and doing business
under the laws of the United States of America, any state thereof or the
District of Columbia. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section 7.14,
the combined capital and surplus of such Authenticating Agent shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 7.14, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section 7.14.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of such Authenticating Agent, shall continue to be an
Authenticating Agent without the execution or filing of any paper or any further
act on the part of the Trustee or such Authenticating Agent; provided, such
corporation shall be otherwise eligible under this Section 7.14.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Issuer. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Issuer. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 7.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Issuer and shall mail
written notice of such appointment by first-class mail, postage prepaid, to all
Holders of Notes, if any, with respect to which such Authenticating Agent will
serve, as their names and addresses appear in the Note Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section 7.14.
<PAGE>
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 7.14, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 7.07 hereof.
If an appointment is made pursuant to this Section 7.14, the Notes may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Notes described in the within-mentioned Indenture.
Norwest Bank Minnesota, National
Association, as Trustee
By
As Authenticating Agent
By
Authorized Officer
Section 7.15. Trustee to Hold Lease Contracts. The Trustee shall hold
each Lease Contract, together with any documents relating thereto that may from
time to time be delivered to the Trustee in accordance with this Indenture,
until such time as such Lease Contract is released from the lien of this
Indenture pursuant to the terms hereof.
The Trustee upon receipt of the Lease Contracts shall review them and
verify that with respect to the following, the information on each Lease
Contract is consistent with the information set forth on the schedule provided
to the Trustee: name of lessee, state of lessee, amount of monthly payment,
original term of lease contract, exisence of bill of sale. Within 3 Business
Days of receipt of such Lease Contracts, the Trustee will provide an exception
report to the Issuer, the Servicer and the Noteholders. The Issuer an the
Noteholders shall resolve any such exceptions to the Noteholders' satisfaction,
and no Lease Contract for which exceptions remain shall be funded. The Trustee
shall be under no duty or obligation to inspect, review or examine the Lease
Contracts and other documents to determine that the same are genuine,
enforceable or appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they purport to be on
their face.
<PAGE>
Article Eight
Optional Purchase of Receivables
Section 8.01. Optional Purchase of All Receivables; Liquidation of
Trust Estate. (a) At any time after the aggregate principal amount of the then
Outstanding Notes is less than 10% of the original aggregate principal amount of
the Notes the initial Servicer shall have the option to purchase all of the
Collateral; provided, however, that the amount to be paid for such purchase (as
set forth in the following sentence) shall be sufficient to pay the full amount
of principal and interest then due and payable on the Notes plus any unpaid fees
and expenses due under the Transaction Documents. The initial Servicer shall
deposit such amount into the Collection Account, and the Trustee shall
distribute the amounts so deposited in accordance with Section 12.02.
Article Nine
Supplemental Indentures
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
The Issuer, the Servicer and the Trustee, without the consent of the Holders of
any Notes, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes, provided that any such amendment, as evidenced by an
Opinion of Counsel if required by the Trustee, will not have a material adverse
effect on Noteholders:
(1) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Trustee any property subject or required to
be subjected to the lien of this Indenture, or to subject to the lien
of this Indenture additional property; or
(2) to evidence the succession of another Person to the
Issuer, and the assumption by such successor of the covenants of the
Issuer herein and in the Notes contained, in accordance with Section
11.02(q) hereof; or
(3) to add to the covenants of the Issuer, for the benefit of
the Holders of all Notes, or to surrender any right or power herein
conferred upon the Issuer; or
(4) to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provisions with respect to matters or questions arising under this
Indenture, which shall not be inconsistent with the provisions of this
Indenture, provided that such action shall not adversely affect the
interests of the Holders of the Notes; or
<PAGE>
(6) to evidence the succession of the Trustee pursuant to
Article Seven hereof; or
(7) to add to any Events of Default.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise.
Promptly after the execution by the Issuer, the Servicer and the
Trustee of any supplemental indenture pursuant to this Section 9.01, the Issuer
shall mail to each Noteholder a copy of such supplemental indenture.
Section 9.02. Supplemental Indentures with Consent of Noteholders. With
the consent of the Holders of not less than 66-2/3% in principal amount of the
Outstanding Notes affected by such supplemental indenture, by Act of said
Holders delivered to the Issuer and the Trustee, the Issuer, the Servicer and
the Trustee may enter into an indenture or indentures supplemental hereto 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 the Holders of the Notes under this Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the Holders of each
Outstanding Note affected thereby:
(1) change the Stated Maturity of any Note or the due date of
any installment of principal of, or any installment of interest on, any
Note, or reduce the principal amount thereof or the applicable Note
Interest Rate or change any place of payment where, or the coin or
currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such
payment; or
(2) reduce the percentage in principal amount of the
Outstanding Notes, the consent of the Holders of which is required for
any such supplemental indenture, or the consent of the Holders of which
is required for any waiver of compliance with certain provisions of
this Indenture or Events of Default or their consequences; or
(3) impair or adversely affect the Trust Estate except as
otherwise permitted herein; or
(4) modify or alter the provisions of the proviso to the
definition of the term "Outstanding"; or
<PAGE>
(5) modify or alter the provisions of the proviso to Section
6.04 hereof; or
(6) modify any of the provisions of this Section 9.02, except
to increase the percentage of Holders of the Outstanding Notes required
for any modification or waiver or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby; or
(7) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or terminate the lien of this Indenture on any property at
any time subject hereto or deprive the Holder of any Note of the
security afforded by the lien of this Indenture; or
(8) modify any of Sections 6.01(l) or (2), 6.02, 6.03, 6.18,
or 12.02(d) hereof.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer, the Servicer and the
Trustee of any supplemental indenture pursuant to this Section 9.02, the Issuer
shall mail to the Holders of the Notes a copy of such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive upon request, and (subject to Section 7.01 hereof) shall be fully
protected in relying in good faith upon, an Opinion of Counsel reasonably
acceptable to the Trustee stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own duties or immunities under this Indenture or
otherwise.
Section 9.04. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article Nine, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Notes theretofore
or thereafter authenticated and delivered hereunder shall be bound thereby.
Section 9.05. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article Nine may, and if required by the Trustee shall, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Issuer shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Issuer, to any such
supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
<PAGE>
Article Ten
Redemption of the Notes
Section 10.01. Redemption at the Option of the Issuer; Election to
Redeem. The Issuer shall have the option to redeem the Notes, in whole but not
in part, as to the then Outstanding Notes, at any time after the aggregate
principal amount of the then Outstanding Notes is less than 10% of the original
aggregate principal amount of the Notes, at the applicable Redemption Price plus
any fees due hereunder.
The Issuer shall set the Redemption Date and the Redemption Record Date
and give notice thereof to the Trustee pursuant to Section 10.02 hereof.
Installments of interest and principal due on or prior to a Redemption
Date shall continue to be payable to the Holders of Notes called for redemption
as of the relevant Record Dates according to their terms and the provisions of
Section 3.07 hereof. The election of the Issuer to redeem any Notes pursuant to
this Section 10.01 shall be evidenced by a Board Resolution directing the
Trustee to make the payment of the applicable Redemption Price on all of the
Notes to be redeemed from monies deposited with the Trustee pursuant to Section
10.04 hereof.
Section 10.02. Notice to Trustee. In the case of any redemption
pursuant to Section 10.01 hereof, the Issuer shall, at least 15 days prior to
the Redemption Date, notify the Trustee of such Redemption Date and shall
deposit into the Collection Account on the related Calculation Date an amount
equal to the applicable Redemption Price of all Notes to be redeemed.
Section 10.03. Notice of Redemption by the Issuer. Upon receipt of such
notice and such deposit set forth in Section 10.02 above, the Trustee shall
provide notice of redemption pursuant to Section 10.01 hereof by first-class
mail, postage prepaid, mailed no later than the Business Day following the
Calculation Date on which such deposit was made, to each Holder of Notes at his
address in the Note Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price; and
(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 on such date.
Notice of redemption of Notes shall be given by the Trustee in the name
and at the expense of the Issuer. Failure to give notice of redemption, or any
defect therein, to any Holder of any Note selected for redemption shall not
impair or affect the validity of the redemption of any other Note.
<PAGE>
Section 10.04. Deposit of the Redemption Price. On or before the
related Calculation Date next preceding any Redemption Date, the Issuer shall
deposit with the Trustee or with the Paying Agent an amount of monies sufficient
to pay the Redemption Price of all Notes plus any fees due hereunder.
Section 10.05. Notes Payable on Redemption Date. Notice of redemption
having been given as provided in Section 10.03 hereof, the Notes to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
and on such Redemption Date (unless the Issuer shall default in the payment of
the Redemption Price) such Notes shall cease to bear interest. The Holders of
the Notes shall be paid the Redemption Price by the Paying Agent on behalf of
the Issuer; provided, however, that installments of principal and interest which
are due on or prior to the Redemption Date shall be payable to the Holders of
the Notes registered as such on the relevant Record Dates according to their
terms and the provisions of Section 3.07 hereof.
If the Holder of any Note called for redemption shall not be so paid,
the principal and premium, if any, shall, until paid, bear interest from the
Redemption Date at the applicable Note Interest Rate.
Article Eleven
Representations, Warranties and Covenants
Section 11.01. Representations and Warranties. The Issuer hereby makes
the following representations and warranties for the benefit of the Trustee and
the Noteholders on which the Trustee relies in accepting the Trust Estate in
trust and in authenticating the Notes. Such representations and warranties are
made as of the Delivery Date, but shall survive the transfer, grant and
assignment of the Trust Estate to the Trustee.
(a) Organization and Good Standing. The Issuer is a corporation duly
organized, validly existing and in good standing under the law of the State of
Minnesota and each other State where the nature of its business requires it to
qualify, except to the extent that the failure to so qualify would not in the
aggregate materially adversely affect the ability of the Issuer to perform its
obligations under this Indenture, the Servicing Agreement or the Contribution
Agreement.
(b) Authorization. The Issuer has the power, authority and legal right
to execute, deliver and perform this Indenture, the Servicing Agreement and the
Contribution Agreement and the execution, delivery and performance of this
Indenture, the Servicing Agreement and the Contribution Agreement have been duly
authorized by the Issuer by all necessary corporate action.
(c) Binding Obligation. This Indenture, the Servicing Agreement and the
Contribution Agreement have been duly executed and delivered by the Issuer, and
this Indenture, assuming due authorization, execution and delivery by the
Trustee and the Servicer, the Servicing Agreement, assuming due authorization,
execution and delivery by the Trustee and the Servicer, and the Contribution
Agreement, assuming due authorization, execution and delivery by the
Contributor, each constitutes a legal, valid and binding obligation of the
Issuer, enforceable against the Issuer in accordance with its terms except that
(A) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws (whether statutory, regulatory or decisional)
now or hereafter in effect relating to creditors' rights generally and (B) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought, whether a proceeding
at law or in equity.
<PAGE>
(d) No Violation. The consummation of the transactions contemplated by
the fulfillment of the terms of this Indenture, the Servicing Agreement and the
Contribution Agreement will not conflict with, result in any breach of any of
the terms and provisions of or constitute (with or without notice, lapse of time
or both) a default under the organizational documents or bylaws of the Issuer,
or any material indenture, agreement, mortgage, deed of trust or other
instrument to which the Issuer is a party or by which it is bound, or in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of such indenture, agreement, mortgage, deed of trust or other such
instrument, other than any Lien created or imposed pursuant to the terms of this
Indenture, the Servicing Agreement or the Contribution Agreement, or violate any
law or, to the best of the Issuer's knowledge, any material order, rule or
regulation applicable to the Issuer of any court or of any federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Issuer or any of its properties.
(e) No Proceedings. Except as set forth in the Disclosure Schedule t,
here are no Proceedings or investigations to which the Issuer, or any of the
Issuer's Affiliates, is a party pending, or, to the knowledge of Issuer,
threatened, before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality (A) asserting the invalidity of this
Indenture, the Servicing Agreement, the Contribution Agreement or the Notes, (B)
seeking to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by the Contribution Agreement, the Servicing
Agreement, this Indenture or the Notes or (C) seeking any determination or
ruling that would materially and adversely affect the performance by the Issuer
of its obligations under, or the validity or enforceability of, this Indenture,
the Servicing Agreement, the Contribution Agreement or the Notes.
(f) Approvals. All approvals, authorizations, consents, orders or other
actions of any Person, or of any court, governmental agency or body or official,
required in connection with the execution and delivery of this Indenture, the
Servicing Agreement or the Contribution Agreement and with the valid and proper
authorization, issuance and sale of the Notes pursuant to this Indenture (except
approvals of State securities officials under the Blue Sky laws), have been or
will be taken or obtained on or prior to the Delivery Date.
(g) Name and Place of Business. The Issuer's legal name is as set forth
in this Indenture. Except as set forth in the Disclosure Schedule, the Issuer
has not used or done business under any other name in the previous five-year
period. The Issuer's principal place of business and chief executive office is
located at 5500 Wayzata Boulevard, Suite 725, Golden Valley, Minnesota 55416, or
at such other location where all action required by Section 11.02(f) hereof
shall have been taken place with respect to the Trust Estate. Except as set
forth in the Disclosure Schedule, the Issuer has not used any other address in
the previous five-year period.
<PAGE>
(h) Transfer and Assignment. Upon the delivery to the Trustee of the
Lease Contracts and the filing of the UCC financing statements described in
Section 4.02(a) hereof, the Trustee for the benefit of the Noteholders shall
have a first priority perfected security interest in the Lease Receivables, the
Lease Contracts and, except with respect to Lease Contracts the original balance
of which was less than $15,000, the Equipment, and in the proceeds thereof,
except for Liens permitted under Section 11.02(a) and, with respect to any such
proceeds, as limited to the extent set forth in Section 9-306 of the UCC as in
effect in the applicable jurisdiction. All filings (including, without
limitation, UCC filings) as are necessary in any jurisdiction to perfect the
interest of the Trustee in the Trust Estate, including the transfer of the Lease
Contracts and the payments to become due thereunder, have been made.
(i) Stockholders of the Issuer. Sunrise Leasing Corporation is the sole
stockholder of the Issuer, and it is the registered owner of all of the Common
Stock of the Issuer; except as set forth in the Disclosure Schedule all of such
shares of Common Stock have been fully paid and are owned of record, free and
clear of all mortgages, assignments, pledges, security interests, warrants,
options and rights to purchase. Sunrise Leasing Corporation will not transfer
shares of Common Stock of the Issuer without the consent of the Holders of a
majority in principal amount of Notes Outstanding.
(j) Contribution Agreement. As of the Delivery Date (and, with respect
to the Subsequent Lease Contracts, the Subsequent Transfer Date), the Issuer has
entered into the Contribution Agreement and the Lease Assignment Agreement or
the Subsequent Lease Assignment Agreement, as applicable, with the Contributor
relating to its acquisition of the Lease Contracts, the Lease Receivables and
the related Equipment, and the representations, warranties and covenants made by
the Contributor relating to such Lease Contracts, Lease Receivables and the
related Equipment have been (and, with respect to Subsequent Lease Contracts,
Lease Receivables and the related Equipment, will be) validly assigned to and
are for the benefit of the Issuer, the Trustee and the Noteholders, and such
representations and warranties are (and, with respect to Subsequent Lease
Contracts, Subsequent Lease Receivables and the related Equipment, will be) true
and correct in all material respects.
(k) Bulk Transfer Laws. The transfer, assignment and conveyance of the
Lease Contracts, the Lease Receivables and the related Equipment by the
Contributor to the Issuer pursuant to the Contribution Agreement, and the grant
of a security interest in the Lease Contracts, the Lease Receivables and the
related Equipment by the Issuer to the Trustee pursuant to this Indenture, are
not subject to the bulk transfer or any similar statutory provisions in effect
in any applicable jurisdiction.
<PAGE>
(l) Solvency. Neither on the date of the transactions contemplated by
the Transaction Documents or immediately before or after such transactions, nor
as a result of the transactions, will the Issuer:
(A) be insolvent such that the sum of its debts is greater
than all of its respective property, at a fair valuation;
(B) be engaged in, or about to engage in, business or a
transaction for which any property remaining with the Issuer will be an
unreasonably small capital or the remaining assets of the Issuer will
be unreasonably small in relation to its respective business or the
transaction; and
(C) have intended to incur, or believed it would incur, debts
that would be beyond its respective ability to pay as such debts mature
or become due. The Issuer's assets and cash flow enable it to meet its
present obligations in the ordinary course of business as they become
due.
(m) Tax Returns. All tax returns or extensions required to be filed by
the Issuer in any jurisdiction have in fact been filed, and all taxes,
assessments, fees and other governmental charges upon the Issuer, or upon any of
the respective properties, income or franchises shown to be due and payable on
such returns have been, or will be, paid. To the best of the Issuer's knowledge,
all such tax returns are true and correct, and the Issuer has no knowledge of
any proposed additional tax assessment against it in any material amount nor of
any basis therefor. The provisions for taxes on the books of the Issuer are in
accordance with generally accepted accounting principles.
(n) Tax Reporting. The Issuer will treat the acquisition of the Lease
Contracts, the Lease Receivables and the related Equipment as a contribution to
the Issuer for federal, state and local income tax reporting and accounting
purposes.
(o) Subsidiaries. The Issuer has no subsidiaries.
(p) Pension Plans. Each pension plan or profit sharing plan to which
the Issuer is a party has been fully funded in accordance with the obligations
of the Issuer set forth in such plan.
(q) Constituent Documents. The Issuer will not amend its Articles of
Incorporation or its Bylaws without the consent of the Trustee and the Holders
of a majority in principal amount of the Notes Outstanding.
<PAGE>
Section 11.02. Covenants. The Issuer hereby makes the following
covenants on which the Trustee relies in accepting the Trust Estate in trust and
in authenticating the Notes. Such covenants are made as of the Delivery Date,
but shall survive the transfer, grant and assignment of the Trust Estate to the
Trustee.
(a) No Liens. Except for the conveyances and grant of security
interests hereunder, the Issuer will not sell, pledge, assign or transfer to any
other Person, or grant, create, incur, assume or suffer to exist any Lien on any
Trust Estate now existing or hereafter created, or any interest therein prior to
the termination of this Indenture pursuant to Section 5.01 hereof; the Issuer
will notify the Trustee of the existence of any Lien on any Trust Estate
immediately upon discovery thereof; and the Issuer shall defend the right, title
and interest of the Trustee in, to and under the Trust Estate now existing or
hereafter created, against all claims of third parties claiming through or under
the Issuer; provided, however, that nothing in this Section 11.02(a) shall
prevent or be deemed to prohibit the Issuer from suffering to exist upon any of
the Trust Estate any Liens for municipal or other local taxes and other
governmental charges if such taxes or governmental charges shall not at the time
be due and payable or if the Issuer shall currently be contesting the validity
thereof in good faith by appropriate proceedings and shall have set aside on its
books adequate reserves with respect thereto.
(b) Delivery of Collections. The Issuer agrees to hold in trust and
promptly pay to the Servicer all amounts received by the Issuer in respect of
the Trust Estate (other than amounts distributed to or for the benefit of the
Issuer pursuant to Article Twelve hereof).
(c) Obligations with Respect to Lease Contracts. The Issuer will duly
fulfill all obligations on its part to be fulfilled under or in connection with
each Lease Contract and will do nothing to impair the rights of the Trustee (for
the benefit of the Noteholders) in the Lease Receivables, the Lease Contracts,
the Equipment or any other part of the Trust Estate. As long as there is no
event of default under the applicable Lease Contract, the Issuer will not
disturb the Customer's quiet and peaceful possession of the related Equipment
and the Customer's unrestricted use thereof for its intended purpose.
(d) Compliance with Law. The Issuer will comply, in all material
respects, with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Lease Contracts or any part
thereof, provided, however, that the Issuer may contest any act, regulation,
order, decree or direction in any reasonable manner which shall not materially
and adversely affect the rights of the Trustee (for the benefit of the
Noteholders) in the Lease Contracts, the Lease Receivables and the related
Equipment. The Issuer will comply, in all material respects, with all
requirements of law applicable to the Issuer.
(e) Preservation of Note Interest. The Issuer shall execute and file
such continuation statements and any other documents which may be required by
law to fully preserve and protect the interest of the Trustee (for the benefit
of the Noteholders) in the Trust Estate.
(f) Maintenance of Office, etc. The Issuer will not, without providing
30 days' prior written notice to the Trustee and without filing such amendments
to any previously filed financing statements as the Holders of a majority in
principal amount of the Notes may require or as may be required in order to
maintain the Trustee's perfected security interest in the Trust Estate, (a)
change the location of its chief executive office, or (b) change its name,
identity or corporate structure in any manner which would make any financing
statement or continuation statement filed by the Issuer in accordance with the
Servicing Agreement or this Indenture seriously misleading within the meaning of
Article 9-402(7) of any applicable enactment of the UCC.
<PAGE>
(g) Further Assurances. Except as set forth in Section 11.02(e), the
Issuer will make, execute or endorse, acknowledge, and file or deliver to the
Trustee from time to time such schedules, confirmatory assignments, conveyances,
transfer endorsements, powers of attorney, certificates, reports and other
assurances or instruments and take such other steps relating to the Trust
Estate, as the Trustee may request and reasonably require.
(h) Notice of Liens. The Issuer shall notify the Trustee promptly after
becoming aware of any Lien on any Trust Estate, except for any Liens for
municipal or other local taxes if such taxes shall not at the time be due or
payable without penalty or if the Issuer shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto.
(i) Activities of the Issuer. The Issuer (a) shall engage in only (1)
the acquisition, ownership, leasing, selling and pledging of the property
acquired by the Issuer pursuant to the Contribution Agreement, and causing the
issuance of, receiving and selling the Notes issued pursuant to this Indenture
and (2) the exercise of any powers permitted to corporations under the Business
Corporation Act of the State of Minnesota which are incidental to the foregoing
or necessary to accomplish the foregoing, and the Issuer shall incur no debt
other than trade payables and expense accruals in connection with its operations
in the normal course of business and debt incurred or assumed as contemplated by
the Contribution Agreement; (b) will (1) maintain its books and records separate
from the books and records of any other entity, (2) maintain separate bank
accounts, and no funds of the Issuer shall be commingled with funds of any other
entity, (3) keep in full effect its existence, rights and franchises as a
corporation under the laws of the State of Minnesota, 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 this Indenture, (4) conduct its business from an
office or office space separate from the office of the Contributor and will
maintain a telephone number separate from that of the Contributor, and (5)
operate its business generally so as not to be substantively consolidated with
any of its Affiliates; and (c) will not (1) dissolve or liquidate in whole or in
part, (2) own any subsidiary or lend or advance any moneys to, or make an
investment in, any Person, (3) make any capital expenditures, (4)(A) commence
any case, proceeding or other action under any existing or future bankruptcy,
insolvency or similar law seeking to have an order for relief entered with
respect to it, or seeking reorganization, arrangement, adjustment, wind-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, (B) seek appointment of a receiver, trustee, custodian or other similar
official for it or any part of its assets, (C) make a general assignment for the
benefit of creditors, or (D) take any action in furtherance of, or consenting or
acquiescing in, any of the foregoing, (5) guarantee (directly or indirectly),
endorse or otherwise become contingently liable (directly or indirectly) for the
obligations of, or own or purchase any stock, obligations or securities of or
any other interest in, or make any capital contribution to, any other Person,
(6) merge or consolidate with any other Person, except as permitted pursuant to
Section 11.02(q) hereof, (7) engage in any other action that bears on whether
the separate legal identity of the Issuer will be respected, including without
limitation (A) holding itself out as being liable for the debts of any other
party or (B) acting other than in its corporate name and through its duly
authorized officers or agents, or (8) create, incur, assume, or in any manner
become liable in respect of any indebtedness other than trade payables and
expense accruals incurred in the ordinary course of business and which are
incidental to its business purpose; provided, however, that the Issuer may take
any action prohibited by this clause (8) if the Issuer shall cause, prior to the
taking of such action, an Opinion of Counsel experienced in federal bankruptcy
matters, in substance satisfactory to the Trustee and the Holders of 66-2/3% in
aggregate principal amount of the Outstanding Notes, to be delivered to the
Trustee and the Noteholders stating to the effect that the taking of such action
will not adversely affect the substantive nonconsolidation of the Issuer with
the Contributor in the event of a bankruptcy proceeding involving the
Contributor. The Issuer shall not amend any article in its Articles of
Incorporation or its Bylaws that deals with any matter discussed above without
the prior written consent of the Holders of 66-2/3% in aggregate principal
amount of the Outstanding Notes.
(j) Directors. The Issuer agrees that at all times, at least one
director and one executive officer that will not be a director, officer or
employee of any direct or ultimate parent, or Affiliate of such parent or of the
Issuer (other than Issuer); provided, however, that (a) such independent
director may also be the independent officer and (b) such independent director
and such independent officer may serve in similar capacities for other "special
purpose corporations" formed by the Issuer and its Affiliates. The Issuer's
Articles of Incorporation shall at all times provide that such independent
director shall have a fiduciary duty to the Holders of the Notes.
<PAGE>
(k) Consolidated Return. The Issuer is a member of an affiliated group
with the Contributor within the meaning of section 1504 of the Code and will
file a consolidated return with the Contributor for federal income tax purposes.
(1) Ownership of the Equipment. The Issuer warrants that it owns the
Equipment and that it will defend such interest in the Equipment against all
Persons, claims and demands whatsoever. The Issuer shall not assign, sell,
pledge, or exchange, or in any way encumber or otherwise dispose of the
Equipment, except as permitted under this Indenture. Within 90 days following
the delivery to the Trustee of any Lease Contract which is pledged by the Issuer
under this Indenture as part of the Trust Estate, the Issuer shall file such UCC
financing statements as are necessary to evidence the Issuer's assignment of the
related Equipment to the Trustee for the benefit of the Noteholders. The Issuer
warrants that the Trustee will have a valid first priority perfected security
interest in the Equipment upon the filing of such UCC financing statements.
(m) Taxable Income from the Lease Receivables. The Issuer shall treat
the Lease Contracts, the Lease Receivables and the related Equipment as owned by
it for federal, State and local income tax purposes, and any affiliated group of
which the Issuer is a member within the meaning of section 1504 of the Code
shall treat the Lease Contracts, the Lease Receivables and the related Equipment
as owned by the Issuer for federal, State and local income tax purposes, shall
report and include in the computation of the Issuer's gross income for such tax
purposes in its consolidated or combined return the rental and other income from
the Lease Contracts, Lease Receivables and the related Equipment and shall
deduct the interest paid or accrued with respect to the Notes in accordance with
its applicable method of accounting for such purposes.
<PAGE>
(n) Maintenance of Office or Agency. The Issuer will maintain an office
or agency within the United States of America where Notes may be presented or
surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange and where notices and demand to or upon the Issuer in
respect of the Notes and this Indenture may be served. The Issuer hereby
initially appoints the Trustee at the Corporate Trust Office for each of said
purposes. The Issuer will give 30 days' prior written notice to the Trustee and
the Noteholders of any change in the location, of any such office or agency. If
at any time the Issuer shall fail to maintain any such office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Trustee, and the
Issuer hereby appoints the Trustee its agent to receive all such presentations,
surrenders, notices and demands.
(o) Money for Note Payments to Be Held in Trust. The Trustee shall
execute and deliver, and if there is any Paying Agent other than the Trustee,
the Issuer will cause each Paying Agent other than the Trustee to execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee that, subject to the provisions of this Section 11.02, such Paying
Agent will:
(i) hold all sums held by it for the payment of principal of
or interest on Notes in trust for the benefit of the Noteholders
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(ii) give the Trustee notice of any Default by the Issuer (or
any other obligor upon the Notes) in the making of any payment of
principal or interest; and
(iii) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Issuer Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Paying Agent; and, upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent in trust for
the payment of the principal of or interest on any Note and remaining unclaimed
for three years after such principal or interest has become due and payable
shall be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, and subject to any applicable
statute of limitations, look only to the Issuer for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
or the related Note, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Issuer cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in the city in which the Corporate Trust Office is located,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Issuer.
The Trustee may also adopt and employ, at the expense of the Issuer, any other
reasonable means of notification of such repayment (including, but not limited
to, mailing notice of such repayment to Noteholders whose right to or interest
in monies due and payable but not claimed is determinable from the records of
any Paying Agent, at the last address as shown on the Note Register for each
such Noteholder).
(p) Enforcement of Servicing Agreement and Contribution Agreement. The
Issuer will take all actions necessary, and diligently pursue all remedies
available to it, to the extent commercially reasonable, to enforce the
obligations of the Servicer under the Servicing Agreement and the Contributor
under the Contribution Agreement and to secure its rights thereunder.
<PAGE>
(q) Issuer May Consolidate, etc., Only on Certain Terms. The Issuer
shall not consolidate or merge with or into any other Person or convey or
transfer its properties and assets substantially as an entirety to any Person,
unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger or which acquires by conveyance
or transfer the properties and assets of the Issuer substantially as an
entirety shall be a Person organized and existing as a limited purpose
entity under the laws of the United States of America or any State
thereof and shall have expressly assumed, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, the obligation to make due and punctual
payments of the principal of and interest on all of the Notes and to
perform every covenant of this Indenture on the part of the Issuer to
be performed or observed; and
(ii) immediately after giving effect to such transaction, no
Event of Default or Default shall have occurred and be continuing; and
(iii) the Issuer shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article Eleven and that all conditions
precedent herein provided for relating to such transaction have been
complied with; and
(iv) such consolidation, merger, conveyance or transfer shall
be on such terms as shall fully preserve the lien and security hereof,
the perfection and priority thereof and the rights and powers of the
Trustee and the Holders of the Notes hereunder; and
(v) the surviving entity shall be a "special purpose entity";
i.e., shall have an organizational charter substantially similar to the
Articles of Incorporation and the Bylaws of the Issuer including
specific limitations on the business purposes, and provisions for
independent directors; and
(vi) the Issuer shall have obtained the prior written consent
of the Holders of a majority in principal amount of the Notes.
(r) Successor Substituted. Upon any consolidation or merger, or any
conveyance or transfer of the properties and assets of the Issuer substantially
as an entirety in accordance with Section 11.02(q) hereof, the Person formed by
or surviving such consolidation or merger (if other than the Issuer) or the
Person to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with the same effect as if such Person had been named as the
Issuer herein. In the event of any such conveyance or transfer, the Person named
as the "Issuer" in the first paragraph of this instrument or any successor which
shall theretofore have become such in the manner prescribed in this Article
Eleven shall be released from its liabilities as obligor and maker on all the
Notes and from its obligations under this Indenture and may be dissolved,
wound-up and liquidated at any time thereafter.
(s) Use of Proceeds. The proceeds from the sale of the Notes will be
used by the Issuer (i) to pay the Lease Acquisition Consideration, (ii) to pay
the expenses associated with the issuance of Notes pursuant to this Indenture
and the transactions contemplated hereby and by the Contribution Agreement and
the Servicing Agreement and (iii) for the Issuer's general business purposes.
None of the transactions contemplated in this Indenture, the Contribution
Agreement or the Servicing Agreement (including the use of the proceeds from the
sale of the Notes) will result in a violation of Section 7 of the Securities
Exchange Act of 1934, as amended, or any regulations issued pursuant thereto,
including Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. The Issuer does not own or intend to
carry or purchase any "margin security" within the meaning of said Regulation G,
including margin securities originally issued by it or any "margin stock" within
the meaning of said Regulation U.
(t) Investment Company Act of 1940. The Issuer will at all times
conduct its operations in a manner which will not subject it to registration as
an "investment company" under the Investment Company Act of 1940, as amended.
The Issuer will not issue or register the transfer of any of its membership
interests if immediately after such issuance or transfer there would be more
than 100 beneficial owners (within the meaning of the Investment Company Act of
1940, as amended) of (i) the Notes, (ii) the membership interests of the Issuer
and (iii) all other securities of the Issuer.
<PAGE>
(u) Transactions with Affiliates. The Issuer will not enter into or
cause, suffer or permit to exist any arrangement or contract with any of its
Affiliates unless such arrangement or contract is fair and equitable to the
Issuer, is commercially reasonable and is an arrangement or contract no less
favorable to the Issuer than generally available on an arms-length basis in
equitable transactions with third parties.
(v) Preparation of Private Placement Memorandum. The Issuer shall
prepare and deliver to the initial Holder of the Notes a Private Placement
Memorandum satisfactory to the Placement Agent within a reasonable time upon
such Holder's request.
Section 11.03. Other Matters as to the Issuer. (a) Limitation on
Liability of Directors, Officers, or Employees of the Issuer. The directors,
officers, or employees of the Issuer shall not be under any liability to the
Trustee, the Noteholders, the Issuer, the Servicer or any other Person hereunder
or pursuant to any document delivered hereunder, it being expressly understood
that all such liability is expressly waived and released as a condition of, and
as consideration for, the execution of this Indenture and the issuance of the
Notes.
(b) Parties Will Not Institute Insolvency Proceedings. So long as this
Indenture is in effect, and for one year following its termination, none of the
parties hereto or any Affiliate thereof will file any involuntary petition or
otherwise institute any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding or other proceeding under any federal or state bankruptcy
or similar law against or by the Issuer.
Article Twelve
Accounts and Accountings
Section 12.01. Collection of Money. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Trustee pursuant to this Indenture. The Trustee shall, upon
request from the Servicer, provide the Servicer with sufficient information
regarding the amount of collections with respect to the Lease Contracts received
by the Trustee in the accounts held in the name of the Trustee to permit the
Servicer to perform its duties under the Servicing Agreement. The Trustee shall
hold all such money and property so received by it as part of the Trust Estate
and shall apply it as provided in this Indenture. If any Lease Contract becomes
a Defaulted Lease Contract, the Trustee, upon Issuer or Servicer request may,
and upon the request or the Holders of a majority in principal amount of the
Outstanding Notes shall, take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and to proceed thereafter as
provided in Article Six hereof.
Section 12.02. Collection Account. (a) On or prior to the Closing Date,
the Trustee shall open and maintain a trust account (the "Collection Account"),
which at all times shall be an Eligible Account, in the name of the Trustee for
the benefit of the Noteholders, for the receipt of (i) payments remitted to the
Trustee by the Servicer, (ii) amounts transferred from the Pre-Funding Account
in accordance with Section 12.03(d)(ii) and (iii) and (iii) any Reinvestment
Income. Funds in the Collection Account shall not be commingled with any other
monies. All payments to be made from time to time by the Issuer to the
Noteholders out of funds in the Collection Account pursuant to this Indenture
shall be made by the Trustee or the Paying Agent of the Issuer. All monies
deposited from time to time in the Collection Account pursuant to this Indenture
shall be held by the Trustee as part of the Trust Estate as herein provided.
<PAGE>
(b) Upon Issuer Order, the Trustee shall invest the funds in the
Collection Account in Eligible Investments. The Issuer Order shall specify the
Eligible Investments in which the Trustee shall invest, shall state that the
same are Eligible Investments and shall further specify the percentage of funds
to be invested in each Eligible Investment. No such Eligible Investment shall
mature later than the second Business Day preceding the next following Payment
Date and shall not be sold or disposed of prior to its maturity; provided that,
Eligible Investments of the type described in clause (i) of the definition of
Eligible Investments may mature on such Payment Date. In the absence of a Issuer
Order, the Trustee shall invest funds in the Collection Account in Eligible
Investments described in clause (vii) of the definition thereof. Eligible
Investments shall be made in the name of the Trustee for the benefit of the
Noteholders. The Trustee shall provide to the Servicer monthly written
confirmation of such investments, describing the Eligible Investments in which
such amounts have been invested. Any funds not so invested must be insured by
the Federal Deposit Insurance Corporation.
(c) Any income or other gain from investments in Eligible Investments
as outlined in (b) above shall be credited to the Collection Account, and any
loss resulting from such investments shall be charged to such account; provided,
however, that the Issuer shall make or cause to be made no later than the
applicable Payment Date a deposit to the Collection Account to the extent of any
losses therein caused as a result of the Issuer's investment instructions
provided for herein. The Trustee shall not be liable for any loss incurred on
any funds invested in Eligible Investments pursuant to the provisions of this
Section 12.02.
(d) On each Payment Date, if either no Default or Event of Default
shall have occurred and be continuing, or a Default or Event of Default shall
have occurred and be continuing but the entire unpaid principal amount of the
Notes shall not have been declared due and payable pursuant to Section 6.02
hereof, then on such Payment Date, after making all transfers and deposits to
the Collection Account pursuant to Section 12.02(a) hereof, the Trustee shall
withdraw from the Collection Account (other than amounts representing payments
of Lease Receivables due after the related Calculation Date immediately
preceding such Payment Date) including the Reinvestment Income therein, and
shall make the following disbursements in the following order in accordance with
the provisions of and instructions on the Monthly Servicer's Report; provided
that the Trustee shall withdraw from the Collection Account and make interest
payments based on the outstanding principal balance of the Notes even if it
shall not have received the Monthly Servicer's Report.
(i) to pay to the Trustee the Trustee Fee then due;
(ii) to pay to the Servicer: (A) the Servicer Fee; (B) the
amounts necessary to reimburse the Servicer and any successor Servicer
as provided in Section 3.09(a) of the Servicing Agreement for
reasonable costs and expenses incurred by the Servicer (including
reasonable attorney's fees and out-of-pocket expenses) in connection
with the realization, attempted realization or enforcement of rights
and remedies upon Defaulted Lease Contracts, from amounts received as
Recoveries from any Defaulted Lease Contracts; (C) all amounts received
in respect of Lease Receivables as to which the Servicer has made an
unrecovered Servicer Advance, to the extent of such Servicer Advance;
(D) all amounts received in respect of Servicing Charges; (E) the
amount necessary to reimburse the Servicer for any Servicer Advance
deemed by the Servicer to be unrecoverable; (F) any Servicer Advances
that have not been otherwise reimbursed; and (G) all amounts received
in respect of taxes to be paid by any Customers;
(iii) to pay the aggregate interest due on the Outstanding
Notes on that Payment Date and any overdue interest, to be applied as
provided in Section 3.07 hereof;
(iv) to pay the Principal Distribution Amount for all
Outstanding Notes on that Payment Date, to be applied to the payment of
Note principal until the Notes are paid in full;
(v) to pay to the Trustee any other amounts due to the Trustee
as expressly provided herein and in the Servicing Agreement;
(vi) to pay to the Servicer, any other amounts due the
Servicer as expressly provided herein and in the Servicing Agreement;
and
(vii) to remit any excess funds to or at the direction of the
Issuer in accordance with the instructions on the Monthly Servicer's
Report.
The foregoing provisions of paragraph 12.02(d) notwithstanding, any
monies deposited in the Collection Account for purposes of redeeming Notes
pursuant to Article Ten hereof shall, subject to Section 11.02(o) hereof, remain
in the Collection Account until used to redeem the Notes.
(e) Upon the Issuer's or the Trustee's obtaining actual knowledge of
the occurrence of any Trigger Event, the Issuer or the Trustee, as the case may
be, shall within two Business Days of obtaining such actual knowledge notify the
Noteholders of such occurrence.
Section 12.03. Pre-Funding Account. (a) Prior to the Closing Date, the
Issuer shall cause the Trustee to open and maintain a trust account (the
"Pre-Funding Account"), which at all times will be an Eligible Account, for the
benefit of the Noteholders. On the Closing Date, the Issuer shall deposit into
the Pre-Funding Account the Pre-Funded Amount. Monies on deposit in the
Pre-Funding Account will be invested at the written direction of the Issuer in
Eligible Investments during the term of this Indenture, and any income or other
gain realized from such investment, shall be held by the Trustee in the
Pre-Funding Account as part of the Trust Estate as security for the Notes
subject to disbursement and withdrawal as herein provided. Monies shall be
subject to withdrawal in accordance with Section 12.03(d) hereof.
<PAGE>
(b) Upon Issuer Order all or a portion of the Pre-Funding Account shall
be invested and reinvested at the Issuer's written direction in one or more
Eligible Investments. In the absence of an Issuer Order, the Trustee shall
invest funds in the Pre-Funding Account in Eligible Investments described in
clause (vi) of the definition thereof. All income or other gain from such
investments shall be credited to such Pre-Funding Account and any loss resulting
from such investments shall be charged to such Pre-Funding Account; provided,
however, that the Issuer shall make or cause to be made on any Determination
Date a deposit to the Pre-Funding Account to the extent of any losses therein
caused as a result of the Issuer's investment instructions. No Eligible
Investment shall mature later than the Business Day preceding the Subsequent
Transfer Date or, if later the end of the Funding Period and shall not be sold
or disposed of prior to its maturity. Eligible Investments shall be made in the
name of the Trustee for the benefit of the Noteholders. The Trustee shall
provide to the Servicer monthly written confirmation of such investments,
describing the Eligible Investments in which such amounts have been invested.
Any funds not so invested must be insured by the Federal Deposit Insurance
Corporation.
(c) If any amounts invested as provided in Section 12.03(b) hereof
shall be needed for disbursement from the Pre-Funding Account as set forth in
Section 12.03(d) hereof, the Trustee shall cause such investments of such
Pre-Funding Account to be sold or otherwise converted to cash to the credit of
such Pre-Funding Account. The Trustee shall not be liable for any investment
loss resulting from investment of money in the Pre-Funding Account in any
Eligible Investment in accordance with the terms hereof (other than in its
capacity as obligor under any Eligible Investment).
(d) Disbursements from the Pre-Funding Account shall be made, to the
extent funds therefor are available, only as follows:
(i) on the Subsequent Transfer Date, the Servicer shall
instruct the Trustee in writing (x) to withdraw from the Pre-Funding
Account an amount equal to the sum of (A) the Implicit Principal
Balances of the Subsequent Lease Contracts transferred to the Issuer on
the Subsequent Transfer Date as of the Subsequent Cut-Off Date and (B)
any Scheduled Payments with respect to the Subsequent Lease Contracts
due on or prior to the Subsequent Cut-Off Date but not received through
the Subsequent Cut-Off Date and (y) subject to the receipt of the items
described in subparagraph (e) of this Section 12.03, to distribute such
amount to or at the direction of the Issuer in accordance with the
instructions provided to the Trustee;
(ii) if (x) the Pre-Funded Amount has not been reduced to zero
prior to the Payment Date on or immediately following the end of the
Funding Period or (y) prior to any Payment Date during the Funding
Period, an Event of Default, Servicer Event of Default or Trigger Event
occurs, then the Trustee shall withdraw from the Pre-Funding Account on
such Payment Date all amounts remaining on deposit in the Pre-Funding
Account (excluding any Reinvestment Income in such account) and deposit
such amounts in the Collection Account for distribution to the
Noteholders in accordance with Section 12.02(d)(iv) hereof; and
<PAGE>
(iii) on the Determination Date immediately preceding each
Payment Date, the Trustee shall withdraw funds representing
Reinvestment Income from the Pre-Funding Account, pursuant to
instructions in the Monthly Servicer's Report, and deposit such funds
in the Collection Account, on or prior to 4:00 p.m., Minneapolis time,
on such Determination Date, for disbursement in accordance with the
provisions of Section 12.02(d) hereof.
(e) The Issuer shall provide to the Trustee on the Subsequent Transfer
Date the following items with respect to any Subsequent Lease Contracts
transferred on such date:
(i) a supplement to the Contribution Agreement substantially
in the form of Schedule I to the related Subsequent Lease Assignment
Agreement and Exhibit C hereto, subjecting such Subsequent Lease
Contracts and the related Subsequent Lease Receivables to the
provisions thereof and hereof and providing with respect to such
Subsequent Lease Contracts the information set forth in the Lease
Schedule;
(ii) the original executed counterpart of the Lease Contracts
relating to such Subsequent Lease Contracts and the related Lease
Contract File;
(iii) evidence that UCC financing statements have been filed
with respect to such Subsequent Lease Contracts in accordance with
Section 4.02 hereof; and
(iv) an Opinion of Counsel in accordance with Section 4.07
hereof.
Section 12.04. Reports by Trustee to Noteholders. (a) On each Payment
Date the Trustee shall account to each Holder of Notes on which payments of
principal and interest are then being made the amount which represents principal
and the amount which represents interest, and shall contemporaneously advise the
Issuer of all such payments. The Trustee shall be deemed to have satisfied its
obligations under this Section 12.04 by delivering the Monthly Servicer's Report
to each such Holder of the Notes and by causing the Servicer to deliver the
Monthly Servicer's Report to the Issuer. The Servicer hereby agrees to deliver
the Mnthly Servicer's Report to the Issuer. On or before the 10th day prior to
the Final Payment Date for the Notes the Trustee shall provide notice to the
Holders of the Notes of the Final Payment Date for the Notes. Such notice shall
include (1) a statement that interest shall cease to accrue as of the last day
preceding the date on which such Final Payment Date occurs, and (2) shall
specify the place or places at which presentation and surrender may be made.
(b) The Trustee shall, on a monthly basis beginning on the first
Calculation Date, confirm the credit rating or, if more than one credit rating
has been assigned, each such credit rating of each institution in which funds
are invested pursuant to clause (vi) of the definition of Eligible Investments
and shall promptly notify the Noteholders if any such credit rating has been
lowered, and the Trustee is not able to move affected funds into another
Eligible Investment; if the Trustee moves funds in accordance with this
sentence, it will promptly provide notice of such movement to the Issuer.
(c) At least annually, the Trustee shall distribute to Noteholders any
Form 1099 or similar information returns required by applicable tax law to be
distributed to the Noteholders and received in accordance with the next
sentence. The Servicer, at its own expense, shall prepare or cause to be
prepared all such information for distribution by the Trustee to the
Noteholders.
<PAGE>
Article Thirteen
Provisions of General Application
Section 13.01. Acts of Noteholders. (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 an agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Issuer. 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 hereof) conclusive in favor of the Trustee and the Issuer, if made in the
manner provided in this Section 13.01.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind 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 Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 13.02. Notices, etc., to Trustee, Issuer and Servicer. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with any party hereto shall be sufficient
for every purpose hereunder if in writing and telecopied or mailed, first-class
postage prepaid and addressed to the appropriate address below:
(a) to the Trustee at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479-0070 (facsimile number (612) 667-3839), Attention: Corporate
Trust Services--Asset-Backed Administration, or at any other address previously
furnished in writing to the Issuer, the Noteholders and the Servicer; or
(b) to the Issuer at Sunrise Funding Corporation I, 5500 Wayzata
Boulevard, Suite 725, Golden Valley, Minnesota 55416 (telephone number (612)
513-3280), Attention: President, or at any other address previously furnished in
writing to the Trustee, the Noteholders and the Servicer by the Issuer; or
(c) to the Servicer at Sunrise Leasing Corporation, 550 Wayzata
Boulevard, Suite 725, Golden Valley, Minnesota 55416 (facsimile number (612)
513-3299), Attention: President, or at any other address previously furnished in
writing to the Trustee, the Noteholders and the Issuer.
Section 13.03. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Noteholder affected by such
event, at such Noteholder's address as it appears on the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case in which notice to Noteholders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Noteholder shall affect the sufficiency of
such notice with respect to other Noteholders, and any notice which is mailed in
the manner herein provided shall conclusively be presumed to have been duly
given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any 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.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 13.04. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
<PAGE>
Section 13.05. Successors and Assigns. All covenants and agreements in
this Indenture by the Issuer shall bind its successors and assigns, whether so
expressed or not.
Section 13.06. Separability. 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 unpaired thereby.
Section 13.07. Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto, the Noteholders, and any Paying Agent which may be appointed pursuant to
the provisions hereof, and any of their successors hereunder, any benefit or any
legal or equitable right, remedy or claim under this Indenture or under the
Notes.
Section 13.08. Legal Holidays. In any case in which the date of any
Payment Date or the Stated Maturity of any Note shall not be a Business Day,
then (notwithstanding any other provision of the Notes or this Indenture)
payment of principal, interest, or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the nominal date of any such Stated Maturity or Payment
Date and, assuming such payment is actually made on such subsequent Business
Day, no additional interest shall accrue on the amount so paid for the period
from and after any such nominal date.
Section 13.09. Governing Law. This Indenture and each Note shall be
construed in accordance with and governed by the internal laws of the State of
Minnesota applicable to agreements made and to be performed therein, without
regard to the conflict of laws provisions of any State.
Section 13.10. 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 13.11. Obligation. No recourse may be taken, directly or
indirectly, against any incorporator, subscriber to the capital stock,
stockholder, member, partner, employee, officer or director of the Issuer or of
any predecessor or successor of the Issuer with respect to the Issuer's
obligations on the Notes or under this Indenture or any certificate or other
writing delivered in connection herewith.
Section 13.12. Compliance Certificates and Opinions. Upon any
application, order or request by the Issuer or the Servicer to the Trustee to
take any action under any provision of this Indenture for which a specific
request is required under this Indenture, the Issuer or the Servicer, as
applicable, shall furnish to the Trustee an Officer's Certificate of the Issuer
or the Servicer, as applicable, stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with, except that in the case of any such application or request as to
which the furnishing of a different certificate is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate need be furnished.
<PAGE>
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
<PAGE>
In Witness Whereof, the Issuer, the Servicer and the Trustee have
caused this Indenture to be duly executed by their respective officers thereunto
duly authorized as of the day and year first above written.
Sunrise Funding Corporation I, Issuer
By: /s/ R. Bradley Pike
Name: R. Bradley Pike
Title: President
SUNRISE LEASING CORPORATION,
Servicer
By: /s/ Barry J. Schwach
Name: Barry J. Schwach
Title: Chief Financial Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, Trustee
By: /s/ Thomas Wraalstad
Name: Thomas Wraalstad
Title: Corporate Trust Officer
CONTRIBUTION AGREEMENT
between
SUNRISE LEASING CORPORATION
("Contributor")
and
SUNRISE FUNDING CORPORATION I
("Issuer")
Dated as of November 1, 1996
<PAGE>
Table of Contents
Section Heading Page
Article 1 Definitions 2
Section 1.01. Defined Terms 2
Article 2 Acquisition of Lease Assets 4
Section 2.01. Authorization and Issuance of Common
Stock by the Issuer 4
Section 2.02. Lease Acquisition 4
Section 2.03. Assumption of Indebtedness by the Issuer 4
Section 2.04. Delivery of Lease Contracts; Filing of
Financing Statements 4
Section 2.05. Servicing of Lease Contracts and Equipment 5
Section 2.06. Review of Lease Contracts 5
Article 3 Representations and Warranties 5
Section 3.01. Representations and Warranties of the
Contributor 5
Section 3.02. Representations and Warranties of the
Issuer 14
Section 3.03. Purchase or Substitution Required upon
Breach of Certain Representations
and Warranties 15
Section 3.04. Requirements for Purchase or Substitution
of Lease Contracts 16
Article 4 Covenants 17
Section 4.01. Contributor Covenants 17
Section 4.02. Issuer Covenants 21
Section 4.03. Assignment of Lease Assets 22
Article 5 Conditions Precedent 22
Section 5.01. Conditions to the Issuer's Obligations 22
Section 5.02. Conditions to the Contributor's Obligations 23
Section 5.03. Conditions to the Issuer's Subsequent
Obligations 24
Section 5.04. Conditions to the Contributor's Subsequent
Obligations 25
Article 6 Term and Termination 25
Section 6.01. Term 25
Section 6.02. Default by the Contributor 25
Article 7 Miscellaneous 26
Section 7.01. Amendments 26
Section 7.02. Governing Law 26
Section 7.03. Notices 26
Section 7.04. Separability Clause 26
Section 7.05. Assignment 26
Section 7.06. Further Assurances 26
Section 7.07. No Waivers; Cumulative Remedies 27
Section 7.08. Binding Effect; Third Party Beneficiaries 27
Section 7.09. Set-Off 27
Section 7.10. Counterparts 27
<PAGE>
Annex A -- Form of Supplemental for Substitute Lease Contracts
Schedule I -- Supplemental Lease Schedule for Substitute Lease
Contracts
Exhibit A -- Form of Lease Contract
Exhibit B -- Form of Lease Asset Assignment and Assumption Agreement
Schedule I -- Lease Schedule
Schedule II -- Schedule of Existing Indebtedness
Exhibit C -- Form of Subsequent Lease Asset Assignment and Assumption
Agreement
Schedule I -- Lease Schedule
Schedule II -- Schedule of Existing Indebtedness
<PAGE>
This Contribution Agreement, dated as of November 1, 1996 (this
"Agreement"), is entered into by and between Sunrise Leasing Corporation, a
Minnesota corporation (herein, together with its permitted successors and
assigns, the "Contributor"), and Sunrise Funding Corporation I, a Minnesota
corporation (herein, together with its permitted successors and assigns, the
"Issuer").
PRELIMINARY STATEMENT
The Issuer has entered into an Indenture, dated as of November 1, 1996
(as amended and supplemented from time to time, the "Indenture"), with Norwest
Bank Minnesota, National Association, as trustee (herein, together with its
permitted successors and assigns, the "Trustee"), and the Contributor, as
servicer (herein, in such role, together with its permitted successors and
assigns, the "Servicer"), pursuant to which the Issuer intends to issue its
Notes, as provided in the Indenture (the "Notes").
In furtherance thereof, the Issuer and Contributor have entered into
this Agreement to provide for, among other things, the acquisition by the Issuer
of all of the right, title and interest in and to certain Lease Assets. The
Issuer is, and from time to time will be, pledging to the Trustee the proceeds
from the Lease Assets, and the Issuer will be granting to the Trustee a security
interest in the Lease Assets, as security for the Notes. As a precondition to
the effectiveness of this Agreement, the Issuer, the Servicer and the Trustee
will enter into the Servicing Agreement, dated as of November 1, 1996 (as
amended and supplemented from time to time, the "Servicing Agreement"), to
provide for the administration and servicing of the Lease Assets. In connection
with the issuance of the Notes and pursuant to this Agreement, the Contributor
will contribute the Lease Assets to the Issuer. The initial contribution shall
be effected by this Agreement and the Lease Asset Assignment between the Issuer
and the Contributor, and the list of Lease Contracts so conveyed shall be listed
on Schedule I to the Lease Asset Assignment. The subsequent contribution shall
be effected by a Subsequent Lease Asset Assignment between the Issuer and the
Contributor, and the Subsequent Lease Contracts so conveyed will be listed on
Schedule I to such Subsequent Lease Asset Assignment. On the Closing Date, the
Issuer will issue the Common Stock to the Contributor in accordance with the
provisions set forth in this Agreement. As of the date thereof, the parties
contemplate that the Issuer will not issue any additional shares of its common
stock in connection with the conveyance of Subsequent Lease Contracts.
In order to further secure the Notes, the Issuer will grant to the
Trustee a security interest in, among other things, the Issuer's rights derived
under this Agreement and the Servicing Agreement, and the Contributor agrees
that all representations, warranties, covenants and agreements made by it in
this Agreement with respect to the Lease Assets shall also be for the benefit
and security of the Issuer and the Trustee and all holders from time to time of
the Notes. In consideration for contribution and representations, warranties,
covenants and other agreements under this Agreement by the Contributor, the
Contributor will receive all of the Common Stock of the Issuer on the Closing
Date.
<PAGE>
Article 1
Definitions
Section 1.01. Defined Terms. For purposes of this Agreement the
following terms shall have the meanings specified herein. Capitalized terms used
herein but not otherwise defined shall have the respective meanings assigned to
such terms in the Indenture or the Purchase Agreement.
"Common Stock" shall mean all of the issued and outstanding shares of
Common Stock of the Issuer, which consists of 1,000 shares having a par value of
$.01 per share.
"Contributor Address" shall mean 5500 Wayzata Boulevard, Suite 725,
Golden Valley, Minnesota 55416.
"Electronic Ledgers" shall mean the electronic master records of all
lease contracts of the Contributor, the Issuer or the Servicer similar to and
including the Lease Contracts.
"Eligible Lease Contract" shall mean a Lease Contract that satisfies
the selection criteria set forth in Section 3.01(a) hereof, provided that with
respect to any Substitute Lease Contract, any reference in such Section to
related Cut-Off Date shall be deemed to refer to the date as of which such
Substitute Lease Contract is conveyed to the Issuer in accordance with Section
3.04 hereof.
"Existing Indebtedness" shall mean, with respect to the Lease
Contracts, the indebtedness that the Contributor shall incur from time to time
which relates to financing of the Lease Contracts and which shall be assumed by
the Issuer on the related Closing Date, all as set forth in Schedule II to the
related Lease Asset Assignment.
"Indenture" shall mean the Indenture, dated as of November 1, 1996, by
and among the Issuer, the Trustee and the Servicer.
"Issuer Address" shall mean 5500 Wayzata Boulevard, Suite 725, Golden
Valley, Minnesota 55416.
"Lease Acquisition Consideration" shall mean, with respect to any Lease
Contract, the Common Stock and the assumption by the Issuer of the Existing
Indebtedness with respect to such Lease Contract, which shall be issued or
assumed, as applicable, by the Issuer to the Contributor on the Closing Date or,
with respect to the Subsequent Lease Contracts, assumed on the Subsequent
Transfer Date.
"Lease Asset Assignment" shall mean the Lease Asset Assignment and
Assumption Agreement, substantially in the form attached hereto as Exhibit B,
which shall be entered into in connection with the conveyance of Lease Assets
from the Contributor to the Issuer on the Closing Date.
"Lease Assets" shall mean all of the Contributor's right, title and
interest in and to (a) the Contributor's rights and interests in Lease
Contracts, the Lease Receivables, and the related Equipment, including the
proceeds of the Lease Contracts, Lease Receivables and the related Equipment and
all payments received on or with respect to the Lease Contracts, Lease
Receivables and the related Equipment and due after the related Cut-Off Date,
(b) the Lease Contract Files, (c) all rights and interests of the Contributor
under each Insurance Policy, if any, related to the Lease Contracts and
Insurance Proceeds, (d) all rights and interests (but none of the obligations)
of the Contributor under the Vendor Agreement, if any, with respect to each
Lease Contract, (e) the Servicing Charges with respect to the Lease Contracts
and (f) all income and proceeds of the foregoing or relating thereto pledged to
the Trustee under the Indenture.
<PAGE>
"Lease Contract File" shall mean, with respect to each Lease Contract,
the following documents:
(i) a copy of the Lease Contract;
(ii) evidence of insurance, if any, and any other documents
evidencing or related to any Insurance Policy;
(iii) copies of such documents, if any, that the Contributor
keeps on file in accordance with its customary procedures relating to
an individual Lease Contract, the related Equipment or a Customer;
(iv) evidence that the Customer received the related Equipment
and that the related Equipment was in good working order and acceptable
to the Customer at the time of receipt by the Customer; and
(v) a copy, if applicable, of the related Vendor Agreement.
"Substitute Lease Contract" shall have the meaning set forth in Section
3.04(b) hereof.
"Substitution Criterion" shall have the meaning set forth in Section
3.04(b) hereof.
Article 2
Acquisition of Lease Assets
Section 2.01. Authorization and Issuance of Common Stock by the Issuer.
Subject to all the terms and conditions of this Agreement and in reliance upon
the representations, warranties and covenants set forth in this Agreement, the
Issuer hereby issues to the Contributor the Common Stock. Such Common Stock
shall be issued in the name of, and delivered directly to, the Contributor, and
the Contributor hereby agrees to obtain directly from the Issuer such Common
Stock, all in accordance with the terms of this Agreement.
Section 2.02. Lease Acquisition. In return for the Common Stock and
other rights created by this Agreement, the Contributor hereby transfers,
assigns, sells, grants and contributes, or shall contribute, to the Issuer,
without recourse except as provided in Section 3.03 of this Agreement, on the
Closing Date or the Subsequent Transfer Date, as the case may be, any and all of
the Contributor's respective right, title and interest in and to all of the
Lease Assets set forth on Schedule I to the Lease Asset Assignment or the
Subsequent Lease Assignment, as the case may be. The Contributor hereby
acknowledges that its transfer of the Lease Assets to the Issuer is absolute and
irrevocable, without reservation or retention of any interest whatsoever by the
Contributor.
Section 2.03. Assumption of Indebtedness by the Issuer. By the
execution of the Lease Assignment Agreement or the Subsequent Lease Assignment
Agreement, as applicable, subject to all the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants set
forth in this Agreement, on the Closing Date the Issuer hereby agrees to assume
the Existing Indebtedness set forth on Schedule II to the Lease Assignment
Agreement or the Subsequent Lease Assignment Agreement, as applicable, and the
Issuer agrees to pay such Existing Indebtedness with the proceeds of the sale of
the Notes simultaneously with the issuance of the Notes.
'Section 2.04. Delivery of Lease Contracts; Filing of Financing
Statements'. (a) In connection with the Issuer's acquisition of the Lease
Assets, the Contributor, on behalf of the Issuer, shall deliver the original
Lease Contracts to the Trustee so that the Trustee may retain possession thereof
as provided in the Transaction Documents. In addition, the Contributor agrees to
record and file prior to the Closing Date or the Subsequent Transfer Date, as
the case may be (or within ninety (90) days thereafter with respect to the
assignment to the Issuer and thereafter to the Trustee of filings previously
made to perfect a security interest in the Equipment), at its own expense,
financing statements (and thereafter timely continuation statements with respect
to such financing statements) with respect to the applicable Lease Assets, in
accordance with Section 3.01(a)(viii) and Section 4.01(c) hereof.
<PAGE>
(b) In connection with each such acquisition, the Contributor shall
promptly, at its own expense, cause any Electronic Ledger maintained by it to be
marked to show which Lease Assets have been acquired by the Issuer in accordance
with this Agreement and transferred by the Issuer to the Trustee in accordance
with the Transaction Documents.
(c) It is the intention of the Contributor and the Issuer that the
Issuer is acquiring full and absolute title to the Lease Assets. If it is
determined, however, that the Contributor has transferred to the Issuer a
security interest in the Lease Assets, then this Agreement shall constitute a
security agreement under applicable law and the Contributor does hereby pledge,
grant and assign to the Issuer a security interest in the Lease Assets.
Section 2.05. Servicing of Lease Contracts and Equipment. The Servicer
shall service the Lease Contracts and the other Lease Assets for the benefit of
the Issuer (and its successors and assigns) in accordance with the terms and
conditions of the Transaction Documents. Notwithstanding the foregoing, the
Contributor acknowledges and agrees that its obligations under this Agreement
are independent of any obligations it may have as Servicer and that its
obligations under this Agreement will continue in full force and effect, whether
or not it is acting as Servicer, until termination of this Agreement in
accordance with Section 6.01 hereof, unless otherwise provided herein.
Section 2.06. Review of Lease Contracts. If the Contributor or the
Trustee (who shall thereupon notify the Contributor and the Issuer) discovers
that any Lease Contracts are missing or defective (that is, mutilated, damaged,
defaced, incomplete, improperly dated, clearly forged or otherwise physically
altered) in any material respect, the Contributor shall correct or cure such
omission, defect or other irregularity within thirty (30) days from the date the
Contributor discovered such omission or defect, or from the date the Contributor
is notified by the Trustee of such omission or defect. In the event the
Contributor is unable to correct or cure such omission, defect or irregularity
within the thirty (30) day period described in the preceding sentence, the
Contributor shall purchase or replace such Lease Contract from the Issuer in
accordance with Section 3.03 hereof.
Article 3
Representations and Warranties
Section 3.01. Representations and Warranties of the Contributor. The
Contributor hereby makes the following representations and warranties to the
Issuer and for the benefit of the Issuer, the Trustee and Holders of the Notes,
on which the Issuer relies in acquiring the Lease Assets and on which the
Holders rely in purchasing the Notes. Such representations and warranties shall
survive any subsequent transfer, assignment, contribution or conveyance of the
Lease Contracts, Lease Receivables and the related Equipment and any issuance of
Notes.
(a) As to each Lease Contract, as of the Closing Date with respect to
Lease Contracts identified on the Lease Schedule on the Closing Date, and as of
the Subsequent Transfer Date with respect to Subsequent Lease Contracts:
(i) The information set forth in the Lease Schedule is true
and correct as of the related Cut-Off Date.
(ii) The Lease Contract is pursuant to its terms an absolute
and unconditional obligation of the Customer, non-cancelable and
non-prepayable prior to the expiration of the initial term of such
Lease Contract; except as set forth in the Disclosure Schedule, such
Lease Contract does not provide for the substitution, exchange or
addition of any other items of Equipment pursuant to such Lease
Contract; and the rights with respect to such Lease Contract are
assignable by the lessor thereunder without the consent of any Person.
Such Lease Contract is net to the lessor of any maintenance, taxes,
insurance or other expenses and contains provisions requiring the
Customer to assume all risk of loss or malfunction of the related
Equipment.
<PAGE>
(iii) The Contributor has heretofore provided to the Trustee
the sole original counterpart of the Lease Contract, as amended, that
constitutes "chattel paper" for purposes of Sections 9-105(1)(b), 9-305
and 9-308 of the UCC and the terms of such Lease Contract has not been
amended, waived or modified subsequent to the above being provided to
the Trustee, and if another original counterpart of such Lease Contract
should subsequently come into the possession of the Contributor, it
will also be so provided to the Trustee.
(iv) There is only one original executed counterpart of the
Lease Contract that constitutes "chattel paper" for purposes of section
9-105(l)(b) and 9-308 of the UCC, and the Electronic Ledgers have been
marked as provided in Section 2.04(b) hereof.
(v) The Lease Contract was not originated in, nor is it
subject to the laws of, any jurisdiction, the laws of which would make
unlawful the sale, transfer or assignment of such document under any of
the Transaction Documents, including any repurchase in accordance with
the Transaction Documents.
(vi) The Lease Contract is in full force and effect in
accordance with its respective terms and neither the Contributor nor
any Customer has or will have suspended or reduced any payments or
obligations due or to become due thereunder by reason of a default by
the other party to such Lease Contract; as of the related Cut-Off Date,
no scheduled payment with respect to such Lease Contract has not been
received and remains unpaid for a period of ninety (90) or more days as
of the Closing Date or the Subsequent Transfer Date, as the case may be
(without regard to advances, if any, made by the Servicer), and there
are no proceedings pending, or to the best of the Contributor's
knowledge, threatened asserting insolvency of such Customer; there has
been no other material default, breach or violation and no event
permitting acceleration under such Lease Contract; there are no
proceedings pending, or to the best of the Contributor's knowledge,
threatened, wherein such Customer or any governmental agency has
alleged that such Lease Contract is illegal or unenforceable; and none
of the related Scheduled Payments are subject to any set-off or credit
of any kind.
(vii) The Lease Contract is the valid, binding and legally
enforceable obligation of the parties thereto, enforceable in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a court of law or equity.
(viii) Within three Business Days of the Closing Date, all
actions, filings (including UCC filings) and recordings as are required
by the Indenture and that may be necessary to perfect a first priority
security interest of the Issuer and the Trustee in, or the contribution
by the Contributor to the Issuer of, the Lease Contract, the related
Lease Receivables and the related Equipment (except with respect to the
security interest in Equipment relating to Lease Contracts which had an
initial balance of less than $15,000) being acquired hereunder have
been accomplished and are in full force and effect.
(ix) The Lease Contract being acquired by the Issuer is
identical to one of the form lease contracts attached as Exhibit A
hereto, except for such immaterial modifications or deviations from the
form lease contract which appear in such Lease Contract or which may
appear in a future form Lease Contract of the Contributor, which
immaterial modifications or deviations will not have a material adverse
effect on the Holders of the Notes.
<PAGE>
(x) The Lease Contract was originated by the Contributor in
the Contributor's ordinary course of business and meets the
Contributor's credit rating system. The origination and collection
practices used by the Contributor and any third-party originator with
respect to such Lease Contract have been in all respects legal, proper,
prudent and customary in the equipment leasing and servicing business.
(xi) The Equipment related to the Lease Contract was properly
delivered to the Customer in good repair, without defects and in
satisfactory order and, to the best knowledge of the Contributor, is in
proper working order as of the related Cut-Off Date. The related
Customer has accepted the Equipment leased to it and, after reasonable
opportunity to inspect and test such Equipment, has not notified the
Contributor of any defects therein.
(xii) The Lease Receivable is under a Lease Contract that has
an original term to the last Scheduled Payment Date of not more than
eighty (80) months and not less than 1 month, and a Lease Contract may
have a remaining term of more than thirty-nine (39) months provided
that no more than 39 payments of such Lease Contract are Scheduled
Payments.
(xiii) The Lease Contract obligates the related Customer to
make all Scheduled Payments thereunder in full notwithstanding the
collection by the lessor of a security deposit with respect thereto.
The calculation of the Implicit Principal Balance of the related Lease
Receivable does not include any security deposits or advance payments
collected by or on behalf of the Lessor which are applied to Scheduled
Payments.
(xiv) The Customer does not lease such Equipment to a third
party.
(xv) All requirements of applicable federal, State and local
laws, and regulations thereunder, including, without limitation, usury
laws, if any, in respect of the Lease Contract have been complied with
in all material respects, and such Lease Contract complied in all
material respects at the time it was originated or made and now
complies in all material respects with all legal requirements of the
jurisdiction in which it was originated.
(xvi) With the sole exception of the Customer's right to quiet
enjoyment, each Lease Contract is not and will not be subject to any
right of rescission, set-off, counterclaim or defense, including the
defense of usury, whether arising out of transactions concerning such
Lease Contract or otherwise, and the operation of any of the terms of
such Lease Contract or the exercise by the Contributor or the Customer
of any right under such Lease Contract will not render such Lease
Contract unenforceable in whole or in part, and no such right of
rescission, set-off, counterclaim or defense, including a defense
arising out of a breach of the Customer's right of quiet enjoyment of
the related Equipment, has been asserted with respect thereto, except
that certain rights or defenses may exist under applicable law which,
individually or in the aggregate, do not make the remedies available to
the Contributor with respect to such Lease Contract inadequate for the
practical realization of the benefits provided thereby.
<PAGE>
(xvii) Each of the Contributor and any third-party originator
has duly fulfilled all obligations on the lessor's part to be fulfilled
under or in connection with the Lease Contract, including, without
limitation, giving any notices or consents necessary to effect the
acquisition of the Lease Assets by the Issuer and has done nothing to
impair the rights of the Issuer in such Lease Contract or payments with
respect thereto.
(xviii) The Lease Contract and the related Equipment have not
been sold, transferred, assigned or pledged by the Contributor to any
Person other than the Issuer (except for such interests in the Lease
Assets which shall be terminated on or prior to the Closing Date or the
Subsequent Transfer Date), and upon execution and delivery hereof by
the Contributor, the assumption by the Issuer of the related Existing
Indebtedness and the issuance of the Common Stock by the Issuer to the
Contributor, the Issuer will have all of the right, title and interest
in and to the Contributor's interest in such Lease Contract, the
related Lease Receivables and the related Equipment, free and clear of
all liens and encumbrances, except for the interests of the Customer
pursuant to such Lease Contract. Such Lease Contract has not been
satisfied, subordinated or rescinded.
(xix) The Lease Contract requires that the Customer maintain
the related Equipment in working condition, reasonable wear and tear
excepted, in accordance with the manufacturers' specifications and that
the Customer obtain and maintain physical damage insurance covering
such Equipment. Insurance coverage required to be maintained by the
Customer under such Lease Contract, if any, is of a type customary for
the equipment covered thereby and consistent with industry practice for
monitoring compliance thereof; such insurance coverage is in full force
and effect, provided, however, the Contributor may provide such
insurance coverage through its corporate blanket insurance policy,
which policy is in full force and effect. With respect to such a Lease
Contract, the Contributor has named the Issuer as a "loss payee" on
such blanket policy.
(xx) The Contributor has no specific knowledge that the Lease
Contract will not be fully performed in accordance with its terms.
(xxi) No lessee under the Lease Contract is the United States
of America or any state or local government thereof or any agency,
department or instrumentality of the United States of America or any
state or local government thereof.
(xxii) [Reserved].
(xxiii) The Equipment relating to the Lease Contract is not
the subject of any cross-collateralization or other security
arrangement unless all lease contracts applicable to such equipment are
Lease Contracts and all such collateral for such
cross-collateralization or other security arrangement has been pledged
by the Contributor to the Issuer pursuant to this Agreement.
(xxiv) The Customer has made the first payment (which payment
may be an advance payment under such Lease Contract) due under the
Lease Contract within the time set forth in such Lease Contract.
(xxv) The related Equipment and the related Customer are
located in the United States of America, and the related Scheduled
Payments are payable in U.S.
dollars.
(xxvi) The related Scheduled Payments were established at the
time such Lease Contract was originated.
(xxvii) No Customer is an individual person.
(xxviii) The related Equipment is located at the location
specified in such Lease Contract.
(xxix) To the best of the Contributor's knowledge, the
Customer has not subleased any of the related Equipment.
<PAGE>
(xxx) There are no unpaid brokerage or other fees owed to
third parties relating to the origination of the Lease Contract.
(b) As to the aggregate pool of Lease Contracts as of the Closing Date
and as of the Subsequent Transfer Date (including those Lease Contracts
contributed to the Issuer on such Subsequent Transfer Date):
(i) The Implicit Principal Balance of any Lease Receivable,
together with the Implicit Principal Balances of any Lease Receivables
relating to any Lease Contracts to the same Customer and its
Affiliates, shall not account for more than three percent (3%) of the
Aggregate Implicit Principal Balance.
(ii) The Contributor used no selection procedures that
identified the Lease Contracts as being less desirable or valuable than
other comparable equipment leases owned by the Contributor.
(c) As to the Contributor as of the Closing Date and the Subsequent
Transfer Date:
(i) The Contributor has been duly organized and is validly
existing and in good standing as a corporation under the laws of the
State of Minnesota with corporate power and authority to own its
properties and to transact the business in which it is now engaged, and
the Contributor is duly qualified to do business in and is in good
standing under the laws of each state in which any Equipment or any
Customer is located or is not required under applicable law to effect
such qualification, except where failure to so qualify would not have a
material adverse effect on the ability of the Contributor to perform
its obligations under the Transaction Documents or on any of the Lease
Contracts, the Lease Receivables or the Equipment or on the ability of
the Contributor, the Issuer or the Trustee to realize upon or enforce
the same.
(ii) The performance of the obligations of the Contributor
under this Agreement and the other Transaction Documents and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in any breach of any of the terms or
provisions of, or constitute with or without notice, lapse of time or
both, a default under the Articles of Incorporation or Bylaws of the
Contributor, or any material indenture, agreement, mortgage, deed of
trust or other instrument to which the Contributor is a party or by
which it is bound, or result in the creation or imposition of any lien,
charge or encumbrance (except the lien created by the Transaction
Documents) upon any of the property or assets of the Contributor
pursuant to the terms of such indenture, mortgage, deed of trust, or
other agreement or instrument to which the Contributor is a party or by
which the Contributor is bound or to which any of the Contributor's
property or assets is subject, nor will such action result in any
violation of the provisions of the Contributor's Articles of
Incorporation or Bylaws or any statute or any order, rule or regulation
of any court or any regulatory authority or other governmental agency
or body having jurisdiction over the Contributor or any of its
properties; and no consent, approval, authorization, order,
registration or qualification of or with or other action of any court,
regulatory authority or other governmental agency or body is required
for consummation of the transactions contemplated by this Agreement and
the other Transaction Documents except such consents, approvals and
authorizations which have been obtained or such registrations or
qualifications which have been made.
(iii) This Agreement and any other Transaction Document to
which the Contributor is a party have been duly authorized, executed
and delivered by the Contributor by all necessary corporate action and
such agreements are the valid and legally binding obligations of the
Contributor, enforceable against the Contributor in accordance with
their respective terms, subject as to enforcement to applicable
bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a court of law or equity.
<PAGE>
(iv) The Contributor Address is the chief executive office,
principal place of business and the office where the Contributor keeps
its records concerning the Lease Contracts, Lease Receivables and the
related Equipment. Except as set forth in the Disclosure Schedule, the
Contributor has not used any address other than the Contributor Address
in the previous five-year period. The Contributor's legal name is as
set forth in this Agreement. Except as set forth in the Disclosure
Schedule, the Contributor has not used or done business under any other
name in the previous five-year period.
(v) The Contributor does not believe, nor does it have any
reasonable cause to believe, that it cannot perform each and every
covenant contained in this Agreement.
(vi) The transactions contemplated by the Transaction
Documents are being consummated by the Contributor in furtherance of
its ordinary business purposes, with no contemplation of insolvency and
with no intent to hinder, delay or defraud any of its present or future
creditors.
(vii) The consideration received by the Contributor pursuant
to this Agreement is fair consideration having value reasonably
equivalent to or in excess of the value of the performance of the
Contributor's obligations hereunder.
(viii) Neither on the date of the transactions contemplated by
the Transaction Documents or immediately before or after such
transactions, nor as a result of the transactions, will the
Contributor:
(A) be insolvent such that the sum of its debts is
greater than all of its respective property, at a fair
valuation;
(B) be engaged in, or about to engage in, business or
a transaction for which any property remaining with the
Contributor will be an unreasonably small capital or the
remaining assets of the Contributor will be unreasonably small
in relation to its respective business or the transaction; and
(C) have intended to incur, or believed it would
incur, debts that would be beyond its respective ability to
pay as such debts mature or become due. The Contributor's
assets and cash flow enable it to meet its present obligations
in the ordinary course of business as they become due.
(ix) Both immediately before and after the transactions
contemplated by the Transaction Documents (a) the present fair salable
value of the Contributor's assets was or will be in excess of the
amount that will be required to pay its probable liabilities as they
then exist and as they become absolute and matured; and (b) the sum of
the Contributor's assets was or will be greater than the sum of its
debts, valuing its assets at a fair salable value.
(x) The acquisition of the Lease Assets by the Issuer pursuant
to this Agreement is not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction.
(xi) Except as set forth in the Disclosure Schedule, there are
no proceedings or investigations pending or, to the knowledge of the
Contributor, threatened against or affecting the Contributor in or
before any court, governmental authority or agency or arbitration board
or tribunal (including, but not limited to, any such proceeding or
investigation with respect to any environmental or other liability
resulting from the ownership or use of any of the related Equipment)
which, individually or in the aggregate, involve the possibility of
materially and adversely affecting the properties, business, prospects,
profits or condition (financial or otherwise) of the Contributor, or
the ability of the Contributor to perform its obligations under this
Agreement or the other Transaction Documents. The Contributor is not in
default with respect to any order of any court, governmental authority
or agency or arbitration board or tribunal.
<PAGE>
(xii) All tax returns or extensions required to be filed by
the Contributor in any jurisdiction have in fact been filed, and all
taxes, assessments, fees and other governmental charges upon the
Contributor, or upon any of the respective properties, income or
franchises shown to be due and payable on such returns have been, or
will be, paid. All such tax returns are true and correct and the
Contributor has no knowledge of any proposed additional tax assessment
against it in any material amount nor of any basis therefor. The
provisions for taxes on the books of the Contributor are in accordance
with generally accepted accounting principles.
(xiii) The Contributor (a) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject,
(b) has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property
or to the conduct of its business, and (c) except as set forth in the
Disclosure Schedule is not in violation in any material respect of any
term of any agreement, charter instrument, bylaw or instrument to which
it is a party or by which it may be bound, which violation or failure
to obtain as set forth in items (a)-(c) might materially adversely
affect the business or condition (financial or otherwise) of the
Contributor.
(xiv) The Contributor and the Issuer are members of an
affiliated group, within the meaning of Section 1504 of the Code, which
has filed and will continue to file a consolidated federal income tax
return until termination of the Transaction Documents, and the
Contributor and the Issuer shall each pay their pro rata share of all
taxes shown thereon.
(xv) It is the intention of the Contributor that the Lease
Assets are being or have been acquired by the Issuer and that the
beneficial interest in and title to the Lease Assets are not part of
the Contributor's estate in the event of the filing of a bankruptcy
petition by or against the Contributor under any bankruptcy law.
(xvi) Immediately prior to the acquisition of the Lease Assets
by the Issuer pursuant to this Agreement, the Contributor was the sole
owner of such Lease Assets at such time and had good and marketable
title thereto, free and clear of all liens, claims and encumbrances
(except for the Lease Acquisition Consideration and security interests
in the Lease Assets which shall be terminated on or prior to the
Closing Date or the Subsequent Transfer Date, as the case may be); and
the acquisition of the Lease Assets by the Issuer does not violate the
terms or provisions of any Lease Contract or applicable Vendor
Agreement.
(xvii) Upon the issuance of the Common Stock to the
Contributor in accordance with the terms of this Agreement, the
Contributor will be the registered owner of all of the issued and
outstanding common stock of the Issuer, all of which Common Stock will
be validly issued, fully paid and nonassessable and owned of record,
free and clear of all mortgages, assignments, pledges, security
interests, warrants, options and rights to purchase.
(xviii) The Contributor will treat the transfer of the Lease
Assets as a contribution to the Issuer for federal, State and local
income tax reporting and accounting purposes.
(xix) The transfer of the Lease Assets pursuant to this
Agreement constitutes the valid transfer by the Contributor to the
Issuer of all of the Contributor's right, title and interest in the
Lease Assets.
(xx) The Contributor has valid business reasons for
contributing the Lease Assets to the Issuer pursuant to this Agreement
rather than obtaining a Loan secured by the Lease Assets.
<PAGE>
(xxi) The Contributor will be operated generally so as to not
be substantively consolidated with the Issuer.
(xxii) No event has occurred that adversely affects the
Contributor's ability to perform the transactions contemplated by the
Transaction Documents.
(xxiii) Each pension plan or profit sharing plan to which the
Contributor is a party has been fully funded in accordance with the
obligations of the Contributor as set forth in such plan.
Section 3.02. Representations and Warranties of the Issuer. The Issuer
hereby makes the following representations and warranties for the benefit of the
Trustee and Holders of the Notes, on which the Contributor relies in entering
into this Agreement with the Issuer and on which the Holders of the Notes rely
in purchasing the Notes; such representations and warranties speak as of the
Closing Date and the Subsequent Transfer Date unless otherwise indicated, but
shall survive any subsequent transfer, assignment, contribution or conveyance of
the Lease Assets or any part thereof:
(a) The Issuer has been duly organized and is validly existing
in good standing as a corporation under the laws of the State of
Minnesota, with corporate power and authority to own its properties,
perform its obligations under the Transaction Documents and to transact
the business in which it is now engaged or in which it proposes to
engage; the Issuer is duly qualified to do business and is in good
standing in each state in which the nature of its business requires it
to be so qualified, except where failure to so qualify would not have a
material adverse effect on the ability of the Issuer to perform its
obligations under the Transaction Documents.
(b) The transfer to and receipt by the Issuer of the
Contributor's interest in the Lease Contracts, the Lease Receivables
and the related Equipment pursuant to this Agreement and the
consummation of the transactions contemplated herein and in the
Transaction Documents will not conflict with or result in breach of any
of the terms or provisions of, or constitute (with or without notice,
lapse of time or both) a default under the Articles of Incorporation or
Bylaws of the Issuer or any material indenture, agreement, mortgage,
deed of trust or other instrument to which the Issuer is a party or by
which it is bound, or result in the creation or imposition of any lien,
charge or encumbrance (except for the lien created by the Indenture)
upon any of the property or assets of the Issuer pursuant to the terms
of, such indenture, mortgage, deed of trust, or other agreement or
instrument to which the Issuer is a party or by which it is bound or to
which any of the property or assets of the Issuer is subject, nor will
such action result in any violation of the provisions of the Articles
of Incorporation or Bylaws of the Issuer or any statute or any order,
rule or regulation of any court or regulatory authority or other
governmental agency or body having jurisdiction over the Issuer or any
of its properties; and no consent, approval, authorization, order,
registration or qualification of or with or other action of any court,
regulatory authority or other governmental agency or body is required
for the acquisition of the Lease Assets hereunder.
(c) The Transaction Documents to which the Issuer is a party
have been duly authorized, executed and delivered by the Issuer by all
necessary corporate action and constitute valid and legally binding
obligations of the Issuer enforceable against the Issuer in accordance
with their terms, subject as to enforcement to bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating
to or affecting creditors' rights generally and to general principles
of equity regardless of whether enforcement is sought in a court of
equity or law.
(d) There are no proceedings or investigations to which the
Issuer is a party pending or, to the knowledge of the Issuer,
threatened, before any court, regulatory body, administrative agency or
other tribunal or governmental instrumentality (a) asserting the
invalidity of this Agreement, (b) seeking to prevent the issuance of
the Notes or the consummation of any of the transactions contemplated
by this Agreement, or (c) seeking any determination or ruling that
would materially and adversely affect the performance by the Issuer of
its obligations under, or the validity or enforceability of, this
Agreement.
<PAGE>
(e) All approvals, authorizations, consents, orders or other
actions of any Person or of any court, governmental agency or body or
official, required in connection with the execution and delivery of
this Agreement, have been or will be taken or obtained on or prior to
the Closing Date.
(f) The Issuer Address is the principal place of business and
chief executive office of the Issuer.
Section 3.03. Purchase or Substitution Required upon Breach of Certain
Representations and Warranties. Upon discovery by the Contributor or the Issuer
of the breach of any representations or warranties set forth in Section 3.01 or
3.02 hereof which materially and adversely affects the value of a Lease
Contract, Lease Receivable, the related Equipment, or the interests of the
Holders of the Notes, or a breach of any of the representations and warranties
set forth in Sections 3.01(a)(ii), 3.01(a)(v), 3.01(a)(vii) or 3.01(a)(xviii)
hereof, the party discovering such breach shall give prompt written notice to
the other party. The Contributor shall, within thirty (30) days from the date
the Contributor was notified of, or otherwise discovers, such breach, cure such
breach, or, (1) if the breach relates to a particular Lease Contract and is not
cured, either (a) purchase the Issuer's interest in such Lease Contract and the
related Lease Receivable from the Issuer at the Purchase Price or (b) provide a
Substitute Lease Contract or (2) if the breach relates to a representation or
warranty set forth in Section 3.01(b) as a whole and is not cured by the
Contributor, either (a) purchase the Issuer's interest in such non-conforming
Lease Contracts and the related Lease Receivables from the Issuer or (b) provide
Substitute Lease Contracts as set forth above, so that the representations and
warranties with respect to the selection criteria are correct, as evidenced by a
certificate of an officer of the Contributor to the Trustee. The Purchase Price
for a purchased Lease Contract shall be paid, and any Substitute Lease Contract
shall be delivered, by the Contributor to the Issuer in accordance with Section
3.04(c) hereof. It is understood and agreed that the obligation of the
Contributor to cure or purchase or replace any Lease Contract as to which such a
breach has occurred shall constitute the sole remedy respecting such breach
available to the Issuer, the Holders of Notes or the Trustee on behalf of such
Holders (except for any indemnities provided under Section 4.01(j) hereof or
under the Indenture) for any losses, claims, damages and liabilities arising
from the Issuer's interest in such Lease Contract or the inclusion of the
Issuer's interest in such Lease Contract in the Trust Estate.
Section 3.04. Requirements for Purchase or Substitution of Lease
Contracts. (a) If the Contributor is required to purchase the Issuer's interest
in any Lease Contract and the related Lease Receivables under Section 3.03
hereof or if the Issuer is required or elects to purchase the Trustee's interest
in any Lease Contract and the related Lease Receivables under Section 3.10 of
the Servicing Agreement, such Lease Contract and related Lease Receivables shall
be purchased by the Contributor at the Purchase Price. All purchases shall be
accomplished at the times specified in subsection (c) below.
(b) If the Contributor is required to substitute any Lease Contract
under Section 3.03 hereof, or if the Issuer is required or elects to substitute
the Issuer's interest in any Lease Contract and the related Lease Receivable
under Section 3.10 of the Servicing Agreement (a "Substitute Lease Contract"),
each such Substitute Lease Contract shall (i) be an Eligible Lease Contract;
(ii) be with respect to types of Equipment represented in the pool of Lease
Contracts delivered on the date the Substitute Lease Contract is conveyed to the
Issuer, and have Customers in the industries represented in the pool of Lease
Contracts on such date; (iii) be with a Customer whose credit is equal to or
better than that of the Customer under the withdrawn Lease Contract; (iv) be
written on one of the standard lease forms attached as Exhibit A to this
Agreement; (v) be accompanied by (A) a supplement to this Agreement
substantially in the form of Annex A hereto subjecting such Lease Contract to
the provisions hereof and providing with respect to such Substitute Lease
Contract the information required in the Lease Schedule and (B) evidence of the
UCC filings required as set forth in the Indenture; and (vi) not have been
selected using procedures that identified the Lease Contracts as being less
desirable or valuable than other comparable equipment leases owned by the
Contributor. In addition, (i) such Substitute Lease Contracts shall have an
Implicit Principal Balance calculated as of the date of substitution at least
equal to the Implicit Principal Balance of the Lease Contracts being withdrawn
(the "Substitution Criterion") and (ii) the representations and warranties set
forth in Sections 3.01 and 3.02 shall be true and correct with respect to such
Substitute Lease Contract and the aggregate pool of Lease Contracts as of the
date such Substitute Lease Contract is conveyed to the Issuer.
<PAGE>
A Substitute Lease Contract may have scheduled payments that are due
after the last day of the month preceding the Stated Maturity of the Notes, but
such payments shall not be counted in any Implicit Principal Balance
computation. Upon a substitution as described in this Section 3.04(b), the
Contributor shall also pay any past due lease payments not received through the
Calculation Date preceding the date on which the substitution occurs. Upon the
substitution of any Substitute Lease Contract pursuant to the provisions of this
Section 3.04(b), the Contributor hereby agrees that such Substitute Lease
Contract will be subject to all the terms and provisions of this Agreement, the
Servicing Agreement and the Indenture just as if such Substitute Lease Contract
had been one of the original Lease Contracts acquired on the Closing Date. Upon
the substitution of a Substitute Lease Contract pursuant to this Section
3.04(b), the Issuer and the Contributor shall also comply with the provisions
and limitations set forth in the Indenture. All substitutions shall be
accomplished at the time specified in subsection (c) below.
(c) Any purchase or substitution of a Lease Contract by the Contributor
in accordance with Section 3.03 hereof or this Section 3.04 or by the Issuer
under Section 3.10 of the Servicing Agreement shall be made either by remittance
of the Purchase Price to the Servicer for deposit into the Collection Account in
accordance with Section 3.03(a) of the Servicing Agreement or by substitution of
a Substitute Lease Contract, as applicable, within one Business Day following
the expiration of the cure period set forth in Section 3.03 hereof.
(d) Any voluntary purchase or substitution of a Lease Contract by the
Issuer pursuant to the terms of the Servicing Agreement or Indenture in the
event of a default, delinquency or modification with respect to such Lease
Contract shall satisfy the same requirements for a purchase or substitution, as
the case may be, as are set forth in this Section 3.04.
Article 4
Covenants
Section 4.01. Contributor Covenants. The Contributor hereby covenants
and agrees with the Issuer as follows:
(a) Except as hereinafter provided, the Contributor will keep in full
effect its existence, rights and franchises as a corporation, 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 this Agreement or any of the Lease Contracts and
to perform its duties hereunder. Any person into which the Contributor may be
merged or consolidated, or to whom the Contributor has sold substantially all of
its assets, or any corporation resulting from any merger, conversion or
consolidation to which the Contributor shall be a party, or any Person
succeeding to the business of the Contributor shall be the successor of the
Contributor hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, however, that (v) the Contributor shall have
obtained the prior written consent of the Holders of at least a majority in
principal amount of the Notes, (w) immediately after giving effect to such
transaction, no representation or warranty made pursuant to Section 3.01(c)
hereof shall have been breached, (x) such successor executes an agreement of
assumption, in form reasonably satisfactory to the Trustee, to perform every
obligation under this Agreement, (y) the Contributor shall have delivered to the
Issuer a certificate of an officer of the Contributor and an Opinion of Counsel
each stating that such consolidation, merger, or succession and such agreement
of assumption complies with this Section 4.01 and that all conditions precedent,
if any, provided for in this Agreement relating to such transaction have been
complied with, and (z) the Contributor shall have delivered to the Issuer an
Opinion of Counsel either (1) 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 Issuer in the Lease Contracts and reciting the details of such
filings, or (2) stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interest.
(b) Neither the Contributor nor any of the directors, officers,
employees or agents of the Contributor shall be under any liability to the
Issuer, the Trustee or the Holders of Notes for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment not involving recklessness or gross
negligence; provided, however, that this provision shall not protect the
Contributor against any breach of warranties or representations made herein, or
failure to perform its obligations in strict compliance with this Agreement, or
any liability which would otherwise be imposed by reason of any breach of the
terms and conditions of this Agreement. The Contributor, and any director,
officer, employee or agent of the Contributor, may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Contributor shall not be under any
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its obligations as the contributor of the Lease Assets under this
Agreement and that in its opinion may involve it in any expense or liability.
(c) The Contributor will from time to time, at its own expense, execute
and file such additional financing statements (including continuation
statements) as may be necessary to preserve the security interests and liens
described in Section 3.01(a)(viii) hereof and are reasonably satisfactory in
form and substance to the Issuer.
<PAGE>
(d) The Contributor will not change its name, identity or corporate
structure in any manner that would, could, or might make any financing statement
or continuation statement misleading within the meaning of section 9-402(7) of
the UCC, unless it shall have given the Issuer and the Trustee at least thirty
(30) days' prior written notice thereof.
(e) The Contributor will give the Issuer and the Trustee at least
thirty (30) 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
financing or continuation statement or of any new financing statement.
(f) The Contributor will duly fulfill all obligations on its part to be
fulfilled under or in connection with each Lease Contract, will not change or
modify the terms of the Lease Contracts except as expressly permitted by the
terms of the Transaction Documents and will do nothing to impair the rights of
the Issuer or the Trustee in the Lease Assets. In the event that the rights of
the Contributor under any Lease Contract, any guaranty of the related Customer's
obligations under any Lease Contract, or any Insurance Policy are not assignable
to the Issuer, the Contributor will enforce such rights on behalf of the Issuer.
(g) The Contributor will comply, in all material respects, with all
material acts, rules, regulations, orders, decrees and directions of any
governmental authority applicable to the Lease Assets or any part thereof;
provided, however, that the Contributor may contest any act, regulation, order,
decree or direction in any reasonable manner which shall not materially and
adversely affect the rights of the Issuer or the Trustee in the Lease Assets.
(h) The Contributor will advise the Issuer and the Trustee promptly, in
reasonable detail, of the occurrence of any breach by the Contributor following
discovery by the Contributor of such breach of any of its representations,
warranties and covenants contained herein.
(i) The Contributor will execute or endorse, acknowledge, and deliver
to the Issuer and the Trustee from time to time such schedules, confirmatory
assignments, conveyances, and other reassurances or instruments and take such
further similar actions relating to the Lease Assets, and the rights covered by
the Transaction Documents, as the Issuer or the Trustee may reasonably request
to preserve and maintain title to the Lease Assets and the rights of the Trustee
and the Holders of Notes therein against the claims of all persons and parties.
(j) The Contributor agrees to indemnify, defend and hold the Issuer
harmless from and against any and all loss, liability, damage, judgment, claim,
deficiency or expense (including interest, penalties, reasonable attorney's fees
and amounts paid in settlement) that is caused by (i) a material breach at any
time by the Contributor of its representations, warranties and covenants
contained in Section 3.01 hereof or this
Section 4.01 or (ii) any material information furnished by the
Contributor which is set forth in any schedule delivered hereunder, being untrue
in any material respect when any such representation was made or schedule
delivered, provided that the Contributor shall not have any liability with
respect to a representation or warranty as to any specific Lease Contract, Lease
Receivable or related Equipment other than to purchase such Lease Contract or
substitute for such Lease Contract in accordance with Section 3.03 hereof unless
such breach of representation or warranty is the result of the Contributor's
fraud, gross negligence, bad faith or willful misconduct. The Contributor shall
also indemnify the Trustee and the Servicer for any cost or expenses incurred by
them in the enforcement of this Agreement. The obligations of the Contributor
under this Section 4.01(j) shall be considered to have been relied upon by the
Issuer and shall survive the execution, delivery and performance of this
Agreement, regardless of any investigation made by or on behalf of the Issuer,
until termination of the Indenture. If the Contributor has made any indemnity
payments pursuant to this Section 4.01(j) and thereafter the recipient collects
any of such amounts from others, such party will promptly repay the amount
collected to the Contributor, without interest.
<PAGE>
(k) The Contributor will do nothing to disturb or impair the
acquisition hereunder by the Issuer of all of the Contributor's right, title and
interest in the Lease Assets.
(l) The Contributor (i) will (A) maintain its books and records
separate from the books and records of the Issuer and (B) maintain bank accounts
separate from those of the Issuer and (ii) will not (x) take any action that
would cause the dissolution or liquidation of the Issuer, (y) guarantee
(directly or indirectly), endorse or otherwise become contingently liable
(directly or indirectly) for the obligations of the Issuer or (iii) institute
against the Issuer, or join any other person in instituting against the Issuer,
any case, proceeding or other action under any existing or future bankruptcy,
insolvency or similar laws. This subsection (1) shall survive termination of
this Agreement.
(m) The Contributor shall notify the Issuer and the Trustee promptly
after becoming aware of any Lien on any Lease Asset.
(n) On each date as of which the Contributor substitutes a Substitute
Lease Contract in accordance with Section 3.03 hereof, the Contributor shall
provide to the Issuer a supplement to this Agreement substantially in the form
of Annex A hereto subjecting such Lease Contract to the provisions hereof and
providing with respect to such Substitute Lease Contract the information
required in the Lease Schedule.
(o) The annual financial statements of the Contributor will disclose
the effects of the transactions contemplated by the Transaction Documents in
accordance with generally accepted accounting principles. The financial
statements of the Contributor and the Issuer will also disclose that the assets
of the Issuer are not available to pay creditors of the Contributor. The
resolutions, agreements and other instruments underlying the Transaction
Documents will be continuously maintained by the Contributor as official
records.
(p) The affiliated group of which the Contributor is a member within
the meaning of Section 1504 of the Code shall treat the Lease Assets as owned by
the Issuer for federal, State and local income tax purposes and shall include in
the computation of the Issuer's gross income for such purposes any of the
Issuer's income from the Lease Assets.
(q) The Contributor will, at its own cost and expense, (i) retain the
Electronic Ledger as a master record of the Lease Contracts, Lease Receivables
and related Equipment and copies of all documents relating to each Lease
Contract (other than the original executed Lease Contracts) as custodian for the
Issuer and other Persons, if any, with interests in the Lease Contracts, Lease
Receivables and related Equipment and (ii) mark the Lease Contracts, Lease
Receivables and the Electronic Ledger to the effect that the Lease Contracts,
Lease Receivables and the related Equipment have been acquired by the Issuer and
that such Lease Contracts, Lease Receivables and the related Equipment have been
pledged, transferred and assigned to the Trustee by the Issuer pursuant to the
Indenture.
<PAGE>
(r) The Contributor will perform the transactions contemplated by this
Agreement in a manner that is consistent with the Issuer's ownership interest in
the Lease Assets. The Contributor will respond to all third party inquiries
confirming the transfer of the Lease Assets to the Issuer.
(s) The Contributor shall immediately transfer to the Trustee for
deposit in the Collection Account any payment it receives relating to the Lease
Assets.
(t) If the Contributor shall, after the Closing Date, own or service a
lease that is cross-collateralized with a Lease Contract, and the Contributor
forecloses on the collateral relating to such lease, the Contributor shall
repurchase such Lease Contract as if one of the representations and warranties
set forth in Section 3.01 had been breached.
(u) The Contributor will not sell or otherwise transfer the stock of
the Issuer to any other Person, nor will it merge or consolidate with the Issuer
or allow the Issuer to be merged into or consolidated with any Person without
the consent of the holders of a majority in principal amount of the Notes
Outstanding.
Section 4.02. Issuer Covenants. The Issuer hereby covenants and agrees
with the Contributor as follows:
(a) The Issuer hereby acknowledges and agrees that its rights in the
related Equipment are expressly subject to the rights of the related Customers
in such Equipment pursuant to the applicable Lease Contract. The Issuer
covenants and agrees that, so long as a Customer shall not be in default of any
of the provisions of the applicable Lease Contract, neither the Issuer nor any
assignee of the Issuer will disturb the Customer's quiet and peaceful possession
of the related Equipment and the Customer's unrestricted use thereof for its
intended purpose.
(b) On each date as of which any interest in the Lease Contracts are to
be purchased or replaced by the Contributor pursuant to Section 3.03 hereof, the
Issuer shall submit to the Contributor an instrument of assignment assigning the
Issuer's interest in such Lease Contract, Lease Receivable and the related
Equipment to the Contributor, signed by the president, senior vice president or
any vice president of the Issuer. Each such assignment shall operate as an
assignment, without recourse, representation, or warranty, to the Contributor of
all of the Issuer's right, title, and interest in and to such Lease Contract,
Lease Receivable, related Equipment and any security documents relating thereto,
such assignment being an assignment outright and not for security, and upon
payment of the Purchase Price or delivery of a Substitute Lease Contract, the
Contributor will thereupon own such interest in the Lease Contract, Lease
Receivable and all such security and documents, free of any further obligation
to the Issuer with respect thereto. If in any enforcement suit or legal
proceeding it is held that the Contributor may not enforce a Lease Contract on
the ground that it is not a real party in interest or holder entitled to enforce
the Lease Contract, the Issuer shall, at the Issuer's expense, take such steps
as the Issuer deems necessary to enforce the Contract, including bringing suit
in the Issuer's name.
<PAGE>
(c) The Issuer warrants that, except as contemplated by the Transaction
Documents, it will have ownership of the Equipment and that it will warrant and
defend title to the Equipment against all Persons, claims and demands
whatsoever. The Issuer shall not assign, sell, pledge, or exchange, or in any
way encumber or otherwise dispose of the Equipment, except as contemplated by or
permitted under the Transaction Documents.
Section 4.03. Assignment of Lease Assets. The Contributor understands
that the Issuer will assign to and grant to the Trustee a security interest in
the Lease Assets. The Contributor consents to such assignments and grants and
further agrees that all representations, warranties, covenants and agreements
the Contributor made herein shall also be for the benefit of and inure to the
Issuer, the Trustee and all Holders from time to time of the Notes.
Article 5
Conditions Precedent
Section 5.01. Conditions to the Issuer's Obligations. The obligations
of the Issuer to execute and deliver the Lease Asset Assignment to the
Contributor on the Closing Date pursuant to, and perform its obligations
pursuant to, this Agreement shall be subject to the satisfaction of the
following conditions:
(a) All representations and warranties of the Contributor contained in
Sections 3.01(b) and 3.01(c) hereof and all information provided in the Lease
Schedule shall be true and correct on the Closing Date, with the same effect as
though such representations and warranties had been made on such date, and the
Contributor shall have delivered to the Issuer, the Trustee and each original
purchaser of Notes an Officer's Certificate to such effect;
(b) All representations and warranties of the Contributor contained in
Section 3.01(a) hereof shall be true and correct on the Closing Date with
respect to the Lease Contracts listed on the Lease Schedule, with the same
effect as though such representations and warranties had been made on such date,
and the Contributor shall have delivered to the Issuer, the Trustee and each
original purchaser of Notes an Officer's Certificate to such effect;
(c) The Contributor shall have delivered all other information
theretofore required or reasonably requested by the Issuer to be delivered by
the Contributor hereunder, duly certified by an officer of the Contributor, and
the Contributor shall have substantially performed all other obligations
required to be performed as of the Closing Date by the provisions of this
Agreement;
(d) On or prior to the Closing Date, the Contributor shall have
delivered the Lease Contracts identified in the Lease Schedule to the Trustee
and, subject to Section 2.04 hereof, there shall have been made all filings,
recordings and/or registrations, and there shall have been given, or taken, any
notice or any other similar action, as may be necessary in the opinion of the
Issuer, in order to establish and preserve the right, title and interest of the
Issuer in such Lease Contracts and the other Lease Assets;
(e) On or before the Closing Date, the Issuer, the Servicer and the
Trustee shall have entered into the Servicing Agreement;
(f) The Notes shall be issued and sold on the Closing Date, and the
Issuer shall receive the full consideration due it upon the issuance of the
Notes, the Issuer shall have applied such consideration, to the extent
necessary, to pay the related Existing Indebtedness; and
<PAGE>
(g) The Contributor shall have executed and delivered the Lease Asset
Assignment.
Section 5.02. Conditions to the Contributor's Obligations. The
obligations of the Contributor to execute and deliver to the Issuer the Lease
Asset Assignment, and perform it obligations pursuant to, this Agreement on the
Closing Date shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Issuer contained in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) The Issuer shall have executed and delivered the Lease Asset
Assignment; and
(c) 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 Contributor, and the Contributor shall
have received from the Issuer copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Contributor may reasonably have requested.
Section 5.03. Issuer's Conditions to any Subsequent Transfer. If the
Issuer elects to execute and deliver the Subsequent Lease Asset Assignment to
the Contributor on the Subsequent Transfer Date, such election shall be subject
to the satisfaction of the following conditions:
(a) The Contributor shall have provided the Trustee, the Issuer, the
Placement Agent and the Servicer with prior written notice of the conveyance of
Subsequent Lease Contracts, the related Subsequent Lease Receivables and the
related Equipment and shall have provided any information reasonably requested
by any of the foregoing with respect to such Subsequent Lease Contract, such
Subsequent Lease Receivables and such Equipment;
(b) The Funding Period shall not have terminated;
(c) All representations and warranties of the Contributor contained in
Sections 3.01(b) and 3.01(c) hereof and all information provided in the Lease
Schedule shall be true and correct on such Subsequent Transfer Date, with the
same effect as though such representations and warranties had been made on such
date, and the Contributor shall have delivered to the Issuer, the Trustee and
each Holder of Notes an Officer's Certificate to such effect;
(d) All representations and warranties of the Contributor contained in
Section 3.01(a) hereof shall be true and correct on such Subsequent Transfer
Date with respect to the Subsequent Lease Contracts listed on the related Lease
Contract Schedule, with the same effect as though such representations and
warranties had been made on such date, and the Contributor shall have delivered
to the Issuer, the Trustee and each Holder of Notes an Officer's Certificate to
such effect;
<PAGE>
(e) The Contributor shall have delivered all other information
theretofore required or reasonably requested by the Issuer to be delivered by
the Contributor hereunder, duly certified by an officer of the Contributor, and
the Contributor shall have substantially performed all other obligations
required to be performed as of such Subsequent Transfer Date by the provisions
of this Agreement;
(f) On or prior to such Subsequent Transfer Date, the Contributor shall
have delivered the Subsequent Lease Contracts identified in Schedule I to the
Subsequent Lease Asset Assignment to the Trustee and, subject to Section 2.04
hereof, there shall have been made all filings, recordings and/or registrations,
and there shall have been given, or taken, any notice or any other similar
action as may be necessary in the opinion of the Issuer, in order to establish
and preserve the right, title and interest of the Issuer in such Subsequent
Lease Contracts and the other Lease Assets;
(g) The Issuer shall have caused the Trustee to pay, out of the
Pre-Funding Account, the amount set forth in Section 12.03(d) of the Indenture;
(h) The Contributor shall have executed and delivered the Subsequent
Lease Asset Assignment;
(i) There shall not be a continuing Event of Default, Servicer Event of
Default or a default under this Agreement.
Section 5.04. Contributor's Conditions to any Subsequent Transfer. If
the Contributor elects to execute and deliver to the Issuer the Subsequent Lease
Asset Assignment, such election shall be subject to the satisfaction of the
following conditions:
(a) All representations and warranties of the Issuer contained in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) The Issuer shall have executed and delivered the Subsequent Lease
Asset Assignment; and
<PAGE>
(c) 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 Contributor, and the Contributor shall
have received from the Issuer copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Contributor may reasonably have requested.
Article 6
Term and Termination
Section 6.01. Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until
the later of (i) payment with respect to the last Lease Asset or (ii)
termination of the Indenture.
Section 6.02. Default by the Contributor. If the Contributor shall be
in default under this Agreement and such default shall not have been cured for a
period of sixty (60) days, or if the Contributor shall become insolvent or make
an assignment for the benefit of its creditors or have a receiver appointed for
all or substantially all of its properties, or if any proceedings commenced, or
consented to, by the Contributor are not stayed or dismissed within ninety (90)
days after being commenced against the Contributor under any bankruptcy,
insolvency or other law for the relief of debtors, the Issuer shall have the
right, in addition to any other rights it may have under any applicable law, to
terminate this Agreement upon thirty (30) days' prior written notice to the
Contributor; provided that any termination of this Agreement shall not release
the Contributor from any obligation under this Agreement.
Article 7
Miscellaneous
Section 7.01. Amendments. This Agreement and the rights and obligations
of the parties hereunder may not be changed orally but only by an instrument in
writing signed by the party against which enforcement is sought. This Agreement
may be amended by the Issuer and the Contributor only with the prior written
consent of the Trustee.
Section 7.02. Governing Law. This Agreement shall be construed in
accordance with the internal laws of the State of Minnesota, without regard to
choice of law principles.
Section 7.03. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered personally, mailed by
registered or certified United States mail, postage prepaid, or sent via
overnight air courier or facsimile communication and addressed, in the case of
the Contributor, to the Contributor Address, and in the case of the Issuer, to
the Issuer Address. All notices and demands shall be deemed to have been given
either at the time of the delivery thereof to any officer of the Person entitled
to receive such notices and demands at the address of such Person for notices
hereunder, or on the third day after the mailing thereof to such address, as the
case may be. Any Person may change the address for notices hereunder by giving
notice of such change to the other Person.
Section 7.04. Separability Clause. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 7.05. Assignment. Except as provided in Section 4.01(a), this
Agreement may not be assigned or delegated by the Contributor without the prior
written consent of the Issuer and the Trustee and may not be assigned or
delegated by the Issuer without the prior written consent of the Contributor and
Trustee.
<PAGE>
Section 7.06. Further Assurances. Each of the Contributor and the
Issuer agrees to do such further acts and things and to execute and deliver to
the Trustee such additional assignments, agreements, powers and instruments as
are required by the Trustee to carry into effect the purposes of this Agreement
or to better assure and confirm unto the Trustee or the Holders of the Notes
their rights, powers or remedies hereunder. If any Customer shall be in default
under any Lease Contract, upon reasonable request from the Servicer, the
Contributor will take all reasonable steps to assist in enforcing such Lease
Contract and preserving and maintaining title to the Lease Assets and the rights
of the Trustee and the Holders of the Notes therein against the claims of all
persons and parties to the extent the Contributor is capable of performing such
requested steps and the Servicer reasonably determines that the assistance of
the Contributor is necessary to effect the intent and purposes hereof.
Section 7.07. No Waivers; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Issuer or the Contributor, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof
nor shall any single or partial exercise of any right, remedy, or privilege
hereunder preclude any other or further exercise hereof 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 7.08. Binding Effect; Third Party Beneficiaries. This Agreement
will inure to the benefit of and be binding upon the parties hereto, the Holders
of Outstanding Notes, and their respective successors and permitted assigns.
Section 7.09. Set-Off. (a) The Contributor hereby irrevocably and
unconditionally waives all right of set-off that it may have under contract
(including this Agreement), applicable law or otherwise with respect to any
funds or monies of the Issuer at any time held by or in the possession of the
Contributor.
(b) The Issuer shall have the right to set-off against the Contributor
any amounts to which the Contributor may be entitled and to apply such amounts
to any claims the Issuer may have against the Contributor from time to time
under this Agreement. Upon any such set-off the Issuer shall give notice of the
amount thereof and the reasons therefor.
Section 7.10. Counterparts. This Agreement may be executed in one or
more counterparts all of which together shall constitute one original document.
In WITNESS WHEREOF, the Contributor and the Issuer have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date and year first above written.
Sunrise Leasing Corporation,
Contributor
By /s/ Barry J. Schwach
Name: Barry J. Schwach
Title: Chief Financial Officer
Sunrise Funding Corporation I,
Issuer
By /s/ R. Bradley Pike
Name: R. Bradley Pike
Title: President
Servicing Agreement
among
SUNRISE FUNDING CORPORATION I
("Issuer")
and
SUNRISE LEASING CORPORATION
("Contributor" and "Servicer")
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee
("Trustee")
Dated as of November 1, 1996
<PAGE>
Table of Contents
Section Heading Page
Article 1 Definitions 1
Section 1.01. Defined Terms 1
Article 2 Servicer Representations, Warranties and
Covenants 3
Section 2.01. Representations and Warranties 3
Section 2.02. Covenants 5
Article 3 Administration and Servicing of Lease Contracts 5
Section 3.01. Responsibilities of Servicer 5
Section 3.02. Servicer Standard of Care 8
Section 3.03. Lockbox Account and Servicer Remittances 8
Section 3.04. Servicer Advances 9
Section 3.05. Financing Statements 9
Section 3.06. Maintenance of Insurance Policy; Insurance
Proceeds 10
Section 3.07. Personal Property and Sales Taxes 10
Section 3.08. No Offset 10
Section 3.09. Servicing Compensation 10
Section 3.10. Substitution or Purchase of Lease Contracts and
Lease Receivables 10
Section 3.11. Vendor Agreements 11
Article 4 Accountings, Statement and Reports 11
Section 4.01. Monthly Servicer's Reports 11
Section 4.02. Financial Statements; Certification as to
Compliance; Notice of Default 12
Section 4.03. Independent Accountants' Reports 13
Section 4.04. Access to Certain Documentation and
Information 14
Section 4.05. Trustee to Cooperate 15
Section 4.06. Oversight of Servicing 15
Article 5 The Servicer and the Issuer 16
Section 5.01. Servicer Indemnification 16
Section 5.02. Corporate Existence; Reorganizations 17
Section 5.03. Limitation on Liability of the Servicer and
Others 17
Section 5.04. The Servicer Not to Resign 17
Section 5.05. Issuer Indemnification 18
Article 6 Servicing Termination 18
Section 6.01. Servicer Events of Default 18
Section 6.02. Appointment of Successor Servicer 21
Section 6.03. Notification to Noteholders 22
Section 6.04. Waiver of Past Defaults 22
Section 6.05. Effects of Termination of Servicer 22
Section 6.06. No Effect on Other Parties 22
<PAGE>
Article 7 Miscellaneous Provisions 22
Section 7.01. Termination of the Servicing Agreement 23
Section 7.02. Amendments 23
Section 7.03. Governing Law 23
Section 7.04. Notices 24
Section 7.05. Severability of Provisions 24
Section 7.06. Binding Effect 25
Section 7.07. Article Headings and Captions 25
Section 7.08. Legal Holidays 25
Section 7.09. Assignment for Security for the Notes 25
Section 7.10. No Servicing Assignment 25
Section 7.11. Counterparts 25
Section 7.12. Trustee's Protections Under the Indenture 25
25
Signatures
26
Exhibit A - Form of Monthly Servicer's Report
<PAGE>
SERVICING AGREEMENT
This Servicing Agreement, dated as of November 1, 1996 (the "Agreement"),
is entered into by and among SUNRISE FUNDING CORPORATION I, a Minnesota
corporation (herein, together with its permitted successors and assigns, the
"Issuer"), SUNRISE LEASING CORPORATION, a Minnesota corporation (herein,
together with its permitted successors and assigns, in its capacity as
contributor, the "Contributor", and in its capacity as servicer, the
"Servicer"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as trustee
(herein, together with its permitted successors and assigns, the "Trustee"),
under the Indenture (defined below).
Preliminary Statement
The Issuer has entered into an Indenture, dated as of November 1, 1996
(as amended and supplemented from time to time, the "Indenture"), with the
Trustee and the Servicer, pursuant to which the Issuer intends to issue its
$20,000,000 Lease Receivables-Backed Notes (the "Notes").
The Issuer and the Contributor have entered into a Contribution
Agreement, dated as of November 1, 1996 (the "Contribution Agreement"),
providing for, among other things, the contribution by the Contributor to the
Issuer from time to time of all of its right, title and interest in and to
certain Lease Assets. The Issuer is and will be pledging the Lease Contracts,
the Lease Receivables, the related Equipment and such other rights as granted by
the Contributor to the Issuer to the Trustee as security for the Notes. As a
precondition to the effectiveness of the Contribution Agreement, the
Contribution Agreement requires that the Servicer, the Issuer and the Trustee
enter into this Agreement to provide for the servicing of the Lease Assets.
In order to further secure the Notes, the Issuer is granting to the
Trustee a security interest in, among other things, the Issuer's rights derived
under this Agreement and the Servicer agrees that all covenants and agreements
made by the Servicer herein with respect to the Lease Assets shall also be for
the benefit and security of the Trustee and all Holders from time to time of the
Notes. For its services under this Agreement, the Servicer will receive a
Servicer Fee as provided herein and in the Indenture.
Article 1
Definitions
Section 1.01. Defined Terms. Except as otherwise specified or as the
context may otherwise require, the following terms have the respective meanings
set forth below for all purposes of this Agreement, and the definitions of such
terms are equally applicable both to the singular and plural forms of such terms
and to the masculine, feminine and neuter genders of such terms. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
assigned to such terms in the Indenture.
"Contribution Agreement" shall mean the Contribution Agreement between
the Contributor and the Issuer dated of even date herewith, together with the
Lease Asset Assignment executed and delivered in connection therewith.
"Contributor" shall mean Sunrise Leasing Corporation, a Minnesota
Corporation.
"Independent Accountants" shall initially mean Arthur Andersen LLP;
provided, that such firm is independent with respect to the Servicer within the
meaning of the Securities Act of 1933, as amended.
"Issuer" shall mean Sunrise Funding Corporation I, a Minnesota
corporation.
"Lease Assets" shall have the meaning specified in the Contribution
Agreement.
"Lease Contract Files" shall have the meaning specified in the
Contribution Agreement.
"Lease Receivable" shall mean the meaning specified in the Contribution
Agreement.
"Liquidated Lease Receivable" shall mean a Lease Receivable that has
been liquidated pursuant to Section 3.01(b) hereof.
"Lock Box" shall have the meaning specified in Section 3.03 hereof.
"Lockbox Account" shall mean the account established by the Servicer
pursuant to Section 3.03 hereof, into which account shall be deposited payments
related to the Lease Receivables.
<PAGE>
"Lockbox Agreement" shall mean the agreement described in Section 3.03
hereof.
"Lockbox Bank" shall initially mean State Street Bank and Trust
Company, and thereafter any successor.
"Monthly Servicer's Report" shall mean the report prepared by the
Servicer pursuant to Section 4.01 hereof.
"Officer's Certificate" shall mean a certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President, a Vice President,
the Treasurer or the Secretary of the Servicer.
"Opinion of Counsel" shall mean a written opinion of counsel in a form
that is, and from counsel who is, reasonably acceptable to the person requesting
such opinion.
"Placement Agent" shall mean Dougherty Dawkins, Inc., and its
successors in interest.
"Reported Company" shall mean Sunrise Resources, Inc. and its
Affiliates on a consolidated basis; provided, however, if Sunrise Leasing
Corporation is no longer acting as Servicer, then "Reported Company" shall also
mean any successor Servicer appointed pursuant to this Agreement.
"Reported Company's Financial Statements" shall include the Reported
Company's audited consolidated balance sheet, income statement, statement of
cash flows, auditors opinion letter regarding audited financial statements and
all notes to the audited financial statements.
"Servicer" shall initially mean Sunrise Leasing Corporation, until a
successor Person shall have become the Servicer pursuant to the applicable
provisions of this Agreement, and thereafter "Servicer" shall mean such
successor Person.
"Servicer Advance" shall have the meaning set forth in Section 3.04
hereof.
"Servicer Default" shall mean any occurrence or circumstance which with
notice or the lapse of time or both would be a Servicer Event of Default under
this Agreement.
"Servicer Event of Default" shall mean each of the occurrences or
circumstances enumerated in Section 6.01 hereof.
"Servicer Termination Notice" means the notice described in Section
6.01 hereof.
"Servicing Officer" shall mean those officers of the Servicer involved
in, or responsible for, the administration and servicing of the Lease Assets, as
identified on the list of Servicing Officers furnished by the Servicer to the
Trustee and the Noteholders from time to time.
<PAGE>
"Substitution Criterion" shall have the meaning specified in the
Contribution Agreement.
"Trustee" shall initially mean Norwest Bank Minnesota, National
Association, until a successor Person shall have become the Trustee pursuant to
the applicable provisions of the Indenture, and thereafter "Trustee" shall mean
such successor Person.
Article 2
Servicer Representations, Warranties and Covenants
Section 2.01. Representations and Warranties. The Servicer makes the
following representations and warranties, which shall survive the Closing Date:
(a) Organization and Good Standing. The Servicer has been duly
incorporated and is validly existing in good standing as a corporation under the
laws of the State of Minnesota, with requisite corporate power and authority to
own its properties, perform its obligations under this Agreement and the
Indenture and to transact the business in which it is now engaged or in which it
proposes to engage; the Servicer is duly qualified to do business and is in good
standing in each State in which the nature of its business requires it to be so
qualified, except where failure to so qualify would not have a material adverse
effect on the ability of the Servicer to perform its obligations under this
Agreement and the Indenture.
(b) Authorization and Binding Obligation. Each of this Agreement and
the Indenture has been duly authorized, executed and delivered by the Servicer
and constitutes the valid and legally binding obligation of the Servicer
enforceable against the Servicer in accordance with its terms, subject as to
enforcement to any bankruptcy, insolvency, reorganization and other similar laws
of general applicability relating to or affecting creditors' rights generally
and to general principles of equity regardless of whether enforcement is sought
in a court of equity or law.
(c) No Violation. The entering into of this Agreement and the
Indenture, the performance by the Servicer of its obligations under this
Agreement and the Indenture and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any material indenture,
agreement, mortgage, deed of trust or other agreement or instrument to which it
is a party or by which it is bound or to which any of its property or assets is
subject, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Servicer pursuant such an
agreement or instrument, nor will such action result in any violation of the
provisions of its Articles of Incorporation or Bylaws, or any statute or any
order, rule or regulation of any court or any regulatory authority or other
governmental agency or body having jurisdiction over it or any of its
properties; and no consent, approval, authorization, order, registration or
qualification of or with any court, regulatory authority or other governmental
agency or body is required for the Servicer to enter into this Agreement and the
Indenture.
<PAGE>
(d) No Proceedings. Except as set forth in the Disclosure Schedule,
there are no proceedings or investigations pending, or to the knowledge of the
Servicer, threatened against or affecting the Servicer or any subsidiary in or
before any court, governmental authority or agency or arbitration board or
tribunal, including but not limited to any such proceeding or investigation with
respect to any environmental or other liability resulting from the ownership or
use of any of the Equipment, which, individually or in the aggregate, involve
the possibility of materially and adversely affecting the properties, business,
prospects, profits or condition (financial or otherwise) of the Servicer and its
subsidiaries, or the ability of the Servicer to perform its obligations under
this Agreement or the Indenture. The Servicer is not in default with respect to
any order of any court, governmental authority or agency or arbitration board or
tribunal.
(e) Approvals. The Servicer (i) is not in violation of any laws,
ordinances, governmental rules or regulations to which it is subject, (ii) has
not failed to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its property or to the conduct of
its business, and (iii) is not in violation in any material respect of any term
of any agreement, charter instrument, bylaw or instrument to which it is a party
or by which it may be bound, which violation or failure to obtain as specified
in (i)-(iii) materially adversely affects the business or condition (financial
or otherwise) of the Servicer and its subsidiaries.
(f) Investment Company. The Servicer is not an investment company which
is required to register under the Investment Company Act of 1940, as amended.
Section 2.02. Covenants. (a) The Servicer covenants as to the Lease
Assets:
(i) The Servicer shall not release or assign any Lien in favor
of the Trustee on any item of Equipment related to any Lease Contract
in whole or in part, except as permitted herein or in the Indenture.
(ii) The Servicer will in all material respects duly fulfill
all obligations on the Servicer's part to be fulfilled under or in
connection with the Lease Assets. The Servicer will not amend, rescind,
cancel or modify any Lease Contract or term or provision thereof,
except as permitted herein or in the Indenture, and the Servicer will
not do anything that would materially impair the rights of the
Noteholders in the Lease Assets, except as contemplated herein or in
the Indenture.
(iii) As more specifically set forth below, in performing its
servicing duties hereunder, the Servicer shall collect all payments
required to be made by the Customers under the Lease Contracts, enforce
all material rights of the Issuer under the Lease Contracts and defend
the Equipment against all Persons, claims and demands whatever. The
Servicer shall not assign, sell, pledge or exchange or in any way
encumber or otherwise dispose of the Equipment, except as permitted
hereunder or in the Indenture.
(b) The Servicer will deliver each of the accountings, statements and
reports described in Article 4 hereof to each party as set forth therein.
<PAGE>
Article 3
Administration and Servicing of Lease Contracts
Section 3.01. Responsibilities of Servicer. (a) The Servicer, for the
benefit of the Noteholders, shall be responsible for, and shall, in accordance
with its customary servicing procedure, pursue the managing, servicing,
administering, enforcing and making of collections on the Lease Contracts, the
Lease Receivables, the Equipment and any Insurance Policies, the enforcement of
the Trustee's security interest in the Lease Contracts, the Lease Receivables
and Equipment granted pursuant to the Indenture, and, if applicable, the sale or
the re-leasing of the Equipment upon the expiration or other termination of the
related Lease Contract (or repossession thereof without termination), each in
accordance with applicable law and the standards and procedures set forth in
this Agreement and any related provisions of the Indenture and the Contribution
Agreement. The Servicer's responsibilities shall include collecting and posting
of all payments, responding to inquiries of Customers, investigating
delinquencies, accounting for collections and furnishing monthly and annual
statements to the Trustee and the Noteholders with respect to payments, making
Servicer Advances and using its best efforts to maintain the perfected security
interest of the Trustee in the Trust Estate. Subject to the terms and conditions
of this Agreement, the Servicer (at its expense), acting alone or through a
subservicer, shall have full power and authority, acting at its sole discretion,
to do any and all things in connection with such managing, servicing,
administration, enforcement, collection and such repossession and sale of the
Equipment that it may deem necessary or desirable and in the best interests of
the Noteholders, including the prudent delegation of such responsibilities.
Without limiting the generality of the foregoing, the Servicer, in its own name
or in the name of a subservicer, shall, and is hereby authorized and empowered
by the Trustee in the Trustee's role as secured party, subject to Section 3.02
hereof, to execute and deliver (on behalf of itself, the Noteholders, the
Trustee 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 Lease Contracts and the Lease Contract Files,
in accordance with the Transaction Documents. Subject to the terms and
conditions of this Agreement, the Servicer, acting alone or through a
subservicer, also may, in its sole discretion, waive any late payment charge or
penalty, or any other fees that may be collected in the ordinary course of
servicing any Lease Contract. Notwithstanding the foregoing, neither the
Servicer, nor any subservicer, shall, except pursuant to a judicial order from a
court of competent jurisdiction, or as otherwise expressly provided in this
Agreement, release or waive the right to collect the Scheduled Payments or any
unpaid balance on any Lease Contract, except with respect to any Lease Contact
which is entered into in order to re-lease Equipment relating to an expired
Lease Contract, in which case the Servicer may terminate such re-lease lease
contract if the Servicer enters into a new re-lease contract, receives the
related Equipment back or receives a payment equal to the fair market value of
such Equipment from the lessee. The Servicer shall remarket Equipment for which
any Lease Contract has expired in a manner consistent with the standard of care
set forth in Section 3.02. The Trustee shall, at the expense of the Servicer,
furnish the Servicer, or at the request of the Servicer, any subservicer, with
any powers of attorney and other documents necessary or appropriate to enable
the Servicer or subservicer to carry out its servicing and administrative duties
hereunder, and the Trustee shall not be responsible for the Servicer's or
subservicer's application or use thereof. Notwithstanding the appointment by the
Servicer of a subservicer hereunder, the Servicer shall remain primarily liable
for the full performance of its obligations hereunder.
(b) Notwithstanding any provision to the contrary herein, the Servicer
(or a subservicer) shall conduct any Lease Contract management, servicing,
administration, collection or enforcement actions in the following manner:
(i) The Servicer, as agent for and on behalf of the Issuer,
with respect to any Defaulted Lease Contract shall follow such
practices and procedures as are normal and consistent with the
Servicer's standards and procedures relating to its own lease
contracts, lease receivables and equipment that are similar to the
Lease Contracts, Lease Receivables and the Equipment, including without
limitation, the taking of appropriate actions to foreclose or otherwise
liquidate any such Defaulted Lease Contract, together with the related
Equipment, to collect any Guaranty Amounts, and to enforce the Issuer's
rights in or under the Contribution Agreement. All Recoveries or
Residual Proceeds in respect of any such Lease Contract, Lease
Receivable and the related Equipment received by the Servicer shall be
remitted to the Trustee for deposit in the Collection Account pursuant
to Section 3.03(a);
<PAGE>
(ii) The Servicer may sue to enforce or collect upon Lease
Contracts as agent for the Trustee. If the Servicer elects to commence
a legal proceeding to enforce a Lease Contract, the act of commencement
shall be deemed to be an automatic assignment of the Lease Contract 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 a Lease Contract on the ground that it is not a real party
in interest or a holder entitled to enforce the Lease Contract, then
the Trustee shall, at the Servicer's request and expense, take such
steps as the Servicer deems necessary and instructs the Trustee in
writing to take to enforce the Lease Contract, including bringing suit
in its name or the name of the Issuer or the names of the Noteholders,
and the Trustee shall be indemnified by the Servicer for any such
action taken;
(iii) The Servicer shall exercise any rights of recourse
against third parties that exist with respect to any Lease Contract in
accordance with the Servicer's usual practice and applicable law. In
exercising recourse rights, the Servicer is authorized on the Trustee's
behalf to release the security interest of the Trustee in the Lease
Contract to the person against whom recourse exists to the extent
necessary, and at the price set forth in the document creating the
recourse. The Servicer will not reduce or diminish such recourse
rights, except to the extent that it exercises such right;
(iv) The Servicer may not accept Substitute Lease Contracts
that do not comply with Section 3.10 hereof, Sections 3.03 and 3.04 of
the Contribution Agreement and Section 4.03 of the Indenture;
(v) Without in any way limiting the generality of Section
3.01(b)(i), the Servicer may waive, modify or vary any terms of any
Lease Contract or consent to the postponement of strict compliance with
any such term if in the Servicer's reasonable and prudent determination
such waiver, modification or postponement is not materially adverse to
the Noteholders; provided, however, that (A) the Servicer shall not
forgive any payment of rent, and (B) the Servicer shall not permit any
modification, waivers, variation or postponements with respect to any
Lease Contract that would decrease the Scheduled Payment, defer the
payment of any principal or interest or any Scheduled Payment, reduce
the Aggregate Implicit Principal Balance relating to the Notes, or
prevent the complete amortization of the Aggregate Implicit Principal
Balance relating to the Notes from occurring by the Calculation Date
preceding the Stated Maturity. The Monthly Servicer's Report shall
indicate any modification of any Scheduled Payment;
(vi) The Servicer shall not consent to the termination of any
Lease Contract in connection with loss of or damage to the related
Equipment unless the Customer has paid an amount not less than an
amount equal to the sum of (a) the present value of the unpaid
Scheduled Payments on such Lease Contract, (discounted at the rate set
forth in such Lease Contract or consistent with the Servicer's past
practice) and (b) the amount set forth in such Lease Contract as the
purchase option price for such Equipment, or if less, the maximum
amount legally collectible under the related Lease Contract;
(vii) In the event that the Servicer or any subservicer in the
enforcement of any Lease Contract or otherwise (A) acquires title to
any item of Equipment with respect to which title was held by the
Customer or (B) reclaims possession of Equipment from the Customer, the
Servicer shall use its best efforts to sell or re-lease such item of
Equipment promptly and consistent with the standard of care set forth
in Section 3.02 hereof. Any Recoveries or Residual Proceeds related
thereto shall be deposited in accordance with Section 3.03(a) hereof;
and
(viii) Notwithstanding any provision to the contrary contained
in this Agreement, the Servicer or any subservicer shall exercise any
right under a Lease Contract to accelerate the unpaid Scheduled
Payments, due or to become due thereunder in such a manner as to
maximize the net proceeds available to the Issuer; provided, however,
that the Servicer will not accelerate any Scheduled Payment unless
permitted to do so by the terms of the Lease Contract or under
applicable law.
<PAGE>
Section 3.02. Servicer Standard of Care. In managing, administering,
servicing, enforcing and making collections on the Lease Contracts and Equipment
pursuant to this Agreement, the Servicer will provide such services in a manner
consistent with past practice and applicable law and will not change such
practice in any way that would cause an adverse material change in such
practice. In any event, the Servicer warrants that in providing such services it
will exercise that degree of skill and care consistent with that which other
lessors in the industry customarily exercise with respect to similar lease
contracts and equipment owned or serviced by them. The Servicer shall punctually
perform all of its obligations and agreements under this Agreement and shall
comply with all applicable federal and state laws and regulations, shall
maintain all state and federal licenses and franchises necessary for it to
perform its servicing responsibilities hereunder, and shall not materially
impair the rights of the Noteholders in any Lease Contracts or payments
thereunder.
Section 3.03. Lockbox Account and Servicer Remittances. (a) The
Servicer shall instruct the Customers to send all payments relating to Lease
Receivables directly to a lock box maintained by the Lockbox Bank (the "Lock
Box") for deposit into an account (the "Lockbox Account") maintained at the
Lockbox Bank in the name of, and at the sole control of, the Trustee for the
benefit of the Noteholders. On each Business Day, the Trustee shall, or shall
cause the Lockbox Bank, under the Lockbox Agreement, dated as of November 8,
1996, by and among the Servicer and the Lockbox Bank (the "Lockbox Agreement"),
to transfer all amounts to the Collection Account.
(b) Except as otherwise provided in this Agreement, the Servicer, as
agent of the Issuer, shall remit to the Trustee for deposit in the Collection
Account by [4:00 p.m.], Minneapolis time, on each Business Day the amounts
described below that have been collected by the Servicer through 4:00 p.m.,
Minneapolis time, on the preceding Business Day, so long as such amounts, in the
aggregate, exceed $1,000:
(i) all payments made under the Lease Contracts due after the
Cut-Off Date, including prepayments but excluding taxes and Servicing
Charges, received directly by the Servicer;
(ii) all Residual Proceeds and Recoveries;
(iii) the Purchase Price of any Lease Contract purchased by
the Contributor or the Issuer, to the extent received by the Servicer;
(iv) all Guaranty Amounts; and
(v) all Insurance Proceeds.
The Servicer shall hold in trust for the benefit of the Holders of the
Notes any payment it receives relating to items (i) through (v) above until such
time as the Servicer transfers any such payment to the Trustee for deposit in
the Collection Account.
Section 3.04. Servicer Advances. Not later than 10:00 a.m., Minneapolis
time, on the Determination Date prior to each Payment Date, the Servicer shall
make a Servicer Advance for each Lease Contract which is a Delinquent Lease
Contract on such date by remitting to the Trustee for deposit in the Collection
Account an amount equal to the Scheduled Payments, or portion thereof, which
were due in the prior Due Period but not received and deposited in the
Collection Account on or prior to such Determination Date; provided, however,
that the Servicer shall not be obligated to make any Servicer Advance pursuant
to this Section 3.04 that the Servicer determines in good faith, and in
accordance with its customary servicing practices, is unlikely to be eventually
repaid from Scheduled Payments made by or on behalf of the related Customer;
further provided, that the Servicer may not make a Servicer Advance with respect
to a Lease Contract once it has become a Defaulted Lease Contract. On each
Determination Date, the Servicer shall deliver to the Trustee the Monthly
Servicer's Report listing the aggregate amount of Scheduled Payments not
received for the immediately prior Due Period, the amount of Servicer Advances,
and the amounts which it has determined in its sole discretion, and in
accordance with its customary servicing practices, are unlikely to be
recoverable from the related Customers.
<PAGE>
Section 3.05. Financing Statements. The Servicer shall, at its own
expense, make all UCC filings and recordings as may be required pursuant to the
terms of the Indenture. The Servicer shall, in accordance with its customary
servicing procedures and at its own expense, be responsible for such steps as
are necessary to maintain perfection of such security interests. The Trustee
hereby authorizes the Servicer to re-perfect or to cause the re-perfection of
such security interest on its behalf as Trustee, as necessary.
Section 3.06. Maintenance of Insurance Policy; Insurance Proceeds. The
Servicer shall verify, monitor and enforce the acquisition and/or maintenance of
Insurance Policies by a Customer in a manner consistent with past practice,
provided that the Servicer shall do so in a manner consistent with that
practiced by other lessors in the vendor leasing industry with respect to
similar lease contracts and equipment owned or serviced by them. Any Insurance
Proceeds shall be remitted to the Trustee for deposit in the Collection Account
pursuant to Section 3.03(a).
Section 3.07. Personal Property and Sales Taxes. The Servicer shall, on
behalf of the Issuer, pay or cause to be paid all personal property, sales and
use taxes on or with respect to the Equipment, or the acquisition or leasing
thereof, as and when such taxes become due, to the extent a Customer has paid
amounts to the Servicer or into the Lockbox Account for such taxes. The Servicer
shall also cause to be filed in a timely manner any and all returns and reports
required in connection with the payment of such taxes.
Section 3.08. No Offset. Prior to the termination of this Agreement,
the obligations of the Servicer under this Agreement shall not be subject to any
defense, counterclaim or right of offset which the Servicer has or may have
against the Issuer, the Trustee or any Noteholder whether in respect of this
Agreement, the Indenture, the Notes, the Contribution Agreement, any Lease
Contract, Lease Receivable, Equipment or otherwise.
Section 3.09. Servicing Compensation. As compensation for the
performance of its obligations under this Agreement, the Servicer shall be
entitled to receive the Servicer Fee and the Servicing Charges. The Servicer Fee
shall be paid monthly, commencing on the Initial Payment Date and terminating on
the first to occur of (i) the receipt of the last Scheduled Payment and related
Residual Proceeds with respect to the last remaining Lease Contract, (ii) the
receipt of Recoveries and Insurance Proceeds with respect to the last remaining
Lease Contract, or (iii) the date on which the Issuer or the Contributor
purchases the last remaining Lease Contract or Lease Receivable, as the case may
be. The Servicer Fee shall be paid by the Issuer to the Servicer at the times
and in the priority as set forth in the Indenture. The Servicer shall pay all
expenses incurred by it in connection with its servicing activities hereunder,
including, without limitation, payment of the fees and disbursements of the
Independent Accountants, payment of expenses incurred in connection with
distributions and reports to the Trustee and the Noteholders and payment of the
Fees of the Lockbox Bank under the Lockbox Agreement, and shall not be entitled
to reimbursement for such expenses; provided, however, that the Servicer will be
entitled to prompt reimbursement from the Issuer for reasonable costs and
expenses incurred by the Servicer (including reasonable attorney's fees and
out-of-pocket expenses) in connection with the realization, attempted
realization or enforcement of rights and remedies upon Defaulted Lease
Contracts, from amounts received as Recoveries from any Defaulted Lease
Contracts.
Section 3.10. Substitution or Purchase of Lease Contracts and Lease
Receivables. (a) The Servicer shall not allow termination of a Lease Contract
prior to the scheduled expiration date or prepayment of any Lease Contract
(except as may be specifically required under such Lease Contract in connection
with a casualty to the related Equipment), unless the Issuer has (i) pledged to
the Trustee a Substitute Lease Contract, a Substitute Lease Receivable and the
related Equipment, and delivered to the Trustee the original executed
counterpart of such Substitute Lease Contract or (ii) remitted the Purchase
Price of such prepaid Lease Contract and the related Equipment to the Servicer
for deposit in the Collection Account in accordance with Section 3.03(a) hereof;
provided, further, that purchases and substitutions of Lease Contracts pursuant
to this subparagraph (a) shall comply with the requirements of Section 4.03 of
the Indenture and the criteria set forth in Section 3.04 of the Contribution
Agreement.
<PAGE>
(b) The Servicer shall permit the Issuer to (i) obtain the release of
the Trustee's security interest in any Defaulted Lease Contract or Delinquent
Lease Contract by remittance by the Issuer to the Servicer for deposit in the
Collection Account in accordance with Section 3.03(a) hereof or (ii) substitute
for any Defaulted Lease Contract or Delinquent Lease Contract a Substitute Lease
Contract, a Substitute Lease Receivable and the related Equipment upon the
delivery to the Trustee of the original executed counterpart of the Substitute
Lease Contract; provided that, releases and substitutions of Lease Receivables
pursuant to this subparagraph (b) shall comply with the requirements of Section
4.03 of the Indenture and the criteria set forth in Section 3.04 of the
Contribution Agreement.
(c) Notwithstanding any other provision contained in this Agreement,
the Servicer shall not, with respect to a Defaulted Lease Contract, negotiate or
enter into a new lease with the Customer relating to the Equipment or the
Customer's obligations under such Defaulted Lease Contract unless the Issuer has
obtained a release of the Trustee's security interest in, or made a substitution
for, the Lease Contract in the manner set forth in subsection (b) hereof.
(d) In the event that the Contributor is required, as a result of the
breach by it of certain representations or warranties, to obtain a release of
the Trustee's security interest in a Lease Contract or to substitute a Lease
Contract pursuant to Section 3.03 of the Contribution Agreement, the Servicer
shall permit such release or substitution in accordance with the terms of
Sections 3.03 and 3.04 thereof.
Section 3.11. Vendor Agreements. The Servicer shall comply at all times
with the terms and provisions of each Vendor Agreement to the extent that such
Vendor Agreement applies to any Lease Contract.
Article 4
Accountings, Statements and Reports
Section 4.01. Monthly Servicer's Reports. No later than 10:00 a.m.,
Minneapolis time, on each Determination Date, the Servicer shall deliver to the
Issuer, the Placement Agent, the Trustee and each Noteholder the Monthly
Servicer's Report in the form attached as Exhibit A with respect to the activity
in the immediately preceding Due Period. In the course of preparing the Monthly
Servicer's Report, the Servicer shall seek direction from the Issuer as to
remittance of the funds to be paid pursuant to Section 12.02(d)(vii) of the
Indenture. Lease Contracts and Lease Receivables which have been substituted for
or purchased by the Company or the Issuer shall be identified by the related
Customer lease number. On each Payment Date, the Servicer shall deliver to the
Trustee a computer disk or tape in a format acceptable to the Trustee containing
the information from which the Servicer prepared the Monthly Servicer's Report,
as well as any additional information reasonably requested by the Trustee prior
to such Payment Date. The Trustee shall have no responsibility to review or
otherwise examine the content of the computer disk or tape, and holds the
computer disk or tape solely for purposes of easing the transition to successor
servicer, should such transition be necessitated.
Section 4.02. Financial Statements; Certification as to Compliance;
Notice of Default. (a) The Servicer (and the successor Servicer if the initial
Servicer is no longer the Servicer) shall deliver to the Trustee, the Placement
Agent and each Holder (and, upon the request of any Noteholder, to any
prospective transferee of any Note):
(i) within one hundred and twenty (120) days after the end of
each fiscal year of the Reported Company, a copy of the Reported
Company's Financial Statements, all in reasonable detail and
accompanied by an opinion of a firm of independent certified public
accountants stating that such financial statements present fairly the
financial condition of the Reported Company (or, in the case of a
successor Servicer, such successor Servicer's financial condition) and
have been prepared in accordance with generally accepted accounting
principles consistently applied (except for changes in application in
which such accountants concur), and that the examination of such
accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and
accordingly included such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances;
<PAGE>
(ii) with each set of Reported Company's Financial Statements
delivered pursuant to subsection (a)(i) above, an Officer's Certificate
stating that such officer has reviewed the relevant terms of the
Indenture, the Contribution Agreement and this Agreement, and has made,
or caused to be made, under such officer's supervision, a review of the
transactions and conditions of the Reported Company during the period
covered by the Reported Company's Financial Statements then being
furnished, that the review has not disclosed the existence of any
Servicer Default or Servicer Event of Default or, if a Servicer Default
or a Servicer Event of Default exists, describing its nature and what
action the Servicer has taken and is taking with respect thereto, and
that on the basis of such review the officer signing such certificate
is of the opinion that during such period the Servicer has serviced the
Lease Contracts in compliance with the procedures hereof except as
disclosed in such certificate;
(iii) immediately upon becoming aware of the existence of any
condition or event which constitutes a Servicer Default or a Servicer
Event of Default, a written notice describing its nature and period of
existence and what action the Servicer is or proposes to take with
respect thereto;
(iv) promptly upon the Servicer's becoming aware of:
(A) any proposed or pending investigation of it or
the Issuer by any governmental authority or agency, or
(B) any pending or proposed court or administrative
proceeding which involves or may involve the possibility of
materially and adversely affecting the properties, business,
prospects, profits or condition (financial or otherwise) of
the Servicer, the Contributor or the Issuer,
a written notice specifying the nature of such investigation or
proceeding and what action the Servicer is taking or proposes to take
with respect thereto and evaluating its merits;
(v) with reasonable promptness any other data and information
which may be reasonably requested from time to time, including without
limitation any information required to be made available at any time to
any prospective transferee of any Notes in order to satisfy the
requirements of Rule 144A under the Securities Act of 1933, as amended;
and
(vi) quarterly, unaudited versions of the Reported Company's
consolidated balance sheet and income statement.
(b) On or before each July 31, so long as any of the Notes are
outstanding, the Servicer shall furnish to the Trustee an Officer's Certificate
either stating that such action has been taken with respect to the recording,
filing, and rerecording and refiling of any financing statements and
continuation statements as necessary to maintain the security interest of the
Trustee created by the Indenture with respect to the Trust Estate and reciting
the details of such action or stating that no such action is necessary to
maintain such security interest. Such Officer's Certificate shall also describe
the recording, filing, rerecording and refiling of any financing statements and
continuation statements that will be required to maintain the security interest
of the Trustee in the Trust Estate until the date such next Officer's
Certificate is due.
<PAGE>
Section 4.03. Independent Accountants' Reports. After the third month
after the Closing Date and each fiscal year of the Issuer thereafter (commencing
with the fiscal year ending March 31, 1997), the Servicer at its expense shall
cause the Independent Accountants (who may also render and deliver other
services to the Servicer and its Affiliates) to prepare an agreed-upon
procedures letter addressed to the Servicer and the Trustee as of the close of
the applicable month or the close of such year, to the effect that the
Independent Accountants have compared the information contained in the Monthly
Servicer's Reports delivered for the relevant period with information contained
in the accounts and records for such period, and, where applicable, on the basis
of such procedures and comparison, report matters which come to the Independent
Accountants' attention to indicate that the information contained in the Monthly
Servicer's Reports does not reconcile with the information contained in the
Servicer's accounts and records. If any letter delivered pursuant to this
Section 4.03 (commencing with the letter relating to the fiscal year ending
March 31, 1997) discloses such exceptions, the Servicer at its expense shall
cause the Independent Accountants to deliver an agreed-upon procedures letter
addressed to the Servicer and the Trustee for each subsequent three-month
period. Such obligation shall continue until the Independent Accountants deliver
a letter relating to a three-month period that does not disclose any such
exceptions. Thereafter, the Servicer shall cause a letter to be delivered
relating to each fiscal year in accordance with the first sentence of this
Section 4.03. The Servicer shall deliver to the Trustee a copy of any such
agreed-upon procedures letters within ninety (90) days of the close of the
relevant period.
Section 4.04. Access to Certain Documentation and Information. (a) The
Servicer shall provide to the Trustee or any Noteholder and their duly
authorized representatives, attorneys or accountants access to any and all
documentation and to any existing data processing systems (including, but not
limited to, any data that can reasonably be generated therefrom) regarding the
Trust Estate (including the Lease Schedule) that the Servicer may possess, such
access being afforded without charge but only upon reasonable request and during
normal business hours so as not to interfere unreasonably with the Servicer's
normal operations or customer or employee relations, at offices of the Servicer
designated by the Servicer. Upon the occurrence of a Servicer Event of Default
(as defined in Article 6 of the Indenture), the Servicer shall provide to the
Trustee and any successor servicer such access to documentation and data
processing systems as is necessary to facilitate the transfer of servicing
duties from the Servicer to any successor servicer as soon as possible.
(b) At all times during the term hereof, the Servicer shall keep
available at its principal executive office for inspection by Noteholders and
the Trustee a list of all Lease Contracts the interests in which are then held
as a part of the Trust Estate, together with a reconciliation of such list to
that set forth in the Lease Schedule and each of the Monthly Servicer's Reports,
indicating the cumulative addition and removal of the Issuer's interest in the
Lease Contracts from the Trust Estate.
(c) The Servicer will maintain accounts and records as to each
respective Lease Contract serviced by the Servicer that are accurate and
sufficiently detailed as to permit (i) the reader thereof to know as of the most
recent Calculation Date the status of such Lease Contract, including any
payments, Insurance Proceeds, Residual Proceeds and Recoveries received or owing
(and the nature of each) thereon and (ii) the reconciliation between payments,
Insurance Proceeds, Residual Proceeds or Recoveries on (or with respect to) each
Lease Contract and the amounts from time to time deposited in the Collection
Account in respect of such Lease Contract.
(d) The Servicer will maintain all of its computerized accounts and
records so that, from and after the time of the acquisition of an interest in
the Lease Assets by the Issuer and the grant of the security interest in the
Lease Contracts, the Lease Receivables and the related Equipment to the Trustee,
the Servicer's accounts and records (including any back-up computer archives)
that refer to any Lease Contract, Lease Receivable or Equipment indicate clearly
that the Lease Contracts, the Lease Receivables and the related Equipment are
owned by the Issuer and are pledged to the Trustee for the benefit of the
Noteholders. Indication of the Trustee's interest in a Lease Contract or a Lease
Receivable will be deleted from or modified on the Servicer's accounts and
records when, and only when, the related Lease Contract has been paid in full,
replaced with a Substitute Lease Contract or purchased by the Contributor or the
Issuer or assigned to the Servicer pursuant to this Agreement, as the case may
be. The indication of the Trustee's interest in an item of Equipment may be
deleted only if such Equipment is sold in accordance with the Transaction
Documents.
<PAGE>
(e) Nothing in this Section 4.04 shall affect the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Customers, and the failure to provide information otherwise
required by this Section 4.04 as a result of such observance by the Servicer,
shall not constitute a breach of this Section 4.04.
(f) All information obtained by the Trustee or any Noteholder regarding
the Customers and the Lease Contracts, whether upon exercise of its rights under
this Section 4.04 or otherwise, shall be maintained by the Trustee or the
Noteholder, as applicable, in confidence and shall not be disclosed to any other
Person, unless such disclosure does not violate any applicable law or regulation
or any proprietary rights of the Contributor, the Issuer or the Servicer, or
unless such disclosure is necessary to enforce the rights of the Trustee under
this Servicing Agreement and the Indenture or unless ordered to so disclose by a
court of appropriate jurisdiction.
Section 4.05. Trustee to Cooperate. Upon payment (including through
application of any prepayment) in full of any Lease Contract, the Servicer will
notify the Trustee by written certification (which certification shall include a
statement to the effect that all amounts received in connection with such
payments in full which are required to be deposited in the Collection Account
pursuant to Section 3.03 hereof have been so deposited) of a Servicing Officer
and shall request delivery of the Lease Contract to the Servicer. Upon receipt
of such delivery request, the Trustee shall, within seven (7) days of such
request, in proper form, by the Servicer, release such Lease Contract to the
Servicer. Upon release of such Lease Contract, the Servicer is authorized to
execute an instrument in satisfaction of such Lease Contract and to do such
other acts and execute such other documents as it deems necessary to discharge
the Customer thereunder and, if applicable, release any security interest in the
Equipment related thereto. The Servicer shall determine when a Lease Contract
has been paid in full. Upon the written request of a Servicing Officer and
subject to the Trustee's rights to indemnity contained herein and in the
Indenture, the Trustee shall perform such other acts as reasonably requested in
writing by the Servicer and otherwise cooperate with the Servicer in enforcement
of the Noteholders' rights and remedies with respect to Lease Contracts. Subject
to the terms of the Indenture, the Trustee has no liability for the acts of the
Servicer hereunder.
Section 4.06. Oversight of Servicing. (a) Prior to each Payment Date,
the Trustee shall review the Monthly Servicer's Report related thereto and shall
determine the following:
(i) that such Monthly Servicer's Report is complete on its
face;
(ii) that the amount deposited into the Collection Account
from the Lockbox Account is the same as the amount set forth in the
Monthly Servicer's Report as so credited; and
(iii) that the amounts credited to and withdrawn from the
Collection Account and the Pre-Funding Account and the balance of such
account, as set forth in the records of the Trustee, are the same as
the amount set forth in the Monthly Servicer's Report.
(b) In the event of any discrepancy between the information set forth
in subparagraph (a) as calculated by the Servicer from that determined or
calculated by the Trustee, the Trustee shall promptly notify the Servicer of
such discrepancy. If within thirty (30) days of such notice being provided to
the Servicer, the Trustee and the Servicer are unable to resolve such
discrepancy, the Trustee shall promptly notify the Holders of the Notes of such
discrepancy. The Trustee is not required to take any other action at such time
unless so directed in writing by the Servicer.
(c) Based solely on the information included in the Lease Schedule
delivered on the Delivery Date and the electronic reports provided on each
Payment Date thereafter, the Trustee shall determine that any Substitute Lease
Contracts delivered under Section 3.10 satisfy the Substitution Criterion
described in Section 3.04(b) of the Contribution Agreement.
(d) Other than as specifically set forth elsewhere in this Agreement,
the Trustee shall have no obligation to supervise, verify, monitor or administer
the performance of the Servicer and shall have no liability for any action taken
or omitted by the Servicer.
<PAGE>
(e) The Trustee shall consult fully with the Servicer as may be
necessary from time to time to perform or carry out the Trustee's obligations
hereunder. The Servicer hereby agrees to cooperate as necessary with the
Trustee.
Article 5
The Servicer and the Issuer
Section 5.01. Servicer Indemnification. (a) The Servicer shall
indemnify and hold harmless the Trustee, the Contributor, the Issuer, the
Placement Agent and the Trust Estate, for the benefit of the Noteholders, from
and against any loss, liability, claim, expense, damage or injury suffered or
sustained to the extent that such loss, liability, claim, expense, damage or
injury arose out of or was imposed by reason of the failure by the Servicer to
perform its duties under this Agreement or are attributable to errors or
omissions of the Servicer related to such duties; provided, however, that the
Servicer shall not indemnify any party to the extent that acts of fraud, gross
negligence or breach of fiduciary duty by such party contributed to such loss,
liability, claim, expense, damage or injury.
(b) Indemnification under this Section 5.01 shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation
reasonably incurred. If the Servicer has made any indemnity payments to the
Trustee, the Placement Agent or the Noteholders pursuant to this Section and
such party thereafter collects any of such amounts from others, such party will
promptly repay such amounts collected to the Servicer, without interest. The
provisions of this Section 5.01 shall survive any expiration or termination of
this Agreement.
Section 5.02. Corporate Existence; Reorganizations. (a) The Servicer
shall keep in full effect its existence and good standing as a corporation in
the state of its incorporation 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 enable the Servicer to perform its
duties under this Agreement, except where the failure to so qualify would not
have a material adverse effect on the Trust Estate or the ability of the
Servicer to perform its duties hereunder; provided, however, that the Servicer
may reincorporate in another state, if to do so would be in the best interests
of the Servicer and would not have a material adverse effect upon the
Noteholders.
(b) The Servicer shall not (i) (other than pursuant to one or more
additional lease financings) convey, transfer or lease substantially all of its
assets as an entirety to any Person, or (ii) merge or consolidate with another
Person, unless (A) such Person or the merged or consolidated entity acquires
substantially all the assets of the Servicer as an entirety and executes and
delivers to the Contributor, the Issuer and the Trustee an agreement, in form
and substance reasonably satisfactory to the Contributor, Issuer and the
Trustee, which contains an assumption by such Person or entity of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Agreement and (B) the Servicer
has obtained the prior written consent of the Holders of a majority in principal
amount of the Notes Outstanding.
Section 5.03. Limitation on Liability of the Servicer and Others.
Except as provided in Section 5.01, neither the Servicer nor any of the
officers, directors, employees or agents of the Servicer shall be under any
liability for any action taken or for refraining from the taking of any action
in its capacity as Servicer pursuant to this Agreement; provided, however, that
this provision shall not protect the Servicer or any such person against any
liability which would otherwise be imposed by reason of willful misconduct, bad
faith or gross negligence (which includes negligence with respect to the duties
of the Servicer explicitly set forth in this Agreement) in the performance of
its duties hereunder. The Servicer and any officer, director, employee or agent
of the Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person with respect to any matters
arising hereunder. No implied covenants or obligations shall be read into the
Servicing Agreement against the Servicer. In the event the Servicer performs any
activities beyond the requirements of this Agreement, the Servicer shall have
the option but will not be required to perform such activities in the future.
Section 5.04. The Servicer Not to Resign. (a) The Servicer shall not
resign from the duties and obligations hereby imposed on it by this Agreement
except upon a determination by its Board of Directors that by reason of change
in applicable legal requirements, with which the Servicer cannot reasonably
comply, the continued performance by the Servicer of its duties under this
Agreement would cause it to be in violation of such legal requirements, said
determination to be evidenced by a resolution from its Board of Directors to
such effect, accompanied by an Opinion of Counsel to such effect and reasonably
satisfactory to the Trustee.
<PAGE>
(b) No such resignation shall become effective until a successor
Servicer shall have assumed the responsibilities and obligations of the Servicer
hereunder.
(c) Except as provided in Sections 5.02 and 6.01 hereof, the duties and
obligations of the Servicer under this Agreement shall continue until this
Agreement shall have been terminated as provided in Section 8.01 hereof, and
shall survive the exercise by the Issuer or the Trustee of any right or remedy
under this Agreement, or the enforcement by the Issuer, the Trustee or any
Noteholder of any provision of the Notes or this Agreement.
Section 5.05. Issuer Indemnification. The Issuer shall indemnify and
hold harmless the Servicer (but solely from the amounts to be distributed as set
forth in Section 12.02(d)(vii) of the Indenture) from and against any loss,
liability, expense, damage or injury suffered or sustained by the Servicer,
including but not limited to any judgment, award, settlement, reasonable
attorneys' fees and other costs and expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim, which arises
out of the Servicer's activities hereunder; provided, however, that the Issuer
shall not indemnify the Servicer if the Servicer's activities constituted fraud,
willful misconduct, gross negligence (which includes negligence with respect to
the duties of the Servicer which are explicitly set forth in this Agreement) or
breach of fiduciary duty by the Servicer or for any amounts for which the
Servicer is obligated to indemnify the Issuer or other Persons pursuant to
Section 5.01 hereof.
Article 6
Servicing Termination
Section 6.01. Servicer Events of Default. (a) Any of the following acts
or occurrences shall constitute a Servicer Event of Default:
(i) any failure by the Servicer to deliver to the Trustee for
payment to Noteholders any proceeds or payments received from a
Customer or in respect of the Trust Estate and required to be so
delivered under the terms of the Indenture and this Agreement that
continues unremedied until 10:00 a.m., Minneapolis time, for two
Business Days; provided, however, that the Trustee, upon receiving
actual knowledge of such failure, shall give the Servicer prompt
written, telecopied or telephonic notice of such failure.
Notwithstanding the foregoing, any failure by the Trustee to deliver
such notice to the Servicer shall not prevent the occurrence of a
Servicer Event of Default; or
(ii) any failure by the Servicer to deliver a Monthly
Servicer's Report pursuant to Section 4.01 hereof that continues
unremedied until 10:00 a.m., Minneapolis time, the Business Day
following the date delivery is required; provided, however, that if the
Servicer has not delivered the Monthly Servicer's Report by 12:00 noon,
Minneapolis time, on the Determination Date, the Trustee shall give the
Servicer notice of such failure. Notwithstanding the foregoing, any
failure by the Trustee to deliver such notice to the Servicer shall not
prohibit the occurrence of a Servicer Event of Default; or
(iii) any failure by the Servicer to make a Servicer Advance
pursuant to Section 3.04 hereof or to deposit any Purchase Price
received by it that continues unremedied until 10:00 a.m., Minneapolis
time, the following Business Day following the date delivery is
required; provided, however, that if the Servicer has not made the
Servicer Advance or deposited any Purchase Price received by it by
12:00 noon, Minneapolis time, on the Determination Date and the Trustee
has received written notification from the Servicer by way of the
Monthly Servicer's Report or otherwise that such Servicer Advance or
Purchase Price is to be paid, the Trustee shall give the Servicer
prompt written, telecopied or telephonic notice of such failure.
Notwithstanding the foregoing, any failure by the Trustee to deliver
such notice to the Servicer shall not prevent the occurrence of a
Servicer Event of Default; or
<PAGE>
(iv) any failure by the Servicer to make remittances or
deliver notices pursuant to Section 3.03 hereof, that continues
unremedied until 10:00 a.m., Minneapolis time, of the third successive
Business Day; or
(v) any failure on the part of the Servicer duly to observe or
perform any other covenants or agreements of the Servicer set forth in
this Agreement or the Indenture, as the case may be, or any
representation or warranty of the Servicer set forth in Section 2.01 of
this Agreement shall prove to be incorrect in any material respect,
which failure or breach continues unremedied for a period of thirty
(30) days after the date on which the Servicer becomes aware of such
failure or breach, or written notice of such failure or breach,
requiring the situation giving rise to such breach or non-conformity to
be remedied, shall have been given to a Servicing Officer of the
Servicer by the Trustee or the Issuer or to a Servicing Officer of the
Servicer and the Trustee by Holders of Notes representing not less than
25% of the aggregate principal amount of the Notes Outstanding; or
(vi) any assignment by the Servicer to a delegate of its
duties or rights under this Agreement, except as specifically permitted
hereunder, or any attempt to make such an assignment; or
(vii) the entry of a decree or order for relief by a court
having jurisdiction in respect of the Servicer or a petition against
the Servicer in an involuntary case under any federal bankruptcy laws,
as now or hereafter in effect, or any other present or future federal
or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official for the Servicer or for any substantial part of
its property, or ordering the winding up or liquidation of the affairs
of the Servicer and the continuance of any such decree or order
unstayed and in effect, or failure for such petition to be dismissed,
for a period of 60 consecutive days; or
(viii) the commencement by the Servicer of a voluntary case
under any federal bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state bankruptcy, insolvency,
reorganization or similar law, or the consent by the Servicer to the
appointment of or taking possession by a conservator, receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official in any insolvency, readjustment of debt, marshalling of assets
and liabilities, bankruptcy or similar proceedings of or relating to
the Servicer or relating to a substantial part of its property, or the
making by the Servicer of an assignment for the benefit of creditors,
or the failure by the Servicer generally to pay its debts as such debts
become due or if the Servicer shall admit in writing its inability to
pay its debts as they become due, or the taking of corporate action by
the Servicer in furtherance of any of the foregoing; or
(ix) the occurrence of a Trigger Event if the initial Servicer
is the Servicer.
<PAGE>
(b) So long as a Servicer Event of Default shall not have been remedied
within the period set forth in subparagraphs (i), (ii), (iii), (iv), (v) or
(vii) above, as applicable, the Trustee shall, by notice (the "Servicer
Termination Notice") given in writing to the Servicer, terminate all, but not
less than all, of the rights and obligations of the Servicer under this
Agreement. Notwithstanding the foregoing, a delay in or failure of performance
under Sections 6.01(a)(ii) or 6.01(a)(v) hereof for a period of 30 or more days
shall not constitute a Servicer Event of Default if such delay or failure could
not have been prevented by the exercise of reasonable diligence by the Servicer
and such delay or failure was caused by acts of declared or undeclared war,
public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or similar causes; provided, however, that in
any event, such delay or failure shall constitute a Servicer Event of Default if
it continues unremedied for a period of thirty (30) days. The preceding sentence
shall not relieve the Servicer from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of this Agreement.
(c) In the event of the occurrence of a Trigger Event, the Trustee may,
and if directed by Holders of Notes representing at least 66-2/3% of the
aggregate amount of Notes Outstanding, shall, by a Servicer Termination Notice
given in writing to the Servicer, terminate all but not less than all of the
rights and obligations of the Servicer under this Agreement.
(d) In the event that Sunrise Leasing Corporation resigns or is
terminated as Servicer pursuant to this Agreement and a successor Servicer is
appointed hereunder, the Holders of Notes representing at least 66-2/3% of the
aggregate amount of the Notes Outstanding may direct the Trustee to, and the
Trustee shall, terminate, by a Servicer Termination Notice given in writing to
such successor Servicer, all but not less than all of the rights and obligations
of such successor Servicer under this Agreement and appoint a new successor
Servicer which has been approved by such Holders.
(e) On or after the receipt by the Servicer of a Servicer Termination
Notice, all authority and power of the Servicer under this Agreement, whether
with respect to the Notes or the Lease Contracts or otherwise shall pass to and
be vested in the successor Servicer appointed pursuant to Section 6.02 hereof,
and, without limitation, such successor Servicer is hereby authorized and
empowered to execute and deliver, on behalf of the 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 of the
Lease Contracts and related documents, or otherwise. The Servicer agrees to
cooperate with the Trustee and the successor Servicer in effecting the
termination of the responsibilities and rights of the Servicer hereunder,
including, without limitation, the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
Servicer for deposit, or have been deposited by the Servicer or thereafter
received with respect to Lease Contracts. To assist the successor Servicer in
enforcing all rights under the Lease Contracts and the Insurance Polices to the
extent they relate to the Lease Contracts, the outgoing Servicer, at its own
expense, shall transfer its records (electronic and otherwise) relating to such
Lease Contracts to the successor Servicer in such form as the successor Servicer
may reasonably request and shall transfer the related Lease Contracts (to the
extent not held by the Trustee) and all other records, correspondence and
documents relating to the Lease Contracts that it may possess to the successor
Servicer in the manner and at such times as the successor Servicer shall
reasonably request. In addition to any other amounts that are then payable to
the Servicer under this Agreement, the Servicer shall be entitled to receive
reimbursements for any unreimbursed Servicer Advance made during the period
prior to the delivery of a Servicer Termination Notice pursuant to this Section
6.01 which terminates the obligations and rights of the Servicer under this
Agreement.
<PAGE>
Section 6.02. Appointment of Successor Servicer. (a)
(i) On and after the time the Servicer resigns as Servicer
pursuant to Section 5.04 hereof or is terminated as Servicer pursuant
to a Servicer Termination Notice pursuant to Section 6.01 hereof, the
Trustee shall appoint a successor Servicer acceptable to the Holders of
Notes representing at least 66-2/3% of the aggregate amount of the
Notes Outstanding.
(ii) The successor Servicer shall be the successor in all
respects to the Servicer in its capacity as Servicer under this
Agreement and the transactions set forth or provided for herein and
shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions
hereof; provided, however, that the successor Servicer (x) shall not be
required to make any Servicer Advance if such Servicer Advance would be
prohibited by applicable law and (y) shall not be liable for any acts
or omissions of the outgoing Servicer or for any breach by the outgoing
Servicer of any of its representations and warranties contained herein
or in any related document or agreement. Subject to the consent of the
Holders representing at least 66-2/3% of the aggregate amount of the
Notes Outstanding, the successor Servicer may subcontract with another
firm to act as subservicer so long as the successor Servicer remains
fully responsible and accountable for performance of all obligations of
the Servicer on and after the time the Servicer receives the Servicer
Termination Notice. The successor Servicer shall be entitled to the
Servicer Fee in connection with acting as Servicer hereunder.
(b) The Servicer, the Issuer, the Trustee and such successor Servicer
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. Upon such succession, the successor Servicer
shall notify the Customers that it has been appointed Servicer under this
Agreement with respect to the Lease Contracts.
Section 6.03. Notification to Noteholders. The Servicer shall promptly
notify the Issuer and the Trustee of any Servicer Event of Default upon actual
knowledge thereof by a Servicing Officer. Upon any termination of, or
appointment of a successor to, the Servicer pursuant to this Article 6, the
Trustee shall give prompt written notice thereof to the Noteholders at their
respective addresses appearing in the Note Register.
Section 6.04. Waiver of Past Defaults. The Trustee shall, at the
direction of the Holders of Notes representing more than 66-2/3% of the
aggregate amount of the Notes Outstanding, on behalf of all Noteholders, waive
any default by the Servicer in the performance of its obligations hereunder and
its consequences, other than a default with respect to required deposits and
payments in accordance with Article 3 or a default of the type set forth in
clause (vii) or (viii) of Section 6.01(a) hereof, which waiver shall require the
consent of each Noteholder. Upon any such waiver of a past default, such default
shall cease to exist, and any Servicer 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 waived.
<PAGE>
Section 6.05. Effects of Termination of Servicer. (a) Upon the
appointment of the successor Servicer, the predecessor Servicer shall remit any
Scheduled Payments and any other payments or proceeds that it may receive
pursuant to any Lease Contract or otherwise to the successor Servicer after such
date of appointment.
(b) After the delivery of a Servicer Termination Notice, the outgoing
Servicer shall have no further obligations with respect to the management,
administration, servicing, enforcement, custody or collection of the Lease
Contracts, and the successor Servicer shall have all of such obligations, except
that the outgoing Servicer will transmit or cause to be transmitted directly to
the successor Servicer, promptly on receipt and in the same form in which
received, any amounts held by the outgoing Servicer (properly endorsed where
required for the successor Servicer to collect them) received as payments upon
or otherwise in connection with the Lease Contracts. The outgoing Servicer's
indemnification obligations pursuant to Section 5.01 hereof will survive the
termination of the Servicer but will not extend to any acts or omissions of a
successor Servicer.
Section 6.06. No Effect on Other Parties. Upon any termination of the
rights and powers of the Servicer pursuant to Section 6.01, or upon any
appointment of a successor Servicer, all the rights, powers, duties and
obligations of the other parties under this Agreement, the Indenture, the
Contribution Agreement and the Purchase Agreement shall remain unaffected by
such termination or appointment and shall remain in full force and effect
thereafter.
Article 7
Miscellaneous Provisions
Section 7.01. Termination of the Servicing Agreement. (a) Other than as
set forth herein, the respective duties and obligations of the Servicer, the
Issuer and the Trustee created by this Agreement shall terminate upon the
discharge of the Indenture in accordance with its terms; and the respective
duties and obligations of the Trustee shall terminate with respect to the
Trustee in the event the Trustee resigns or is replaced under Section 7.09 of
the Indenture; provided, however, that no resignation or removal of the Trustee
and no appointment of a successor Trustee shall become effective until the
acceptance of appointment by the successor Trustee under Section 7.10 of the
Indenture. Upon the termination of this Agreement pursuant to this Section
7.01(a), the Servicer shall pay all monies with respect to the Lease Contracts,
the Lease Receivables and the related Equipment held by the Servicer, and to
which the Servicer is not entitled, to the Issuer or upon the Issuer's order.
The Servicer's indemnification obligations pursuant to Section 5.01 hereof will
survive the termination of this Agreement.
(b) This Agreement shall not be automatically terminated as a result of
an Event of Default under the Indenture or any action taken by the Trustee
thereafter with respect thereto, and any liquidation or preservation of the
Trust Estate by the Trustee thereafter shall be subject to the rights of the
Servicer to service the Lease Receivables and to collect servicing compensation
as provided hereunder; provided, however, that nothing in this Section 7.01
shall be construed to limit the Trustee's right to foreclose on or otherwise
liquidate the Lease Assets in accordance with the Indenture.
<PAGE>
Section 7.02. Amendments. (a) This Agreement may be amended from time
to time by the Issuer, the Servicer and the Trustee, without the consent of any
of the Noteholders, to cure any ambiguity, to correct or supplement any
provisions herein that may be inconsistent with any other provisions herein and
therein, as the case may be, or to add or amend any other provisions with
respect to matters or questions arising under this Agreement; provided, however,
that such action shall not, as evidenced by an Opinion of Counsel, adversely
affect in any material respect the interests of any Noteholder.
(b) This Agreement may also be amended from time to time by the Issuer
and the Servicer, with the consent of the Trustee, and the holders of not less
than 66-2/3% in aggregate principal amount of Notes outstanding, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement; provided, however, that no such amendment shall,
without the consent of each Noteholder (i) alter the priorities with which any
allocation of funds shall be made under this Agreement; (ii) permit the creation
of any lien on the Trust Estate (other than the lien of the Indenture) or any
portion thereof or deprive any such Noteholder of the benefit of this Agreement
with respect to the Trust Estate or any portion thereof; or (iii) modify this
Section 7.02 or Sections 6.02 or 6.04 hereof.
(c) Promptly after the execution of any amendment, the Servicer shall
send to the Trustee and each Holder of the Notes a conformed copy of each such
amendment.
(d) It shall not be necessary, in any consent of Noteholders under this
Section 7.02, to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consent and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable regulations
as the Trustee may prescribe.
(e) Any amendment or modification effected contrary to the provisions
of this Section 7.02 shall be void.
Section 7.03. Governing Law. This Agreement shall be construed in
accordance with the internal laws of the State of Minnesota without regard to
conflict of laws principles and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
Section 7.04. Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered or mailed by registered or
certified United States mail, postage prepaid, or via facsimile with
confirmation in writing and addressed as follows:
(a) if to the Issuer, at 5500 Wayzata Boulevard, Suite 725, Golden
Valley, Minnesota 55416 (telephone (612) 513-3280), Attention: President;
(b) if to the Contributor, at 5500 Wayzata Boulevard, Suite 725, Golden
Valley, Minnesota 55416 (facsimile (612) 513-3299), Attention: President;
(c) if to the Servicer, at 5500 Wayzata Boulevard, Suite 725, Golden
Valley, Minnesota 55416 (facsimile (612) 513-3299), Attention: President;
(d) if to the Trustee, at Sixth Street and Marquette Avenue,
Minneapolis, Minnesota (facsimile (612) 667-3539), Attention: Corporate Trust
Services-Asset-Backed Administration;
<PAGE>
(e) if to any Noteholder, at its address for notices specified in the
Note Register; and
Any of the Persons in subclauses (a) through (c) above may change the
address for notices hereunder by giving notice of such change to other Persons.
Any change of address shown on the Note Register shall, after the date of such
change, be effective to change the address for such Noteholder hereunder. All
notices and demands shall be deemed to have been given either at the time of the
delivery thereof to any officer of the Person entitled to receive such notices
and demands at the address of such Person for notices hereunder, or on the third
day after the mailing thereof to such address, as the case may be.
Section 7.05. Severability of Provisions. If one or more of the
provisions of this Agreement shall be for any reason whatever held invalid, such
provisions shall be deemed severable from the remaining covenants and provisions
of this Agreement, and shall in no way affect the validity or enforceability of
such remaining provisions, the rights of any parties hereto, or the rights of
the Trustee or any Noteholder. To the extent permitted by law, the parties
hereto waive any provision of law which renders any provision of this Agreement
prohibited or unenforceable in any respect.
Section 7.06. Binding Effect. All provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto, and all such provisions shall inure to the benefit of the
Noteholders. This Agreement may not be modified except by a writing signed by
all parties hereto.
Section 7.07. Article Headings and Captions. The article headings and
captions in this Agreement are for convenience of reference only, and shall not
limit or otherwise affect the meaning hereof.
Section 7.08. Legal Holidays. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day, such action, delivery or payment need
not be made on such date, but may be made on the next succeeding Business Day.
Section 7.09. Assignment for Security for the Notes. The Servicer
understands that the Issuer will assign to and grant to the Trustee a security
interest in all of its right, title and interest to this Agreement. The Servicer
consents to such assignment and grant and further agree that all
representations, warranties, covenants and agreements of the Servicer made
herein shall also be for the benefit of and inure to the Trustee and all Holders
from time to time of the Notes.
Section 7.10. No Servicing Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 6.02 and 6.04 hereof,
this Agreement may not be assigned by the Issuer, the Contributor or the
Servicer (except with respect to the appointment of a subservicer) without the
prior written consent of the Holders of Notes representing not less than 66-2/3%
of the aggregate amount of the Notes Outstanding.
Section 7.11. Counterparts. This Agreement may be executed in one or
more counterparts all of which together shall constitute one original document.
Section 7.12. Trustee's Protections Under the Indenture. All
protections, indemnities and rights provided to the Trustee under Article 7 of
the Indenture with respect to the duties of the Trustee duties under the
Indenture shall apply with equal force and effect to the duties of the Trustee
under this Servicing Agreement.
<PAGE>
In WITNESS WHEREOF, the Issuer, the Contributor, the Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized as of the date and year first above written.
Sunrise Funding Corporation I, as Issuer
By /s/ R. Bradley Pike
Name: R. Bradley Pike
Title: President
SUNRISE LEASING CORPORATION, as
Contributor and as Servicer
By /s/ Barry J. Schwach
Name: Barry J. Schwach
Title: Chief Financial Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By /s/ Thomas Wraalstad
Name: Thomas Wraalstad
Title: Corporate Trust Officer
AGREEMENT
I, William B. King, in consideration of the severance package outlined
in the letter from Errol F. Carlstrom to me dated October 9, 1996 (a copy of
which is attached hereto), do hereby agree as follows:
1. I agree that for the one-year period from April 1, 1997 through March
31, 1998, I will not, on behalf of myself or any other person or
entity, directly or indirectly, solicit any Company employees or
attempt to divert or interfere with the development of any Company
business by soliciting, contacting or communicating with any person,
firm or organization to which the Company provided or is currently
providing or solicitating vendor leasing services, for the purpose of
providing competing vendor leasing services.
2. I acknowledge that the restrictions set forth in Paragraph 1 have been
carefully considered and negotiated between Sunrise Resources, Inc. and
myself. I further acknowledge and agree that the restrictions in
Paragraph 1 are reasonable and will not unduly restrict me in securing
other employment.
3. I understand and agree that, should I violate the provisions of
Paragraph 1, Sunrise Resources, Inc. shall be entitled, in addition to
any other right and remedy it may have at law or equity, to injunctive
relief without the posting of any bond or other security, and to its
reasonable attorneys' fees and costs incurred in bringing any action
against me or otherwise enforcing the terms of Paragraph 1.
4. I agree that on or before March 31, 1997, I will execute a separate
written "Release of Claims" which Sunrise Resources, Inc. will provide
me and which will provide in substantial part as follows:
a. Release of Claims. In further consideration for the severance
package outlined in the letter from Errol F. Carlstrom to me
dated October 9, 1996, I, for myself and anyone who has or
obtains legal rights or claims through me, hereby release,
agree not to sue, and forever discharge Sunrise Resources,
Inc., its subsidiaries, successors and assigns, insurers, and
affiliated and predecessor companies, their successors and
assigns, their insurers, and the present and former owners,
officers, directors, employees, shareholders, consultants, and
agents of any of them, whether in their individual or official
capacities, and the current and former trustees or
administrators of any pension or other benefit plan applicable
to the employees or former employees of Sunrise Resources,
Inc., in their official and individual capacities, from all
claims and demands whatsoever, whether known or unknown, in
law or equity, I ever had, now have, or shall have up to and
through the date of my signing this Release of Claims,
including, but not limited to, any claims arising by statute,
in tort or contract, arising out of or in connection with my
employment by Sunrise Resources, Inc., the termination of that
employment, or otherwise. This release includes, without
- 1 -
<PAGE>
limiting the generality of the foregoing, any claims I have or
may have for wages, commissions, penalties, vacation pay or
other benefit, defamation, or improper discharge (based on
contract, at common law or under any federal, state or local
statute or ordinance prohibiting discrimination in employment,
particularly discrimination based on race, sex, national
origin, age, color, creed, religion, marital status,
disability, or sexual orientation, including but not limited
to the Minnesota Human Rights Act, Minn. Stat. ss. 363.01 et
seq., Title VII of the Civil Rights Act of 1964 as amended, 42
U.S.C. ss. 2000e et seq., and the Age Discrimination in
Employment Act, 29 U.S.C. ss. 621 et seq.), or attorney's fees
or costs.
b. Notification of Rights. I am hereby notified of my right to
rescind the Release of Claims with regard to claims arising
under the Minnesota Human Rights Act, Minnesota Statutes
Chapter 363, within 15 days after I sign this Release of
Claims. In order to be effective, the rescission must be in
writing and delivered to Errol F. Carlstrom, Sunrise
Resources, Inc., 5500 Wayzata Blvd., Suite 725, Golden Valley,
MN 55416, by hand or mail. If delivered by mail, the
rescission must be postmarked within the required period,
properly addressed to Errol F. Carlstrom as set forth above,
and sent by certified mail, return receipt requested.
c. I have read the above Release of Claims and understand it as a
full and final release of all claims I may have against
Sunrise Resources, Inc. and the other entities and individuals
covered by this Release of Claims. I agree that I have had an
opportunity to consult with an attorney and that I have
entered into this Release of Claims knowingly and voluntarily.
5. The occurrence of a rescission of the merger as described in Sunrise
Resources, Inc. public filings with the Securities and Exchange
Commission, or any filing of bankruptcy made by Sunrise Resources, Inc.
shall render Paragraph 1 of this agreement null and void.
6. On or before March 31, 1997, the Company will execute a separate
written release which the Company and the same parties covered by my
Release of Claims as set forth in Section 4 above will provide me which
forever discharges all claims against me, known or unknown, arising out
of my employment with the Company.
November 14, 1996 /s/ William B. King
Date William B. King
- 2 -
<PAGE>
SUNRISE RESOURCES, INC.
5500 Wayzata Blvd., Suite 725
Golden Valley, MN 55416
October 9, 1996
Mr. Bill King
Senior Vice President
Sunrise Resources, Inc.
5500 Wayzata Blvd. Suite 725
Golden Valley, MN 55416
Dear Bill:
I am in receipt of your memorandum dated October 7, 1996 pertaining to
your employment continuation. As I indicated during our meeting on Friday,
October 7th, a release agreement must come from Tom King's office. As Tom is
traveling this week, I will make sure the agreement is in your hands by the end
of next week. However, I have agreed to the following severance package:
(1) You will continue on the Sunrise payroll through March 31,
1996 at your present salary with full benefits.
(2) You will be eligible for a bonus up to 40% of your base salary
($126,000). For you to realize the maximum bonus, the company
must realize its annual income before tax budget, including
accrual for bonuses ($6,710,000); total revenue of
$46,540,000; and your performance rating for the first 3
quarters must be no less than 3.5. Through 2 quarters you have
a performance rating in excess of 3.5, and I have no doubt
your 3rd quarter will also exceed 3.5. You will not be subject
to a 4th quarter review.
(3) Any application bonus will be paid as follows:
60% based on income before tax budget ($6,710,000)
20% based on total revenue ($46,540,000)
20% based on realizing a performance rating of no less
than 3.5
(4) You will be required to perform in your current capacity and
keep normal business hours through December 31, 1996.
(5) Effective January 1, 1997 through March 31, 1997, you will act
in the capacity of Vendor Program Consultant to the President
and Chief Executive Officer. You will be available to meet on
a weekly basis and be generally available by telephone at
other times.
<PAGE>
Bill, I believe the above fairly represents my verbal agreement with
you. I look forward to a smooth and professional transition.
Sincerely,
/s/ Errol F. Carlstrom
Errol F. Carlstrom
President & Chief Executive Officer
cc: Tom King, Esq.
PORTFOLIO PURCHASE AGREEMENT
(With Recourse)
This Portfolio Purchase Agreement (With Recourse) (the "Agreement") is made as
of this 27th day of November, 1996, by and between The CIT Group/Equipment
Financing, Inc. ("CIT"), whose business address is 900 Ashwood Parkway, Atlanta,
GA 30338, and Sunrise Leasing Corporation (the "Company"), whose principal place
of business is at 5500 Wayzata Blvd., Suite 725, Golden Valley, MN 55416.
The Company desires to sell to CIT, and CIT desires to purchase from the
Company, a portfolio of certain equipment leases described further below for the
purchase price and upon the further terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual obligations set forth below, the
parties agree as follows:
1. Definitions.
For the purpose of this Agreement:
(a) "CIT" shall mean The CIT Group/Equipment Financing, Inc., a New York
corporation.
(b) "Closing Date" shall mean November 15, 1996 or such earlier date as the
parties may agree to complete the transactions contemplated herein.
(c) "Company" shall mean Sunrise Leasing Corporation, a Minnesota corporation.
(d) "Customer" shall mean the lessee under any Lease.
(e) "Discount Rate" shall mean 8.56 percent (8.56%).
(f) "Equipment" shall mean the machinery, equipment and other personal property
covered by any Lease, together with all additions (excluding upgrades or
any other item that, if removed, does not diminish the value of the
property or materially alter the physical components of the property),
repairs, substitutions, replacement parts and accessories incorporated
therein or affixed thereto and proceeds of all of the foregoing.
(g) "Equipment Lease Schedule" shall mean a schedule to a master lease
agreement or any add-on, upgrade or renewal of any schedule, together with
all acceptance certificates related to such schedule, add-on, upgrade or
renewal.
<PAGE>
(h) "Fiscal Year" shall initially mean the period beginning on the date of this
Agreement and ending December 31, 1996, and thereafter each calendar year,
or uncompleted portion thereof, during the term of this Agreement.
(i) "Guarantor" shall mean Sunrise Resources, Inc., the corporate parent of the
Company.
(j) "Lease" shall mean a lease agreement or an Equipment Lease Schedule
together with its related master lease agreement, and "Leases" shall mean
all of the lease agreements and Equipment Lease Schedules together with
the master lease agreements related to such Equipment Lease Schedules, and
in each case all exhibits, attachments, amendments, riders and addenda to
any of the lease agreement, master lease or Equipment Lease Schedule, by
and between the Company and the various lessees, all as listed on the
attached Schedule A, which is incorporated herein by reference.
(k) "Lease Term" shall mean with respect to a Lease, the term of the Lease
being assigned to CIT hereby, including any renewal term so assigned.
(l) "Purchase Price" shall have the meaning set forth in Section 4 of this
Agreement.
(m) "Related Documents" shall mean, with respect to any Lease, related
instruments, certificates, guaranties, security agreements,
representations and warranties, letters of credit, financing statements,
recourse agreements, certificates of title (if applicable), and other
documents, including without limitation the contract for sale of Equipment
to which such Lease relates.
(n) "Repurchase Price" shall mean the Unpaid Balance (as defined herein) of any
Lease, discounted to present value as of the date the Repurchase Price is
payable (using the Discount Rate as defined herein), plus any and all
reasonable out-of-pocket expenses. The term "out-of-pocket expenses" shall
include, without limitation, the cost of repossession of Equipment, storage
and sale of Equipment, compliance with applicable legal requirements,
reasonable attorneys' fees and court costs, and like expenses incurred by
CIT in connection with such Lease until the Repurchase Price is paid in
full.
(o) "Unpaid Balance" shall mean the aggregate unpaid rentals and other amounts
due or to become due under any Lease, including, without limitation, the
amount of any purchase option price, renewal option or put option price
(e.g., price payable by a Customer under a purchase agreement upon demand
by Company) to the extent such option price is included in the computation
of the Purchase Price for such Lease.
<PAGE>
2. Sale of Leases.
(a) Subject to the terms and provisions of this Agreement, the Company hereby
sells, transfers and assigns to CIT on a recourse basis all of the right,
title, and interest of the Company in and to all of the Leases, the Related
Documents, the rentals and other payments due and to become due under the
Leases and Related Documents including, without limitation, all amounts
payable by Customers upon the exercise of any (i) early termination rights
provided in the Leases (up to the amount of the Repurchase Price at the
time such right is exercised and payment is made) and (ii) renewal options
or purchase options or any put option price (but only to the extent such
options were included in the computation of the Purchase Price), all rights
to the proceeds of insurance covering the Equipment, all of the rights and
remedies of the Company under the Leases and under any Related Documents,
including the right to take in the Company's name, any and all proceedings
legal, equitable or otherwise, that the Company might otherwise take save
for this Agreement and proceeds of the foregoing.
(b) CIT shall have in addition to all other rights hereunder, the right to
receive and retain any and all payments and rights thereto under any Lease,
to use or sell and dispose of Equipment and any of the Company's rights
thereto and to apply and use such payments, rights, Equipment and proceeds
to satisfy any and all obligations of the Company hereunder.
(c) CIT does not assume any of the obligations of the Company under any Lease
and shall have no duties in respect thereof. So long as no Event of Default
has occurred and is continuing hereunder, the Company shall continue to
bill Customers for amounts due under the Leases, and all invoices for
amounts due on or after January 1, 1997, shall direct Customers to make all
payments directly to The CIT Group/Equipment Financing, Inc. at P.O. Box
7777-W0800X, Philadelphia, PA 19175 or at such other address as CIT may,
from time to time, direct. If an Event of Default shall occur, then CIT, at
its option exercised in its sole discretion, may terminate the authority of
the Company to bill, and CIT shall undertake the billing and collection of
the amounts due and to become due thereafter for each Lease. CIT will
collect the amounts due under the Leases in a manner consistent with its
customary practices for accounts of the same kind; provided, however, that
in no event shall CIT's failure to make such collection efforts impair or
release or otherwise affect the obligations of the Company to CIT hereunder
or result in the imposition on CIT of any liability to the Company.
3. Grant of Security Interest; Setoff.
(a) As security for all amounts due to CIT under the Leases, and for all other
present and future indebtedness or obligations of the Company to CIT of
every kind and nature,including, without limitation, the repurchase
obligations under this Agreement, the Company hereby grants to CIT a
security interest in the Equipment and any proceeds thereof. Title to the
Equipment shall remain in the Company and is not transferred to CIT for any
purpose.
(b) In the event of a default by the Company in the payment or performance of
its obligations hereunder, CIT may immediately apply all or any part of any
amount owed by CIT to the Company or held by CIT for the account of the
Company to pay all or any part of the Company's outstanding obligations
hereunder. CIT shall promptly give notice to the Company of such
application.
<PAGE>
4. Purchase Price; Installment Payments.
(a) Subject to the conditions set forth in this Agreement, CIT hereby agrees to
pay the Company Three Million Six Hundred Fifty Seven Thousand Six Hundred
Eighty Three Dollars and Thirty-Seven Cents ($3,657,683.37) (the "Purchase
Price"), which represents the sum of the Unpaid Balances for each Lease,
discounted to present value at the Discount Rate.
(b) CIT shall pay the Purchase Price in two installments, either by its check
payable to the order of the Company or in such other manner of remittance
as the Company and CIT may agree upon, as follows:
(i) On the Closing Date, upon compliance by the Company with Section 5
hereof, CIT shall pay to the Company as the first installment
$2,857,683.37.
(ii) When all installments of rent and other amounts required to be paid
under each of the Leases then held by CIT have been paid to CIT in
full, CIT shall pay to the Company as the final installment, eight
hundred thousand dollars ($800,000), plus interest on that amount
accrued at the Discount Rate per annum from the Closing Date until the
final installment is paid.
(iii)Notwithstanding the foregoing clause (ii), CIT shall evaluate the
performance of the Leases annually on or about the anniversary of the
Closing Date, and CIT may elect in its sole discretion on the basis of
such evaluation to prepay all or any part of the final installment
without premium or penalty.
5. Delivery of Leases and Other Documents to CIT.
(a) Concurrently with, and as a condition precedent to, payment of the first
installment of the Purchase Price pursuant to Section 4 of this Agreement,
the Company shall deliver to CIT or cause CIT to have received:
(i) in the case of each Lease being assigned and sold to CIT pursuant
hereto,
(A) all the original counterparts of the Equipment Lease Schedule for
such Lease (except the signed copy retained by the Customer), a copy
of the related master lease which copy is certified by the Company as
true, correct and complete and, if the Equipment Lease Schedule is an
add-on, upgrade or renewal of an Equipment Lease Schedule not being
assigned to CIT hereunder, a copy of such underlying Equipment Lease
Schedule certified by the Company as true, correct and complete;
(B) all signed originals of each of the Related Documents, except for
signed copies retained by Customer;
(C) acknowledgment copies of Uniform Commercial Code ("UCC") financing
statements covering the Equipment described in the Leases filed by the
Company against each applicable Customer in all appropriate
jurisdictions, each of which financing statements has been duly
assigned to CIT and all of which shall be in form and substance
satisfactory to CIT;
(D) a copy of the notice of assignment or form of estoppel letter sent
to each Customer notifying Customer of the sale and assignment of such
Customer's Lease(s) to CIT and, in the case of the estoppel letters,
requesting that the Customer acknowledge the sale and assignment and
confirm to CIT the Customer's obligation under the Lease(s);
(E) such amendments to any Lease as CIT may request prior to the
Closing Date in form and substance satisfactory to CIT and executed by
each applicable Customer;
<PAGE>
(ii) in the case of Customer Petroleum Information Corporation, an estoppel
letter in form and substance satisfactory to CIT sign by such Customer
acknowledging the sale and assignment of such Customer's Lease(s) to
CIT and confirming to CIT the Customer's obligation under the
Lease(s);
(iii)make available for review by CIT copies of purchase orders, invoices,
executed bills of lading and other evidence of ownership with respect
to the Equipment;
(iv) UCC financing statements in form and substance satisfactory to CIT
covering the Equipment and the Leases to be filed by CIT against the
Company in all appropriate jurisdictions;
(v) a subordination agreement from the Company's lending banks, First
Bank, National Association, of such bank's interest in any of the
Leases and the Equipment to the interest of CIT, which subordination
agreement shall be satisfactory in form and substance to CIT;
(vi) evidence that the lessor signing each Lease and Related Documents was
duly authorized to do business in each state where the applicable
Customer was then located and where such documents were signed at the
time they were signed by the lessor;
(vii)(a certified copy of resolutions of the directors of the Company
authorizing the transactions contemplated herein and designating the
officer(s) authorized to execute documents on behalf of the Company;
(viii) a guaranty by Sunrise Resources, Inc. of all of the Company's
obligations under this Agreement, which guaranty shall be in form and
substance satisfactory to CIT;
(ix) a certified copy of resolutions of the board of directors of the
Guarantor authorizing such guaranty and designating the officer(s)
authorized to execute and deliver the guaranty on behalf of the
Guarantor; and
(x) (such other documents and instruments as CIT may reasonably request,
duly executed by the Company or its Customers to further implement and
effectuate the purposes of this Agreement. All additional assignments,
schedules and other documentation with respect to the transfer of
Lease to CIT shall be in form and substance reasonable acceptable to
CIT.
(b) In the event that the Company is unable to provide to CIT any of the
foregoing documents, CIT may elect, in its sole discretion, to complete the
purchase of any Leases with respect to which the Company has provided to
CIT all of the items required by this Section 5. If CIT elects to proceed
with the purchase of fewer than all of the Leases, the Purchase Price shall
be adjusted to equal the aggregate Unpaid Balance of those Leases to be
purchased, discounted to present value at the Discount Rate.
(c) No later than December 15, 1996, the Company shall deliver to CIT or cause
CIT to have received from each Customer whose principal place of business
is located in Texas, an estoppel letter in form and substance satisfactory
to CIT signed by the Customer to acknowledge the assignment and sale of
such Lease(s) to CIT and the disclosure of interest rate and to confirm the
Customer's obligations under such Lease(s).
<PAGE>
(d) No later than sixty (60) days after the date hereof, the Company shall
deliver to CIT or cause CIT to have received:
(i) From each Customer with one or more Leases the aggregate Unpaid
Balances of which equal or exceed $200,000 as of the date hereof, an
estoppel letter in form and substance satisfactory to CIT signed by
the Customer to acknowledge the assignment and sale of such Lease(s)
to CIT and to confirm the Customer's obligations under such Lease(s);
and
(ii) Evidence of insurance coverage on the Equipment, insuring CIT's
interest therein and otherwise in form and substance satisfactory to
CIT.
(e) The Company shall promptly deliver to CIT a list of all UCC financing
statements filed by the Company to protect or perfect its interest in the
Equipment together with a copy of each such financing statement. The list
shall identify for each Lease the jurisdiction(s) and filing office(s) and
the date of filing of each financing statement and any amendment or
continuation thereof. In the event CIT or the Company determines that the
Company has not filed effective financing statements in each jurisdiction
necessary to protect or perfect the interest of the Company in the
Equipment, then the Company shall take such action as CIT deems necessary
or appropriate to complete an effective filing. Any failure by the Company
to complete such corrective action within thirty days (30) after the date
of hereof shall constitute a breach of this Agreement entitling CIT to
exercise its rights under Section 10(a) hereof.
(f) In addition to providing the documents listed in this Section 5, the
Company hereby covenants and agrees that the Company shall make available
to CIT the signed original of any document for which a certified copy is
required to be delivered by the Company hereunder for use by CIT in
defending or enforcing its rights under any of the Leases or this
Agreement.
6. Fee and Closing Costs.
In addition to the documents required pursuant to Section 5 to be delivered
to CIT, the Company shall pay to CIT on the Closing Date (a) the Commitment Fee
(as described in that certain letter from CIT to the Company dated October 11,
1996) in the amount of fifty thousand dollars ($50,000) and (b) an amount equal
to the sum of all closing costs incurred by CIT including, without limitation,
recording fees and expenses, recording taxes and record searches, but not
including the cost of document preparation or attorneys' fees incurred by CIT in
connection therewith (collectively, the "Closing Costs"). On the Closing Date,
CIT shall provide the Company a statement of the Closing Costs. The Company and
CIT hereby agree that CIT shall deduct the Commitment Fee and the Closing Costs
from the first installment of the Purchase Price.
7. Warranties of Lease; Documentation.
(a) As to each Lease assigned by the Company to CIT, the Company warrants and
represents that:
(i) as of the Closing Date, such Lease is not in default;
(ii) the Company owns the Equipment subject to such Lease free and clear of
all liens, claims and encumbrances other than the rights of the
Customer under such Lease, the Company has filed UCC financing
statements in all appropriate jurisdictions and has taken all other
action necessary to protect or perfect its interest in the Equipment
and upon the filing of UCC financing statements by CIT against the
Company, CIT shall have a valid first priority security interest in
such Equipment;
(iii)such Lease and all Related Documents are true, valid, genuine,
binding and enforceable in accordance with their respective terms;
(iv) the Lease is the only agreement with respect to the Equipment
described therein;
<PAGE>
(v) the signed original counterpart of the Lease delivered by the Company
to CIT is either the only copy of such Lease actually signed by the
Lessee or the only signed original of such Lease marked as the
"Original" and each other signed copy of such Lease is marked as a
"Duplicate" and the Lease contains a provision to the effect that no
security interest in the Lease may be created or perfected by
possession of such other signed copy;
(vi) the Lease is and will continue to be free from defenses, setoffs and
counterclaims of any kind and no suit or any legal action or
proceeding, administrative, judicial or otherwise has been brought or
threatened to be brought by or against the Company in connection
therewith;
(vii)all signatures, names, addresses, amounts and other statements of
fact contained in the Lease are true and correct;
(viii)the Equipment has been delivered to the Customer under the Lease and
has been unconditionally accepted by and is presently in the actual
possession of and being used by the Customer in its business
operations and is in good operating condition;
(ix) the Company has no knowledge of any denial of liability or the
assertion of any claim of invalidity or other defense by the Customer
on such Lease;
(x) any discounts or adjustments to which the Company has agreed are
written and apparent on the face of such Lease being offered to CIT;
(xi) the Company has complied through the Closing Date, and it shall
thereafter continue to comply, with all of its warranties and other
obligations with respect to the Equipment covered by the Lease to the
extent provided in the Lease and Related Documents;
(xii) the Lease conforms to all applicable laws and regulations;
(xiii)the Company has not sold, assigned or encumbered the Lease or the
Equipment covered thereby to others or done any act to impair the
validity or enforceability of the Lease;
(xiv)the substance and form of any document used by the Company is and
will be legally sufficient and enforceable and in full compliance with
any and all applicable Federal, State or local laws, regulations and
rules;
(xv) the Customer under such Lease has taken all necessary corporate or
other action and has obtained all necessary permits or authorizations
with respect to its execution and delivery of such Lease and its
performance thereof;
(xvi)the computation of all interest, fees and other charges, if any,
under the Lease has been accurately made and charged and is in full
conformity with all applicable laws and regulations;
(xvii)the Company's records pertaining to the Lease are accurate in all
material respects, no installment of rent or other amount due
thereunder is past due as of the date hereof and Schedule A to this
Agreement reflects accurately for such Lease the full and correct
legal name of the Customer, the principal place of business of the
Customer, the location of the equipment covered by such Lease, the
term of the Lease, the number of rental payments remaining due as of
the Closing Date, the amount of each rental payment and the day of the
month on which such rental payments become due and payable;
<PAGE>
(xviii) the transaction giving rise to such Lease and the delivery of the
Equipment to the Customer conform with all applicable laws, rules or
regulations and the agreements between the Customer and the Company
with respect thereto;
(xix)no payments have been made on such Lease by the Company, any
affiliate or by a merchant who referred the Customer to the Company;
(xx) neither the Customer nor any endorser or guarantor thereof is the
subject of any bankruptcy or insolvency proceeding;
(xxi)any insurance policies, certificates and coverages relating to the
Equipment subject to such Lease conform with all applicable laws and
regulations;
(xxii) as of the date hereof, no item of Equipment covered thereby has been
destroyed, repossessed, sold or substantially damaged;
(xxiii) (the Equipment described in such Lease is adequately covered by
enforceable casualty insurance.
(b) The Company shall not, without the prior written consent of CIT waive,
modify, extend, renew, release, or discharge the terms of any Lease or
release any Equipment covered thereby, repossess any Equipment or consent
to the return thereof or accept collections payable thereunder (except
payments due under any Lease prior to the Closing Date).
(c) In purchasing any Lease under this Agreement, the Company acknowledges that
CIT is relying upon the warranties of the Company as to such Lease, and it
agrees that the knowledge of CIT of any breach of any such Lease at the
time of its purchase of any Lease or the failure of CIT to call any such
breach to the attention of the Company, shall not impair, limit or
constitute any waiver of any such warranties or of the obligations of the
Company with respect to such Lease, and that the Company shall remain fully
liable for any such breach. Furthermore, the review of any Lease by CIT and
the furnishing of any comments in respect thereof to the Company, or the
failure to do so in any case, shall not impair, limit or constitute any
waiver of any of the obligations or warranties of the Company with respect
to such Lease.
(d) In the event any filing or recording of any financing statements or
documents are made by CIT, or any such financing statements or documents
are prepared by or the execution thereof are supervised by CIT in respect
of any Lease, it shall be solely for the convenience of the Company and
shall in no way impair, limit or constitute any waiver of the obligations
or warranties of the Company with respect to its obligation to assure due
compliance with any filing requirements.
<PAGE>
8. Waivers; Notification of Customers.
The Company hereby waives presentment, demand, notice of nonpayment, notice of
dishonor and protest as to all Leases sold to CIT hereunder. If any Customer
makes any payment in respect of a Lease to the Company notwithstanding notice to
the Customer directing it to make all future payments to CIT, then the Company
shall transmit and deliver to CIT, immediately upon receipt thereof, all
payments on account of any Lease which the Company may receive subsequent to
CIT's purchase thereof. The Company agrees that CIT may endorse in the Company's
name, all remittances received and all notes or other instruments (if any)
evidencing obligations under the Lease and any assignments thereof. CIT shall in
the ordinary course of business provide the Company with periodic notices of
payment defaults under the Leases in accordance with CIT's usual practices,
provided, however, that the failure of CIT to provide such a notice in any
particular case shall not affect the Company's obligations under this Agreement
or any guaranty thereof or impose any liability upon CIT. The Company agrees
that so long as CIT in good faith believes such action to be appropriate under
the circumstances, CIT may (but it shall not be obligated to) take any of the
following actions with respect to any Lease or any Related Documents, and any
Customer or other party obligated thereunder, without impairing, limiting or
otherwise affecting the obligations of the Company under this Agreement or any
guaranty thereof:
(a) make changes, modifications, amendments or alterations, by operation of law
or otherwise;
(b) grant releases or discharges on terms satisfactory to CIT, or by operation
of law;
(c) settle, compromise or adjust any rights, claims or liabilities;
(d) grant renewals and extensions of time, for payment or otherwise; and
(e) permit the substitution of a Customer or any other party obligated
thereunder.
9. Additional Warranties by the Company.
The Company represents, covenants and warrants to CIT that:
(a) the Company is duly organized, validly existing and in good standing under
the laws of the State of Minnesota and the Company is duly qualified as a
foreign corporation to do business in each state in which the leasing or
ownership of property or the nature of the business of the Company requires
such qualification;
(b) the Company has good and marketable title to all properties and assets,
whether real or personal, shown on the latest balance sheet of the Company
furnished to CIT prior to the execution of this Agreement, subject to no
mortgage, security interest, pledge, lien or encumbrance except as are
shown on said balance sheet and except for current taxes not now in
default, and since the date of the latest balance sheet there has been no
material adverse change in the condition, financial or otherwise, of the
Company from that shown on said balance sheet;
<PAGE>
(c) at the date of such balance sheet, the Company has no material
(individually or in the aggregate) liabilities or obligations of any
nature, whether absolute, accrued, contingent or otherwise, due or to
become due, other than as reflected or reserved against in said balance
sheet, and there have been no material changes since such date and the
Company has no material liability for federal or state income taxes other
than as shown on said balance sheet and except for taxes relating to
operations since the date of said balance sheet and no federal or state tax
deficiency assessment has been made or threatened against the Company and
there is no pending claim of deficiency or recommendation of the assessment
of any deficiency against the Company;
(d) the execution and delivery of this Agreement and the performance thereof by
the Company are not in violation of any provisions of the Company's
articles of incorporation or by-laws or any indenture or mortgage or other
Agreement to which the Company is a party or under which it may be bound;
(e) all of the Leases sold and assigned to CIT hereunder are owned by the
Company free and clear of all security interests, liens, encumbrances and
claims in favor of others;
(f) the Company has taken all necessary corporate action to authorize its
execution, delivery and performance of this Agreement;
(g) during the term of this Agreement the Company will furnish CIT:
(i) within 120 days after the end of each Fiscal Year, a balance sheet and
statements of profit and loss and surplus of the Company as at the end
of such Fiscal Year, all prepared in accordance with generally
accepted principles and practices of accounting consistently applied,
accompanied by a certificate from the chief financial officer of the
Company to such effect, and reviewed by independent certified public
accountants selected by the Company and approved by CIT, such approval
not to be unreasonably withheld,
(ii) within 60 days after the end of each of the first three quarters of
each Fiscal Year, a balance sheet of the Company and statements of
profit and loss and surplus as at the end of such quarter, all
prepared in accordance with generally accepted principles and
practices of accounting consistently applied, and certified by the
chief financial officer of the Company,
(iii)within 180 days after the end of each Fiscal Year, a balance sheet
and statements of profit and loss and surplus of the Guarantor, as at
the end of such Fiscal Year, all prepared in accordance with generally
accepted principles and practices of accounting consistently applied,
accompanied by a certificate from the chief financial officer of the
Company to such effect, and reviewed by independent certified public
accountants selected by the Company and approved by CIT, such approval
not to be unreasonably withheld, and
<PAGE>
(iv) from time to time, such further information regarding the business
affairs and financial condition of the Company as CIT may reasonably
request; and
(h) the chief executive office of the Company is located at the address set
forth above, and the Company shall notify CIT promptly in the event the
chief executive office is relocated during the term of this Agreement.
10. Repurchase of Lease.
(a) In the event that CIT reasonably determines that (i) there has been or may
be any breach of any warranty, representation, covenant or other obligation
of the Company made herein or (ii) the Equipment covered by any Lease shall
have been surrendered, damaged beyond repair, destroyed, abandoned, sold or
otherwise disposed of, or attempted to be disposed of, by the Customer in
violation of the terms of such Lease, or repossessed, then the Company
shall, upon demand by CIT, repurchase any or all of the Leases affected by
such breach or other event and within ten (10) days of such demand pay CIT
the Repurchase Price for such affected Leases. If an event described in
this Subsection 10(a) shall occur, the repurchase of the affected Leases
and payment of the Repurchase Price resulting therefrom shall be made
whether or not the Customer is in default under such Lease.
(b) As to any Lease, in the event the Customer thereunder shall have defaulted
in the payment or performance of one or more of its obligations thereunder
and such default shall have continued uncured by such Customer for 60 days
or more, then CIT shall promptly notify the Company in writing of such
default and the Company shall upon CIT's demand, within ten (10) days of
such demand, repurchase such defaulted Lease and pay CIT the Repurchase
Price therefor. In no event shall the failure of CIT to give a notice of
such default to the Company (x) limit or restrict CIT's rights and remedies
hereunder or under the affected Lease or (y) impose any liability upon CIT.
(c) In the event that any Customer alleges, in a legal proceeding or otherwise,
that any Lease requires such Customer to make payments in violation of any
applicable law which limits or restricts the amount or rate of interest
that may be charged to such Customer by the Lessor under the Lease, then
the Company shall, upon demand by CIT, repurchase any or all of the Leases
affected by such allegation and within ten (10) days of such demand pay CIT
the Repurchase Price for such affected Leases. In addition, the Company
shall indemnify and hold harmless CIT from any injury, loss, liability or
damage arising from any claim that a Lease violates applicable law
including, without limitation, any amount CIT repays or otherwise becomes
liable to pay a Customer, and any expenses (including attorneys' fees) CIT
incurs, in connection with such claim. If an event described in this
Subsection 10(c) shall occur, the repurchase of the affected Leases and
payment of the Repurchase Price resulting therefrom shall be made whether
or not the Customer is in default under such Lease. The obligations of the
Company under this Section 10(c) shall survive the termination of the
Agreement.
(d) In the event that any Customer exercises any option or right it may have
under a Lease to terminate such Lease prior to the end of its Lease Term,
and if the Customer is not required by the terms of such Lease to then make
a payment (the "Early Termination Payment") equal to or greater than the
Repurchase Price at the date of such Early Termination, then the Company
shall promptly, upon demand by CIT, repurchase such Lease and within five
(5) days pay to CIT the Repurchase Price (against which any Early
Termination Payment received by CIT from the Customer will be credited). If
the Early Termination Payment equals or exceeds the Repurchase Price, then
upon receipt thereof, CIT shall retain an amount equal to the Repurchase
Price, reassign the Lease to the Company in the manner provided in Section
12 hereof and remit the remaining balance, if any, of the Early Termination
Payment to the Company.
<PAGE>
(e) Any insurance proceeds received by CIT attributable to Equipment covered by
the affected Lease by reason of the events referred to in Subsection
10(a)(ii) above shall be credited against the Repurchase Price payable by
the Company with respect to such Lease. In the event of any failure by the
Company to repurchase any Lease as required by this Section 10, CIT may
(but shall not be required to) liquidate such Lease, including the
repossession and disposition of Equipment, and the Company shall be liable
for any resulting deficiencies and reasonable expenses incurred in
connection therewith. Any repossessed Equipment may be sold for cash or on
credit and only the net sale proceeds actually received by CIT shall be
considered in computing the deficiency obligation owed by the Company. The
repurchase of any Lease and the payment of any Repurchase Price hereunder
shall not limit or restrict CIT's right to recover any other damages or
expenses resulting from the Company's breach of this Agreement or which are
to be indemnified as hereinafter set forth. The Company agrees to pay
interest on any payment required to be made hereunder by the Company which
is not paid in full when due at the rate of fifteen percent (15%) per annum
(or the highest lawful rate, if less) on the unpaid balance thereof. The
Company acknowledges and agrees that CIT shall not be obligated to apply
any amount of the unpaid Purchase Price as a credit against the Repurchase
Price for any affected Lease.
11. Default by the Company.
In the event:
(a) the Company shall fail timely to repurchase and pay CIT the Repurchase
Price (plus interest accrued thereon, if any) for any Lease as provided in
Section 10; or
(b) the Company defaults in any other payment obligations, or in the
performance or observance of any other covenant, agreement, warranty,
representation, or provision contained in this Agreement or any other
agreement with CIT, and such default shall have continued for a period of
20 days after notice thereof to the Company from CIT, or if the default is
curable but cannot, in CIT's judgment, be cured within said 20-day period,
then within an additional 20 days if the Company commences promptly to cure
such default and pursues its best efforts to cure same with continuity and
diligence; or
(c) the Company defaults in the payment of any indebtedness of the Company
under any agreement or instrument under or pursuant to which any such
indebtedness may have been issued, created, assumed or guaranteed by the
Company and such default shall continue for more than the period of grace,
if any, therein specified, and such indebtedness be declared due and
payable; or
<PAGE>
(d) the Company shall cease to do business as a going concern; admit in writing
its inability to pay its debts generally as they become due; make an
assignment for the benefit of its creditors; commence a proceeding for the
appointment of a receiver, trustee, liquidator or conservator of itself or
of the whole or any substantial part of its property; or a complaint or
petition or answer seeking reorganization or arrangement or any similar
relief under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state is filed by the
Company or against the Company and not dismissed within 60 days; or a court
of competent jurisdiction shall enter an order, judgment or decree
appointing a receiver, trustee, liquidator or conservator (or shall
otherwise assume custody or control) of the Company or of the whole or any
substantial part of its assets; or
(e) any information furnished by or on behalf of the Company to CIT relating to
the sale of the Leases or the financial condition or business affairs of
the Company or the Guarantor is determined by CIT to be false or misleading
in any material respect;
then, if such default shall be continuing, the Company shall at the option of
CIT, without requiring any tender of the Leases, promptly repurchase on demand
all of the Leases then held by CIT for the aggregate Repurchase Price thereof.
Upon the Company's failure, within 10 days after CIT's demand that it do so, to
repurchase all of the Leases then held by CIT pursuant to this Section, the
Company agrees to pay interest on the unpaid balance of the Repurchase Price at
the rate of eighteen percent (18%) per annum (or the highest lawful rate, if
less) until the Repurchase Price is paid in full. Following a default under this
Section 11, CIT shall have no obligation to reassign any Lease to the Company
until the Company has paid all its obligations to CIT hereunder, including
payment of the aggregate Repurchase Price for all of the Leases, and CIT shall
have all of the rights and remedies of a secured party under the Uniform
Commercial Code with respect to each Lease and the Equipment subject thereto and
may at any time sell or otherwise dispose of such Lease or any part thereof in a
commercially reasonable manner at public or private sale, on at least 10 days'
notice to the Company. The proceeds of any Lease and/or of any Equipment may be
applied in full to the payment of the aggregate Repurchase Price whether or not
a deficiency exists with respect to the particular Lease and its related
Equipment. CIT may also apply any unpaid installments of Purchase Price to pay
the Repurchase Price as provided in Section 4 hereof. Until payment therefor,
CIT may (but shall not be required to) liquidate said Lease, including the
repossession and disposition of Equipment, and the Company shall be liable for
any resulting deficiencies from the aggregate Repurchase Price (after
application of unpaid Purchase Price installments, if any), plus all reasonable
costs, charges and expenses incurred in connection therewith, including
reasonable attorneys' fees and other legal expenses not otherwise included in
the Repurchase Price. Any repossessed Equipment may be disposed of for cash or
on credit and the net proceeds received by CIT shall be considered in computing
the deficiency obligation owed by the Company. CIT may also institute an action
against the Company in a court of competent jurisdiction for a judgment in the
amount of the aggregate unpaid Repurchase Price of the Leases then held by it,
plus any interest accrued as provided herein, attorneys' fees, costs and
expenses incurred by it in enforcing its rights and remedies. All rights and
remedies of CIT under this Agreement or any applicable law shall be cumulative.
In all events, CIT shall account to the Company for the balance of any unpaid
installments of Purchase Price.
<PAGE>
12. Reassignment of Lease.
(a) CIT shall reassign the Leases to the Company as provided in this Section
12.
(i) Absent a default under Section 11 hereof, concurrently with the timely
payment by the Company pursuant to Section 10 of the Repurchase Price
for any Lease, CIT shall reassign such Lease to the Company.
(ii) Absent a default under Section 11 hereof and so long as there is no
outstanding demand for repurchase of one or more Leases under Section
10 hereof, promptly after all installments of rent and other amounts
required to be paid under any Lease then held by CIT have been paid to
CIT in full, CIT shall reassign such Lease to the Company.
(iii)In an event of default under Section 11 hereof, upon payment in full
by the Company of all its unpaid obligations hereunder, including
without limitation the aggregate Repurchase Price of all of the Leases
then held by CIT, CIT shall reassign all such Leases as it may then
hold, if any, to the Company.
(b) In each case, such reassignment shall be without recourse and without
representation or warranty except that CIT shall warrant that it has title
to the Leases free and clear of liens and encumbrances created by or
through CIT. At the request of the Company, CIT shall provide the Company
with copies of appropriate documents or computerized material relating to
repurchased Lease showing CIT's payment records in respect thereof. All
financing statements relating to the subject Leases shall be reassigned to
the Company and CIT shall deliver to the Company such original copies of
the Leases and Related Documents as may have been previously delivered to
CIT by the Company. Prior to the repurchase by the Company, CIT shall file
UCC continuation statements, if appropriate, with respect to Leases
assigned to it by the Company under this Agreement; however, any failure of
CIT to file any such continuation statements shall not be a defense to any
repurchase of the related Leases by the Company if any lapse in filing is
subsequently cured by a new filing without any intervening security
interest or lien, or if any such lapse in filing would not otherwise have
caused a loss to the Company in respect of such Lease, or if there is such
a lapse which results in any intervening security interest or lien, then
only to the extent of the actual loss proximately resulting therefrom.
CIT's obligation to reassign Leases under this Section 12 shall not be
deemed to in any way limit the exercise by CIT of its rights and remedies
provided elsewhere in this Agreement, including Section 11 above.
13. Indemnification.
The Company shall indemnify and hold CIT harmless from any liability, loss,
injury or damage, including without limitation, all incidental and consequential
damages, together with all reasonable out-of-pocket costs and expenses relating
thereto, including legal and accounting fees and expenses arising out of or
resulting directly or indirectly from any breach of any of the representations,
warranties, covenants, agreements or any other obligation of the Company
hereunder or under the Leases or Related Documents, except to the extent caused
by CIT's gross negligence or wilful misconduct. Without limiting the generality
of the foregoing, the Company shall indemnify and hold CIT harmless from any
loss or damage arising out of or resulting from the fact that any Equipment is
located outside of the United States. If a claim is made upon CIT at any time
for repayment or recovery of any amount(s) or other value received by CIT, from
any source, in payment of or on account of any of the obligations evidenced by
any Lease purchased by CIT pursuant to this Agreement and CIT repays or
otherwise becomes liable for all or any part of such claim by reason of: (i) any
judgment, decree or order of any court or administrative body having competent
jurisdiction relating to the bankruptcy or insolvency of the Customer, or (ii)
any settlement or compromise of any such claim, the Company shall remain liable
to CIT hereunder for the amount so repaid or for which CIT is otherwise liable
to the same extent as if such amount(s) had never been received by CIT,
notwithstanding any termination of this Agreement or the cancellation of any
Lease evidencing any of the obligations of the Customer thereunder; provided
that such repayment or recovery was not caused by any action or inaction of CIT
other than accepting payment of the amounts in question. The obligations of the
Company under this Section 13 shall survive the termination of this Agreement.
<PAGE>
14. Term of Agreement.
This Agreement shall become effective upon acceptance by CIT at its office in
Atlanta, Georgia, and shall continue in effect so long as any Lease or any other
obligations hereunder shall be outstanding.
15. Modification and Waiver; Complete Agreement.
No modification or waiver of any provision of this Agreement shall be effective
unless such modification or waiver shall be in writing and signed by a duly
authorized officer of CIT and the same shall then be effective only for the
period and on the conditions and for the specific instances and purposes
specified in such writing. This Agreement and the related agreements and
documents described herein constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede any and all prior
discussions or agreements. Any unwritten agreements or understandings not
included herein shall not be effective between the parties. Any differences,
including additions or omissions, between this Agreement and the proposal
discussed in the letter of CIT to the Company dated October 11, 1996, are
intentional.
16. Notices; Choice of Law; Successors and Assigns.
All notices, offers, demands or replies by any party to this Agreement to any
other party shall be in writing and (unless otherwise specified) shall be sent
by certified mail, return receipt requested, postage prepaid, by commercial
courier or by hand delivery, addressed, as the case may be,
to CIT at: or to the Company at:
900 Ashwood Parkway, 6th Floor 5500 Wayzata Boulevard, Suite 725
Address Address
Atlanta, GA 30338 Golden Valley, MN 55416
City, State & Zip Code City, State & Zip Code
Attention: Business Center Manager
or to such other person or address as any party shall designate in writing to
the other parties from time to time sent or delivered in like manner, and shall
be effective when sent unless otherwise provided in this Agreement. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York. This Agreement shall be binding upon and inure to the benefit
of the Company and CIT and their respective successors and assigns, but nothing
herein shall give the Company the right to assign this Agreement or its rights
hereunder without the express prior written consent of CIT.
17. Facsimile Signatures.
The parties may sign this Agreement in any number of counterparts and on
separate counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument. The parties agree that
the execution and transmittal of this Agreement by facsimile shall be of the
same binding effect on the party so executing the Agreement as the handwritten
execution upon an original copy of the Agreement. The parties agree that they
will promptly forward to the others an executed original of the Agreement
transmitted by facsimile, but that the failure of a party to do so or the
absence of arrival of any such executed Agreement shall have no effect on the
binding nature of the Agreement transmitted by facsimile.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
THE CIT GROUP/EQUIPMENT FINANCING, INC. SUNRISE LEASING CORPORATION
By /s/ Claire F. Laury By /s/ R. Bradley Pike
Name Claire F. Laury Name R. Bradley Pike
Title Vice President Title Vice President
<PAGE>
GUARANTY
To: The CIT Group/Equipment Financing, Inc.
This guaranty is being given in connection with the Portfolio Purchase Agreement
dated November 27th, 1996 (the "Agreement") between Sunrise Leasing Corporation,
as seller ("Sunrise Leasing"), and The CIT Group/Equipment Financing, Inc. as
buyer.
The undersigned, Sunrise Resources, Inc., requests that you to enter into the
foregoing Agreement and to induce you to do so and in consideration thereof and
of benefits to accrue to us therefrom, we, as a primary obligor, unconditionally
guarantee to you that Sunrise Leasing will fully and promptly pay and perform
all of its obligations to you under the Agreement, whether direct or indirect,
joint or several, absolute or contingent, secured or unsecured, matured or
unmatured and whether originally contracted with you or otherwise acquired by
you, irrespective of any invalidity or unenforceability of any such obligation
or the insufficiency, invalidity or unenforceability of any security therefor.
We further agree that, without your first having to proceed against Sunrise
Leasing or to liquidate paper or any security therefor, we will pay on demand
all sums due and to become due to you from Sunrise Leasing and all losses,
costs, attorneys' fees or expenses which may be suffered by you by reason of a
default by Sunrise Leasing or default of the undersigned, and we agree to be
bound by and on demand to pay any deficiency established by a sale of the
Agreement and/or security held, with or without notice to us. This guaranty is
an unconditional guarantee of payment and performance. No guarantor shall be
released or discharged, either in whole or in part, by your failure or delay to
perfect or continue the perfection of any security interest in any property
which secures the obligations of Sunrise Leasing to you under the foregoing
Agreement, or to protect the property covered by such security interest.
No termination hereof shall be effective except by notice sent to you by
certified mail return receipt requested naming a termination date effective not
less than 90 days after the receipt of such notice by you, and no termination
hereof shall affect any transaction effected prior to the effective date of
termination.
The undersigned hereby waives notice of acceptance hereof; presentment, demand,
protest and notice of nonpayment or protest as to the foregoing Agreement; any
and all rights of subrogation, reimbursement, indemnity, exoneration,
contribution or any other claim which we may now or hereafter have against the
Sunrise Leasing or any other person directly or contingently liable for the
obligations guaranteed hereunder, or against or with respect to the property of
Sunrise Leasing (including, without limitation, property collateralizing its
obligations to you), arising from the existence or performance of this guaranty;
all other demands and notices required by law; all setoffs and counterclaims;
and any duty on your part (should such duty exist) to disclose to any of us any
matter, fact or thing related to the business operations or condition (financial
or otherwise) of Sunrise Leasing or its affiliates or property, whether now or
hereafter known by you.
You may at any time without our consent, without notice to us and without
affecting or impairing the obligation of us hereunder, do any of the following:
(a) renew, extend (including extensions beyond the original term of the
Agreement), modify, release or discharge any obligations of Sunrise
Leasing, its customers, of co-guarantors (whether hereunder or under a
separate instrument) or of any other party at any time directly or
contingently liable for the payment of the obligations of Sunrise Leasing
under the Agreement;
<PAGE>
(b) accept partial payments of the obligations of Sunrise Leasing under the
Agreement;
(c) accept new or additional documents, instruments or agreements relating to
or in substitution of the obligations of Sunrise Leasing under the
Agreement;
(d) settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of the obligations of Sunrise Leasing under the
Agreement and the security therefor in any manner;
(e) consent to the transfer or return of the security, and take and hold
additional security or guaranties for the obligations of Sunrise Leasing
under the Agreement;
(f) amend, exchange, release or waive any security or guaranty; or
(g) bid and purchase at any sale of any security for the Agreement and apply
any proceeds or security, and direct the order and manner of sale.
If a claim is made upon you at any time for repayment or recovery of any
amount(s) or other value received by you, from any source, in payment of or on
account of any of the obligations of Sunrise Leasing guaranteed hereunder and
you repay or otherwise become liable for all or any part of such claim by reason
of:
(a) any judgment, decree or order of any court or administrative body having
competent jurisdiction; or
(b) any settlement or compromise of any such claim,
we shall remain liable to you hereunder for the amount so repaid or for which
you are otherwise liable to the same extent as if such amount(s) had never been
received by you, notwithstanding any termination hereof or the cancellation of
any note or other agreement evidencing any of the obligations of Sunrise
Leasing.
This guaranty shall bind our successors and assigns, and shall inure to your
successors and assigns, including, but not limited to, any party to whom you may
assign the Agreement, we hereby waiving notice of any such assignment. All of
your rights are cumulative and not alternative.
<PAGE>
By execution of this guaranty, the guarantor hereunder agrees to waive all
rights to trial by jury in any action, proceeding or counterclaim on any matter
whatsoever arising out of, in connection with, or related to this guaranty.
Executed November 27, 1996
SUNRISE RESOURCES, INC.
By: /s/ R. Bradley Pike
Name/Title: R. Bradley Pike, Vice President
Address:
WITNESS:
By: /s/ Racheal J. Cano
Secretary
EXHIBIT 11.1
SUNRISE RESOURCES, INC. AND SUBSIDIARIES
PER SHARE EARNINGS COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------------ -----------------------------------
1996 1995 1996 1995
----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Weighted average number of
common shares outstanding 7,189,000 7,189,000 7,189,000 7,189,000
Common stock equivalents from
assumed exercise of options and
warrants 31,000 -- 9,000 2,000
---------------- -------------- --------------- ---------------
Total shares 7,220,000 7,189,000 7,198,000 7,191,000
================ ============== =============== ===============
Net income $ 851,000 $ 789,000 $ 2,870,000 $ 2,512,000
================ ============== =============== ===============
Net income per common and
common equivalent share $ 0.12 $ 0.11 $ 0.40 $ 0.35
================ ============== ============== ===============
Fully Dilutive Earnings Per Share:
Weighted average number of
common shares outstanding 7,189,000 7,189,000 7,189,000 7,189,000
Common stock equivalents
from assumed exercise of
options and warrants 31,000 -- 9,000 2,000
--------------- -------------- -------------- ---------------
Total shares 7,220,000 7,189,000 7,198,000 7,191,000
================ ============== =============== ===============
Net income $ 851,000 $ 789,000 $ 2,870,000 $ 2,512,000
================ ============== =============== ===============
Net income per common
and common equivalent share $ 0.12 $ 0.11 $ 0.40 $ 0.35
================ ============== ============== ===============
</TABLE>
Net income per common and common equivalent share is computed using the weighted
average number of shares outstanding during each period. Common equivalent
shares represent the dilutive effects of outstanding stock options and warrants
using the treasury stock method and average market prices during the periods.
The calculation of fully dilutive earnings per share uses the higher of the
ending market price for the period or the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 879022
<NAME> q5fu#txy
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,381,000
<SECURITIES> 0
<RECEIVABLES> 16,999,000
<ALLOWANCES> 3,649,000
<INVENTORY> 178,000
<CURRENT-ASSETS> 118,215,000
<PP&E> 927,000
<DEPRECIATION> 496,000
<TOTAL-ASSETS> 119,825,000
<CURRENT-LIABILITIES> 87,651,000
<BONDS> 0
0
0
<COMMON> 72,000
<OTHER-SE> 32,102,000
<TOTAL-LIABILITY-AND-EQUITY> 119,825,000
<SALES> 32,702,000
<TOTAL-REVENUES> 32,702,000
<CGS> 27,181,000
<TOTAL-COSTS> 27,181,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,521,000
<INCOME-TAX> 2,651,000
<INCOME-CONTINUING> 5,521,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,870,000
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
