-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hie1IkK4zhQVqBj/RN+5Uf10AKpUXOGC+vdyyBukdfOcz2qeDIlCfswOKgDh9UQ/ yAOl5az+XojQgvYXkbXISw== 0000950130-01-500366.txt : 20010329 0000950130-01-500366.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950130-01-500366 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE LAUNDRY SYSTEMS LLC CENTRAL INDEX KEY: 0001063699 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 391927923 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-56857 FILM NUMBER: 1582646 BUSINESS ADDRESS: STREET 1: ALLIANCE LAUNDRY SYSTEMS STREET 2: P.O. BOX 990 CITY: RIPON STATE: WI ZIP: 54971-0990 BUSINESS PHONE: 9207481634 MAIL ADDRESS: STREET 1: ALLIANCE LAUNDRY SYSTEMS STREET 2: P.O. BOX 990 CITY: RIPON STATE: WI ZIP: 54971-0990 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE LAUNDRY CORP CENTRAL INDEX KEY: 0001063697 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 391928505 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-56857-01 FILM NUMBER: 1582647 BUSINESS ADDRESS: STREET 1: RAYTHEON COMMERCIAL LAUNDRY STREET 2: P.O. BOX 990 CITY: RIPON STATE: WI ZIP: 54971-0990 BUSINESS PHONE: 9207481634 MAIL ADDRESS: STREET 1: RAYTHEON COMMERCIAL LAUNDRY STREET 2: P.O. BOX 990 CITY: RIPON STATE: WI ZIP: 54971-0990 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE LAUNDRY HOLDINGS LLC CENTRAL INDEX KEY: 0001063698 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522055893 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-56857-02 FILM NUMBER: 1582648 BUSINESS ADDRESS: STREET 1: RAYTHEON COMMERCIAL LAUNDRY STREET 2: P.O. BOX 990 CITY: RIPON STATE: WI ZIP: 54971-0990 BUSINESS PHONE: 9207481634 MAIL ADDRESS: STREET 1: RAYTHEON COMMERCIAL LAUNDRY STREET 2: P.O. BOX 990 CITY: RIPON STATE: WI ZIP: 54971-0990 10-K405 1 d10k405.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to_________ Commission file number 333-56857 333-56857-01 333-56857-02 ALLIANCE LAUNDRY SYSTEMS LLC ALLIANCE LAUNDRY CORPORATION ALLIANCE LAUNDRY HOLDINGS LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 39-1927923 DELAWARE 39-1928505 DELAWARE 52-2055893 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) P.O. BOX 990 RIPON, WISCONSIN 54971-0990 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (920) 748-3121 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Alliance Laundry Systems LLC Index to Annual Report on Form 10-K Year Ended December 31, 2000 Page ---- CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION.............................................. 3 PART I. ITEM 1. BUSINESS.................................................... 3 ITEM 2. PROPERTIES 14 ITEM 3. LEGAL PROCEEDINGS........................................... 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 16 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS............................. 16 ITEM 6. SELECTED FINANCIAL DATA......................................... 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 28 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................... 63 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS................................ 63 ITEM 11. EXECUTIVE COMPENSATION.......................................... 65 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................... 67 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 70 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.......................................... 73 INDEX TO EXHIBITS............................................... 73 2 CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION This Annual Report includes "forward-looking statements" which appear in a number of places in this Annual Report and include statements regarding the intent, belief or current expectations with respect to, among other things, the ability to borrow funds under the Senior Credit Facility, the ability to successfully implement operating strategies, including trends affecting the business, financial condition and results of operations. All statements other than statements of historical facts included in this Annual Report, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," and located elsewhere herein regarding industry prospects and the Company's financial position are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to have been correct. PART I. ITEM 1. BUSINESS Introduction As used in this Annual Report, unless the context requires otherwise, references to "Alliance" or the "Company" (i) with respect to periods prior to the Merger (as defined below) refer to Alliance Laundry Holdings LLC (the "Parent," formerly known as Raytheon Commercial Laundry LLC prior to the Merger) and its predecessors and subsidiaries, (ii) with respect to periods subsequent to the Merger, refer collectively to Alliance Laundry Systems LLC and its subsidiaries and (iii) when used with regard to financial data refer to the consolidated financial results of Alliance Laundry Holdings LLC and Alliance Laundry Systems LLC. As used herein, the term "stand alone commercial laundry equipment" refers to commercial laundry equipment excluding drycleaning equipment and custom engineered, continuous process laundry systems and the term "stand alone commercial laundry industry" includes laundromats, multi-housing laundries and on-premise laundries and excludes drycleaners and continuous process laundries. On May 5, 1998, pursuant to an Agreement and Plan of Merger ("Merger Agreement") among Bain/RCL, L.L.C., a Delaware limited liability company ("Bain LLC"), RCL Acquisitions LLC ("MergeCo"), the Parent and Raytheon Company ("Raytheon"), MergeCo was merged with and into the Parent (the "Merger") with the Parent being the surviving entity. Prior to the Merger, Raytheon owned 100% of the equity securities of the Parent, and Bain LLC, the BRS Investors (as defined below), and certain members of senior management (the "Management Investors") of the Parent owned 100% of the equity securities of MergeCo. As a result of the Merger, Bain LLC, the BRS Investors and the Management Investors acquired 93% of the common equity of the Parent. Simultaneous with the consummation of the Merger, the Parent contributed substantially all of its assets and liabilities to the Company. Immediately after the consummation of the Merger, the Company became the only direct subsidiary of the Parent and succeeded to substantially all of the assets and liabilities of the Parent. Alliance is the leading designer, manufacturer and marketer of stand alone commercial laundry equipment in North America and a leader worldwide. Under the well-known brand names of Speed Queen, UniMac and Huebsch, the Company produces a full line of commercial washing machines and dryers with load capacities from 16 to 250 pounds. The Company believes it has had the leading market 3 share in the North American stand alone commercial laundry equipment industry for the last five years and has increased its market share from approximately 35% in 1995 to 37% in 2000. The Company attributes its industry leading position to: (i) the quality, reliability and functionality of its products; (ii) the breadth of its product offerings; (iii) its extensive distributor network and strategic alliances with key customers; and (iv) its investment in new product development and manufacturing capabilities. As a result of its market leadership, the Company has an installed base of equipment that it believes is the largest in the industry and that generates significant recurring sales of replacement equipment and service parts. In addition to stand alone commercial laundry equipment, the Company also offers presses and finishing equipment used in the drycleaning segment under the Ajax name (acquired March, 2000). Internationally, the Company has developed targeted opportunities, generating revenue of $35.5 million, $36.8 million and $37.7 million in 2000, 1999 and 1998, respectively. In addition, pursuant to an agreement which concluded September 17, 1999, the Company supplied consumer washing machines to Amana Company, L.P. ("Appliance Co.") for sale at retail. For 2000, 1999 and 1998 the Company generated net revenues of $265.4 million, $314.4 million and $331.7 million and EBITDA (as defined in Item 6 - Selected Financial Data) of $46.0 million, $51.0 million and $44.2 million, respectively. The Company believes it has developed the most extensive distribution networks to each of the three distinct customer groups within the North American stand alone commercial laundry equipment industry: (i) laundromats; (ii) multi-housing laundries, consisting primarily of common laundry facilities in apartment buildings, universities and military installations; and (iii) on-premise laundries, consisting primarily of in-house laundry facilities in hotels, hospitals, nursing homes and prisons. The Company estimates that in over 80% of the North American market its laundromat and on-premise laundry distributors are either the number one or number two distributor for their respective selling regions. In addition, the Company's in-house sales force has developed superior relationships with leading route operators that own, install and maintain commercial laundry equipment in multi-housing laundries, a critical factor in enabling the Company to grow its market share. Internationally, the Company sells its laundry equipment through distributors and to retailers. With an investment of over $68.0 million since 1996, the Company has substantially completed the development of many new products, the redesign of existing products and the modernization of its manufacturing facilities in Wisconsin and Florida. The Company believes its considerable investment in its product line and manufacturing capabilities has strengthened and will continue to enhance its market leadership position. Alliance Laundry Corporation ("ALC") is a wholly owned subsidiary of Alliance that was incorporated for the sole purpose of serving as a co-issuer of the Series B 9 5/8% Senior Subordinated Notes (the "Notes") in order to facilitate the Note offering. ALC does not have any substantial operations or assets of any kind and will not have any revenue. Company Strengths Market Leader with Significant Installed Base. The Company believes it led the North American industry in sales to all customer groups, with a 37% market share overall in 2000. As a result of its leading market position, the Company has achieved superior brand recognition and extensive distribution capabilities. The Company's market position has also allowed it to establish what it believes to be the largest installed base in its industry, which generates a significant level of recurring sales of replacement equipment and service parts and provides a platform for revenue growth. Industry-leading Product Offering. The Company believes its product line leads the industry in reliability, breadth of offerings, functionality and advanced features. Its development team of more than 4 80 engineers and technical personnel, together with its marketing and sales personnel, work with the Company's major customers to redesign and enhance the Company's products to better meet customer needs. For example, the Company's new products emphasize efficiency and new technology, facilitating ease of use as well as improving performance and reliability. In addition, the Company believes it is the only manufacturer in North America to produce a full product line (including topload washers, dryers, frontload washers, washer-extractors and tumbler dryers for all customer groups), thereby providing customers with a single source for all their stand alone commercial laundry equipment needs. Extensive and Loyal Distribution Networks. The Company believes it has developed the industry's most extensive North American distribution networks. The Company estimates its distributors are either the number one or number two distributor for their respective selling regions in over 80% of the North American market. Most of the Company's distributors have been customers for over ten years. In addition, through its in-house sales force the Company has developed excellent relationships with industry-leading route operators, who are direct customers of the Company. The Company believes its strong relationships with its customers are based, in part, on the quality, breadth and performance of its products and on its comprehensive value-added services. Leading National Brands. The Company markets and sells its products under the widely recognized brand names Speed Queen, UniMac, Huebsch and Ajax. A survey commissioned by the Company in 1993 of more than 1,000 commercial laundry distributors and end-users ranked Speed Queen as the leader in terms of brand awareness and as an industry leader for quality and reliability. In the same study, UniMac was ranked a leading brand in the stand alone on-premise laundry industry; Huebsch and Speed Queen ranked first and second, respectively, in customer satisfaction. In addition, in a survey of the drycleaning industry commissioned in 1996 of more than 1,000 drycleaners, Ajax ranked as the leader in terms of brand awareness. Strong and Incentivized Management Team. Led by Chief Executive Officer Thomas L'Esperance, the Company believes it has assembled the strongest management team in the commercial laundry equipment industry. The Company's seven executive officers have over 97 years of combined experience in the commercial laundry equipment and appliance industries. This management team has executed numerous strategic initiatives, including: (i) ongoing refinements to its product offerings; (ii) the development of strategic alliances with key customers; (iii) the implementation of manufacturing cost reduction and quality improvement programs; and (iv) the acquisitions and successful integration of the commercial washer-extractor business of the UniMac Company ("UniMac") and the press and finishing equipment business of American Laundry Machinery Inc. ("Ajax"). In addition, management owns approximately 17% of the Company's common units on a diluted basis. Business Strategy The Company's strategy is to achieve profitable growth by offering a full line of the most reliable and functional stand alone commercial laundry equipment and pressing and finishing equipment, along with comprehensive value-added services. The key elements of the Company's strategy are as follows: Offer Full Line of Superior Products and Services. The Company seeks to satisfy all of a customer's stand alone commercial laundry equipment and pressing and finishing equipment needs with its full line of products and services. The Company seeks to compete with other manufacturers in the commercial laundry equipment industry by introducing new products, features and value-added services tailored to meet evolving customer requirements. In 1999, for example, the Company introduced a new line of small-chassis frontload washers, offering multi-housing laundries increased water and energy efficiency. In addition, in late 2000, the Company introduced its NetMaster(TM) system of technologically 5 advanced laundry products offering multi-housing and laundromat operators more flexibility and accountability. Now operators can program vend prices, cycle times, rinse options and cycle selections from a remote site while auditing machine operation. Develop and Strengthen Alliances with Key Customers. The Company has developed and will continue to pursue long-term alliances and multi-year supply agreements with key customers. For example, the Company is the predominant supplier of new laundry equipment to Coinmach Corporation ("Coinmach"), the largest and fastest growing operator of multi-housing laundries in North America. Continuously Improve Manufacturing Operations. The Company seeks to continuously enhance its product quality and reduce costs through refinements to manufacturing processes. The Company achieves such improvements through collaboration among key customers, suppliers and its engineering and marketing personnel. Since 1995, the Company has progressively reduced manufacturing costs through improvements in raw material usage and labor efficiency, among other factors. Industry Overview The Company estimates that North American stand alone commercial laundry equipment sales were approximately $485.0 million in 2000, of which the Company's equipment revenue represented approximately $181.0 million. The Company believes that North American sales of stand alone commercial laundry equipment have grown at a compound annual rate of approximately 2.2% since 1993. North American commercial laundry equipment sales historically have been relatively insulated from business and economic cycles, given that economic conditions do not tend to affect the frequency of use, or replacement, of laundry equipment. Management believes industry growth will be sustained by continued population expansion and by customers increasingly "trading up" to equipment with enhanced functionality, raising average selling prices. Manufacturers of stand alone commercial laundry equipment compete on their ability to satisfy several customer criteria, including: (i) equipment reliability and durability; (ii) performance criteria such as water and energy efficiency, load capacity and ease of use; (iii) availability of innovative technologies such as cashless payment systems and advanced electronic controls, which improve ease of use and management audit capabilities; and (iv) supply of value-added services such as rapid spare parts delivery, equipment financing and computer aided assistance in the design of commercial laundries. Outside of the stand alone commercial laundry equipment market, the Company does not participate in manufacturing or selling commercial custom engineered, continuous process laundry systems. Until its March 6, 2000 acquisition of the Ajax press and finishing equipment line (see Note 4 - Acquisition of Ajax Product Line), the Company offered only shirt laundering, wetcleaning and drying equipment to the commercial drycleaning equipment market. The dry cleaning and continuous process laundry system segments are distinct from the stand alone commercial laundry equipment segment, employing different technologies and serving different customer groups. Customer Categories. Each of the stand alone commercial laundry equipment industry's three primary customer groups, laundromat operators, multi-housing laundry operators and on-premise laundry operators, is served through a different distribution channel and has different requirements with respect to equipment load capacity, performance and sophistication. For example, equipment purchased by multi-housing route operators is most similar to consumer machines sold at retail, while equipment purchased by laundromats and on-premise laundries has greater durability, delivers increased capacity and provides superior cleaning and drying capabilities. 6 Laundromats. Management estimates that laundromats accounted for approximately 53% of North American stand alone commercial laundry equipment sales in 2000. These approximately 35,000 facilities typically provide walk-in, self-service washing and drying. Laundromats primarily purchase commercial topload washers, washer-extractors and tumblers. Washer-extractors and tumblers are larger-capacity, higher-performance washing machines and dryers, respectively. Laundromats have historically been owned and operated by sole proprietors. Laundromat owners typically rely on distributors to provide equipment, technical and repair support and broader business services. For example, distributors may host seminars for potential laundry proprietors on laundromat investment opportunities. Independent proprietors also look to distributors and manufacturers for equipment financing. Given the laundromat owner's reliance on the services of its local distributor, the Company believes that a strong distributor network in local markets can differentiate manufacturers in serving this customer group. In addition to distributor relationships, the Company believes laundromat owners choose among different manufacturers' products based on, among other things: (i) availability of equipment financing; (ii) reputation, reliability and ease and cost of repair; (iii) the water and energy efficiency of the products (approximately 22% to 25% of annual gross wash and dry revenue of laundromats is consumed by utility costs, according to the Coin Laundry Association ("CLA")); and (iv) the efficient use of physical space in the store (since 15% to 20% of annual gross revenue of laundromats is expended for rent according to the CLA). Multi-housing Laundries. Management believes that multi-housing laundries accounted for approximately 25% of North American stand alone commercial laundry equipment sales in 2000. These laundries include common laundry facilities in multi-family apartment and condominium complexes, universities and military installations. Most products sold to multi-housing laundries are small-chassis topload and frontload washers and small-chassis dryers similar in appearance to those sold at retail to the consumer market but offering a variety of enhanced durability and performance features. For example, topload washers sold to multi-housing laundries typically last up to 12,000 cycles, approximately twice as long as the expected life of a consumer machine. Multi-housing laundries are managed primarily by route operators who purchase, install and service the equipment under contract with building management. Route operators pay rent (which may include a portion of the laundry's revenue) to building management. Route operators are typically direct customers of commercial laundry equipment manufacturers such as the Company and tend to maintain their own service and technical staffs. Route operators compete for long-term contracts on the basis of, among other things: (i) the reputation and durability of their equipment; (ii) the level of maintenance and quality of repair service; (iii) the ability of building management to audit laundry equipment revenue; and (iv) the water and energy efficiency of products. The Company believes reliability and durability are key criteria for route operators in selecting equipment, as they seek to minimize the cost of repairs. The Company also believes route operators prefer water and energy efficient equipment that offers enhanced electronic monitoring and tracking features demanded by building management companies. Given their investments in spare parts inventories and in technician training, route operators are reluctant to change equipment suppliers. Therefore, the Company believes an installed base gives a commercial laundry equipment manufacturer a competitive advantage. 7 On-premise Laundries. Management believes that on-premise laundries accounted for approximately 22% of North American stand alone commercial laundry equipment sales in 2000. On-premise commercial laundries are located at a wide variety of businesses that wash or process textiles or laundry in large quantities, such as hotels and motels, hospitals, nursing homes, sports facilities, car washes and prisons. Most products sold to on-premise laundries are washer-extractors and tumbler dryers, primarily in larger capacities up to 250 pounds. These machines process significantly larger loads of textiles and garments in shorter times than equipment typically sold to laundromats or multi-housing customer groups. Effective and rapid washing (i.e., reduced cycle time) of hotel sheets, for example, reduces both a hotel's linen requirements and labor costs of washing and drying linens. The Company believes that in a typical hotel on-premise laundry, up to 50% of the cost of operations is labor. On-premise laundries typically purchase equipment through a distributor who provides a range of selling and repair services on behalf of manufacturers. As with laundromats, the Company believes a strong distributor network is a critical element of sales success. On-premise laundries select their equipment based on the availability of specified product features, including, among other things: (i) reputation and reliability of products; (ii) load capacity and cycle time; (iii) water and energy efficiency; and (iv) ease of use. In addition, the availability of technical support and service is important in an on-premise laundry operator's selection of an equipment supplier. Drycleaning. Management estimates that North American drycleaning equipment sales were approximately $205.0 million in 2000. The approximately 34,000 drycleaners in North America provide full-service drycleaning and wetcleaning for households. This service includes stain removal, pressing, finishing and packaging. In addition, many commercial drycleaners provide laundry services for water-washable garments, rug cleaning services, and minor alteration and repair services. Drycleaners primarily purchase drycleaning machines, presses and finishing equipment, washer-extractors and small-chassis topload washers and dryers. Drycleaners primarily include independently operated neighborhood cleaners, franchises and specialty cleaners. Drycleaners typically rely on distributors and chemical supply companies to provide equipment, detergents, stain removers, technical support and broader business services. For example, distributors and chemical suppliers provide training seminars on the proper use of equipment and chemicals for cleaning, stain removal and garment finishing. As with laundromats and on-premise laundries, drycleaners typically purchase equipment through a distributor who can provide service parts, repair service and technical support. Drycleaners select their equipment based on the availability of specified product features, including, among other things: (i) reputation and reliability; (ii) load capacity and cycle time; (iii) ease of use and (iv) solvent and energy efficiency. Trends and Characteristics Growth Drivers. The Company believes that continued population expansion in North America has and will drive steady demand for garment and textile laundering by all customer groups purchasing commercial laundry equipment. The Company believes population growth has historically supported replacement and some modest growth in the installed base of commercial laundry equipment. According to the U.S. Census Bureau, the United States population has grown at a compound annual rate of 1.0% since 1989 and is projected to grow at approximately 0.9% per year on average over the next ten years. 8 In addition, customers are increasingly "trading up" to equipment with enhanced functionality, raising average selling prices. For example, the larger national and regional customers in the laundromat and multi-housing customer groups are more likely to take advantage of recently available electronic features, which the Company believes provide such customers with a competitive advantage. Moreover, customers are moving towards equipment with increased water and energy efficiency as the result of government and consumer pressure and a focus on operating cost containment. Limited Cyclicality. North American commercial laundry equipment sales historically have been relatively insulated from business and economic cycles because economic conditions do not tend to affect the frequency of use, or replacement, of laundry equipment. Management believes industry growth will be sustained by continued population expansion and by customers increasingly "trading up" to equipment with enhanced functionality, raising average selling prices. Under all economic conditions, owners of commercial laundries typically delay equipment replacement until such equipment can no longer be economically repaired or until competition forces the owner to upgrade such equipment to provide improved appearance or functionality. The economic life of such equipment and thus timing of replacement of such equipment are also generally unaffected by economic conditions; the economic life of stand alone commercial laundry equipment is generally 7-14 years. International Growth. The Company anticipates growth in demand for commercial laundry equipment in international markets, especially in developing countries where laundry needs are far less sophisticated than in North America. Reducing Customer Operating Costs. The time required to wash and dry a given load of laundry (i.e., cycle time) has a significant impact on the economics of a commercial laundry operation. Accordingly, commercial laundry equipment manufacturers produce equipment that provides progressively shorter cycle times through improved technology and product innovation. This shorter cycle time decreases labor costs and increases the volume of laundry that can be processed in a given time period. Examples of methods of reducing cycle time are: (i) shortening fill, drain and wash times; and (ii) decreasing water extraction time by increasing spin rate. Products Overview. The Company offers a full line of stand alone commercial laundry washers and dryers, with service parts and value-added services supporting its products, under the Speed Queen, Huebsch and UniMac brands throughout North America and in over sixty foreign countries. Additionally, the Company offers presses and finishing equipment under the Ajax brand. The Company's products range from small washers and dryers primarily for use in laundromats and multi-housing laundry rooms to large laundry equipment with load capacities of up to 250 pounds used in on-premise laundries. The Company also benefits from domestic and international sales of service parts for its large installed base of commercial laundry equipment. Internationally, the Company also sells laundry equipment under private label brands. Washers. Washers represented approximately 50% of 2000 net revenues and include washer-extractors, topload washers and frontload washers. Washer-Extractors. The Company manufactures washer-extractors, its largest washer products, to process from 18 to 250 pounds of laundry per load. Washer-extractors extract water from laundry with spin speeds that produce over 300g's of centrifugal force, thereby reducing the time and energy costs for the drying cycle. Sold primarily under the Speed Queen, UniMac and Huebsch brands, these 9 products represented approximately 28% of 2000 net revenues. Washer-extractors that process up to 80 pounds of laundry per load are sold to laundromats, and washer-extractors that process up to 250 pounds of laundry per load are sold to on-premises laundries. Washer-extractors are built to be extremely durable to handle the enormous g-force generated by spinning several hundred pounds of water-soaked laundry. Also, the equipment is in constant use and must be durable to avoid a high cost of failure to the user. In late 1998 the Company introduced its new Water Saving System line of washer-extractors for on-premise laundries. This new line of washer-extractors is designed to obtain up to 32% reduction in water consumption for some applications. The system will also provide substantial reduction in sewer costs, detergent and energy usage for some operators. Topload Washers. Topload washers are small-chassis washers with the capability to process up to 18 pounds of laundry per load with spin speeds that produce up to 150g's. Sold primarily to multi-housing laundries and laundromats under the Speed Queen and Huebsch brands, these products represented approximately 19% of 2000 net revenues. In 1997, the Company introduced its Automatic Balance System ("ABS"), which it believes provides the industry-leading out-of-balance handling. New topload washers with ABS deliver higher g-force, reducing moisture left in the laundry, thereby reducing drying time and energy usage. In late 2000, the Company introduced its NetMaster(TM) system of technologically advanced laundry products offering multi-housing and laundromat operators more business flexibility and accountability. Now operators can program vend prices, cycle times, rinse options and cycle selections from a remote site while auditing machine operation. Frontload Washers. In 1999, the Company introduced a new small-chassis frontload washer with the capability to process up to 18 pounds of laundry per load. Frontload washers are sold under the Speed Queen and Huebsch brands to laundromat and multi-housing customers. The frontload washer's advanced design uses 28% less water compared to commercial topload washers. Furthermore, decreased usage of hot water and superior water extraction in the high g-force spin cycle reduce energy consumption. This new frontload washer is available with front controls (front accessibility complies with Americans with Disabilities Act regulations) and can be purchased with a matching small-chassis dryer (single or stacked). Dryers. Dryers represented approximately 31% of 2000 net revenues and include tumbler dryers, standard dryers and stacked dryers. The Company also sells a new line of stacked combination frontload washers and dryers. Tumbler Dryers. Tumblers are very large dryers with the capability of drying up to 170 pounds of laundry per load. Tumblers represented approximately 20% of 2000 net revenues. Tumblers are sold primarily to laundromats and on-premise laundries under all four of the Company's brands. The Company's new tumbler dryer design, introduced in October 1997, features commonality of internal components between models, reducing parts inventory and improving serviceability. These units have 33% to 50% fewer moving parts as compared to their previous design. In addition, these tumblers require 20% less drying time as compared to the previous design and provides the fastest drying time in the industry. 10 Standard Dryers. Standard dryers are small capacity dryers with the capability to process up to 18 pounds of laundry per load. Sold under the Speed Queen and Huebsch brands, standard dryers (including stacked dryers) represented approximately 11% of 2000 net revenues. In 1997, the Company introduced its newly designed standard dryer, which serves the multi-housing and international consumer markets. The Company believes the dryer's increased capacity, measuring 7.1 cubic feet, is among the largest in the industry. The size of the loading door opening has also been increased to improve loading accessibility. The Company believes that the increased drying capacity and enhanced operational convenience that these improvements provide are critical factors to a customer's product satisfaction. Stacked Dryers and Stacked Frontload Washers and Dryers. To enable its multi-housing customers to conserve valuable floor space, the Company offers a stacked unit consisting of two 18 pound standard dryers and offers a stacked combination unit consisting of an 18 pound frontload washer paired with an 18 pound standard dryer. Presses and Finishing Equipment. Such sales accounted for approximately 4% of 2000 net revenues. Presses and finishing equipment are sold primarily to commercial drycleaners and industrial cleaning plants under the Ajax brand. The Company offers a broad array of presses and finishing equipment such as cabinet presses for shirt finishing; pants and linen presses; collar and cuff presses; shirt sleevers; steam-air garment finishers; and utility presses and accessories. Service Parts. The Company benefits from the recurring sales of service parts to its large installed base. Such sales accounted for approximately 13% of 2000 net revenues. The Company offers immediate response service whereby many of its parts are available on a 24-hour turnaround for emergency repair parts orders. Other Value-Added Services. The Company believes its customers attach significant importance to the value-added services it provides. The Company offers services that it believes are significant drivers of high customer satisfaction, such as equipment financing (which accounted for approximately 2% of 2000 net revenues), laundromat site selection assistance, investment seminar training materials, computer-aided commercial laundry room design, sales and service training for distributors, technical support and service training material. In addition, the Company believes it offers an unmatched range of complementary customer services and support, including toll-free technical support and on-call installation and repair service through its highly trained distributors, and web sites which provide information on all Alliance products and services including downloadable product literature, installation guides and site lay-out tools. The Company believes its extensive service capabilities, in addition to the dependability and functionality of its products, will continue to differentiate its products from the competition. 11 Customers The Company's customers include more than: (i) 85 distributors to laundromats; (ii) 75 distributors to on-premise laundries; (iii) 49 distributors to drycleaners; (iv) 75 route operators serving multi-housing laundries; and (v) 75 international distributors serving more than 60 countries. The Company's top ten equipment customers accounted for approximately 32% of 2000 net revenues. Coinmach, the largest multi-housing route operator in the United States, PWS Investments, Inc. and Metropolitan Laundry Machinery Co., Inc. were the Company's largest customers, the largest of which, Coinmach, accounted for 13.6% of 2000 net revenues. Sales and Marketing Sales Force. The Company's sales force of 33 is structured to serve the needs of each customer group. In addition, the Company, through a marketing staff of approximately 40 professionals, provides customers and distributors with a wide range of value-added services such as advertising materials, training materials, computer-aided commercial laundry room design, product development and technical service support. Marketing Programs. The Company supports its sales force and distributors through a balanced marketing program of advertising and industry trade shows. Advertising expenses totaled $3.2 million in 2000 and included a variety of forms, from print and electronic media to direct mail. In addition, Company representatives attended over 45 trade shows in 2000 to introduce new products, maintain contact with customers, develop new customer relationships and generate sales leads for the Company's products. Equipment Financing. The Company, through its special purpose financing subsidiaries, offers an extensive off-balance sheet equipment financing program to end-users, primarily laundromat owners, to assist in their purchases of new equipment. Typical terms include 2-9 year loans with an average principal amount of approximately $87,000. Management believes that the Company's off-balance sheet equipment financing program is among the industry's most comprehensive and that the program is an important component of its marketing activities. In addition, this service provides the Company with stable, recurring income. The financing program is structured to minimize risk of loss. The Company adheres to strict underwriting procedures, including comprehensive applicant credit analysis (generally including credit bureau, bank, trade and landlord references, site analysis including demographics of the location and multiple year pro-forma cash flow projections), the receipt of collateral and distributor assistance in remarketing collateral in the event of default. As a result of these risk management tools, losses from the program have been minimal. Net write-offs inclusive of loans sold to third parties since the inception of the program in 1992 have been less than 1% as of December 31, 2000. Research and Development The Company's engineering organization is staffed with over 80 engineers and technical support staff. The Company's recent research and development efforts have focused primarily on continuous improvement in the reliability, performance, capacity, energy and water conservation, sound levels and regulatory compliance of its commercial laundry equipment. The Company's engineers and technical personnel, together with its marketing and sales personnel, collaborate with the Company's major 12 customers to redesign and enhance its products to better meet customer needs. The cumulative research and development spending exceeded $28.5 million for the period 1997 through 2000. The Company has developed numerous proprietary innovations that the Company uses in select products. Over the past three years, the Company has rolled out its MicroMaster line of electronically controlled tumblers and washer-extractors under the Speed Queen brand as well as its CardMate(TM) Plus and NetMaster(TM) debit card cashless systems designed to replace coin operated equipment. The Company believes this array of new products allows it to continue to be an innovative leader in electronic controls equipment. The Company believes improvements made to existing products and the introduction of new products have supported the Company's market leadership position. Competition Within the North American stand alone commercial laundry equipment industry, the Company competes with several large competitors. The Company believes, however, it is the only participant in the North American stand alone commercial laundry equipment industry to serve significantly all three customer groups (laundromats, multi-housing laundries and on-premise laundries) with a full line of topload washers, washer-extractors, frontload washers, tumbler dryers and standard dryers. With respect to laundromats, the Company's principal competitors include Wascomat (the exclusive North American distributor of Electrolux AB products), Maytag Corporation and The Dexter Company. In multi-housing, the principal competitors include Maytag Corporation and Whirlpool Corporation. In on-premise laundry, the Company competes primarily with Pellerin Milnor Corporation, American Dryer Corporation and Wascomat. The Company does not believe that a significant new competitor has entered the North American stand alone commercial laundry equipment industry during the last ten years, however there can be no assurance that significant new competitors or existing competitors will not compete for the business of different customer groups in the future. Within the drycleaning industry, the Company competes primarily with other pressing and finishing equipment and shirt laundering equipment manufacturers. With respect to pressing and finishing equipment, the Company's principal competitors include Unipress Corporation, Forenta, L.P. and Cissell Manufacturing Company (a subsidiary of Laundry Systems Group N.V.). With respect to shirt laundering equipment (primarily washer-extractors) the Company's principal competitors include Wascomat and Pellerin Milnor Corporation. Certain of the Company's principal competitors have greater financial resources and/or are less leveraged than the Company and may be better able to withstand market conditions within the commercial laundry industry. There can be no assurance that the Company will not encounter increased competition in the future, which could have a material adverse effect on the Company's business, financial condition and results of operations. Manufacturing The Company owns and operates two manufacturing facilities located in Wisconsin and Florida with an aggregate of more than 800,000 square feet. The facilities are organized to focus on specific product segments, although each facility serves multiple customer groups. The Ripon plant presently produces the Company's small-chassis topload washers, frontload washers and small chassis dryers, and began producing the Company's tumbler dryers, beginning in the spring of 2000. The Marianna plant produces the Company's large-chassis washer-extractors, and began producing the Company's presses and finishing equipment, beginning in the fall of 2000. The Company's manufacturing plants primarily engage in fabricating, machining, painting, assembly and finishing operations. The Company also 13 operates two product distribution centers, both of which are owned. The Company believes that existing manufacturing facilities provide adequate production capacity to meet expected product demand. The Company purchases substantially all raw materials and components from a variety of independent suppliers. Key material inputs for manufacturing processes include motors, stainless steel, aluminum, electronic controls, corrugated boxes and plastics. The Company believes there are readily available alternative sources of raw materials from other suppliers. The Company has developed long-term relationships with many of its suppliers and has sourced materials from nine of its ten largest suppliers for at least five years. The Company is committed to achieving continuous improvement in all aspects of its business in order to maintain its industry leading position. All of the Company's manufacturing facilities are ISO 9001 certified. ITEM 2. PROPERTIES The following table sets forth certain information regarding significant facilities operated by the Company as of December 31, 2000:
Approximate Location Function/Products Square Feet Owned/Leased Production Facilities Ripon, WI............. Manufacture small washers and dryers, and tumbler dryers 572,900 Owned Marianna, FL......... Manufacture washer-extractors, presses and finishing equipment 259,200 Owned (1) --------- Subtotal 832,100 Regional Distribution Centers Ripon, WI............. Washers, dryers, tumbler dryers 147,500 Owned (2) Ripon, WI............. Service parts 60,800 Owned --------- Subtotal 208,300 Other Ripon, WI............. Sales and administration 65,700 Owned Engineering and procurement 43,100 Owned --------- Subtotal 133,800 --------- Total 1,283,000 =========
(1) The Marianna building is owned, however, the land is leased from the city of Marianna. (2) This distribution facility was constructed in late 2000 on property owned by the Company. The Company believes existing manufacturing facilities provide adequate production capacity to meet product demand. ITEM 3. LEGAL PROCEEDINGS Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against the Company. While the Company cannot predict the outcome of these 14 matters, in the opinion of management, any liability arising thereunder will not have a material adverse effect on the Company's business, financial condition and results of operations after giving effect to provisions already recorded. On February 8, 1999, Raytheon commenced an arbitration under the Commercial Arbitration Rules of the American Arbitration Association in Boston, Massachusetts against the Company, seeking damages of $12.2 million plus interest thereon and attorney's fees for breach of the Merger Agreement based on Raytheon's claim for indemnification for a payment made to a third party allegedly on behalf of the Company and Alliance Laundry following the Closing. An arbitration was conducted pursuant to the terms of the Merger Agreement ("Arbitration"). The Company asserted in the Arbitration that Raytheon owed the $12.2 million to the third party and that neither the Company nor Alliance Laundry was liable for such amount. In addition, the Company and Bain LLC filed counterclaims and claims seeking damages in excess of $30 million from Raytheon. On March 31, 2000, the Arbitrators issued their decision. Pursuant to that decision Raytheon prevailed on its claim and the Company and Bain LLC prevailed on its counterclaims. Ultimately, the Company was required to pay Raytheon $6.8 million, including $1.5 million in interest, in full satisfaction of the arbitration award and after offsetting the amount for price adjustments in favor of the Company which had been agreed to during 1999. The award payment was made on April 13, 2000. Of this amount, $9.9 million plus related costs of $0.6 million was recorded in the first quarter financial statements as an adjustment of members' deficit, consistent with the original recording of the Merger, which was accounted for as a recapitalization. The price adjustments concluded during 1999 had been previously recorded in the financial statements as of and for the period ended December 31, 1999. The related net interest of $1.5 million, including amounts related to prior years, has been included in current year interest expense. Environmental, Health and Safety Matters The Company and its operations are subject to comprehensive and frequently changing federal, state and local environmental and occupational health and safety laws and regulations, including laws and regulations governing emissions of air pollutants, discharges of waste and storm water and the disposal of hazardous wastes. The Company is also subject to liability for the investigation and remediation of environmental contamination (including contamination caused by other parties) at the properties it owns or operates and at other properties where the Company or predecessors have arranged for the disposal of hazardous substances. As a result, the Company is involved, from time to time, in administrative and judicial proceedings and inquires relating to environmental matters. There can be no assurance that the Company will not be involved in such proceedings in the future and that the aggregate amount of future clean-up costs and other environmental liabilities will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that its facilities and operations are in material compliance with all environmental, health and safety laws. Federal, state and local governments could enact laws or regulations concerning environmental matters that affect the Company's operations or facilities or increase the cost of producing, or otherwise adversely affect the demand for, the Company's products. The Company cannot predict the environmental liabilities that may result from legislation or regulations adopted in the future, the effect of which could be retroactive. Nor can the Company predict how existing or future laws and regulations will be administered or interpreted or what environmental conditions may be found to exist at the Company's facilities or at other properties where the Company or its predecessors have arranged for the disposal of hazardous substances. 15 Certain environmental investigatory and remedial work is underway or planned at, or relating to, the Company's Marianna, Florida and Ripon, Wisconsin manufacturing facilities. With respect to the Marianna facility, such work is being conducted by a former owner of the property and is being funded through an escrow account, the available balance of which the Company believes to be substantially greater than remaining remediation costs. With respect to the Ripon facility, such work will be conducted by the Company. The Company currently expects to incur costs of less than $100,000 through 2001 at the Ripon facility to complete remedial work, subject to the Raytheon indemnification described below. There can be no assurance, however, that additional remedial costs will not be incurred by the Company in the future with respect to the Ripon facility. Pursuant to the Merger Agreement, and subject to a three year notice period following the Closing, Raytheon has agreed to indemnify the Company for certain environmental liabilities in excess of $1,500,000 in the aggregate arising from the operations of the Company and its predecessors prior to the Merger, including with respect to environmental liabilities at the Ripon and Marianna facilities. In addition to the Raytheon indemnification, with respect to the Marianna, Florida facility, a former owner of the property has agreed to indemnify the Company for certain environmental liabilities. In the event that Raytheon or the former owner fail to honor their respective obligations under these indemnifications, such liabilities could be borne directly by the Company and could be material. The Company also received an order in 1995 from the U.S. Environmental Protection Agency ("EPA") requiring participation in clean-up activities at the Marina Cliffs site in South Milwaukee, Wisconsin, the location of a former drum reconditioner. EPA asserted that the Ripon facility was a generator of wastes that were disposed of at the Marina Cliffs site. The asserted disposal predated the Company's and Raytheon's ownership of the Ripon facility. The Company believes that EPA also has contacted the prior owner of the facility to assert that the former owner may be liable. There is an established group of potentially responsible parties that are conducting a cleanup of the site. The group has estimated that the cleanup will cost approximately $5 million. The group proposed to settle their alleged claims against the Company, and to protect the Company from further liability at the site, for approximately $100,000. The Company declined the proposal because it believes that any liability related to the site is borne by the Ripon facility's prior owner, and not the Company. The Company has met with EPA to explain its defenses to enforcement of the administrative order. The Company received a General Notice of Potential Liablility on March 21, 2001 regarding an additional 5 acre parcel at the site. The position of the Company remains that any liability related to the site is properly borne by the Ripon facility's owner prior to Raytheon. The Company also believes that, pursuant to the Merger Agreement, Raytheon has an obligation of indemnity to the Company in respect to this matter. However, in the event that the former owner or Raytheon fail to honor their respective obligations, such liabilities could be borne directly by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II. 16 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS There is no established public trading market for any class of common equity of the Company. There was one holder of record of the Company's common equity as of March 28, 2001. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical combined financial data for the two years ended December 31, 1997 and selected historical consolidated financial data for the years ended December 31, 1998, December 31, 1999 and December 31, 2000. For periods prior to the Merger, the historical combined financial information represents the results of the Company. As a result of the Merger, the Company is now a wholly-owned subsidiary of the Parent. Because the Parent is a holding company with no operating activities and provides certain guarantees, the financial information presented herein for periods subsequent to the Merger represents consolidated financial information of the Parent, rather than consolidated financial information of the Company. The selected historical combined financial data for the two years ended December 31, 1997 were derived from the audited combined financial statements of the Company. The summary historical consolidated financial data for the years ended December 31, 1998, December 31, 1999 and December 31, 2000 were derived from audited consolidated financial statements of the Company, which are included elsewhere herein, together with the report of PricewaterhouseCoopers LLP, independent accountants. The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and the notes related thereto of the Company included elsewhere in this Annual Report. Certain amounts for the years ended December 31, 1996 through 1999 have been restated, reflecting certain income statement reclassifications adopted by the Company in the current year.
Years Ended December 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Statements of Income: Net Revenues ........................................................ $ 265,441 $ 314,374 $ 331,714 $ 349,651 $ 319,987 Operating income .................................................... 31,012 38,296 28,846 42,950 34,078 Other income (expense), net ......................................... 354 (1,706) 306 (243) 685 Interest expense .................................................... 35,947 31,509 21,426 -- -- Income (loss) before taxes .......................................... (4,581) 5,081 7,726 42,707 34,763 Net income (loss) (1) ............................................... (4,601) 5,052 5,335 26,276 21,355 Other Operating Data: EBITDA (2) .......................................................... 46,003 50,997 44,241 57,152 45,908 EBITDA before nonrecurring and plant relocation costs (3) ........... 51,456 55,775 51,025 57,152 49,612 Depreciation and amortization ....................................... 17,155 16,969 16,671 14,445 11,145 Non-cash interest expense included in amortization above ............ 2,518 2,562 1,582 -- -- Nonrecurring costs (4) .............................................. 402 3,707 6,784 -- 3,704 Plant relocation costs included in administrative expense (5) ....... 5,051 1,071 -- -- -- Capital expenditures ................................................ 7,445 10,947 7,861 19,990 22,030 Total assets ........................................................ 212,757 219,866 214,204 205,086 209,795 Total debt .......................................................... 336,605 322,048 320,124 -- 1,000
17 (1) Subsequent to the consummation of the Merger, the Company is not a tax paying entity. Historical amounts represent the Company's tax attributes as a division of Raytheon as calculated on a separate return basis. (2) "EBITDA," as presented, represents income before income taxes plus depreciation, amortization (including non-cash interest expense related to amortization of debt issuance costs), cash interest expense and non-cash interest expense on the seller subordinated note. Interest accrued on the seller subordinated note is capitalized annually and will be repaid when the note becomes due. EBITDA is included because management believes that such information provides an additional basis for evaluating the Company's ability to pay interest, repay debt and make capital expenditures. EBITDA should not be considered an alternative to measures of operating performance as determined in accordance with generally accepted accounting principles, including net income as a measure of the Company's operating results and cash flows as a measure of the Company's liquidity. Because EBITDA is not calculated identically by all companies, the presentation herein may not be comparable to other similarly titled measures of other companies. (3) "EBITDA before nonrecurring and plant relocation costs," as presented, represents income before income taxes plus depreciation, amortization (including non-cash interest expense related to amortization of debt issuance costs), plant restructuring costs, other nonrecurring costs, plant relocation costs included in administrative expenses, cash interest expense and non-cash interest expense on the seller subordinated note. EBITDA before nonrecurring and plant relocation costs is included because management believes that such information provides an additional basis for evaluating the Company's ability to pay interest, repay debt and make capital expenditures. EBITDA before nonrecurring and plant relocation costs should not be considered an alternative to measures of operating performance as determined in accordance with generally accepted accounting principles, including net income as a measure of the Company's operating results and cash flows as a measure of the Company's liquidity. Because EBITDA nonrecurring and plant relocation costs is not calculated identically by all companies, the presentation herein may not be comparable to other similarly titled measures of other companies. (4) Nonrecurring costs in 2000 relate to additional medical benefits provided as a part of a plant closure. In 1999 such costs relate to a $2.3 million restructuring charge and $1.5 million associated with payments under retention agreements with certain key employees. In 1998 such costs relate to a $4.5 million restructuring charge and $2.3 million associated with payments under retention agreements with certain key employees. 1996 is associated primarily with reductions in work force. (5) Plant relocation costs in 2000 relate primarily to one-time expenses related to the relocation of Madisonville, Kentucky and Cincinnati, Ohio production lines to Ripon, Wisconsin and Marianna, Florida, respectively. Plant relocations costs in 1999 relate primarily to the relocation of Madisonville, Kentucky production lines to Ripon, Wisconsin and duplication of the Searcy, Arkansas standard dryer and small capacity front load washer production lines in Ripon, Wisconsin. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the Financial Statements and Notes thereto included in this report. The following discussion and analysis of the financial condition and results of operations covers periods before the consummation of the Merger. In connection with the Merger, the Company has entered into financing arrangements and significantly altered its capital structure. As a result of the Merger, the Company is operating as a stand-alone entity for the first time, and the historical financial statements reflect management's estimates of certain costs associated with operating as a stand-alone entity and reflect taxes that are not applicable to the Company following the consummation of the Merger. Accordingly, the results of operations for the periods subsequent to the consummation of the Merger will not necessarily be comparable to prior periods. The Company believes it is the leading designer, manufacturer and marketer of stand-alone commercial laundry equipment in North America and a leader worldwide. Under the well-known brand names of Speed Queen, UniMac, Huebsch and Ajax, the Company produces a full line of commercial washing machines and dryers with load capacities from 16 to 250 pounds as well as presses and finishing equipment. The Company's commercial products are sold to four distinct customer groups: (i) laundromats; (ii) multi-housing laundries, consisting primarily of common laundry facilities in apartment buildings, universities and military installations; (iii) on-premise laundries, consisting primarily of in-house laundry facilities of hotels, hospitals, nursing homes and prisons and (iv) drycleaners. In addition, pursuant to a supply agreement with Appliance Co., the Company supplied consumer washing machines to the consumer appliance business of Appliance Co. for sale at retail. This supply agreement was completed and concluded on September 17, 1999. RESULTS OF OPERATIONS The following table sets forth the Company's historical net revenues for the periods indicated: Year Ended December 31, -------------------------------------- 2000 1999 1998 ------ -------- -------- (Dollars in millions) Net revenues Commercial laundry ................ $230.4 $ 227.0 $ 220.8 Appliance Co. consumer laundry .... -- 54.7 77.2 Service parts ..................... 35.0 32.7 33.7 ------ -------- -------- $265.4 $ 314.4 $ 331.7 ====== ======== ======== The following table sets forth certain condensed historical financial data for the Company expressed as a percentage of net revenues for each of the periods indicated: 19
Year Ended December 31, --------------------------------- 2000 1999 1998 ----- ----- ----- Net revenues .............................. 100.0% 100.0% 100.0% Cost of sales ............................. 74.4% 76.2% 79.1% Gross profit .............................. 25.6% 23.8% 20.9% Selling, general and administrative expense 13.7% 10.5% 10.2% Plant restructuring costs ................. 0.2% 0.7% -- Other nonrecurring costs .................. -- 0.5% 2.0% Operating income .......................... 11.7% 12.2% 8.7% Net income ................................ 1.7% 1.6% 1.6%
Certain percentages for the years ended December 31, 1998 and 1999 have been restated, reflecting income statement reclassifications adopted by the Company in the current year. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Net Revenues. Net revenues for the year ended December 31, 2000 decreased $49.0 million, or 15.6%, to $265.4 million from $314.4 million for the year ended December 31, 1999. This decrease, attributable to lower consumer laundry equipment sales of $54.7 million, was partly offset by increases in commercial laundry revenue, $3.4 million, and service part revenue, $2.3 million. The decrease in consumer laundry revenue was due to the completion and conclusion of the Appliance Co. supply agreement as of September 17, 1999. The increase in commercial laundry revenue was due primarily to higher North American equipment revenue of $8.1 million, which was partly offset by lower international revenue of $1.4 million and lower earnings from the Company's off-balance sheet equipment financing program of $3.2 million. The increase in North American equipment revenue was primarily due to higher revenue for regional laundromats and multi-housing laundries in the first half of 2000, and due to the additional revenue resulting from the March 6, 2000 acquisition of the Ajax press and finishing equipment division. Finance program revenue was lower as a result of a $3.1 million loss recognized in connection with a securitization transaction completed during the fourth quarter of 2000 (see Note 6 to the Financial Statements). Revenue from international customers was lower as the Company's products (priced in U.S. dollars) have become less competitive due to unfavorable exchange rate movements. Gross Profit. Gross profit for the year ended December 31, 2000 decreased $7.0 million, or 9.4%, to $67.9 million from $74.9 million for the year ended December 31, 1999. This decrease was due to the completion and conclusion of the Appliance Co. supply agreement as of September 17, 1999 and lower earnings from the Company's off-balance sheet equipment financing program. Gross profit as a percentage of net revenues increased to 25.6% for the year ended December 31, 2000 from 23.8% for the year ended December 31, 1999. The increase in gross profit as a percentage of net revenues is primarily attributable to the decrease in revenue from consumer laundry equipment, which was at margins substantially below that of the remaining business, offset in part by higher unabsorbed overhead costs caused by lower production volumes and transfers of production between facilities. Selling, General and Administrative Expense. Selling, general and administrative expenses for the year ended December 31, 2000 increased $3.6 million, or 10.9%, to $36.5 million from $32.9 million for the year ended December 31, 1999. The increase in selling, general and administrative expenses was primarily due to an increase of $4.0 million in one-time expenses related to the relocation of 20 Madisonville, Kentucky and Cincinnati, Ohio production lines to Ripon, Wisconsin and Marianna, Florida, respectively, as well as incremental selling, general and administrative expenses associated with the Ajax product line, and partly offset by lower sales promotion, legal and pension expenses in 2000. Selling, general and administrative expenses as a percentage of net revenues increased to 13.7% for the year ended December 31, 2000 from 10.5% for the year ended December 31, 1999, with the increase driven primarily by the lower revenue from Appliance Co., which incurred very little in selling, general and administrative expenses and also driven by the higher one-time expenses related to the product line relocations. Plant Restructuring Costs. Plant restructuring costs for the year ended December 31, 2000 decreased $1.9 million, or 82.2%, to $0.4 million from $2.3 million for the year ended December 31, 1999. These costs are all related to the closure of the Company's Madisonville, Kentucky manufacturing facility. See Note 5 - Nonrecurring Items in notes to Financial Statements. Other Nonrecurring Costs. Other nonrecurring costs for the year ended December 31, 1999 were $1.5 million, with no other nonrecurring costs incurred for the year ended December 31, 2000. The 1999 other nonrecurring costs were comprised entirely of employee retention costs. See Note 5 - Nonrecurring Items in notes to Financial Statements. Operating Income. As a result of the aforementioned, operating income for the year ended December 31, 2000 decreased $7.3 million, or 19.0%, to $31.0 million from $38.3 million for the year ended December 31, 1999. Operating income as a percentage of net revenues decreased to 11.7% for the year ended December 31, 2000 from 12.2% for the year ended December 31, 1999. Interest Expense. Interest expense for the year ended December 31, 2000 increased $4.4 million, or 14.1%, to $35.9 million from $31.5 million for the year ended December 31, 1999. The increase is primarily attributable to higher interest rates, the $1.5 million of net interest expense associated with the Raytheon arbitration award, and borrowings from the revolving line of credit used in connection with the Raytheon arbitration award (see Note 14 - Commitments and Contingencies in the Financial Statements) and the acquisition of the Ajax product line (see Note 4 - Acquisition of Ajax Product Line in the Financial Statements). Other Income (Expense), Net. Other income for the year ended December 31, 2000 was $0.4 million as compared to other expense of $1.7 million for the year ended December 31, 1999. The 2000 other income is comprised entirely of gains on the sale of fixed assets. The 1999 other expense is comprised of a $1.5 million legal settlement resulting from the Appliance Co. settlement agreement (see Note 14 - Commitments and Contingencies in the Financial Statements) and $0.2 million related to losses on the sale of fixed assets. Net Income (Loss). As a result of the aforementioned, net income for the year ended December 31, 2000 decreased $9.7 million to a net loss of $4.6 million as compared to net income of $5.1 million for the year ended December 31, 1999. Net income as a percentage of net revenues decreased to (1.7%) for the year ended December 31, 2000 from 1.6% for the year ended December 31, 1999. 21 Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Net Revenues. Net revenues for the year ended December 31, 1999 decreased $17.3 million, or 5.2%, to $314.4 million from $331.7 million for the year ended December 31, 1998. This decrease was attributable to lower consumer laundry equipment revenue of $22.5 million and service part revenue of $1.0 million partly offset by increases in commercial laundry revenue of $6.2 million. The decrease in consumer laundry revenue is due to the completion and conclusion of the two year supply agreement with Appliance Co. as of September 17, 1999. The increase in commercial laundry revenue was primarily due to higher revenue from multi-housing laundries, $5.2 million, and laundromats, $5.4 million, which were partly offset by a decrease in revenue from on-premise laundries, $3.3 million, and lower revenue from international customers, $0.9 million. The multi-housing revenue increase was driven by the growth of several key customers. The laundromat revenue increase was driven by the expansion of several regional coin laundry customers. Revenue from on-premise laundries declined primarily as a result of lower government funding for long-term health care facilities. Revenue from international customers was lower due to the Company's closure of its Latin American coin laundromat operations. Gross Profit. Gross profit for the year ended December 31, 1999 increased $5.5 million, or 7.9%, to $74.9 million from $69.4 million for the year ended December 31, 1998. This increase was attributable to manufacturing efficiencies which were partially offset by higher field service expenses of $1.7 million related to a recent new product introduction. Gross profit as a percentage of net revenues increased to 23.8% for the year ended December 31, 1999 from 20.9% for the year ended December 31, 1998. The increase in gross profit as a percentage of net revenues is primarily attributable to the manufacturing efficiencies noted above and the decrease in revenue from consumer laundry equipment, which was at margins substantially below that of the remaining business. Selling, General and Administrative Expense. Selling, general and administrative expenses for the year ended December 31, 1999 decreased $0.9 million, or 2.6%, to $32.9 million from $33.8 million for the year ended December 31, 1998. The decrease in selling, general and administrative expenses was primarily due to lower loss recognition related to reduced sales of trade receivables through the Company's off-balance sheet special purpose entity of $1.5 million, and lower selling, general and administrative expenses resulting from the closure of the Company's Latin American coin laundromat operations of $1.3 million, which were partially offset by costs of being a stand-alone business entity (resulting from the May 5, 1998 Merger). Selling, general and administrative expenses as a percentage of net revenues increased to 10.5% for the year ended December 31, 1999 from 10.2% for the year ended December 31, 1998. Plant Restructuring Costs. Plant restructuring costs for the year ended December 31, 1999 were $2.3 million, with no plant restructuring costs incurred for the year ended December 31, 1998. These costs relate to a $2.3 million charge ($1.9 million was non-cash) associated with recognition of closure costs for the Company's Madisonville, Kentucky manufacturing facility. See Note 5 - Nonrecurring Items in notes to Financial Statements. Other Nonrecurring Costs. Other nonrecurring costs for the year ended December 31, 1999 decreased $5.3 million to $1.5 million from $6.8 million for the year ended December 31, 1998. The 1998 other nonrecurring costs were comprised of employee retention costs of $2.3 million and a restructuring charge of $4.5 million ($3.6 million was non-cash) associated with the closing of the Company's Argentina coin laundromat operations. The 1999 other nonrecurring costs were comprised entirely of employee retention costs. See Note 5 - Nonrecurring Items in notes to Financial Statements. 22 Operating Income. As a result of the aforementioned, operating income for the year ended December 31, 1999 increased $9.5 million, or 32.8%, to $38.3 million from $28.8 million for the year ended December 31, 1998. Operating income as a percentage of net revenues increased to 12.2% for the year ended December 31, 1999 from 8.7% for the year ended December 31, 1998. Interest Expense. Interest expense for the year ended December 31, 1999 increased $10.1 million, or 47.1%, to $31.5 million from $21.4 million for the year ended December 31, 1998. The increase is attributable to incurring a full year of interest expense in 1999 on debt issued in connection with the Merger, whereas 1998 includes only interest expense from the Merger date (May 5, 1998) through December 31, 1998. Other Income (Expense), Net. Other expense for the year ended December 31, 1999 was $1.7 million as compared to other income of $0.3 million for the year ended December 31, 1998. The 1999 other expense is comprised of a $1.5 million legal settlement resulting from the Appliance Co. settlement agreement (see Note 14 - Commitments and Contingencies in notes to Financial Statements) and $0.2 million related to losses on the sale of fixed assets. The 1998 other income is comprised entirely of gains on the sale of fixed assets. Net Income (Loss). As a result of the aforementioned, net income for the year ended December 31, 1999 decreased $0.3 million, or 5.3%, to $5.1 million from $5.3 million for the year ended December 31, 1998. Net income as a percentage of net revenues remained unchanged at 1.6% for the years ended December 31, 1999 and December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES Post-Merger Following the Merger, the Company's principal sources of liquidity are cash flows generated from operations and borrowings under the Company's $75.0 million revolving credit facility (the "Revolving Credit Facility"). The Company's principal uses of liquidity are to meet debt service requirements, finance the Company's capital expenditures and provide working capital. The Company expects that capital expenditures in 2001 will not exceed $10.0 million including all remaining capital expenditures associated with moving the Ajax press and finishing equipment production from Cincinnati to the Marianna, Florida production facility. The Company expects the ongoing requirements for debt service, capital expenditures and working capital will be funded by internally generated cash flow and borrowings under the Revolving Credit Facility. The Company has incurred substantial indebtedness in connection with the Merger. As of December 31, 2000, the Company has $336.6 million of indebtedness outstanding. At December 31, 2000 the Company had outstanding debt of $199.5 million under the Company's term loan facility (the "Term Loan Facility"), $110.0 million of senior subordinated notes, $14.3 million of junior subordinated notes, $0.8 million of borrowings pursuant to a Wisconsin Community Development Block Grant Agreement and $12.0 million of borrowings under the Company's Revolving Credit Facility. At December 31, 2000 the Company had $54.2 million of its $75.0 million Revolving Credit Facility available subject to certain limitations under the Company's $275 million credit agreement, dated May 5, 1998 (the "Senior Credit Facility"). After considering such limitations, the Company could have borrowed $21.7 million at December 31, 2000 in additional indebtedness under the Revolving Credit Facility. 23 The $199.5 million Term Loan Facility amortizes yearly and is repayable in the following aggregate annual amounts: Amount Due ---------- Year (Dollars in ---- millions) 2001................... $ 1.0 2002................... $ 1.0 2003................... $ 20.5 2004................... $ 98.5 2005................... $ 78.5 The Term Loan Facility is also subject to mandatory prepayment with the proceeds of certain debt incurrences, asset sales and a portion of Excess Cash Flow (as defined in the Senior Credit Facility). The Revolving Credit Facility will terminate in 2003. Concurrent with the Closing of the Merger, the Company entered into an asset backed facility, which provides $250.0 million of off-balance sheet financing for trade receivables and equipment loans (the "Asset Backed Facility"). The finance programs have been and will continue to be structured in a manner that qualifies for off-balance sheet treatment in accordance with generally accepted accounting principles. It is expected that under the Asset Backed Facility, the Company will continue to act as originator and servicer of the equipment financing promissory notes and the trade receivables. The Company's ability to make scheduled payments of principal or to pay the interest or liquidated damages, if any, or to refinance its indebtedness, or to fund planned capital expenditures, will depend upon its future performance, which in turn is subject to general economic, financial, competitive and other factors that are beyond its control. Based upon the current level of operations and anticipated growth, management believes that future cash flow from operations, together with available borrowings under the Revolving Credit Facility, will be adequate to meet the Company's anticipated requirements for capital expenditures, working capital, interest payments and scheduled principal payments. There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures after satisfying certain liabilities arising in the ordinary course of business. If unable to do so, the Company may be required to refinance all or a portion of its existing debt, to sell assets or to obtain additional financing. There can be no assurance that any such refinancing would be available or that any such sales of assets or additional financing could be obtained. Historical Cash generated from operations for the twelve months ended December 31, 2000 of $15.3 million was principally derived from the Company's earnings before depreciation and amortization. The working capital investment in accounts receivable at December 31, 2000 of $10.6 million decreased $23.0 million as compared to the balance of $33.6 million at December 31, 1999, which was primarily attributable to selling a higher percentage of accounts receivable through Alliance Laundry Receivable Warehouse ("ALRW"). The working capital investment in accounts payable at December 31, 2000 of $8.8 million decreased $3.6 million as compared to the balance of $12.4 million at December 31, 1999. The accounts payable balance at December 31, 1999 resulted from lower purchases and production in December 2000 as compared to December 1999. Cash generated from operations for the twelve months ended December 31, 1999 of $11.7 million was principally derived from the Company's earnings before depreciation and amortization 24 partially offset by changes in working capital. The working capital investment in accounts receivable at December 31, 1999 of $33.6 million increased $12.2 million as compared to the balance of $21.4 million at December 31, 1998, which was primarily attributable to selling fewer accounts receivable through ALRW. The working capital investment in accounts payable at December 31, 1999 of $12.4 million increased $3.8 million as compared to the balance of $8.6 million at December 31, 1998. The accounts payable balance at December 31, 1998 resulted from lower purchases and production in December 1998 as compared to December 1999. Prior to the Merger, cash had been transferred between the Company and Raytheon based on the Company's cash position. For the period from January 1, 1998 through May 4, 1998, the Company transferred cash to Raytheon of $17.5 million, which was generated substantially through the sale of trade receivables prior to the Merger and from the Company's earnings before depreciation and amortization. Capital Expenditures The Company's capital expenditures for the twelve months ended December 31, 2000 and December 31, 1999 were $7.4 million and $10.9 million, respectively. Capital spending in 2000 was principally related to transitioning tumbler production from the Madisonville manufacturing facility to the Ripon manufacturing facility and construction of the Ripon, Wisconsin distribution center, while spending in 1999 was principally related to transitioning dryer production from Appliance Co. to the Ripon manufacturing facility and reducing manufacturing costs. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and was effective for all fiscal years beginning after June 15, 1999. SFAS No. 133 was subsequently amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133," and will now be effective for fiscal years beginning after June 15, 2000, with early adoption permitted. SFAS No. 133, as amended, requires the Company to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Upon adoption, the Company will be required to report derivative and hedging instruments at fair value in the balance sheet and recognize changes in the fair value of derivatives in net income or other comprehensive income, as appropriate. This statement will be effective for the Company's first quarter of 2001. Given the Company's current derivative and hedging activities, the effect of the adoption will not have a material effect on the Company's results of operations or financial position. In October 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as replacement of SFAS No. 125." The Statement revises certain aspects of the current standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain new and expanded disclosures. The Statement is effective for transfers and servicing of financial assets occurring after March 31, 2001. The Company is in the process of assessing the effects of SFAS No. 140 on its financial statements. In October 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." The consensus concludes on how a transferor that retains an interest in a securitization transaction, or an enterprise that purchases a beneficial interest in securitized financial 25 assets, should account for interest income and impairment. Issue No. 99-20 is required to be adopted by the Company no later than the first quarter of 2001. The Company is currently evaluating the effects of Issue No. 99-20 on its financial statements. FORWARD-LOOKING STATEMENTS With the exception of the reported actual results, the information presented herein contains predictions, estimates or other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, including items specifically discussed in the "Note 14 - Commitments and Contingencies" section of this document. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to differ materially from those expressed or implied by such forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that such plans, intentions, expectations, objectives or goals will be achieved. Important factors that could cause actual results to differ materially from those included in forward-looking statements include: impact of competition; continued sales to key customers; possible fluctuations in the cost of raw materials and components; possible fluctuations in currency exchange rates, which affect the competitiveness of the Company's products abroad; market acceptance of new and enhanced versions of the Company's products; the impact of substantial leverage and debt service on the Company and other risks listed from time to time in the Company's reports, including but not limited to the Company's Registration Statement on Form S-4 (file no. 333-56857). ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is potentially exposed to market risk associated with changes in interest and foreign exchange rates. The Company does not and currently does not intend to hedge exchange rate fluctuations between United States dollars and foreign currencies. However, from time to time, the Company may enter into derivative financial instruments to hedge its interest rate exposures. An instrument will be treated as a hedge if it is effective in offsetting the impact of volatility in the Company's underlying interest rate exposures. The Company does not enter into derivatives for speculative purposes. Revenue from international customers represented approximately 13% of 2000 net revenues. At December 31, 2000, there were no material non-United States dollar denominated financial instruments outstanding which exposed the Company to foreign exchange risk. As noted above, the Company is exposed to market risk associated with adverse movements in interest rates. Specifically, the Company is primarily exposed to changes in the fair value of its $110 million senior subordinated notes, and to changes in earnings and related cash flows on its variable interest rate debt obligations outstanding under the Senior Credit Facility and its retained interests related to trade accounts receivable and equipment loans sold to the Company's special purpose finance subsidiaries. Borrowings outstanding under the Senior Credit Facility totaled $199.5 million at December 31, 2000. The fair value of the Company's senior subordinated notes was approximately $82.5 million based upon prevailing prices in recent market transactions as of December 31, 2000. The Company 26 estimates that this fair value would increase/decrease by approximately $5.7 million based upon an assumed 10% decrease/increase in interest rates compared with the effective yield on the senior subordinated notes as of December 31, 2000. An assumed 10% increase/decrease in the variable interest rate of 9.2% in effect at December 31, 2000 related to the term loan borrowings outstanding under the Senior Credit Facility would decrease/increase annualized earnings and cash flows by approximately $1.9 million. Effective March 10, 1999, the Company entered into a $67 million interest rate swap agreement with a financial institution to hedge a portion of its interest rate risk related to its term loan borrowings under the Senior Credit Facility. Under the swap, which has a term of three years, the Company pays a fixed rate of 4.962% and receives quarterly interest payments based upon LIBOR. The differential between the fixed and floating interest rates under the swap is accrued and is recorded as an adjustment of interest expense. The effect of this agreement on the Company's interest expense during 2000 was a reduction of $1.0 million. The fair value of this interest rate swap agreement which represents the amount that the Company would receive to settle the instrument is $0.7 million at December 31, 2000. An assumed 10% increase/decrease in interest rates under the Asset Backed Facility at December 31, 2000 would not have a material effect on the fair value of the retained interest in sold trade accounts receivable due to the short-term nature of the underlying receivables. Finally, based upon the mix of variable and fixed rate equipment loans sold by the Company, a 10% increase/decrease in interest rates would decrease/increase the fair value of the Company's retained interests at December 31, 2000 of $21.4 million by less than $1.0 million. 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to 2000 Financial Statements:
Page ---- Report of Independent Accountants ...................................................... 29 Consolidated Balance Sheets at December 31, 2000 and 1999 .............................. 30 Consolidated Statements of Income (Loss) for the three years ended December 31, 2000 ... 31 Consolidated Statements of Members' Deficit and Comprehensive Income (Loss) for three years ended December 31, 2000 .............................. 32 Consolidated Statements of Cash Flows for the three years ended December 31, 2000 ...... 33 Notes to Financial Statements .......................................................... 34 Financial Statement Schedules: For the three years ended December 31, 2000 II - Valuation and Qualifying Accounts ............................................. 62
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 28 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Managers and Members of Alliance Laundry Holdings LLC In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Alliance Laundry Holdings LLC at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin March 13, 2001 29 ALLIANCE LAUNDRY HOLDINGS LLC CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, ---------------------- 2000 1999 --------- --------- Assets Current assets: Cash ........................................................... $ 5,091 $ 3,028 Cash-restricted ................................................ 494 956 Accounts receivable (net of allowance for doubtful accounts of $719 and $463 at December 31, 2000 and 1999, respectively) .... 10,575 33,578 Inventories, net ............................................... 37,462 31,282 Prepaid expenses and other ..................................... 8,825 6,160 --------- --------- Total current assets .......................................... 62,447 75,004 Notes receivable ................................................ 24,265 18,314 Property, plant and equipment, net .............................. 53,857 57,615 Goodwill (net of accumulated amortization of $9,720 and $7,746 at December 31, 2000 and 1999, respectively) ...................... 57,327 48,319 Debt issuance costs, net ........................................ 10,583 13,064 Other assets .................................................... 4,278 7,550 --------- --------- Total assets .................................................. $ 212,757 $ 219,866 ========= ========= Liabilities and Members' Deficit Current liabilities: Current portion of long-term debt .............................. $ 1,036 $ 500 Accounts payable ............................................... 8,755 12,362 Finance program obligation ..................................... 3,121 3,551 Revolving credit facility ...................................... 12,000 -- Other current liabilities ...................................... 18,466 21,805 --------- --------- Total current liabilities ..................................... 43,378 38,218 Long-term debt: Senior credit facility ......................................... 198,500 199,500 Senior subordinated notes ...................................... 110,000 110,000 Junior subordinated note ....................................... 14,343 12,048 Other long-term debt ........................................... 726 -- Other long-term liabilities ..................................... 1,671 1,866 --------- --------- Total liabilities ............................................. 368,618 361,632 Mandatorily redeemable preferred equity ......................... 6,000 6,000 Members' deficit ................................................ (161,861) (147,766) --------- --------- Total liabilities and members' deficit ........................ $ 212,757 $ 219,866 ========= =========
The accompanying notes are an integral part of the financial statements. 30 ALLIANCE LAUNDRY HOLDINGS LLC CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands)
Years Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- Net Revenues: Commercial laundry ....................... $ 230,448 $ 226,976 $ 220,831 Appliance Co. consumer laundry ........... -- 54,682 77,184 Service parts ............................ 34,993 32,716 33,699 --------- --------- --------- 265,441 314,374 331,714 Cost of sales ............................. 197,558 239,482 262,319 --------- --------- --------- Gross profit .............................. 67,883 74,892 69,395 --------- --------- --------- Selling, general and administrative expense 36,469 32,889 33,765 Plant restructuring costs ................. 402 2,255 -- Other nonrecurring costs .................. -- 1,452 6,784 --------- --------- --------- Total operating expenses .................. 36,871 36,596 40,549 --------- --------- --------- Operating income ......................... 31,012 38,296 28,846 Interest expense .......................... 35,947 31,509 21,426 Other income (expense), net ............... 354 (1,706) 306 --------- --------- --------- Income (loss) before taxes ............... (4,581) 5,081 7,726 Provision for income taxes ................ 20 29 2,391 --------- --------- --------- Net income (loss) ........................ $ (4,601) $ 5,052 $ 5,335 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 31 ALLIANCE LAUNDRY HOLDINGS LLC CONSOLIDATED STATEMENTS OF MEMBERS' DEFICIT AND COMPREHENSIVE INCOME (LOSS) (in thousands)
Years Ended December 31, ------------------------------------------- 2000 1999 1998 --------- --------- --------- Members' deficit, beginning of year ............................................. $(147,766) $(151,312) $ 148,573 Net income (loss) ............................................................... (4,601) 5,052 5,335 Accumulated other comprehensive income (loss): Net unrealized holding gain on residual interest, beginning of year ............ (127) 2,800 -- Unrealized gain (loss) ......................................................... 699 (2,927) 2,800 --------- --------- --------- Net unrealized holding gain (loss) on residual interest, end of year ........... 572 (127) 2,800 Net cash and noncash transfers to Raytheon ...................................... -- -- (17,450) Issuance of common units ........................................................ -- -- 48,882 Distribution from/(to) Raytheon and related transaction costs ................... (10,507) 1,421 (339,452) Repayment of loans to management ................................................ 314 -- -- --------- --------- --------- Members' deficit, end of year ................................................... $(161,861) $(147,766) $(151,312) ========= ========= ========= Comprehensive income (loss): Net income (loss) .............................................................. $ (4,601) $ 5,052 $ 5,335 Other comprehensive income (loss): Net unrealized holding gain (loss) on residual interest ....................... 699 (2,927) 2,800 --------- --------- --------- Comprehensive income (loss) .................................................... $ (3,902) $ 2,125 $ 8,135 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 32 ALLIANCE LAUNDRY HOLDINGS LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, ----------------------------------------------- 2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) ........................................................ $ (4,601) $ 5,052 $ 5,335 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .......................................... 17,155 16,969 16,671 Restructuring charges .................................................. 402 2,255 4,466 Non-cash junior subordinated note interest ............................. 2,295 1,924 1,124 (Gain) loss on sale of property, plant and equipment ................... (354) 215 (306) Deferred income taxes .................................................. -- -- 180 Changes in assets and liabilities, excluding effects of acquisition opening balance sheet: Accounts and notes receivable ......................................... 12,734 (16,435) 2,615 Inventories ........................................................... (2,992) (839) 3,271 Other assets .......................................................... 263 1,107 (10,049) Accounts payable ...................................................... (4,418) 3,745 (7,298) Finance program obligation ............................................ (192) (475) (10,254) Other liabilities ..................................................... (5,002) (1,856) 1,032 --------- --------- --------- Net cash provided by operating activities .............................. 15,290 11,662 6,787 --------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment ............................... (7,445) (10,947) (7,861) Acquisition of business .................................................. (13,399) -- -- Proceeds on disposal of property, plant and equipment .................... 1,287 739 2,350 --------- --------- --------- Net cash used in investing activities .................................. (19,557) (10,208) (5,511) --------- --------- --------- Cash flows from financing activities: Transfers to Raytheon .................................................... -- -- (15,553) Proceeds from senior term loan ........................................... -- -- 200,000 Proceeds from senior subordinated notes .................................. -- -- 110,000 Proceeds from junior subordinated note ................................... -- -- 9,000 Issuance of mandatorily redeemable preferred equity ...................... -- -- 6,000 Issuance of common units ................................................. -- -- 48,882 Proceeds from long-term debt ............................................. 750 -- Payments of long-term debt ............................................... (500) -- -- Net increase from revolving line of credit borrowings .................... 12,000 -- -- Debt financing costs ..................................................... -- (686) (16,522) Distribution to Raytheon and related transaction costs ................... (5,920) (2,579) (339,452) --------- --------- --------- Net cash provided by (used in) financing activities .................... 6,330 (3,265) 2,355 --------- --------- --------- Increase (decrease) in cash ............................................... 2,063 (1,811) 3,631 Cash at beginning of year ................................................. 3,028 4,839 1,208 --------- --------- --------- Cash at end of year ....................................................... $ 5,091 $ 3,028 $ 4,839 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest ................................................... $ 31,283 $ 27,670 $ 15,579 Non-cash transaction: Recapitalization price adjustment receivable ............................ -- 4,000 --
The accompanying notes are an integral part of the financial statements. 33 ALLIANCE LAUNDRY HOLDINGS LLC NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 (Dollar amounts in thousands unless otherwise indicated) Note 1 - Description of Business and Basis of Presentation: Description of Business Alliance Laundry Holdings LLC (the "Company") designs, manufactures and services a full line of commercial laundry equipment for sale in the U.S. and for export to numerous international markets. The Company also manufactures consumer washing machines for sale to international customers. The Company produces all of its products in the U.S. at two manufacturing plants located in Ripon, Wisconsin and Marianna, Florida. The Company originated from the acquisition of Speed Queen Company ("Speed Queen") by Raytheon Company ("Raytheon") in October of 1979. Speed Queen operated as a separate subsidiary of Raytheon until March 31, 1996 when it was merged into Amana Refrigeration, Inc. ("Amana"), a wholly-owned subsidiary of Raytheon, which manufactured and serviced home appliances. In connection with this consolidation, the Speed Queen legal entity was dissolved and Amana was renamed Raytheon Appliances, Inc. On September 10, 1997, in connection with the sale by Raytheon of its consumer laundry business (see "Sale to Appliance Co."), Raytheon Appliances, Inc. was dissolved. Concurrently, Raytheon Commercial Laundry LLC was established as a limited liability company to carry on the commercial laundry portion of Raytheon's appliance business. Sale to Appliance Co. Historically, the Company reported as one of five operating units comprising Raytheon's appliances division. On September 10, 1997, Raytheon sold three of the five operating units of its appliances division to Amana Company, L.P. ("Appliance Co." or the "Appliance Co. Transaction"). As a result of this sale, Raytheon divested its consumer appliance (including consumer laundry), heating and air conditioning, and commercial cooking operating units, while retaining its commercial laundry and control systems operating units. In connection with the sale, Raytheon also sold to Appliance Co. a laundry manufacturing plant in Searcy, Arkansas ("Searcy"). This plant had been acquired by Raytheon as part of the Speed Queen acquisition. Searcy's operations were predominantly related to the production of consumer laundry equipment (approximately 80% consumer and 20% commercial). Effective September 10, 1997, in connection with the Appliance Co. Transaction, the Company and Appliance Co. entered into two supply agreements. Under the first supply agreement, the Company agreed to purchase small chassis front loading washing machines from Appliance Co. for one year and small chassis dryers, stack dryers, and stack front loading washer/dryer combinations for two years commencing on September 10, 1997. The Company agreed to purchase a minimum of 144,000 machines over the two year period at an approximate cost of $40 million. As of September 10, 1999 the Company discontinued the purchase of all products under this supply agreement. The Company has developed the production capability to produce and is currently producing those products at its Ripon, Wisconsin facility. Under a second agreement (the "Appliance Co. Purchase Agreement"), Appliance Co. agreed to purchase a specified quantity of top loading washing machines from the Company annually over the 34 term of the agreement. This agreement was not renewed and production of washing machines under this agreement was discontinued after September 17, 1999. Basis of Presentation The financial statements as of and for the years ended December 31, 2000 and 1999 present the financial position and results of operations of the Company following the May 1998 recapitalization (the "Recapitalization") and merger discussed in Note 3. The merger has been accounted for as a recapitalization and accordingly, the historical accounting basis of the assets and liabilities is unchanged. The financial statements as of and for the years ended December 31, 2000 and 1999 represent the consolidated financial position and results of operations of the Company, including its wholly-owned direct and indirect subsidiaries, Alliance Laundry Systems LLC and Alliance Laundry Corporation which were formed in connection with the Recapitalization. For the period prior to the Recapitalization, the financial statements present the Company's results of operations and financial position as it operated as a unit of Raytheon, including certain adjustments necessary for a fair presentation of the business. The financial statements presented for the pre-Recapitalization period may not be indicative of the results that would have been achieved had the Company operated as an unaffiliated entity. All material intercompany transactions have been eliminated in the preparation of these financial statements. Note 2 - Significant Accounting Policies: Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash, Cash Equivalents and Cash Management The Company considers all highly liquid debt instruments with an initial maturity of three months or less at the date of purchase to be cash equivalents. Restricted cash at December 31, 2000 and 1999 represent unremitted collections on notes receivable sold prior to May 5, 1998. Revenue Recognition Revenue is recognized by the Company when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred and ownership has transferred to the customer; the price to the customer is fixed or determinable; and collectability is reasonably assured. With the exception of certain sales to international customers, which are recognized upon receipt by the customer, these criteria are satisfied, and accordingly, revenue is recognized upon shipment by the Company. In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 was effective for the Company in the fourth quarter of 2000 and did not have a material effect on the Company's financial statements. 35 The Company sold consumer laundry products manufactured at its Ripon, Wisconsin plant to Appliance Co. and its predecessor Amana until the termination of the supply agreement on September 17, 1999. Sales of consumer laundry products were made to Appliance Co. at amounts approximating 1997 standard costs in accordance with the Appliance Co. Purchase Agreement. Shipping and Handling Fees and Costs During the fourth quarter of 2000, the Company adopted the provisions of the Emerging Issues Task Force ("EITF") Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs." In accordance with the provisions of EITF 00-10, certain shipping and handling fees and costs which the Company had previously recorded on a net basis as a component of selling, general and administrative expenses are reflected in net revenues and cost of goods sold as appropriate. Prior year amounts have been reclassified in the accompanying statements of income (loss) to conform with the requirements of EITF 00-10. Sales Incentive Costs During the fourth quarter of 2000, the Company adopted the provisions of the Emerging Issues Task Force ("EITF") Issue No. 00-14 "Accounting for Certain Sales Incentives." In accordance with the provisions of EITF 00-14, certain sales incentive costs which the Company had previously recorded as a component of selling, general and administrative expenses are reflected in net revenues. Prior year amounts have been reclassified in the accompanying statements of income (loss) to conform with the requirements of EITF 00-14. Financing Program Revenue As discussed below, the Company sells notes receivable and accounts receivable through its special-purpose bankruptcy remote entities. The Company, as servicing agent, retains collection and administrative responsibilities for the notes and accounts receivable. The Company earns a servicing fee, based on the average outstanding balance. In addition, the Company records gains or losses on the sales of notes receivable and accounts receivable in the period in which such sales occur in accordance with Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". The Company also recognizes interest income on notes receivable and other beneficial interests retained in the period the interest is earned. Servicing revenue, interest income on beneficial interests retained, and gains on the sale of notes receivable are included in commercial laundry revenue. Losses on the sale of accounts receivable are recognized in the period in which such sales occur and are included in selling, general and administrative expense. Sales of Accounts Receivable and Notes Receivable (See Notes 6 and 7) According to SFAS No. 125, a transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. The Company sells a significant portion of accounts receivable and notes receivable to third parties through special-purpose bankruptcy remote entities designed to meet the SFAS No. 125 requirements for sale treatment. Accordingly, the Company removed these receivables from its balance sheet at the time of transfer. Prior to the Recapitalization, the special-purpose bankruptcy remote entities included Raytheon Commercial Appliances Receivables Corporation ("RAYCAR") through which the Company sold eligible trade accounts receivable and Raytheon Commercial Appliances Financing Corporation ("RAYCAF") through which the Company 36 sold eligible notes receivable. In connection with the Recapitalization, the Company established Alliance Laundry Receivables Warehouse LLC ("ALRW"), a special-purpose bankruptcy remote entity, to which all eligible trade accounts receivable and eligible notes receivable are sold after May 4, 1998. In a subordinated capacity, the Company retains rights to the residual portion of interest earned on the notes receivable sold. This retained beneficial interest is recorded at its estimated fair value at the balance sheet date. Unrealized gains and losses resulting from changes in the estimated fair value of the Company's retained interests are recorded as other comprehensive income (loss) in accordance with SFAS No. 125. In determining the gain on sales of notes receivable, the investment in the sold receivable pool is allocated between the portion sold and the portion retained, based on their relative fair values. The Company generally estimates the fair values of its retained interests based on the present value of expected future cash flows to be received, using management's best estimate of key assumptions, including credit losses, prepayment rates, interest rates and discount rates commensurate with the risks involved. Inventories Inventories are stated at cost using the first-in, first-out method but not in excess of net realizable value. Property, Plant and Equipment Property, plant and equipment is stated at cost. Betterments and major renewals are capitalized and included in property, plant and equipment while expenditures for maintenance and minor renewals are charged to expense. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated and any resulting gain or loss is reflected in other income (expense). When events or changes in circumstances indicate that assets may be impaired, an evaluation is performed comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, including any related goodwill, to determine if a write-down is required. The straight-line method of depreciation was adopted for all property placed into service on or after January 1, 1999. For property placed into service prior to January 1, 1999, depreciation is computed using a combination of accelerated and straight-line methods. The Company believes the new method will more appropriately reflect its financial results by better allocating costs of new property over the useful lives of these assets. The effect of the change increased net income by approximately $0.2 million in 1999. Depreciation provisions are based on the following estimated useful lives: buildings 40 years; machinery and equipment (including production tooling) 5 to 10 years. Leasehold improvements are amortized over the lesser of the remaining life of the lease or the estimated useful life of the improvement. 37 Intangibles Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired in purchase transactions. Goodwill related to a 1994 acquisition is amortized using the straight line method over approximately 40 years. Goodwill related to the Ajax acquisition (See Note 4) is amortized using the straight-line method over 20 years. Accumulated amortization was $9.7 million and $7.8 million at December 31, 2000 and 1999, respectively. At each balance sheet date, the Company evaluates the realizability of goodwill and other intangibles based on expectations of non-discounted cash flows and operating income. Based on its most recent analysis, the Company believes that no impairment of recorded intangibles exists at the balance sheet date. Debt Issuance Costs In conjunction with the Recapitalization, the Company recorded $17.2 million of debt issuance costs. These costs are being amortized on a straight-line basis over periods ranging from 5 to 10 years. Accumulated amortization was $6.7 million and $4.1 million at December 31, 2000 and 1999, respectively. Warranty Liabilities The cost of warranty obligations are estimated and provided for at the time of sale. Standard product warranties cover most parts for three years and certain parts for five years. Warranty costs were $3.4 million, $5.3 million and $3.6 million in 2000, 1999 and 1998, respectively. Research and Development Expenses Research and development expenditures are expensed as incurred. Research and development costs were $5.8 million, $6.8 million and $8.4 million in 2000, 1999 and 1998, respectively. Advertising Expenses The Company expenses advertising costs as incurred. The Company incurred advertising expenses of $3.2 million, $3.2 million and $3.1 million in 2000, 1999 and 1998, respectively. Income Taxes Historically, the Company's operations had been included in the consolidated income tax returns filed by Raytheon. For periods prior to the Recapitalization, income tax expense in the Company's statement of income was calculated on a separate tax return basis as if the Company had operated as a stand-alone entity. The provision for income taxes was calculated in accordance with SFAS No. 109, "Accounting for Income Taxes", which requires the recognition of deferred income taxes using the liability method. As a result of the Recapitalization, the Company is now a stand-alone limited liability company and is not subject to federal and most state income taxes effective May 5, 1998. Class B and C Units As discussed in Note 3, the Company issued Class B and C Unit interests to certain members of management in connection with the May 5, 1998 recapitalization transaction. These units were issued for nominal consideration based upon the subordinated nature of such interests. The Class B and C 38 Units are considered to represent performance-based compensatory awards for accounting purposes. Compensation expense will be measured each period based upon the estimated fair value of all common units and recognized over the vesting period when it becomes probable that certain target multiples, as defined, will be achieved. No compensation expense related to these units was recognized in 2000, 1999 or 1998. Parent Company Investment Prior to the Recapitalization, the Company received short-term funding from its parent, Raytheon to meet its periodic cash flow needs. No dividends were paid in 1998. Interest expense associated with Raytheon's general corporate debt has not been allocated to the Company. Prior to the Recapitalization, the Company participated in numerous benefit plans of Raytheon (see Note 15). Certain services were provided to the Company by Raytheon, primarily related to treasury, taxes, legal and risk management. The estimated costs of such services have been included in these financial statements. Management believes these allocations are reasonable. Raytheon provided certain supplemental services to the Company related primarily to general tax and legal, audit and human resources which are not material and have been excluded from these financial statements. All transfers to and from Raytheon have been reported in the parent company investment account. Fair Value of Financial Instruments The carrying amounts reported in the statement of assets, liabilities and members' deficit for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term maturity of these financial instruments. The amounts reported for borrowings under the senior credit facility approximate fair value since the underlying instruments bear interest at variable rates that reprice frequently. The fair value of the Company's senior subordinated notes at December 31, 2000 is estimated based upon prices prevailing in recent market transactions. Interest Rate Swaps To limit the effect of increases in interest rates, the Company has entered into an interest rate swap arrangement. The differential between the contract floating and fixed rates is accrued each period and recorded as an adjustment of interest expense. Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk include trade accounts receivable and notes receivable. Concentrations of credit risk with respect to trade receivables and notes receivable are limited, to a degree, by the large number of geographically diverse customers that make up the Company's customer base, thus spreading the credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. Certain Concentrations As discussed in Note 1, the Company had mutual supply agreements with Appliance Co. that terminated in 1999. Consumer topload washers sold to Appliance Co. comprised a substantial percentage of the unit volume of the Ripon facility and represented approximately 17%, and 23% of net revenues in 1999 and 1998, respectively. Upon the termination of the Appliance Co. Purchase 39 Agreement at September 17, 1999, the Company experienced a significant decline in unit volume. This volume decline resulted in an increase in the Company's average cost per unit, due to, among other factors, unabsorbed manufacturing overhead and reduced procurement and manufacturing efficiencies. Future Accounting Changes In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and was effective for all fiscal years beginning after June 15, 1999. SFAS No. 133 was subsequently amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133," and will now be effective for fiscal years beginning after June 15, 2000, with early adoption permitted. SFAS No. 133, as amended, requires the Company to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Upon adoption, the Company will be required to report derivative and hedging instruments at fair value in the balance sheet and recognize changes in the fair value of derivatives in net income or other comprehensive income, as appropriate. This statement will be effective for the Company's first quarter of 2001. Given the Company's current derivative and hedging activities, the effect of adoption will not have a material effect on the Company's results of operations or financial position. In October 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as replacement of SFAS No. 125." The Statement revises certain aspects of the current standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain new and expanded disclosures. The Statement is effective for transfers and servicing of financial assets occurring after March 31, 2001. The Company is in the process of assessing the effects of SFAS No. 140 on its financial statements. In October 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." The consensus concludes on how a transferor that retains an interest in a securitization transaction, or an enterprise that purchases a beneficial interest in securitized financial assets, should account for interest income and impairment. Issue No. 99-20 is required to be adopted by the Company no later than the first quarter of 2001. The Company is currently evaluating the effects of Issue No. 99-20 on its financial statements. Reclassifications Certain amounts in prior year financial statements, as discussed above, have been reclassified to conform to the current year presentation. Note 3 - Recapitalization Transaction: On May 5, 1998, pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among Bain/RCL, L.L.C., a Delaware limited liability company ("Bain LLC"), RCL Acquisitions LLC ("MergeCo"), Raytheon Commercial Laundry LLC and Raytheon Company ("Raytheon"), MergeCo was merged with and into Raytheon Commercial Laundry LLC (the "Merger") with Raytheon Commercial Laundry LLC being the surviving entity. Immediately following the merger Raytheon Commercial Laundry LLC was renamed to "Alliance Laundry Holdings LLC". Prior to the Merger, Raytheon owned 100% of the equity securities of Raytheon Commercial Laundry LLC, and Bain LLC, the BRS Investors (as defined), and certain members of management owned 100% of the equity 40 securities of MergeCo. As a result of the Merger (i) Raytheon's limited liability company interest in Raytheon Commercial Laundry LLC was converted into the right to receive (a) an aggregate amount of cash equal to $339.5 million, subject to pre-closing and post-closing adjustments (b) a junior subordinated promissory note from the Company in the original principal amount of $9.0 million which matures in 2009 (c) preferred membership interests of the Company with a liquidation value of approximately $6.0 million which are mandatorily redeemable in 2009 and (d) common membership units of the Company representing 7% of the total common membership interests of the Company and (ii) Bain LLC's, the BRS Investors' and certain management members' limited liability company interests in MergeCo were converted into the right to receive up to 93% of the total common membership interests of the Company. Simultaneous with the consummation of the Merger and each of the other related transactions (the "Closing"), the Company contributed substantially all of its assets and liabilities to Alliance Laundry Systems LLC, a newly formed limited liability company ("Alliance Laundry"). Immediately after the consummation of the transactions, Alliance Laundry became the only direct subsidiary of the Company and succeeded to substantially all of the assets and liabilities of the Company. Subsequent to May 4, 1998, Alliance Laundry comprises all of the operating activities of the Company. The transactions contemplated by the Merger Agreement (the "Transactions") were funded by: (i) $200.0 million of term loan borrowings by Alliance Laundry; (ii) $110.0 million of senior subordinated notes of Alliance Laundry and Alliance Laundry Corporation due in 2008 (substantially all of the amounts in clauses (i) and (ii) were distributed by Alliance Laundry to the Company to fund the Merger and to fund related fees and expenses); (iii) the issuance by the Company of a junior subordinated promissory note in the original principal amount of $9.0 million; (iv) the issuance by the Company of the mandatorily redeemable preferred membership interests with a liquidation value of $6.0 million; (v) the investors' equity contributions by Bain LLC, the BRS Investors and certain members of management of $47.1 million and (vi) retained equity of Raytheon of $3.5 million. Each of the transactions was conditioned upon consummation of each of the others, and consummation of each of the transactions occurred simultaneously. Note 4 - Acquisition of Ajax Product Line On March 6, 2000, the Company completed the acquisition of selected assets of American Laundry Machinery Inc.'s press and finishing equipment division (d/b/a "Ajax"). Ajax, located in Cincinnati, Ohio, manufactures, designs and markets a line of presses and finishers serving the drycleaning and industrial laundry markets. The cash consideration was approximately $13.1 million. The Company also assumed selective liabilities of approximately $1.2 million related to the product line and recorded acquisition costs of $0.3 million. Assets acquired and liabilities assumed have been recorded at their estimated fair value. The excess of the purchase price over the fair value of the net assets acquired (goodwill) was approximately $11.0 million and is being amortized on a straight-line basis over 20 years. The purchase was financed through the proceeds of trade receivable sales and use of the Revolving Credit Facility. As part of the Ajax acquisition, the Cincinnati facility was closed, and production was transferred to the Company's Marianna, Florida manufacturing facility. As such, a $1.4 million reserve was established in the acquisition opening balance sheet primarily for employee termination and severance benefit charges. The Ajax acquisition has been accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of income include only revenue and expenses of Ajax for the period from March 6, 2000. On a pro-forma basis, this acquisition was not 41 material to the results of operations for the periods presented and, accordingly, such information is not presented. Note 5 - Nonrecurring Items: During the fourth quarter of 1999, the Company recorded a $2.3 million restructuring charge, of which $2.1 million was non-cash, associated with the closing of the Company's Madisonville, Kentucky manufacturing facility. A decision was made to close the Madisonville facility and transfer production to the Ripon, Wisconsin manufacturing facility because of the available capacity at the Ripon facility and the operating synergies that will be recognized. The charge included $1.7 million in employee termination and severance benefit charges, $0.5 million for the estimated loss on fixed assets which were held for disposal, and $0.1 million in miscellaneous costs. Subsequently, in the third quarter of 2000, this reserve was increased by $0.4 million due to additional medical benefits provided as part of the employee terminations. The non-cash portion of employee termination and severance benefits relates to plan curtailment losses recognized in connection with 1999 workforce reductions and the portion of supplemental termination benefits to be funded out of the Company's overfunded pension plans (see Note 15).
Balance at 1999 Utilized December 31, Charge Cash Non-cash 1999 ------- ------- -------- ------------ Write-down of fixed assets ........................... $ 485 $ -- $ (485) $ -- Employee termination and severance benefits .......... 1,739 (20) (1,640) 79 Other ................................................ 31 -- -- 31 ------- ------- ------- ------- Total .............................................. $ 2,255 $ (20) $(2,125) $ 110 ======= ======= ======= ======= Balance at Reallocation Balance at December 31, Utilized and Reserve December 31, 1999 Cash Non-cash Addition 2000 ------------ ------- -------- ------------ ------------ Write-down of fixed assets ............................ $ -- $ -- $ 265 $(265) $ -- Employee termination and severance benefits ........... 79 (777) -- 698 -- Other ................................................. 31 -- -- (31) -- ----- ----- ----- ----- ---- Total ................................................. $ 110 $(777) $ 265 $ 402 $ -- ===== ===== ===== ===== ====
During the fourth quarter of 1998, the Company recorded a $4.5 million restructuring charge associated with the closing of the Company's Latin American coin laundromat operations. A decision was made to close these operations because of continued unprofitable performance. The charge included $1.5 million for the estimated loss on the sale of company-owned drycleaning and laundry stores representing the excess of the carrying value of assets relating to these stores over estimated proceeds from sale, $1.4 million for the write-off of the unamortized balance of the LaveRap tradename and franchise rights which were purchased in 1996 for use in developing coin laundromats in Latin America, $0.9 million for severance and related benefits arising from the termination of 41 employees and $0.7 million for certain other expenses associated with discontinuing the Latin American operations. The Company's planned actions were substantially completed by December 31, 1999. The carrying value of remaining assets held for disposal at December 31, 2000 is not material. At December 31, 2000, the 42 Company had one store remaining and remaining reserves of approximately $0.1 million are expected to be adequate to provide for related costs. The Company's Latin American operations generated no net revenue or operating profit for the twelve months ended December 31, 2000. The Latin American operations generated net revenue of $0.2 million and $2.4 million, and an operating loss of $0.2 million and $1.6 million for the twelve months ended December 31, 1999 and 1998, respectively. The Company entered into retention agreements with certain key executives, managers and commissioned sales people prior to the Recapitalization. During 1999 and 1998, the Company incurred approximately $1.5 million and $2.3 million, respectively, in expense associated with payments under these agreements. Payments under this program were completed in November of 1999. Note 6 - Customer Financing and Sales of Notes Receivable: General Since 1992, the Company offered a variety of equipment financing programs (capital leases) to assist customers in financing equipment purchases. These capital leases were transferred immediately to third parties who administer the contracts and earn all associated interest revenue ("External Financing"). These External Financings have terms ranging from 2 to 9 years and carry market interest rates as set by the third-party lender. These third parties have recourse against the Company ranging from 15% to 100%. At December 31, 2000 and 1999, the uncollected balance of leases with recourse under these programs was $4.4 million and $11.4 million, respectively. In connection with the Recapitalization, Raytheon agreed to indemnify the Company for any recourse obligations arising from these programs. In 1996, the Company established an internal financing organization to originate and administer promissory notes for financing of equipment purchases and laundromat operations. These notes typically have terms ranging from Prime plus 1% to Prime plus 3% for variable rate notes and 9.0% to 15.8% for fixed rate notes. The average interest rate for all notes at December 31, 2000 approximates 11.2% with terms ranging from 2 to 7 years. All notes allow the holder to prepay outstanding principal amounts without penalty, and are therefore subject to prepayment risk. Funding Facilities In connection with the Transactions, the Company entered into a five year $250.0 million revolving loan agreement (the "Asset Backed Facility") through ALRW, its special-purpose single member limited liability company, to finance trade receivables and notes receivable related to equipment loans with Lehman Commercial Paper, Inc. (the "Facility Lender"), an affiliate of Lehman Brothers, Inc. The Asset Backed Facility is a $250.0 million facility, with sublimits of $100.0 million for loans on eligible trade receivables and $200.0 million for loans on eligible equipment loans. With respect to loans secured by equipment loans, the Facility Lender will make loans up to but not exceeding the lesser of 90% of the outstanding principal balance of eligible equipment loans or 90% of the market value with respect to eligible equipment loans, as determined by the Facility Lender in its reasonable discretion. The eligibility of both trade receivables and equipment loans is subject to certain concentration and other limits. In addition, after 24 months in the Asset Backed Facility, an otherwise eligible equipment loan will no longer be considered an eligible equipment loan, subject to two automatic six-month extensions upon payment of a fee if such equipment loans have not been securitized or otherwise disposed of by 43 ALRW. The interest rate of loans under the Asset Backed Facility is generally equal to one-month LIBOR plus 1.0% per annum. The Company as servicing agent retains collection and administrative responsibilities for the notes sold. The Company sold $95.1 million and $85.9 million of notes under this agreement during 2000 and 1999, respectively. The amount of uncollected balances on equipment loans sold to ALRW was $40.4 million and $110.2 million at December 31, 2000 and 1999, respectively. ALRW provides additional credit enhancement to the Facility Lender (consisting of an irrevocable letter of credit, an unconditional lending commitment of the Lenders under the Senior Credit Facility or a cash collateral account) in an amount not to exceed 10% of the aggregate principal amount of loans outstanding under the Asset Backed Facility up to $125.0 million and 5% of the aggregate principal amount of loans outstanding above $125.0 million. The Company is obligated under the reimbursement provisions of the Senior Credit Facility to reimburse the Lenders for any drawings on the credit enhancement by the Facility Lender. If the credit enhancement is not replenished by the Company after a drawing, the Facility Lender will not be obligated to make further loans under the Asset Backed Facility and the Asset Backed Facility will begin to amortize. In addition, at any time when (i) the aggregate principal amount of loans outstanding under the Asset Backed Facility exceeds $125.0 million and (ii) the delinquency or default ratios with respect to trade receivables or equipment loans exceed certain specified levels (an "Excess Spread Sweep Event"), and for four months after a cure of such excess delinquency or default ratios, the collections on the equipment loans (after payment of accrued interest on the loans under the Asset Backed Facility) will be directed into an excess spread sweep account in the name of the Facility Lender until the amount on deposit in such account is equal to five percent of the aggregate principal amount of loans outstanding under the Asset Backed Facility. Early repayment of the loans under the Asset Backed Facility will be required upon the occurrence of certain "events of default," which include: (i) default in the payment of any principal of or interest on any loan under the Asset Backed Facility when due, (ii) the bankruptcy of ALRW, Alliance Laundry or the issuer of the letter of credit or provider of the line of credit, (iii) any materially adverse change in the properties, business, condition or prospects of, or any other condition which constitutes a material impairment of ALRW's ability to perform its obligations under the Asset Backed Facility and related documents, (iv) specified defaults by ALRW or Alliance Laundry on certain of their respective obligations, (v) delinquency, dilution or default ratios on pledged receivables exceeding certain specified ratios in any given month, (vi) the ratio of (a) the indebtedness of Alliance Laundry and its subsidiaries minus indebtedness subordinated to the loans under the Asset Backed Facility to (b) the sum of the tangible net worth of Alliance Laundry and its subsidiaries and the amount of debt subordinated to the loans under the Asset Backed Facility exceeding a specified amount and (vii) a number of other specified events. Under these arrangements the Company acts as servicer or sub-servicer of the accounts receivable and notes receivable sold. As such, the Company continues to administer and collect amounts outstanding on such receivables. At December 31, 2000 and December 31, 1999, the Company had collected approximately $0.5 million and $0.8 million, respectively, of notes receivable which were subsequently transferred to the buyers through a monthly settlement process. At the balance sheet dates, these amounts were recorded as finance program obligations. Prior to the Transactions, the Company through its special-purpose bankruptcy remote entity, RAYCAF, had entered into an agreement with Falcon Asset Securitization Corporation (the "Bank"), a wholly-owned subsidiary of First Chicago/NBD, under which it sold defined pools of notes receivable. Under the terms of the agreement with the Bank, the Bank is paid interest based on the 30-day commercial paper rate plus 0.3% and has recourse against the Company ranging from 15% to 100%. 44 The Company, as servicing agent, retains collection and administrative responsibilities for the notes. In 1998 under this financing program, the Company sold $28.7 million. Notes were no longer sold under this program after May 4, 1998. The total amount uncollected at December 31, 2000 and 1999, was $36.1 million and $57.2 million, respectively. Sales of Notes Receivable Gains on sales of notes receivable and other finance program income in 2000, 1999, and 1998 of approximately $7.3 million, $7.4 million, and $7.7 million, respectively, is included in commercial laundry revenue. At December 31, 2000 and 1999, the Company has included in notes receivable $4.0 million and $11.0 million, respectively, related to its retained interest in notes sold to ALRW. In addition, at December 31, 2000 and 1999, included in other assets is $3.3 million and $6.6 million, respectively, related to the Company's beneficial interest in the residual portion of interest earned on notes sold to ALRW. Pursuant to the terms of the Asset Backed Facility, effective November 28, 2000, the Company, through a new-formed wholly-owned subsidiary, Alliance Laundry Equipment Receivables LLC ("ALER") and Alliance Laundry Equipment Receivable Trust 2000-A ("ALERT"), a trust formed by ALER, completed the securitization of $137.8 million of loans held by ALRW. The transaction was financed by the issuance of $128.2 million of equipment loan backed notes issued by ALERT and certain interests retained by the Company. Proceeds from the issuance of the notes by ALERT were used by ALRW to repay amounts outstanding under the Asset Backed Facility, with the balance received by the Company in settlement of its related retained interests in ALRW. The Company recognized a loss on these related transactions in the fourth quarter of 2000 of $3.1 million, reflecting primarily transaction costs incurred of approximately $1.6 million and the difference between the recorded fair values of assets relating to the cash reserve account established in connection with the transaction and the original amount funded by the Company of $2.4 million. The amount related to the cash reserve account reflects the estimated present value of amounts to be released to the Company from the account based upon the distribution priorities established in connection with the transaction as compared to the amount funded. The Company holds all of the residual equity interests of the trust, which it does not consolidate based upon its special-purpose bankruptcy remote status, and is paid a servicing fee equal to 1.0% of the aggregate balance of loans held by the trust. Key economic assumptions used in measuring retained interests at the date of transfer resulting from sales of notes receivable completed during the year ended December 31, 2000 were as follows: Average Prepayment speed (per annum) 25.25% Weighted-average life (in months) 34.4 Expected credit losses (per annum) 0.6% Residual cash flows discounted at 12.0% - 14.0% At December 31, 2000 key economic assumptions and the sensitivity of the current fair value estimates of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows: 45 Carrying amount / fair value of retained interests $ 21,388 Prepayment speed assumption: Impact on fair value of 10% adverse change 213 Impact on fair value of 20% adverse change 427 Expected credit losses: Impact on fair value of 10% adverse change 174 Impact on fair value of 20% adverse change 348 Residual cash flow discount rate: Impact on fair value of 10% adverse change 409 Impact on fair value of 20% adverse change 803 These sensitivities are hypothetical and the effect of a variation in a particular assumption on the estimated fair value of retained interests is calculated without changing any other assumptions; in reality, changes in one factor may result in changes in another, which may magnify or counteract the sensitivities. The table below summarizes certain information regarding the Company's equipment loan portfolio, delinquencies, and cash flows received from and paid to the Company's special-purpose securitization entities: December 31, 2000 -------------------------------------------- Principal Amount of Loans Principal Amount 60 Days or More Past Due ---------------- ------------------------ Total portfolio .......... $209,848 $ 5,038 Less loans sold .......... 203,683 1,348 -------- -------- Loans held ............... $ 6,165 $ 3,690 ======== ======== For the year ended December 31, 2000 ------------------ Proceeds from sales of loans to ALRW......................... $85,572 Purchase of delinquent or foreclosed assets ................. (2,989) Servicing fees and other net cash flows received on retained interests ......................................... 16,227 The Company's net credit losses as a percentage of average loans outstanding during 2000 and 1999 were 0.37% and 0.42%, respectively. Note 7 - Sales of Accounts Receivable: As described in Note 6 above, in connection with the Transactions, the Company entered into the Asset Backed Facility through ALRW to finance trade receivables and notes receivable related to equipment loans. With respect to loans secured by trade receivables, the Facility Lender will make loans up to but not exceeding 85% of the outstanding amount of eligible trade receivables. The interest rate of loans under the Asset Backed Facility is generally equal to one-month LIBOR plus 1.0% per annum. 46 The Company as servicing agent retains collection and administrative responsibilities for the accounts receivable sold. Under this agreement, the Company sold $299.4 million and $325.0 million of accounts receivable during 2000 and 1999, respectively. The total amount of uncollected balances on trade accounts receivable sold at December 31, 2000 and 1999 totaled $44.3 million and $33.2 million, respectively. Prior to the Transactions, the Company had entered into an agreement through its special-purpose bankruptcy remote entity, RAYCAR, with the Preferred Receivables Funding Corporation, a wholly-owned subsidiary of First Chicago/NBD to sell certain defined pools of trade accounts receivable. Under the terms of the agreement, interest was charged based on the 30-day commercial paper rate plus 0.3%. The interest rates were adjusted based on Raytheon's debt rating. The Company, as servicing agent, retained collection and administrative responsibility for the accounts receivable. Under this agreement, the Company sold $92.2 million of accounts receivable in 1998. Accounts receivable were no longer sold under this agreement after May 4, 1998. No receivables under this agreement were uncollected as of December 31, 1999 or December 31, 2000. Losses on sales of trade accounts receivable and related expenses of $3.8 million, $2.6 million and $4.1 million in 2000, 1999 and 1998, respectively, are included in selling, general and administrative expense. The Company's retained interest in trade accounts receivable sold to ALRW, which is included in other current assets, at December 31, 2000 and 1999 is $6.9 million and $5.1 million, respectively. Note 8 - Inventories: Inventories consisted of the following at: December 31, ---------------------------- 2000 1999 -------- -------- Materials and purchased parts .......... $ 13,250 $ 14,506 Work in process ........................ 4,907 3,688 Finished goods ......................... 21,895 16,736 Less: inventory reserves ............... (2,590) (3,648) -------- -------- $ 37,462 $ 31,282 ======== ======== Note 9 - Property, Plant and Equipment: Property, plant and equipment consisted of the following at: 47 December 31, ---------------------------- 2000 1999 --------- --------- Land ..................................... $ 767 $ 767 Buildings and leasehold improvements ..... 25,132 27,529 Machinery and equipment .................. 144,692 144,978 --------- --------- 170,591 173,274 Less: accumulated depreciation ........... (123,168) (117,788) --------- --------- 47,423 55,486 Construction in process .................. 6,434 2,129 --------- --------- $ 53,857 $ 57,615 ========= ========= Depreciation expense was $12.2 million, $12.5 million and $13.3 million for the years ended December 31, 2000, 1999 and 1998, respectively. Note 10 - Other Current Liabilities: The major components of other current liabilities consisted of the following at: December 31, ---------------------- 2000 1999 ------- ------- Warranty reserve .................................. $ 4,790 $ 5,504 Accrued sales promotion and cooperative advertising 3,224 3,871 Salaries, wages and other employee benefits ....... 3,189 4,909 Accrued interest .................................. 2,893 2,817 Other current liabilities ......................... 4,370 4,704 ------- ------- $18,466 $21,805 ======= ======= Note 11 - Debt: Debt consisted of the following at: December 31, ------------------------------- 2000 1999 --------- --------- Term loan facility ................. $ 199,500 $ 200,000 Senior subordinated notes .......... 110,000 110,000 Junior subordinated note ........... 14,343 12,048 Revolving credit facility .......... 12,000 -- Other long-term debt ............... 762 -- Gross long-term debt ............... 336,605 322,048 Less: current portion .............. (13,036) (500) --------- --------- $ 323,569 $ 321,548 ========= ========= 48 Senior Credit Facility In connection with the Transactions, the Company entered into a credit agreement (the "Senior Credit Facility") with a syndicate of financial institutions (the "Lenders") for which Lehman Brothers, Inc. acted as arranger and Lehman Commercial Paper, Inc. acted as syndication agent. The Senior Credit Facility is comprised of a term loan facility aggregating $200.0 million (the "Term Loan Facility") and a five year $75.0 million revolving credit facility (the "Revolving Credit Facility"), which was made available in conjunction with the issuance of the Company's senior subordinated notes. The Term Loan Facility requires no principal payments during the first two years followed by payments of $250,000 per quarter for years three through five, beginning September 2000, $40.0 million for year six and $157.0 million for year seven. The Company is required to make prepayments with the proceeds from the disposition of certain assets and from excess cash flow, as defined. No excess cash flow payment was required for 2000. The Term Loan Facility bears interest, at the Company's election, at either the Lenders' Base Rate plus a margin ranging from 1.125% to 1.625% or the Eurodollar Rate plus a margin ranging from 2.125% to 2.625%. The Revolving Credit Facility bears interest, at the Company's election, at either the Base Rate plus a margin ranging from 0.625% to 1.375% or the Eurodollar Rate plus a margin ranging from 1.625% to 2.375%. The interest rate on borrowings outstanding at December 31, 2000 and 1999 was 9.2% and 8.8%, respectively. Borrowings outstanding under the Senior Credit Facility are secured by substantially all of the real and personal property of the Company and its domestic subsidiaries (other than the financing subsidiaries). Effective March 10, 1999, the Company entered into a $67 million interest rate swap agreement with a financial institution to hedge a portion of its interest rate risk related to its term loan borrowings under the Senior Credit Facility. Under the swap, which has a term of three years, the Company pays a fixed rate of 4.962% and receives quarterly interest payments based upon LIBOR. The differential between the fixed and floating interest rates under the swap is accrued and is recorded as an adjustment of interest expense. The effect of this agreement on the Company's interest expense during 2000 was a reduction of $1.0 million. The fair value of this interest rate swap agreement which represents the amount that the Company would receive to settle the instrument is $0.7 million at December 31, 2000. The Company is exposed to credit loss in the event of non-performance by the financial institution. However, management does not anticipate such non-performance. Senior Subordinated Notes Also on May 5, 1998, the Company and its wholly-owned subsidiary, Alliance Laundry Corporation, issued $110.0 million of 9 5/8% senior subordinated notes due in 2008 (the "Notes") to Lehman Brothers, Inc. and Credit Suisse First Boston Corporation (the "Initial Purchasers"). The Initial Purchasers subsequently resold the Notes to qualified institutional buyers pursuant to Rule 144A of the Securities and Exchange Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. The Notes are general unsecured obligations and are subordinated in right of payment to all current and future senior debt, including permitted borrowings under the Senior Credit Facility. 49 Interest on the Notes accrues at the rate of 9 5/8% per annum and is payable semi-annually in arrears on May 1 and November 1, commencing on November 1, 1998. The fair value of the Notes at December 31, 2000 and 1999 was approximately $82.5 million and $93.5 million, respectively, based upon prices prevailing in recent market transactions. The Notes are not redeemable prior to May 1, 2003. Thereafter, the Notes are subject to redemption at any time at the option of the Company, in whole or in part, upon not less that 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below: Year Redemption Price ---- ---------------- 2003 ...................... 104.813% 2004 ...................... 103.208% 2005 ...................... 101.604% 2006 and thereafter......... 100.000% Notwithstanding the foregoing, at any time prior to May 1, 2001, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the Notes at a redemption price of 109.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date, with the net cash proceeds of any equity offerings, as defined by the indenture governing the Notes; provided that at least 65% of the aggregate principal amount of Notes remains outstanding immediately after each occurrence of such redemption; and provided, further, that each such redemption shall occur within 45 days of the date of the closing of such equity offering. The Company is required under the terms of the Notes to offer to redeem the Notes at a redemption price of 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date, upon a change of control, as defined. Further, the Company is required to offer to redeem the Notes at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the redemption date, when the amount of excess proceeds from asset sales, as defined, exceeds $10 million, up to the maximum principal amount that may be purchased out of such excess proceeds. In connection with the Merger, as discussed above, Alliance Laundry and its wholly-owned subsidiary, Alliance Laundry Corporation, issued the $110.0 million senior subordinated notes. Alliance Laundry Corporation was incorporated for the sole purpose of serving as a co-issuer of the Notes in order to facilitate their issuance. Alliance Laundry Corporation does not have any substantial operations or assets of any kind. Alliance Laundry Holdings LLC has provided a full and unconditional guarantee of the Notes and has no operating activities independent of Alliance Laundry. Junior Subordinated Promissory Note Upon the consummation of the Merger, the Company issued a junior subordinated promissory note (the "Junior Note") in the principal amount of $9.0 million due August 21, 2009, to Raytheon. Pursuant to the terms of the Junior Note, interest accrues at the rate of 19.0% per annum until the eighth anniversary of the date of issuance of the Junior Note and at a rate of 13.0% thereafter. The Junior Note is subordinated in priority and subject in right and priority of payment to certain indebtedness described therein. Interest which accrues on the Junior Note is payable in-kind. Other Debt 50 On August 3, 2000, the Company received $750,000 in borrowings, evidenced by a promissory note, pursuant to a Wisconsin Community Development Block Grant Agreement (the "Agreement") dated July 10, 2000 between the Wisconsin Department of Commerce, Alliance Laundry and Fond du Lac County, Wisconsin. The promissory note bears interest at an annual rate of 4%, with monthly payments of interest and principal commencing July 1, 2001 with the final installment paid on June 1, 2010, subject to the covenants of the Agreement. The Senior Credit Facility and the indenture governing the Notes contain a number of covenants that, among other things, restrict the ability of the Company to dispose of assets, repay other indebtedness (including, in the case of the Senior Credit Facility, the Notes), incur liens, make capital expenditures and make certain investments or acquisitions, engage in mergers or consolidation and otherwise restrict the activities of the Company. In addition, under the Senior Credit Facility, the Company will be required to satisfy specified financial ratios and tests, including a maximum of total debt to EBITDA (earnings before interest, income taxes, depreciation and amortization) and a minimum interest coverage ratio. The aggregate scheduled maturities of long-term debt, excluding Revolving Credit Facility borrowings, in subsequent years are as follows: 2001 $ 1,036 2002 1,075 2003 20,578 2004 98,581 2005 78,585 Thereafter 124,750 -------- $324,605 ======== Note 12 - Income Taxes: Prior to May 5, 1998, the Company's financial statements reflect a provision for federal, state and foreign income taxes based on income as if the Company had been subject to income tax on a separate return basis. The charge was computed in accordance with SFAS No. 109 and the charge was based on current tax rates. Effective May 5, 1998, in connection with the Transactions, the Company became a stand-alone limited liability company and is no longer subject to federal and most state income taxes. Years Ended December 31, 2000 1999 1998 ------- ------- ------- Current income tax expense: Federal and foreign $ - $ - $ 1,809 State 20 29 402 ------- ------- ------- 20 29 2,211 Deferred income tax expense - - 180 ------- ------- ------- Income tax provision $ 20 $ 29 $ 2,391 ======= ======= ======= The provision for income taxes differs from the U.S. Federal statutory rate due primarily to the change to a non-tax paying entity effective May 5, 1998. Current income tax expense amounts in 1998 are included as a transfer to Raytheon, in the parent company investment account. Deferred tax account balances which existed at the date of the Merger were transferred to Raytheon as part of the Recapitalization. 51 Note 13 - Mandatorily Redeemable Preferred Equity and Members' Equity: The following table summarizes the authorized, issued and outstanding preferred and common units by class and the related dollar amounts for each class as of May 5, 1998. During the year ended December 31, 1998, the only activity relating to the preferred and common units was the issuance of such units in connection with the Recapitalization. Certain members of management entered into promissory notes totaling $1.8 million to help finance the purchase of the common units. During the year ended December 31, 2000, $0.3 million of the promissory notes were repaid to the Company. Units Dollars --------- ----------- Preferred Units ....................... 6,000.00 $ 6,000,000 Common Units: Class A ............................. 50,645.16 $ 5,064,516 Class B ............................. 3,232.67 32 Class C ............................. 3,439.01 34 Class L ............................. 5,627.24 45,580,645 --------- ----------- Total Common Units .................... 62,944.08 50,645,227 ========= Management Investor Promissory Notes .. 1,762,901 ----------- Net Proceeds .......................... $48,882,326 =========== Bain LLC, the BRS Investors, certain management investors and Raytheon (collectively, the "Members") have entered into an Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"). The LLC Agreement governs the relative rights and duties of the Members. The ownership interests of the Members in the Company consist of preferred units (the "Preferred Units") and common units (the "Common Units"). Holders of the Preferred Units are entitled to a return of capital contributions prior to any distributions made to holders of the Common Units. The Common Units represent the common equity of the Company. Preferred Units - Upon consummation of the Merger, the Company issued mandatorily redeemable preferred membership interests (the "Seller Preferred Equity") with a liquidation value of $6.0 million to Raytheon. The Seller Preferred Equity does not accrete, accrue or pay dividends and is redeemable at the earlier of (i) a change of control (as defined in the LLC Agreement), (ii) any initial public offering or (iii) 2009. The holders of the Seller Preferred Equity are entitled to receive distributions from the Company in an amount equal to their unreturned capital (as defined in the LLC Agreement) prior to distributions in respect of any other membership interests of the Company. Common Units - The Common Units of the Company are divided into the following four classes: Class L Units - These units provide a yield of 12% on the unreturned capital and unpaid yield (as defined), compounded quarterly. Such accumulated and unpaid amounts totaled $16.9 million and $9.9 million at December 31, 2000 and 1999, respectively. Class L Units do not provide any voting rights to the holders. 52 Class A Units - These units are the primary vehicle of equity ownership in the Company. Class A Units are the only units that provide voting rights. Decisions made by a majority of the voting holders of Class A Units are binding on the Company, provided that members holding at least 20% of the Class A Units are present. Class B and C Units - Class B Units and Class C Units do not provide any voting rights to the holders. These units are not eligible to receive distributions until the Company achieves the defined target multiple applicable to each class of units. The target multiple is calculated as the sum of all distributions to all holders of Class L and Class A Units divided by the sum of all capital contributions made by such holders. Class B Units become eligible to receive distributions when vested and the target multiple reaches or exceeds 1.0 and the Class C Units become eligible when vested and the target multiple reaches or exceeds 3.0. Pursuant to agreements entered into with the members of management who participated in the purchase of membership interests (see Note 16), the Class B and Class C Units vest ratably from the Closing to May 5 of each year through 2003. Such agreements also provide for accelerated vesting in certain circumstances. Distributions - Subject to any restrictions contained in any financing agreements to which the Company or any of its affiliates (as defined in the LLC Agreement) is a party, the Board of Managers (the "Board") may make distributions, whether in cash, property, or securities of the Company, at any time in the following order of priority: First, to the holders of Preferred Units, an amount determined by the aggregate unreturned capital. Second, to the holders of Class L Units, the aggregate unpaid yield accrued on such Class L Units. Third,to the holders of Class L Units, an amount equal to the aggregate unreturned capital. Fourth, ratably to the holders of Common Units, an amount equal to the amount of such distribution that has not been distributed pursuant to the clauses described above. The Company may distribute to each holder of units within 75 days after the close of each fiscal year such amounts as determined by the Board to be appropriate to enable each holder of units to pay estimated income tax liabilities. There were no distributions to holders of units during 2000. Allocations - Profits and losses of the Company are allocated among the various classes of units in order to adjust the capital accounts of such holders to the amount to be distributed upon liquidation of the Company. Restrictions on transfer of securities - No holder of securities may sell, assign, pledge or otherwise dispose of any interest in the holder's securities except that (i) Bain LLC may transfer its securities to other security holders in the same class, (ii) holders may transfer their securities through applicable laws of descent and distribution, (iii) transfers of securities may be made to an affiliate, and (iv) Raytheon may transfer its Preferred Units with the consent of the Board. Note 14 - Commitments and Contingencies: 53 At December 31, 2000, the Company had commitments under long-term operating leases requiring approximate annual rentals in subsequent years as follows: 2001 $ 373 2002 232 2003 193 2004 52 2005 4 Thereafter - ----- $ 854 ===== Rental expense for 2000, 1999 and 1998 amounted to $2.0 million, $1.7 million and $1.5 million, respectively. The Company's Marianna, Florida plant is located on property leased from the Marianna Municipal Airport Development Authority (acting on behalf of the City of Marianna). The lease expires on February 28, 2005 and may be renewed at the Company's option for five additional consecutive ten year terms. The Company and its operations are subject to comprehensive and frequently changing federal, state and local environmental and occupational health and safety laws and regulations, including laws and regulations governing emissions of air pollutants, discharges of waste and storm water and the disposal of hazardous wastes. The Company is also subject to liability for the investigation and remediation of environmental contamination (including contamination caused by other parties) at the properties it owns or operates and at other properties where the Company or predecessors have arranged for the disposal of hazardous substances. As a result, the Company is involved, from time to time, in administrative and judicial proceedings and inquiries relating to environmental matters. There can be no assurance that the Company will not be involved in such proceedings in the future and that the aggregate amount of future clean-up costs and other environmental liabilities will not have a material adverse effect on the Company's business, financial position and results of operations. However, in the opinion of management, any liability related to matters presently pending will not have a material effect on the Company's financial position, liquidity or results of operations after considering provisions already recorded. Pursuant to the Merger Agreement, and subject to a three year notice period following the Closing, Raytheon has agreed to indemnify the Company for certain environmental liabilities in excess of $1.5 million in the aggregate arising from the operations of the Company and its predecessors prior to the Merger, including with respect to environmental liabilities at the Ripon and Marianna facilities. In addition to the Raytheon indemnification, with respect to the Marianna, Florida facility, a former owner of the property has agreed to indemnify the Company for certain environmental liabilities. In the event that Raytheon or the former owner fail to honor their respective obligations under these indemnifications, such liabilities could be borne directly by the Company and could be material. In April 1998, Amana Company, L.P. ("Appliance Co.") filed suit in the United States District Court for the Southern District of New York seeking, in pertinent part, to prohibit the Company from competing in the U.S. consumer retail distribution laundry market until July 2012. The Company currently does not participate in this market. In June 1998, Appliance Co. added allegations asserting that the Company, Alliance Laundry and Bain Capital, Inc. had tortiously interfered with the non-compete agreement that Appliance Co. claimed that Alliance Laundry had inherited from Raytheon. In January 1999, Appliance Co. added claims against Raytheon and the Company in connection with the Horizon washing machine, a "single-pocket" frontload washing machine that was being readied for 54 volume production as of the time when Raytheon (the former parent of the Company) was completing the sale of its consumer appliances business to Appliance Co. (the "Appliance Co. Transaction"). In January 1999, Alliance Laundry filed a counterclaim against Appliance Co. seeking payment of sums owed for certain top-load washing machines and parts sold pursuant to a Supply Agreement between the companies. In May 1999, Appliance Co. filed a Reply Counterclaim for breach of the Supply Agreement. In October 1999, Appliance Co. added another claim that sought to revise the cross-license agreement between the two companies to restrict the degree to which the Company can use intellectual property whose ownership was retained by the Company as part of the 1997 transaction between Appliance Co. and Raytheon to compete against Appliance Co. in the U.S. consumer retail distribution laundry market. In December 1999, the parties to this lawsuit agreed to settle all of their claims, and all claims in the action against all parties were dismissed with prejudice. Under the terms of the settlement agreement, the Company will be allowed to compete in the U.S. home laundry market beginning in October 2004. The Company will also be permitted to compete in the U.S. home laundry market beginning in October 2004 with both the intellectual property whose ownership was retained by the Company as part of the 1997 transaction between Appliance Co. and Raytheon and the intellectual property that was cross-licensed to the Company by Appliance Co. pursuant to the cross-license agreement. Likewise, Appliance Co. will be permitted to compete against the Company in the commercial laundry market beginning in October 2004 and will be able to do so using both the intellectual property that Appliance Co. acquired as part of the Appliance Co. Transaction and the intellectual property to which Alliance received a cross-license under the cross-license agreement. Additionally, pursuant to the terms of the settlement agreement, Appliance Co. satisfied all outstanding invoices owed to the Company for certain top-load washing machines and parts sold pursuant to the Supply Agreement between the companies, and the Company was required to pay Appliance Co. $3.0 million for certain Appliance Co. manufactured inventory. The Company estimates that such inventory has a net realizable value of approximately $1.7 million and recorded the difference ($1.3 million) as a legal settlement cost in other income (expense), net in 1999. On February 8, 1999, Raytheon commenced an arbitration under the Commercial Arbitration Rules of the American Arbitration Association in Boston, Massachusetts against the Company, seeking damages of $12.2 million plus interest thereon and attorney's fees for breach of the Merger Agreement based on Raytheon's claim for indemnification for a payment made to a third party allegedly on behalf of the Company and Alliance Laundry following the Closing. An arbitration was conducted pursuant to the terms of the Merger Agreement ("Arbitration"). The Company asserted in the Arbitration that Raytheon owed the $12.2 million to the third party and that neither the Company nor Alliance Laundry was liable for such amount. In addition, the Company and Bain LLC filed counterclaims and claims seeking damages in excess of $30 million from Raytheon. On March 31, 2000, the Arbitrators issued their decision. Pursuant to that decision Raytheon prevailed on its claim and the Company and Bain LLC prevailed on its counterclaims. Ultimately, the Company was required to pay Raytheon $6.8 million, including $1.5 million in interest, in full satisfaction of the arbitration award and after offsetting the amount for price adjustments in favor of the Company which had been agreed to during 1999. The award payment was made on April 13, 2000. Of this amount, $9.9 million plus related costs of $0.6 million was recorded in the financial statements as an adjustment of members' deficit, consistent with the original recording of the Merger, which was accounted for as a recapitalization. Certain price adjustments concluded during 1999 had been previously recorded in the financial statements as of and for the period ended December 31, 1999. The related net interest, including amounts related to prior years, has been included in current year interest expense. 55 Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against the Company. While the ultimate liability from these proceedings is difficult to determine, in the opinion of management, any additional liability will not have a material effect on the Company's financial position, liquidity or results of operations. Note 15 - Pensions and Other Employee Benefits: The Company has several pension and retirement plans covering the majority of its employees. The pension plan covering salaried and management employees is a defined benefit cash balance plan whereby an account is established for each participant, in which pay credits and interest credits are earned as the participant provides service. Pay credits are calculated as a pre-determined percentage of the participant's salary adjusted for age and years of service. Interest credits are earned at the rate of a one-year Treasury Bill, as of the last day of the prior plan year, plus 1%. The pension plan covering hourly and union employees generally provides benefits of stated amounts for each year of service. The Company's funding policy for the salaried plan is to contribute annually at a rate that is intended to remain at a level percentage of compensation for the covered employees. The Company's funding policy for the hourly and union plan is to contribute annually at a rate that is intended to remain level for the covered employees. Unfunded prior service costs under the funding policy are generally amortized over periods from 10 to 30 years. Total pension expense (benefit) for the Company's plans was ($2.1) million, $0.3 million and ($0.8) million in 2000, 1999, and 1998, respectively, including the following components:
Years Ended December 31, ----------------------------------------------------- 2000 1999 1998 ------- ------- ------- Service cost of benefits earned during the period ............. $ 1,311 $ 1,455 $ 1,391 Interest cost on projected benefit obligation ................. 2,413 2,197 2,086 Actual gain on assets ........................................ (73) (7,387) (6,261) Net amortization and deferral ......................... (5,738) 2,688 1,942 Curtailment losses and termination benefits ................... -- 1,390 -- ------- ------- ------- Net periodic pension cost (benefit) ................... $(2,087) $ 343 $ (842) ======= ======= ======= Assumptions used in the accounting were: Discount rate .............................................. 7.50% 8.00% 6.75% Expected long-term rate of return on assets ................ 9.25% 9.25% 9.25% Rate of increase in compensation levels .................... N/A N/A 4.00%
In 1999, various plan curtailments and supplemental termination benefits were recognized as a result of workforce reductions. The following table provides a reconciliation of benefit obligations, plan assets and funded status of the plans at December 31: 56 2000 1999 -------- -------- Change in benefit obligation: Benefit obligation at beginning of year ...... $ 31,608 $ 33,870 Service cost ................................. 1,311 1,455 Interest cost ................................ 2,413 2,197 Amendments ................................... -- (1,079) Curtailments ................................. -- (93) Termination benefits ......................... -- 992 Acquisition .................................. 951 -- Actuarial (gain) loss ........................ 958 (4,232) Benefits paid ................................ (4,920) (1,502) -------- -------- Benefit obligation at end of year ........... 32,321 31,608 -------- -------- Change in plan assets: Fair value of plan assets at beginning of year 50,696 44,811 Actual return on plan asset .................. 73 7,387 Benefits paid ................................ (4,920) (1,502) -------- -------- Fair value of plan assets at end of year .... 45,849 50,696 -------- -------- Funded status ................................ 13,528 19,088 Unrecognized transition asset ................ -- (144) Unrecognized prior service cost .............. 693 764 Unrecognized net gains ....................... (12,935) (19,558) -------- -------- Prepaid benefit cost ........................ $ 1,286 $ 150 ======== ======== Plan assets primarily include equity and fixed income securities. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible for these benefits if they reach normal retirement age while working for the Company. Retiree health plans are paid for in part by employee contributions, which are adjusted annually. Benefits are provided through various insurance companies whose charges are based either on the benefits paid during the year or annual premiums. Health benefits are provided to retirees, their covered dependents, and beneficiaries. Retiree life insurance plans are noncontributory and cover the retiree only. The net postretirement benefit cost for the Company in 2000, 1999 and 1998 included the following components: 57 Years Ended December 31, -------------------------- 2000 1999 1998 ---- ---- ---- Service cost benefits earned during the period $ 39 $ 51 $ 58 Interest cost on projected benefit obligation . 90 106 142 Net amortization and deferral ................. 48 84 91 Curtailment losses ............................ -- 250 -- ---- ---- ---- Net postretirement benefit cost ............... $177 $491 $291 ==== ==== ==== Assumptions used in the accounting were: Discount rate ................................. 7.50% 8.00% 6.75% Rate of increase in compensation levels ....... 4.00% 4.00% 4.00% Health care cost trend rate in the first year . 5.50% 6.50% 6.00% The following provides a reconciliation of benefit obligations, plan assets and the funded status of the plan at December 31: 2000 1999 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year .......... $ 1,214 $ 1,870 Service cost ..................................... 39 51 Interest cost .................................... 90 106 Plan participants' contributions ................. 31 -- Curtailments ..................................... -- (258) Actuarial (gain) loss ............................ 70 (173) Benefits paid .................................... (352) (382) ------- ------- Benefit obligation at end of year ............... 1,092 1,214 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year ... -- -- Employer contributions ........................... 321 382 Plan participants' contributions ................. 31 -- Benefits paid .................................... (352) (382) ------- ------- Fair value of plan assets at end of year ........ -- -- ------- ------- Funded status .................................... (1,092) (1,214) Unrecognized transition obligation ............... 544 589 Unrecognized net loss ............................ 217 150 ------- ------- Accrued benefit cost ............................ $ (331) $ (475) ======= ======= A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 2000 by approximately $31 and the interest cost by approximately $4. A one percentage point decrease in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 2000 by approximately $28 and the interest cost by approximately $4. Prior to the Recaptialization, eligible employees were able to participate in Raytheon's Savings and Investment Plan and Raytheon's Employee Stock Ownership Plan. Subsequent to the Recapitalization, eligible employees are able to participate in the Alliance Laundry Systems Capital Appreciation Plan ("ALCAP"). The provisions of ALCAP are substantially the same as those of 58 Raytheon's Savings and Investment Plan. In addition, the Company makes an annual contribution to ALCAP equal to approximately one half of one percent of salaries and wages, subject to statutory limits, of eligible employees. Under the terms of such defined contribution plans, covered employees are allowed to contribute up to 21% percent of their pay on a pre-tax basis up to the limit established by the Internal Revenue Service. The Company contributes amounts equal to 50 percent of the employee's contributions, up to a maximum of such Company contributions equal to three percent of the employee's pay. Total expense for the Savings and Investment and ALCAP plans totaled $1.0 million, $1.1 million and $1.1 million for 2000, 1999 and 1998, respectively. Prior to May 5, 1998, the Company's employees were covered under Raytheon's workers' compensation program. The Company's allocated expense for workers compensation during the period ended May 4, 1998 was $0.4 million. Deferred Compensation Agreements In connection with the Merger, the Company and Raytheon entered into deferred compensation agreements with certain executives, whereby the Company assumed certain long-term compensation obligations earned by management under programs established by Raytheon. Such agreements provide for the deferral of compensation until the earlier of (i) the payment of a lump sum (the "Benefit Amount") to the executive ten years after the date of such agreement, regardless of whether the executive is employed by the Company as of such date or (ii) the payment of the Benefit Amount upon the occurrence of certain events described therein. The balance sheet at December 31, 2000 and 1999 includes a long-term liability of $1.7 million and $1.9 million, respectively, related to such agreements. Note 16 - Related Party Transactions: Securityholders Agreement Upon the consummation of the Merger, the Company, Raytheon and certain securityholders entered into a securityholders agreement (the "Securityholders Agreement"). The Securityholders Agreement (i) restricts the transfer of the equity interests of the Company; (ii) grants tag-along rights on certain transfers of equity interests of the Company; (iii) requires the securityholders to consent to a sale of the Company to an independent third party if such sale is approved by certain holders of the then outstanding equity interests of the Company; and (iv) grants preemptive rights on certain issuances of equity interests of the Company. Certain of the foregoing provisions of the Securityholders Agreement will terminate upon the consummation of an initial public offering or a liquidity event (each as defined in the Securityholders Agreement). Management Investor Promissory Notes In connection with the Transactions, the Company entered into promissory notes (the "Promissory Notes") aggregating approximately $1.8 million with certain members of management to help finance the purchase of Common Units in the Company. The Promissory Notes bear interest at a rate of 5.94% per annum and mature on June 5, 2008. The Promissory Notes are classified as a component of members' deficit at December 31, 2000 and 1999. During the year ended December 31, 2000, $0.3 million of the Promissory Notes were repaid to the Company. 59 Executive Unit Purchase Agreements In connection with the Merger, MergeCo entered into executive unit purchase agreements (the "Purchase Agreements") with certain members of management of the Company (each an "Executive"). Such agreements govern the sale to the Executives of common membership interests of MergeCo in exchange for cash and/or a promissory note from the Executive and provide for repurchase rights and restrictions on transfer of the common units. In connection with the Merger, the Executives' membership interests in MergeCo were converted into common membership interests of the Company. The Purchase Agreements provide the Company with a repurchase option upon the termination of each Executive. If the Executive's termination is the result of death, permanent disability or without cause, as defined, Class A and Class L Units, and vested Class B and Class C Units may be repurchased by the Company at a price per unit equal to fair market value, as defined, and unvested Class B and Class C Units may be repurchased at a price per unit equal to the lower of fair market value or original value, as defined. If an Executive's termination is voluntary or for cause, as defined, all units may be repurchased at a price equal to the lower of fair market value or original value, unless an Executive's voluntary termination occurs seven and one-half years from May 5, 1998, in which case the repurchase price shall be fair market value. The Class B and Class C Units were purchased by the Executives at a nominal value based upon the subordinated nature of such interests (see Note 13). Management Services Agreement In connection with the Transactions, the Company entered into a management services agreement (the "Management Services Agreement") with Bain LLC pursuant to which Bain LLC agreed to provide: (i) general executive and management services; (ii) identification, support, negotiation and analysis of acquisitions and dispositions; (iii) support, negotiation and analysis of financial alternatives; and (iv) other services agreed upon by the Company and Bain LLC. In exchange for services, Bain LLC will receive (i) an annual management fee, plus reasonable out-of-pocket expenses (payable quarterly) and (ii) a transaction fee in an amount in accordance with the general practices of Bain LLC at the time of the consummation of any additional acquisition or divestiture by the Company and of each financing or refinancing (currently approximately 1.0% of total financings). In connection with the Recapitalization, Bain LLC also received a transaction fee from the Company. The Management Services Agreement has an initial term of ten years subject to automatic one-year extensions unless the Company or Bain LLC provides written notice of termination. Note 17 - Segment Information: Based upon the information used by management for making operating decisions and assessing performance, the Company has organized its business into categories based upon products and services broken down primarily by markets. Commercial laundry equipment and service parts, including sales to international markets, are combined to form the commercial laundry segment. Commercial laundry net revenue includes amounts related to the Company's finance program which supports its commercial laundry operations. The Company's primary measure of operating performance is gross profit which does not include an allocation of any selling or product distribution expenses. Such amounts are reviewed on a consolidated basis by management. In determining gross profit for its operating units, the Company also does not allocate certain manufacturing costs, including manufacturing variances and warranty and service support costs. Gross profit is determined by subtracting cost of sales from net revenues. Cost of sales is comprised of the costs of raw materials and component parts, plus costs incurred at the manufacturing plant level, including, but not limited to, labor and related fringe benefits, 60 depreciation, tools, supplies, utilities, property taxes and insurance. The Company does not allocate assets internally in assessing operating performance. Net revenues and gross profit as determined by the Company for its operating segments are as follows:
2000 1999 1998 -------------------------- -------------------------- -------------------------- Net Gross Net Gross Net Gross Revenues Profit Revenues Profit Revenues Profit --------- --------- --------- --------- --------- --------- Commercial laundry ........... $ 265,441 $ 101,609 $ 259,692 $ 96,284 $ 254,530 $ 92,592 Appliance Co. consumer laundry -- -- 54,682 1,523 77,184 2,642 --------- ------- --------- ------ --------- --------- $ 265,441 101,609 $ 314,374 97,807 $ 331,714 95,234 ========= ========= ========= ========= Other manufacturing costs .... (33,726) (22,915) (25,839) --------- --------- --------- Gross profit as reported ..... $ 67,883 $ 74,892 $ 69,395 ========= ========= =========
Depreciation expense allocations for each segment are presented below: 2000 1999 1998 ------- ------- ------- Commercial laundry ................... $11,141 $ 7,113 $ 6,078 Appliance Co. consumer laundry ....... -- 4,242 5,957 ------- ------- ------- $11,141 $11,355 $12,035 ======= ======= ======= The Company sells its products primarily to independent distributors. The Company's largest customer (excluding Appliance Co.) accounted for 13.6% and 11.5% of net revenues in 2000 and 1999, respectively. 61 Alliance Laundry Holdings LLC Schedule II - Valuation and Qualifying Accounts (Dollars in Thousands) Accounts Receivable: Balance at Balance Beginning Charges at End of Period to Expense Deductions of Period ---------- ----------- ----------- ---------- Year ended: December 31, 1998... $451 347 106 $692 December 31, 1999... $692 412 641 $463 December 31, 2000... $463 411 155 $719
Inventory: Balance Charges at to Reallocation Balance Beginning Expense / and Reserve at End of Period (Income) Deductions Addition of Period ---------- ----------- ----------- ---------- ---------- Year ended: December 31, 1998... $4,309 1,806 2,411 -- $3,704 December 31, 1999... $3,704 1,151 1,207 -- $3,648 December 31, 2000... $3,648 (377) 1,681 1,000 $2,590
62 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Managers and Executive Officers The representatives to the Board of Managers (each, a "Manager") and executive officers of the Company are as follows: Name Age Position ---- --- -------- Thomas F. L'Esperance. 52 Chief Executive Officer and Manager Jeffrey J. Brothers... 54 Senior Vice President, Sales and Marketing Bruce P. Rounds....... 44 Vice President, Chief Financial Officer William J. Przybysz... 56 Vice President, Marianna Operations R. Scott Gaster....... 48 Vice President, Washer, Dryer and Tumbler Operations Robert T. Wallace..... 45 Vice President, Corporate Controller Scott L. Spiller...... 50 Vice President, Law and Human Resources Edward W. Conard...... 44 Manager Robert C. Gay......... 49 Manager Stephen M. Zide 41 Manager Stephen C. Sherrill... 48 Manager Philip S. Taymor...... 45 Manager Thomas F. L'Esperance has been Chief Executive Officer of the Company since March 1996. He had served as President of the Amana Home Appliance Company from 1993 to 1996 and was President of Caloric Corporation, a manufacturer of appliances, for two years prior thereto. Jeffrey J. Brothers has been Senior Vice President of Sales and Marketing of the Company since October 1989. He has been employed with the Company since 1977. Mr. Brothers has been involved in sales for the Company since 1983 and has held other positions such as Manager of Distribution Development, Plant Controller and Financial Analyst. Bruce P. Rounds joined the Company in 1989 as Vice President of Finance and was promoted to his current position in February 1998. He held the position of Vice President, Business Development, for the Company from 1996 to 1998. Before coming to the Company, he served in a variety of capacities for eight years at Mueller Company and for three years with Price Waterhouse. He is a Certified Public Accountant. William J. Przybysz rejoined the company in May 2000 as Vice President and General Manager of Marianna, Florida operations. Previously he had been with the Company as Vice President of Logistics and Material from 1990 through 1993. From 1993 through February of 2000 he was the Vice President and General Manager of Amana Central Heating and Air Conditioning Division based in Fayetteville, TN. Mr. Przybysz prior experience includes ten years in various management positions with Whirlpool Corporation and eight years of management experience with Wheelhorse Products (since acquired by The Toro Company). 63 R. Scott Gaster joined the Company as Vice President, Procurement and Materials, in June 1995. He took on the added responsibility of Vice President of Washer and Dryer Operations in July 1997 and Tumbler Operations in August 1998. Mr. Gaster has also retained his former purchasing responsibilities. Prior to joining the Company, he was employed by GKN Automotive, Inc. from 1979 to 1995 in such positions as Director of Procurement and Logistics, Corporate Purchasing Agent and Purchasing Manager. Robert T. Wallace has been Vice President, Corporate Controller, of the Company since June 1996. He held positions as Controller and Manager-Reporting and Analysis for the Company from 1990 to 1996. Mr. Wallace's previous experience includes two years as Controller of Alcolac (chemicals), four years as Manager of Reporting and Analysis with Mueller Company, five years with Ohmeda and two years with Price Waterhouse. He is a Certified Public Accountant. Scott L. Spiller has been Vice President of Law & Human Resources, and General Counsel of the Company since February 1998. From April 1996 to February 1998, Mr. Spiller was practicing law as a sole practitioner. Prior to that, he was General Counsel and Secretary of the Company for ten years. Edward W. Conard serves as a Manager. He has been a Managing Director of Bain LLC since March 1993. From 1990 to 1992, Mr. Conard was a director of Wasserstein Perella, an investment banking firm that specializes in mergers and acquisitions. Previously, he was a Vice President of Bain & Company, where he headed the management consulting firm's operations practice area. Mr. Conard also serves as a director of Cambridge Industries, Waters Corporation, Medical Specialties, Inc., ChipPac, Dynamic Details, Inc. and US Synthetic. Robert C. Gay serves as a Manager. Mr. Gay has been a Managing Director of Bain LLC since 1993 and has been a General Partner of Bain Venture Capital since 1989. From 1988 through 1989, Mr. Gay was a principal of Bain Venture Capital. Mr. Gay is Vice Chairman of the Board of Directors of IHF Capital, Inc., parent of ICON Health & Fitness Inc. Mr. Gay also serves as a director of Alliance Entertainment Corp., GT Bicycles, Inc., Physio-Control International Corporation, Cambridge Industries, Inc., Nutraceutical Corporation, American Pad & Paper Company, GS Technologies and Small Fry Snack Foods Limited. Stephen M. Zide serves as a Manager. Mr. Zide has been a Principal of Bain Capital LLC since 2000. From 1998 through 2000, Mr. Zide was a Managing Director of Pacific Equity Partners. Previously, he was an Associate of Bain Capital and a partner at the law firm of Kirkland & Ellis. Mr. Zide also serves as a director of DDi Corp. Stephen C. Sherrill serves as a Manager. Mr. Sherrill has been a principal of Bruckmann, Rosser, Sherrill & Co. since its formation in 1995. Mr. Sherrill was an officer of Citicorp Venture Capital, Ltd. from 1983 through 1994. Mr. Sherrill is a director of Galey & Lord, Inc., Mediq Incorporated, B & G Foods, Inc., Doane Pet Care Enterprises, Inc. and HealthPlus Corporation. Philip S. Taymor serves as a Manager. Mr. Taymor has been Senior Vice President and Chief Financial Officer of Waters Corporation since August 1994. Previously, he held various finance and accounting positions at Millipore Corporation, including Corporate Controller. Mr. Taymor joined Millipore from Grant Thornton & Company, where he was a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION 64 The following table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company or its predecessor for 2000 and 1999 of those persons who served as (i) the chief executive officer during 2000 and (ii) the other four most highly compensated executive officers of the Company for 2000 (collectively, the "Named Executive Officers"): Summary Compensation Table Annual Compensation ------------------------------------ Other Annual Name and Principal Position Year Salary($) Bonus($) Compensation($) - --------------------------- ---- --------- -------- --------------- Thomas F. L'Esperance............. 2000 265,008 285,422 1,020 (1) Chief Executive Officer 1999 265,008 25,000 2,339 (1) 1998 310,003 97,615 6,529 (2) R. Scott Gaster................... 2000 136,968 48,632 5,987 (1) VP, Washer, Dryer and Tumblers 1999 131,700 13,170 6,986 (1) 1998 131,700 31,780 -- Jeffrey J. Brothers............... 2000 133,512 47,635 3,248 (1) Senior VP, Sales and Marketing 1999 129,000 12,900 6,200 (1) 1998 126,006 21,775 -- Bruce P. Rounds................... 2000 130,092 45,969 3,090 (1) VP, Chief Financial Officer 1999 124,448 12,449 6,751 (1) 1998 119,700 25,160 -- Scott L. Spiller.................. 2000 124,800 44,312 8,090 (1) VP, Law and Human Resources 1999 120,000 27,000 6,794 (1) 1998 82,137 -- 8,184 (2) (1) Represents gross-up amounts paid for non-deductible fringe benefits provided by the Company. (2) Represents payments for moving expenses. 65 Employment Agreement In connection with the Merger, the Company entered into an employment agreement with Thomas F. L'Esperance. Such agreement provides for: (i) a five year employment term; (ii) a minimum base salary and bonus following the end of each fiscal year so long as the Company employs Mr. L'Esperance; (iii) severance benefits; (iv) non-competition, non-solicitation and confidentiality agreements; and (v) other terms and conditions of Mr. L'Esperance's employment. Executive Unit Purchase Agreement In connection with the Merger, MergeCo entered into Executive Unit Purchase Agreements with the Management Investors (each, an "Executive"), including Mr. L'Esperance, Mr. Gaster, Mr. Brothers, Mr. Rounds and Mr. Spiller. Such agreements govern the sale to the Executives of common membership interests of MergeCo in exchange for cash and/or a promissory note from the Executive and provide for repurchase rights and restrictions on transfer of the common units. In connection with the Merger, the Executives' membership interests in MergeCo were converted into common membership interests of the Parent. Deferred Compensation Agreement In connection with the Merger, Raytheon, the Company and the Parent entered into Deferred Compensation Agreements with certain Executives, including Mr. L'Esperance, Mr. Gaster, Mr. Brothers and Mr. Rounds whereby the Company assumed certain long-term compensation obligations earned by management under programs established by Raytheon. Such agreements provide for the deferral of compensation until the earlier of (i) the payment of a lump sum (the "Benefit Amount") to the Executive ten years after the date of such agreement, regardless of whether the Executive is employed by the Company as of such date or (ii) the payment of the Benefit Amount upon the occurrence of certain events described therein. Pension Plan Substantially all eligible salaried employees of the Company, including executive officers of the Company, are covered under the Alliance Laundry Systems Retirement Accumulation Plan (the "Pension Plan"). The cost of the Pension Plan is borne entirely by the Company. The Pension Plan is a defined benefit cash balance plan. Under this plan, an account is established for each participant in which pay credits and interest credits are earned as the participant provides service. Pay credits are calculated as a percentage of the participant's remuneration adjusted for age and years of service in accordance with the following table: Pension Plan Pay Credits Table -------------------------------------- Total of Age and Base Remuneration Years of Service Credit Rates -------------------------------------- Less than 45 3.0% 45 but less than 50 3.5% 50 but less than 55 4.0% 55 but less than 60 4.5% 60 but less than 65 5.0% 65 but less than 75 6.0% 75 but less than 85 7.0% 85 or more 8.0% 66 In addition, a supplemental pay credit is earned on remuneration in excess of $51,200 (indexed for years after 2000) at the lesser of 5% or the percentage used per the above table. A participant's account also increases for interest credits each year. Interest credits are earned at the rate of a one-year Treasury Bill as of the last day of the prior plan year plus 1% which was 6.63% for 2000. The amount of earnings that can be recognized for plan purposes is limited by the IRS to $170,000 in 2000. A participant vests in his benefits accrued under the Pension Plan after five years of service. Respective years of benefit service under the Pension Plan, through December 31, 2000, are as follows: Mr. L'Esperance 2; Mr. Gaster 3; Mr. Brothers 22; Mr. Rounds 11 and Mr. Spiller 11. Mr. L'Esperance was covered under Raytheon plans through April 1998, at which time he became a participant under the Company's Pension Plan. Savings Plans Substantially all of the salaried employees, including executive officers of the Company, participate in a 401(k) savings plan established by the Company (the "Company 401(k) Plan"). Prior to the Merger, such employees participated in a 401(k) plan and an ESOP sponsored by Raytheon. As part of the Merger, Raytheon transferred the account balances associated with the Company employees in the Raytheon 401(k) plan to the Company 401(k) Plan. Employees are permitted to defer a portion of their income under the Company 401(k) Plan and the Company will match such contribution. The matching contribution is consistent with that under the prior Raytheon plan which provided a matching contribution equal to 50% of the first 6% of the employee's contribution. In addition, employees received a contribution under the Raytheon ESOP equal to 0.5% of W-2 pay. This contribution is made as a supplemental contribution to the Company 401(k) Plan in the form of a discretionary cash contribution (instead of membership interests). Compensation of Managers The Company will reimburse Managers for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. In addition, the Company may compensate Managers for services provided in such capacity. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Parent owns all of the outstanding equity interests of the Company. The following table sets forth certain information regarding the approximate beneficial ownership of the Parent's common equity interests held by (i) each person (other than Managers and executive officers of the Company) known to the Company to own more than 5% of the outstanding common membership interests of the Company, (ii) certain Managers of the Company and (iii) the Named Executive Officers of the Company. The Parent's common equity interests are comprised of four classes of membership units including Class A, Class L, Class B and Class C. 67 Percentage of Common Membership Name and Address of Beneficial Owner Interests - ------------------------------------ -------------- Bain Funds(1)(2).............................................. 54.9% c/o Bain Capital, Inc. Two Copley Place Boston, MA 02116 BRS Investors(3).............................................. 27.7% c/o Bruckmann, Rosser, Sherrill & Co., L.P. 126 East 56th Street, 29th Floor New York, NY 10022 Management Investors(4)....................................... 9.4% c/o Alliance Laundry Systems LLC P.O. Box 990 Ripon, WI 54971-0990 Raytheon Company.............................................. 7.0% 141 Spring Street Lexington, MA 02173 Edward Conard(1)(2)(5)........................................ 54.9% c/o Bain Capital, Inc. Two Copley Place Boston, MA 02116 Robert Gay(1)(2)(5)........................................... 54.9% c/o Bain Capital, Inc. Two Copley Place Boston, MA 02116 Stephen Sherrill(3)(6)........................................ 27.7% c/o Bruckmann, Rosser, Sherrill & Co., L.P. 126 East 56th Street, 29th Floor New York, NY 10022 Stephen Zide(1)(2)............................................ 16.3% c/o Bain Capital, Inc. Two Copley Place Boston, MA 02116 Thomas F. L'Esperance(4)...................................... 3.8% c/o Alliance Laundry Systems LLC P.O. Box 990 Ripon, WI 54971-0990 Philip S. Taymor(7)........................................... 0.5% 68 Percentage of Common Membership Name and Address of Beneficial Owner Interests - ------------------------------------ -------------- c/o Maple Street Partners 34 Maple Street Milford, MA 01757 R. Scott Gaster(4)............................................ 0.7% c/o Alliance Laundry Systems LLC P.O. Box 990 Ripon, WI 54971-0990 Jeffrey J. Brothers(4)........................................ 0.8% c/o Alliance Laundry Systems LLC P.O. Box 990 Ripon, WI 54971-0990 Bruce P. Rounds(4)............................................ 0.8% c/o Alliance Laundry Systems LLC P.O. Box 990 Ripon, WI 54971-0990 Scott L. Spiller (4) ......................................... 0.4% c/o Alliance Laundry Systems LLC P.O. Box 990 Ripon, WI 54971-0990 All Managers and executive officers as a group (20 persons)(1)(2)(3)(4).......................................... 91.0% (1) Amounts shown reflect interests in Bain/RCL, L.L.C. which beneficially owns 55.9% of the outstanding common membership interests of the Company through its ownership of Class A and Class L membership units in the Parent. (2) Amounts shown reflect the aggregate interests held by Bain Capital Fund V, L.P. ("Fund V"), Bain Capital Fund V-B, L.P. ("Fund V-B"), BCIP Trust Associates II ("BCIP Trust"), BCIP Trust Associates II-B ("BCIP Trust II- B"), BCIP Associates II ("BCIP") and BCIP Associates II-B ("BCIP II-B") (collectively, the "Bain Funds"), for the Bain Funds and Messrs. Conard and Gay and the aggregate interests held by BCIP Trust, BCIP Trust II-B, BCIP and BCIP II-B for Mr. Zide. (3) Amounts shown reflect the aggregate interests held by Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS"), BCB Family Partners, L.P., NAZ Family Partners, L.P., Paul D. Kaminski, Bruce C. Bruckmann, Donald J. Bruckmann, Harold O. Rosser, Stephen C. Sherrill, H. Virgil Sherrill, Nancy A. Zweng, John Rice Edmonds, Susan Kaider, Marilena Tibrea, Walker C. Simmons and MLPF&S Custodian FBO Paul Kaminski (collectively, the "BRS Investors"). (4) Includes Class A and Class L membership units in the Parent but excludes Class B and Class C membership units which are subject to vesting and generally have no voting rights, representing on a fully diluted basis approximately 9.7% of Parent's membership units for the Management Investors, 69 3.1% for Mr. L'Esperance, 1.3% for Mr. Gaster, 1.4% for Mr. Brothers, 1.3% for Mr. Rounds and 1.2% for Mr. Spiller. (5) Messrs. Conard and Gay are each Managing Directors of Bain Capital Investors V, Inc., the sole general partner of Bain Capital Partners V, L.P. ("BCPV"), and are limited partners of BCPV, the sole general partner of Fund V and Fund V-B. Accordingly Messrs. Conard and Gay may be deemed to beneficially own the interests owned by Fund V and Fund V-B. Messrs. Conard and Gay are each general partners of BCIP, BCIP II-B, BCIP Trust and BCIP Trust II-B and, accordingly, may be deemed to beneficially own the interests owned by BCIP, BCIP II-B, BCIP Trust and BCIP Trust II-B. Each such person disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. (6) Mr. Sherrill is a director of BRSE Associates, Inc., the sole general partner of BRS Partners, L.P., the sole general partner of BRS and, accordingly, may be deemed to beneficially own the interests owned by BRS. Mr. Sherrill disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. (7) Mr. Taymor is a partner of Maple Street Partners LLC, and accordingly, may be deemed to beneficially own the interests owned by Maple Street Partners. Mr. Taymor disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Parent Securityholders Agreement Upon the consummation of the Merger, the Parent, Raytheon and the securityholders entered into a securityholders agreement (the "Securityholders Agreement"). The Securityholders Agreement: (i) restricts the transfer of the equity interests of the Parent; (ii) grants tag-along rights on certain transfers of equity interests of the Parent; (iii) requires the securityholders to consent to a sale of the Parent to an independent third party if such sale is approved by certain holders of the then outstanding equity interests of the Parent; and (iv) grants preemptive rights on certain issuances of equity interests of the Parent. Certain of the foregoing provisions of the Securityholders Agreement will terminate upon the consummation of an Initial Public Offering or a Liquidity Event (each as defined in the Securityholders Agreement). Management Services Agreement In connection with the Merger, the Company entered into a Management Services Agreement (the "Management Services Agreement") with Bain LLC pursuant to which Bain LLC agreed to provide: (i) general executive and management services; (ii) identification, support, negotiation and analysis of acquisitions and dispositions; (iii) support, negotiation and analysis of financial alternatives; and (iv) other services agreed upon by the Company and Bain LLC. In exchange for such services, Bain LLC will receive (i) an annual management fee of $1.0 million, plus reasonable out-of-pocket expenses (payable quarterly) and (ii) a transaction fee in an amount in accordance with the general practices of Bain LLC at the time of the consummation of any additional acquisition or divestiture by the Company and of each financing or refinancing (currently approximately 1.0% of total financings). The Management Services Agreement has an initial term of ten years subject to automatic one-year extensions unless the Company or Bain LLC provides written notice of termination. 70 Parent Registration Rights Agreement Upon the consummation of the Merger, the Parent, Raytheon and the securityholders, entered into a registration rights agreement (the "Parent Registration Rights Agreement"). Under the Parent Registration Rights Agreement, the holders of a majority of the Registrable Securities (as defined in the Parent Registration Rights Agreement) owned by Bain LLC have the right, subject to certain conditions, to require the Parent to register any or all of their common equity interests of the Parent under the Securities Act at the Parent's expense. In addition, all holders of Registrable Securities are entitled to request the inclusion of any common equity interests of the Parent subject to the Parent Registration Rights Agreement in any registration statement at the Parent's expense whenever the Parent proposes to register any of its common equity interests under the Securities Act. In connection with all such registrations, the Parent has agreed to indemnify all holders of Registrable Securities against certain liabilities, including liabilities under the Securities Act. Parent Amended and Restated Limited Liability Company Agreement Bain LLC, the BRS Investors, the Management Investors and Raytheon (collectively, the "Members") have entered into an Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"). The LLC Agreement governs the relative rights and duties of the Members. Membership Interests. The ownership interests of the members in the Parent consist of preferred units (the "Preferred Units") and common units (the "Common Units"). The Common Units represent the common equity of the Company. Holders of the Preferred Units are entitled to the return of capital contributions prior to any distributions made to holders of the Common Units. Distributions. Subject to any restrictions contained in any financing agreements to which the Company or any of its Affiliates (as defined in the LLC Agreement) is a party, the Board of Managers (the "Board") may make distributions, whether in cash, property or securities of the Company, at any time or from time to time in the following order of priority: First, to the holders of Preferred Units, an amount determined by the aggregate unreturned capital. Second, to the holders of Class L Common Units, the aggregate unpaid yield accrued on such Class L Units. Third, to the holders of Class L Units, an amount equal to the aggregate unreturned capital. Fourth, ratably to the holders of Common Units, an amount equal to the amount of such distribution that has not been distributed pursuant to clauses described above. The Company may distribute to each holder of units within 75 days after the close of each fiscal year such amounts as determined by the Board to be appropriate to enable each holder of units to pay estimated income tax liabilities. There were no distributions to holders of units during 2000. Management. The Board consists of five individuals (each a "Representative"). Pursuant to the Securityholders Agreement, the holder of the majority of the Common Units held by the BRS Investors appointed one Representative. The members of the Parent holding a majority of the Bain Units (as defined in the LLC Agreement) appointed the remaining Representatives. The current Board consists of Messrs. L'Esperance, Conard, Gay, Sherrill, Zide and Taymor. 71 Junior Subordinated Promissory Note Upon the consummation of the Merger, the Parent issued a Junior Subordinated Promissory Note (the "Junior Note") in the principal amount of $9.0 million due August 21, 2009, to Raytheon. Pursuant to the terms of the Junior Note, interest accrues at the rate of 19.0% per annum until the eighth anniversary of the date of issuance of the Junior Note and at a rate of 13.0% thereafter. The Junior Note is subordinated in priority and subject in right and priority of payment to certain indebtedness described therein. Parent Seller Preferred Equity Upon the consummation of the Merger, the Parent issued mandatorily redeemable preferred membership interests (the "Seller Preferred Equity") with a liquidation value of $6.0 million to Raytheon. The Seller Preferred Equity does not accrete, accrue or pay dividends and is redeemable at the earlier of (i) a Change of Control (as defined therein), (ii) any initial public offering or (iii) 2009. The holders of the Seller Preferred Equity are entitled to receive distributions from the Parent in an amount equal to their Unreturned Capital (as defined therein) prior to distributions in respect of any other membership interests of the Parent. Management Investor Promissory Notes In connection with the Merger, the Parent entered into promissory notes (the "Promissory Notes") aggregating approximately $1.8 million with Mr. L'Esperance, Mr. Gaster, Mr. Brothers and Mr. Rounds to help finance the purchase of Common Units in the Parent. The Promissory Notes bear interest at a rate of 5.94% per annum and mature on June 5, 2008. 72 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) Exhibits The exhibits listed in the accompanying Index to Exhibits are filed as a part of this report (b) Reports on 8-K. None. INDEX TO EXHIBITS:
Exhibit Description Incorporated Herein By Reference To ------- ----------- ----------------------------------- 2.1 Agreement and Plan of Merger, dated as of February 21, 1998, by and Exhibit 2.1 to the Registrant's Form among Bain/RCL, L.L.C., RCL Acquisitions, L.L.C., Raytheon S-4, Amendment #1, dated July 2, 1998 Commercial Laundry LLC and Raytheon Company. (file no. 333-56857) 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of May 2, Exhibit 2.2 to the Registrant's Form 1998, by and among Bain/RCL, L.L.C., RCL Acquisitions, L.L.C., S-4, Amendment #1, dated July 2, 1998 Raytheon Commercial Laundry LLC and Raytheon Company. (file no. 333-56857) 3.1 Certificate of Formation of Alliance Laundry Systems LLC. Exhibit 3.1 to the Registrant's Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 3.2 Amended and Restated Limited Liability Company Agreement of Alliance Exhibit 3.2 to the Registrant's Form Laundry Systems LLC. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 3.3 Certificate of Incorporation of Alliance Laundry Corporation. Exhibit 3.3 to the Registrant's Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 3.4 Bylaws of Alliance Laundry Corporation. Exhibit 3.4 to the Registrant's Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 4.1 Indenture, dated as of May 5, 1998, among Alliance Laundry Systems Exhibit 4.1 to the Registrant's Form LLC, Alliance Laundry Corporation, the Guarantors and United States S-4, Amendment #1, dated July 2, 1998 Trust Company of New York. (file no. 333-56857) 10.1 Purchase Agreement, dated as of April 29, 1998, by and among Exhibit 10.1 to the Registrant's Form Alliance Laundry Systems LLC, Alliance Laundry Corporation and the S-4, Amendment #1, dated July 2, 1998 Initial Purchasers. (file no. 333-56857) 10.2 Registration Rights Agreement, dated as of May 5, 1998, by and among Exhibit 10.2 to the Registrant's Form Alliance Laundry Systems LLC, Alliance Laundry Corporation, Alliance S-4, Amendment #1, dated July 2, 1998 Laundry Holdings LLC, and Lehman Brothers Inc. and Credit Suisse (file no. 333-56857) First Boston Corporation.
73 10.3 Credit Agreement, dated as of May 5, 1998, among Alliance Laundry Exhibit 10.3 to the Registrant's Form Holdings LLC, Alliance Laundry Systems LLC, the several banks or S-4, Amendment #1, dated July 2, 1998 other financial institutions or entities from time to time parties (file no. 333-56857) to this Agreement, Lehman Brothers Inc., Lehman Commercial Paper Inc., and General Electric Capital Corporation. 10.4 Loan and Security Agreement, dated May 5, 1998, between Alliance Exhibit 10.4 to the Registrant's Form Laundry Receivables Warehouse LLC, the Lenders and Lehman Commercial S-4, Amendment #1, dated July 2, 1998 Paper Inc. (file no. 333-56857) 10.5 Amended and Restated Limited Liability Agreement of Alliance Laundry Exhibit 10.5 to the Registrant's Form Holdings LLC, dated as of May 5, 1998. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.6 Alliance Laundry Holdings LLC, Securityholders Agreement, dated as Exhibit 10.6 to the Registrant's Form of May 5, 1998, between Alliance Laundry Holdings LLC and the S-4, Amendment #1, dated July 2, 1998 Securityholders. (file no. 333-56857) 10.7 Alliance Laundry Holdings LLC, Registration Rights Agreement, Exhibit 10.7 to the Registrant's Form made as of May 5, 1998, by and among Alliance Laundry Holdings LLC, S-4, Amendment #1, dated July 2, 1998 Raytheon Company, Bain/RCL and the Securityholders. (file no. 333-56857) 10.8 Employment Agreement, made as of May 5, 1998, by and between Exhibit 10.8 to the Registrant's Form Alliance Laundry Systems LLC and Thomas F. L'Esperance. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.9 IRA and Executive Unit Purchase Agreement, made as of May 5, Exhibit 10.9 to the Registrant's Form 1998, by and between RCL Acquisitions, LLC, Thomas F. L'Esperance S-4, Amendment #1, dated July 2, 1998 and Stifel, Nicolaus Custodian for Thomas F. L'Esperance IRA (file no. 333-56857) and Stifel, Nicolaus Custodian for Paula K. L'Esperance IRA. 10.10 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.10 to the Registrant's Form by and between RCL Acquisitions, LLC, R. Scott Gaster and Robert W. S-4, Amendment #1, dated July 2, 1998 Baird & Co. Inc. TTEE for R. Scott Gaster IRA. (file no. 333-56857) 10.11 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.11 to the Registrant's Form by and between RCL Acquisitions, L.L.C., Jeffrey J. Brothers and S-4, Amendment #1, dated July 2, 1998 Delaware Charter Guarantee and Trust Company, TTEE for Jeffrey J. (file no. 333-56857) Brothers, IRA.
74 10.13 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.13 to the Registrant's Form by and between RCL Acquisitions, L.L.C., Bruce P. Rounds and Stifel, S-4, Amendment #1, dated July 2, 1998 Nicolaus Custodian for Bruce P. Rounds IRA. (file no. 333-56857) 10.14 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, Exhibit 10.14 to the Registrant's Form by and between RCL Acquisitions, L.L.C., Scott L. Spiller and S-4, Amendment #1, dated July 2, 1998 Stifel, Nicolaus Custodian for Scott Spiller IRA. (file no. 333-56857) 10.16 Deferred Compensation Agreement, made and entered into as of May Exhibit 10.16 to the Registrant's Form 5, 1998, by and among Thomas F. L'Esperance, Raytheon Company, S-4, Amendment #1, dated July 2, 1998 Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC. (file no. 333-56857) 10.17 Deferred Compensation Agreement, made and entered into as of May 5, Exhibit 10.17 to the Registrant's Form 1998, by and among R. Scott Gaster, Alliance Laundry Holdings LLC, S-4, Amendment #1, dated July 2, 1998 and Alliance Laundry Systems LLC. (file no. 333-56857) 10.18 Deferred Compensation Agreement, made and entered into as of May 5, Exhibit 10.18 to the Registrant's Form 1998, by and among Jeffrey J. Brothers, Alliance Laundry Holdings S-4, Amendment #1, dated July 2, 1998 LLC, and Alliance Laundry Systems LLC. (file no. 333-56857) 10.20 Deferred Compensation Agreement, made and entered into as of May 5, Exhibit 10.20 to the Registrant's Form 1998, by and among Bruce P. Rounds, Alliance Laundry Holdings LLC, S-4, Amendment #1, dated July 2, 1998 and Alliance Laundry Systems LLC. (file no. 333-56857) 10.34 Promissory Note, dated as of May 5, 1998, from Thomas F. L'Esperance Exhibit 10.34 to the Registrant's Form to RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.35 Promissory Note, dated as of May 5, 1998, from R. Scott Gaster to Exhibit 10.35 to the Registrant's Form RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.36 Promissory Note, dated as of May 5, 1998, from Jeffrey J. Brothers Exhibit 10.36 to the Registrant's Form to RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.38 Promissory Note, dated as of May 5, 1998, from Bruce P. Rounds to Exhibit 10.38 to the Registrant's Form RCL Acquisitions, L.L.C. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.40 Advisory Agreement, dated as of May 5, 1998, by and between Alliance Exhibit 10.40 to the Registrant's Form Laundry Systems LLC, and Bain Capital, Inc. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)
75 10.42 Junior Subordinated Promissory Note, dated as of May 5, 1998, from Exhibit 10.42 to the Registrant's Form Alliance Laundry Holdings LLC to Raytheon Company. S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 10.45 Supply Agreement, dated as of May 1, 1998, by and among Coinmach Exhibit 10.45 to the Registrant's Form Corporation, Super Laundry Equipment Corporation and Raytheon S-4, Amendment #2, dated August 4, 1998 Commercial Laundry LLC (incorporated by reference (file no. 333-56857) from exhibit 10.57 to Coinmach Corporation's Annual Report on Form 10-K dated as of June 29, 1998, file number 033-49830). 10.46 Receivables Purchase Agreement, dated as of May 5, 1998, between Exhibit 10.46 to the Registrant's Form Alliance Laundry Systems LLC and Alliance Laundry Receivables S-4, Amendment #4, dated February 17, Warehouse LLC. 1999 (file no. 333-56857) 10.47 Letter Agreement, dated as of April 29, 1998, by and among Bain/RCL, Exhibit 10.47 to the Registrant's Form L.L.C. and RCL Acquisitions, L.L.C., Raytheon Company and Raytheon S-4, Amendment #5, dated March 3, 1999 Commercial Laundry LLC. (file no. 333-56857) 10.48 First Amendment, dated as of March 26, 1999, to Credit Agreement, Exhibit 10.48 to the Registrant's Form dated as of May 5, 1998, among Alliance Laundry Holdings LLC, S-4, Amendment #5, dated March 3, 1999 Alliance Laundry Systems LLC, the several banks on other financial (file no. 333-56857) institutions or entities from time to time parties to this Agreement, Lehman Brothers Inc., Lehman Commercial Paper Inc., and General Electric Capital Corporation. 10.49 * Indenture Agreement, dated as of November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and The Bank of New York as indenture trustee. 10.50 * Purchase Agreement, dated as of November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Alliance Laundry Systems LLC, in its own capacity and as servicer. 10.51 * Pooling and Servicing Agreement, dated November 28, 2000, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables LLC and Alliance Laundry Equipment Receivables Trust 2000-A. 10.52 * Trust Agreement, dated November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Wilmington Trust Company as owner trustee. 10.53 * Administration Agreement, dated November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and Alliance Laundry Systems LLC as administrator, and The Bank of New York as indenture trustee.
76 10.54 * Limited Liability Company Agreement of Alliance Laundry Equipment Receivables LLC, dated as of November 28, 2000. 10.55 * Insurance and Indemnity Agreement, dated as of November 28, 2000, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2000-A as Issuer, Alliance Laundry Equipment Receivables LLC as Seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee. 21.1 * Subsidiaries of Alliance Laundry Systems LLC. 24.1 Powers of Attorney. Exhibit 24.1 to the Registrant's Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857) 27.1* Financial Data Schedule.
- ---------- * Filed herewith 77 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Alliance Laundry Systems LLC has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Ripon, state of Wisconsin, on the 28th day of March 2001. Signature Title Date --------- ----- ---- Chairman and CEO - ------------------------- -------------- Thomas L'Esperance Vice President and Chief Financial Officer - ------------------------- -------------- Bruce P. Rounds Date: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of March 28, 2001, by the following persons on behalf of the registrant and in the capacities indicated: ------------------------------- ------------------------------ Thomas F. L'Esperance Philip S. Taymor Chief Executive Officer and Manager Manager ------------------------------- ------------------------------ Edward W. Conard Robert C. Gay Manager Manager ------------------------------- ------------------------------ Stephen C. Sherrill Stephen M. Zide Manager Manager 78 EX-10.49 2 dex1049.txt INDENTURE AGREEMENT Exhibit 10.49 ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A Class A-1 7.09% Equipment Loan Backed Notes Class A-2 Floating Rate Equipment Loan Backed Notes Class B-1 9.00% Equipment Loan Backed Notes Class B-2 Floating Rate Equipment Loan Backed Notes ----------------------------------------- INDENTURE Dated as of November 28, 2000 ----------------------------------------- The Bank of New York, a New York banking corporation, Indenture Trustee TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE 3 SECTION 1.1 Definitions 3 ARTICLE II THE NOTES 3 SECTION 2.1 Form 3 SECTION 2.2 Execution, Authentication and Delivery 4 SECTION 2.3 Temporary Notes 5 SECTION 2.4 Registration; Registration of Transfer and Exchange of Notes 5 SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes 7 SECTION 2.6 Persons Deemed Noteholders 7 SECTION 2.7 Payment of Principal and Interest 8 SECTION 2.8 Cancellation of Notes 9 SECTION 2.9 Release of Trust Estate 9 SECTION 2.10 Book-Entry Notes 9 SECTION 2.11 Notices to Clearing Agency 10 SECTION 2.12 Definitive Notes 10 SECTION 2.13 ALER as Noteholder 11 SECTION 2.14 Tax Treatment 11 SECTION 2.15 Restrictions on Transfer 11 SECTION 2.16 Rule 144A 18 ARTICLE III COVENANTS 19 SECTION 3.1 Payment of Principal and Interest 19 SECTION 3.2 Maintenance of Agency Office 19 SECTION 3.3 Money for Payments To Be Held in Trust 19 SECTION 3.4 Existence 21 SECTION 3.5 Protection of Trust Estate; Acknowledgment of Pledge 21 SECTION 3.6 Opinions as to Trust Estate 22 SECTION 3.7 Performance of Obligations; Servicing of Loans; Consent to Amendments 23 SECTION 3.8 Negative Covenants 24 SECTION 3.9 Annual Statement as to Compliance 24 SECTION 3.10 Consolidation, Merger, etc., of Issuer; Disposition of i Trust Assets 25 SECTION 3.11 Successor or Transferee 27 SECTION 3.12 No Other Business 27 SECTION 3.13 No Borrowing 27 SECTION 3.14 Guarantees, Loans, Advances and Other Liabilities 27 SECTION 3.15 Servicer's Obligations 27 SECTION 3.16 Capital Expenditures 27 SECTION 3.17 Removal of Administrator 28 SECTION 3.18 Restricted Payments 28 SECTION 3.19 Notice of Events of Default 28 SECTION 3.20 Further Instruments and Acts 28 SECTION 3.21 Indenture Trustee's Assignment of Administrative Loans, Substituted Loans, Warranty Loans and Other Loans 28 SECTION 3.22 Representations and Warranties by the Issuer to the Indenture Trustee and the Insurer 29 SECTION 3.23 Compliance with Laws 29 SECTION 3.24 Indemnity for Liability Claims 29 SECTION 3.25 Use of Proceeds 30 ARTICLE IV SATISFACTION AND DISCHARGE 30 SECTION 4.1 Satisfaction and Discharge of Indenture 30 SECTION 4.2 Application of Trust Money 31 SECTION 4.3 Repayment of Monies Held by Paying Agent 31 SECTION 4.4 Duration of Position of Indenture Trustee for Benefit of Certificateholders 32 ARTICLE V DEFAULT AND REMEDIES 32 SECTION 5.1 Events of Default 32 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment 33 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee 34 SECTION 5.4 Remedies; Priorities 36 SECTION 5.5 Optional Preservation of the Trust Estate 38 SECTION 5.6 Limitation of Suits 38 SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal and Interest 39 SECTION 5.8 Restoration of Rights and Remedies 39 SECTION 5.9 Rights and Remedies Cumulative 39 SECTION 5.10 Delay or Omission Not a Waiver 39 ii SECTION 5.11 [Reserved.] 39 SECTION 5.12 Waiver of Past Defaults 40 SECTION 5.13 Undertaking for Costs 40 SECTION 5.14 Waiver of Stay or Extension of Laws 40 SECTION 5.15 Action on Notes 41 SECTION 5.16 Performance and Enforcement of Certain Obligations 41 ARTICLE VI THE INDENTURE TRUSTEE 42 SECTION 6.1 Duties of Indenture Trustee 42 SECTION 6.2 Rights of Indenture Trustee 43 SECTION 6.3 Indenture Trustee May Own Notes 45 SECTION 6.4 Indenture Trustee's Disclaimer 45 SECTION 6.5 Notice of Defaults and Events of Default 45 SECTION 6.6 Reports by Indenture Trustee to Holders 45 SECTION 6.7 Compensation; Indemnity 45 SECTION 6.8 Replacement of Indenture Trustee 46 SECTION 6.9 Merger or Consolidation of Indenture Trustee 47 SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee 48 SECTION 6.11 Eligibility; Disqualification 49 SECTION 6.12 [Reserved.] 50 SECTION 6.13 Representations and Warranties of Indenture Trustee 50 SECTION 6.14 Indenture Trustee May Enforce Claims Without Possession of Notes 51 SECTION 6.15 Suit for Enforcement 51 SECTION 6.16 Rights of the Controlling Party to Direct Indenture Trustee 51 SECTION 6.17 Ambac Policy 51 ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS 52 SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders. 52 SECTION 7.2 Preservation of Information, Communications to Noteholders 53 SECTION 7.3 [Reserved.] 53 SECTION 7.4 Reports by Indenture Trustee 53 ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES 53 SECTION 8.1 Collection of Money 53 iii SECTION 8.2 Designated Accounts; Payments 54 SECTION 8.3 General Provisions Regarding Accounts 57 SECTION 8.4 Release of Trust Estate 57 SECTION 8.5 Opinion of Counsel 58 SECTION 8.6 Additional Payments to Indenture Trustee and Insurer 58 ARTICLE IX AMENDMENTS 58 SECTION 9.1 Amendments Without Consent of Noteholders 58 SECTION 9.2 Amendments With Consent of Noteholders; Waivers 60 SECTION 9.3 Execution of Amendments or Waivers 61 SECTION 9.4 Effect of Amendments or Waivers 62 SECTION 9.5 [Reserved.] 62 SECTION 9.6 Reference in Notes to Amendments and Waivers 62 ARTICLE X REDEMPTION OF NOTES 62 SECTION 10.1 Redemption 62 SECTION 10.2 Form of Redemption Notice 63 SECTION 10.3 Notes Payable on Redemption Date 63 ARTICLE XI MISCELLANEOUS 63 SECTION 11.1 Compliance Certificates and Opinions, etc 63 SECTION 11.2 Form of Documents Delivered to Indenture Trustee 65 SECTION 11.3 Acts of Noteholders and the Insurer 66 SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, the Insurer and Rating Agencies 67 SECTION 11.5 Notices to Noteholders; Waiver 67 SECTION 11.6 Alternate Payment and Notice Provisions 67 SECTION 11.7 [Reserved.] 67 SECTION 11.8 Effect of Headings and Table of Contents 67 SECTION 11.9 Successors and Assigns 68 SECTION 11.10 Separability 68 SECTION 11.11 Benefits of Indenture 68 SECTION 11.12 Legal Holidays 68 SECTION 11.13 Governing Law 68 SECTION 11.14 Counterparts 69 SECTION 11.15 Recording of Indenture 69 SECTION 11.16 No Recourse 69 SECTION 11.17 No Petition 69 iv SECTION 11.18 Inspection 70 SECTION 11.19 Assignment 70 SECTION 11.20 Survival of Agreement 70 v EXHIBITS Exhibit A-1A - Form of Class A-1 Rule 144A Global Note Exhibit A-1S - Form of Class A-1 Temporary Regulation S Global Note Exhibit A-2A - Form of Class A-2 Rule 144A Global Note Exhibit A-2S - Form of Class A-2 Temporary Regulation S Global Note Exhibit A-3 - Form of Regulation S Certification Exhibit B-1 - Form of Class B-1 Note Exhibit B-2 - Form of Class B-2 Note Exhibit C - Form of Note Depository Agreement Exhibit D - Form of Euroclear/Clearstream Certification Exhibit E - Locations of Schedule of Loans Exhibit F - Transfer Certificate for Class A Notes Exhibit G - Transfer Certificate for Class B Notes vi INDENTURE, dated as of November 28, 2000 between ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A, a Delaware business trust (the "Issuer"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee and not in its individual capacity (the "Indenture Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes, the Insurer and (only to the extent expressly provided herein) the Certificateholders: GRANTING CLAUSE The Issuer hereby Grants to the Indenture Trustee at the Closing Date, as trustee for the benefit of the Noteholders, the Insurer and (only to the extent expressly provided herein) the Certificateholders (together, the "Beneficiaries") to secure the Issuer's obligations under the Notes and the Basic Documents to which it is a party, all of the Issuer's right, title and interest in, to and under: (a) the Initial Loans, and any Substitute Loans and Replacement Loans, without limitation, including all documents and all documents and instruments evidencing or governing the Loans and all related Loan Files, listed and to be listed, as applicable, on the Schedule of Loans which is on file with the Indenture Trustee and all monies paid or payable thereon (including Liquidation Proceeds) on or after or due and payable, but in each case not paid, as of the related Cutoff Date; (b) the Equipment, including, without limitation, all security interests therein, granted by Obligors pursuant to the Loans and any other collateral securing the Loans; (c) any Insurance Policies and proceeds thereof, and all rights and benefits thereunder with respect to the Equipment and any other collateral securing the Loans; (d) with respect to the Loans, any Guaranties and proceeds thereof, and all rights and benefits thereunder; (e) the Lockbox and the Lockbox Account and all funds on deposit from time to time in the Lockbox or in the Lockbox Account and all proceeds thereof; (f) the Pooling and Servicing Agreement and the other Basic Documents (including all rights of ALER under the Purchase Agreement, the Custodian Agreement and any Assignment, but excluding the Trust Agreement, the Certificates and the documents and certificates executed in connection therewith); 1 (g) the Reserve Account and all proceeds thereof including the Initial Reserve Account Deposit and all other amounts, investments and investment property held from time to time in the Reserve Account (whether in the form of deposit accounts, Physical Property, book-entry securities, uncertificated securities or otherwise); (h) the Collection Account and all proceeds thereof including all other amounts, investments and investment property held from time to time in the Collection Account (whether in the form of deposit accounts, Physical Property, book-entry securities, uncertificated securities or otherwise); (i) the Note Distribution Account and all proceeds thereof including all other amounts, investments and investment property held from time to time in the Note Distribution Account (whether in the form of deposit accounts, Physical Property, book-entry securities, uncertificated securities or otherwise); (j) any Warranty Payments and Administrative Purchase Payments; (k) the Ambac Policy; and (l) all present and future claims, demands, causes and chooses in action in respect of any or all of the foregoing and all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of the conversion, voluntary or involuntary, into cash or other liquid property, 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 loans, instruments and other property which at any time constitute all or part of or are included in the proceeds of any of the foregoing (all of the Issuer's right, title and interest in, to and under the items in (a) through (l) being referred to as the "Trust Estate"). The foregoing Grant is made in trust to secure the payment of principal of and interest on, and any other amounts owing in respect of the Notes of a class equally and ratably without prejudice, priority or distinction, and among the class of Notes in accordance with the priorities set forth herein and to secure compliance with the provisions of this Indenture, all as provided in this Indenture. This Indenture constitutes a security agreement under the UCC. The foregoing Grant includes all rights, powers and options (but none of the obligations, if any) of the Issuer under any agreement or instrument included in the Trust Estate, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Loans included in the Trust Estate and all other monies payable under the Trust Estate, 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 2 name of the Issuer or otherwise and generally to do and receive anything that the Issuer is or may be entitled to do or receive under or with respect to the Trust Estate. The Indenture Trustee, as trustee on behalf of the Noteholders, the Insurer and (only to the extent expressly provided herein) the Certificateholders, acknowledges such Grant and accepts the trusts under this Indenture in accordance with the provisions of this Indenture. The pledge of the Trust Estate by the Issuer pursuant to this Indenture does not constitute and is not intended to result in an assumption by the Indenture Trustee, the Insurer or any Noteholder of any obligation of the Issuer, the Servicer, Owner Trustee, or Seller to any Obligor or other Person in connection with the Equipment, the Loans, the Insurance Policies, the Guaranties or any other part of the Trust Estate or any document in the Loan Files other than those obligations specifically set forth in the Basic Documents. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. Certain capitalized terms used in this Indenture shall have the respective meanings assigned them in Part I of Appendix A to the Pooling and Servicing Agreement of even date herewith among the Issuer, ALER and ALS (as it may be amended, supplemented or modified from time to time, the "Pooling and Servicing Agreement"). All references herein to "the Indenture" or "this Indenture" are to this Indenture as it may be amended, supplemented or modified from time to time, the exhibits hereto and the capitalized terms used herein which are defined in such Appendix A. All references herein to Articles, Sections, subsections and exhibits are to Articles, Sections, subsections and exhibits contained in or attached to this Indenture unless otherwise specified. All terms defined in this Indenture shall have the defined meanings when used in any certificate, notice, Note or other document made or delivered pursuant hereto unless otherwise defined therein. The rules of construction set forth in Part II of such Appendix A shall be applicable to this Indenture. ARTICLE II THE NOTES SECTION 2.1 Form. Each of the Class A-1 Notes, Class A-2 Notes, Class B-1 Notes and Class B-2 Notes, with the Indenture Trustee's certificate of authentication, shall be substantially in the form set forth in Exhibits A-1A and A-1S, with respect to the Class A-1 Notes, Exhibits A-2A and A-2S with respect to the Class A-2 Notes, and Exhibits B-1 and B-2 with respect to the Class B Notes, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and each such class may have such letters, numbers or other 3 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 the Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The Definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods (with or without steel engraved borders), all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. Each Note shall be dated the date of its authentication. The terms of each class of Notes as provided for in Exhibits A-1A, A-1S, A-2A, A-2S, B-1 and B-2 hereto are part of the terms of this Indenture. The Class A Notes in substantially the form set forth in Exhibit A-1A and A-2A shall represent the Class A Notes which have been issued and sold to the Initial Purchaser pursuant to the Note Purchase Agreement and resold by the Initial Purchaser in reliance upon the exemption from registration under the Securities Act (the "Rule 144A Global Note"). The Class A Notes in substantially the form set forth in Exhibits A-1S and A-2S shall initially represent the Class A Notes which have been issued and sold to the Initial Purchaser pursuant to the Note Purchase Agreement and resold by the Initial Purchaser to non-U.S. Persons in reliance upon the exemption from registration under the Securities Act provided by Regulation S (the "Temporary Regulation S Global Notes"). The Temporary Regulation S Global Notes will not be exchangeable for Definitive Notes in any circumstances. Interests in the Temporary Regulation S Global Notes may be exchanged in accordance with the terms thereof for interests in the Permanent Regulation S Global Notes not earlier than the day following the last day of the Distribution Compliance Period (the "Exchange Date"). Such exchange shall be made only upon certification as to non-U.S. beneficial ownership as described in Section 2.02(g) hereof. On or before the Exchange Date the Indenture Trustee will execute permanent global notes (the "Permanent Regulation S Global Notes," together with the Rule 144A Global Note and the Temporary Regulation S Global Notes, the "Global Notes") representing Temporary Regulation S Global Notes for each of the Class A-1 Notes and the Class A-2 Notes. The Permanent Regulation S Global Notes will be issued and delivered in exchange for all or part of the interests in the Temporary Regulation S Global Notes of the applicable series upon presentation to the Indenture Trustee through the Clearing Agency by Euroclear and Clearstream of a certification of non-U.S. beneficial ownership, substantially in the form attached to such Temporary Regulation S Global Note. 4 SECTION 2.2 Execution, Authentication and Delivery. Each Note shall be dated the date of its authentication. Each Class A Note shall be issuable as a registered Note in the minimum denomination of $1,000 and in integral multiples of $1,000 in excess thereof, and each Class B Note shall be issuable as a registered Note in the minimum denomination of $500,000 and in integral multiples of $1,000 in excess thereof (except, in each case if applicable, for one Note representing a residual portion of each class which may be issued in a different denomination). The Notes shall be executed on behalf of the Issuer by any of its Authorized Officers. The signature of any such Authorized Officer on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signature of individuals who were at any time Authorized Officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such office prior to the authentication and delivery of such Notes or did not hold such office at the date of such Notes. The Indenture Trustee shall upon Issuer Order authenticate and deliver to or upon the order of the Issuer, the Notes for original issue in aggregate principal amount of $128,195,000, comprised of (i) Class A-1 Notes in the aggregate principal amount of $71,544,000, (ii) Class A-2 Notes in the aggregate principal amount of $52,517,000, (iii) Class B-1 Notes in the aggregate principal amount of $2,384,000 and (iv) Class B-2 Notes in the aggregate principal amount of $1,750,000. The aggregate principal amount of all Notes outstanding at any time may not exceed $128,195,000 except as provided in Section 2.5. No Notes 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 set forth in Exhibits A-1A, A-1S, A-2A, A-2S, B-1 or B-2, executed by the Indenture Trustee by the manual signature of one of its authorized signatories, 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 2.3 Temporary Notes. Pending the preparation of Definitive Notes, if any, the Issuer may execute, and upon receipt of an Issuer Order the Indenture Trustee shall authenticate and deliver, such Temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, of the tenor of the Definitive Notes in lieu of which they are issued and with such variations as are consistent with the terms of this Indenture as the officers executing such Notes may determine, as evidenced by their execution of such Notes. 5 If Temporary Notes are issued, the Issuer shall 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 Agency Office without charge to the Noteholder. Upon surrender for cancellation of any one or more Temporary Notes, the Issuer shall execute and the Indenture Trustee shall authenticate and deliver in exchange therefor a like principal amount of Definitive Notes of authorized denominations. Until so delivered in exchange, the Temporary Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes. SECTION 2.4 Registration; Registration of Transfer and Exchange of Notes. The Issuer shall cause to be kept the Note Register, comprising separate registers for each class of Notes, in which, subject to such reasonable regulations as the Issuer may prescribe, the Issuer shall provide for the registration of the Notes and the registration of transfers and exchanges of the Notes. The Indenture Trustee shall initially be the Note Registrar for the purpose of registering the Notes and transfers of the Notes as herein provided. Upon any resignation of any Note Registrar, the Issuer shall promptly appoint a successor Note Registrar or, if it elects not to make such an appointment, assume the duties of the Note Registrar. If a Person other than the Indenture Trustee is appointed by the Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Note Registrar and of the location, and any change in the location, of the Note Register. The Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof. The Indenture Trustee shall have the right to rely upon a certificate executed on behalf of the Note Registrar by an Executive Officer thereof as to the names and addresses of the Noteholders and the principal amounts and number of such Notes. Upon surrender for registration of transfer of any Note at the Corporate Trust Office of the Indenture Trustee or the Agency Office of the Issuer (and following the delivery, in the former case, of such Notes to the Issuer by the Indenture Trustee), the Issuer shall execute, the Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Notes in any authorized denominations, of a like aggregate principal amount. At the option of the Noteholder, Notes may be exchanged for other Notes of the same class in any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at the Corporate Trust Office of the Indenture Trustee or the Agency Office of the Issuer (and following the delivery, in the former case, of such Notes to the Issuer by the Indenture Trustee), the Issuer shall execute, and the Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee, the Notes which the Noteholder making the exchange is entitled to receive. 6 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 transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee and the Note Registrar, duly executed by the Holder thereof or such Holder's attorney duly authorized in writing, with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city in which the Corporate Trust Office of the Indenture Trustee is located, or by a member firm of a national securities exchange, and such other documents as the Indenture Trustee may require. No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Issuer or Indenture Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Sections 2.3 or 9.6 not involving any transfer. The preceding provisions of this Section 2.4 notwithstanding, the Issuer shall not be required to transfer or make exchanges, and the Note Registrar need not register transfers or exchanges, of Notes that: (i) have been selected for redemption pursuant to Article X, if applicable; or (ii) are due for repayment in full within 15 days of submission to the Corporate Trust Office or the Agency Office. SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer and the Indenture Trustee harmless, then, in the absence of notice to the Issuer, the Note Registrar or the Indenture Trustee that such Note has been acquired by a bona fide purchaser, the Issuer shall execute and upon the Issuer's request the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note of a like class and aggregate principal amount; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become or within seven days shall be due and payable in full, or shall have been called for redemption, instead of issuing a replacement Note, the Issuer may make payment to the Holder of such destroyed, lost or stolen Note when so due or payable or upon the Redemption Date, if applicable, without surrender thereof. 7 If, after the delivery of a replacement Note or payment in respect of a destroyed, lost or stolen Note pursuant to subsection (a), any bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer and the Indenture Trustee shall be entitled to recover such replacement Note (or such payment) from (i) any Person to whom it was delivered, (ii) the Person taking such replacement Note from the Person to whom such replacement Note was delivered or (iii) any assignee of such Person, except any bona fide purchaser, and the Issuer and the Indenture Trustee shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in connection therewith. In connection with the issuance of any replacement Note under this Section 2.5, the Issuer may require the payment by the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including all fees and expenses of the Indenture Trustee) connected therewith. Any duplicate Note issued pursuant to this Section 2.5 in replacement for any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall be found at any time or be enforced by any Person, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 2.5 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.6 Persons Deemed Noteholders. Prior to due presentment for registration of transfer of any Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name any Note is registered (as of the day of determination) as the Noteholder 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 Indenture Trustee nor any agent of the Issuer or the Indenture Trustee shall be affected by notice to the contrary. 8 SECTION 2.7 Payment of Principal and Interest. Interest on each class of Notes shall accrue in the manner set forth in Exhibit A-1A, A-1S, A-2A, A-2S, B-1 or B-2, as applicable, at the applicable Interest Rate for such class, and such interest shall be due and payable on each Distribution Date, regardless of whether funds are available therefor, and shall be paid in accordance with the priorities set forth in Section 8.2, as specified in the form of Note set forth in Exhibits A-1A, A-1S, A-2A, A-2S, B-1 or B-2, as applicable. Any instalment of interest payable on any Note shall be punctually paid or duly provided for by a deposit by or at the direction of the Issuer or the Servicer into the Note Distribution Account on or prior to the applicable Distribution Date for payment to Noteholders on such Distribution Date and shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered in the Note Register on the applicable Record Date, by check mailed first-class, postage prepaid to such Person's address as it appears on the Note Register on such Record Date; provided, however, that, unless and until Definitive Notes have been issued pursuant to Section 2.12, with respect to Notes registered on the applicable Record Date in the name of the Note Depository (initially, Cede & Co.), payment shall be made by wire transfer in immediately available funds to the account designated by the Note Depository. The principal of each class of Notes shall be due and payable in full on the Final Scheduled Distribution Date for such class and, to the extent of funds available therefor, due and payable in instalments on the Distribution Dates (if any) preceding the Final Scheduled Distribution Date for such class, in the amounts and in accordance with the priorities set forth in Section 8.2(c), (d), (e), (f), (g), (h) or (i) as applicable. All principal payments on each class of Notes shall be made pro rata to the Noteholders of such class entitled thereto. Any instalment of principal payable on any Note shall be punctually paid or duly provided for by a deposit by or at the direction of the Indenture Trustee into the Note Distribution Account prior to the applicable Distribution Date for payment to Noteholders on such Distribution Date and shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered in the Note Register on the applicable Record Date, by check mailed first-class, postage prepaid to such Person's address as it appears on the Note Register on such Record Date; provided, however, that, unless and until Definitive Notes have been issued pursuant to Section 2.12, with respect to Notes registered on the Record Date in the name of the Note Depository, payment shall be made by wire transfer in immediately available funds to the account designated by the Note Depository, except for: (i) the final instalment of principal on any Note; and (ii) the Redemption Price for the Notes redeemed pursuant to Section 10.1, which, in each case, shall be payable as provided in Section 2.7(e) and Section 10.2. The funds represented by any such checks in respect of interest or principal returned undelivered shall be held in accordance with Section 3.3. [Reserved.] [Reserved.] 9 With respect to any Distribution Date on which the final instalment of principal and interest on a class of Notes is to be paid, the Indenture Trustee shall notify each Noteholder of such class of record as of the Record Date for such Distribution Date of the fact that the final instalment of principal of and interest on such Note is to be paid on such Distribution Date. Such notice shall be sent (i) on such Record Date by facsimile, with respect to Book-Entry Notes; and (ii) not later than three Business Days after such Record Date in accordance with Section 11.5(a) with respect to Definitive Notes or Class B Notes, and shall specify that such final instalment shall be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such instalment and the manner in which such payment shall be made. Notices in connection with redemptions of Notes shall be mailed to Noteholders as provided in Section 10.2. Within sixty days of the surrender pursuant to this Section 2.7(e) or cancellation pursuant to Section 2.8 of all of the Notes of a particular class, the Indenture Trustee shall provide each of the Rating Agencies with written notice stating that all Notes of such class have been surrendered or canceled. SECTION 2.8 Cancellation of Notes. All Notes surrendered for payment, redemption, exchange or registration of transfer shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly canceled by the Indenture Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.8, except as expressly permitted by this Indenture. All canceled Notes may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time unless the Issuer shall direct by an Issuer Order that they be returned to it; provided, however, that such Issuer Order is timely and the Notes have not been previously disposed of by the Indenture Trustee. The Indenture Trustee shall certify to the Issuer that surrendered Notes have been duly canceled and retained or destroyed, as the case may be. SECTION 2.9 Release of Trust Estate. The Indenture Trustee shall release property from the lien of this Indenture, other than as expressly permitted by Sections 3.21, 8.2, 8.4, and 10.1 of this Indenture and Section 5.05 of the Pooling and Servicing Agreement, only upon receipt of an Issuer Request accompanied by an Officer's Certificate and, if the Insurer is the Controlling Party, with the Insurer's consent, and otherwise solely in accordance with the express provisions of this Indenture. SECTION 2.10 Book-Entry Notes. The Class A Notes, upon original issuance, shall be issued in the form of a typewritten Note or Notes representing the Book-Entry Notes, to be 10 delivered to The Depository Trust Company, the initial Clearing Agency, by or on behalf of the Issuer. Such Class A Note or Class A Notes shall be registered on the Note Register in the name of the Note Depository (initially, Cede & Co.) and no Note Owner shall receive a Definitive Note representing such Note Owner's interest in such Class A Note, except as provided in Section 2.12. Unless and until Definitive Notes have been issued to the Note Owners of the Class A Notes pursuant to Section 2.12: (a) the provisions of this Section 2.10 shall be in full force and effect; (b) the Note Registrar and the Indenture Trustee shall be entitled to deal with the Clearing Agency for all purposes of this Indenture (including the payment of principal of and interest on the Class A Notes and the giving of instructions or directions hereunder) as the sole holder of the Class A Notes and shall have no obligation to the Note Owners; (c) to the extent that the provisions of this Section 2.10 conflict with any other provisions of this Indenture, the provisions of this Section 2.10 shall control; (d) the rights of the Note Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Note Owners and the Clearing Agency and/or the Clearing Agency Participants and unless and until Definitive Notes are issued pursuant to Section 2.12 for the Class A Notes, the initial Clearing Agency shall make book-entry transfers between the Clearing Agency Participants and receive and transmit payments of principal of and interest on the Class A Notes to such Clearing Agency Participants, pursuant to the Note Depository Agreement; and (e) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders of Notes evidencing a specified percentage of the Outstanding Amount of the Class A Notes, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has (i) received written instructions to such effect from Note Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Class A Notes and (ii) has delivered such instructions to the Indenture Trustee. SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other communication to the Holders of the Class A Notes is required under this Indenture, unless and until Definitive Notes shall have been issued to Note Owners pursuant to Section 2.12 for the Class A Notes, the Indenture Trustee shall give all such notices and communications specified herein to be given to Holders of the Class A Notes to the Clearing Agency and shall have no other obligation to the Note Owners. 11 SECTION 2.12 Definitive Notes. If (i) the Administrator advises the Indenture Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Class A Notes and the Issuer is unable to locate a qualified successor; (ii) the Administrator, at its option, advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency; or (iii) after the occurrence of an Event of Default or a Servicer Default, Note Owners representing beneficial interests aggregating at least a majority of the Outstanding Amount of the Notes in book-entry form advise the Clearing Agency and the Indenture Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Note Owners, then the Indenture Trustee shall notify all Note Owners and the Clearing Agency of the occurrence of any such event and of the availability of Definitive Notes to Note Owners requesting the same. Upon surrender to the Indenture Trustee of the typewritten Class A Note or Class A Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by registration instructions, the Issuer shall execute and the Indenture Trustee shall authenticate the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Issuer, the Note Registrar or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the Holders of the Definitive Notes as Noteholders. The Class B Notes shall at all times be in the form of Definitive Notes. SECTION 2.13 ALER as Noteholder. ALER in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or its affiliates with the same rights it would have if it were not ALER. SECTION 2.14 Tax Treatment. The Issuer in entering into this Indenture, and the Noteholders and the Note Owners, by acquiring any Note or interest therein, (i) express their intention that the Notes qualify under applicable tax law as indebtedness secured by the Trust Estate, and (ii) unless otherwise required by appropriate taxing authorities, agree to treat the Notes as indebtedness secured by the Trust Estate for the purpose of federal income taxes, state and local income and franchise taxes, and any other taxes imposed upon, measured by or based upon gross or net income. SECTION 2.15 Restrictions on Transfer. (A) The Class A Notes. The Class A Notes shall not be registered under the Securities Act or the securities or "Blue Sky" laws of any other jurisdiction. Consequently, the Class A Notes shall not be transferable other than pursuant to any exemption from the registration requirements of the Securities Act and satisfaction of certain other provisions specified in this Section 2.15(a). Except for the transfers of the Class A Notes on the Closing Date by the Seller, 12 no sale, pledge or other transfer of any Class A Note (or interest therein) may be made by any Person unless such sale, pledge or other transfer is made (A) to a QIB in a transaction which meets the requirements of Rule 144A, (B) in an offshore transaction in accordance with Rules 903 and 904 of Regulation S, or (C) pursuant to another exemption available under the Securities Act. In the case of clause (C), the Indenture Trustee shall require (A) that the prospective transferee certify to the Indenture Trustee and the Seller in writing the facts surrounding such transfer and the status of such transferee, which certification shall be substantially in the form of the certificate attached hereto as Exhibit F, and (B) a written opinion of counsel (which shall not be at the expense of the Issuer, the Owner Trustee, the Servicer, the Seller, the Certificateholders or the Indenture Trustee), satisfactory to the Indenture Trustee and the Seller, to the effect that such transfer will not violate the Securities Act. None of the Seller, the Servicer, the Certificateholders, the Issuer, the Owner Trustee or the Indenture Trustee shall be obligated to register any Class A Notes under the Securities Act, qualify any Class A Notes under the securities or "Blue Sky" laws of any state or provide registration rights to any purchaser or holder thereof. By accepting and holding a Class A Note, the Holder thereof shall be deemed to have represented and warranted and/or acknowledged and agreed as follows: (a) The purchaser is (A) is a QIB, is acquiring the Class A Notes for its own account or for the account of such QIB, and is aware that the sale of the Class A Notes to it is being made in reliance on Rule 144A, or (B) is not a U.S. person and is purchasing the notes in an offshore transaction in accordance with Regulation S. (b) The Class A Notes have not been and will not be registered under the Securities Act, any state securities or "blue sky" law, and may not be reoffered, resold, pledged or otherwise transferred except to (A) a person whom the seller reasonably believes is a QIB that purchases for its own account or for the account of another QIB and is aware that the sale of the notes to it is being made in reliance on Rule 144A, (B) in an offshore transaction in accordance with Rules 903 and 904 of Regulation S, or (C) pursuant to another exemption available under the Securities Act, and, in each case in accordance with all applicable securities and "Blue Sky" laws of any state of the United States or any other jurisdiction, and the purchaser will, and each subsequent holder is required to, notify any subsequent purchaser of such Class A Note from it of the resale restrictions referred to in this Section 2.15(a). (c) The Class A Notes will bear a legend set forth in clause (iii) below. (d) The Class A Notes will initially be represented by a beneficial interest in one or more notes for each class deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company and in accordance with the rules of The Depository Trust Company. 13 (e) If it is acquiring any Class A Notes as a fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and that it has full power to make the acknowledgments, representation and agreements contained in this Section 2.15(a) on behalf of such account. (f) It represents, warrants and covenants that (A) it is not acquiring such Class A Note with the assets of an "employee benefit plan" subject to Employee Retirement Income Security Act of 1974, as amended, a "plan described in Section 4975(e)(1) of the Code, an entity deemed to hold plan assets of any of the foregoing by reason of investment by an "employee benefit plan" or other "plan" in such entity, or a governmental plan subject to applicable law that is substantially similar to the fiduciary responsibility provisions of ERISA or Section 4975 of the Code or (B) the acquisition and holding of such Class A Note by such purchaser of a Class A Note, throughout the period that it holds such Class A Note, will not result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code (or, in the case of a governmental plan, any substantially similar applicable law). (g) It understands that, during the Distribution Compliance Period, a beneficial interest in a Temporary Regulation S Global Note may not be transferred to a U.S. person unless the beneficial interest in the Temporary Regulation S Global Note is exchanged for a beneficial interest in a Rule 144A Global Note, and then only if such exchange occurs in connection with a transfer pursuant to Rule 144A under the Securities Act and the transferor first delivers to the Indenture Trustee a written certificate to the effect that such transfer is being made to a person that the transferor reasonably believes is a QIB purchasing for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A under the Securities Act and in accordance with all applicable securities laws of all U.S. states and other jurisdictions. (h) It understands that beneficial interests in a Rule 144A Global Note may be transferred to a person that takes delivery in the form of an interest in a Temporary Regulation S Global Note, prior to the expiration of the Distribution Compliance Period, only if the transferor first delivers to the Indenture Trustee a written certificate to the effect that such transfer is being made in accordance with Rule 904 of Regulation S under the Securities Act. (i) It understands that any beneficial interest in one of the Global Notes that is transferred to a person that takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in the first such Global Note and will become an interest in the other Global Note and, accordingly, will thereafter be subject 14 to all transfer restrictions and other procedures applicable to such beneficial interest in such other Global Note for so long as it remains such an interest. (j) It acknowledges that the Indenture Trustee will not be required to accept for registration of transfer any notes acquired by it, except upon presentation of evidence satisfactory to the Seller and the Indenture Trustee that the restrictions set forth in this Section 2.15(a) have been complied with. (k) It acknowledges that the Seller, the Originator, the Initial Purchaser and others will relay on the truth and accuracy of the acknowledgments, representations and agreements set forth in this Section 2.15(a). Each Class A Note shall bear the following legends: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) PURSUANT TO RULE 144A UNDER THE 1933 ACT ("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULES 903 AND 904 OF REGULATION S OR (3) PURSUANT TO ANOTHER EXEMPTION UNDER THE 1933 ACT, AS CONFIRMED BY AN OPINION OF COUNSEL ADDRESSED TO THE INDENTURE TRUSTEE AND THE SELLER WHICH OPINION AND COUNSEL ARE 15 SATISFACTORY TO THE INDENTURE TRUSTEE AND THE SELLER, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTIONS. BY ACQUIRING THIS NOTE EACH PURCHASER AND TRANSFEREE WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT EITHER (1) IT IS NOT ACQUIRING THIS NOTE WITH THE ASSETS OF AN "EMPLOYEE BENEFIT PLAN" SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), A "PLAN" DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ANY ENTITY DEEMED TO HOLD "PLAN ASSETS" OF ANY OF THE FOREGOING BY REASON OF AN EMPLOYEE BENEFIT PLAN'S OR OTHER PLAN'S INVESTMENT IN SUCH ENTITY, OR A GOVERNMENTAL PLAN SUBJECT TO APPLICABLE LAW THAT IS SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA OR SECTION 4975 OF THE CODE OR (2) THE ACQUISITION AND HOLDING OF THIS NOTE BY THE PURCHASER OR TRANSFEREE, THROUGHOUT THE PERIOD THAT IT HOLDS THIS NOTE, WILL NOT RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL PLAN, ANY SUBSTANTIALLY SIMILAR APPLICABLE LAW). (B) The Class B Notes. The Class B Notes shall not be registered under the Securities or the securities or "Blue Sky" laws of any other jurisdiction. Consequently, the Class B Notes shall not be transferable other than pursuant to an exemption from the registration requirements of the Securities Act and satisfaction of certain other provisions specified in this Section 2.15(b). Except for the transfers of the Class B Notes on the Closing Date by the Seller, no sale, pledge or other transfer of any Class B Note (or interest therein) may be made by any Person unless such sale, pledge or other transfer is made (A) to a QIB in a transaction which meets the requirements of Rule 144A, (B) through Lehman Brothers Inc. to an Institutional Accredited Investor in a transaction approved by Lehman Brothers Inc. or (C) pursuant to another exemption available under the Securities Act. In each such case, (A) the Indenture Trustee shall require that the prospective transferee certify to the Indenture Trustee and the Seller in writing the facts surrounding such transfer and the status of such transferee, which certification shall be substantially in the form of the certificate attached hereto as Exhibit G, and (B) in the case of sales, pledges and transfers pursuant to clauses (B) or (C) above, the Indenture Trustee shall require a written opinion of counsel (which shall not be at the expense of the Issuer, the Owner Trustee, the Servicer, the Seller, the Certificateholders or the Indenture Trustee), satisfactory to the Indenture Trustee and the Seller, to the effect that such transfer will not violate the Securities Act. None of the Seller, the Servicer, the Certificateholders, the Issuer, the Owner Trustee or the Indenture Trustee shall be obligated to register any Class B Notes 16 under the Securities Act, qualify any Class B Notes under the securities or "Blue Sky" laws of any state or provide registration rights to any purchaser or holder thereof. By accepting and holding a Class B Note, the Holder thereof shall be deemed to have represented and warranted and/or acknowledged and agreed as follows: (a) It is an Institutional Accredited Investor or, in a transaction pursuant to Rule 144A, is a QIB, is acquiring the Class B Notes for its own account or for the account of such QIB, and is aware that the sale of the notes to it is being made in reliance on Rule 144A. (b) The Class B Notes have not been and will not be registered under the Securities Act, any state securities or "Blue Sky" law, and my not be reoffered, resold, pledged or otherwise transferred except (A) to a person whom the seller reasonably believes is a QIB that purchases for its own account or for the account of another QIB and is aware that the sale of the notes to it is being made in reliance on Rule 144A, (B) through Lehman Brothers Inc. to an Institutional Accredited Investor in a transaction approved by Lehman Brothers Inc. or (C) pursuant to another exemption available under the Securities Act, and, in each case in accordance with all applicable securities and "Blue Sky" laws of any state of the United States or any other jurisdiction, and the purchaser will, and each subsequent holder is required to, notify any subsequent purchaser of such note from it of the resale restrictions referred to in this Section 2.15(b). (c) The Class B Notes will bear a legend to the effect set forth in clause (iii) below. (d) If it is acquiring any notes as a fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and that it has full power to make the acknowledgments, representations and agreements contained herein on behalf of such account. (e) It represents, warrants and covenants that either (A) it is not a Benefit Plan Investor or (B) at the time of acquisition and through the period it holds the Class B Notes (1) it is eligible for and meets the requirements of Department of Labor Prohibited Transaction Transaction Class Exemption 95-60, (2) less than 25% of the assets of such general account are (or represent) assets of a Benefit Plan Investor, and (3) it is not a service provider to the trust, or an affiliate of the foregoing, and would not otherwise be excluded under 29 C.F.R. 2510.3-101(f)(1). (f) It represents and warrants that it, or that it is an entity wholly owned (directly or indirectly) by not more than five entities each of which, (i) is properly classified as a 17 "corporation" as described in Section 7701(a)(3) of the Code which is created or organized under the laws of the United States, any State thereof or the District of Columbia, (ii) is not an S corporation as described in Section 1361 of the Code and (iii) will not knowingly take any action which will cause it not to be classified as a "corporation". (g) It confirms that it has neither acquired nor will it sell, trade or transfer any interest in any Class B Note or cause an interest in any Class B Note to be marketed on or through (i) an "established securities market" within the meaning of Section 7704(b)(1) of the Code and any proposed, temporary or final treasury regulation thereunder, including, without limitation, an over- the-counter market or an interdealer quotation system that regularly disseminates firm buy or sell quotations or (ii) "secondary market" or "substantial equivalent thereof" within the meaning of Section 7704(b)(2) of the Code and any proposed, temporary or final treasury regulation thereunder, including a market wherein interests in the Class B Notes are regularly quoted by any person making a market in those interests and a market wherein any person regularly quoted by any person making a market in those interests and a market wherein any person regularly makes available bid or offer quotes with respect to interests in the Class B Notes and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others. Any purported transfer, assignment or other conveyance of any Class B Note in contravention of Section 2.15(b)(7) will be null and void ab initio and the purported transferor will continue to be treated as the holder of such Class B Note and the purported transferee will not be recognized as a Class B Noteholder by the Issuer, the Servicer or the Indenture Trustee. (h) Notwithstanding the foregoing, at no time will the aggregate number of Private Holders of the Class B Notes exceed 100. Any purported transfer, assignment or other conveyance (including any participation) of the Class B Notes in contravention of the immediately preceding sentence will be null and void ab initio and the purported transferor will continue to be treated as the holder of those Class B Notes and the purported transferee will not be recognized as a Class B Noteholder by the Issuer, the Servicer or the Indenture Trustee. "Private Holder" means each holder of a right to receive interest or principal in respect of any direct or indirect interest in the trust, including any financial instrument or contract the value of which is determined in whole or part by reference to the trust (including the trust's assets, income of the trust or distributions made by the trust), excluding any interest in the trust represented by any series or class of certificates or any other interests as to which the trustee of the trust has received an opinion of counsel to the effect that that series, class or other interest will be treated as debt or otherwise not as an equity interest in either the trust or the receivables for federal income tax purposes (unless that interest is convertible or exchangeable into an interest in the trust or the trust's income or that interest provides for payment of 18 equivalent value). Notwithstanding the immediately preceding sentence, "Private Holder" will also include any other person that the Issuer determines is a "partner" within the meaning of Section 1.7704-1(h)(1)(ii) of the U.S. Treasury Regulations (including by reason of Section 1.7704-1(h)(3)) or any successor provision of law. Any person holding more than one interest in the trust, each of which separately would cause that person to be a Private Holder, will be treated as a single Private Holder. Each holder of an interest in a Private Holder which is a partnership, S Corporation or a grantor trust under the Code will be treated as a Private Holder unless excepted with the consent of the Issuer (which consent will be based on an opinion of counsel generally to the effect that the action taken pursuant to the consent will not cause the trust to become a publicly traded partnership treated as a corporation). Notwithstanding anything to the contrary herein, each Class B Noteholder, and each holder of any class of any series if with respect to such class no opinion is delivered to the effect that the certificates of such class will be treated as debt for federal income tax purposes will be considered to be a Private Holder. (i) The purchaser acknowledges that the Indenture Trustee will not be required to accept for registration of transfer any notes acquired by it, except upon presentation of evidence satisfactory to the Seller and the Indenture Trustee that the restrictions set forth in this Section 2.15(b) have been complied with. (j) The purchaser acknowledges that the Seller, the Originator, the Placement Agent and others will relay on the truth and accuracy of the acknowledgments, representations and agreements set forth in this Section 2.15(b). Each Class B Note shall bear the following legends: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) PURSUANT TO RULE 144A UNDER THE 1933 ACT ("RULE 144A") TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QIB"), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) THROUGH LEHMAN BROTHERS INC. TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED UNDER RULE 501(a)(1)-(3), (7) OR IN LIMITED CIRCUMSTANCES (8) UNDER THE 1933 ACT) IN A TRANSACTION APPROVED BY 19 LEHMAN BROTHERS INC. OR (3) PURSUANT TO ANOTHER EXEMPTION UNDER THE 1933 ACT, IN THE CASES OF CLAUSES (2) OR (3), AS CONFIRMED BY AN OPINION OF COUNSEL ADDRESSED TO THE INDENTURE TRUSTEE AND THE SELLER WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE SELLER, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTIONS. BY ACQUIRING THIS NOTE EACH PURCHASER AND TRANSFEREE WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT IT IS EITHER (1) NOT AN "EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3) OF ERISA (WHETHER OR NOT SUBJECT TO ERISA, AND INCLUDING, WITHOUT LIMITATION, FOREIGN OR GOVERNMENT PLANS), A "PLAN" DESCRIBED IN SECTION 4975(e)(1) OF THE CODE, OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" OF ANY OF THE FOREGOING BY REASON OF AN EMPLOYEE BENEFIT PLAN'S OR OTHER PLAN'S INVESTMENT IN SUCH ENTITY (EACH, A "BENEFIT PLAN INVESTOR") OR (2) AN INSURANCE COMPANY USING THE ASSETS OF ITS GENERAL ACCOUNT AND THAT AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD IT HOLDS THIS NOTE, (I) IT IS ELIGIBLE FOR AND MEETS THE REQUIREMENTS OF DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (II) LESS THAN 25% OF THE ASSETS OF SUCH GENERAL ACCOUNT ARE (OR REPRESENT) ASSETS OF A BENEFIT PLAN INVESTOR, AND (III) IT IS NOT A SERVICE PROVIDER TO THE TRUST, OR AN AFFILIATE OF THE FOREGOING, AND WOULD NOT OTHERWISE BE EXCLUDED UNDER 29 C.F.R. 2510.3-101(F)(1). THE CLASS B NOTES ARE NOT GUARANTEED OR INSURED BY A GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON. THE CLASS B NOTES ARE SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A NOTES AS PROVIDED IN THE INDENTURE. Any purported transfer, assignment or other conveyance of any Class B Note in contravention of Section 2.15(b)(7) will be null and void ab initio and the purported transferor will continue to be treated as the holder of such Class B Note and the purported transferee will not be recognized as a Class B Noteholder by the Issuer, the Servicer or the Indenture Trustee. In addition, at no time will the aggregate number of Private Holders of the Class B Notes exceed 100. Any purported transfer, assignment or other conveyance (including any participation) of the Class B Notes in contravention of the immediately preceding sentence will be null and void ab initio and the purported transferor will continue to be treated as the holder of those Class B 20 Notes and the purported transferee will not be recognized as a Class B Noteholder by the Issuer, the Servicer or the Indenture Trustee. SECTION 2.16 Rule 144A. The Issuer shall furnish, if it shall have received such information from ALER, upon the request of any Noteholder, to such Noteholder and a prospective purchaser designated by such Noteholder the information required to be delivered under Rule 144A(d)(4) under the 1933 Act if at the time of such request the Issuer is not a reporting company under Section 13 or Section 15(d) of the Exchange Act, and any of the Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the 1933 Act at such time. ARTICLE III COVENANTS SECTION 3.1 Payment of Principal and Interest . The Issuer shall duly and punctually pay the principal of and interest on the Notes in accordance with the terms of the Notes and this Indenture. On each Distribution Date and on the Redemption Date (if applicable), the Indenture Trustee shall distribute amounts on deposit in the Note Distribution Account to the Noteholders in accordance with Sections 2.7 and 8.2, less amounts properly withheld under the Code by any Person from a payment to any Noteholder of interest and/or principal. Any amounts so withheld shall be considered as having been paid by the Issuer to such Noteholder for all purposes of this Indenture. SECTION 3.2 Maintenance of Agency Office. As long as any of the Notes remains outstanding, the Issuer shall maintain in the Borough of Manhattan, the City of New York, an office (the "Agency Office"), being an office or agency where Notes may be surrendered to the Issuer for registration of transfer or exchange, and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer hereby initially appoints Harris Trust Company to serve as its agent for the foregoing purposes. The Issuer shall give prompt written notice to the Indenture Trustee of the location, and of any change in the location, of the Agency Office. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders, notices and demands may be made or served at the Corporate Trust Office of the Indenture Trustee, and the Issuer hereby appoints the Indenture Trustee as its agent to receive all such surrenders, notices and demands. SECTION 3.3 Money for Payments To Be Held in Trust. As provided in Section 8.2, all payments of amounts due and payable with respect to any Notes that are to be made from amounts withdrawn from the Note Distribution 21 Account pursuant to Section 8.2 shall be made on behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no amounts so withdrawn from the Note Distribution Account for payments of Notes shall be paid over to the Issuer except as provided in this Section 3.3. Before each Distribution Date or the Redemption Date (if applicable), the Indenture Trustee shall deposit in the Note Distribution Account an aggregate sum sufficient to pay the amounts then becoming due with respect to the Notes, such sum to be held in trust for the benefit of the Persons entitled thereto. The Issuer shall cause each Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee and the Insurer an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section 3.3, that such Paying Agent shall: (a) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; (b) give the Indenture Trustee notice of any default by the Issuer (or any other obligor upon the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (c) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; (d) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Paying Agent in effect at the time of determination; and (e) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by 22 such Paying Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to escheat of funds, and, if the Insurer is the Controlling Party, with the prior written consent of the Insurer, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Note and remaining unclaimed for one year after such amount has become due and payable shall be discharged from such trust and be paid by the Indenture Trustee to the Issuer on Issuer Request; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before being required to make any such payment, may at the expense of the Issuer cause to be published once, in the eastern edition of The Wall Street Journal, notice that such money remains unclaimed and that, after a date specified therein, which shall neither be less than 30 days nor more than six months from the date of such publication, the Issuer shall be entitled to all unclaimed funds and other assets which remain subject hereto, and the Indenture Trustee upon written direction from the Servicer (a copy of which shall be provided by the Indenture Trustee to the Insurer) shall transfer such funds to the Issuer and shall be discharged of any responsibility for such funds and the Noteholders shall look only to the Issuer for payment; provided, further, that if such money or any portion thereof had been previously deposited by the Insurer with the Indenture Trustee for the payment of principal or interest on the Notes, to the extent any amounts are owing to the Insurer, such amounts shall be paid promptly to the Insurer upon receipt by the Indenture Trustee of a written request from the Insurer and the Holder of such Note shall thereafter, as an unsecured creditor look only, first, to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer) and then to the Insurer (but then only to the extent of the amounts so paid to the Insurer). The Indenture Trustee may also adopt and employ, at the expense of the Issuer, any other reasonable means of notification of such payment (including, but not limited to, mailing notice of such payment to Holders whose Notes have been called but have not been surrendered for redemption or whose right to or interest in monies due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Holder). SECTION 3.4 Existence. Except as otherwise permitted by Section 3.10, the Issuer shall keep in full effect its existence, rights and franchises as a business trust under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer shall keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and shall obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and 23 enforceability of this Indenture, the Notes, the Trust Estate and each other instrument or agreement included in the Trust Estate. SECTION 3.5 Protection of Trust Estate; Acknowledgment of Pledge. The Issuer intends the security interest Granted pursuant to this Indenture to be prior to all other Liens in the respect of the Trust Estate and the Issuer shall take all actions necessary to obtain and maintain in favor of the Indenture Trustee for the benefit of the Beneficiaries a first lien on and a first priority perfected security interest in the Trust Estate except for Exempt Collateral. The Issuer shall from time to time execute and deliver all such supplements and amendments hereto and all such financing statements, amendments thereto, continuation statements, assignments, certificates, instruments of further assurance and other instruments, and shall take such other action as may be determined to be necessary or advisable in an Opinion of Counsel to the Owner Trustee delivered to the Indenture Trustee to: (a) maintain or preserve the lien and security interest (and the priority thereof) in favor of the Indenture Trustee for the benefit of the Beneficiaries of this Indenture or carry out more effectively the purposes hereof including by making the necessary filings of financing statements or amendments thereto within thirty days after the occurrence of any of the following: (A) any change in the Issuer's name, (B) any change in the location of the Issuer's principal place of business and (C) any merger or consolidation or other change in the Issuer's identity or organizational structure and by promptly notifying the Indenture Trustee of any such filings; (b) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture; (c) enforce the rights of the Indenture Trustee, the Insurer and the Noteholders in any of the Trust Estate; (d) preserve and defend title to the Trust Estate and the rights of the Indenture Trustee, the Insurer and the Noteholders in such Trust Estate against the claims of all Persons and parties; or (e) grant more effectively to the Indenture Trustee the security interest in all or any portion of the Trust Estate, and the Issuer hereby designates the Indenture Trustee its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument which may be necessary, desirable or required by the Indenture Trustee pursuant to this Section 3.5; provided, however, that the Issuer shall not be required to file financing statements with respect to any Exempt Collateral. 24 SECTION 3.6 Opinions as to Trust Estate. On the Closing Date, the Issuer shall furnish to the Indenture Trustee and the Insurer an Opinion of Counsel, in form and substance reasonably acceptable to the Indenture Trustee and the Insurer, 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 amendments hereto and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements as are necessary to perfect and make effective the lien and security interest in favor of the Indenture Trustee for the benefit of the Beneficiaries created by this Indenture covering such portions of the Trust Estate and such matters of law as are customary in similar transactions, or stating that, in the opinion of such counsel, no such action is necessary to make such lien and security interest effective. On or before April 15 in each calendar year, beginning April 15, 2001, the Issuer shall furnish to the Indenture Trustee and the Insurer an Opinion of Counsel, in form and substance reasonably acceptable to the Indenture Trustee and the Insurer, either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any amendments hereto and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the lien and security interest 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 maintain the lien and security interest created by this Indenture, covering the matters covered by the opinion given pursuant to Section 3.6(a) above and such other matters of law (including changes in law dealing with perfection and priority of liens) as are customary in similar transactions. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any amendments hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements with respect to the Trust Estate consistent with the opinion provided pursuant to Section 3.6(a) above and such other matters of law as are customary in similar transactions that will, in the opinion of such counsel, be required to maintain the lien and security interest (except with respect to Exempt Collateral) of this Indenture until April 15 in the following calendar year. 25 SECTION 3.7 Performance of Obligations; Servicing of Loans; Consent to Amendments. The Issuer shall not take any action and shall use its reasonable efforts not to permit any action to be taken by others that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Trust Estate or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as otherwise expressly provided in the Basic Documents or such other instrument or agreement. The Issuer may contract with other Persons, subject to, if the Insurer is the Controlling Party, the Insurer's consent, to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee and the Insurer in the Basic Documents or an Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted (with the consent of the Insurer) with the Servicer and the Administrator to assist the Issuer in performing its duties under this Indenture. The Issuer shall punctually perform and observe all of its obligations and agreements contained in this Indenture, the Basic Documents and in the instruments and agreements included in the Trust Estate, including but not limited to filing or causing to be filed all UCC financing statements and continuation statements required to be filed under the terms of this Indenture, the Pooling and Servicing Agreement and the Purchase Agreement in accordance with and within the time periods provided for herein and therein. If the Issuer shall have knowledge of the occurrence of a Servicer Default, the Issuer shall promptly notify the Indenture Trustee, the Insurer and the Rating Agencies thereof, and shall specify in such notice the response or action, if any, the Issuer has taken or is taking with respect of such Servicer Default. If a Servicer Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Pooling and Servicing Agreement with respect to the Loans, the Issuer and the Indenture Trustee shall take all reasonable steps available to them pursuant to the Pooling and Servicing Agreement to remedy such failure. Without derogating from the absolute nature of the assignment granted to the Indenture Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer agrees that it shall not, without the prior written consent of the Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, any of the Basic Documents or the terms thereof or any portion of the Trust Estate other than those specifically permitted through the action of the Servicer under Section 3.07(c) of the Pooling and Servicing Agreement, or waive timely performance or observance by the 26 Servicer or ALER under the Pooling and Servicing Agreement or the Purchase Agreement, the Administrator under the Administration Agreement or ALS under the Purchase Agreement; provided, however, that, notwithstanding the foregoing, no action specified in the proviso to Section 9.2 shall be taken except in compliance with Section 9.2. If any such amendment, modification, supplement, termination, waiver or surrender shall be so consented to by the Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer, the Issuer agrees, promptly following a request by the Indenture Trustee or, so long as the Insurer is the Controlling Party, the Insurer to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee or, so long as the Insurer is the Controlling Party, the Insurer may deem necessary or appropriate in the circumstances. SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding, or the Ambac Policy is outstanding or any amounts are owed to the Insurer under the Insurance Agreement, the Issuer shall not: (a) except as directed by the Controlling Party, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Issuer, except the Issuer may (i) collect, liquidate, sell or otherwise dispose of Loans (including Warranty Loans, Administrative Loans and Defaulted Loans), (ii) make cash payments out of the Designated Accounts and the Certificate Distribution Account and (iii) take other actions, in each case solely as expressly permitted by the Basic Documents; (b) claim any credit on, or make any deduction from the principal or interest payable in respect of the Notes (other than amounts properly withheld from such payments under the Code or applicable state law) or assert any claim against any present or former Noteholder by reason of the payment of the taxes levied or assessed upon any part of the Trust Estate; (c) voluntarily commence any insolvency, readjustment of debt, marshaling of assets and liabilities or other proceeding, or apply for an order by a court or agency or supervisory authority for the winding-up or liquidation of its affairs or any other event specified in Section 5.1(f); or (d) either (i) permit the validity or effectiveness of this Indenture to be impaired, or permit the lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may be expressly permitted hereby, (ii) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Trust Estate or any part thereof or any interest 27 therein or the proceeds thereof (other than tax liens, mechanics' liens and other similar liens that arise by operation of law, in each case on Equipment and arising solely as a result of an action or omission of the related Obligor), (iii) permit the lien of this Indenture not to constitute a valid first priority security interest in the Trust Estate (other than with respect to (x) any such tax, mechanics' or other similar liens and (y) Exempt Collateral) or (iv) so long as the Insurer is the Controlling Party, amend or modify the provisions of the other Basic Documents without the consent of the Insurer. SECTION 3.9 Annual Statement as to Compliance. The Issuer shall deliver to the Indenture Trustee and the Insurer, with a copy to each of the Rating Agencies and the Initial Purchaser, on or before April 15 of each year, beginning April 15, 2001, an Officer's Certificate signed by an Authorized Officer, dated as of the immediately preceding December 31, stating that: (a) a review of the activities of the Issuer during such fiscal year and of performance under this Indenture has been made under such Authorized Officer's supervision; and (b) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has complied in all material respects with all conditions and covenants under this Indenture and has fulfilled in all material respects all of its obligations under this Indenture throughout such year, or, if there has been a default in such compliance of any such condition or covenant or in the fulfillment of any such obligation, specifying each such default known to such Authorized Officer and the nature and status thereof. A copy of such certificate may be obtained by any Noteholder by a request in writing to the Issuer addressed to the Corporate Trust Office of the Indenture Trustee. SECTION 3.10 Consolidation, Merger, etc., of Issuer; Disposition of Trust Assets. The Issuer shall not consolidate or merge with or into any other Person unless: (a) the Person (if other than the Issuer) formed by or surviving such consolidation or merger shall be a Person organized and existing under the laws of the United States of America or any State and shall expressly assume, by an amendment hereto, executed and delivered to the Indenture Trustee and the Insurer in form satisfactory to the Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer, the due and timely payment of the principal of and interest on all Notes and the performance or observance of every agreement and covenant of this Indenture on the part of the Issuer to be performed or observed, all as provided herein; (b) immediately after giving effect to such merger or consolidation, no Default or Event of Default or Portfolio Trigger shall have occurred and be continuing; 28 (c) the Rating Agency Condition shall have been satisfied with respect to such transaction and such Person for each then outstanding class of Notes; (d) any action as is necessary to maintain the lien and security interest created by this Indenture shall have been completed; and (e) the Issuer shall have delivered to the Indenture Trustee and the Insurer an Officer's Certificate stating that such consolidation or merger and such amendment comply with this Section 3.10; (f) the Issuer shall have delivered to the Indenture Trustee and the Insurer an Opinion of Counsel stating that such consolidation or merger and such amendment shall have no material adverse tax consequence to the Issuer or any Securityholder; and (g) if the Insurer is the Controlling Party, the Insurer shall have in its sole discretion consented to such merger or consolidation. Except as otherwise expressly permitted by this Indenture or the other Basic Documents, the Issuer shall not sell, convey, exchange, transfer or otherwise dispose of any of its properties or assets, including those included in the Trust Estate, to any Person, unless: (a) the Person that acquires such properties or assets of the Issuer (A) shall be a United States citizen or a Person organized and existing under the laws of the United States of America or any State and (B) by an amendment hereto, executed and delivered to the Indenture Trustee and the Insurer, in form satisfactory to the Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer: (i) expressly assumes the due and punctual payment of the principal of and interest on all Notes and the performance or observance of every agreement and covenant of this Indenture on the part of the Issuer to be performed or observed, all as provided herein; (ii) expressly agrees that all right, title and interest so sold, conveyed, exchanged, transferred or otherwise disposed of shall be subject and subordinate to the rights of Noteholders; and (iii) unless otherwise provided in such amendment, expressly agrees to indemnify, defend and hold harmless the Issuer against and from any loss, liability or expense arising under or related to this Indenture and the Notes; 29 (iv) immediately after giving effect to such transaction, no Default or Event of Default or Portfolio Trigger shall have occurred and be continuing; (v) the Rating Agency Condition shall have been satisfied with respect to such transaction and such Person for each then outstanding class of Notes; (vi) any action as is necessary to maintain the lien and security interest created by this Indenture shall have been taken; (vii) the Issuer shall have delivered to the Indenture Trustee and the Insurer an Officer's Certificate stating that such sale, conveyance, exchange, transfer or disposition and such amendment comply with this Section 3.10; (viii) the Issuer shall deliver to the Indenture Trustee and the Insurer an Opinion of Counsel stating that such sale, conveyance, exchange, transfer or disposition and such amendment have no material adverse tax consequence to the Issuer or to any Noteholders or Certificateholders; and (ix) if the Insurer is the Controlling Party, the Insurer in its sole discretion shall have consented to such sale, conveyance, exchange, transfer or disposition. SECTION 3.11 Successor or Transferee. Upon any consolidation or merger of the Issuer in accordance with Section 3.10(a), the Person formed by or surviving such consolidation or merger (if other than the Issuer) 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. Upon a sale, conveyance, exchange, transfer or disposition of all the assets and properties of the Issuer pursuant to Section 3.10(b), the Issuer shall be released from every covenant and agreement of this Indenture to be observed or performed on the part of the Issuer with respect to the Securityholders immediately upon the delivery of written notice to the Indenture Trustee and the Insurer from the Person acquiring such assets and properties stating that the Issuer is to be so released. SECTION 3.12 No Other Business. The Issuer shall not engage in any business or activity other than acquiring, holding and managing the Trust Estate and the proceeds therefrom in the manner contemplated by the Basic Documents, issuing the Securities, making payments on the Securities and such other activities that are necessary, suitable, desirable or convenient to 30 accomplish the foregoing or are incidental thereto, as set forth in Section 2.3 of the Trust Agreement. SECTION 3.13 No Borrowing. The Issuer shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness for money borrowed other than the Notes or in accordance with the Basic Documents. SECTION 3.14 Guarantees, Loans, Advances and Other Liabilities. Except as contemplated by this Indenture or the other Basic Documents, the Issuer shall not make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. SECTION 3.15 Servicer's Obligations. The Issuer shall use its best efforts to cause the Servicer to comply with its obligations under Sections 3.10, 4.01 and 4.02 of the Pooling and Servicing Agreement. SECTION 3.16 Capital Expenditures. The Issuer shall not make any expenditure (whether by long-term or operating lease or otherwise) for capital assets (either real, personal or intangible property) other than the purchase of the Loans and other property and rights from ALER pursuant to the Pooling and Servicing Agreement. SECTION 3.17 Removal of Administrator. So long as any Notes are Outstanding, the Issuer shall not remove the Administrator without cause unless the Rating Agency Condition for each class of Notes then outstanding shall have been satisfied in connection with such removal and, if the Insurer is the Controlling Party, the Insurer shall have consented thereto. SECTION 3.18 Restricted Payments. Except for payments of principal or interest on or redemption of the Notes as expressly permitted pursuant to this Indenture, so long as any Notes are Outstanding, the Ambac Policy is outstanding or any amounts are owed to the Insurer under the Insurance Agreement, the Issuer shall not, directly or indirectly: (a) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Owner Trustee or any owner of a beneficial interest in the Issuer or otherwise, in each case with respect to any ownership or equity interest or similar security in or of the Issuer or to the Servicer; 31 (b) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or similar security; or (c) set aside or otherwise segregate any amounts for any such purpose; provided, however, that the Issuer may make, or cause to be made, distributions to the Servicer, ALER, the Insurer, the Indenture Trustee, the Owner Trustee and the Certificateholders solely to the extent expressly permitted by, and to the extent funds are available for such purpose under, the Pooling and Servicing Agreement, the Trust Agreement or the other Basic Documents. The Issuer shall not, directly or indirectly, make payments to or distributions from the Collection Account except in accordance with the Basic Documents. SECTION 3.19 Notice of Events of Default. The Issuer agrees to give the Indenture Trustee, the Insurer and the Rating Agencies prompt written notice but in any event no later than within 2 Business Days (with a copy to the Initial Purchaser), if it has knowledge thereof, of any Default, Event of Default, Early Payout Event, Servicer Default, each default on the part of ALER or ALS of its respective obligations under the Pooling and Servicing Agreement and the Purchase Agreement. SECTION 3.20 Further Instruments and Acts. Upon request of the Indenture Trustee or, so long as the Insurer is the Controlling Party, the Insurer, the Issuer shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 3.21 Indenture Trustee's Assignment of Administrative Loans, Substituted Loans, Warranty Loans and Other Loans. Upon receipt of (a) the Administrative Purchase Payment or the Warranty Payment with respect to an Administrative Loan or Warranty Loan, (b) a Substitute Loan with respect to a Warranty Loan, provided all conditions to the Substitute Loans have been satisfied in full under the Basic Documents, (c) payment in full of the outstanding Loan Balance of plus accrued interest on any Loan and any other amounts due and owing in connection therewith upon prepayment by an obligor in accordance with Section 3.03 of the Pooling and Servicing Agreement or (d) the proceeds upon the sale or other disposition by the Servicer of any Defaulted Loan or the collateral securing such Defaulted Loan in accordance with Section 3.04 of the Pooling and Servicing Agreement, the Indenture Trustee shall assign, without recourse, representation or warranty to the Servicer, the Warranty Purchaser or the purchaser of such Defaulted Loan or the collateral securing such Defaulted Loan, as applicable, all of the Indenture Trustee's right, title and interest in and to such repurchased or replaced Loan, all monies due thereon, the security interest in the related Equipment and any accessions thereto, any Insurance Policies and any proceeds arising thereafter with respect to such Loan, any Guaranties and any proceeds arising thereafter with respect to such Loan and the interests of the Indenture Trustee in certain rebates of premiums and other amounts relating to the 32 Insurance Policies and any documents relating thereto, such assignment being an assignment outright and not for security; and the Servicer, ALER, the Warranty Purchaser or other purchaser, as applicable, shall thereupon own such Loan, and all such security and documents, free of any further obligation to the Indenture Trustee or the Securityholders with respect thereto. SECTION 3.22 Representations and Warranties by the Issuer to the Indenture Trustee and the Insurer. The Issuer hereby represents and warrants to the Indenture Trustee and the Insurer as of the Closing Date, each Repurchase Date and each Substitution Date as follows: Good Title. No Loan has been sold, transferred, assigned or pledged by the Issuer to any Person other than the Indenture Trustee; immediately prior to the conveyance of the Loans pursuant to this Indenture, the Issuer had good and marketable title thereto, free of any Lien; and, upon execution and delivery of this Indenture by the Issuer, the Indenture Trustee shall have all of the right, title and interest of the Issuer in, to and under the Trust Estate, free of any Lien; and All Filings Made. The Loans and the Equipment constitute Code Collateral. All filings necessary under the UCC or other applicable laws in any jurisdiction to give the Indenture Trustee a first priority perfected security interest in the Trust Estate other than Exempt Collateral have been made. Each Loan is secured by Equipment. SECTION 3.23 Compliance with Laws. The Issuer shall comply with the requirements of all applicable laws, the non-compliance with which would, individually or in the aggregate, materially adversely affect the ability of the Issuer to perform its obligations under the Notes, this Indenture or any other Basic Document. SECTION 3.24 Indemnity for Liability Claims. The Issuer shall indemnify, defend and hold harmless the Indenture Trustee, the Noteholders and the Insurer (which shall include any of their respective directors, employees, officers and agents) against and from any and all costs, expenses, losses, damages, claims and liabilities arising out of or resulting from the use, repossession or operation of the Equipment (other than a loss in value thereof) or imposed on or asserted against the Issuer or otherwise arising out of or based on the arrangements created by this Indenture to the extent not paid by the Servicer pursuant to Section 7.01 of the Pooling and Servicing Agreement and solely to the extent that funds are available for such purpose pursuant to Section 8.2 of this Agreement; provided further that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer under this Section 3.24 and that any such indemnified party agrees that it shall not, prior to the date which is one year and one day after the termination of this Indenture with respect to the Issuer pursuant to Section 4.1, acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Issuer under any 33 federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Issuer. SECTION 3.25 Use of Proceeds. The Issuer shall use the proceeds from the sale of the Notes solely to fund the acquisition of the Loans, to fund the Reserve Account, to make capital contributions and to pay expenses related to the transactions contemplated hereby. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to the Notes and the Insurer except as to: (i) rights of registration of transfer and exchange; (ii) substitution of mutilated, destroyed, lost or stolen Notes; (iii) rights of Noteholders to receive payments of principal thereof and interest thereon and the rights of the Insurer to receive any premium or reimbursement under the Ambac Policy and the Insurance Agreement; (iv) Sections 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 3.10, 3.11, 3.12, 3.13, 3.14, 3.16, 3.19, 3.20, 3.21 and 3.24; (v) the rights, obligations and immunities of the Indenture Trustee and the Insurer hereunder (including the rights of the Indenture Trustee and the Insurer under Section 6.7 and the obligations of the Indenture Trustee under Sections 4.2 and 4.4); and (vi) the rights of Noteholders and the Insurer as beneficiaries hereof with respect to the property so deposited with the Indenture Trustee payable to all or any of them, and the Indenture Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes, if: either: (a) all Notes theretofore authenticated and delivered (other than (A) Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.5 and (B) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.3) have been delivered to the Indenture Trustee for cancellation and the Ambac Policy has been terminated and has been returned to the Insurer and all amounts due to the Insurer under the Insurance Agreement have been paid in full; or (b) all Notes not theretofore delivered to the Indenture Trustee for cancellation: (A) have become due and payable, 34 (B) will be due and payable on their respective Final Scheduled Distribution Dates within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Indenture Trustee for the giving of notice of redemption by the Indenture Trustee in the name, and at the expense, of the Issuer, and the Issuer, in the case of (A), (B) or (C) of subsection 4.1(a)(2) above, has irrevocably deposited or caused to be irrevocably deposited with the Indenture Trustee cash or direct obligations of or obligations guaranteed by the United States of America (which will mature prior to the date such amounts are due and payable), in trust for such purpose, in an amount sufficient to pay and discharge the entire unpaid principal and accrued interest on such Notes not theretofore delivered to the Indenture Trustee for cancellation when due on the Final Scheduled Distribution Dates for such Notes or the Redemption Date for such Notes (if such Notes are to be called for redemption pursuant to Section 10.1(a)), as the case may be; (c) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer and all amounts due and payable to the Insurer under the Insurance Agreement, Ambac Policy, hereunder or the other Basic Documents; and (d) the Issuer has delivered to the Indenture Trustee and the Insurer an Officer's Certificate of the Issuer and an Opinion of Counsel each meeting the applicable requirements of Section 11.1(a) and each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. SECTION 4.2 Application of Trust Money. All monies deposited with the Indenture Trustee pursuant to Sections 3.3 and 4.1 shall be held in trust and applied by it in accordance with the provisions of the Notes and this Indenture to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Holders of the particular Notes or the Insurer for the payment or redemption of which such monies have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest or other amounts due and payable under the Basic Documents; but such monies need not be segregated from other funds except to the extent required herein or in the Pooling and Servicing Agreement or by applicable law. SECTION 4.3 Repayment of Monies Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to each class of Notes, all monies then held by any Paying Agent other than the Indenture Trustee under the provisions of this 35 Indenture with respect to each such class of Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and applied according to Section 3.3 and thereupon such Paying Agent shall be released from all further liability with respect to such monies. SECTION 4.4 Duration of Position of Indenture Trustee for Benefit of Certificateholders. Notwithstanding (i) the earlier payment in full of all principal and interest due to the Noteholders under the terms of Notes of each class, (ii) the cancellation of such Notes pursuant to Section 2.8, (iii) payment in full of all amounts due and payable to the Insurer, (iv) the cancellation and termination of the Ambac Policy and (v) the discharge of the Indenture Trustee's duties hereunder with respect to such Notes and the Insurer, the Indenture Trustee shall continue to act in the capacity as Indenture Trustee hereunder for the benefit of the Certificateholders, and the Indenture Trustee, for the benefit of the Certificateholders shall comply with its obligations under Sections 5.01(a), 8.02 and 8.03 of the Pooling and Servicing Agreement, as appropriate, until such time as all distributions in respect of the Certificates hereunder have been paid in full. ARTICLE V DEFAULT AND REMEDIES SECTION 5.1 Events of Default. For the purposes of this Indenture, "Event of Default" wherever used herein, means any one of the following events: (a) failure to pay any interest on the Class A Notes or the Class B Notes, as and when the same becomes due and payable, regardless of whether funds are available to make such payments, and such failure shall continue unremedied for a period of three (3) Business Days; or (b) except as set forth in Section 5.1(c), failure to pay any instalment of the principal of any Note or premium on the Ambac Policy as and when the same becomes due and payable or the failure to make any distribution of Available Amount on the Distribution Date (other than to the Certificateholders) if funds are available to make such distribution, and such failure shall continue unremedied for a period of three (3) Business Days; or (c) failure to pay in full the outstanding principal balance of any class of Notes by the Final Scheduled Distribution Date for such class of Notes; or (d) default in the observance or performance in any material respect of any covenant or agreement of the Issuer or the Seller (other than a covenant or agreement, a default in the observance or performance of which is specifically dealt with elsewhere in this Section 5.1), or any representation or warranty of the Issuer or the Seller made in 36 this Indenture, the Pooling and Servicing Agreement or the Ambac Policy or the other Basic Documents or any other writing delivered pursuant hereto or in connection herewith, proving to have been incorrect in any material respect as of the time when the same shall have been made, which failure materially and adversely affects the rights of the Noteholders or the Insurer, and such default shall continue or not be cured for a period of thirty (30) days after the earlier of (x) the date on which written notice of such failure required by the situation to be remedied giving rise to such failure shall have been given to the Issuer or the Seller, as applicable, by the Indenture Trustee, the Insurer or any Noteholder or (y) the date on which the Issuer or the Seller, as applicable, has actual knowledge of such failure, or should, in the exercise of reasonable diligence, have become knowledgeable; or (e) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Seller or the Issuer or any substantial part of the Trust Estate in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Seller or the Issuer or for any substantial part of the Trust Estate, or ordering the winding-up or liquidation of the Issuer's or Seller's affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or (f) the commencement by the Issuer or the Seller of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer or the Seller to the entry of an order for relief in an involuntary case under any such law, or the consent by the Issuer or the Seller to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or the Seller or for any substantial part of the Trust Estate, or the making by the Issuer or the Seller of any general assignment for the benefit of creditors, or the failure by the Issuer or the Seller generally to pay its debts as such debts become due, or the taking of action by the Issuer or the Seller in furtherance of any of the foregoing; or (g) a circumstance in which the Issuer or the Seller becomes an investment company or is required to be registered under the Investment Company Act of 1940; or (h) the termination of the Servicer pursuant to Section 8.02 of the Pooling and Servicing Agreement or the bankruptcy or insolvency of the Servicer; or (i) the failure of the Indenture Trustee to have a first priority perfected security interest in the Trust Estate except with respect to (i) Exempt Collateral and (ii) other collateral not exceeding 2.0% of the Aggregate Initial Loan Balance. 37 The Issuer shall deliver to the Indenture Trustee and the Insurer, within three (3) Business Days after learning of the occurrence thereof, written notice in the form of an Officer's Certificate of any Default under Section 5.1(d), its status and what action the Issuer is taking or proposes to take with respect thereto. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default should occur and be continuing, then and in every such case, unless the principal amount of the Notes shall have already become due and payable, the Indenture Trustee (i) if the Insurer is the Controlling Party, (A) acting at the written direction of the Insurer, shall or (B) with the consent of the Insurer, may, or (ii) if the Insurer is not the Controlling Party, may, declare all the Notes to be immediately due and payable, by a notice in writing to the Issuer (with a copy to the Insurer, the Rating Agencies, the Initial Purchaser and the Noteholders) setting forth the Event or Events of Default, and upon any such declaration the unpaid principal amount of the Notes, together with accrued and unpaid interest thereon (excluding any Carryover Amounts) through the date of acceleration, shall become immediately due and payable. At any time after such declaration of acceleration of maturity of the Notes has been made and before a sale of the Trust Estate or a judgment or decree for payment of the money due thereunder has been obtained by the Indenture Trustee as hereinafter provided in this Article V, the Controlling Party, by written notice to the Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences with respect to the Notes; provided, that no such rescission and annulment shall extend to or affect any subsequent or other Default or Event of Default or impair any right consequent thereto; and provided further, that if the Indenture Trustee, if the Insurer is the Controlling Party, acting at the direction of or with the consent of the Insurer, shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission and annulment or for any other reason, or such proceedings shall have been determined adversely to the Indenture Trustee, then and in every such case, the Indenture Trustee, the Issuer, the Insurer and the Noteholders, as the case may be, shall be restored to their respective former positions and rights hereunder, and all rights, remedies and powers of the Indenture Trustee, the Issuer, the Insurer and the Noteholders, as the case may be, shall continue as though no such proceedings had been commenced. 38 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee. The Issuer covenants that if there shall occur an Event of Default under Section 5.1 which has not been waived pursuant to Section 5.12, in addition to the rights available under Section 5.4, the Issuer shall, upon demand of the Indenture Trustee or, if the Insurer is the Controlling Party upon demand of the Indenture Trustee at the direction of the Controlling Party, pay to the Indenture Trustee, for the benefit of the Noteholders and the Insurer in accordance with their respective outstanding principal amounts or other amounts owed, whether at the Final Scheduled Distribution Date or otherwise, the entire amount then due and payable on the Notes for principal and interest, with interest through the date of such payment on the overdue principal amount of each class of Notes, at the rate applicable to such class of Notes, all sums paid or advanced by or otherwise owed to the Insurer, together with interest, 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 Indenture Trustee and the Insurer and their respective agents and counsel. If the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and as trustee of an express trust, (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Notes, wherever situated, the monies adjudged or decreed to be payable. If an Event of Default occurs and is continuing, the Indenture Trustee, as more particularly provided in Section 5.4, (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may, proceed to protect and enforce its rights and the rights of the Noteholders and the Insurer, by such appropriate Proceedings as the Insurer, if the Insurer is the Controlling Party, or the Indenture Trustee, if the Insurer is not the Controlling Party, shall deem most effective 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 or legal or equitable right vested in the Indenture Trustee by this Indenture or by applicable law. If there shall be pending, relative to the Issuer or any other obligor upon the Notes or any Person having or claiming an ownership interest in the Trust Estate, Proceedings under Title 11 of the United States Code or any other applicable federal or state bankruptcy, 39 insolvency or other similar law, or if a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer or other obligor upon the Notes, or to the creditors or property of the Issuer or such other obligor, the Indenture Trustee, irrespective of whether the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section 5.3, shall be entitled and empowered, by intervention in such Proceedings or otherwise: (a) to file and prove a claim or claims for the entire amount of the unpaid principal and interest owing in respect of the Notes or otherwise owed hereunder and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee, the Insurer (including, in each case, any claim for reasonable compensation to the Indenture Trustee and each predecessor trustee, the Insurer, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor trustee and the Insurer, except as a result of gross negligence or bad faith) and of the Noteholders allowed in such Proceedings; unless prohibited by applicable law and regulations, to vote on behalf of the Holders of Notes and the Insurer in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings; (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Noteholders and the Insurer and of the Indenture Trustee on their behalf; and (c) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee, the Insurer or the Holders of Notes allowed in any judicial proceedings relative to the Issuer, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by the Insurer and each of such Noteholders to make payments to the Indenture Trustee, and, if the Indenture Trustee shall consent to the making of payments directly to the Insurer or such Noteholders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor trustee, except as a result of gross negligence or bad faith. 40 Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of the Insurer or any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Insurer, the Notes or the rights of any Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of the Insurer or any Noteholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other Proceedings relative thereto, and any such Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor trustee, the Insurer and their respective agents and attorneys, shall be for the benefit of the Noteholders and the Insurer in the order of priority set forth in Section 8.2 of the Indenture. In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent the Insurer and all the Noteholders, and it shall not be necessary to make the Insurer and any Noteholder a party to any such Proceedings. SECTION 5.4 Remedies; Priorities. If an Event of Default shall have occurred and be continuing and the Notes have been accelerated under Section 5.2(a), the Indenture Trustee (i) if the Insurer is the Controlling Party (A), at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may do one or more of the following (subject to Section 5.5): (a) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then due and payable on the Notes or under this Indenture with respect thereto, whether by declaration of acceleration or otherwise, enforce any judgment obtained, and collect from the Issuer and any other obligor upon such Notes monies adjudged due; (b) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Trust Estate; 41 (c) exercise any remedies of a secured party under the UCC and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee, the Insurer and the Noteholders; and (d) sell the Trust Estate or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law or elect to have the Issuer maintain possession of the Loans and continue to apply collections on such Loans as if there had been no declaration of acceleration; provided, however, that the Indenture Trustee may not sell or otherwise liquidate the Trust Estate following an Event of Default and acceleration of the Notes, unless (A) (1) if the Insurer is the Controlling Party, the Insurer and the Holders of all of the aggregate Outstanding Amount of the Class B Notes which are not Affiliates of the Issuer consent thereto or (2) if the Insurer is not the Controlling Party, the Holders of all of the aggregate Outstanding Amount of the Notes consent thereto, or (B) the proceeds of such sale or liquidation distributable to the Noteholders are sufficient to discharge in full the principal of and the accrued interest (without regard to the Carryover Amount) on the Notes as of the date of such sale or liquidation or (C) (i) there has been an Event of Default under Section 5.1(a), (b) or (c) or otherwise arising from a failure to make a required payment of principal on any Notes, (ii) the Indenture Trustee or the Controlling Party determines that it is unlikely the Trust Estate will continue to provide sufficient funds for the payment of principal of and interest on the Notes as and when they would have become due if the Notes had not been declared due and payable, (iii) the Indenture Trustee obtains the consent of the Controlling Party and (iv) the Trust Estate is sold in a commercially reasonable sale within the meaning of the UCC. In determining such sufficiency or insufficiency with respect to clauses (B) and (C), the Indenture Trustee or the Controlling Party may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Trust Estate for such purpose. If the Indenture Trustee collects any money or property pursuant to this Article V, it shall pay out or deposit such money or property in the following order: FIRST: to the Indenture Trustee for amounts due under Section 6.7; and SECOND: to the Collection Account, for distribution pursuant to Section 8.2 of the Indenture. SECTION 5.5 Optional Preservation of the Trust Estate. If the Notes have been declared to be due and payable under Section 5.2(a) following an Event of Default and such declaration and its consequences have not been rescinded and annulled in accordance with Section 5.2(b), the Indenture Trustee (i) if the Insurer is the Controlling Party (A) at the direction 42 of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may take and maintain possession of the Trust Estate. In determining whether to take and maintain possession of the Trust Estate, the Indenture Trustee or the Controlling Party may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action (with costs so incurred reimbursable pursuant to Section 6.7 of the Indenture or the other Basic Documents). SECTION 5.6 Limitation of Suits. No Noteholder 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: (a) such Person has previously given written notice to the Indenture Trustee of a continuing Event of Default; (b) such Person has made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder; (c) such Person or Persons have offered to the Indenture Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request; (d) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceedings; (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by any member of the Controlling Party; and (f) such Person is the Controlling Party or is a member of the Controlling Party; it being understood and intended that no Holder or Holders of Notes shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of the Insurer or 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, ratable (on the basis of the respective aggregate amount of principal and interest, respectively, due and unpaid on the Notes held by each Noteholder) and common benefit of all Noteholders. For the protection and enforcement of the provisions of this Section 5.6, each and every Noteholder and the Insurer shall be entitled to such relief as can be given either at law or in equity. 43 If the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Holders of Notes, neither being the Controlling Party, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. So long as the Insurer is the Controlling Party, nothing in this Section 5.6 shall inhibit the right of the Insurer to institute suit or any Proceeding for the enforcement of this Indenture. SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest on such Note on or after the respective due dates thereof expressed in such Note or in this Indenture (or, in the case of redemption, if applicable, on or after the Redemption Date) and to institute suit, with the written consent of the Insurer if the Insurer is the Controlling Party, for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 5.8 Restoration of Rights and Remedies. If the Indenture Trustee, the Insurer 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 Indenture Trustee, the Insurer or to such Noteholder, then and in every such case the Issuer, the Indenture Trustee, the Insurer and the Noteholders shall, subject to any determination in such Proceeding, be restored severally to their respective former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee, the Insurer and the Noteholders shall continue as though no such Proceeding had been instituted. SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Indenture Trustee, the Insurer 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 5.10 Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee, the Insurer or any Holder of any Note to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee, the Insurer or to the 44 Noteholders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee, the Insurer or by the Noteholders, as the case may be, subject, however, to the right of the Insurer, if the Insurer is the Controlling Party, to control any such right and remedy. SECTION 5.11 [Reserved.] SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Notes as provided in Section 5.2(a), the Controlling Party may waive any past Default or Event of Default and its consequences except a Default or Event of Default (i) in the payment of principal of or interest on any of the Notes or (ii) , unless such consent shall have been obtained, in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Note. In the case of any such waiver, the Issuer, the Indenture Trustee, the Insurer and the Noteholders shall be restored to their respective former positions and rights hereunder; but no such waiver shall extend to or affect any subsequent or other Default or Event of Default or impair any right consequent thereto. Upon any such waiver, such Default or Event of Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising from such Default shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture and for purposes of Section 8.01(b) of the Pooling and Servicing Agreement; but no such waiver shall extend to or affect any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 5.13 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 Proceeding for the enforcement of any right or remedy under this Indenture, or in any Proceeding against the Indenture Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such Proceeding of an undertaking to pay the costs of such Proceeding, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such Proceeding, 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 5.13 shall not apply to: (a) any Proceeding instituted by the Indenture Trustee or, if the Insurer is the Controlling Party, the Insurer; (b) any Proceeding instituted by any Noteholder, or group of Noteholders, in each case holding in the aggregate more than 10% of the Outstanding Amount of the Notes; or 45 (c) any Proceeding instituted by any Noteholder for the enforcement of the payment of principal of or interest on any Note on or after the respective maturity dates expressed in such Note and in this Indenture (or, in the case of redemption, on or after the Redemption Date). SECTION 5.14 Waiver of Stay or Extension of Laws. The Issuer covenants (to the extent that it may lawfully do so) that it shall 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 of law wherever enacted, now or at any time hereafter in force, that may adversely affect the covenants or the performance of this Indenture. 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 shall not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee or the Insurer, if the Insurer is the Controlling Party, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.15 Action on Notes. The Indenture Trustee's and the Insurer's, if the Insurer is the Controlling Party, 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 Indenture Trustee, the Insurer or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee or the Insurer 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. Any money or property collected by the Indenture Trustee shall be applied in accordance with Section 5.4(b). 46 SECTION 5.16 Performance and Enforcement of Certain Obligations. Promptly following a request from the Indenture Trustee or, if the Insurer is the Controlling Party, the Insurer to do so and at the Administrator's expense, the Issuer agrees to take all such lawful action as the Indenture Trustee or, if the Insurer is the Controlling Party, the Insurer may request to compel or secure the performance and observance by the Administrator, ALER and the Servicer, as applicable, of their respective obligations to the Issuer under or in connection with the Basic Documents or by the Insurer of its obligations under or in connection with the Insurance Agreement and the Ambac Policy in connection with the terms thereof or by ALS of its obligations under or in connection with the Purchase Agreement in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Basic Documents, to the extent and in the manner directed by the Indenture Trustee or, if the Insurer is the Controlling Party, the Insurer, including the transmission of notices of default on the part of ALER, the Servicer, the Insurer or ALS thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by ALER, the Servicer or ALS of each of their respective obligations under the Pooling and Servicing Agreement and the Purchase Agreement or the other Basic Documents and by the Insurer under the Insurance Agreement and the Ambac Policy. If an Event of Default has occurred and is continuing, the Indenture Trustee (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may exercise all rights, remedies, powers, privileges and claims of the Issuer against ALER or the Servicer under or in connection with Basic Documents, including the right or power to take any action to compel or secure performance or observance by ALER or the Servicer of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Basic Documents, and any right of the Issuer to take such action shall be suspended. [Reserved.] If an Event of Default has occurred and is continuing, the Indenture Trustee (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may exercise all rights, remedies, powers, privileges and claims of ALER against ALS under or in connection with the Basic Documents, including the right or power to take any action to compel or secure performance or observance by ALS of each of its obligations to ALER thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Basic Documents, and any right of ALER to take such action shall be suspended. 47 If an Insurer Default has occurred and is continuing, the Indenture Trustee may, and, at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter)) of the Controlling Party shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Insurer under or in connection with the Ambac Policy, including the right or power to take any action to compel or secure performance or observance by the Insurer of each of its obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Ambac Policy, and any right of the Issuer to take such action shall be suspended. ARTICLE VI THE INDENTURE TRUSTEE SECTION 6.1 Duties of Indenture Trustee. If an Event of Default has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. Except during the continuance of an Event of Default: (a) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and the Pooling and Servicing Agreement and no implied covenants or obligations shall be read into this Indenture, the Pooling and Servicing Agreement or any other Basic Document against the Indenture Trustee; and (b) in the absence of bad faith on its part, the Indenture 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 Indenture Trustee and conforming to the requirements of this Indenture, provided, however that the Indenture Trustee shall examine the certificates and opinions, specifically contemplated herein, to determine whether or not they conform to any applicable requirements of this Indenture. The Indenture Trustee shall not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (a) this Section 6.1(c) does not limit the effect of Section 6.1(b); 48 (b) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (c) the Indenture Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.16. The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer. Money held in trust by the Indenture Trustee need not be segregated from other funds except to the extent required by law or the terms of this Indenture or the Pooling and Servicing Agreement. No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur 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 to believe that repayments of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. Every provision of this Indenture relating to the Indenture Trustee shall be subject to the provisions of this Section 6.1. The Indenture Trustee shall promptly notify the Insurer (with a copy to the Initial Purchaser) upon obtaining actual knowledge or receipt of written notice by a Responsible Officer of the Indenture Trustee of any (a) proposed change herein or supplement hereto; (b) the occurrence of any Default, Event of Default, Early Payout Event or Servicer Default actually known to a Responsible Officer of the Indenture Trustee; (c) any proposed change of the Indenture Trustee hereunder; (d) any matter to be put to the Noteholders for a vote hereunder; (e) any proposed exercise by the Noteholders of any option, vote, right, power or the like hereunder; and (f) any other matter, notice of which is required hereunder to be given to any of the Noteholders by the Indenture Trustee. SECTION 6.2 Rights of Indenture Trustee. The Indenture Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Indenture Trustee need not investigate any fact or matter stated in the document. 49 Before the Indenture Trustee acts or refrains from acting, it may require an Officer's Certificate from the Issuer or an Opinion of Counsel that such action or omission is required or permissible hereunder. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers; provided, however, that the Indenture Trustee's conduct does not constitute wilful misconduct, negligence or bad faith. The Indenture Trustee may consult with counsel of its own selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (a) the Indenture 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 Holders pursuant to this Indenture or the Insurer, unless the Indenture Trustee shall have security or indemnity reasonably satisfactory to the Indenture Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (b) the Indenture 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, debenture, note, other evidence of indebtedness or other paper or document, but the Indenture Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and if the Indenture Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer, personally or by agent or attorney at the sole cost of the Issuer and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (c) [reserved]; 50 (d) the Indenture Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Indenture Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Indenture Trustee at the Corporate Trust Office of the Indenture Trustee, and such notice references the Notes and this Indenture; and (e) the rights, privileges, protections, immunities and benefits given to the Indenture Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Indenture Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 6.3 Indenture Trustee May Own Notes. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer, the Servicer or any of their respective Affiliates with the same rights it would have if it were not Indenture Trustee; provided, however, that the Indenture Trustee shall comply with Sections 6.10 and 6.11. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with like rights. SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuer's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Issuer in the Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Indenture Trustee's certificate of authentication. SECTION 6.5 Notice of Defaults and Events of Default. If a Default or Event of Default occurs and is continuing and if it is known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail to each Noteholder and the Insurer notice of the Default or Event of Default within 30 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of or interest on any Note, the Indenture Trustee may withhold the notice to any Noteholder if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Noteholders. SECTION 6.6 Reports by Indenture Trustee to Holders. The Indenture Trustee shall deliver to each Noteholder and the Insurer the information and documents set forth in Article VII, and, in addition, all such information with respect to the Notes as may be required, as requested in writing by the Servicer, to enable such Holder to prepare its federal and state income tax returns. 51 SECTION 6.7 Compensation; Indemnity. The Issuer shall cause the Servicer pursuant to the Pooling and Servicing Agreement to pay to the Indenture Trustee from time to time such compensation for its services as shall be agreed upon from time to time in writing. The Indenture Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall cause the Servicer pursuant to the Pooling and Servicing Agreement to reimburse the Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Indenture Trustee's agents, counsel, accountants and experts. The Issuer shall cause the Servicer pursuant to the Pooling and Servicing Agreement to indemnify the Indenture Trustee in accordance with Section 7.01 of the Pooling and Servicing Agreement. The Issuer's obligations to the Indenture Trustee pursuant to this Section 6.7 shall survive the discharge of this Indenture and the resignation or removal of any Indenture Trustee. When the Indenture Trustee incurs expenses after the occurrence of a Default or Event of Default specified in Section 5.1(e) or (f) with respect to the Issuer, the expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. SECTION 6.8 Replacement of Indenture Trustee. The Indenture Trustee may at any time give notice of its intent to resign by so notifying the Issuer and the Insurer; provided, however, that no such resignation shall become effective and the Indenture Trustee shall not resign prior to the time set forth in Section 6.8(c). The Controlling Party may remove the Indenture Trustee by so notifying the Indenture Trustee and may appoint a successor Indenture Trustee. Such resignation or removal shall become effective in accordance with Section 6.8(c). The Issuer (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may remove the Indenture Trustee if: (a) the Indenture Trustee fails to comply with Section 6.11; (b) the Indenture Trustee is adjudged bankrupt or insolvent; (c) a receiver or other public officer takes charge of the Indenture Trustee or its property; or (d) the Indenture Trustee otherwise becomes incapable of acting. 52 If the Indenture Trustee gives notice of its intent to resign or is removed or if a vacancy exists in the office of the Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Issuer shall promptly appoint and designate a successor Indenture Trustee, which, if the Insurer is the Controlling Party, shall be acceptable to the Insurer. If the Issuer fails to appoint a successor Indenture Trustee within 30 days, the Insurer, if the Insurer is the Controlling Party, may designate a successor Indenture Trustee which the Issuer shall appoint. A successor Indenture Trustee shall deliver a written acceptance of its appointment and designation to the retiring Indenture Trustee, the Insurer and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a notice of its succession to Noteholders, the Insurer and to each of the Rating Agencies. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee. If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee gives notice of its intent to resign or is removed, the retiring Indenture Trustee, the Issuer or the Controlling Party at the expense of the Issuer may petition any court of competent jurisdiction for the appointment and designation of a successor Indenture Trustee provided that, if the Insurer is the Controlling Party, any successor Indenture Trustee shall be acceptable to the Insurer. If the Indenture Trustee fails to comply with Section 6.11, any Noteholder or the Insurer may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee provided that, if the Insurer is the Controlling Party, any successor Indenture Trustee shall be acceptable to the Insurer. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section 6.8, the Issuer's obligations under Section 6.7 and the Servicer's corresponding obligations under the Pooling and Servicing Agreement shall continue for the benefit of the retiring Indenture Trustee. The Issuer (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may remove the Indenture Trustee for (i) gross negligence, bad faith or willful misconduct or (ii) failure or unwillingness to perform its duties under the Indenture. Upon acceptance of appointment by a successor Indenture Trustee as provided in this Section 6.8, the Servicer shall mail notice of the succession of such Indenture Trustee hereunder to the Beneficiaries (with a copy to the Initial Purchaser). If the Servicer fails 53 to mail such notice within 10 days after acceptance of appointment by such successor Indenture Trustee, then the successor Indenture Trustee shall cause such notice to be mailed at the expense of the Servicer. SECTION 6.9 Merger or Consolidation of Indenture Trustee. Any corporation into which the Indenture Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Indenture Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Indenture Trustee, shall be the successor of the Indenture Trustee under this Indenture; provided, however, that such corporation shall be eligible under the provisions of Section 6.11, without the execution or filing of any instrument or any further act on the part of any of the parties to this Indenture, anything in this Indenture to the contrary notwithstanding. Following such merger or consolidation, the successor Indenture Trustee shall mail a notice of such merger or consolidation to each of the Rating Agencies and the Insurer (with a copy to the Initial Purchaser). If at the time such successor or successors by merger or consolidation to the Indenture Trustee shall succeed to the trusts created by this Indenture, any of the Notes shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Indenture Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee. In all such cases such certificate of authentication shall have the same full force as is provided anywhere in the Notes or herein with respect to the certificate of authentication of the Indenture Trustee. 54 SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee. Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Trust Estate or any Equipment may at the time be located, the Indenture Trustee shall have the power and may, if the Insurer is the Controlling Party, with the consent of the Insurer, not to be unreasonably withheld, and, if the Insurer is the Controlling Party, at the direction of the Controlling Party shall, execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust Estate, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders and (only to the extent expressly provided herein) the Certificateholders, such title to the Trust Estate, or any part hereof, and, subject to the other provisions of this Section 6.10, such powers, duties, obligations, rights and trusts as the Indenture Trustee, or, if the Insurer is the Controlling Party, the Insurer, may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 6.8. The appointment of any co-trustee or separate trustee shall not relieve the Indenture Trustee of any of its obligations hereunder. Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (a) all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Estate or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee; (b) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (c) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as 55 if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. Any separate trustee or co-trustee may at any time constitute the Indenture Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition, (unless waived by Moody's Investors Service) it shall have a long term unsecured debt rating of Baa3 or better by Moody's Investors Service and it shall be domiciled in the United States. If a Default or Event of Default occurs and is continuing, and the Indenture Trustee is deemed to have a conflicting interest as a result of acting as trustee for both the Class A Notes and the Class B Notes, the Issuer shall appoint a successor Indenture Trustee for one or both of such classes, so that there will be separate Indenture Trustees for the Class A Notes and the Insurer, on the one hand, and the Class B Notes on the other. No such event shall alter the voting rights of the Class A Noteholders or Class B Noteholders under this Indenture or any other Basic Document. However, so long as any amounts remain unpaid with respect to the Class A Notes, only the Indenture Trustee for the Class A Noteholders and the Insurer will have the right to exercise remedies under this Indenture (but subject to the express provisions of Section 5.4 and to the right of the Class B Noteholders to receive their share of any proceeds of enforcement, subject to the subordination of the Class B Notes to the Class A Notes as described herein) to make deposits to and withdrawals from the Designated Accounts, hold Designated Account Property and to make distributions to Noteholders from the Note Distribution Account. Upon repayment of the Class A Notes and the Insurer in full and cancellation of the Ambac Policy, all rights to exercise remedies under the Indenture will transfer to the Indenture Trustee for the Class B Notes. 56 In the case of the appointment hereunder of a successor Indenture Trustee with respect to any class of Notes, the Issuer, the retiring Indenture Trustee and the successor Indenture Trustee with respect to such class of Notes shall execute and deliver an amendment hereto wherein the successor Indenture Trustee shall accept such appointment and which (i) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, the successor Indenture Trustee all the rights, powers, trusts and duties of the retiring Indenture Trustee with respect to the Notes of the class to which the appointment of such successor Indenture Trustee relates, (ii) if the retiring Indenture Trustee is not retiring with respect to all classes of Notes, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Indenture Trustee with respect to the Notes of each class as to which the retiring Indenture Trustee is not retiring shall continue to be vested in the retiring Indenture Trustee, and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Indenture Trustee, it being understood that nothing herein or in such amendment shall constitute such Indenture Trustees co-trustees of the same trust and that each such Indenture Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Indenture Trustee; and upon the execution and delivery of such amendment the resignation or removal of the retiring Indenture Trustee shall become effective to the extent provided therein. SECTION 6.12 [Reserved.] SECTION 6.13 Representations and Warranties of Indenture Trustee. The Indenture Trustee represents and warrants as of the Closing Date that: (a) the Indenture Trustee is a New York banking corporation duly organized, validly existing and in good standing under the laws of the State of New York, is duly authorized and licensed under applicable laws to conduct the business it is presently conducting and the eligibility requirements set forth in Section 6.11 are satisfied with respect to the Indenture Trustee; (b) the Indenture Trustee has full power, authority and legal right to execute, deliver and perform this Indenture and any other Basic Document to which it is a party or is bound by, and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture; (c) the execution, delivery and performance by the Indenture Trustee of this Indenture and the other Basic Documents to which it is a party or is bound by (i) shall not violate any provision of any law or regulation governing the banking and trust powers of the Indenture Trustee or any order, writ, judgment or decree of any court, arbitrator, or governmental authority applicable to the Indenture Trustee or any of its assets, (ii) shall not 57 violate any provision of the corporate charter or by-laws of the Indenture Trustee or (iii) to the best of its knowledge without independent investigation, shall not violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of any lien on any properties included in the Trust Estate pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking to which it is a party, which violation, default or lien could reasonably be expected to have a materially adverse effect on the Indenture Trustee's performance or ability to perform its duties under this Indenture or on the transactions contemplated in this Indenture; (d) the execution, delivery and performance by the Indenture Trustee of this Indenture and any other Basic Document to which it is a party or is bound by shall not require the authorization, consent or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any governmental authority or agency regulating the banking and corporate trust activities of the Indenture Trustee; and (e) this Indenture and any other Basic Document to which the Indenture Trustee is a party has been duly executed and delivered by the Indenture Trustee and constitutes the legal, valid and binding agreement of the Indenture Trustee, enforceable in accordance with its terms. SECTION 6.14 Indenture Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Indenture Trustee shall be brought in its own name as Indenture Trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel, be for the ratable benefit of the Insurer, the Noteholders and (only to the extent expressly provided herein) the Certificateholders in respect of which such judgment has been obtained. SECTION 6.15 Suit for Enforcement. If an Event of Default shall occur and be continuing, the Indenture Trustee (i) if the Insurer is the Controlling Party, (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may, in each case subject to the provisions of Section 6.1, proceed to protect and enforce its rights and the rights of the Noteholders and the Insurer under this Indenture by a Proceeding whether for the specific performance of any covenant or agreement contained in this Indenture or in aid of the execution of any power granted in this Indenture or for the enforcement of any other legal, equitable or other remedy as the Indenture Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Indenture Trustee, the Insurer or the Noteholders. 58 SECTION 6.16 Rights of the Controlling Party to Direct Indenture Trustee. The Controlling Party shall have the right to direct in writing the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee or exercising any trust or power conferred on the Indenture Trustee; provided, however, that subject to Section 6.1, the Indenture Trustee shall have the right to decline to follow any such direction if the Indenture Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Indenture Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would be illegal or subject it to personal liability or be unduly prejudicial to the rights of Noteholders not parties to such direction; and provided, further, that nothing in this Indenture shall impair the right of the Indenture Trustee to take any action deemed proper by the Indenture Trustee and which is not inconsistent with such direction by the Controlling Party. SECTION 6.17 Ambac Policy. If a Responsible Officer of the Indenture Trustee at any time has actual knowledge that there will not be sufficient available moneys in the Lockbox Account, Collection Account, Reserve Account and Noteholders Distribution Account to make any required payment of principal on the Final Scheduled Distribution Date for a Series of Class A Notes and interest to the Class A Noteholders on the applicable Distribution Date as set forth on the related Servicer's Certificate, the Indenture Trustee shall immediately notify the Insurer or its designee by telephone, promptly confirmed in writing by overnight mail or facsimile transmission, of the amount of such deficiency. On each Determination Date, the Indenture Trustee shall determine from the related Servicer's Certificate with respect to the immediately following Distribution Date the Insured Amount, if any. If the Indenture Trustee determines that an Insured Amount would exist, the Indenture Trustee shall complete a notice in the form of Exhibit A to the Ambac Policy and submit such notice to the Insurer no later than 12:00 noon New York City time on the second Business Day preceding such Payment Date as a claim for payment in an amount equal to the Insured Amount. Upon receipt of any Insured Payment from the Insurer, the Indenture Trustee shall deposit such amount into the Note Distribution Account for distribution to the Class A Noteholders. The Indenture Trustee shall keep a complete and accurate record of all Ambac Policy proceeds deposited into the Note Distribution Account and the allocation of such funds to payment of interest on and principal paid in respect of any Class A Note. In addition, if a Responsible Officer of the Indenture Trustee has actual knowledge through a written notice that any of the Class A Noteholders have been required to disgorge payments of principal or interest on the Class A Note pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes a voidable preference to such Holders within the meaning of any applicable bankruptcy laws and in accordance with the Ambac Policy, then the Indenture Trustee shall notify the Insurer or its designees of such fact in accordance with the Ambac Policy, shall comply with the provisions of the Ambac Policy to obtain payment 59 by the Insurer of such avoided payment. Such notice shall be in addition to the procedures set forth in the Ambac Policy for making a claim under the Ambac Policy. To the extent that the Insurer makes payments, directly or indirectly, on account of principal of or interest on the Class A Notes, the Insurer shall be subrogated to the rights of the Holders of the Class A Notes to receive distributions of principal and interest in accordance with the terms hereof. Notwithstanding any other provision of this Indenture or the other Basic Documents, the Indenture Trustee shall be entitled to enforce on behalf of the Class A Noteholders the obligations of the Insurer under the Ambac Policy. The parties hereto, and the Noteholders, by virtue of purchasing the Notes, grant to the Insurer, for so long as it is the Controlling Party, exclusive exercise of any right to vote or consent, or the like available to the Class A Noteholders hereunder, except for rights given to the Class A Noteholders under clauses (i), (iv) and (v) to the proviso to Section 9.2(a). The Indenture Trustee shall surrender the Ambac Policy to the Insurer for cancellation upon the expiration or cancellation of the Ambac Policy in accordance with the terms thereof or upon satisfaction of the conditions specified in 4.1(a) other than termination and return of the Ambac Policy. ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders. The Issuer shall furnish or cause to be furnished by the Servicer to the Indenture Trustee (a) not more than five days before each Distribution Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Holders of Notes as of the close of business on the Record Date, and (b) at such other times as the Indenture Trustee may request in writing, within 14 days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; provided, however, that so long as the Indenture Trustee is the Note Registrar, no such list shall be required to be furnished. In addition, so long as the Ambac Policy is outstanding, the Indenture Trustee, upon written request of the Insurer, shall furnish to the Insurer a copy of the list of Noteholders 60 SECTION 7.2 Preservation of Information, Communications to Noteholders. The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Holders of Notes contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.1 and the names and addresses of Holders of Notes received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such Section 7.1 upon receipt of a new list so furnished. SECTION 7.3 [Reserved.] SECTION 7.4 Reports by Indenture Trustee. On each Distribution Date, the Indenture Trustee shall include with each payment to each Noteholder and to the Insurer a copy of the statement for the related Monthly Period as required pursuant to Section 4.09 of the Pooling and Servicing Agreement. ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 8.1 Collection of Money. Except as otherwise expressly provided herein, the Indenture 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 Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply all such money received by it as provided in this Indenture and the Pooling and Servicing Agreement and the other Basic Documents. Except as otherwise expressly provided in this Indenture or in Article III of the Pooling and Servicing Agreement, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Trust Estate, the Indenture Trustee (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may 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 an Event of Default under this Indenture and any right to proceed thereafter as provided in Article V. 61 SECTION 8.2 Designated Accounts; Payments. On or prior to the Closing Date, the Issuer shall cause the Servicer to establish and maintain, in the name of the Indenture Trustee, for the benefit of the Securityholders, the Designated Accounts and the Lockbox Account as provided in Articles IV and V of the Pooling and Servicing Agreement. On or prior to each Determination Date, the Issuer shall cause the Servicer to make the calculations as provided in Section 4.06 of the Pooling and Servicing Agreement. Subject to the provisions of Sections 5.4(b) and 8.2(e), (f), (g), (h) and (i), on each Distribution Date after the Closing Date, with respect to each series of Notes and the related Pool of Loans, the Servicer shall instruct the Indenture Trustee to make the following distributions in the following order of priority to the extent of the Available Amount for the related Monthly Period for that Pool: (1) to the Servicer, the Monthly Advance Reimbursement Amount and any amounts necessary to reimburse it for advances made by it to the Lockbox Bank pursuant to the Lockbox Agreement to reimburse the Lockbox Bank for amounts transferred to the Issuer in error for the related Pool; (2) to the Servicer, the Total Servicing Fee and the Supplemental Servicing Fee (but only to the extent such Supplemental Servicing Fees have been collected) for the related Pool; (3) to the extent not paid by the Servicer, to the Owner Trustee, the Custodian, the Backup Servicer and the Indenture Trustee, payment of their respective fees, on a pro rata basis; (4) to the Insurer, the portion of the premium with respect to the Ambac Policy payable on such Distribution Date, or any preceding Distribution Date to the extent not previously paid, for the related Pool; (5) to the extent not paid by the Servicer, to the Custodian, the Indenture Trustee, the Backup Servicer and the Insurer, or by the initial Servicer to a successor Servicer, payment of reimbursable expenses and indemnities limited to no more than $50,000 for each such Person accrued following the Closing Date; 62 (6) to the Holders of Class A Notes of that Series, the Class A Noteholders' Interest Distributable Amount for the Class A Notes of that Series; (7) to the Holders of Class B Notes of that Series, the Class B Noteholders' Interest Distributable Amount for the Class B Notes of that Series; (8) to the Holders of Class A Notes of that Series, the Class A Noteholders' Principal Distributable Amount for the Class A Notes of that Series (or, if the Notes have been declared due and payable following the occurrence of an Event of Default, the outstanding principal balance of such Series of Class A Notes); (9) to the extent not paid by funds from the other Pool, the amounts payable pursuant to items (1) through (8) above with respect to the other Series of Notes and the other Pool; (10) to the Insurer, reimbursement for any prior draws made on the Ambac Policy for which the Insurer has not been reimbursed previously and interest on such amounts as described in the Insurance Agreement, and any Reimbursement Amounts or other unpaid amounts, first, with respect to that Series of Notes and, second, with respect to the other Series of Notes; (11) first, to the Holders of Class B Notes of that Series, the Class B Noteholders' Principal Distributable Amount for the Class B Notes of that Series and, second, to the Holders of Class B Notes of the other Series, to the extent not paid by funds from the other Pool, the Class B Noteholders' Principal Distributable Amount for the Class B Notes of the other Series (or, if the Notes have been declared due and payable following the occurrence of an Event of Default, in each case, the outstanding principal balance of such Series of Class B Notes); (12) to the Reserve Account, the amount, if any, necessary to increase the amount on deposit in the Reserve Account to the Specified Reserve Account Balance; (13) to the Person such amounts are owed, to the extent not paid pursuant to clause (5) above, any other amounts, including any indemnity payments, payable by the Issuer to the Custodian, the Backup Servicer, the Indenture Trustee or the Servicer on a pro rata basis, based on amounts of such payments owed; 63 (14) first, to the Holders of the Class A-2 Notes, the Class A-2 Carryover Amount and, second, to the Holders of the Class B-2 Notes, the Class B-2 Carryover Amount; and (15) to the Certificateholder, any remaining amounts together with the Certificateholders' Distributable Amount. Any amounts payable to the Noteholders shall be deposited into the Note Distribution Account prior to payment to the Noteholders and shall be paid to the Noteholders from the Note Distribution Account. Any amounts payable to the Certificateholders may be paid directly to the Certificateholders, or may be deposited into the Certificate Distribution Account for distribution to the Certificateholders. If the Available Amount is insufficient to make the entire distributions required by clauses (6) through (8) and clause (11), the Indenture Trustee shall withdraw available funds from the Reserve Account to the extent available and necessary to make the distributions required by clauses (6) through (8) and clause (11) and shall apply those funds in the order of priority set forth above. In the event that the available funds in the Reserve Account are insufficient to complete all of the distributions required by clauses (6) through (8) and clause (11) for both Series of Notes, the Indenture Trustee will apply the funds from the Reserve Account in the order of priority set forth above pro rata between the two Series based on the amount of the insufficiency. If the Available Amount and the funds available from the Reserve Account, the Lockbox Account, the Collection Account and the Note Distribution Account to pay such amounts are insufficient to satisfy the entire distributions required by clause (6) and, on the Final Scheduled Distribution Date for a Series of Class A Notes, the outstanding principal amount of such Class A Notes, the Indenture Trustee shall make a claim on the Ambac Policy to the extent necessary to make those distributions and will apply the funds received to make those distributions. If an Early Payout Event has occurred and is continuing and the Notes have not been accelerated, all amounts that would otherwise be payable pursuant to clauses (11), (14) or (15) will be payable as principal to the Holders of the Class A Notes of that Series until paid in full and then to the Holders of the Class A Notes of the other Series until paid in full until all principal of and interest on the Class A Notes of both Series have been paid in full. If the Notes have been declared due and payable following the occurrence of an Event of Default under Section 5.1 (a), (b) or (c), all amounts that would otherwise be payable to any person pursuant to clauses (7) and (9) through (15), inclusive, and if the Notes 64 have been declared due and payable following the occurrence of any other Event of Default, all amounts that would otherwise be payable to any Person pursuant to clauses (9) through (15), inclusive, in each case, will be paid as principal to the Holders of the Class A Notes of that Series until paid in full and then to the Holders of the Class A Notes of the other Series until paid in full until all principal of and interest on the Class A Notes of both Series have been paid in full. If on any Distribution Date (i) (A) the Aggregate Loan Balance as of the related Accounting Date plus (B) the amount in the Reserve Account on such Distribution Date after giving effect to all deposits to and withdrawals therefrom on such Distribution Date minus (C) the aggregate Note Principal Balance of the Class A Notes of both Series on such Distribution Date after giving effect to all distributions with respect to the Class A Notes on such Distribution Date would be less than $4,049,227.28, and no Early Payout Event has occurred and is continuing and the Notes have not been accelerated, all amounts that would otherwise be payable pursuant to clauses (14) or (15) will be payable to the extent of such deficiency as principal to the Holders of all of the Class A Notes of both Series pro rata based on the outstanding principal balance thereof until paid in full. In the event that any amounts that otherwise would have been payable with respect to the Class B Notes of one Series are applied to pay amounts on or related to the Notes of the other Series as a result of the provisions of clauses (9) or (10), or after an Event of Default or Early Payout Event as described above, no amounts will be payable on the Class B Notes of the other Series until an equal amount that otherwise would have been payable to the Class B Notes of the other Series have been applied to the Class B Notes of the Series in question or the Class B Notes of the Series in question have been paid in full. If on any Distribution Date after giving effect to all of the deposits, withdrawals, payments and distributions to be made on such date pursuant to clauses (1) through (15) above, the amount on deposit in the Reserve Account would equal or exceed the amount necessary to pay the Notes in full, the Indenture Trustee shall withdraw available funds from the Reserve Account to the extent available and necessary to pay the Notes in full and shall apply those funds to make such payments. SECTION 8.3 General Provisions Regarding Accounts. Subject to Section 6.1(c), the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any of the Designated Accounts resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee's failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms. 65 If (i) the Servicer shall have failed to give investment directions for any funds on deposit in the Designated Accounts to the Indenture Trustee by 11:00 a.m., New York City time (or such other time as may be agreed by the Servicer and the Indenture Trustee) on any Business Day; or (ii) an Event of Default shall have occurred and be continuing with respect to the Notes but the Notes shall not have been declared due and payable pursuant to Section 5.2(a), or, if such Notes shall have been declared due and payable following an Event of Default, but amounts collected or receivable from the Trust Estate are being applied in accordance with Section 5.5 as if there had not been such a declaration; then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in the Designated Accounts in one or more Eligible Investments selected by the Indenture Trustee. SECTION 8.4 Release of Trust Estate. Subject to the payment of its fees and expenses pursuant to Section 6.7, the Indenture Trustee (i) if the Insurer is the Controlling Party (A) at the direction of the Insurer, shall or (B) with the consent of the Insurer, may or (ii) if the Insurer is not the Controlling Party, may and when required by the provisions of this Indenture shall, execute instruments to release property in the Trust Estate from the lien of this Indenture, or convey the Indenture Trustee's interest in the same, solely in accordance with the express provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums due to the Insurer under the Indenture, the Insurance Agreement and the Ambac Policy, and to the Indenture Trustee pursuant to Section 6.7 have been paid, and the Ambac Policy has been canceled, notify the Issuer and the Insurer thereof in writing and upon receipt of an Issuer Request, release any remaining portion of the Trust Estate that secured the Notes and the Insurer from the lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Note Distribution Account. The Indenture Trustee shall (i) release any remaining portion of the Trust Estate that secured the Certificates from the lien of this Indenture and (ii) deposit in the Certificate Distribution Account any funds then on deposit in the Reserve Account or the Collection Account only at such time as (y) there are no Notes Outstanding and (z) all sums due to (i) the Insurer under the Indenture and the Ambac Policy and (ii) the Indenture Trustee pursuant to Section 6.7 have been paid. SECTION 8.5 Opinion of Counsel. The Indenture Trustee and the Insurer shall receive at least seven days' notice when the Indenture Trustee is requested by the Issuer to take any action pursuant to Section 8.4(a), accompanied by copies of any instruments involved, and the Indenture Trustee shall also require as a condition to such action, an Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee and, if the Insurer is the Controlling 66 Party, the Insurer, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action shall not materially and adversely impair the security for the Notes or the rights of the Insurer or the Noteholders in contravention of the provisions of this Indenture or any of the Basic Documents; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Trust Estate. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action. SECTION 8.6 Additional Payments to Indenture Trustee and Insurer. The Issuer shall pay to the Indenture Trustee and the Insurer, solely from funds when, if and to the extent available for such purpose pursuant to Section 8.2, any amounts payable to such Person pursuant to Section 7.01 of the Pooling and Servicing Agreement and not so paid within 45 days of the date required. ARTICLE IX AMENDMENTS SECTION 9.1 Amendments Without Consent of Noteholders. Without the consent of the Holders of any Notes but with prior notice to the Rating Agencies and, if the Insurer is the Controlling Party, the prior written consent of the Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may amend the Indenture, in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) 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 Indenture Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject additional property to the lien of this Indenture; (ii) to evidence the succession, in compliance with Section 3.10 and the applicable provisions hereof, of another Person to the Issuer, and the assumption by any such successor of the covenants of the Issuer contained herein and in the Notes; (iii) to add to the covenants of the Issuer for the benefit of the Securityholders, or to surrender any right or power herein conferred upon the Issuer; 67 (iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity or to correct or supplement any provision herein or in any amendment which may be inconsistent with any other provision herein, in any amendment or in any other Basic Document; (vi) to evidence and provide for the acceptance of the appointment in compliance with Article VI by a successor or additional Indenture Trustee with respect to the Notes or any class thereof and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI; or (vii) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the TIA or under any similar federal statute hereafter enacted to the extent required by the TIA or such statute and to add to this Indenture such other provisions as may be expressly required by the TIA or such act, and the Indenture Trustee is hereby authorized to join in the execution of any such amendment and to make any further appropriate agreements and stipulations that may be therein contained. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any of the Noteholders but with satisfaction of the Rating Agency Condition and, if the Insurer is the Controlling Party, the prior written consent of the Insurer, at any time and from time to time enter into one or more amendments or supplements hereto or may waive any of the provisions hereof for the purpose of adding any provisions to, changing in any manner, or eliminating any of the provisions of, this Indenture or modifying in any manner the rights of the Noteholders or the Insurer under this Indenture; provided, however, that any such action shall not, as evidenced by an Officer's Certificate from the Servicer, have the effect described in the proviso to Section 9.2(a). 68 SECTION 9.2 Amendments With Consent of Noteholders; Waivers. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, with prior notice to the Rating Agencies (with a copy to the Initial Purchaser) and with the prior written consent of the Controlling Party, by Act of the Controlling Party delivered to the Issuer and the Indenture Trustee, amend the Indenture or waive any of the provisions thereof for the purpose of adding any provisions to, changing in any manner, or eliminating any of the provisions of, this Indenture or modifying in any manner the rights of the Noteholders under this Indenture; provided, however, that without limiting any rights the Insurer, if the Insurer is the Controlling Party, may have with respect thereto, no such amendment shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the due date of any instalment of principal of or interest on any Note, or reduce the principal amount thereof or the interest rate applicable thereto (including by any amendment which affects the calculation of the amount of any payment of interest or principal due on any Note on any Distribution Date) or the Redemption Price with respect thereto, change any place of payment where, or the coin or currency in which, any Note or any interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V, to the payment of any such amount due on the Notes on or after the respective due dates thereof (or, in the case of redemption, on or after the Redemption Date); (ii) reduce the percentage of the Outstanding Amount of the Notes, the consent of the Holders of which is required for (a) any such amendment, (b) any waiver of compliance with certain provisions of this Indenture, certain defaults hereunder and their consequences as provided for in this Indenture or (c) any action described in Sections 2.12, 3.7(e), 5.2, 5.6, 5.12(a), 6.8, or 6.16; (iii) modify or alter the provisions of the proviso to the definition of the term "Outstanding"; (iv) reduce the percentage of the Outstanding Amount of the Notes required to direct the Indenture Trustee to sell or liquidate the Trust Estate pursuant to Section 5.4 if the proceeds of such sale would be insufficient to pay the principal amount of and accrued but unpaid interest (excluding any Carryover Amount) on the Outstanding Notes; 69 (v) modify any provision of this Section 9.2 to decrease the required minimum percentage necessary to approve any amendments to any provisions of this Indenture or any of the Basic Documents; or (vi) permit the creation of any Lien ranking prior to or on a parity with the lien of this Indenture with respect to any material part of the Trust Estate or, except as otherwise permitted or contemplated herein or in any other Basic Document, terminate the lien of this Indenture on any material property at any time subject to the lien of this Indenture or deprive the Holder of any Note of any material portion of the security afforded by the lien of this Indenture to the extent such noteholder consent is required under this Indenture. The Indenture Trustee may in its discretion determine whether or not any Notes would be affected (such that the consent of each Noteholder would be required) by any amendment proposed pursuant to this Section 9.2 and any such determination shall be conclusive and binding upon all of the Noteholders, whether authenticated and delivered thereunder before or after the date upon which such amendment becomes effective. The Indenture Trustee shall not be liable for any such determination made in good faith. It shall be sufficient if an Act of the Controlling Party, if the Insurer is not the Controlling Party, approves the substance, but not the form, of any proposed amendment. Promptly after the execution by the Issuer and the Indenture Trustee of any amendment or waiver in accordance with this Section 9.2, the Indenture Trustee shall mail to the Insurer and the Noteholders to which such amendment relates (with a copy to the Initial Purchaser) a notice setting forth in general terms the substance of such amendment. Any failure of the Indenture Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment. The Controlling Party may, by one or more instruments in writing to the Indenture Trustee, waive any Event of Default hereunder and its consequences, except a continuing Event of Default: (i) in respect of the payment of the principal or of interest on any Note (which may only be waived by the Holder of such Note), or (ii) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Note outstanding affected (which only may be waived by the Holders of all Notes outstanding affected). 70 Upon any such waiver, such Event of Default shall cease to exist and shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon. SECTION 9.3 Execution of Amendments or Waivers. In executing, or permitting the additional trusts created by, any amendment or waiver permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Indenture Trustee and the Insurer shall be entitled to receive, and subject to Sections 6.1 and 6.2 (with respect to the Indenture Trustee), shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Indenture and that all conditions precedent to such execution have been satisfied. The Indenture Trustee may, but shall not be obligated to, enter into any such amendment that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. SECTION 9.4 Effect of Amendments or Waivers. Upon the execution of any amendment or waiver pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith with respect to the Notes affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer, the Insurer and the Noteholders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications, waivers and amendments, and all the terms and conditions of any such amendment shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.5 [Reserved.] SECTION 9.6 Reference in Notes to Amendments and Waivers. Notes authenticated and delivered after the execution of any amendment pursuant to this Article IX may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such amendment. If the Issuer or the Indenture Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such amendment may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes of the same class. 71 ARTICLE X REDEMPTION OF NOTES SECTION 10.1 Redemption. The Notes are subject to redemption by the Issuer at the direction of the Servicer in whole, but not in part, on any Distribution Date upon the exercise by the Servicer of its option to purchase the Loans pursuant to Section 9.01 of the Pooling and Servicing Agreement. The purchase price for the Notes to be redeemed shall be equal to the applicable Redemption Price. The Issuer shall furnish the Insurer and the Rating Agencies notice of such redemption. If the Notes are to be redeemed pursuant to this Section 10.1(a), the Issuer shall furnish notice thereof to the Indenture Trustee not later than 30 days prior to the Redemption Date and the Issuer shall deposit into the Note Distribution Account, before the Redemption Date, the aggregate Redemption Price of the Notes to be redeemed and all other amounts required to be paid pursuant to Section 9.01 of the Pooling and Servicing Agreement, whereupon all such Notes shall be due and payable on the Redemption Date. [Reserved.] Within sixty days after the redemption in full pursuant to this Section 10.1 of any class of Notes, the Indenture Trustee shall provide each of the Rating Agencies and the Insurer with written notice stating that all of such Notes have been redeemed. SECTION 10.2 Form of Redemption Notice. Notice of redemption of the Notes under Section 10.1(a) shall be given by the Indenture Trustee by first-class mail, postage prepaid, mailed not less than ten days prior to the applicable Redemption Date to each Holder of the Notes of record, respectively, at such Noteholder's address appearing in the Note Register, with a copy to the Insurer. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the place where Notes are to be surrendered for payment of the Redemption Price (which shall be the Agency Office of the Indenture Trustee to be maintained as provided in Section 3.2); and (iv) CUSIP numbers. 72 Notice of redemption of the Notes shall be given by the Indenture 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 to be redeemed shall not impair or affect the validity of the redemption of any other Note to be redeemed. [Reserved.] SECTION 10.3 Notes Payable on Redemption Date. The Notes to be redeemed shall, following notice of redemption as required by Section 10.2, on the Redemption Date cease to be Outstanding for purposes of this Indenture and shall thereafter represent only the right to receive the applicable Redemption Price and (unless the Issuer shall default in the payment of such Redemption Price) no interest shall accrue on such Redemption Price for any period after the date to which accrued interest is calculated for purposes of calculating such Redemption Price. ARTICLE XI MISCELLANEOUS SECTION 11.1 Compliance Certificates and Opinions, etc. (a) Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee and the Insurer: (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (ii) 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; 73 (iii) a statement that, in the judgment of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. (b) (i) Other than with respect to the release of any property or securities pursuant to Section 3.21, 8.2 and 8.4 of the Indenture and Section 5.05 of the Pooling and Servicing Agreement, whenever any property or securities are to be released from the lien of this Indenture, prior to the deposit with the Indenture Trustee of any of the Trust Estate or other property or securities that is to be made the basis for the release of any property or securities subject to the lien of this Indenture, the Issuer shall, in addition to any obligation imposed in Section 11.1(a) or elsewhere in this Indenture, furnish to the Indenture Trustee and the Insurer an Officer's Certificate certifying or stating the opinion of each Person signing such certificate as to the fair value (within 60 days of such deposit) to the Issuer of the Trust Estate or other property or securities to be so deposited. (ii) Whenever the Issuer is required to furnish to the Indenture Trustee and the Insurer an Officer's Certificate certifying or stating the opinion of any signer thereof as to the matters described in clause (b)(i) above, the Issuer shall also deliver to the Indenture Trustee and the Insurer an Independent Certificate as to the same matters, if the fair value to the Issuer of the securities to be so deposited and of all other such securities made on the basis of any such withdrawal or release since the commencement of the then current fiscal year of the Issuer, as set forth in the certificates delivered pursuant to clause (i) above and this clause (b)(ii), is 10% or more of the Outstanding Amount of the Notes, but such a certificate need not be furnished with respect to any securities so deposited if the fair value thereof to the Issuer as set forth in the related Officer's Certificate is less than $25,000 or less than one percent of the Outstanding Amount of the Notes. (iii) Other than with respect to the release of any property or securities pursuant to Section 3.21, 8.2 and 8.4 of the Indenture and Section 5.05 of the Pooling and Servicing Agreement, whenever any property or securities are to be released from the lien of this Indenture, the Issuer shall also furnish to the Indenture Trustee and the Insurer an Officer's Certificate certifying or stating the opinion of each Person signing such certificate as to the fair value (within 60 days of such release) of the property or securities proposed to be released and stating that in the opinion of such Person the proposed release will not impair the security under this Indenture in contravention of the provisions hereof. 74 (iv) Whenever the Issuer is required to furnish to the Indenture Trustee and the Insurer an Officer's Certificate certifying or stating the opinion of any signatory thereof as to the matters described in clause (b)(iii) above, the Issuer shall also furnish to the Indenture Trustee and the Insurer an Independent Certificate as to the same matters if the fair value of the property or securities and of all other property, other than pursuant to Section 3.21, 8.2 and 8.4 of the Indenture and Section 5.05 of the Pooling and Servicing Agreement, released from the lien of this Indenture since the commencement of the then current calendar year, as set forth in the certificates required by clause (b)(iii) above and this clause (b)(iv), equals 10% or more of the Outstanding Amount of the Notes, but such certificate need not be furnished in the case of any release of property or securities if the fair value thereof as set forth in the related Officer's Certificate is less than $25,000 or less than one percent of the then Outstanding Amount of the Notes. (v) Notwithstanding Section 2.9 and 8.4 or any other provision of this Section 11.1, the Issuer may (A) collect, liquidate, sell or otherwise dispose of Loans as and to the extent expressly permitted or required by the Basic Documents and (B) make cash payments out of the Designated Accounts and the Certificate Distribution Account as and to the extent expressly permitted or required by the Basic Documents. SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, ALER, the Issuer or the Administrator, stating that the information with respect to such factual matters is in the possession of the Servicer, ALER, the Issuer or the Administrator, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. 75 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee or the Insurer, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's or the Insurer's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. SECTION 11.3 Acts of Noteholders and the Insurer. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by the Controlling Party, the Insurer, Noteholders or a class of Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such in person or by agents 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 Indenture 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 Person or Persons 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 6.1) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 11.3. The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient. The ownership of Notes shall be proved by the Note Register. Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Notes (or any one or more predecessor Notes) shall bind the Holder of every Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. 76 SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, the Insurer and Rating Agencies. Any request, demand, authorization, direction, notice, consent, waiver or Act of Noteholders or the Controlling Party or other documents provided or permitted by this Indenture to be made upon, given or furnished to or filed with the Indenture Trustee, the Issuer, the Insurer, the Initial Purchaser or the Rating Agencies under this Indenture shall be made upon, given or furnished to or filed with such party as specified in Appendix B to the Pooling and Servicing Agreement. SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture provides for notice to Noteholders or the Insurer of any condition or event, such notice shall be given as specified in Appendix B to the Pooling and Servicing Agreement. 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 or the Insurer shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a 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 of 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 Indenture Trustee shall be deemed to be a sufficient giving of such notice. Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute an Event of Default. SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding any provision of this Indenture or any of the Notes to the contrary, the Issuer may enter into any agreement with any Holder of a Note providing for a method of payment, or notice by the Indenture Trustee or any Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of each such agreement and the Indenture Trustee shall cause payments to be made and notices to be given in accordance with such agreements. 77 SECTION 11.7 [Reserved.] SECTION 11.8 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. SECTION 11.9 Successors and Assigns. All covenants and agreements in this Indenture and the Notes by the Issuer shall bind its successors and assigns, whether so expressed or not. All covenants and agreements of the Indenture Trustee in this Indenture shall bind its successors and assigns, whether so expressed or not. SECTION 11.10 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 impaired thereby. SECTION 11.11 Benefits of Indenture. The Insurer and its successors and assigns shall be a third party beneficiary to the provisions of this Indenture, as it may be supplemented or amended, and shall be entitled to rely upon and directly to enforce such provisions of the Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the Noteholders, the Note Owners and the Insurer and (only to the extent expressly provided herein) the Certificateholders, any other party secured hereunder and any other Person with an ownership interest in any part of the Trust Estate, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 11.12 Legal Holidays. If the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) payment 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 date on which nominally due, and no interest shall accrue for the period from and after any such nominal date. SECTION 11.13 Governing Law. 78 All questions concerning the construction, validity and interpretation of this Indenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without giving effect to any choice of law or conflict provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. SECTION 11.14 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 11.15 Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Issuer and at its expense accompanied by an Opinion of Counsel (which may be counsel to the Indenture Trustee or any other counsel reasonably acceptable to the Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer) to the effect that such recording is necessary either for the protection of the Noteholders or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture. SECTION 11.16 No Recourse. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against: (i) the Indenture Trustee or the Owner Trustee in its individual capacity; (ii) any owner of a beneficial interest in the Issuer; or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee or the Owner Trustee in their individual capacities, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in their individual capacities (or any of their successors or assigns), except as any such Person may have expressly agreed (it being understood that the Indenture Trustee and the Owner Trustee have no such obligations in their individual capacities) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay 79 any instalment or call owing to such entity. For all purposes of this Indenture, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement. SECTION 11.17 No Petition. The Indenture Trustee, by entering into this Indenture, each Noteholder and Note Owner, by accepting a Note (or interest therein) issued hereunder, and the Insurer, by issuing the Ambac Policy and accepting the benefits herein provided to it, hereby covenant and agree that they shall not, prior to the date which is one year and one day after the termination of this Indenture with respect to the Issuer pursuant to Section 4.1, acquiesce, petition or otherwise invoke or cause ALER or the Issuer to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against ALER or the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of ALER or the Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of ALER or the Issuer. SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior notice, it shall permit any representative of the Indenture Trustee and, if the Issuer is the Controlling Party, the Insurer, during the Issuer's normal business hours, to examine all the books of account, records, reports and other papers of the Issuer, to make copies and extracts therefrom, to cause such books to be audited by Independent certified public accountants, and to discuss the Issuer's affairs, finances and accounts with the Issuer's officers, employees and Independent certified public accountants, all at such reasonable times and as often as may be reasonably requested. The Indenture Trustee shall and shall cause its representatives to hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such disclosure is consistent with its obligations hereunder or as otherwise required in connection with the enforcement or administration of the transactions under the Basic Documents. SECTION 11.19 Assignment. Notwithstanding anything to the contrary contained herein, this Indenture may not be assigned by the Issuer without the prior written consent of the Insurer, if the Insurer is the Controlling Party. The Issuer shall provide written notice of such assignment to the Rating Agencies and the Insurer (with a copy to the Initial Purchaser). 80 SECTION 11.20 Survival of Agreement. All covenants, agreements, representations and warranties made herein and in the other documents delivered pursuant hereto shall survive the pledge of the Trust Estate and the issuance of the Notes and except as provided in Section 4.1, shall continue in full force and effect until payment in full of the Notes and all amounts owing to the Indenture Trustee and the Insurer hereunder and under the Basic Documents, as applicable. 81 IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers, thereunto duly authorized, all as of the day and year first above written. ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A, By: WILMINGTON TRUST, not in its individual capacity but solely as Owner Trustee By: __________________________ Name: Title: THE BANK OF NEW YORK, as Indenture Trustee By: __________________________ Name: Title: EX-10.50 3 dex1050.txt PURCHASE AGREEMENT Exhibit 10.50 PURCHASE AGREEMENT BETWEEN ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC AND ALLIANCE LAUNDRY SYSTEMS LLC, in its Own Capacity and as Servicer DATED AS OF NOVEMBER 28, 2000 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1 SECTION 1.01. Definitions 1 ARTICLE II PURCHASE AND SALE OF DESIGNATED LOANS 2 SECTION 2.01. Purchase and Sale of Designated Loans 2 SECTION 2.02. Purchase Price 4 SECTION 2.03. The Closings 5 ARTICLE III REPRESENTATIONS AND WARRANTIES 5 SECTION 3.01. Representations and Warranties as to Designated Loans 5 SECTION 3.02. Additional Representations and Warranties of ALS 8 SECTION 3.03. Representations and Warranties of ALER 10 ARTICLE IV CONDITIONS 12 SECTION 4.01. Conditions to Obligation of ALER 12 SECTION 4.02. Conditions To Obligation of ALS 13 ARTICLE V ADDITIONAL AGREEMENTS 14 SECTION 5.01. Conflicts With Transfer and Servicing Agreements 14 SECTION 5.02. Protection of Title 14 SECTION 5.03. Other Liens or Interests 14 SECTION 5.04. Repurchase Events 14 SECTION 5.05. Indemnification 15 SECTION 5.06. Further Assignments 15 SECTION 5.07. Pre-Closing Collections 15 SECTION 5.08. Sale Treatment 15 SECTION 5.09. Preservation of Security Interest 15 SECTION 5.10. Cross Collateralization 16 SECTION 5.11. Obligations with Respect to Conveyed Assets 16 SECTION 5.12. Compliance with Law 16 SECTION 5.13. Conveyance of Conveyed Assets; Security Interests 16 SECTION 5.14. Notification of Breach 17 SECTION 5.15. Further Assurances 17 SECTION 5.16. Notice of Adverse Claim 17 SECTION 5.17 Taxes 17 SECTION 5.18 Financial Statements 17 i ARTICLE VI MISCELLANEOUS PROVISIONS 18 SECTION 6.01. Amendment 18 SECTION 6.02. Survival 18 SECTION 6.03. Notices 18 SECTION 6.04. Governing Law 18 SECTION 6.05. Waivers 18 SECTION 6.06. Costs and Expenses 18 SECTION 6.07. Confidential Information 19 SECTION 6.08. Headings 19 SECTION 6.09. Counterparts 19 SECTION 6.10. Severability of Provisions 19 SECTION 6.11. Further Assurances 19 SECTION 6.12. Third-Party Beneficiaries 19 SECTION 6.13. Merger and Integration 19 SECTION 6.14. No Petition Covenants 19 SECTION 6.15. Power of Attorney 20 SECTION 6.16. Authorization to Collect 20 SECTION 6.17. No Assignment 20 Exhibits Exhibit A - Form of Initial PA Assignment Exhibit B - Form of Subsequent PA Assignment ii PURCHASE AGREEMENT, dated as of November 28, 2000, between ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC, a Delaware limited liability company ("ALER"), and ALLIANCE LAUNDRY SYSTEMS LLC, a Delaware limited liability company in its own capacity ("ALS"), and as servicer under the Pooling and Servicing Agreement (the "Servicer"). WHEREAS, ALER desires to purchase from time to time Equipment Notes together with related rights owned by ALS; WHEREAS, ALS is willing to sell such Equipment Notes and related rights to ALER; WHEREAS, ALER desires to sell or otherwise transfer such Equipment Notes and related rights, including its rights under this Agreement, to a trust (the "Issuer"); WHEREAS, the Issuer will issue notes and certificates of beneficial interest (collectively, any such issued interests or securities being "Securities") to fund its acquisition of such Equipment Notes and related rights; and WHEREAS, the Issuer will pledge its rights in such Equipment Notes and related rights, including its rights under this Agreement, to the Indenture Trustee under the Indenture for the benefit of the Securityholders and the Insurer. NOW, THEREFORE, in consideration of the foregoing, the other good and valuable consideration and the mutual terms and covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. Capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings assigned them in Part I of Appendix A to the Pooling and Servicing Agreement of even date herewith by and among ALS, ALER and Alliance Laundry Equipment Receivables Trust 2000-A, as it may be amended, supplemented or modified from time to time. All references herein to "the Agreement" or "this Agreement" are to this Purchase Agreement as it may be amended, supplemented or modified from time to time, the exhibits hereto and the capitalized terms used herein which are defined in such Appendix A, and all references herein to Articles, Sections and subsections are to Articles, Sections or subsections of this Agreement unless otherwise specified. The rules of construction set forth in Part II of such Appendix A shall be applicable to this Agreement. 1 ARTICLE II PURCHASE AND SALE OF DESIGNATED LOANS SECTION 2.01. Purchase and Sale of Designated Loans. Initial Purchase and Sale of Designated Loans. Subject to the satisfaction of the conditions specified in Article IV, ALS agrees to sell, transfer, assign and otherwise convey to ALER, without recourse, except as otherwise expressly provided in the Basic Documents, pursuant to a written assignment substantially in the form of Exhibit A (the "Initial PA Assignment"), and ALER agrees to purchase on the Closing Date all right, title and interest of ALS in, to and under the following assets (the "Initial Conveyed Assets"): (a) the Designated Loans, including without limitation all documents and instruments evidencing or governing the Designated Loans and all Loan Files relating thereto, identified in the schedule to the Initial PA Assignment and all monies paid or payable thereon (including Liquidation Proceeds) on or after or due and payable, but in each case not paid, as of the Initial Cutoff Date; (b) the Equipment, including, without limitation, all security interests therein granted by Obligors pursuant to such Designated Loans and any other collateral securing such Designated Loans; (c) any Insurance Policies and proceeds thereof and rights and benefits thereunder with respect to such Equipment and any other collateral securing such Designated Loans; (d) with respect to such Designated Loans, any Guaranties and proceeds thereof and all rights and benefits thereunder; (e) the Lockbox and Lockbox Account, all funds on deposit from time to time in the Lockbox or in the Lockbox Account with respect to such Designated Loans and all proceeds thereof; and (f) any documents related thereto and any proceeds of the property described in clauses (1) through (5) above (the property described in clauses (2) through (6) hereof with respect to the related Designated Loans are referred to as the "Related Security"). Subsequent Purchases and Sales of Designated Loans. From time to time after the date hereof, ALER may request to purchase additional Equipment Notes from ALS solely for the purpose of providing Replacement Loans and Substitute Loans to the Issuer pursuant to Section 2.02 and 2.07 of the Pooling and Servicing Agreement. The Purchase Price for any such additional Equipment Notes to be purchased by ALER will be payable by ALER on the date such purchase is made (each, a "Subsequent Purchase Date"and together with the Closing Date, a "Purchase Date") in cash. Subject to the satisfaction of the conditions specified in Article IV and Section 2.02 and Section 2.07 of the Pooling and Servicing Agreement with respect to the purchase of Replacement Loans and Substitute Loans, ALS agrees to sell, transfer, assign and otherwise convey to ALER, without recourse, except as otherwise expressly provided in the Basic 2 Documents pursuant to a written assignment substantially in the form of Exhibit B (a "Subsequent PA Assignment" and, together with the Initial PA Assignment, each an "PA Assignment"), and ALER agrees to purchase on such Purchase Date all right, title and interest of ALS in, to and under the following assets (with respect to such Purchase Date, the "Subsequent Conveyed Assets," together with the Initial Conveyed Assets and all prior Subsequent Conveyed Assets, the "Conveyed Assets"): (a) the Designated Loans including without limitation all documents and instruments evidencing or governing the Designated Loans and all Loan Files relating thereto, identified in the schedule attached to the Subsequent PA Assignment delivered to ALER on such Purchase Date and all monies paid or payable thereon (including Liquidation Proceeds) on or after, or due and payable, but in each case not paid, as of the applicable Subsequent Cutoff Date; (b) the Equipment, including, without limitation, all security interests therein and proceeds thereof and rights and benefits thereunder granted by Obligors pursuant to such Designated Loans and any other collateral securing such Designated Loans; (c) any Insurance Policies, and proceeds thereof, and rights and benefits thereunder with respect to such Equipment and any other collateral securing such Designated Loans; (d) with respect to such Designated Loans, any Guaranties and the proceeds thereof and all rights and benefits thereunder; (e) all funds on deposit from time to time in the Lockbox or in the Lockbox Account with respect to such Designated Loans and all proceeds thereof; and (f) any documents related thereto and any proceeds of the property described in clauses (1) through (5) above (the property described in clauses (2) through (6) hereof with respect to the related Designated Loans are referred to as the "Related Security"). The related Loan File for any additional Equipment Note shall be delivered on or prior to the related Subsequent Purchase Date to ALER's designee for the benefit of ALER and its assigns, which designee with respect to the Collateral Documents will be the Custodian, and with respect to the remainder of the Loan Files, the Servicer. It is the intention of the ALS and ALER that the transfers and assignments contemplated by this Section 2.01 shall constitute a sale of the related Conveyed Assets from ALS to ALER and the beneficial interest in and title to the assets conveyed pursuant to this Section 2.01 shall not be part of ALS's estate in the event of the filing of a bankruptcy petition by or against ALS under any bankruptcy law. ALS and ALER intend to treat such transfer and assignment as a sale for accounting and tax purposes. Notwithstanding the foregoing, in the event a court of competent jurisdiction determines that such transfer and assignment did not constitute such a sale or that such beneficial interest is a part of ALS's estate, then (i) ALS shall be deemed to have granted to ALER a first priority perfected security interest in all of ALS's right title and interest in, to and under the Conveyed Assets pursuant to this Section 2.01, and ALS hereby grants such security 3 interest and (ii) the assets conveyed pursuant to this Section 2.01 shall be deemed to include all rights, powers and options (but none of the obligations, if any) of ALS under any agreement or instrument included in the assets conveyed pursuant to this Section 2.01, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Designated Loans included in the assets conveyed pursuant to this Section 2.01 and all other monies payable under the Designated Loans conveyed pursuant to this Section 2.01, 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 ALS or otherwise and generally to do and receive anything that ALS is or may be entitled to do or receive under or with respect to the assets conveyed pursuant to this Section 2.01. For purposes of such grant, this Agreement shall constitute a security agreement under the UCC. The forgoing sale does not constitute and is not intended to result in any assumption by ALER of any obligation of ALS to the Obligors, insurers or any other Person in connection with the Conveyed Assets, any Insurance Policies or any agreement or instrument relating to any of them. In connection with such conveyances, ALS agrees to record and file financing statements (and thereafter will file continuation statements with respect to such financing statements) with respect to the related Initial Conveyed Assets transferred to ALER pursuant to this Agreement and the Subsequent Conveyed Assets to be transferred to ALER pursuant to any Subsequent PA Assignment meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and to maintain the perfection of, the transfer and conveyance of, such Conveyed Assets (in each case, other than the Exempt Collateral) from ALS to ALER, and to deliver a file-stamped copy of such financing statements or other evidence of such filings to ALER and the Indenture Trustee when required pursuant to the Pooling and Servicing Agreement. The Loan Files (including each original executed Equipment Note) will not be physically delivered to ALER but instead will be delivered to its designee which will be the Custodian with respect to the Collateral Documents and the Servicer with respect to the remainder of the Loan Files. In accordance with the Pooling and Servicing Agreement, the Servicer shall, on or prior to the related Purchase Date (i) cause the Contract Management System to be marked with a specified code (the "Contract Management Code") to show that the Initial Conveyed Assets or the Subsequent Conveyed Assets, as the case may be, have been assigned and transferred in accordance with this Agreement and the related PA Assignment, and (ii) prepare and hold in its capacity as Servicer on behalf of the Issuers and the Indenture Trustee the list of Initial Loans on or prior to the Closing Date and a list of Replacement Loans and Substitute Loans on or prior to the related Subsequent Purchase Date. SECTION 2.02. Purchase Price. In consideration for the purchase of any Designated Loans and the Related Security, ALER shall, on the related Purchase Date, pay to ALS an amount equal to the aggregate of the Loan Balance for such Designated Loans as of the applicable Cutoff Date (the "Purchase Price") and ALS shall execute and deliver to ALER a PA Assignment with respect to such Designated Loans. On the Closing Date, a portion of the Purchase Price equal 4 to approximately [$_____________] shall be payable on such date and shall be paid to ALS in immediately available funds, and the balance of the Purchase Price shall be deemed to be, and shall be recorded as, a capital contribution from ALS to ALER. On each Subsequent Purchase Date, ALER shall pay all of the Purchase Price payable on such date in immediately available funds, provided that, to the extent requested by ALS, any portion of the Purchase Price payable on such date instead of being paid in cash may be deemed to be, and in such event shall be recorded as, a capital contribution from ALS to ALER. SECTION 2.03. The Closings. Each sale and purchase of Designated Loans (each, a "Closing") shall take place at such a place, on a Purchase Date and at a time mutually agreeable to ALS and ALER, and may occur simultaneously with the closing of any related transactions contemplated by the Transfer and Servicing Agreements. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Representations and Warranties as to Designated Loans. ALS makes the following representations and warranties for the benefit of ALER and its assigns, the Indenture Trustee, the Noteholders, the Insurer and the Issuer as to the Designated Loans on which ALER relies in accepting such Designated Loans. Such representations and warranties speak as of the Purchase Date for such Designated Loans and as of the related transfer of such Designated Loans under the Transfer and Servicing Agreements, and shall survive the sale, transfer and assignment of such Designated Loans to ALER and the subsequent assignment and transfer thereof pursuant to the Transfer and Servicing Agreements: (a) Characteristics of Designated Loans. Each Designated Loan: (i) was originated by ALS in the ordinary course of ALS's business and in accordance with its Credit and Collection Policy underwriting standards, was fully and properly executed by the parties thereto, satisfies each of the Eligibility Criteria, and is not a Defaulted Loan; and (i) contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for realization against the collateral of the benefits of the security. (b) Schedule of Designated Loans. The information set forth in the Schedule of Designated Loans (as supplemented by the schedules to any Subsequent PA Assignment, if applicable) is true and correct in all material respects; (c) Compliance With Law. All requirements of applicable federal, state and local laws, and regulations thereunder, including the Equal Credit Opportunity Act, the Federal Reserve Board's Regulation "B", the Soldiers' and Sailors' Civil Relief Act of 1940, and any applicable bulk sales or bulk transfer law and other equal credit opportunity and disclosure laws, in respect of any of 5 the Designated Loans, have been complied with in all material respects, and each such Designated Loan and the sale of each item of Equipment evidenced thereby complied 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 or made; (d) Binding Obligation. Each Designated Loan is non-cancelable, in full force and effect and is the genuine, legal, valid and binding payment obligation in writing of the Obligor thereon, enforceable against the Obligor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights in general and by equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, and the obligations of the related Obligor under such Designated Loan are irrevocable and unconditional payable without relief or benefit of any valuation, stay, appraisement, extension or redemption laws or rights of setoff by such Obligor for any reason whatsoever; (e) Security Interest in Equipment. Immediately prior to the sale, transfer and assignment thereof pursuant hereto, each Designated Loan is secured by a validly perfected first priority security interest in the Equipment that is subject to the related Designated Loans in favor of ALS, as secured party, except with respect to Designated Loans (i) which originally had a Loan Balance of $10,000 or less and (ii) which, in accordance with the standard underwriting policies of ALS as of the date of origination, ALS does not routinely perfect such security interests; provided that after giving effect to such sale, transfer and assignment, (x) the aggregate Loan Balance of all Designated Loans, which are not so secured does not exceed 0.25% of the Aggregate Loan Balance and (y) with respect to the Initial Loans only, as of the Initial Cutoff Date, the aggregate value of the collateral related to such Loans other than the collateral covered by clause (e) of the definition of Exempt Collateral was not less than 80% of the Aggregate Initial Loan Balance; and such lien is being validly conveyed to ALER; (f) Designated Loans In Force. No Designated Loan has been satisfied, subordinated or rescinded, and no Equipment securing any Designated Loan has been released from the Lien of the related Loan in whole or in part; (g) No Waiver. Since the applicable Cutoff Date, no provision of any Designated Loan has been waived, altered or modified in any respect; (h) No Defenses. No litigation, right of rescission, setoff, counterclaim or defense has been asserted or threatened with respect to any Designated Loan; (i) No Liens. There are, to ALS's knowledge, no Liens or claims that have been filed for work, labor or materials affecting any Equipment securing any Designated Loan that are or may be prior to, or equal or coordinate with, the security interest in the Equipment granted by the Designated Loan; (j) No Default. There has been no default, breach, violation or event permitting acceleration under the terms of any Designated Loan, and no event has occurred and is 6 continuing that with notice or the lapse of time (or both) would constitute a default, breach, violation or event permitting acceleration under the terms of any Designated Loan, and ALS has not waived any of the foregoing, in each case except for payments on any Designated Loans which are not more than 60 days past due (measured from the date of any Scheduled Payment) as of the applicable Cutoff Date; (k) Good Title. No Designated Loan or Related Security has been sold, transferred, assigned or pledged by ALS to any Person other than ALER; immediately prior to the conveyance of any Designated Loans pursuant to this Agreement, ALS had good and marketable title thereto, free and clear of any Lien; and, upon execution and delivery of this Agreement and the related PA Assignment by ALS, ALER shall have all of the right, title and interest of ALS in and to the Designated Loans and the Related Security, free of any Lien; (l) Lawful Assignment. No Designated Loan was originated in, or is subject to the laws of, any jurisdiction the laws of which would make unlawful the sale, transfer and assignment of such Designated Loan under this Agreement or any Transfer and Servicing Agreements; (m) All Filings Made. All filings necessary in any jurisdiction to give ALER a first priority perfected security or ownership interest in the Designated Loans and the Related Security (other than Exempt Collateral) have been made, and the Designated Loans and related Equipment constitute Code Collateral; (n) One Original. There is only one original executed copy of each Equipment Note; (o) No Documents or Instruments. No Designated Loan, or constituent part thereof, constitutes an "instrument" or "document" (as such terms are defined in the UCC); (p) Scheduled Payments; Delinquency. As of the applicable Cutoff Date, no Designated Loan had a payment that was more than 60 days past due, and no Designated Loan had a final Scheduled Payment that is due later than, with respect to the Initial Conveyed Assets, October 30, 2007, and with respect to any Subsequent Conveyed Assets, April 30, 2008; (q) Origin. The related Equipment Note constitutes "chattel paper" as defined under the UCC and all documents of the Loan File which constitute "chattel paper" (as such term is defined in the UCC) have been or will be delivered to the Custodian within the period required under this Agreement. Each Designated Loan was originated in the United States or Canada; (r) Selection Criteria. No procedures reasonably believed by ALS to be adverse to ALER, the Insurer or to holders of the Securities issued under the Transfer and Servicing Agreements were utilized in selecting and/or identifying the Designated Loans; (s) No Government Contracts. No Obligor under any of the Designated Loans is a governmental authority of the United States or any state or political subdivision thereof or subject to bankruptcy or similar proceedings; 7 (t) Fair Consideration. The consideration received by ALS hereunder is fair consideration having value reasonably equivalent to the value of the Conveyed Assets conveyed by it and the performance of its obligations hereunder; (u) Collections. ALS shall have deposited (or within two Business Days of receipt thereof deposit) into the Collection Account or the Lockbox all Collections in respect of the Designated Loans received after the related Cutoff Date; and (v) Release of Lien. The transfer of such Designated Loan satisfies the requirements for the release of the liens set forth in Section 8.15 of, or has otherwise been released from the lien of, the Guarantee and Collateral Agreement dated as of May 5, 1998 among Alliance Laundry Holdings LLC, ALS, and General Electric Capital Corporation. SECTION 3.02. Additional Representations and Warranties of ALS. ALS hereby represents and warrants to ALER and for the benefit of the Indenture Trustee, the Noteholders, the Insurer and the Issuer, as of the date hereof, and as of each Purchase Date occurring hereunder and as of the related Closing under the Transfer and Servicing Agreements, in its capacity as the seller of the Designated Loans hereunder, that: (a) Organization and Good Standing. ALS has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, power, authority and legal right to acquire and own the Designated Loans; (b) Due Qualification. ALS is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires or shall require such qualification; (c) Power and Authority. ALS has the power and authority to execute and deliver this Agreement and to carry out its terms; ALS has full power and authority to sell and assign the Designated Loans and the Related Security to ALER, has duly authorized such sale and assignment to ALER by all necessary limited liability company action; and the execution, delivery and performance of this Agreement have been duly authorized by ALS by all necessary limited liability company action; (d) Valid Sale; Binding Obligation. This Agreement, together with the applicable PA Assignment, when duly executed and delivered, shall constitute a valid sale, transfer and assignment of such Designated Loans and Related Security to ALER, enforceable against creditors of and purchasers from ALS; and this Agreement, together with the applicable PA Assignment, when duly executed and delivered, shall constitute a legal, valid and binding obligation of ALS enforceable against ALS in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights in general and by general principles of 8 equity, regardless of whether such enforceability is considered in a proceeding in equity or at law; (e) No Violation. The consummation of the transactions contemplated by this Agreement and any PA Assignment, and the fulfillment of the terms of this Agreement and any PA Assignment, shall not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time, or both) a default under, the limited liability company agreement of ALS, or any indenture, agreement, mortgage, deed of trust or other instrument to which ALS is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument (other than this Agreement, any PA Assignment or any Transfer and Servicing Agreement), or violate any law or, to ALS's knowledge, any order, rule or regulation applicable to ALS of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over ALS or any of its properties; (f) No Proceedings. There are no proceedings or, to ALS's knowledge, investigations pending or, to ALS's knowledge, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over ALS or its properties (i) asserting the invalidity of this Agreement or any PA Assignment, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any PA Assignment, or (iii) seeking any determination or ruling that might materially and adversely affect the performance by ALS of its obligations under, or the validity or enforceability of, this Agreement or any PA Assignment; (g) No Consent. No permit, consent, approval or authorization of, or declaration to or filing with, any governmental authority is required in connection with the execution, delivery and performance by ALS of this Agreement or any PA Assignment or the consummation by ALS of the transactions contemplated hereby or thereby except as expressly contemplated herein or therein; (h) Due Execution and Delivery. This Agreement and each of the other Basic Documents to which it is a party have been duly executed and delivered on behalf of ALS; (i) Ability to Perform. No event has occurred which materially and adversely affects ALS's operations or its ability to perform its obligations under the Basic Documents to which it is a party; (j) Insolvency. ALS (a) is not insolvent and will not be rendered insolvent by the transactions contemplated by this Agreement or any Subsequent PA Assignment and has an adequate amount of capital to conduct its business in the ordinary course and to carry out its obligations hereunder and (b) shall not intend to incur or believe that it shall incur debts that would be beyond its ability to pay as such debts mature, (c) shall not make such transfer with actual intent to hinder, delay or defraud any Person, and (d) shall not have assets that constitute unreasonably small capital to carry out its business as then conducted. ALS does not contemplate the commencement of insolvency, liquidation or consolidation proceedings or the 9 appointment of a receiver, liquidator, conservator, trustee or similar official with respect to it or any of its assets. ALS is not selling or transferring the Conveyed Assets with any intent to hinder, delay or defraud its creditors; (k) Location of Offices. The principal place of business and chief executive office of ALS are located at Shepard Street, Ripon, WI 54971-0990; (l) Trade names. ALS's legal name is as set forth in this Agreement and, other than as set forth on Schedule I hereto, within the preceding five years ALS and its predecessors in interest have not used, and ALS currently does not use, any trade names, fictitious names, assumed names or "doing business as" names; and (m) Immediately prior to the transfers herein contemplated, ALS had good marketable title to the Initial Conveyed Assets or Subsequent Conveyed Assets to be conveyed hereunder, free and clear of all adverse claims. The representations and warranties set forth in this Section shall survive the transfer and assignment of the Conveyed Assets to the Issuer and the Indenture Trustee, and the subsequent transfer and assignment of such Conveyed Assets to ALER pursuant to this Agreement. Upon discovery by ALS or ALER of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give written notice thereof to the other and to the Indenture Trustee and the Insurer immediately upon obtaining knowledge of such breach. SECTION 3.03. Representations and Warranties of ALER. ALER hereby represents and warrants to ALS and the assignees of ALER, the Indenture Trustee, the Noteholders, the Insurer and the Issuer, as of the date hereof and as of each Purchase Date: (a) Organization and Good Standing. ALER has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, power, authority and legal right to acquire and own the Designated Loans; (b) Due Qualification. ALER is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification; (c) Power and Authority. ALER has the power and authority to execute and deliver this Agreement and to carry out its terms and the execution, delivery and performance of this Agreement have been duly authorized by ALER by all necessary limited liability company action; (d) No Violation. The consummation by ALER of the transactions contemplated by this Agreement and the fulfillment of the terms of this Agreement shall not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice or lapse of 10 time) a default under, the limited liability company agreement of ALER, or any indenture, agreement, mortgage, deed of trust or other instrument to which ALER is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than this Agreement, any PA Assignment or any Transfer and Servicing Agreement), or violate any law or, to ALER's knowledge, any order, rule or regulation applicable to ALER of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over ALER or any of its properties; (e) No Proceedings. There are no proceedings or, to ALER's knowledge, investigations pending or, to ALER's knowledge, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over ALER or its properties (i) asserting the invalidity of this Agreement or any PA Assignment, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might materially and adversely affect the performance by ALER of its obligations under, or the validity or enforceability of, this Agreement or any PA Assignment; (f) Binding Obligation. This Agreement shall constitute a legal, valid and binding obligation of ALER enforceable against ALER in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law; (g) No Consent. No permit, consent, approval or authorization of, or declaration to or filing with, any governmental authority is required in connection with the execution, delivery and performance by ALER of this Agreement, or the consummation by ALER of the transactions contemplated hereby except as expressly contemplated herein; (h) Insolvency. ALER (a) is not insolvent and will not be rendered insolvent by the transactions contemplated by this Agreement or any Subsequent PA Assignment and has an adequate amount of capital to conduct its business in the ordinary course and to carry out its obligations hereunder and under each other Basic Document to which it is a party, nor is ALER aware of any pending insolvency, (b) shall not intend to incur or believe that it shall incur debts that would be beyond its ability to pay as such debts mature, (c) shall not make such transfer with actual intend to hinder, delay or defraud any Person, and (d) shall not have assets that constitute unreasonably small capital to carry out its business as then conducted. 11 ARTICLE IV CONDITIONS SECTION 4.01. Conditions to Obligation of ALER. The obligation of ALER to purchase Designated Loans and the Related Security hereunder on any Purchase Date is subject to the satisfaction of the following conditions, which ALER covenants and agrees it shall perform as indicated below: (a) Representations and Warranties True. The representations and warranties of ALS in Section 3.01 hereof regarding such Designated Loans and the Related Security being transferred on such Purchase Date, the representations and warranties made in Section 2.05 of the Pooling and Services Agreement of ALS as Originator and the representations and warranties of ALS in Section 3.02 hereof, shall be true and correct as of such Purchase Date, with the same effect as if then made, and ALS shall have performed all obligations to be performed by it hereunder on or prior to such Purchase Date. (b) No Repurchase Event. No Repurchase Event (as defined in Section 5.04 below) with respect to any such Designated Loan, Early Payout Event, Servicer Default, Default or Event of Default shall have occurred on or prior to such Purchase Date. (c) Computer Files Marked. ALS shall, at its own expense, on or prior to such Purchase Date, (i) indicate in its computer files created in connection with such Designated Loans that such Designated Loans have been sold to ALER pursuant to this Agreement and the related PA Assignment and (ii) deliver to ALER the Schedule of Loans certified by an officer of ALS to be true, correct and complete (as supplemented by the schedules to the related Subsequent PA Assignment). (d) Documents to be Delivered By ALS. (i) The Assignment. On such Purchase Date, ALS shall execute and deliver to ALER and the Indenture Trustee the applicable PA Assignment substantially in the form of Exhibit A or Exhibit B hereto, as applicable, including a list of Loans conveyed, attached thereto, and confirming each of the conditions specified in this Article IV. (i) Evidence of UCC Filing. On or prior to such Purchase Date, ALS shall record and file, at its own expense, a UCC-1 financing statement in each jurisdiction in which required by applicable law, executed by ALS as seller or debtor, naming ALER as purchaser or secured party, naming such Designated Loans and Related Security as collateral, meeting the requirements of the laws of each such jurisdiction and in such manner as is necessary to perfect under the UCC the sale, transfer, assignment and conveyance of such Designated Loans and the Related Security (other than Exempt Collateral and the Lockbox Account) to ALER. ALS shall deliver a file-stamped copy, or other evidence satisfactory to ALER of such filing, to ALER on or prior to such Purchase Date. 12 (iii) Any conveyance of a Loan pursuant to this Agreement will be effected by the delivery by ALS to the Custodian of the Collateral Documents for each such Designated Loan within the time period required of ALER in Section 2.03 of the Pooling and Servicing Agreement. (iv) Other Documents. On such Purchase Date, ALS shall provide such other documents as ALER may reasonably request. (e) Other Transactions. The related transactions contemplated by the Transfer and Servicing Agreements shall be consummated on or prior to each Closing (and all conditions precedent thereto shall be satisfied) to the extent that such transactions are intended to be substantially contemporaneous with the transactions hereunder. (f) Performance of Obligations. ALS shall have performed all obligations to be performed by it hereunder on or prior to such Purchase Date. (g) Taxes. Such transfer shall not impose tax liability on the Trust and shall not affect the tax status of the Notes as debt held by the Holders. (h) Deposit of Collections. ALS shall have deposited (or within two Business Days of receipt thereof deposit) into the Collection Account or the Lockbox all Collections in respect of the Designated Loans received after the related Cutoff Date. (i) Collateral Documents. Complete copies of all documents required to be delivered to the Custodian pursuant to Section 2.03 of the Pooling and Servicing Agreement shall have been delivered to the Custodian in the time frame required by the Pooling and Servicing Agreement. SECTION 4.02. Conditions To Obligation of ALS. The obligation of ALS to sell the Designated Loans to ALER hereunder on any Purchase Date is subject to the satisfaction of the following conditions: (a) Representations and Warranties True. The representations and warranties of ALER hereunder shall be true and correct as of such Purchase Date, with the same effect as if then made, and ALER shall have performed all obligations to be performed by it hereunder on or prior to such Purchase Date. (b) Purchase Price. On each Purchase Date, ALER shall pay to ALS the Purchase Price, payable on such date as provided in Section 2.02 of this Agreement. 13 ARTICLE V ADDITIONAL AGREEMENTS ALS agrees with ALER as follows: SECTION 5.01. Conflicts With Transfer and Servicing Agreements. To the extent that any provision of Sections 5.02 through 5.04 of this Agreement conflicts with any provision of the Transfer and Servicing Agreements, the Transfer and Servicing Agreements shall govern. SECTION 5.02. Protection of Title. (a) Filings. ALS shall execute and file such financing statements and cause to be executed and filed such continuation and other statements, all in such manner and in such places as may be required by law fully to preserve, maintain and protect the interest of ALER under this Agreement in the Designated Loans and the Related Security and in the proceeds thereof (other than Exempt Collateral). ALS shall deliver (or cause to be delivered) to ALER file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. (b) Name Change. ALS shall not change its name, identity or corporate structure in any manner that would, could or might make any financing statement or continuation statement filed by ALS in accordance with Section 5.02(a) seriously misleading within the meaning of Section 9-402(7) of the UCC, unless it shall have given ALER and the Indenture Trustee and the Insurer at least 60 days prior written notice thereof and shall file such financing statements or amendments as may be necessary to continue the perfection of ALER's interest under this Agreement in the Designated Loans and the Related Security (other than Exempt Collateral). (c) Executive Office; Maintenance of Offices. ALS shall give ALER and the Indenture Trustee and the Insurer at least 60 days prior written notice of any relocation of its principal executive office if, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement. ALS shall at all times maintain each office from which it services Designated Loans and its principal executive office within the United States of America. SECTION 5.03. Other Liens or Interests. Except for the conveyances hereunder and as contemplated by the Transfer and Servicing Agreements, ALS shall not sell, pledge, assign or transfer the Designated Loans and the Related Security to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any interest therein, and ALS shall defend the right, title and interest of ALER in, to and under the Designated Loans and Related Security against all claims of third parties claiming through or under ALS. SECTION 5.04. Repurchase Events. By its execution of the Transfer and Servicing Agreements to which it is a party, ALS shall be deemed to acknowledge the assignment by ALER of such of its right, title and interest in, to and under this Agreement to the Issuer as shall be provided in the Transfer and Servicing Agreements. ALS hereby covenants and agrees with ALER for the benefit of ALER and the Interested Parties, that in the event of a breach of any of 14 ALS's representations and warranties contained in Section 3.01 hereof with respect to any Loan or other breach as a result of which ALS as Originator shall have a repurchase obligation under Section 2.06 of the Pooling and Servicing Agreement, ALS's failure to deliver all of the Collateral Documents with respect to any Designated Loan to the Custodian as required hereunder or the failure of the Custodian to provide a Custodian Receipt Certification with respect to a Designated Loan within the period required pursuant to 3(b) of the Custodian Agreement containing no Exceptions (as defined therein) (a "Repurchase Event") as of the second Accounting Date following ALS's discovery or its receipt of notice of such breach or failure (or, at ALS's election, the first Accounting Date following such discovery), unless such breach or failure shall have been cured in all material respects, ALS will repurchase such Loan from the Owner of such Loan on the related Distribution Date for an amount equal to the Warranty Payment. It is understood and agreed that the obligation of ALS as Originator to repurchase any Loan as to which a breach has occurred and is continuing shall, if such obligation is fulfilled, constitute the sole remedy against ALS for such breach available to ALER or any Interested Party. SECTION 5.05. Indemnification. ALS shall indemnify, defend and hold harmless ALER and its assigns, the Indenture Trustee and the Insurer, for any liability as a result of the failure of a Loan to be originated in compliance with all requirements of law and for any breach of any of its representations and warranties contained herein. This indemnity obligation shall be in addition to any obligation that ALS may otherwise have. SECTION 5.06. Further Assignments. ALS acknowledges that ALER shall, pursuant to the Transfer and Servicing Agreements, sell Designated Loans to the Issuer and assign its rights hereunder to the Issuer, subject to the terms and conditions of the Transfer and Servicing Agreements, and that the Issuer may in turn further pledge, assign or transfer its rights in Designated Loans and this Agreement. SECTION 5.07. Pre-Closing Collections. Within two Business Days after each Closing, ALS shall transfer to the account or accounts designated by ALER (or by the Issuer under the Transfer and Servicing Agreements) all collections (from whatever source) on or with respect to the Designated Loans and the Related Security conveyed by ALS to ALER at the time of such Closing pursuant to Section 2.01. SECTION 5.07. Sale Treatment. ALS intends to treat each transfer and assignment described herein as a sale for accounting and tax purposes. SECTION 5.08. Preservation of Security Interest. ALS shall execute and file such financing statements and cause to be executed and filed such continuation statements, all in such manner and in such places as may be required by law fully to preserve, maintain, and protect the respective right, title and interest of ALER and its assignees, including the Issuer and the Indenture Trustee, ALER or its designee, in the Conveyed Assets (other than Exempt Collateral). ALS shall deliver (or cause to be delivered) to ALER or its designee, the Indenture Trustee, file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. 15 SECTION 5.10. Cross Collateralization. With respect to an Obligor under the Loans that will be sold hereunder to ALER, or by the Seller to the Issuer under the Pooling and Servicing Agreement, ALS may be or may become a lender to such Obligor under another stand alone commercial laundry equipment loan (the "Non-Trust Loan"). Each Loan and Non-Trust Loan is secured by the equipment related to that loan. In certain circumstances a Loan my be cross collateralized with the equipment and other collateral related to a Non-Trust Loan ("Common Non-Trust Collateral") and a Non-Trust Loan may be cross collateralized with the equipment and collateral related to a Loan (the "Common Trust Collateral"). The Common Non-Trust Collateral and the Common Trust Collateral are referred to herein together as the "Common Collateral." ALS agrees that with respect to each loan of each such Obligor (i) the security interest in such Common Trust Collateral granted to ALS pursuant to any other Non-Trust Loan is and shall be junior and subordinate to the security interest created to secure the Loan; (ii) ALS shall have no legal right to realize upon such Common Trust Collateral or exercise its rights under the Loan in any manner until all required payments in respect of such Loan have been paid; and (iii) in realizing upon such Common Trust Collateral, neither ALER nor the Issuer, nor any Beneficiaries shall have any obligation to protect or preserve the rights of ALS in such Common Trust Collateral. ALER agrees that with respect to each loan of each such Obligor (i) the security interest in such Common Non-Trust Collateral to secure the Loan and hereby assigned to ALER is and shall be junior and subordinate to the security interest therein created by the Non-Trust Loan; (ii) ALER, the Issuer and the Beneficiaries shall have no legal right to realize upon such Common Non-Trust Collateral or exercise their rights under the Loan in any manner until all required payments in respect of the Non-Trust Loan have been made; and (iii) in realizing upon such Common Non-Trust Collateral, ALS or its assignees shall have no obligation to protect or preserve the rights of ALER, the Issuer or the Beneficiaries in such Common Non-Trust Collateral. ALS agrees that any successors or assigns of or with respect to any Non-Trust Loans shall acquire such loans subject to the provisions of this Section 5.10 and shall by the provisions hereof be subject to the same. SECTION 5.11. Obligations with Respect to Conveyed Assets. ALS will duly fulfill all obligations on its part to be fulfilled under or in connection with the Conveyed Assets, and will do nothing to impair the rights of ALER or its assignees, including the Issuer or the Indenture Trustee, in any of the Conveyed Assets. SECTION 5.12. Compliance with Law. ALS will comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any Governmental Authority applicable to its business and to the Conveyed Assets or any part thereof; provided, however, that ALS may contest any act, rule, regulation, order, decree or direction in any reasonable manner which shall not materially and adversely affect the rights of the Issuer, the Indenture Trustee or any of the Beneficiaries in the Conveyed Assets or subject the Indenture Trustee or any of the Beneficiaries to any civil or criminal liability or involve any risk of loss of any collateral. SECTION 5.13. Conveyance of Conveyed Assets; Security Interests. Except for the transfers and conveyances hereunder, under any PA Assignment or under any other Basic 16 Document, ALS will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist through ALS any adverse claim, on any Conveyed Asset, or any interest therein and ALS shall defend the right, title, and interest of ALER or its assignees, the Issuer, the Indenture Trustee, the Beneficiaries and their respective successors and assigns in, to, and under the Conveyed Assets, against all claims of third parties claiming through or under ALS. SECTION 5.14. Notification of Breach. ALS will advise ALER or its assignees, the Issuer, the Indenture Trustee and the Insurer promptly, in reasonable detail, upon discovery of the occurrence of a breach, in any material respect, by the Originator, the Servicer or ALS of any of its respective representations, warranties and covenants contained herein. SECTION 5.15. Further Assurances. ALS will make, execute or endorse, acknowledge and file or deliver to ALER or its assignees, the Issuer, the Indenture Trustee and the Insurer from time to time such schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Conveyed Assets and other rights covered by this Agreement and any PA Assignment, as the Issuer, the Insurer or the Indenture Trustee may request and reasonably require other than with respect to Exempt Collateral. SECTION 5.16. Notice of Adverse Claim. ALS shall notify ALER or its assignees, the Issuer, the Insurer and the Indenture Trustee, promptly after becoming aware of any Adverse Claim on any Conveyed Asset. SECTION 5.17 Taxes. ALS shall promptly pay all applicable taxes required to be paid in connection with the transfer of the Conveyed Assets by ALS to ALER, and acknowledges that ALS and the Issuer shall have no responsibility with respect thereto. ALS shall promptly pay and discharge, or cause the payment and discharge of, all federal income taxes (and all other material taxes) when due and payable by ALS, except (i) such as may be paid thereafter without penalty or (ii) such as may be contested in good faith by appropriate proceeding and for which an adequate reserve has been established and is maintained in accordance with GAAP. ALS shall promptly notify the Issuer, the Indenture Trustee, the Insurer and the Noteholders of any material challenge, contest or proceeding pending by or against ALS before any taxing authority. SECTION 5.18 Financial Statements. The financial statements and books and records of the ALS will reflect the separate existence of ALS and ALER; the annual consolidated financial statements of ALS after the date hereof will contain disclosures to the effect that the ALS has or will have one or more direct and indirect subsidiaries that were or may be established as bankruptcy remote entities to facilitate asset securitization; that in connection therewith, assets have been or will be transferred directly or indirectly by the ALS to such subsidiaries; and that these bankruptcy remote entities are separate legal entities the assets of which are not available to satisfy the claims of creditors of the ALS, any other subsidiary or any other Affiliate. 17 ALS, even if not treating the transfer of Conveyed Assets as an "off balance sheet" conveyance for consolidated financial reporting purposes under generally accepted accounting principles, shall nonetheless disclose in its financial statements (by footnote or other appropriate designation) that the Conveyed Assets are property of ALER and subject to the interests of ALER and its assignees, and any other disclosures to ALS's creditors shall be consistent with the foregoing. ALS acknowledges that the Conveyed Assets are not to constitute property of ALS's estate in the event of insolvency or bankruptcy involving ALS. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.01. Amendment. This Agreement may be amended from time to time (in accordance with Section 10.01(g) of the Pooling and Servicing Agreement) by a written amendment duly executed and delivered by ALS and ALER. Prior to the execution of any such amendment, ALS shall furnish written notification of the substance of such amendment to each of the Rating Agencies. ALS agrees that it shall not amend Section 4.14 of the Loan and Security Agreement, dated as of May 5, 1998, by and among Alliance Laundry Receivables Warehouse LLC, a Delaware limited liability company, the financial parties thereto as lenders and Lehman Commercial Paper Inc., a New York corporation, as agent for the lenders, without the consent of the Insurer, so long as the Insurer is the Controlling Party. SECTION 6.02. Survival. The representations, warranties and covenants of ALS set forth in Article III and Article V of this Agreement shall remain in full force and effect and shall survive each Closing and each closing under the Transfer and Servicing Agreements. SECTION 6.03. Notices. All demands, notices and communications under this Agreement shall be delivered as specified in Appendix B to the Pooling and Servicing Agreement. SECTION 6.04. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement and each PA Assignment shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without giving effect to any choice of law or conflict provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. SECTION 6.05. Waivers. No failure or delay on the part of ALER or any Interested Party in exercising any power, right or remedy under this Agreement or any PA Assignment shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other or further exercise thereof or the exercise of any other power, right or remedy. SECTION 6.06. Costs and Expenses. ALS agrees to pay all reasonable out-of-pocket costs and expenses of ALER, including fees and expenses of counsel, in connection with the perfection as against third parties of ALER's right, title and interest in, to and under the Conveyed Assets (other than Exempt Collateral) and the enforcement of any obligation of ALS hereunder. 18 SECTION 6.07. Confidential Information. ALER agrees that it shall neither use nor disclose to any person the names and addresses of the Obligors, except in connection with the enforcement of ALER's rights hereunder, under the Designated Loans, under the Transfer and Servicing Agreements or as required by law. SECTION 6.08. Headings. The various headings in this Agreement are for purposes of reference only and shall not affect the meaning or interpretation of any provision of this Agreement. SECTION 6.09. Counterparts. This Agreement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 6.10. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed enforceable to the fullest extent permitted, and if not so permitted, shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of any Securities or rights of any Owner. SECTION 6.11. Further Assurances. ALS and ALER agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested to effect the purposes of this Agreement, including the execution of any financing statements or continuation statements relating to the Conveyed Assets (other than Exempt Collateral) for filing under the provisions of the UCC of any applicable jurisdiction. SECTION 6.12. Third-Party Beneficiaries. The Insurer and its successors and assigns shall be a third party beneficiary to the provisions of this Agreement, as it may be supplemented or amended, and shall be entitled to rely upon and directly enforce such provisions of this Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto, the Owners and their respective successors and permitted assigns. Except as otherwise expressly provided in this Agreement, no other Person shall have any right or obligation hereunder. SECTION 6.13. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived, or supplemented except as provided herein. SECTION 6.14. No Petition Covenants. Notwithstanding any prior termination of this Agreement, ALER and ALS shall not, prior to the date which is one year and one day after the final distribution under the Transfer and Servicing Agreements with respect to the Notes to the Note Distribution Account, acquiesce, petition or otherwise invoke or cause ALER or the Issuer 19 to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against ALER or the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of ALER or the Issuer. SECTION 6.15. Power of Attorney. ALS hereby grants to ALER (and its assignees) and the Servicer an irrevocable power of attorney, with full power of substitution, coupled with interest, to take in the name of ALS all steps which are necessary or advisable to indorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by ALS or transmitted or received by ALER (or its assignees) or the Servicer (whether or not from ALS) in connection with any Conveyed Assets. SECTION 6.16. Authorization to Collect. ALS hereby authorizes ALER, the Servicer or their respective successors, assigns or designees to take any and all steps in ALS's name necessary or desirable, in their respective determination, to collect all amounts due under all loans, including, without limitation, indorsing the name of ALS on checks and other instruments representing Collections and enforcing the provisions of the Loans that concern payment and/or enforcement of rights to payment. SECTION 6.17. No Assignment. No assignment of this Agreement other than pursuant to the other Basic Documents shall be permitted unless the Rating Agency Condition shall have been satisfied and, if the Insurer is the Controlling Party, the Insurer shall have consented thereto. * * * * * 20 IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be executed by their respective officers hereunto duly authorized as of the date and year first above written. ALLIANCE LAUNDRY SYSTEMS LLC, in its own capacity and as Servicer By: ______________________________________________ Name: Bruce P. Rounds Title: Vice President, Chief Financial Officer and Treasurer ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC By: ______________________________________________ Name: Bruce P. Rounds Title: Vice-President, Chief Financial Officer andTreasurer 21 EX-10.51 4 dex1051.txt POOLING AND SERVICING AGREEMENT Exhibit 10.51 POOLING AND SERVICING AGREEMENT AMONG ALLIANCE LAUNDRY SYSTEMS LLC SERVICER AND ORIGINATOR ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC SELLER AND ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A ISSUER DATED AS OF NOVEMBER 28, 2000 TABLE OF CONTENTS ARTICLE I CERTAIN DEFINITIONS 1 SECTION 1.01. Definitions 1 ARTICLE II CONVEYANCE OF LOANS; ORIGINAL ISSUANCE OF CERTIFICATES 1 SECTION 2.01. Conveyance of Initial Loans. 1 SECTION 2.02. Conveyance of Replacement Loans. 3 SECTION 2.03. Custody of Loan Files 4 SECTION 2.04. Acceptance and Acknowledgment by Issuer 7 SECTION 2.05. Representations and Warranties as to the Loans 8 SECTION 2.06. Repurchase of Loans Upon Breach of Warranty 8 SECTION 2.07. Substitution of Loans 8 ARTICLE III ADMINISTRATION AND SERVICING OF LOANS 10 SECTION 3.01. Duties of the Servicer 10 SECTION 3.02. Collection of Loan Payments 11 SECTION 3.03. Prepayments 12 SECTION 3.04. Realization Upon Defaulted Loans 12 SECTION 3.05. Maintenance of Insurance Policies 13 SECTION 3.06. Maintenance of Security Interests in Collateral 13 SECTION 3.07. Covenants of the Servicer 14 SECTION 3.08. Purchase of Loans Upon Breach of Covenant 17 SECTION 3.09. Total and Supplemental Servicing Fees; Payment of Certain Expenses by Servicer 18 SECTION 3.10. Servicer's Certificate 18 SECTION 3.11. Application of Collections 18 SECTION 3.12. Lockbox Account 19 SECTION 3.13. Power of Attorney 19 SECTION 3.14. Back-up Servicer 20 ARTICLE IV SERVICER'S COVENANTS; DISTRIBUTIONS; RESERVE ACCOUNT; STATEMENTS TO BENEFICIARIES AND THE CERTIFICATEHOLDERS 20 SECTION 4.01. Annual Statement as to Compliance: Notice of Servicer Default 20 SECTION 4.02. Annual Independent Accountants' Report 21 SECTION 4.03. Access to Certain Documentation and Information Regarding Loans 22 SECTION 4.04. Amendments to Loans and to Schedule of Loans 22 SECTION 4.05. Assignment of Administrative Loans and Warranty Loans 23 SECTION 4.06. Distributions 23 SECTION 4.07. Reserve Account 23 SECTION 4.08. Net Deposits 24 SECTION 4.09. Statements to Beneficiaries and the Certificateholders 24 SECTION 4.10. Information Provided to Rating Agencies 26 ARTICLE V ACCOUNTS; COLLECTIONS, DEPOSITS AND INVESTMENTS; ADVANCES 27 SECTION 5.01. Establishment of Accounts 27 SECTION 5.02. [Reserved.] 30 SECTION 5.03. [Reserved.] 30 SECTION 5.04. Collections 30 SECTION 5.05. Investment Earnings and Supplemental Servicing Fees 31 SECTION 5.06. Monthly Advances 31 SECTION 5.07. Additional Deposits 31 SECTION 5.08. Ambac Policy Proceeds 32 ARTICLE VI THE SELLER; REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SERVICER 32 SECTION 6.01. Representations and Warranties of the Seller and the Servicer 32 SECTION 6.02. Liability of Seller 35 SECTION 6.03. Merger or Consolidation of, or Assumption of the Obligations of, Seller; Amendment of Limited Liability Company Agreement 35 SECTION 6.04. Limitation on Liability of Seller and Others 35 SECTION 6.05. Seller May Own Securities 35 SECTION 6.06. Rule 144A 35 ARTICLE VII LIABILITIES OF SERVICER AND OTHERS 36 SECTION 7.01. Liability of Servicer; Indemnities 36 SECTION 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer 37 SECTION 7.03. Limitation on Liability of Servicer and Others 38 SECTION 7.04. Delegation of Duties 39 SECTION 7.05. Servicer Not to Resign 39 ii ARTICLE VIII DEFAULT 39 SECTION 8.01. Servicer Defaults 39 SECTION 8.02. Consequences of a Servicer Default 41 SECTION 8.03. Indenture Trustee to Act; Appointment of Successor 42 SECTION 8.04. Notification to the Beneficiaries and the Certificateholders 43 SECTION 8.05. Waiver of Past Defaults 43 SECTION 8.06. Effects of Termination or Resignation of Servicer 43 ARTICLE IX TERMINATION; REDEMPTION 44 SECTION 9.01. Optional Purchase of All Loans 44 SECTION 9.02. Termination of the Agreement 44 ARTICLE X MISCELLANEOUS PROVISIONS 44 SECTION 10.01. Amendment 44 SECTION 10.02. Protection of Title to Owner Trust Estate 46 SECTION 10.03. Notices 47 SECTION 10.04. Governing Law 47 SECTION 10.05. Severability of Provisions 47 SECTION 10.06. Assignment 47 SECTION 10.07. Third-Party Beneficiaries 48 SECTION 10.08. Separate Counterparts 48 SECTION 10.09. Headings and Cross-References 48 SECTION 10.10. Assignment to Indenture Trustee 48 SECTION 10.11. No Petition Covenants 48 SECTION 10.12. Limitation of Liability of the Trustees 48 SECTION 10.13. Survival of Agreement 49 iii EXHIBITS EXHIBIT A-1 Form of Initial PSA Assignment EXHIBIT A-2 Form of Replacement Assignment EXHIBIT A-3 Form of Substitution Assignment EXHIBIT B Locations of Schedule of Receivables EXHIBIT C Back-Up Servicer Requirements EXHIBIT D Forms of Loan APPENDIX A Defined Terms and Rules of Construction APPENDIX B Notice Addresses and Procedures iv THIS POOLING AND SERVICING AGREEMENT is made as of November 28, 2000 by and among Alliance Laundry Systems LLC, a Delaware limited liability company ("ALS" and, in its capacity as Originator and Servicer hereunder, the "Originator" and the "Servicer," respectively), Alliance Laundry Equipment Receivables LLC, a Delaware limited liability company ("ALER" and, in its capacity as the Seller hereunder, the "Seller"), and Alliance Laundry Equipment Receivables Trust 2000-A, a Delaware business trust (the "Issuer"). WHEREAS, ALS has sold certain Loans to the Seller on the date hereof pursuant to the Purchase Agreement. WHEREAS, the Seller desires to sell those Loans to the Issuer in exchange for the Securities and the Servicer desires to perform the servicing obligations set forth herein for and in consideration of the fees and other benefits set forth in this Agreement. WHEREAS, the Seller and the Issuer wish to set forth the terms pursuant to which those Loans are to be sold by the Seller to the Issuer and the Loans will be serviced by the Servicer. NOW, THEREFORE, in consideration of the foregoing, the other good and valuable consideration and the mutual terms and covenants contained herein, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS SECTION 1.01. Definitions. Certain capitalized terms used in the above recitals and in this Agreement are defined in and shall have the respective meanings assigned them in Part I of Appendix A to this Agreement. All references herein to "the Agreement" or "this Agreement" are to this Pooling and Servicing Agreement as it may be amended, supplemented or modified from time to time, the exhibits hereto and the capitalized terms used herein which are defined in such Appendix A, and all references herein to Articles, Sections and subsections are to Articles, Sections or subsections of this Agreement unless otherwise specified. The rules of construction set forth in Part II of such Appendix A shall be applicable to this Agreement. ARTICLE II CONVEYANCE OF LOANS; ORIGINAL ISSUANCE OF CERTIFICATES SECTION 2.01 Conveyance of Initial Loans. In consideration of the Issuer's delivery of the Securities to, or upon the order of, the Seller, the Seller does hereby enter into this Agreement and agree to fulfill all of its obligations hereunder and to sell, transfer, assign and otherwise convey to the Issuer, without recourse (except as otherwise set forth in this Agreement), pursuant to an assignment in the form attached hereto as Exhibit A-1 (the "Initial PSA Assignment"), all right, title and interest of the Seller in, to and under: (a) the Loans, including without limitation all documents and instruments evidencing or governing the Loans and all Loan Files relating thereto, identified in the schedule to the Initial 1 PSA Assignment (the "Initial Loans") and all monies paid or payable thereon (including Liquidation Proceeds) on or after or due and payable, but in each case not paid, as of the Initial Cutoff Date; (b) the Equipment, including, without limitation, all security interests therein, granted by Obligors pursuant to the Initial Loans and any other collateral securing the Initial Loans; (c) any Insurance Policies and proceeds thereof, and rights and benefits thereunder, with respect to such Equipment and any other collateral securing the Initial Loans; (d) with respect to the Initial Loans, any Guaranties and proceeds thereof, and all rights and benefits thereunder; (e) the Lockbox and Lockbox Account, all funds on deposit from time to time in the Lockbox or in the Lockbox Account with respect to the Initial Loans and all proceeds thereof; (f) the Purchase Agreement, the Initial PA Assignment pursuant to Section 2.01(a) of the Purchase Agreement with respect to the Initial Loans, and the other Basic Documents (other than the Trust Agreement, the Trust Certificate, the Certificates and the documents and certificates executed in connection with the foregoing), including the right of the Seller to cause ALS to perform its obligations thereunder (including the obligation to repurchase such Loans under certain circumstances); and (g) any proceeds of the property described in clauses (a) through (f) above. It is the intention of the Seller that the transfer and assignment contemplated by this Section 2.01 shall constitute a sale of the Initial Loans from the Seller to the Issuer and the beneficial interest in and title to the assets conveyed pursuant to this Section 2.01 shall not be part of the Seller's estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law. The foregoing sale does not constitute and is not intended to result in any assumption by the Issuer of any obligation of ALS or the Seller to the Obligors, insurers or any other Person in connection with the Initial Loans, any Insurance Policies or any agreement or instrument relating to any of them. On the Closing Date, the Seller shall cause to be deposited into the Collection Account all Collections (from whatever source) on or with respect to the assets conveyed pursuant to this Section 2.01 received by the Seller pursuant to Section 5.07 of the Purchase Agreement. The Seller, the initial Servicer and the Issuer intend to treat such transfer and assignment as a sale for accounting and tax purposes. Notwithstanding the foregoing, in the event a court of competent jurisdiction determines that such transfer and assignment did not constitute such a sale or that such beneficial interest is a part of the Seller's estate, then (i) the Seller shall be deemed to have granted to the Issuer a first priority perfected security interest in all of the Seller's right title and interest in, to and under the Initial Loans and other assets referred to in clauses (a) through (g) above, and the Seller hereby grants such security interest to the Issuer and (ii) the Initial Loans and other assets referred to in clauses (a) through (g) above shall be deemed to include all rights, powers and options (but none of the obligations, if any) of the Seller under any agreement or instrument included in the assets referred to in clauses (a) through (g) above, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of such 2 Loans and all other monies payable under such Loans, 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 Seller or otherwise and generally to do and receive anything that the Seller is or may be entitled to do or receive under or with respect to the assets conveyed pursuant to this Section 2.01. For purposes of such grant, this Agreement shall constitute a security agreement under the UCC. SECTION 2.02 Conveyance of Replacement Loans. Provided no Early Payout Event or an Event of Default has occurred and is continuing, on or prior to the tenth day of the month (each a "Replacement Date"), the Seller shall, if and to the extent it has Eligible Loans, sell, transfer, assign and otherwise convey to the Issuer, without recourse (except as otherwise set forth in this Agreement), and the Issuer shall in such event acquire from the Seller, Replacement Loans in an amount up to but not in excess of the aggregate amount of Full Prepayments with respect to Loans during the prior Monthly Period pursuant to an assignment in the form attached hereto as Exhibit A-2 (each, a "Replacement Assignment"), all right, title and interest of the Seller in, to and under: (a) the Loans, including all documents and instruments evidencing or governing the Loans and all Loan Files relating thereto, identified in the schedule to the Replacement Assignment (the "Replacement Loans") and all monies paid or payable thereon (including Liquidation Proceeds) on or after or due and payable, but in each case not paid, as of the Replacement Cutoff Date; (b) the Equipment, including, without limitation, all security interests therein, granted by Obligors pursuant to such Replacement Loans and any other collateral securing such Replacement Loans; (c) any Insurance Policies, and proceeds thereof, and rights and benefits thereunder, with respect to such Equipment and any other collateral securing such Replacement Loans; (d) with respect to such Replacement Loans, any Guaranties, and proceeds thereof, and all rights and benefits thereunder; (e) all funds on deposit from time to time in the Lockbox or in the Lockbox Account with respect to such Replacement Loans and all proceeds thereof; (f) the Subsequent PA Assignment pursuant to Section 2.01(b) of the Purchase Agreement with respect to such Loans, and the other Basic Documents (other than the Trust Agreement, the Trust Certificate, the Certificates and the documents and certificates executed in connection with the foregoing), including the right of the Seller to cause ALS to perform its obligations thereunder (including the obligation to repurchase such Loans under certain circumstances); and (g) any proceeds of the property described in clauses (a) through (f) above. Each Replacement Loan shall be an Eligible Loan as of the close of business on the last day of the month preceding the Replacement Date (the "Replacement Cutoff Date") and 3 no Replacement Loan shall have previously been a Replacement Loan or a Substitute Loan. Loans may not be sold by the Seller or purchased by the Issuer pursuant to this Section 2.02 if and to the extent (i) on a cumulative basis for both Pools since the Closing Date, the sum of (A) the aggregate Loan Balance (as of the related Replacement Cutoff Date) of all Replacement Loans (including Loans to be purchased on such date) and (B) the aggregate Loan Balance of all Substitute Loans substituted into the Trust on or prior to such date (including Loans to be substituted on such date) exceeds 25% of the Aggregate Initial Loan Balance or (ii) after giving effect to the addition of both the Replacement Loans and Substitute Loans to be added on such date, the Pool Criteria would not be satisfied. Only Loans with a fixed interest rate may be added to Pool 1, and only Loans with a floating interest rate may be added to Pool 2. It is the intention of the Seller that the transfer and assignment contemplated by this Section 2.02 shall constitute a sale of the Replacement Loans from the Seller to the Issuer and the beneficial interest in and title to the assets conveyed pursuant to this Section 2.02 shall not be part of the Seller's estate in the event of the filing of a bankruptcy petition by or against the Seller under any bankruptcy law. The foregoing sale does not constitute and is not intended to result in any assumption by the Issuer of any obligation of ALS or the Seller to the Obligors, insurers or any other Person in connection with the Replacement Loans, any Insurance Policies or any agreement or instrument relating to any of them. On the Replacement Date, the Seller shall cause to be deposited into the Collection Account all Collections (from whatever source) on or with respect to the assets conveyed pursuant to this Section 2.02 received by the Seller pursuant to Section 5.07 of the Purchase Agreement. The Seller, the initial Servicer and the Issuer intend to treat such transfer and assignment as a sale for accounting and tax purposes. Notwithstanding the foregoing, in the event a court of competent jurisdiction determines that such transfer and assignment did not constitute such a sale or that such beneficial interest is a part of the Seller's estate, then (i) the Seller shall be deemed to have granted to the Issuer a first priority perfected security interest in all of the Seller's right title and interest in, to and under the Replacement Loans and other assets referred to in clauses (a) through (g) above, and the Seller hereby grants such security interest to the Issuer and (ii) the Replacement Loans and other assets referred to in clauses (a) through (g) above shall be deemed to include all rights, powers and options (but none of the obligations, if any) of the Seller under any agreement or instrument included in the assets referred to in clauses (a) through (g) above, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of such Loans and all other monies payable under such Loans, 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 Seller or otherwise and generally to do and receive anything that the Seller is or may be entitled to do or receive under or with respect to the assets conveyed pursuant to this Section 2.02. For purposes of such grant, this Agreement shall constitute a security agreement under the UCC. In consideration for the purchase of any Replacement Loans, the Issuer shall, on the related Replacement Date, pay to the Seller in immediately available funds an amount equal to the aggregate of the Loan Balance for such Replacement Loans as of the applicable Cutoff Date (the "Purchase Price"). SECTION 2.03. Custody of Loan Files. In connection with the sale, transfer and assignment of Loans to the Seller from ALS pursuant to the Purchase Agreement, the sale, transfer and 4 assignment to the Issuer pursuant to this Agreement and the execution and delivery of the Indenture, the Servicer, the Issuer and the Indenture Trustee simultaneously with the execution and delivery of this Agreement, shall enter into the Custodial Agreement with the Custodian, pursuant to which the Indenture Trustee shall revocably appoint the Custodian, at the expense of the Servicer, and the Custodian shall accept such appointment, to act as the agent of the Indenture Trustee as Custodian of the following documents or instruments (collectively, the "Collateral Documents"): (a) the fully executed original of the Equipment Note for any such Loan (which shall not bear any transfer or encumbrance legend or, if it shall bear such a legend, shall be accompanied by an unconditional release from the party or parties named in such legend); (b) the original, fully executed Guaranty executed in respect of such Loan (unless the Loan Schedule certifies that such document does not exist with respect to the applicable Loan); (c) the original, fully executed security agreement executed for such Loan; (d) the original file-stamped UCC-1 financing statement with recording information indicated thereon for such Loan filed by the Originator against the Obligor with respect to the related Equipment (unless, solely with respect to the Initial Loans, the Loan Schedule certifies that such document does not exist with respect to the applicable Loan and is not required to be delivered to the Custodian pursuant to this Agreement) or a copy thereof and related certificates (as provided in the second paragraph below); (e) the Delivery and Acceptance Receipt for such Loan (unless the Loan Schedule certifies that such document does not exist with respect to the applicable Loan) or a copy thereof and related certification (as provided in the second paragraph below); and (f) the assignment of lease, landlord waiver, mortgagee waiver or deed, in each case, with respect to the real property on which the related Equipment is located (unless the Loan Schedule certifies that such document does not exist with respect to the applicable Loan and is not required to be delivered to the Custodian pursuant to this Agreement). The Seller shall or shall cause the Servicer to deliver to the Custodian all of the Collateral Documents (but shall retain copies thereof) relating to at least half of the Aggregate Initial Loan Balance of the Initial Loans no later than 30 days after the Closing Date and will deliver to the Custodian all of the Collateral Documents (but shall retain copies thereof) with respect to all of the Initial Loans no later than 60 days after the Closing Date. With respect to any Replacement or Substitute Loan, the Seller shall or shall cause the Servicer to deliver all of the Collateral Documents (but shall retain copies thereof) relating to such Loans to the Custodian no later than the applicable Replacement Date or Substitution Date. The Custodian shall in accordance with the Custodial Agreement review and certify as complete pursuant to a Custodian Receipt Certification all Collateral Documents required to be delivered to the Custodian with respect to each Loan. Any Loans as to which such Collateral Documents have not been certified as complete or without Exception (as defined in the Custodial Agreement) by the Custodian (a copy of such notice will be provided to the Insurer and the Indenture Trustee) within three days after the required deposit date or, with respect to the Initial Loans, within 60 5 days after the Closing Date, shall be deemed Warranty Loans as of such date and will be repurchased by the Originator pursuant to Section 2.06. The Servicer shall maintain in its possession all other documents comprising the Loan Files other than the Collateral Documents. The Servicer (i) except as otherwise provided herein with respect to the transfer of servicing duties hereunder, shall maintain the portion of the Loan Files in its possession in a manner consistent with the Servicing Standards and will not dispose of any documents constituting the Loan Files, (ii) except as otherwise provided herein with respect to the transfer of servicing duties hereunder, will not permit any person other than the Indenture Trustee to maintain any adverse claim upon any Loan File, and (iii) except as otherwise provided herein with respect to the transfer of servicing duties, will not permit any person other than the Indenture Trustee or the Custodian (or any sub-servicer or other agent permitted hereunder) to maintain possession of any Loan File so long as the related Loan shall remain part of the Trust Estate. With respect to any documents described in parts (d) or (f) above which have been delivered or are being delivered to recording offices for recording and have not been returned to the Seller or Servicer in time to permit their delivery hereunder at the time required, in lieu of delivering such original documents, the Seller or Servicer shall deliver to the Custodian a true copy thereof with a certification (a copy of which certification shall be delivered to the Insurer) executed by an authorized representative of the Seller or Servicer certifying that such copy is a true, correct and complete copy of the original, which has been transmitted for recordation. The Seller or Servicer shall deliver such original documents to the Custodian promptly when they are received. Upon termination of the Servicer as Servicer, the terminated Servicer shall promptly deliver to the Indenture Trustee any Loan Files, or portion thereof, as applicable, and any copies of the Collateral Documents that may be in the possession of such Servicer and that may have been delivered to such Servicer pursuant to this Section 2.03. From time to time, solely to the extent the same is required to implement the foreclosure, purchase, payoff, substitution or servicing of the Loans by the Servicer or any related collateral, the Servicer may request release by the Custodian of any portion of a Loan File in accordance with the terms of the Custodial Agreement. A copy of any such request shall be sent concurrently to the Insurer. In the event that an Event of Default, Default, Early Payment Event or Servicer Default has occurred and is continuing, the consent of the Insurer if the Insurer is the Controlling Party shall be required in order for the Servicer to make any such request. The Servicer shall promptly return to the Custodian each and every document previously requested from the Loan File when the Servicer's need therefor no longer exists, unless the Loan has been liquidated, paid off, is a Warranty Loan, an Administrative Loan or is a Loan with respect to which a Substitute Loan has been substituted in its place, in which case, the Servicer shall provide a certification to this effect to the Custodian, which may be included in the request for release, a copy of which shall be sent concurrently to the Insurer. If the Insurer is the Controlling Party, notwithstanding anything to the contrary set forth herein, in no event shall the Servicer be entitled to request any Collateral Documents held by the Custodian if the Collateral Documents other than for Loans which have been repurchased, paid off, substituted or liquidated in accordance with the Servicing Standards then held by the Servicer (including the Collateral Documents to be requested), exceeds 10% of the then Aggregate Loan Balance of the Loans for the first 48 months from the Closing Date, or 15% 6 of the then Aggregate Loan Balance of the Loans thereafter unless the Servicer has obtained the prior written consent of the Insurer. The Servicer may hold and hereby acknowledges that it shall hold any Loan Files and all other Trust Estate property that it may from time to time receive hereunder as custodian for the Indenture Trustee solely at the will of the Custodian and the Indenture Trustee for the sole purpose of facilitating the servicing of the Loans and such retention and possession shall be in a custodial capacity only. To the extent the Servicer, as agent of the Indenture Trustee and the Issuer, holds any Loan File or other Trust Estate property, the Servicer shall do so in accordance with the Servicing Standards as such standard applies to servicers acting as custodial agent. The Servicer shall promptly report to the Custodian and the Indenture Trustee the loss by it of all or part of any Loan File previously provided to it by the Custodian and shall promptly take appropriate action to remedy any such loss. In such custodial capacity, the Servicer shall have and perform the following powers and duties: (a) hold the Loans and Loan Files that it may from time to time receive hereunder from the Indenture Trustee for the benefit of the Indenture Trustee, maintain accurate records pertaining to each Loan to enable it to comply with the terms and conditions of the Indenture and this Agreement, and maintain a current inventory thereof; (a) implement policies and procedures consistent with the Servicing Standards and requirements of the Custodial Agreement so that the integrity and physical possession of such Loan Files will be maintained; and (c) take all other actions, in accordance with the Servicing Standards, in connection with maintaining custody of such Loan Files on behalf of the Indenture Trustee. Acting as custodian of such Loan Files pursuant to this Section, the Servicer agrees that it does not and will not have or assert any beneficial ownership interest in the Loans or the Loan Files. The Servicer agrees to maintain the Loan Files in its possession, including any Collateral Documents that it may from time to time receive from the Custodian, at its office located in Ripon, Wisconsin or at such other offices of the Servicer as shall from time to time be identified by prior written notice to the Indenture Trustee and the Insurer. Notwithstanding the foregoing, the Servicer may temporarily move individual Loan Files or any portion of an individual Loan File without notice as necessary to conduct the collection and other servicing activities originally set forth in the request for release in accordance with the Servicing Standards; provided, that the Servicer shall not move any such Loan Files for more than 30 days without obtaining the written consent of the Indenture Trustee and, so long as the Insurer is the Controlling Party, the Insurer. SECTION 2.04. Acceptance and Acknowledgment by Issuer. The Issuer does hereby accept all consideration conveyed by the Seller pursuant to Section 2.01, and declares that the Issuer shall hold such consideration upon the trust set forth in the Trust Agreement for the benefit of Certificateholders, subject to the terms and conditions of the Trust Agreement, Indenture and this Agreement. The Issuer hereby agrees and accepts the appointment and authorization of ALS as Servicer under Section 3.01 of this Agreement. 7 Transfer of Conveyed Assets. Each of the Seller, ALS as the Originator and the Servicer understands that the Issuer intends to pledge the Trust Estate to the Indenture Trustee for the benefit of the Beneficiaries and the Certificateholders pursuant to the Indenture. Each of the Seller, ALS as the Originator and the Servicer agrees that, upon an Event of Default, the Indenture Trustee may exercise the rights of the Issuer hereunder and shall be entitled to all of the benefits to which the Issuer is entitled to hereunder to the extent provided for in the Indenture. SECTION 2.05. Representations and Warranties as to the Loans. Pursuant to Section 2.01(f) and 2.02(f), the Seller assigns to the Issuer all of its right, title and interest in, to and under the Purchase Agreement. Such assigned right, title and interest includes the representations and warranties of ALS made to the Seller pursuant to Section 3.01 of the Purchase Agreement. Each of the Originator and the Seller hereby represents, warrants and covenants to the Issuer that it has taken no action and will take no action which would cause such representations, warranties and covenants to be false in any material respect as of the Closing Date, Substitution Date or Replacement Date, as applicable. Each of the Originator and the Seller further acknowledges that the Issuer, the Indenture Trustee and the Controlling Party rely on, and for their benefit, the Seller hereby reaffirms the representations, warranties and covenants of the Seller under this Agreement and the Originator hereby reaffirms the representations, warranties and covenants of ALS under the Purchase Agreement in accepting the Loans in trust and executing and delivering the Securities. The foregoing representations and warranties speak as of the Closing Date, Substitution Date or Replacement Date but shall survive the sale, transfer and assignment of the Loans to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. SECTION 2.05. Repurchase of Loans Upon Breach of Warranty. Upon discovery by the Seller, the Insurer, the Servicer or either Trustee of a breach of any of the representations and warranties in (x) Section 3.01 of the Purchase Agreement (irrespective of any limitation set forth in the Purchase Agreement regarding knowledge of the Originator) or in Sections 2.05, 6.01(b)(i), (ii) or 6.01(b)(iii) of this Agreement; or (y) Section 6.01(a), (b) or (c) (other than Section 6.01(b)(i), (ii) or (iii)) of this Agreement that materially and adversely affects the interests of the Beneficiaries in or collectability of any Loan; the party discovering such breach shall give prompt written notice thereof to the others. As of the second Accounting Date following its discovery or its receipt of notice of breach (or, at the Seller's or Originator's election, as the case may be, the first Accounting Date following such discovery), unless such breach shall have been cured in all material respects or the Seller shall have replaced the affected Loan with a Substitute Loan in accordance with Section 2.07, the Seller in the event of a breach of the representations and warranties made by the Seller and not by the Originator or the Originator, in the event of a breach of representation and warranty of the Originator and not the Seller, shall repurchase such Loan from the Issuer on the related Distribution Date. The Owner Trustee shall have no affirmative duty to conduct any investigation as to the occurrence of any event requiring the repurchase of any Loan pursuant to this Section 2.06. The repurchase price to be paid by any Warranty Purchaser shall be an amount equal to the Warranty Payment. It is understood and agreed that the obligation of the Warranty Purchaser to repurchase any Loan as to which a breach has occurred and is continuing shall, if such repurchase obligations are fulfilled, constitute the sole remedy against the Seller, the Servicer or ALS for such breach available to any Interested Party. The Servicer acknowledges its obligations to repurchase Administrative Loans from the Issuer pursuant to Section 3.08 8 hereof and ALS, in its capacity as the seller under the Purchase Agreement, acknowledges its obligations to repurchase Warranty Loans pursuant to Section 5.04 of the Purchase Agreement and Section 2.06 hereof. SECTION 2.06. Substitution of Loans. Provided no Early Payout Event or Event of Default has occurred and is continuing, on or prior to the tenth day of the month (each a " Substitution Date"), the Seller shall, if and to the extent it has Eligible Loans, pursuant to an assignment in the form attached hereto as Exhibit A-3 each, a "Substitution Assignment") substitute such loans (each a " Substitute Loan") for any Loan that became subject to a Warranty Event during the prior Monthly Period, together with all right, title and interest of the Seller in, to and under: (a) all documents and instruments evidencing or governing the Substitute Loans and all Loan Files relating thereto, identified in the schedule to the Substitution Assignment and all monies paid or payable thereon (including Liquidation Proceeds) on or after or due and payable, but in each case not paid, as of the Substitution Cutoff Date; (b) the Equipment, including, without limitation, all security interests therein, granted by Obligors pursuant to such Substitute Loans and any other collateral securing such Substitute Loans; (c) any Insurance Policies, and proceeds thereof, and rights and benefits thereunder, with respect to such Equipment and any other collateral securing such Substitute Loans; (d) with respect to such Substitute Loans, any Guaranties, and proceeds thereof, and all rights and benefits thereunder; (e) all funds on deposit from time to time in the Lockbox or in the Lockbox Account with respect to such Substitute Loans and all proceeds thereof; (f) the Subsequent PA Assignment pursuant to Section 2.01(b) of the Purchase Agreement with respect to such Loans, and the other Basic Documents (other than the Trust Agreement, the Trust Certificate, the Certificates and the documents and certificates executed in connection with the foregoing), including the right of the Seller to cause ALS to perform its obligations thereunder (including the obligation to repurchase such Loans under certain circumstances); and (g) any proceeds of the property described in clauses (i) through (vi) above. The aggregate Loan Balance as of the Substitution Cutoff Date of the loans substituted into a Pool on any Substitution Date shall not be less than the aggregate Loan Balance or more than 110% of the aggregate Loan Balance of the Loans removed from that Pool as of the Substitution Cutoff Date, and no Substitute Loan shall previously have been substituted or put as a Replacement Loan into either Pool. 9 Each Substitute Loan shall be an Eligible Loan as of the close of business on the last day of the month preceding the Substitution Date (the " Substitution Cutoff Date") and no Substitute Loan shall have previously been a Substitute Loan or a Replacement Loan. Only loans with a fixed interest rate may be substituted into Pool 1 and only loans with a floating interest rate may be substituted into Pool 2. Loans may not be substituted for Warranty Loans if and to the extent (i) on a cumulative basis for both Pools from the Closing Date, the sum of the aggregate Loan Balance (as of the related Substitution Cutoff Date) of all Substitute Loans (including Loans to be substituted on such date) exceeds 10% of the Aggregate Initial Loan Balance, (ii) on a cumulative basis for both Pools since the Closing Date, the sum of (A) the aggregate Loan Balance (as of the related Substitution Cutoff Date) of all Substitute Loans (including Loans to be substituted on such date) and (B) the aggregate Loan Balance of all Replacement Loans added to the Trust on or prior to such date exceeds 25% of the Aggregate Initial Loan Balance or (iii) after giving effect to the addition of both the Substitute Loans and the Replacement Loans to be added on such date, the Pool Criteria would not be satisfied. Upon the replacement of a Loan and collateral as described above, the interest of the Trustees and the Securityholders in such replaced Loan and collateral shall be terminated and such replaced Loan and collateral shall be released to the Seller. Any substitution or replacement of a Loan pursuant to this Agreement shall be effected by (i) delivery to the Custodian on behalf of the Indenture Trustee of the Collateral Documents for each such Substitute Loan or Replacement Loan on or prior to such conveyance in accordance with Section 2.03, (ii) filing of any UCC financing statements necessary to perfect the interest of the Indenture Trustee in the Substitute Loans or Replacement Loans, (iii) delivery to the Indenture Trustee of a list of Replacement Loans and Substitute Loans reflecting such replacement or substitution, and (iv) execution of and delivery of the related Assignments. 10 ARTICLE III ADMINISTRATION AND SERVICING OF LOANS SECTION 3.01. Duties of the Servicer. ALS is hereby appointed as the initial Servicer. The Servicer is hereby appointed and authorized to act as agent for the Owner of the Loans and in such capacity shall manage, service, administer and make Collections on the Loans with reasonable care, using no less than that degree of skill and attention that the Servicer exercises with respect to comparable stand-alone commercial laundry equipment loans that it services for itself or others and consistent with the Credit and Collection Policy (collectively, the "Servicing Standards"). ALS hereby accepts such appointment and authorization and agrees to perform the duties of Servicer with respect to the Loans set forth herein. The Servicer's duties shall include, but not be limited to, collection and posting of all payments, responding to inquiries of Obligors on the Loans, investigating delinquencies, sending payment statements to Obligors, reporting tax information to Obligors (which currently consists of IRS Form 1098), monitoring the collateral in accordance with the Servicing Standards, accounting for Collections and furnishing monthly and annual statements to the Owner of any Loans with respect to distributions, maintaining the first priority perfected security interest of the Indenture Trustee in the Trust Estate (other than Exempt Collateral) for the benefit of the Beneficiaries and filing any financing and continuation statements required to be filed pursuant to the UCC, which continuation statements shall be filed on or before the 60th day prior to the expiration date of such financing statement; and promptly delivering evidence of all such filings to the Indenture Trustee and the Insurer which evidence shall be satisfactory in form and substance to the Insurer with evidence of the filing of continuation statements being delivered on or before the 30th day before the expiration of such financing statements, and performing the other duties specified herein. Subject to the provisions of Section 3.02, the Servicer shall follow the Servicing Standards and shall have full power and authority, acting alone, to do any and all things in connection with such managing, servicing, administration and collection that it may deem necessary or desirable. Without limiting the generality of the foregoing, the Servicer is hereby authorized and empowered by the Owner of the Loans, pursuant to this Section 3.01 to execute and deliver, on behalf of all Interested Parties, 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 Loans and the related collateral but solely to the extent such release or discharge is expressly permitted pursuant to the terms of the Basic Documents. The Servicer is hereby authorized to commence in the name of the Owner of such Loan or, to the extent necessary, in its own name, a legal proceeding to enforce a Defaulted Loan as contemplated by Section 3.04, to enforce all obligations of ALS and ALER, in its capacity as the Seller or otherwise, under each of the Purchase Agreement and the Transfer and Servicing Agreements or to commence or participate in a legal proceeding (including a bankruptcy proceeding) relating to or involving a Loan or a Defaulted Loan. If the Servicer commences or participates in such a legal proceeding in its own name (which any successor Servicer shall not be permitted to do, it being understood that in no event will any successor Servicer take any action hereunder in its own name, including, without limitation, setting up accounts or directing Obligors to make payments to it or in its name), the Owner of such Loan shall thereupon be deemed to have automatically assigned such Loan to the Servicer solely for purposes of commencing or participating in any such proceeding as a party or claimant, the Servicer is hereby authorized and empowered by the Owner of a Loan to execute and deliver in the Servicer's name any 11 notices, demands, claims, complaints, responses, affidavits, all instruments of satisfaction or cancellation, or of partial or full release or discharge or other documents or instruments in connection with any such proceeding. Any Owner of Loans, upon the written request of the initial Servicer, shall furnish the Servicer with any powers of attorney and other documents and take any other steps which the Servicer may deem necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement and the other Transfer and Servicing Agreements. Except to the extent required by the preceding two sentences, the authority and rights granted to the Servicer in this Section 3.01 shall be nonexclusive and shall not be construed to be in derogation of the retention by the Owner of a Loan of equivalent authority and rights. If in any proceeding it is held that the Servicer may not enforce a Loan on the grounds that it is not a real party in interest or a holder entitled to enforce the Loan, the applicable Trustee shall, at the Servicer's specific written direction and expense, take such steps as shall be reasonably required to enforce the Loan, including bringing suit in the name of such Person or the names of the Securityholders. SECTION 3.02. Collection of Loan Payments. The Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Loans as and when the same shall become due, and shall follow the Servicing Standards. Notwithstanding anything in this Agreement to the contrary, neither the Indenture Trustee nor the Servicer shall release the Equipment or other collateral securing a Loan from the lien of the Indenture unless the outstanding Loan Balance, if any, of such Loan has been deposited into the Collection Account, except upon substitution of Substitute Loans, substitution of equivalent Equipment or other collateral (which substitution shall not reduce the Obligor's payment obligations under such Loan), or the foreclosure and sale of collateral or final settlement or compromise of a Defaulted Loan in which case the proceeds of such foreclosure, sale, or final settlement or compromise shall be deposited into the Collection Account as required under the Basic Documents. Subject to the limitations in subsection 3.07(c), the Servicer is hereby authorized to grant extensions, rebates or adjustments on a Loan without the prior consent of the Owner of such Loan or the Controlling Party and to consent to the assignment or assumption, including the release of the existing Obligor in connection therewith, without the prior consent of the Owner of such Loan provided that (x) after giving effect to such extension, rebate or adjustment the Pool Criteria would be satisfied if the affected Loan were treated as a Substitute Loan or Replacement Loan and (y) with respect to any such assignment or assumption other than of a Defaulted Loan, after giving effect to such assignment or assumption, the new Obligor would satisfy all Eligibility Criteria and Pool Criteria applicable to Obligors; provided, further, that subject to preceding clauses (x) and (y) and Section 3.07(c), any successor Servicer (other than an affiliate of ALS) shall be authorized to grant extensions, rebates or adjustments without the consent of the Controlling Party only to the extent it determines that such action is reasonably likely to prevent a payment event of default by the Obligor. The Servicer is authorized in its discretion to waive any prepayment charge, late payment charge or any other fees that may be collected in the ordinary course of servicing such Loan; provided, however, that once the Servicer waives such fees, they cannot be collected from the Designated Accounts, the Lockbox Account or any other source. To the extent provided for in any Loan, the Servicer shall make reasonable efforts to collect all payments with respect to amounts due for maintenance, taxes or assessments on the Equipment or the Loans and shall remit such amounts to the appropriate maintenance provider or Governmental Authority on or prior to the date such payments are due. 12 SECTION 3.03. Prepayments. The Servicer may accept Prepayment in part or in full; provided, that in the event of Full Prepayment, the Servicer may consent to such Full Prepayment only if the amount thereof deposited into the Collection Account is not less than the balance of and all accrued and unpaid interest and fees on such Loan and all other amounts due and payable in connection therewith, and provided further, that in the event of a Prepayment in part, the outstanding Loan Balance of such Loan is not reduced by more than the amount of such Prepayment allocable to principal pursuant to Section 3.11. SECTION 3.04. Realization Upon Defaulted Loans. The Servicer shall use reasonable efforts, consistent with the Servicing Standards, to repossess, remarket or otherwise comparably convert the ownership of each item of Equipment and other collateral that it has reasonably determined should be repossessed or otherwise converted following a default under the Loan secured by each such item of Equipment and other collateral. The Servicer is authorized to follow such practices, policies and procedures as it shall deem necessary or advisable and as shall be in accordance with the Servicing Standards to realize upon or obtain benefits of any proceeds from any Insurance Policies and proceeds from any Guaranties, in each case with respect to the Loans, selling the related Equipment and other collateral at public or private sale or sales and other actions by the Servicer in order to realize upon such a Loan. The foregoing is subject to the provision that, in any case in which the Equipment shall have suffered damage, the Servicer shall not expend funds in connection with any repair or towards the repossession of such Equipment unless it shall determine in its discretion consistent with the Servicing Standards that such repair and/or repossession shall likely increase the proceeds of liquidation of the related Loan by an amount greater than the amount of such expenses. The Servicer shall be entitled to receive Liquidation Expenses with respect to each Defaulted Loan out of amounts that would otherwise comprise Liquidation Proceeds with respect to the related Loan. The Servicer shall enforce any of the foregoing rights and remedies described in this Section 3.04 with respect to any Defaulted Loans that are cross collateralized by other loan obligations, in the manner and priority specified in Section 5.10 of the Purchase Agreement. To the extent that an escrow account has been established by or on behalf of an Obligor to cover defaults on contracts between such Obligor and the Originator, amounts in such escrow account shall be applied against defaults under each such contract in the order that such defaults occur with respect to any such contract unless otherwise required by law, regulation or judicial order. The Servicer shall not accelerate any Scheduled Payment unless permitted to do so by the terms of the Loan or under applicable law; and provided, that the Servicer shall not declare an Obligor to be in default under a Loan nor exercise any other remedies under such Loan based solely on a default by such Obligor under any other obligation of such Obligor to ALS or its Affiliates, if such Obligor is not also in default under such Loan unless the Servicer concludes that declaring such default is in the best interest of the Noteholders and the Insurer or will maximize potential recoveries from such Obligor for the Issuer for the benefit of the Noteholders and the Insurer provided further that a successor Servicer (other than an affiliate of ALS or successor thereto pursuant to Section 7.02) shall not declare an Obligor to be in default under a Loan nor exercise any other remedies under such Loan based solely on such a cross default unless the successor Servicer shall be directed to do so by the Controlling Party (any such successor Servicer agrees to give prompt notice to the Controlling Party of any circumstances of which it is aware which would permit such a cross default). 13 SECTION 3.05. Maintenance of Insurance Policies. The Servicer shall, in accordance with the Servicing Standards, require that each Obligor shall have obtained physical damage insurance covering each item of Equipment as of the execution of the related Loan, unless the Servicer has in accordance with the Servicing Standards permitted an Obligor to self-insure the item of Equipment securing such Loan or to maintain no insurance with respect to such item of Equipment. The Servicer shall, in accordance with the Servicing Standards, monitor such physical damage insurance with respect to each item of Equipment that secures each Loan. The Servicer shall remit to the Collection Account within two Business Days of receipt of all Insurance Proceeds received directly by the Servicer with respect to any Loan or Equipment subject thereto, notwithstanding any notice given pursuant to Section 3.12 hereof. Additionally, the Servicer shall maintain a general liability policy in the amount of at least $1,000,000 per occurrence, at least $2,000,000 in the aggregate and an excess liability insurance policy in umbrella form in the aggregate amount of at least $5,000,000. All premiums due and payable for the term of the period in respect of such policies have been paid and shall continue to be paid promptly as such premiums become due. The Indenture Trustee and the Insurer shall at all times while the Notes are outstanding be named as an additional insured on such casualty and liability policies maintained by the Servicer. SECTION 3.06. Maintenance of Security Interests in Collateral. The Servicer shall, in accordance with the Servicing Standards and at its own expense, take such steps as are necessary to maintain in favor of the Indenture Trustee perfection of the first priority security interest in the Trust Estate (other than Exempt Collateral) including, without limitation, filings required because of revisions to the UCC; provided that the Servicer agrees that (x) the aggregate Loan Balance of the Loans which are covered by part (c) of the definition of Exempt Collateral shall not at any time exceed 0.25% of the Aggregate Loan Balance and (y) with respect to the Initial Loans only, as of the Initial Cutoff Date, the aggregate value of the collateral related to such Loans other than the collateral covered by clause (e) of the definition of Exempt Collateral was not less than 80% of the Aggregate Initial Loan Balance. The Owner of each Loan hereby authorizes the Servicer to re-perfect such first priority security interest as necessary because of the relocation of an item of Equipment or for any other reason. The Servicer shall execute and file such continuation statements and any other documents reasonably requested by the Indenture Trustee or which may be required by law to fully preserve and protect the first priority perfected security interest of the Indenture Trustee on behalf of the Noteholders and the Insurer in and to the Trust Estate other than Exempt Collateral. The Servicer shall use commercially reasonable efforts to enforce the obligations of the Obligors under the applicable loan documents to remove any Lien on the Trust Estate of which the Servicer has actual knowledge or reason to have knowledge pursuant to the performance of its obligations as Servicer hereunder other than the Lien created pursuant to the Indenture. SECTION 3.07. Covenants of the Servicer. The Servicer hereby makes the following covenants on which the Issuer, the Insurer, the Indenture Trustee and the Noteholders are relying in connection with the Issuer acquiring the Loans hereunder and issuing the Securities under the Basic Documents. The Servicer covenants that from and after the Closing Date: (a) Liens in Force. Except as expressly provided in this Agreement, the Servicer shall not release in whole or in part any Lien on any collateral securing any Loan or any Equipment or other collateral from the security interest securing such related Loan and shall use reasonable 14 efforts not to permit any Liens to attach to the Trust Estate except those created under the Indenture. (b) No Impairment. The Servicer shall not impair the rights of the Issuer, the Insurer or any Interested Party in and to any Loan and shall take no action with respect to a Loan which at the time the Servicer reasonably believes would be contrary to the maximization of the ultimate repayment on such Loan. No Modifications. The Servicer shall not (i) amend or otherwise modify or grant rebates or adjustments on any Loan such that (A) the Loan Balance or the Annual Percentage Rate (other than for those Loans eligible for ALS's Rewards Program) is decreased, (B) after such amendment, modification, rebate or adjustment, the Pool Criteria would not be satisfied or (ii) grant any extension with respect to, or amend, any Scheduled Payment to extend or delay any payments of principal on any Loan, provided, however, that subject to the restrictions in clause (i) above, but notwithstanding the restrictions in clause (ii) above, the Servicer may extend or amend up to two Loans in any Monthly Period, and extend or amend not more than 35 Loans after the Closing Date; provided that, in each case, the final Scheduled Payment date as amended would not be later than April 30, 2008. The Servicer shall not amend or otherwise modify any Loan more than once after its initial applicable Cutoff Date. Contract Management System. The Servicer will, at its own cost and expense, (A) retain the Contract Management System, or an alternative system of equal capability, used by the Servicer as a master record of the Loans and (B) mark the Contract Management System to the effect that the Loans listed thereon have been conveyed to the Issuer pursuant to this Agreement and pledged by the Issuer to the Indenture Trustee for the benefit of the Beneficiaries and (to the limited extent as provided therein) the Certificateholders pursuant to the Indenture. The Servicer will maintain accounts and records as to each respective Loan serviced by the Servicer that are accurate and sufficiently detailed to permit (i) the reader thereof to know as of the most recent Determination Date the status of such Loan, including payments and recoveries made and payments owing (and the nature of each), and (ii) reconciliation between payments or recoveries on (or with respect to) each Loan and the amounts from time to time deposited in the Collection Account in respect of such Loan. Compliance with Law. The Servicer will comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any Governmental Authority applicable to the Loans and the Equipment or any part thereof; provided, however, that the Servicer may contest any act, regulation, order, decree or direction in any reasonable manner that shall not materially and adversely affect the rights of the Noteholders or the Insurer in the Trust Estate; and provided, further, that such contests shall be in good faith by appropriate proceedings and shall not subject the Insurer or the Indenture Trustee to any civil or criminal liability or risk of loss of any collateral. Obligations with Respect to Loans. The Loans shall impose no material obligation on the Originator or any successor or assignee. Without limiting the foregoing, as more specifically set forth in this Agreement, in performing its servicing duties hereunder, the Servicer shall, in accordance with the Servicing Standards, collect all payments required to be made by the 15 Obligors under the Loans and enforce all material rights of the Issuer under the Loans. The Servicer shall not assign, sell, pledge, or exchange, or in any way encumber or otherwise dispose of the Equipment or other collateral securing the Loans, except as expressly permitted under this Agreement and the Indenture. No Ownership Interest. The Servicer does not have any ownership interest in the Trust Estate and will not assert any ownership interest in the Trust Estate. Collection Policies and Procedures. So long as the Insurer is the Controlling Party, the Servicer shall not without the prior written consent of the Insurer amend, modify or otherwise change its Credit and Collection Policy in any manner unless such amendment, modification or change (i) applies generally to all contracts or loans serviced by the Servicer (and not just to Loans in the Pools) and (ii) would not be likely to materially and adversely affect the Loans or the ability of the Servicer to collect the Loans or the minimum required credit quality of the Loans consistent with the underwriting criteria of ALS in the ordinary course of business. So long as the Insurer is the Controlling Party, the Servicer shall provide at least five (5) Business Days' prior written notice to the Insurer of any proposed material change to the Credit and Collection Policy. Financial Condition Covenants. For so long as any payments of principal or interest remain outstanding on the Notes or any other amounts are owed to any Beneficiary, the Issuer or the Indenture Trustee under the Basic Documents, the Servicer shall, so long as ALS, any Affiliate thereof or any successor thereto pursuant to Section 7.02 is the Servicer, maintain the following financial ratios (the "Financial Condition Covenants") as specified in this Section 3.07(i)(i) and (ii) below: (a) the Servicer shall not permit the Consolidated Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Servicer ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: Consolidated Fiscal Quarter Ending On or About Leverage Ratio --------------------------------- -------------- September 30, 2000 7.00 to 1.00 December 31, 2000 7.00 to 1.00 March 31, 2001 7.00 to 1.00 June 30, 2001 7.00 to 1.00 September 30, 2001 6.75 to 1.00 December 31, 2001 6.30 to 1.00 March 31, 2002 6.30 to 1.00 June 30, 2002 6.30 to 1.00 September 30, 2002 6.30 to 1.00 December 31, 2002 5.60 to 1.00 March 31, 2003 5.60 to 1.00 June 30, 2003 5.60 to 1.00 September 30, 2003 5.60 to 1.00 December 31, 2003 4.75 to 1.00 and each Fiscal Quarter thereafter 4.50 to 1.00 16 and; (b) the Servicer shall not permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Servicer ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter. Consolidated Interest Fiscal Quarter Ending On or About Coverage Ratio --------------------------------- -------------- September 30, 2000 1.45 to 1.00 December 31, 2000 1.50 to 1.00 March 31, 2001 1.50 to 1.00 June 30, 2001 1.50 to 1.00 September 30, 2001 1.50 to 1.00 December 31, 2001 1.60 to 1.00 March 31, 2002 1.60 to 1.00 June 30, 2002 1.60 to 1.00 September 30, 2002 1.60 to 1.00 December 31, 2002 1.75 to 1.00 March 31, 2003 1.75 to 1.00 June 30, 2003 1.75 to 1.00 September 30, 2003 1.75 to 1.00 December 31, 2003 2.00 to 1.00 March 31, 2004 2.00 to 1.00 June 30, 2004 2.00 to 1.00 September 30, 2004 2.10 to 1.00 December 31, 2004 2.50 to 1.00 and each Fiscal Quarter thereafter 2.50 to 1.00 17 SECTION 3.08. Purchase of Loans Upon Breach of Covenant. Upon discovery by any of the Insurer, the Issuer, the Seller, the Servicer or any party under the Transfer and Servicing Agreements of a breach of any of the covenants set forth in Sections 3.06 and 3.07(a), (b) or (c), the party discovering such breach shall give prompt written notice thereof to the others. As of the second Accounting Date following its discovery or receipt of notice of such breach (or, at the Servicer's election, the first Accounting Date so following), the Servicer shall, unless it shall have cured such breach in all material respects, purchase from the Owner thereof any Loan affected by such breach and, prior to the related Determination Date, the Servicer shall deposit the Administrative Purchase Payment in the Collection Account. It is understood and agreed that the obligation of the Servicer to purchase any Loan with respect to which such a breach has occurred and is continuing shall, if such obligation is fulfilled, constitute the sole remedy against the Servicer for such breach available to the Seller or any Interested Party for all repurchases of Loans comprising not more than 3% of the Aggregate Initial Loan Balance on a cumulative basis. Should the Servicer's repurchases exceed the 3% threshold described in the foregoing sentence with respect to the breach of any Loan which has occurred and is continuing, then the Seller, the Controlling Party or any Interested Party shall be entitled to exercise any rights to which they are entitled pursuant to Section 8.02. Each of the Owner Trustee and the Indenture Trustee shall have no affirmative duty to conduct any investigation as to the occurrence of any event requiring the repurchase of any Loan pursuant to this Section 3.08. SECTION 3.09. Total and Supplemental Servicing Fees; Payment of Certain Expenses by Servicer. The Servicer is entitled to receive the Total Servicing Fee and Supplemental Servicing Fees out of Collections (to the extent not waived by the Servicer) in respect of the Loans as provided in Section 8.2 of the Indenture. Subject to any limitations on the Servicer's liability hereunder or as otherwise specifically provided herein, the Servicer shall be required to pay from its own funds all expenses incurred by it in connection with its activities under this Agreement (including fees and disbursements of the Issuer, any trustees and independent accountants, taxes imposed on the Servicer, expenses incurred in connection with distributions and reports to the Beneficiaries and the Certificateholders the fees of the Back-up Servicer, the Custodian and the Lockbox Bank, and all other fees and expenses not expressly stated under this Agreement to be for the account of the Beneficiaries and the Certificateholders, but excluding federal, state and local income and franchise taxes, if any, of the Issuer, the Beneficiaries and the Certificateholders). SECTION 3.10. Servicer's Certificate. Not later than 11:00 a.m. (New York City time) on each Determination Date, the Servicer shall deliver to each Trustee, the Insurer and the Rating Agencies a Servicer's Certificate with respect to the immediately preceding Monthly Period executed by the President or any of the Vice President/Controller, the Vice President/Chief Financial Officer or the Treasurer of the initial Servicer or by an appropriate officer of any successor Servicer (or, if such Servicer's Certificate is delivered electronically, such Servicer's Certificate shall be deemed for all purposes to have be certified by the Chief Financial Officer or similar officer), containing all information necessary to each such party for making the calculations, withdrawals, deposits, transfers and distributions required by Section 4.06 of this Agreement and Section 8.2 of the Indenture, and all information required to be provided to Certificateholders, the Insurer and Noteholders under subsection 4.09(a). Loans to be purchased by the Servicer under Section 3.08 hereof or repurchased by the Seller or Originator under Section 2.06 hereunder or by ALS under Section 5.04 of the Purchase Agreement as of the 18 last day of any Monthly Period shall be identified by Loan number (as set forth in the Schedule of Loans). With respect to any Loans for which the Seller, the Originator or ALS becomes the Owner, the Servicer shall deliver to the Seller, the Originator or ALS such accountings relating to such Loans and the actions of the Servicer with respect thereto as the Seller, the Originator or ALS may reasonably request and at the expense of the requesting party. SECTION 3.11. Application of Collections. For the purposes of this Agreement, as of each Accounting Date, all payments by or on behalf of the Obligor received during a Monthly Period with respect to a Loan shall be applied by the Servicer (i) first to any unpaid Scheduled Payment for any prior Monthly Period with respect to such Loan, (ii) second, to the Scheduled Payment for such Monthly Period with respect to such Loan, (iii) third, to the payment of any late fees, rewrite charges, and other Supplemental Servicing Fees with respect to such Loan and (iv) fourth, the remainder shall constitute, with respect to such Loan, a Prepayment of principal of the Loan. SECTION 3.12. Lockbox Account. Prior to the date on which any Loan is transferred to the Trust, the Servicer shall require each of the Obligors under such Loan to make all payments under such Loan or otherwise in connection with the Trust Estate, including any and all payments of late fees, directly to the Lockbox in the name of the Indenture Trustee. In the event that any Servicer resigns or is replaced, then if the place for payment pursuant to any Loan is changed, the successor Servicer shall give each related Obligor prompt written notice of its appointment and the address, if not the Lockbox, to which such Obligor should make payments to each such Loan. The Servicer shall no later than 15 days after the Closing Date direct each obligor which is not an Obligor, to make all payments to an address other than the Lockbox. The Servicer is hereby expressly authorized and empowered by the Owner of the Loans, without the need of prior consent or authorization, to withdraw immediately from the Collection Account any payment received and deposited into the Collection Account which is not a payment with respect to the Loans or the Trust Estate. The Servicer shall certify in writing to the Indenture Trustee that such withdrawal is pursuant to this Section 3.12(b). The Servicer and the Indenture Trustee shall direct the Lockbox Bank to transfer all available amounts in the Lockbox Account by wire transfer into the Collection Account no later than the second Business Day following the date of receipt thereof. The Servicer Certificate shall specify the amounts transferred into the Collection Account with respect to the immediately preceding Monthly Period. The Servicer shall deposit into the Lockbox Account all Collections received by it relating to the period after the applicable Cutoff Date within two Business Days of such receipt. The parties hereto agree that, in the event (i) ALS, an affiliate of ALS or a successor to ALS pursuant to Section 7.02 is no longer the Servicer or (ii) any Rating Agency has indicated that maintenance of the Lockbox or the Lockbox Account with the then current Lockbox Bank could result in a downgrading of the Notes, at the request of the Controlling Party, the Servicer shall designate a new Lockbox Bank acceptable to the Controlling Party and shall promptly thereafter (A) establish a new Lockbox and Lockbox Account in the name and under the sole dominion and control of the Indenture Trustee with such new Lockbox Bank, (B) instruct all Obligors to make payments under the Loans or otherwise in connection with the Trust Estate 19 directly to such new Lockbox, and (iii) enter into a Lockbox Agreement with such new Lockbox Bank satisfactory to the Controlling Party. In such event, the Indenture Trustee shall promptly send a termination notice to the existing Lockbox Bank to terminate the Lockbox Agreement with the existing Lockbox Bank following receipt of an instruction to such effect from the Controlling Party. SECTION 3.13. Power of Attorney. The Servicer (other than a successor Servicer) and the Originator each irrevocably constitute and appoint the Indenture Trustee, with full power of substitution, as their true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Servicer or the Originator, as applicable, and in the name of the Servicer or the Originator, as applicable, or in its own name, for purposes of taking any and all appropriate action and executing any and all documents and instruments which may be necessary to accomplish either of the following: (a) after an Event of Default, Early Payout Event or Servicer Default has occurred and is continuing, at any time, for the purpose of carrying out the terms of this Agreement in the name of the Servicer or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instrument, general intangible or contract or with respect to any other collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Indenture Trustee or the Insurer for the purpose of collecting any and all such monies due under any account, instrument, general intangible or contract with respect to the Trust Estate; and (b) whether or not an Event of Default, Early Payout Event or Servicer Default has occurred, execute and deliver any and all agreements, instruments, documents and papers (including, without limitation, UCC Financing Statements) as the Indenture Trustee or the Insurer may reasonably request to perfect the Indenture Trustee's security interest in the Trust Estate (other than Exempt Collateral). SECTION 3.14. Back-up Servicer. The Servicer shall retain a back-up servicer (the "Back-up Servicer") designated by the Controlling Party, which is reasonably acceptable to the Servicer (or if the Insurer is not the Controlling Party, designated by the Servicer), who will agree to perform the services set forth in Exhibit C pursuant to terms and conditions acceptable to the Controlling Party. The initial Back-up Servicer shall be BNY Asset Solutions LLC and the Insurer hereby agrees that the terms and conditions of the Back-up Servicing Agreement entered into on the date hereof with BNY Asset Solutions LLC is acceptable. The Servicer shall on or prior to each Distribution Date send such Back-up Servicer the information required to be provided pursuant to the Back-up Servicing Agreement. The fees and expenses of the Back-up Servicer shall be paid by the Servicer from the Total Servicing Fee and Supplemental Servicing Fees. To the extent the obligations of the Backup Servicer as Servicer under this Agreement shall be expressly modified pursuant to the provisions of its Backup Servicing Agreement, such provisions shall modify the obligations of the Backup Servicer as Servicer under this Agreement. 20 ARTICLE IV SERVICER'S COVENANTS; DISTRIBUTIONS; RESERVE ACCOUNT; STATEMENTS TO BENEFICIARIES AND THE CERTIFICATEHOLDERS SECTION 4.01. Annual Statement as to Compliance: Notice of Servicer Default. The Servicer shall deliver to each Trustee and the Insurer (with a copy to the Initial Purchaser), on or before April 15 of each year, beginning April 15, 2001, an officer's certificate signed by an Executive Officer of the initial Servicer (or by an appropriate officer of any successor Servicer), dated as of the immediately preceding December 31, stating that (i) a review of the activities of the Servicer during the preceding 12-month period (or, with respect to the first such certificate, such period as shall have elapsed from the Closing Date to December 31, 2000) and of its performance under this Agreement has been made under such officer's supervision and (ii) to the best of such officer's knowledge, based on such review, the Servicer has fulfilled its obligations under this Agreement in all material respects throughout such period, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof. A copy of such certificate may be obtained by any Noteholder or any Certificateholder by a request in writing to the Issuer addressed to the Corporate Trust Office of the Indenture Trustee or the Owner Trustee, respectively. The Servicer shall deliver to each Trustee, the Insurer and to the Rating Agencies (with a copy to the Initial Purchaser), promptly after having obtained knowledge thereof, but in no event later than (2) two Business Days thereafter, written notice in an officer's certificate signed by an Executive Officer of the Servicer of any Servicer Default or event which with the giving of notice or lapse of time, or both, would become a Servicer Default under Section 8.01. Such notice shall describe the nature and period of existence of such event and the action, if any, the Servicer is taking or proposes to take with respect thereto. SECTION 4.02. Annual Independent Accountants' Report. The Servicer shall, at its own expense, cause a firm of independent accountants, who may also render other services to the Servicer or the Seller, to deliver to each Trustee, the Insurer and the Rating Agencies (with a copy to the Initial Purchaser), on or before April 15 of each year, beginning April 15, 2001 with respect to the twelve months ended on the immediately preceding December 31 (or, with respect to the first such report, such period as shall have elapsed from the Closing Date to December 31, 2000), a report (the "Accountants' Report") addressed to the board of directors of the Servicer and to each Trustee and the Insurer, to the effect that such firm has audited the financial statements of the initial Servicer and issued its report thereon and that such audit (A) was made in accordance with generally accepted auditing standards and the requirements of the Ambac Insurance Agreement, (B) included tests relating to Equipment Notes serviced for others in accordance with the requirements of the Uniform Single Audit Program for Mortgage Bankers (the "Program"), to the extent the procedures in the Program are applicable to the servicing obligations set forth in this Agreement and (C) except as described in the report, disclosed no exceptions or errors in the records relating to equipment notes serviced for others that, in the firm's opinion, paragraph four of the Program requires such firm to report. 21 The Accountants' Report shall also indicate that the firm is independent of the Seller and the Servicer within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants. A copy of the Accountants' Report may be obtained by any Noteholder or any Certificateholder by a request in writing to the Issuer addressed to the Corporate Trust Office of the Indenture Trustee or the Owner Trustee, respectively. For so long as ALS is the Servicer, the Servicer shall also deliver to the Insurer (i) within 95 days of the Servicer's fiscal year end the Servicer's annual Form 10-K report for such year and (ii) within 50 days after the end of each of the Servicer fiscal quarters (other than its fiscal year end) the Servicer's Form 10-Q report for such quarter or if the Servicer is no longer a reporting company under the Securities Exchange Act of 1934, a report containing all the information required to be contained in a Form 10-K or 10-Q report, as applicable, if it were such a reporting company. In the event that ALS is not the Servicer, if such Servicer shall not be, or not be a wholly-owned subsidiary of, a reporting company under the Securities Exchange Act of 1934, the Servicer shall within 95 days after the end of each of its fiscal years, and within 50 days after the end of each of its fiscal quarters (other than a fiscal year end), deliver to the Insurer a report containing all the information required to be contained in a Form 10-K or Form 10-Q, respectively, if it were such a reporting company. SECTION 4.03. Access to Certain Documentation and Information Regarding Loans. The Servicer shall provide to the Insurer and each Trustee and each of their respective representatives, attorneys and accountants access (as described below) to the documentation regarding the Loans as described below. The Servicer shall provide such access to any Securityholder only in such cases where a Securityholder is required by applicable statutes or regulations to review such documentation, and then, if permitted by law, only upon receipt by it of a confidentiality agreement reasonably acceptable to it and such Securityholder restricting the Securityholders use of any proprietary information of the Servicer made available to the Securityholder in connection with such review. In each case, such access shall be afforded without charge but only upon reasonable request and during normal business hours at offices of the Servicer designated by the Servicer. The failure of the Servicer to provide access as provided in this Section 4.03, because the Servicer reasonably believes access would violate applicable law with respect to disclosure shall not constitute a breach of this Section 4.03. At all times during the term hereof, the Servicer shall either (i) keep available in physical form at its principal executive office for inspection by the Indenture Trustee, the Insurer or their respective duly authorized representatives, attorneys or accountants a list of all Loans then subject to the lien of the Indenture, together with a reconciliation of such list to the list of Initial Loans, all lists of Substitute Loans and Replacement Loans and each of the Servicer's Certificates, indicating the cumulative removals and additions of Loans subject to the lien of the Indenture or (ii) maintain electronic facilities which allow such list and reconciliation to be generated in a readable form which can be accessed by the Issuer, the Indenture Trustee and each of their respective representatives, attorneys or accountants (it being agreed that information in ASCII or Excel are acceptable forms). 22 SECTION 4.04. Amendments to Loans and to Schedule of Loans. If the Servicer, during a Monthly Period, assigns to a Loan an account number that differs from the account number previously identifying such Loan on the Schedule of Loans, the Servicer shall deliver to the Seller, the Back-up Servicer, the Insurer and each Trustee on or before the Distribution Date related to such Monthly Period an amendment to the Schedule of Loans to report the newly assigned account number. Each such amendment shall list all new account numbers assigned to Loans during such Monthly Period and shall show by cross reference the prior account numbers identifying such Loans on the Schedule of Loans. The Servicer shall amend the Schedule of Loans, as appropriate, to reflect removal of repaid Loans, substituted Loans, Administrative Loans, Warranty Loans, Defaulted Loans and Loans which have been liquidated in accordance with the Servicing Standards and the addition of Replacement Loans and Substitute Loans and shall deliver an updated Schedule of Loans to the Insurer, the Back-up Servicer, the Seller and each Trustee on each Distribution Date. SECTION 4.05. Assignment of Administrative Loans and Warranty Loans. Upon deposit into the Collection Account of the Administrative Purchase Payment or the Warranty Payment with respect to an Administrative Loan or a Warranty Loan, respectively, or the substitution of a Substitute Loan for a Warranty Loan and provided that such purchase or substitution of a Loan shall otherwise have been made in full compliance with the provisions of the Basic Documents, each Trustee shall assign, without recourse, representation or warranty, to the Servicer or the Warranty Purchaser, as applicable, all of such Person's right, title and interest in, to and under (a) such Administrative Loan or Warranty Loan and all monies due thereon, (b) the security interests in the related collateral, (c) amounts held on deposit in the Designated Accounts or the Lockbox Account with respect to such Loan and not applied to the Loan Balance as of the applicable Accounting Date, if any (d) proceeds from any Insurance Policies with respect to the collateral securing such Loan or any Guaranties of such Loan received after the applicable Accounting Date, if any and (e) the rights of such Person under the Purchase Agreement with respect to such Loan, such assignment being an assignment outright and not for security. Upon the assignment of such Loan described in the preceding sentence, the Servicer, the Warranty Purchaser or the Seller, as applicable, shall own such Loan, and all such security and documents, free of any further obligations to either Trustee or Beneficiaries and the Certificateholders with respect thereto. SECTION 4.06. Distributions. On or before each Determination Date, with respect to the preceding Monthly Period and the related Distribution Date, the Servicer shall calculate for each Series of Notes and the related Pool of Loans, the Available Amount, Outstanding Monthly Advances, the Total Servicing Fee, the Supplemental Servicing Fee, the Monthly Advance Reimbursement Amount, the Class A Noteholders' Interest Distributable Amount, the Class B Noteholders' Interest Distributable Amount, the Class A Noteholders' Principal Distributable Amount, the Class B Noteholders' Principal Distributable Amount, the Class A-2 Carryover Amount, the Class B-2 Carryover Amount, the Certificateholders' Distributable Amount and all other amounts required to determine the amounts to be deposited in or paid from each of the Collection Account, the Note Distribution Account, the Certificate Distribution Account and the Reserve Account, as applicable, on the next succeeding Distribution Date. 23 SECTION 4.07. Reserve Account. The Servicer, for the benefit of the Beneficiaries and the Certificateholders, shall establish and maintain in the name of the Indenture Trustee and subject to the sole dominion and control of the Indenture Trustee an Eligible Deposit Account known as the Alliance Laundry Equipment Receivables Trust 2000-A Reserve Account (the "Reserve Account") to include the money and other property deposited and held therein pursuant to this Section 4.07 and Section 8.2 of the Indenture. On the Closing Date, the Seller shall deposit the Initial Reserve Account Deposit into the Reserve Account. If the amount on deposit in the Reserve Account on any Distribution Date (after giving effect to all deposits therein or withdrawals therefrom on such Distribution Date) exceeds the Specified Reserve Account Balance for such Distribution Date, the Servicer shall instruct the Indenture Trustee to deposit into the Collection Account an amount equal to any such excess which shall be deemed Certificateholders' Distributable Amounts for distribution to the Certificateholders in accordance with the Indenture provided, however, if the Notes have been accelerated as a result of an Event of Default under the Indenture or an Early Payout Event shall have occurred and be continuing, such amounts shall be deposited into the Collection Account and shall be deemed to be Available Amounts. If the amount on deposit in the Reserve Account is less than the Specified Reserve Account Balance or if the Notes have been accelerated as a result of an Event of Default under the Indenture or an Early Payout Event shall have occurred and be continuing, Investment Earnings on funds in the Reserve Account, net of losses and investment expenses, up to the Specified Reserve Account Balance, will be retained in the Reserve Account and applied in accordance with Section 8.2(d) of the Indenture. SECTION 4.08. Net Deposits. At any time that (i) ALS shall be the Servicer and (ii) the Servicer shall be permitted by Section 5.04 to remit Collections on a basis other than a daily basis, the Servicer, the Seller and each Trustee may make any remittances pursuant to this Article IV net of amounts to be distributed by the applicable recipient to such remitting party. Nonetheless, each such party shall account for all of the above described remittances and distributions as if the amounts were deposited and/or transferred separately. SECTION 4.09. Statements to Beneficiaries and the Certificateholders. On each Distribution Date, the Owner Trustee shall include with each distribution to each Certificateholder, and the Indenture Trustee shall include with each distribution to each Noteholder, a statement (the "Monthly Report") (which statement shall also be provided to the Insurer, the Rating Agencies and the Initial Purchaser) based on information in the Servicer's Certificate furnished pursuant to Section 3.10. Each such statement shall set forth the following information as to the Notes with respect to such Distribution Date or the preceding Monthly Period, as applicable: (a) the amount of the distribution allocable to interest on each class of Notes; (b) the amount of the distribution allocable to principal of each class of Notes; 24 (c) the aggregate outstanding principal balance for each class of Notes and the Note Pool Factor for each class of Notes, each after giving effect to all payments reported above on such date; (d) with respect to the Series 2 Notes only, the amount of the distribution allocable to the Carryover Amount of each class of Notes; (e) with respect to the Series 2 Notes only, the aggregate outstanding Carryover Amount, if any, for each class of Notes, each after giving effect to all payments reported above on such date; (f) the Aggregate Loan Balance for each Pool as of the close of business on the last day of such Monthly Period; (g) the amount of the Total Servicing Fee for each Pool paid to the Servicer, with respect to the related Monthly Period; (h) the amount of the Supplemental Servicing Fee for each Pool paid to the Servicer, with respect to the related Monthly Period; (i) the amount of Aggregate Losses for each Pool for the related Monthly Period and since the Closing Date; (j) the Delinquency Ratio and the Default Ratio for the related Monthly Period; (k) the sum of all Administrative Purchase Payments and all Warranty Payments made for each Pool for the related Monthly Period and since the Closing Date; (l) the amount, if any, paid by the Insurer, (m) the amount of Monthly Advances for the related Monthly Period, the Monthly Advance Reimbursement Amount for such Distribution Date and the outstanding balance of Monthly Advances as of the last day of the related Monthly Period after giving effect to the Monthly Advance Reimbursement Amount for such Distribution Date; (n) the balance of the Reserve Account on such date after giving effect to distributions or deposits made on such date, the amount, if any, withdrawn from the Reserve Account for the related Monthly Period, and the Specified Reserve Account Balance for such Distribution Date; (o) the aggregate Loan Balance of Loans that were replaced with Substitute Loans with respect to the related Monthly Period; (p) with respect to the Series 2 Notes only, the Interest Rate (subject to reduction as a result of the Asset Rate) for the next Monthly Period; 25 (q) with respect to each Series, the Class A Noteholders' Monthly Interest Distributable Amount and the Class A Noteholders' Interest Distributable Amount for such Distribution Date and the Class A Noteholders' Interest Shortfall for the preceding Distribution Date; (r) with respect to each Series, the Class B Noteholders' Monthly Interest Distributable Amount and the Class B Noteholders' Interest Distributable Amount for such Distribution Date and the Class B Noteholders' Interest Shortfall for the preceding Distribution Date; (s) the Asset Rate for the related Monthly Period; (t) Liquidation Proceeds and Liquidation Expenses for the related Monthly Period; (u) the total number of Loans as of the last day of the related Monthly Period; (v) the total number and aggregate Loan Balance of Defaulted Loans and Substitute Loans and Replacement Loans for the related Monthly Period and since the Closing Date; and (w) the total amount of Collections deposited into the Collection Account for the related Monthly Period, broken down by type of Collections (i.e., prepayments, recoveries, etc.). Each amount set forth pursuant to clauses (i),(ii),(iii),(iv) and (v) above shall be expressed as a dollar amount per $1,000 of the initial Note Principal Balance. In lieu of preparing and delivering a separate statement pursuant to this Section, a Trustee may deliver a copy of the Servicer's Certificate furnished pursuant to Section 3.10 provided that it shall include all of the information noted above. Within the prescribed period of time for tax reporting purposes after the end of each calendar year during the term of this Agreement, the Servicer shall prepare and execute and the Indenture Trustee and the Owner Trustee shall mail to each Person who at any time during such calendar year shall have been a holder of Notes or Certificates, respectively, and received any payments thereon, a statement prepared and supplied by the Servicer containing the sum of the amounts set forth in each of clauses (i), (ii), (iv) and (v) for such calendar year or, if such Person shall have been a Securityholder during a portion of such calendar year and received any payments thereon, for the applicable portion of such year, for the purposes of such Securityholder's preparation of federal income tax returns. SECTION 4.10. Information Provided to Rating Agencies. In addition to receiving any information or documents required to be delivered to any Rating Agency pursuant to any Basic Document, each Rating Agency and the Insurer may request in writing to the Servicer, and the Servicer shall deliver, reasonable additional information necessary to the Rating Agencies and the Insurer to monitor the Notes. Promptly, but in no event later than two (2) Business Days, after obtaining knowledge of an Insolvency Event with respect to the Servicer, the Seller or the 26 Trust, the Servicer shall deliver to each of the Ratings Agencies and the Insurer (with a copy to the Initial Purchaser) notice of such Insolvency Event. ARTICLE V ACCOUNTS; COLLECTIONS, DEPOSITS AND INVESTMENTS; ADVANCES SECTION 5.01. Establishment of Accounts. The Servicer, for the benefit of the Beneficiaries and the Certificateholders, shall establish and maintain in the name of the Indenture Trustee and under the Indenture Trustee's sole dominion and control an Eligible Deposit Account known as the Alliance Laundry Equipment Receivables Trust 2000-A Collection Account (the "Collection Account"), bearing an additional designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries and the Certificateholders. The Servicer, for the benefit of the Noteholders, shall establish and maintain in the name of the Indenture Trustee and under the Indenture Trustee's sole dominion and control an Eligible Deposit Account known as the Alliance Laundry Equipment Receivables Trust 2000-A Note Distribution Account (the "Note Distribution Account"), bearing an additional designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders and the Insurer. Pursuant to the Trust Agreement, the Servicer, for the benefit of the Certificateholders, shall establish and maintain in the name of the Owner Trustee an Eligible Deposit Account known as the Alliance Laundry Equipment Receivables Trust 2000-A Certificate Distribution Account (the "Certificate Distribution Account"), bearing an additional designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders. The Servicer, for the benefit of the Beneficiaries and the Certificateholders, shall establish and maintain in the name of the Indenture Trustee under the Indenture Trustee's sole dominion and control an Eligible Deposit Account known as the Alliance Laundry Equipment Receivables Trust 2000-A Lockbox Account (the "Lockbox Account") bearing an additional designation clearly indicating that the funds deposited therein are held for the benefit of the Beneficiaries and the Certificateholders. The Servicer shall establish and maintain the Reserve Account pursuant to the terms of Section 4.07. Each of the Designated Accounts shall be initially established with the Indenture Trustee and shall be maintained with the Indenture Trustee and shall be under its sole dominion and control so long as (A) the short-term unsecured debt obligations of the Indenture Trustee have the Required Deposit Rating or (B) each of the Designated Accounts are maintained in the corporate trust department of the Indenture Trustee. All amounts held in such accounts (including amounts which the Servicer is required to remit daily to the Collection Account pursuant to Section 5.04) shall, to the extent permitted by applicable laws, rules and regulations, be invested, at the written direction of the Servicer, by such bank or trust company in Eligible 27 Investments. Such written direction shall constitute certification by the Servicer that any such investment is authorized by this Section 5.01. Funds deposited in the Collection Account and Reserve Account shall be invested in Eligible Investments that mature prior to the next Distribution Date except, and then only to the extent, as shall be otherwise permitted by the Rating Agencies and the Insurer. Investments in Eligible Investments shall be made in the name of the Indenture Trustee or its nominee, and such investments shall not be sold or disposed of prior to their maturity. Should the short-term unsecured debt obligations of the Indenture Trustee (or any other bank or trust company with which the Designated Accounts are maintained) no longer have the Required Deposit Rating, then the Servicer shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency and the Insurer shall consent), with the Indenture Trustee's assistance as necessary, cause the Designated Accounts (A) to be moved to a bank or trust company, the short-term unsecured debt obligations of which shall have the Required Deposit Rating and which is otherwise acceptable to the Insurer, or (B) to be moved to the corporate trust department of the Indenture Trustee. Subject to Section 4.07(c), Investment Earnings on funds deposited in the Designated Accounts and the Certificateholder Distribution Account shall be deposited into the Collection Account and shall be deemed Certificateholders' Distributable Amounts for distribution to the Certificateholders in accordance with the Indenture; provided, however, if the Notes have been accelerated as a result of an Event of Default under the Indenture or an Early Payout Event shall have occurred and be continuing, Investment Earnings on the Designated Accounts and any available Investment Earnings on the Lockbox Account shall be deposited in the Collection Account and shall be deemed to be Available Amounts. The Indenture Trustee or the other Person holding the Designated Accounts as provided in this Section 5.01(b)(i) shall be the "Securities Intermediary." If the Securities Intermediary shall be a Person other than the Indenture Trustee, the Servicer shall obtain the express agreement of (i) the Indenture Trustee as to the designation of such person as Securities Intermediary and (ii) such Person to the obligations of the Securities Intermediary set forth in Section 5.01. With respect to the Designated Account Property, the Indenture Trustee agrees, by its acceptance hereof, that: (a) The Designated Accounts are accounts to which Financial Assets will be credited. (b) All securities or other property underlying any Financial Assets credited to the Designated Accounts shall be registered in the name of the Securities Intermediary, indorsed to the Securities Intermediary or in blank or credited to another securities account maintained in the name of the Securities Intermediary and in no case will any Financial Asset credited to any of the Designated Accounts be registered in the name of the Issuer, Owner Trustee, the Servicer or the Seller, payable to the order of the Issuer, the Servicer or the Seller or specially indorsed to the Issuer, the Servicer or the Seller except to the extent the foregoing have been specially indorsed to the Securities Intermediary or in blank. (c) All property delivered to the Securities Intermediary pursuant to the Pooling and Servicing Agreement will be promptly credited to the appropriate Designated Account. 28 Each item of property (whether investment property, Financial Asset, security, instrument or cash) credited to a Designated Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the New York UCC. If at any time the Securities Intermediary shall receive any order from the Indenture Trustee directing transfer or redemption of any Financial Asset relating to the Securities Accounts, the Securities Intermediary shall comply with such entitlement order without further consent by the Issuer, the Owner Trustee, the Servicer, the Seller or any other person. The Designated Accounts shall be governed by the laws of the State of New York, regardless of any provision in any other agreement. For purposes of the UCC, New York shall be deemed to be the Securities Intermediary's jurisdiction and the Designated Accounts (as well as the Securities Entitlements related thereto) shall be governed by the laws of the State of New York. The Securities Intermediary has not entered into, and until the termination of this Agreement will not enter into, any agreement with any other person relating to the Designated Accounts and/or any Financial Assets credited thereto pursuant to which it has agreed to comply with entitlement orders (as defined in Section 8-102(a)(8) of the New York UCC) of such other person and the Securities Intermediary has not entered into, and until the termination of this Agreement will not enter into, any agreement with the Issuer, the Seller, the Servicer or the Indenture Trustee purporting to limit or condition the obligation of the Securities Intermediary to comply with entitlement orders as set forth in Section 5.01(b)(ii)(E) hereof. Except for the claims and interest of the Indenture Trustee and of the Issuer in the Designated Accounts, to the best of its knowledge without independent investigation the Securities Intermediary knows of no claim to, or interest in, the Designated Accounts or in any Financial Asset credited thereto. If any other person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Designated Accounts or in any Financial Asset carried therein, the Securities Intermediary will promptly notify the Indenture Trustee, the Servicer and the Issuer thereof. The Securities Intermediary will promptly send copies of all statements, confirmations and other correspondence concerning the Designated Accounts and/or any Designated Account Property simultaneously to each of the Servicer, the Indenture Trustee and the Insurer at the addresses set forth in Appendix B to this Agreement. The Servicer shall have the power, revocable by the Indenture Trustee, by the Owner Trustee with the consent of the Indenture Trustee, or by the Insurer, if the Insurer is the Controlling Party, to instruct the Indenture Trustee in writing to make withdrawals and payments from the Designated Accounts and to apply such amounts in accordance with the 29 provisions of the Basic Documents. Notice of any revocation shall be provided to the Insurer by the Servicer or the Indenture Trustee. The Indenture Trustee shall possess all right, title and interest in and to all funds on deposit from time to time in the Designated Accounts and the Lockbox Account and in all proceeds thereof. The Designated Accounts and the Lockbox Account shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Beneficiaries and the Certificateholders. The Servicer shall not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any of the Designated Accounts or the Lockbox Account unless the security interest granted and perfected in such account shall continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any written direction to the Indenture Trustee to make any such investment or sale, the Servicer (so long as the Servicer is ALS or an Affiliate thereof or successor thereto under Section 7.02) shall deliver to the Indenture Trustee and the Insurer, at the request of the Indenture Trustee or the Insurer, an Opinion of Counsel to such effect acceptable to the Insurer. The Servicer shall reimburse any Designated Account pursuant to Section 5.07 hereof for any investment losses in excess of investment earnings on investments held in such Designated Accounts. Pursuant to the Trust Agreement, the Owner Trustee shall possess all right, title and interest in and to all funds on deposit from time to time in the Certificate Distribution Account and in all proceeds thereof. Except as otherwise provided herein or in the Trust Agreement, the Certificate Distribution Account shall be under the sole dominion and control of the Owner Trustee for the benefit of the Certificateholders. If, at any time, the Certificate Distribution Account ceases to be an Eligible Deposit Account, the Servicer shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency may consent) establish a new Certificate Distribution Account as an Eligible Deposit Account and shall cause the Owner Trustee to transfer any cash and/or any investments in the old Certificate Distribution Account to such new Certificate Distribution Account. The Indenture Trustee, the Owner Trustee, the Securities Intermediary and each other Eligible Institution with whom a Designated Account, the Lockbox Account or the Certificate Distribution Account is maintained waives any right of set-off, counterclaim, security interest or bankers' lien to which it might otherwise be entitled. SECTION 5.02. [Reserved.] SECTION 5.03. [Reserved.] SECTION 5.04. Collections. The Servicer shall remit to the Lockbox Account or the Collection Account all payments by or on behalf of the Obligors on the Loans, all Insurance Proceeds, all Liquidation Proceeds and proceeds from any Guaranties and received directly by the Servicer, notwithstanding the Servicer's notice to each Obligor pursuant to Section 3.12, within two Business Days after receipt thereof. Any available funds in the Lockbox Account shall be deposited into the Collection Account no later than the second Business Day following 30 the date of receipt thereof. Notwithstanding the foregoing, the Servicer shall not be required to remit such Collections within such two Business Days but may remit Collections received during a Monthly Period to the Collection Account in immediately available funds on the second Business Day preceding the related Distribution Date but only for so long as (i) ALS is the Servicer, (ii) (x) the Servicer satisfies the requirements for monthly remittances established by the Rating Agencies, and upon the satisfaction of such requirements, the Rating Agencies reaffirm the rating of the Securities at the level at which they would be rated if Collections were remitted within two Business Days or (y) the short-term unsecured debt obligations of ALS are rated at least A-1+ by Standard & Poor's Ratings Services and P-1 by Moody's Investors Service, (iii) a Servicer Default, an Event of Default or Early Payout Event shall not have occurred and be continuing and (iv) the Insurer shall have given its consent thereto. The Indenture Trustee shall not be deemed to have knowledge of any event or circumstance under clause (iii) of the immediately preceding sentence that would require remittance within two Business Days by the Servicer to the Collection Account unless the Indenture Trustee has received notice of such event or circumstance from the Insurer, the Seller or the Servicer in an Officer's Certificate or from Noteholders whose Notes evidence not less than 25% of the Outstanding Amount of the Voting Notes as of the close of the preceding Distribution Date or unless a Responsible Officer in the Corporate Trust Office with knowledge hereof and familiarity herewith has actual knowledge of such event or circumstance. For purposes of this Article V the phrase "payments by or on behalf of Obligors" shall mean payments made by Persons other than the Servicer. Based upon the amounts set forth in the Servicer's Certificate, the Servicer shall direct the Indenture Trustee to distribute the Available Amount in the Collection Account according to the priority set forth in Section 8.2 of the Indenture. SECTION 5.05. Investment Earnings and Supplemental Servicing Fees. The Servicer shall be entitled to receive all Supplemental Servicing Fees, and, except as otherwise provided in Section 4.07(b) and (c) and Section 5.01(b)(i) hereof, the Certificateholders shall be entitled to receive all Investment Earnings on the Designated Accounts and the Certificate Distribution Account when and as distributed pursuant to the Indenture without any obligation to (a) either Trustee, (b) with respect to the Supplemental Servicing Fees, the Certificateholders or (c) with respect to the Investment Earnings, the Servicer, in respect thereof. SECTION 5.06. Monthly Advances. As of each Accounting Date, if the payments during the related Monthly Period by or on behalf of the Obligor on a Loan (other than an Administrative Loan, a Warranty Loan or a Defaulted Loan) after application under subsection 3.11(a) shall be less than the Scheduled Payment, then the Servicer may, if in its sole discretion it deems the shortfall recoverable, but in either event shall not be obligated to, advance from its own funds any such shortfall (such amounts, a "Monthly Advance"). In addition, the Servicer shall be required to advance amounts as required by the Lockbox Agreement. The Servicer shall receive Monthly Advance Reimbursement Amounts pursuant to Section 8.2 of the Indenture. SECTION 5.07. Additional Deposits. The Servicer shall deposit in any Designated Account the reimbursement amounts for investment losses in excess of investment earnings for the prior Monthly Period, if any, on the Designated Accounts for purposes of restoring such principal balances as were previously held in such Designated Account. Monthly Advances pursuant to 31 Section 5.06 and the proceeds of Administrative Purchase Payments and the Warranty Payments with respect to Administrative Loans and Warranty Loans, respectively, shall be deposited into the Collection Account. All such deposits with respect to a Monthly Period shall be made in immediately available funds two Business Days prior to the Distribution Date related to such Monthly Period. SECTION 5.08. Ambac Policy Proceeds. All proceeds with respect to the Ambac Policy shall be deposited in the Note Distribution Account for distribution to Class A Noteholders as set forth in Section 6.17 of the Indenture. ARTICLE VI THE SELLER; REPRESENTATIONS AND WARRANTIESOF THE SELLER AND THE SERVICER SECTION 6.01. Representations and Warranties of the Seller and the Servicer. The Seller, the Originator and the Servicer, in its capacity as such, each makes the following representations and warranties as to itself on which the Issuer is relying in acquiring the Loans hereunder and issuing the Securities under the other Transfer and Servicing Agreements and for the benefit of the Indenture Trustee, the Insurer and the Noteholders. The following representations and warranties are made severally by each of the Seller, the Originator, and the Servicer (for purposes of this Section 6.01, each, a "Party") and speak as of the Closing Date but shall survive the sale, transfer and assignment of the Loans to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. (a) Representations and Warranties as to each Party. (i) Organization and Good Standing. Such Party has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted, and had at all relevant times, and now has, power, authority and legal right (A) in the case of the Seller, to acquire, own and sell the Loans and (B) in the case of the Servicer, to service the Loans as provided in this Agreement; (ii) Due Qualification. Such Party is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business (including, in the case of the Servicer, the servicing of the Loans as required by this Agreement) requires or shall require such qualification; (iii) Power and Authority. Such Party (A) has the power and authority to execute and deliver the Basic Documents to which it is a party (as used in this Section 6.01(a), the "applicable Basic Documents") and to carry out the respective terms of such agreements, (B) in the case of the Seller, has the power and authority to sell and assign the property to be sold and assigned to and deposited with the Issuer as part of the Owner Trust Estate and has duly authorized such sale and assignment to the Issuer by all necessary limited liability company action, and (C) in the case of the Originator, has the power 32 and authority to sell and assign the property to be sold and assigned to the Seller and has duly authorized such sale and assignment to the Seller by all necessary limited liability company action; and the execution, delivery and performance by such Party of the applicable Basic Documents have been duly authorized by such Party by all necessary limited liability company action; (iv) Binding Obligations. The applicable Basic Documents, when duly executed and delivered, shall constitute a legal, valid and binding obligation of such Party enforceable against such Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law; (v) No Violation. The consummation by such Party of the transactions contemplated by the applicable Basic Documents and the fulfillment of the terms of such agreements by such Party shall not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice or lapse of time) a default under, the limited liability company agreement of such Party, or any indenture, agreement or other instrument to which such Party is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument, other than the applicable Basic Documents, or violate any law or, to such Party's knowledge, any order, rule or regulation applicable to such Party of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over such Party or any of its properties; (vi) No Proceedings. There are no proceedings or, investigations pending or, to such Party's knowledge, threatened before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over such Party or its properties (i) asserting the invalidity of the applicable Basic Documents, any Securities issued pursuant thereto and, in the case of the Seller, the Custodial Agreement or the Administration Agreement, (ii) seeking to prevent the issuance of such Securities or the consummation of any of the transactions contemplated by the applicable Basic Documents, or (iii) seeking any determination or ruling that might materially and adversely affect the performance by such Party of its obligations under, or the validity or enforceability of, such Securities, under the applicable Basic Documents; and (vii) Consents and Approvals. No consent or authorization of, filing with, notice to or other act by or in respect of any Governmental Authority or any other Person is required in connection with the transactions contemplated hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Basic Documents except as to such consents which have already been obtained prior to the Closing Date and filings necessary to perfect the security interests of the Indenture Trustee in the Trust Estate. 33 (b) Representations and Warranties of the Seller Only. (i) Good Title. No Loan has been sold, transferred, assigned or pledged by the Seller to any Person other than the Issuer; immediately prior to the conveyance of the Loans pursuant to this Agreement the Seller had good and marketable title thereto, free of any Lien; and, upon execution and delivery of this Agreement by the Seller, the Issuer shall have all of the right, title and interest of the Seller in, to and under the Purchased Property transferred thereby free of any Lien; (ii) All Filings Made. All filings (including UCC filings) necessary in any jurisdiction to give the Issuer a first priority perfected security or ownership interest in the Owner Trust Estate (other than Exempt Collateral) shall have been made, and the Loans and the Equipment constitute Code Collateral; and (iii) Valid Sale. This Agreement constitutes a valid sale, transfer and assignment of the Purchased Property transferred thereby, enforceable against creditors of and purchasers from the Seller. (iv) Financial Condition. The Seller is solvent and able to pay its debts when due, and is not the subject of any case or proceeding, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, adjustment of debts, winding-up, liquidation, dissolution, composition, receivership, trusteeship, custodianship, or any other proceeding regarding relief of debtors or enforcement of creditors' rights. The Seller shall not take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing cases or proceedings. The Seller is not a defendant in any case, proceeding or other action seeking issuance of a writ or warrant of attachment, execution, distraint or similar process against all or any part of its assets. (v) Place of Business. The principal places of business and chief executive office of the Seller and the offices where it keeps all of its Loan Files (other than those held by the Custodian) is located at Shepard Street, Ripon, WI 54971-0990. (iv) Absence of Event. No event has occurred which materially and adversely affects the Seller's operations or its ability to perform its obligations under the Basic Documents to which it is a party. (c) Representations and Warranties of the Originator Only. (i) Purchase Agreement Representations and Warranties. The representations and warranties of the Originator in Sections 3.01 and 3.02 of the Purchase Agreement are true and correct as of the Closing Date. (ii) Absence of Event. No event has occurred which materially and adversely affects the Originator's operations or its ability to perform its obligations as Originator under the Basic Documents. 34 Representations and Warranties of the Servicer Only. No Servicer Default has occurred and no condition exists which, upon the issuance of the Notes would constitute a Servicer Default. SECTION 6.02. Liability of Seller. The Seller shall be liable in accordance with this Agreement only to the extent of the obligations in this Agreement specifically undertaken by the Seller. SECTION 6.03. Merger or Consolidation of, or Assumption of the Obligations of, Seller; Amendment of Limited Liability Company Agreement. Any entity (i) into which the Seller may be merged or consolidated, (ii) resulting from any merger or consolidation to which the Seller shall be a party, (iii) succeeding to the business of the Seller, or (iv) more than 50% of the voting interests of which is owned directly or indirectly by ALS, which entity in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Seller under this Agreement, shall be the successor to the Seller under this Agreement without the execution or filing of any document or any further act on the part of any of the parties to this Agreement; provided that the Seller shall provide 10 days' prior notice of any merger, consolidation or succession pursuant to this Section 6.03 to the Rating Agencies and obtain the prior written consent of the Insurer. The Seller hereby agrees that during the term of this Agreement it shall not amend the definition of "Independent Manager" or Sections 1.3, 1.4, 1.5, 1.7, 4.1, 4.2, 4.4, 5.1, 5.3, 5.4, 5.5, 6.1, 6.2, 6.3, 9.1 or 9.7 or Schedule 1 of its limited liability agreement without obtaining the prior written consent of the Rating Agencies and the Insurer, so long as the Insurer is the Controlling Party, and the prior written consent of the Holders of Certificates evidencing not less than a majority of the ownership interest in the Trust as of the close of the preceding Distribution Date. SECTION 6.04. Limitation on Liability of Seller and Others. The Seller and any director or officer or employee or agent of the Seller may rely in good faith on the advice of counsel or on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising under this Agreement. The Seller shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its obligations as Seller of the Loans under this Agreement and that in its opinion may involve it in any expense or liability. SECTION 6.05. Seller May Own Securities. Each of the Seller and any Person controlling, controlled by or under common control with the Seller may in its individual or any other capacity become the owner or pledgee of Securities with the same rights as it would have if it were not the Seller or an Affiliate thereof except as otherwise specifically provided herein. Except as otherwise provided herein, Securities so owned by or pledged to the Seller or such controlling or commonly controlled Person shall have an equal and proportionate benefit under the provisions of this Agreement, without preference, priority or distinction as among all of such Securities. 35 SECTION 6.06. Rule 144A. The Seller, the Issuer and the Servicer shall furnish, upon the request of any Noteholder, the Insurer or the Owner Trustee, to the Trust the information required to be delivered under Rule 144A(d)(4) under the 1933 Act if at the time of such request the Issuer or the Seller is not a reporting company under Section 13 or Section 15(d) of the Exchange Act, and any of the Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the 1933 Act at such time. ARTICLE VII LIABILITIES OF SERVICER AND OTHERS SECTION 7.01. Liability of Servicer; Indemnities. (a) The Servicer shall be liable in accordance with this Agreement only to the extent of the obligations in this Agreement specifically undertaken by the Servicer. Such obligations shall include (but are not limited to) the following: (i) The Servicer shall defend, indemnify and hold harmless each Trustee, the Issuer, and the Beneficiaries and the Certificateholders from and against any and all costs, expenses, losses, damages, claims and liabilities arising out of or resulting from claims by third parties (other than parties to the Basic Documents) arising from the servicing of Loans or the use, ownership, repossession (other than losses related to a decline in value of the Equipment repossessed) or operation by the Servicer or any Affiliate thereof of any item of Equipment or other collateral therefor; (ii) The Servicer shall indemnify, defend and hold harmless each Trustee, the Insurer and the Issuer from and against any taxes that may at any time be asserted against any such Person with respect to the transactions contemplated in this Agreement, including any sales, gross receipts, general corporation, tangible personal property, privilege or license taxes (but not including any taxes asserted with respect to, and as of the date of, the sale of the Loans to the Issuer or the issuance and original sale of the Securities, or asserted with respect to ownership of the Loans, or federal or other income taxes arising out of distributions on the Securities, or any fees or other compensation payable to any such Person) and costs and expenses in defending against the same; (iii) The Servicer shall indemnify, defend and hold harmless each Trustee, the Issuer, and the Beneficiaries and the Certificateholders from and against any and all costs, expenses, losses, claims, damages, and liabilities (including, without limitation, reasonable fees and expenses of counsel and expenses of litigation reasonably incurred) to the extent that such cost, expense, loss, claim, damage, or liability arose out of, or was imposed upon such Trustee, the Issuer, or the Beneficiaries and the Certificateholders through the negligence, willful misfeasance or bad faith of the Servicer or any breach or failure by the Servicer in the performance of its duties under this Agreement and any other Basic Documents or by reason of negligent disregard of its obligations and duties or if any of the representations and warranties by the Servicer shall be inaccurate as of the date made under any of the Basic Documents; and 36 (iv) The Servicer (other than the Indenture Trustee in its capacity as successor Servicer pursuant to Section 8.02 hereof) shall indemnify, defend and hold harmless each Trustee and their respective agents, officers, directors and servants, from and against all costs, expenses, losses, claims, damages and liabilities (including, without limitation, reasonable fees and expenses of counsel and expenses of litigation reasonably incurred) arising out of or incurred in connection with (x) in the case of the Owner Trustee, the Indenture Trustee's performance of its duties under the Basic Documents, (y) in the case of the Indenture Trustee, the Owner Trustee's performance of its duties under the Basic Documents or (z) the acceptance, administration or performance by, or action or inaction of, the applicable Trustee of the trusts and duties contained in this Agreement, the Basic Documents, the Indenture (in the case of the Indenture Trustee), including the administration of the Trust Estate, and the Trust Agreement (in the case of the Owner Trustee), including the administration of the Owner Trust Estate, except in each case to the extent that such cost, expense, loss, claim, damage or liability: (A) is due to the willful misfeasance, bad faith or gross negligence of the Person seeking to be indemnified, (B) to the extent otherwise payable to the Indenture Trustee, arises from the Indenture Trustee's breach of any of its representations or warranties in Section 6.13 of the Indenture or (C) to the extent otherwise payable to the Owner Trustee, arises from the Owner Trustee's breach of any of its representations or warranties set forth in Section 6.6 of the Trust Agreement. (b) Indemnification under this Section 7.01 shall survive the resignation or removal of the Owner Trustee or the Indenture Trustee or the termination of this Agreement. If the Servicer has made any indemnity payments pursuant to this Section 7.01 and the recipient thereafter collects any of such amounts from others, the recipient shall promptly repay such amounts collected to the Servicer, without interest. (c) The Servicer shall pay any amounts owing pursuant to Section 7.01 hereof directly to the indemnified Person and such amounts will not be deposited in the Collection Account. (d) Indemnification pursuant to this Section 7.01 will include, without limitation, reasonable fees and expenses of counsel and expenses of litigation reasonably incurred. (e) Notwithstanding the foregoing indemnification obligations, nothing in this Section 7.01 shall be intended by the parties to constitute a guaranty by the Servicer of repayment of the Loans. SECTION 7.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer. Notwithstanding anything in this Agreement to the contrary, without the consent of the Insurer or any other person, (a) the Servicer may consolidate, merge or sell all or substantially all of its assets and (b) any entity (i) into which the Servicer may be merged or consolidated, (ii) resulting from any merger, conversion or consolidation to which the Servicer shall be a party, (iii) succeeding to the business of the Servicer, or (iv) more than 50% of the voting interests of which is owned directly or indirectly by ALS and which is otherwise servicing the Seller's loans, which corporation or other entity in any of the foregoing cases executes an agreement of assumption reasonably satisfactory to the Insurer and Indenture Trustee to perform every obligation of the Servicer under this Agreement shall be the successor to the Servicer under this Agreement 37 without the further execution or filing of any paper or any further act on the part of any of the parties to this Agreement provided that immediately after giving effect thereto, there shall be no Servicer Default and the successor entity's ratings on its senior subordinate unsecured obligations are not less than "B-" by Standard & Poor's and "B3" by Moody's Investors Service and the successor entity satisfies the financial covenants specified in Section 3.07(i) on a pro forma basis (except to the extent such covenants do not apply to the Servicer pursuant to this Agreement). In the event that the requirements in the proviso of the preceding sentence are not satisfied, if the Insurer is the Controlling Party, such transaction shall require the Insurer's written consent, not to be unreasonably withheld. Pursuant to this Section 7.02, the Servicer shall provide the Insurer and the Rating Agencies at least thirty days' prior written notice of any merger, consolidation or succession and a copy of the agreement of assumption in respect of such merger, consolidation or succession, the pro forma financial calculations supporting the successor entity's compliance with the financial covenants specified in Section 3.07(i), if applicable, and such other additional information as the Insurer shall reasonably request. It is understood that nothing in this Section 7.02 shall be construed to limit or otherwise impair the ability of the Seller or any Interested Party to enforce such remedies as are available to them under the Basic Documents. SECTION 7.03. Limitation on Liability of Servicer and Others. Neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Issuer or the Securityholders, except as specifically provided in this Agreement, for any action taken or for refraining from the taking of any action pursuant to the Basic Documents or for errors in judgment; provided, however, that this provision shall not protect the Servicer or any such Person against any liability that would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence (negligence, in the case of the initial Servicer) in the performance of duties or by reason of reckless (negligent, in the case of the initial Servicer) disregard of obligations and duties under the Basic Documents. The Servicer and any director, officer or employee or agent of the Servicer may rely in good faith on the advice of counsel or on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising under this Agreement. [Reserved.] Except as provided in this Agreement, the Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties to service the Loans in accordance with this Agreement and that in its opinion may involve it in any expense or liability; provided, however, that the Servicer may undertake any reasonable action that it may deem necessary or desirable in respect of this Agreement and the rights and duties of the parties to this Agreement and the interests of the Beneficiaries and the Certificateholders under this Agreement and the Beneficiaries and (to the extent expressly provided therein) the Certificateholders under the Indenture and the interests of the Certificateholders under the Trust Agreement. In such event, the reasonable legal expenses and costs for such action and any liability resulting therefrom that is not incidental to its duties to service the Loans in accordance with this Agreement shall be expenses, costs and liabilities of the Issuer and the Servicer shall be entitled to be reimbursed therefor. 38 The Indenture Trustee shall distribute out of the Collection Account on a Distribution Date any amounts permitted for reimbursement pursuant to subsection 7.03(c) which have not been previously reimbursed in accordance with Section 8.2 of the Indenture; provided, however, that the Indenture Trustee shall not distribute such amounts if the amount on deposit in the Reserve Account (after giving effect to all deposits and withdrawals pursuant to Section 8.2 of the Indenture) is greater than zero but less than the Specified Reserve Account Balance for such Distribution Date. SECTION 7.04. Delegation of Duties. So long as ALS acts as Servicer, the Servicer may, at any time without notice or consent, delegate any duties under this Agreement to any other entity more than 50% of the voting stock of which is owned, directly or indirectly, by ALS. The Servicer may at any time perform specific duties as Servicer through sub-contractors who are in the business of servicing stand alone commercial laundry equipment loans; provided, however, that (i) Servicer shall not delegate to any such sub-contractor any material portion of such servicing duties without Insurer consent if the Insurer is the Controlling Party, and (ii) no such delegation shall relieve the Servicer of its responsibility with respect to such duties. SECTION 7.05. Servicer Not to Resign. Subject to the provisions of Section 8.02, the Servicer shall not resign from the obligations and duties imposed on it by this Agreement as Servicer without the consent of the Controlling Party, except upon determination that the performance of its duties under this Agreement is no longer permissible under applicable law. Any such determination permitting the resignation of the Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to each Trustee and the Insurer and the Rating Agencies (with a copy to the Initial Purchaser). No such resignation shall become effective until the Indenture Trustee or a successor Servicer acceptable to the Insurer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 8.02. ARTICLE VIII DEFAULT SECTION 8.01. Servicer Defaults. Each of the following shall constitute a "Servicer Default": (a) any failure by the Servicer to deliver to the Indenture Trustee for deposit in any of the Designated Accounts or the Lockbox Account or to the Owner Trustee for deposit in the Certificate Distribution Account any required payment or to direct the Indenture Trustee to make any required distributions therefrom, which failure continues unremedied for a period of three Business Days after the date when due. (b) failure on the part of the Seller or the Servicer to duly observe or perform any other covenants or agreements of the Seller or the Servicer set forth in the Purchase Agreement, this Agreement or any of the other Basic Documents which failure (i) materially and adversely affects the rights of the Beneficiaries or the Certificateholders, and (ii) continues unremedied for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller or the Servicer, as applicable, by the Indenture 39 Trustee, if the Insurer is the Controlling Party, at the direction of the Insurer, or to the Seller or the Servicer, as applicable, and to either Trustee by the Controlling Party; (c) the entry of a decree or order by a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator, receiver, liquidator or similar official for the Seller or the Servicer, in any bankruptcy, insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding up or liquidation of their respective affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (d) the consent by the Seller or the Servicer to the appointment of a conservator or receiver, liquidator or similar official in any bankruptcy, insolvency, readjustment of debt, marshaling of assets and liabilities, or similar proceedings of or relating to the Seller or the Servicer or of or relating to substantially all of their respective property; or the Seller or the Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable bankruptcy, insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; (e) the failure to distribute a Monthly Report (or a Servicer's Certificate in lieu of such Monthly Report) pursuant to the terms of Section 4.09 within one Business Day after the related Determination Date; (f) any assignment of rights or delegation of duties by the Servicer in violation of this Agreement; (g) any material adverse change in the properties, business or condition (financial or otherwise) of the Servicer or the existence of any other condition which, in each case, constitutes, or if the Insurer is the Controlling Party, in the sole discretion of the Insurer constitutes, a material impairment of the Servicer's ability to perform its obligations under this Agreement; provided that a change in the value of any Loan shall not result in an Event of Default under this subsection (g); (h) the first to occur of (i) an event of default by the Servicer or its Affiliate, as applicable, in the performance of any term, provision or condition of any indebtedness for borrowed money in excess of $5,000,000, which event of default other than a payment default is neither waived pursuant to an unconditional waiver nor cured within 60 days (inclusive of any cure period or other period of grace) as of the date upon which such event of default occurs or (ii) the acceleration of any such indebtedness as a result of an event of default, such that any indebtedness due thereunder is due prior to its stated maturity; or any such indebtedness shall be declared to be due and payable prior to the date of maturity thereof or shall be unpaid on its maturity date; (i) a final judgment or judgments for the payment of money in excess of $5,000,000.00 in the aggregate against the Servicer and the same shall not be discharged (or provisions made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within sixty days from the date of entry thereof and the Servicer shall not, within said period of sixty days, or 40 within such longer period during which execution of the same shall have been stayed or bonded, appeal therefrom and cause the execution thereof to be stayed during such appeal; (j) if ALS is the Servicer, the breach by the Servicer of one or both of the covenants set forth in Section 3.07(i); (k) the breach in any material respect by the Servicer of any representation or warranty made by the Servicer under this Agreement or any of the Basic Documents; (l) if ALS is the Servicer, the Servicer's senior secured obligations are downgraded by Moody's Investors Service to ratings below B1 or by Standard & Poor's Ratings Services to ratings below B+, or (ii) the Servicer's senior subordinate unsecured obligations are downgraded by Moody's Investors Service to ratings below B3 or by Standard & Poor's Ratings Services to ratings below B-; (m) the occurrence of a Servicer Default Trigger; or (n) the occurrence of a Cumulative Trigger. SECTION 8.02. Consequences of a Servicer Default. If a Servicer Default shall occur and be continuing (and has not been waived in writing by the Controlling Party), the Controlling Party by notice then given in writing to the Servicer and the Owner Trustee (and to the Indenture Trustee if given by the Securityholders) may, in addition to other rights and remedies available in a court of law or equity to damages, injunctive relief and specific performance, elect to waive such Servicer Default or direct the Indenture Trustee to terminate all of the rights and obligations of the Servicer as Servicer under this Agreement (provided that a termination shall occur without notice upon a Servicer Default under Section 8.01(c) or (d)). On or after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Securities or the Loans or otherwise, shall pass to and be vested in the Indenture Trustee and any successor Servicer pursuant to and under Section 8.03. The Indenture Trustee and any 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 and endorsement of the Loans and related documents, or otherwise. The predecessor Servicer agrees to cooperate with the Indenture Trustee and any successor Servicer in effecting the termination of the responsibilities and rights of the Servicer under this Agreement, including the transfer to either Trustee for administration by it of all cash amounts that shall at the time be held by the Servicer for deposit, or that shall have been deposited by the Servicer in the Lockbox Account, the Collection Account, the Reserve Account, the Note Distribution Account or the Certificate Distribution Account or thereafter received with respect to the Loans that shall at that time be held by the Servicer, and will provide the Indenture Trustee and any successor Servicer reasonable access to the servicing systems and records with respect to the Loans. In addition to any other amounts that are then payable to the predecessor Servicer under this Agreement, the predecessor Servicer shall be entitled to receive from the successor Servicer the portions of any Monthly Advance Reimbursement Amount which relates to any Monthly Advance made by the terminated Servicer. To assist the successor 41 Servicer in enforcing all rights under the Loans, the predecessor Servicer, at its own expense, shall transfer its electronic records relating to such Loans to the successor Servicer in such electronic form as is then-maintained by the predecessor Servicer in the ordinary course of its business and shall transfer the related Loan Files and all other records, correspondence and documents relating to the Loans that it may possess to the successor Servicer in the manner and at such times as the successor Servicer shall reasonably request. Following the occurrence of a Servicer Default, but without limiting the rights of the Indenture Trustee or the Controlling Party under any other provisions of the Basic Documents, the Controlling Party may direct the Indenture Trustee to conduct a review of the Servicer's cash application procedures with respect to Collections on the Loans, including, without limitation, transfers from the Lockbox Account to the Collection Account, and the Indenture Trustee hereby agrees to conduct such review, or cause a third party to conduct such review, at the expense of the Servicer, on such basis as the Controlling Party shall reasonably determine. SECTION 8.03. Indenture Trustee to Act; Appointment of Successor. On and -------------------------------------------------- after the time the Servicer receives a notice of termination pursuant to Section 8.02 unless and until the Controlling Party has designated a successor Servicer, which has accepted such appointment, the Indenture Trustee 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 in this Agreement, and shall be subject to all the responsibilities, restrictions, duties and liabilities relating thereto placed on the Servicer by the terms and provisions of this Agreement; provided, however, that the predecessor Servicer shall remain liable for, and the successor Servicer shall have no liability for, any indemnification obligations of the Servicer arising as a result of acts, omissions or occurrences during the period in which the predecessor Servicer was the Servicer; and provided, further, that ALS shall remain liable for all such indemnification obligations of the Servicer without regard to whether it is still Servicer hereunder. As compensation therefor, the Indenture Trustee or a successor Servicer designated by the Controlling Party shall be entitled to reimbursement of costs and expenses incurred in the transfer and conversion of the electronic records relating to the Loans received from the predecessor Servicer, together with such compensation (whether payable out of the Collection Account or otherwise) as the Servicer would have been entitled to under this Agreement if no such notice of termination had been given including, but not limited to, the Total Servicing Fee and Supplemental Servicing Fees. In the event the Indenture Trustee becomes the successor Servicer, it hereby reserves the right to terminate any then-existing sub-servicing agreements as may be entered into pursuant to Section 7.04 hereof. Notwithstanding the above, the Indenture Trustee may, if it shall be unwilling so to act, or shall, if it is legally unable so to act, appoint, or petition a court of competent jurisdiction to appoint, a successor (i) having a net worth of not less than $10,000,000, (ii) acceptable to the Insurer and (iii) whose regular business includes the servicing of equipment loans, as the successor to the Servicer under this Agreement in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer under this Agreement. In connection with such appointment and assumption, the Indenture Trustee may make such arrangements for the compensation of such successor out of payments on Loans as it and such successor shall agree, subject to the consent of the Insurer if the Insurer is the Controlling Party; provided, that if a successor Servicer is appointed and assumes the duties of successor Servicer hereunder, the Basic Servicing Fee Rate used to calculate the Basic Servicing Fee payable to the successor Servicer shall be a rate agreed upon by such successor Servicer and the person or group appointing it hereunder but not in excess of 1.0% unless the Rating Agency Condition has been satisfied. The Indenture Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. So long as the Insurer is the Controlling Party, unless the Controlling Party shall otherwise consent, no removal or resignation of the Servicer shall (other than under Section 8.02(a) with respect to a Servicer Default under Section 8.01(c) or (d)) become effective until the Indenture Trustee, the Back-up Servicer under Section 3.14 or another successor Servicer acceptable to the Insurer shall have assumed the Servicer's responsibilities and obligations in accordance with this Section 8.03. SECTION 8.04. Notification to the Beneficiaries and the Certificateholders. ------------------------------------------------------------ Upon any termination of, or appointment of a successor to, the Servicer pursuant to this Article VIII, the Indenture Trustee shall give prompt written notice thereof to the Noteholders, the Insurer and the Rating Agencies (with a copy to the Initial Purchaser), and the Owner Trustee shall give prompt written notice thereof to the Certificateholders. SECTION 8.05. Waiver of Past Defaults. The Controlling Party may, on ----------------------- behalf of all Beneficiaries and the Certificateholders, waive any default by the Servicer in the performance of its obligations hereunder and its consequences, including a default in making any required deposits to or payments from any of the accounts in accordance with this Agreement. Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Default arising 42 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. SECTION 8.06. Effects of Termination or Resignation of Servicer. ------------------------------------------------- Upon the appointment of the successor Servicer, the predecessor Servicer shall immediately remit any Scheduled Payments, Liquidation Proceeds or other payments that it may receive pursuant to any Loan or otherwise to the successor Servicer for the benefit of the Issuer after such date of appointment. After the termination of the Servicer pursuant to Section 8.02 or resignation pursuant to Section 7.05 (except as otherwise provided in Section 7.05 or 8.03), the predecessor Servicer shall have no further rights or obligations with respect to the management or servicing of the Trust Estate or the enforcement, custody or collection of the Loans, and the successor Servicer shall have all of such obligations, except that the predecessor Servicer will transmit or cause to be transmitted directly to the successor Servicer for the benefit of the Noteholders and the Insurer, promptly upon receipt and in the same form in which received, any amounts held by the predecessor Servicer (properly endorsed where required for the successor Servicer to collect them) received as payments upon or otherwise in connection with the Loans. The predecessor Servicer's indemnification obligations pursuant to Section 7.01 hereof will survive the termination or resignation of the predecessor Servicer but will not extend to any acts or omissions of a successor Servicer. 43 ARTICLE IX TERMINATION; REDEMPTION SECTION 9.01. Optional Purchase of All Loans. On the last day of any Monthly Period as of which the Aggregate Loan Balance of the Loans held by the Trust is 10% or less of the Aggregate Initial Loan Balance, the Servicer shall have the option, but not the obligation, to purchase the Trust Estate at a price equal to the aggregate Administrative Purchase Payments for all Loans (including Defaulted Loans) plus the appraised value of any other property held by the Trust (less the Liquidation Expenses to be incurred in connection with the recovery thereof), such value to be determined by an appraiser mutually agreed upon by the Servicer, each Trustee and, if the Insurer is the Controlling Party, the Insurer (the "Optional Purchase Price"); provided, however, that the Servicer may not exercise its option if the Optional Purchase Price would be less than the sum of (i) the Redemption Price of the Notes, (ii) all administrative expenses, operating costs and amounts to third parties due as of such Distribution Date and (iii) all Reimbursement Amounts due to the Insurer, if any. In the event the Servicer elects to exercise its option, the Issuer shall redeem the Notes in accordance with this Section 9.01 effective as of such date of purchase. The Issuer shall be required to notify the Indenture Trustee and the Insurer in writing by no later than five (5) Business Days prior to a notice required to be sent by the Indenture Trustee pursuant to Section 10.1(a) of the Indenture. To exercise such option, the Servicer shall deposit in the Collection Account an amount equal to the Optional Purchase Price. Thereupon subject to the provisions in the Indenture regarding discharge of Trust Estate, including return of the Ambac Policy, the Servicer shall succeed to all interests in and to the property of the Trust (other than the Designated Accounts and the Certificate Distribution Account). SECTION 9.02. Termination of the Agreement. Unless otherwise agreed by the Seller, the Servicer, the Issuer and the Beneficiaries and the Certificateholders, this Agreement shall terminate upon termination of the Indenture and the Servicer shall give the Owner Trustee prompt notice of such termination; provided that the Notes and all other amounts due to third parties referred to in Section 9.01 have been paid in full, and all amounts due to the Insurer have been paid and the Ambac Policy has been returned. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.01. Amendment. This Agreement may be amended by the Seller, the Servicer and the Issuer with the consent of the Indenture Trustee and, so long as the Insurer is the Controlling Party, the consent of the Insurer, but without the consent of any of the Securityholders, (i) to cure any ambiguity, (ii) to correct or supplement any provision in this Agreement that may be defective or inconsistent with any other provision in this Agreement or any other Basic Document, (iii) add to the covenants, restrictions or obligations of the Seller, the Servicer, the Insurer or either Trustee or (iv) add, change or eliminate any other provision of this Agreement in any manner that shall not, as evidenced by an Officer's Certificate, adversely affect in any material respect the interests of the Securityholders. 44 Notwithstanding paragraph (a), this Agreement may also be amended from time to time by the Seller, the Servicer and the Issuer with the consent of the Controlling Party for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the rights of the Securityholders, and any provisions hereof may be waived with the consent of the Controlling Party except that no amendment may be made to this Agreement which would be prohibited under the proviso of Section 9.2 of the Indenture if such amendment were to be made to the Indenture unless the consent that would have been required as described therein, if such amendment were to be made to the Indenture, shall have been obtained. Prior to the execution of any such amendment or consent, the Indenture Trustee shall furnish written notification of the substance of such amendment or consent to the Rating Agencies and the Insurer. Promptly after the execution of any such amendment or consent, the Owner Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder, the Insurer and the Indenture Trustee shall furnish written notification to each Noteholder. It shall not be necessary for the consent of the Securityholders pursuant to subsection 10.01(b) to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof but it shall be necessary to obtain the consent of the Insurer. The manner of obtaining such consents of the Securityholders (and any other consents of the Securityholders provided for in this Agreement) and of evidencing the authorization of the execution thereof by the Securityholders shall be subject to such reasonable requirements as either Trustee may prescribe, including the establishment of record dates pursuant to paragraph number 2 of the Note Depository Agreement. The Owner Trustee may, but shall not be obligated to, enter into any such amendment which affects the Owner Trustee's own rights, duties or immunities under this Agreement or otherwise. The Indenture Trustee may, but shall not be obligated to, execute and deliver any such amendment which affects the Indenture Trustee's rights, duties or immunities under this Agreement or otherwise. Each of ALS and the Seller agrees that such Person shall not amend or agree to any amendment of the Purchase Agreement unless such amendment would be permissible under the terms of this Section 10.01 as if this Section 10.01 were contained in the Purchase Agreement and, if the Insurer is the Controlling Party, with the consent of the Insurer. 45 SECTION 10.02. Protection of Title to Owner Trust Estate. The Seller or the Servicer or both shall execute and file such financing statements and cause to be executed and filed such continuation and other statements, all in such manner and in such places as may be required by law fully to preserve, maintain and protect the interest of the Beneficiaries, the Certificateholders and the Trustees under this Agreement in the Loans. The Seller or the Servicer or both shall deliver (or cause to be delivered) to each Trustee and the Insurer file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. Neither the Seller nor the Servicer shall change its name, identity or corporate structure in any manner that would, could or might make any financing statement or continuation statement filed in accordance with paragraph (a) above seriously misleading within the meaning of Section 9-402(7) of the UCC, unless it shall have given each Trustee and the Insurer at least 60 days prior written notice thereof and shall have taken all such actions as may be reasonably requested by the Trustees or the Insurer or necessary to maintain the perfection and priority of such Liens of the Trustees. Each of the Seller and the Servicer shall give each Trustee and the Insurer at least 60 days prior written notice of any relocation of its principal executive office if, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement. The Servicer shall at all times maintain each office from which it services Loans and its principal executive office within the United States of America. The Servicer shall maintain accounts and records as to each Loan accurately and in sufficient detail to permit (i) the reader thereof to know at any time the status of such Loan, including payments and recoveries made and payments owing (and the nature of each) and extensions of any scheduled payments made not less than 45 days prior thereto, and (ii) reconciliation between payments or recoveries on (or with respect to) each Loan and the amounts from time to time deposited in the Lockbox Account, the Collection Account, the Note Distribution Account and the Certificate Distribution Account. The Servicer shall maintain its computer systems so that, from and after the time of sale under this Agreement of the Loans to the Issuer, the Servicer's master computer records (including any back-up archives) that refer to any Loan indicate clearly that the Loan is owned by the Issuer. Indication of the Issuer's ownership of a Loan shall be deleted from or modified on the Servicer's computer systems when, and only when, the Loan has been paid in full, liquidated or repurchased by the Seller or purchased by the Servicer. If at any time the Seller or the Servicer proposes to sell, grant a security interest in, or otherwise transfer any interest in stand-alone commercial laundry equipment loans to any prospective purchaser, lender or other transferee, the Servicer shall give to such prospective purchaser, lender or other transferee computer tapes, records or print-outs (including any restored from back-up archives) that, if they refer in any manner whatsoever to any Loan, indicate clearly that such Loan has been sold and is owned by the Issuer unless such Loan has been paid in full, liquidated or repurchased by the Seller or purchased by the Servicer. 46 The Servicer shall permit each Trustee and the Insurer and their respective agents (at such Person's cost and expense except to the extent such costs and expenses shall be required to be paid by ALS or its Affiliates pursuant to the Basic Documents) at any time during normal business hours and upon reasonable advance notice to inspect, audit and make copies of and abstracts from the Servicer's records regarding any Loans then or previously included in the Owner Trust Estate. The Servicer shall furnish to each Trustee and the Insurer at any time upon request a list of all Loans then held as part of the Trust including any then-existing amendments, substitutions or replacements thereto, together with a reconciliation of such list to the Schedule of Loans and to each of the Servicer's Certificates furnished before such request indicating removal of Loans from the Trust. Upon request, the Servicer shall furnish a copy of any such list to the Seller. Each Trustee and the Seller shall hold any such list and the Schedule of Loans for examination by interested parties during normal business hours at their respective offices located at the addresses set forth in Section 10.03. SECTION 10.03. Notices. All demands, notices and communications upon or to the Seller, the Servicer, either Trustee, the Insurer, the Rating Agencies or the Initial Purchaser under this Agreement shall be delivered as specified in Appendix B hereto. SECTION 10.04. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without giving effect to any choice of law or conflict provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York; provided, however that the duties and immunities of the Owner Trustee hereunder shall be governed by the laws of the State of Delaware. SECTION 10.05. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Securities or the rights of the holders thereof. SECTION 10.06. Assignment. Notwithstanding anything to the contrary contained in this Agreement, this Agreement may not be assigned by the Seller without the prior written consent of the Controlling Party. The Seller shall provide notice of any such assignment to the Rating Agencies and the Insurer (with a copy to the Initial Purchaser). Notwithstanding anything to the contrary contained in this Agreement, this Agreement may not be assigned by the Servicer without the prior written consent of the Controlling Party other than as permitted by Section 7.02. The Servicer shall provide notice of 47 any such assignment to the Rating Agencies and the Insurer (with a copy to the Initial Purchaser). SECTION 10.07. Third-Party Beneficiaries. The Insurer and its successors and assigns shall be third-party beneficiaries to the provisions of this Pooling and Servicing Agreement, as it may be supplemented or amended, and shall be entitled to rely upon and directly to enforce the provisions of this Pooling and Servicing Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto, the Beneficiaries and the Certificateholders and the Trustees and their respective successors and permitted assigns. Except as otherwise provided in Section 7.01 or in this Article X, no other Person shall have any right or obligation hereunder. SECTION 10.08. Separate Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 10.09. Headings and Cross-References. The various headings in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. SECTION 10.10. Assignment to Indenture Trustee. The Seller hereby acknowledges and consents to any mortgage, pledge, assignment and grant of a security interest by the Issuer to the Indenture Trustee pursuant to the Indenture for the benefit of the Noteholders, the Insurer and (only to the extent expressly provided therein) the Certificateholders of all right, title and interest of the Issuer in, to and under the Purchased Property and/or the assignment of any or all of the Issuer's rights and obligations hereunder to the Indenture Trustee. SECTION 10.11. No Petition Covenants. Notwithstanding any prior termination of this Agreement, the Servicer and the Seller shall not, prior to the date which is one year and one day after the final distribution with respect to the Notes, acquiesce, petition or otherwise invoke or cause the Seller or the Issuer to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Seller or the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or the Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller or the Issuer. SECTION 10.12. Limitation of Liability of the Trustees. Notwithstanding anything contained herein to the contrary, this Agreement has been acknowledged and accepted by The Bank of New York not in its individual capacity but solely as Indenture Trustee and in no event shall The Bank of New York have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement in performance of its rights and duties hereunder, the Indenture Trustee shall be entitled to the benefits of Article VI of the Indenture. 48 Notwithstanding anything contained herein to the contrary, this Agreement has been executed by Wilmington Trust Company not in its individual capacity but solely in its capacity as Owner Trustee of the Issuer and in no event shall Wilmington Trust Company in its individual capacity or, except as expressly provided in the Trust Agreement, as Owner Trustee of the Issuer have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement, in the performance of its duties or obligations hereunder or in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Article VI of the Trust Agreement. SECTION 10.13. Survival of Agreement. All covenants, agreements, representations and warranties made herein, the Basic Documents and in the other agreements delivered pursuant hereto shall survive the pledge of the Trust Estate and the issuance of the Notes and shall continue in full force and effect until payments in full of the Notes and all amounts owing to the Indenture Trustee and the Insurer hereunder and under the Basic Documents, as applicable and return of the Ambac Policy. * * * * * 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee on behalf of the Trust By:__________________________________ Name: Title: ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC, as Seller By:__________________________________ Name: Title: ALLIANCE LAUNDRY SYSTEMS LLC, as Servicer and Originator By:__________________________________ Name: Title: Acknowledged and Agreed: THE BANK OF NEW YORK, not in its individual capacity but solely as Indenture Trustee By: _________________________________ Name: Title: 50 APPENDIX A PART I - DEFINITIONS All terms defined in this Appendix shall have the defined meanings when used in the Basic Documents, unless otherwise defined therein. Accountants' Report: As defined in Section 4.02 of the Pooling and Servicing Agreement. Accounting Date: With respect to a Distribution Date, the last day of the related Monthly Period, or, with respect to the Distribution Date, if any, that occurs in the same calendar month as the Closing Date, the close of business on the Closing Date. Act: An Act as specified in Section 11.3(a) of the Indenture. Administration Agreement: That certain Administration Agreement, dated as of November 28, 2000 among ALS, as Administrator, the Trust and the Indenture Trustee, as amended and supplemented from time to time. Administrative Loan: A Loan which the Servicer is required to purchase as of an Accounting Date pursuant to Section 3.08 of the Pooling and Servicing Agreement or which the Servicer has elected to repurchase as of an Accounting Date pursuant to Section 9.01 of the Pooling and Servicing Agreement. Administrative Purchase Payment: With respect to a Distribution Date and to an Administrative Loan purchased as of the related Accounting Date, the sum of (i) the Loan Balance of such Loan, (ii) the interest portion of all due and past due and unpaid Scheduled Payments and (iii) any other amounts due and owing on such Loan. Administrator: ALS or any successor Administrator under the Administration Agreement. Affiliate: With respect to any specified Person, any other Person controlling, 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. Agency Office: Harris Trust Company, 58 Pine Street, 19th Floor, Wall Street Plaza, New York, New York. Aggregate Initial Loan Balance: The sum of the Initial Loan Balances of the Loans as of the Initial Cutoff Date, which is $137,846,035.17. 1 Aggregate Loan Balance: The sum of the Loan Balances of all outstanding Loans (other than Defaulted Loans) held by the Trust, Pool 1 or Pool 2, as applicable, as of any date. Aggregate Losses: With respect to a Pool, a Monthly Period and the related Distribution Date, the aggregate of the Loan Balances of all Loans in that Pool newly designated during such Monthly Period as Defaulted Loans minus Liquidation Proceeds collected during such Monthly Period with respect to all Defaulted Loans of that Pool. Aggregate Note Principal Balance: With respect to the close of a Distribution Date, the sum of the Note Principal Balances for all classes of Notes. ALER: Alliance Laundry Equipment Receivables LLC, a Delaware limited liability company. ALS: Alliance Laundry Systems LLC, a Delaware limited liability company. ALS's Rewards Program: An interest rate reduction or deferral program sponsored by ALS for the benefit of certain Obligors, as described in the Finance Bulletin published by ALS, a true and complete copy of which has been provided to the Insurer. Ambac Insurance Agreement: An insurance and indemnity agreement dated as of November 28, 2000 among the Indenture Trustee, ALS, the Seller, the Issuer and the Insurer. Ambac Policy: A financial guarantee insurance policy (including any endorsements thereto) issued by Insurer with respect to each Series of the Class A Notes in favor of the Indenture Trustee for the benefit of the holders of the Class A Notes, which guarantees the payment of the Insured Payments on the Class A Notes. Annual Percentage Rate: With respect to a Loan, the annual rate of finance charges stated in such Loan. Applicable Trustee: So long as the Aggregate Note Principal Balance or the Reimbursement Amount is greater than zero and the Indenture has not been discharged in accordance with its terms, the Indenture Trustee, and thereafter, the Owner Trustee. Asset Rate: With respect to any Distribution Date, the Weighted Average Annual Percentage Rate of the Loans in Pool 2 as of the first Business Day of the prior Monthly Period minus the sum of (a) the Basic Servicing Fee Rate and (b) the Effective Insurance Premium Rate. Assignment: Any Initial Assignment or Subsequent Assignment. Authorized Officer: With respect to the Issuer, any officer of the Owner Trustee who is authorized to act for the Owner Trustee in matters relating to the Issuer and who is identified on the list of Authorized Officers delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter) and, so long as the Administration Agreement is in effect, any Vice President or more senior officer of the Administrator who is 2 authorized to act for the Administrator in matters relating to the Issuer and to be acted upon by the Administrator pursuant to the Administration Agreement and who is identified on the list of Authorized Officers delivered by the Administrator to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter). Available Amount: With respect to each Pool and for any Distribution Date, with respect to the related Monthly Period, or with respect to the first Distribution Date, the period from and including the Initial Cutoff Date to the last day of the related Monthly Period, the sum of without duplication (1) that portion of all Collections on the Loans in the related Pool held by the Trust, (2) all Liquidation Proceeds, Insurance Proceeds, proceeds from casualty loss, Guarantees and early termination charges to the extent received by the Trust for the related Pool, (3) all Monthly Advances made by the Servicer on the Loans of the related Pool other than to the Lockbox Bank, (4) the Warranty Payment, the Administrative Purchase Payment or the Optional Purchase Price of each Loan of the related Pool that the Seller or Originator repurchased or the Servicer purchased during such related Monthly Period, (5) any Prepayments with respect to Loans of the related Pool (to the extent not used to purchase Replacement Loans) and (6) if the Notes have been accelerated as a result of an Event of Default or an Early Payout Event shall have occurred and is continuing, any amounts available from the Reserve Account pursuant to Section 4.07(b) of the Pooling and Servicing Agreement and any Investment Earnings other than those retained in the Reserve Account pursuant to Section 4.07 of the Pooling and Servicing Agreement. Back-up Servicer: The entity designated as such pursuant to Section 3.14 of the Pooling and Servicing Agreement. Back-up Servicing Agreement: The Back-up Servicing Agreement, dated as of November 28, 2000, among the Servicer, the Issuer, the Indenture Trustee and BNY Asset Solutions LLC. Balloon Loan: Any Loan for which the principal portion of the final Scheduled Payment for such Loan exceeds the principal amount of the Scheduled Payment for the prior month. Balloon Loan Ratio: For a Pool, the result of the aggregate Loan Balance of all Balloon Loans or Combined Loans in such Pool divided by the aggregate Loan Balance of all Loans or Combined Loans (in each case, including Balloon Loans) in such Pool. Basic Documents: The Certificate of Trust, the Trust Agreement, the Purchase Agreement, the Pooling and Servicing Agreement, any Assignment, the Custodial Agreement, the Administration Agreement, the Indenture, the Note Depository Agreement, the Ambac Policy, the Ambac Insurance Agreement, the LLC Agreement, the Certificate of Formation of the Seller, the Lockbox Agreement and the other documents and certificates delivered in connection therewith. Basic Servicing Fee: With respect to a Monthly Period, the fee payable to the Servicer for services rendered during such Monthly Period, which shall be equal to one-twelfth of the Basic Servicing Fee Rate multiplied by the Aggregate Loan Balance as of the first day of such Monthly Period or for the first Monthly Period, as of the Closing Date (pro rated in the case of the first Monthly Period for the number of days in such Monthly Period and multiplied by the Aggregate Loan Balance of all Loans held by the Trust in such Pool as of the Closing Date). 3 Basic Servicing Fee Rate: 1.0% per annum or such other amount established pursuant to Section 8.03 of the Pooling and Servicing Agreement with respect to fees payable to the Servicer or any subsequent servicer. Beneficiaries: The Noteholders and the Insurer. Benefit Plan Investor: As defined in Section 2.15 of the Indenture. Book-Entry Notes: A beneficial interest in the Notes, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 2.10 of the Indenture. Business Day: Any day other than a Saturday, a Sunday or any other day on which banking institutions in New York, New York or Chicago, Illinois or, if a successor Servicer shall have been appointed, the location of the successor Servicer's principal place of business may, or are required to, remain closed. Business Trust Statute: Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from time to time. Carryover Amount: Collectively, the Class A-2 Carryover Amount and the Class B-2 Carryover Amount. Certificate: Any one of the certificates executed by the Owner Trustee and authenticated by or on behalf of the Owner Trustee in substantially the form set forth in Exhibit A to the Trust Agreement. Certificate Distribution Account: The account designated as such, established and maintained pursuant to Section 5.1(a) of the Trust Agreement. Certificate of Formation: The certificate of formation of the Seller to be filed for the Seller pursuant to and in accordance with the Delaware Limited Liability Company Act. Certificate of Trust: The certificate of trust of the Issuer substantially in the form of Exhibit B to the Trust Agreement to be filed for the Trust pursuant to Section 3810(a) of the Business Trust Statute. Certificate Register: The register of Certificates specified in Section 3.4 of the Trust Agreement. Certificate Registrar: The registrar at any time of the Certificate Register, appointed pursuant to Section 3.4(a) of the Trust Agreement. Certificateholder: A Holder of a Certificate. Certificateholders' Distributable Amount: Amounts withdrawn from the Reserve Account that are deposited into the Collection Account pursuant to Section 4.07(b) of the Pooling and 4 Servicing Agreement for distribution to the Certificateholders and, subject to the limitations in Section 5.05 of the Pooling and Servicing Agreement, all Investment Earnings on the Designated Accounts. Class A Noteholders' Interest Distributable Amount: With respect to the Class A Notes of each Series and for any Distribution Date, the sum of (1) the Class A Noteholders' Monthly Interest Distributable Amount for the Class A Notes of that Series for such Distribution Date and (2) the Class A Noteholders' Interest Shortfall for the Class A Notes of that Series as of the preceding Distribution Date. Class A Noteholders' Interest Shortfall: With respect to the Class A Notes of each Series, as of the close of business on any Distribution Date, the excess, if any, of the Class A Noteholders' Interest Distributable Amount for the Class A Notes of that Series for such Distribution Date over the amount that was actually deposited in the Note Distribution Account for such Distribution Date in respect of interest on the Class A Notes of that Series. Class A Noteholders' Monthly Interest Distributable Amount: (a) With respect to the Class A-1 Notes and any Distribution Date, the product of (1) the outstanding principal balance of the Class A-1 Notes on the preceding Distribution Date after giving effect to all payments of principal in respect of the Class A-1 Notes on such preceding Distribution Date (or, in the case of the first Distribution Date, the outstanding principal balance on the Closing Date) and (2) the product of the Interest Rate for the Class A-1 Notes and a fraction, the numerator of which is 30 (or in the case of the first Distribution Date, the number of days from and including the Closing Date to but excluding such Distribution Date based on a 30 day month), and the denominator of which is 360, and (b) with respect to the Class A-2 Notes and any Distribution Date, the product of (1) the outstanding principal balance of the Class A-2 Notes on the preceding Distribution Date after giving effect to all payments of principal in respect of the Class A-2 Notes on such preceding Distribution Date (or, in the case of the first Distribution Date, the outstanding principal balance on the Closing Date) and (2) the product of the Interest Rate for the Class A-2 Notes and a fraction, the numerator of which is the actual number of days from and including the most recent Distribution Date (or, in the case of the first Distribution Date, the actual number of days from and including the Closing Date) to but excluding such Distribution Date, and the denominator of which is 360 (it being understood that in no event shall Class A Noteholders' Monthly Interest Distributable Amount include any Class A-2 Carryover Amount). Class A Noteholders' Monthly Principal Distributable Amount: With respect to the Class A Notes for each Series and (a) for any Distribution Date on or prior to the Final Scheduled Distribution Date for the Class A Notes of that Series, the sum of (1) 90% (100% if an Early Payout Event has occurred and is continuing or the Notes have been accelerated and 0% after the principal balance of the Class A Notes of that Series has been reduced to zero) of the Principal Distributable Amount for the related Pool for such Distribution Date and (2) on the Final Scheduled Distribution Date for the Class A Notes of that Series, the amount necessary to reduce the outstanding principal balance of the Class A Notes of that Series to zero, and (b) after the Final Scheduled Distribution Date for the Class A Notes of that Series, zero. Class A Noteholders' Principal Distributable Amount: With respect to the Class A Notes of each Series for any Distribution Date, the sum of (1) the Class A Noteholders' Monthly Principal Distributable Amount for the Class A Notes of that Series for such Distribution Date 5 and (2) the Class A Noteholders' Principal Shortfall for the Class A Notes of that Series for the immediately preceding Distribution Date; provided, however, on and after the Final Scheduled Distribution Date for the Class A Notes and on any date on or after the Notes have been declared due and payable following the occurrence of an Event of Default, the outstanding principal balance of such Series of Class A Notes, but in any event no more than the amount necessary to reduce the outstanding principal balance of such Series of Class A Notes to zero. Class A Noteholders' Principal Shortfall: With respect to the Class A Notes for each Series and for any Distribution Date, the excess, if any, of the Class A Noteholders' Principal Distributable Amount for such Distribution Date over the amount actually deposited in the Note Distribution Account for such Distribution Date in respect of principal for the Class A Notes of that Series. Class A Notes: Collectively, the Class A-1 Notes and the Class A-2 Notes. Class A-1 Notes: The Class A-1 7.09% Equipment Loan Backed Notes. Class A-2 Carryover Amount: The excess, including the unpaid portion of any excess from prior Distribution Dates plus interest thereon calculated on the basis of the Interest Rate (without giving effect to the Asset Rate), if the Interest Rate for the Class A-2 Notes for any Distribution Date is calculated based on the Asset Rate, of (a) the amount of interest that would have accrued on the Class A-2 Notes, in respect of the related Interest Period, had interest on that class of Notes been calculated based on LIBOR over (b) the amount of interest actually accrued on the Class A-2 Notes, in respect of such Interest Period based on the Asset Rate. Class A-2 Notes: The Class A-2 Floating Rate Equipment Loan Backed Notes. Class B Noteholders' Interest Shortfall: With respect to the Class B Notes of each Series, as of the close of business on any Distribution Date, the excess of the Class B Noteholders' Interest Distributable Amount for the Class B Notes of that Series for such Distribution Date over the amount that was actually deposited in the Note Distribution Account for such Distribution Date in respect of interest on the Class B Notes of that Series. Class B Noteholders' Interest Distributable Amount: With respect to the Class B Notes of each Series and for any Distribution Date, the sum of (1) the Class B Noteholders' Monthly Interest Distributable Amount for the Class B Notes of that Series for such Distribution Date and (2) the Class B Noteholders' Interest Shortfall for the Class B Notes of that Series as of the preceding Distribution Date. Class B Noteholders' Monthly Interest Distributable Amount: (a) With respect to the Class B-1 Notes and any Distribution Date, the product of (1) the outstanding principal balance of the Class B-1 Notes on the preceding Distribution Date after giving effect to all payments of principal in respect of the Class B-1 Notes on such preceding Distribution Date (or, in the case of the first Distribution Date, the outstanding principal balance on the Closing Date) and (2) the product of the Interest Rate for the Class B-1 Notes and a fraction, the numerator of which is 30 (or in the case of the first Distribution Date, the number of days from and including the Closing Date to but excluding such Distribution Date based on a 30 day month), and the denominator of 6 which is 360, and (b) with respect to the Class B-2 Notes and any Distribution Date, the product of (1) the outstanding principal balance of the Class B-2 Notes on the preceding Distribution Date after giving effect to all payments of principal in respect of the Class B-2 Notes on such preceding Distribution Date (or, in the case of the first Distribution Date, the outstanding principal balance on the Closing Date) and (2) the product of the Interest Rate for the Class B-2 Notes and a fraction, the numerator of which is the actual number of days from and including the most recent Distribution Date (or, in the case of the first Distribution Date, the actual number of days from and including the Closing Date) to but excluding such Distribution Date, and the denominator of which is 360 (it being understood that in no event shall Class B Noteholders' Monthly Interest Distributable Amount include any Class B-2 Carryover Amount). Class B Noteholders' Monthly Principal Distributable Amount: With respect to the Class B Notes for each Series and (a) for any Distribution Date on or prior to the Final Scheduled Distribution Date for the Class B Notes of that Series, the sum of (1) 3% (0% if an Early Payout Event has occurred and is continuing or the Notes have been accelerated and 100% after the principal balance of the Class A Notes of that Series has been reduced to zero) of the Principal Distributable Amount for the related Pool for such Distribution Date and (2) on the Final Scheduled Distribution Date for the Class B Notes of that Series, the amount necessary to reduce the outstanding principal balance of the Class B Notes of that Series to zero, and (b) after the Final Scheduled Distribution Date for the Class B Notes of that Series, zero. Class B Noteholders' Principal Distributable Amount: With respect to the Class B Notes of each Series for any Distribution Date, the sum of (1) the Class B Noteholders' Monthly Principal Distributable Amount for the Class B Notes of that Series for such Distribution Date and (2) the Class B Noteholders' Principal Shortfall for the Class B Notes of that Series for the immediately preceding Distribution Date; provided, however, on or after the Final Scheduled Distribution Date for the Class B Notes and on any date on or after the Notes have been declared due and payable following the occurrence of an Event of Default, the outstanding principal balance of such Series of Class B Notes, but in any event no more than the amount necessary to reduce the outstanding principal balance of such Series of Class B Notes to zero. Class B Noteholders' Principal Shortfall: With respect to the Class B Notes for each Series and for any Distribution Date, the excess, if any, of the Class B Noteholders' Principal Distributable Amount for such Distribution Date over the amount actually deposited in the Note Distribution Account for such Distribution Date in respect of principal for the Class B Notes of that Series. Class B Notes: Collectively, the Class B-1 Notes and the Class B-2 Notes. Class B-1 Notes: The Class B-1 9.00% Equipment Loan Backed Notes. Class B-2 Carryover Amount: The excess, including the unpaid portion of any excess from prior Distribution Dates plus interest thereon calculated on the basis of the Interest Rate (without giving effect to the Asset Rate), if the Interest Rate for the Class B-2 Notes for any Distribution Date is calculated based on the Asset Rate, of (a) the amount of interest that would have accrued on the Class B-2 Notes, in respect of the related Interest Period, had interest on 7 that class of Notes been calculated based on LIBOR over (b) the amount of interest actually accrued on the Class B-2 Notes, in respect of such Interest Period based on the Asset Rate. Class B-2 Notes: The Class B-2 Floating Rate Equipment Loan Backed Notes. Clearing Agency: An organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. Clearing Agency Participant: A securities broker, dealer, bank, trust company, clearing corporation or other financial institution or other Person for whom from time to time a Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. Closing: As defined in Section 2.03 of Purchase Agreement. Closing Date: November 28, 2000. Code: The Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations promulgated thereunder. Code Collateral: Any property a security interest in which may be perfected by filing under the applicable UCC. Collateral Documents: As defined in Section 2.03 of the Pooling and Servicing Agreement. Collection Account: The account designated as such, established and maintained pursuant to Section 5.01(a)(i) of the Pooling and Servicing Agreement. Collections: All payments received on or with respect to the Loans or the collateral securing the Loans. Combined Loans: For a Pool or the Trust as of the applicable Substitution Date or Replacement Date with respect to any addition of Substitute Loans or Replacement Loans, the aggregate of all Loans in such Pool or the Trust as of the last day of the prior Monthly Period and all Replacement Loans and Substitute Loans added or to be added to such Pool or the Trust after the last day of the prior Monthly Period through and including such Substitution Date or Replacement Date. Consolidated Cash Interest Expense: As defined in the Credit Agreement. Consolidated Interest Coverage Ratio: As defined in the Credit Agreement. Consolidated Leverage Ratio: As defined in the Credit Agreement. Contract Management System: The computerized electronic contract management system maintained by the Servicer for all Loans and other agreements similar to the Loans. 8 Controlling Party: For so long as the Class A Notes are outstanding, and no Insurer Default has occurred, the Insurer; if the Class A Notes are outstanding and an Insurer Default has occurred, the holders of a majority in principal amount of the then outstanding Class A Notes; if no Class A Notes are outstanding and all amounts payable to the Insurer have not been paid in full or the Ambac Policy is still outstanding, the Insurer; if no Class A Notes are outstanding and all amounts payable to the Insurer have been paid in full and the Ambac Policy is no longer outstanding, the Holders of a majority in principal amount of the then outstanding Class B Notes, and if no Notes are outstanding and all amounts payable to the Insurer have been paid in full and the Ambac Policy is no longer outstanding, the holder of the Certificates shall constitute the "Controlling Party." Conveyed Assets: As defined in Section 2.01 of the Purchase Agreement. Corporate Trust Office: With respect to the Indenture Trustee or the Owner Trustee, the principal office at which at any particular time the corporate trust business of the Indenture Trustee or Owner Trustee, respectively, shall be administered, which offices at the Closing Date are located, in the case of the Indenture Trustee, at The Bank of New York, 101 Barclay Street, New York, New York, 10286, Attn: Corporate Trust Administration, ABS Group, (fax) 212-815-5544, and in the case of the Owner Trustee, at Wilmington Trust Company, Rodney Square North, 1100 North Market Street CFS, Ninth Floor, Wilmington, Delaware 19890, Attn: W. Chris Sponenberg. Credit Agreement: The Credit Agreement, dated as of May 5, 1998 among the Servicer, Lehman Brothers Inc. as Arranger, Lehman Commercial Paper Inc. as Syndication Agent and General Electric Capital Corporation as Administrative Agent, as amended, modified or supplemented through the Closing Date but not thereafter (without any waivers thereto), a true and complete copy of which has been provided to the Insurer. Credit and Collection Policy: The credit and collection policy and procedures of the initial Servicer as in effect on the Closing Date, a true and complete copy of which (to the extent reflected in written form) has been provided to the Insurer, as the same shall be amended from time to time as permitted by the Pooling and Servicing Agreement or, if a successor Servicer shall have been appointed, the standard credit and collection policies of such successor Servicer as shall be in effect from time to time provided that such credit and collection policies shall have been approved by the Insurer (it being understood that the Insurer has approved the credit and collection policies provided to the Insurer by BNY Asset Solutions LLC). Cumulative Trigger: If as of any date, the aggregate of the Loan Balances of Loans which became Defaulted Loans as of the date such Loans became Defaulted Loans exceeds 12.0% of the Aggregate Initial Loan Balance of the Trust. Custodial Agreement: The Custodial Agreement, dated as of November 28, 2000 among the Custodian, the Servicer and the Indenture Trustee, as amended or supplemented or replaced from time to time. Custodian: The custodian named from time to time in the Custodial Agreement. 9 Custodian Receipt Certification: The receipt delivered by the Custodian to the Indenture Trustee certifying that all Collateral Documents pertaining to a Loan have been received by the Custodian. Cutoff Date: The Initial Cutoff Date, any Subsequent Cutoff Date, any Replacement Cutoff Date or any Substitution Cutoff Date. Default: Any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default. Defaulted Loan: A Loan as to which (1) the Servicer (a) has reasonably determined in accordance with its Servicing Standards that eventual payment of amounts owing on such Loan is unlikely or (b) has repossessed the Equipment or other collateral securing such Loan or (2) any related Scheduled Payment is at least 90 days past due. Default Ratio: For any Monthly Period, a fraction expressed as a percentage equal to (i) the aggregate Loan Balance of Loans which first became Defaulted Loans during such Monthly Period divided by (ii) the Aggregate Loan Balance of the Trust as of the first day of such Monthly Period. Definitive Certificates: The Certificates specified in Section 3.13 of the Trust Agreement. Definitive Notes: The Notes specified in Section 2.12 of the Indenture. Delinquency Ratio: For any Monthly Period, a fraction expressed as a percentage equal to (i) the aggregate Loan Balance of Loans which first became unpaid for 61 days past their due dates divided by (ii) the Aggregate Loan Balance of the Trust as of the first day of such Monthly Period. Designated Account Property: The Designated Accounts, all amounts and investments held from time to time in any Designated Account (whether in the form of deposit accounts, Physical Property, book-entry securities, uncertificated securities or otherwise), including the Reserve Account Initial Deposit, and all proceeds of the foregoing. Designated Accounts: The Collection Account, the Note Distribution Account and the Reserve Account, collectively. Designated Loans: Loans listed on a schedule to the related PA Assignment. Distribution Compliance Period: As defined in Section 2.15 of the Indenture. Determination Date: The day that is three Business Days prior to the Distribution Date. Distribution Date: With respect to a Monthly Period, the 15th day of the next succeeding calendar month or, if such 15th day is not a Business Day, the next succeeding Business Day, commencing December 15, 2000. 10 Early Payout Event: The occurrence of a Portfolio Trigger. Effective Insurance Premium Rate. The premium rate specified in the Ambac Policy times the outstanding principal balance of the Class A-2 Notes as of the last day of the prior Monthly Period divided by the Aggregate Loan Balance of the Loans in Pool 2 as of the first day of the prior Monthly Period. Eligibility Criteria: As of the applicable Cutoff Date, each Loan must satisfy each of the following requirements: (a) The Loan is secured by Equipment; (b) The Loan is not more than sixty days delinquent and the related Obligor is not in bankruptcy; (c) The Loan has a Loan Balance of not more than $1,500,000; (d) The Loan has an original term of not less than twelve months nor more than 96 months; (e) The Loan has a remaining term of not less than six months nor more than 96 months, and has a final Scheduled Payment not later than, with respect to the Initial Loans, October 31, 2007, and with respect to all other Loans, April 30, 2008; (f) The principal place of business of the Obligor is located in either the United States or Canada; and (g) The Loan is denominated in United States Dollars or Canadian Dollars. (h) (a) if the loan has a fixed interest rate, the loan must have an interest rate of not less than, with respect to Initial Loans, 9.00% per annum or for all other Loans, 9.35% per annum nor, in each case, more than 17.00% per annum and (b) if the loan has a variable interest rate, the loan must have an interest rate based on the prime rate and the margin over the prime rate on such loan must not be less than 0.00% nor more 6.00% (excepting any loans currently subject to promotional rates). (i) the written information provided by the Seller, the Originator or the Servicer to the Issuer, the Indenture Trustee or the Insurer with respect to any Loan and the Equipment subject to such Loan is true and correct in all material respects; (j) the representations and warranties set forth in Section 3.01 of the Purchase Agreement are true, correct and complete as to each and every Loan; (k) no provision of the Loan has been waived, altered or modified in any respect more than once after the applicable Cutoff Date; 11 (l) the Loan constitutes "chattel paper" as defined under the UCC; (m) the Obligor is an individual or is organized under the laws of any state of the United States or any province of Canada; (n) the Loan does not require the prior written consent of an Obligor for, or contain any other restriction on, the transfer or assignment of the Loan; (o) unless the Initial Loan Balance was $25,000 or less, the Obligor under the Loan is required to maintain casualty insurance or to self-insure with respect to the related collateral under the Loan in an amount at least equal to the Initial Loan Balance; (p) the Loan is not subject to any guarantee by the Originator or any affiliate of the Originator, the Obligor is not an affiliate of the Originator, and neither the Servicer nor the Originator has established any specific credit reserve that relates solely to the related Obligor; (q) the Loan provides that the lender party providing the financing thereunder, as applicable, may accelerate all remaining Scheduled Payments (subject to all applicable grace periods) if a payment default has occurred under such Loan; (r) the Loan is not a "Lease" as defined in Section 2A-103(1)(j) of the UCC and is not a lease intended as a security interest within the meaning of Section 1-201(37) of the UCC; (s) with respect to such Loan, the Originator has no material performance obligation in favor of the Obligor, and the Obligor is solely responsible for all maintenance, repairs and taxes to be paid with respect to the related Equipment; (t) the Loan provides for Scheduled Payments that fully repay the amount financed over the term of the Loan; (u) other than an initial 90 day deferral period, if any, the Loan provides that the Obligor thereunder is required to make at least one Scheduled Payment per month during the term of the Loan; (v) the assets financed pursuant to such Loan consist primarily of commercial stand alone laundry equipment and related accessories and leasehold improvements; (w) with respect to all Loans with an Initial Loan Balance in excess of $75,000, the owner of any real property (and any mortgage thereon) on which the Equipment is located has, by written consent, waived any liens or claims thereon and agreed to permit the Originator or its appointee to take over and operate the leased premises and assume or sublet the lease; (x) all Equipment associated with such Loan has been delivered, inspected, installed, is in good working condition, is free of disputes, claims or encumbrances, and 12 either (A) such Equipment has been accepted by the Obligor as satisfactory or (B) as of the date of determination, the Obligor has made at least one Scheduled Payment; (y) the Obligor has irrevocably waived any claim or offset against the Originator and recognized the Originator's right to enforce the Loan according to its terms free of any defenses, offsets or counterclaims, and the Obligor is obligated to pay all scheduled principal and interest on the related Equipment Note regardless of the performance of the related Equipment; (z) the Loan Balance of such Loan has not been reduced by the amount of any security deposit held by the Servicer or the Seller; (aa) all Scheduled Payments relating to the Loan Balance as of the Cutoff Date were unpaid as of the Cutoff Date; and (bb) the Loan is substantially in the form of one of the forms attached hereto as Exhibit D or approved in writing by the Controlling Party. Eligible Deposit Account: Either (i) a segregated account with an Eligible Institution or (ii) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), having corporate trust powers and acting as trustee for funds deposited in such account so long as any of the securities of such depository institution have a credit rating from each Rating Agency in one of its generic rating categories for long-term unsecured debt which signifies investment grade. Eligible Institution: A depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), (A) which has either (1) a long-term unsecured debt rating of at least "AA" from Standard & Poor's Ratings Services and "Aa2" from Moody's Investors Service or (2) a short-term unsecured debt or certificate of deposit rating of at least "A-1+" from Standard & Poor's Ratings Services and "P-1" from Moody's Investors Service, (B) whose deposits are insured by the FDIC and (C) having a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. Eligible Investments: Book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which, with respect to funds in the Collection Account, consist of an amount not in excess of 20% of the Aggregate Loan Balance as of the preceding Accounting Date which may be invested in investments which have a rating from Standard & Poor's Ratings Services of "A-1" rather than "A-1+," if such investments otherwise constitute any of (i) through (viii) below, and which evidence: (i) direct obligations of, and obligations fully guaranteed as to timely payment of principal and interest by, the United States of America; (ii) demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America 13 or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by Federal or state banking or depository institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations (other than such obligations the rating of which is based on the credit of a Person other than such depository institution or trust company) thereof shall have a credit rating from each of the Rating Agencies in the highest investment category for short-term unsecured debt obligations or certificates of deposit granted thereby; (iii) commercial paper having, at the time of the investment or contractual commitment to invest therein, a rating from each of the Rating Agencies in the highest investment category for short-term unsecured debt obligations or certificates of deposit granted thereby; (iv) investments in money market or common trust funds having a rating from each of the Rating Agencies in the highest investment category for short-term unsecured debt obligations or certificates of deposit granted thereby (including funds for which the Indenture Trustee or the Owner Trustee or any of their respective affiliates is investment manager or advisor, so long as such fund shall have such rating); (v) bankers' acceptances issued by any depository institution or trust company referred to in clause (ii) above; (vi) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with (A) a depository institution or trust company (acting as principal) described in clause (ii) or (B) a depository institution or trust company the deposits of which are insured by FDIC or (y) the counterparty for which has a rating from each of the Rating Agencies in the highest investment category for short-term unsecured debt obligations, the collateral for which is held by a custodial bank for the benefit of the Trust or the Indenture Trustee, is marked to market daily and is maintained in an amount that exceeds the amount of such repurchase obligation, and which requires liquidation of the collateral immediately upon the amount of such collateral being less than the amount of such repurchase obligation (unless the counterparty immediately satisfies the repurchase obligation upon being notified of such shortfall); (vii) commercial paper master notes having, at the time of the investment or contractual commitment to invest therein, a rating from each of the Rating Agencies in the highest investment category for short-term unsecured debt obligations; and (viii) any other investment permitted by each of the Rating Agencies. in each case, other than as permitted by the Rating Agencies, maturing not later than the Business Day immediately preceding the next Distribution Date. 14 Eligible Loan: A loan that meets the Eligibility Criteria for inclusion in a Pool. Equipment: The stand alone commercial laundry equipment and related accessories, including any additions, substitutions or accessions thereto, securing an Obligor's indebtedness under a Loan, other than pursuant to cross collateralization provisions in such Loan as described in clause (d) of the definition of Exempt Collateral. A Loan may be secured by one or more items of Equipment. Equipment Note: A commercial loan evidenced by a note and secured by Equipment, including, after the applicable addition date, Replacement Loans and Substitute Loans. ERISA: The Employee Retirement Income Security Act of 1974, as amended. Event of Default: An event described in Section 5.1 of the Indenture. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Date: As defined in Section 2.1 of the Indenture. Executive Officer: With respect to any corporation, the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, President, Executive Vice President, any Vice President or the Treasurer of such corporation; with respect to any partnership, any general partner thereof; and with respect to any limited liability company, the Chief Executive Officer, Chief Financial Officer, any Vice President, the Treasurer or the Controller. Exempt Collateral: All (a) Insurance Policies, (b) security deposits relating to any Loan, (c) collateral securing a Loan which originally had a Loan Balance of $10,000 or less and with respect to which, in accordance with standard underwriting policies of ALS, ALS did not perfect its security interests in an aggregate amount for all Loans not to exceed 0.25% of the Aggregate Loan Balance, (d) collateral for loans which were not transferred to the trust which is collateral for the Loans solely as a result of a cross collateralization provision, and (e) collateral constituting real property, a leasehold improvement or a fixture or an interest in real property, a leasehold improvement or a fixture. Expenses: The expenses described in Section 6.9 of the Trust Agreement. FDIC: Federal Deposit Insurance Corporation or any successor agency. Final Scheduled Distribution Date: With respect to a class of Notes, the Distribution Date set forth below opposite such Securities: Class A-1 Notes: May 2009 Class A-2 Notes: May 2009 Class B-1 Notes: May 2009 Class B-2 Notes: May 2009 15 Financial Asset: Has the meaning given such term in Revised Article 8. As used herein, the Financial Asset "related to" a Security Entitlement is the Financial Asset in which the entitlement holder (as defined in Revised Article 8) holding such Security Entitlement has the rights and property interest specified in Revised Article 8. Full Prepayment: With respect to a Monthly Period, a Prepayment of the entire Loan Balance of such Loan and all accrued and unpaid interest and other outstanding amounts thereon. Global Notes: The Permanent Regulation S Global Notes, the Temporary Regulation S Global Notes and the Rule 144A Global Note. Governmental Authority: Any applicable Federal, state, county, municipal governmental judicial or regulatory authority. Grant: To mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm pursuant to the Indenture. A Grant of the Collateral or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the Granting party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of, the Collateral and all other moneys payable 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 that the Granting party is or may be entitled to do or receive thereunder or with respect thereto. Guaranties: With respect to any Loan, personal or commercial guaranties of an Obligor's performance with respect thereto. Holder: The Person in whose name a Note or Certificate is registered on the Note Register or the Certificate Register, as applicable. Indemnified Parties: The Persons specified in Section 6.9 of the Trust Agreement. Indenture: The Indenture, dated as of November 28, 2000 between the Issuer and the Indenture Trustee, as amended and supplemented from time to time. Indenture Trustee: The Bank of New York, a New York banking corporation, not in its individual capacity but solely as trustee under the Indenture, or any successor trustee under the Indenture. Independent: When used with respect to any specified Person, that the Person (i) is in fact independent of the Issuer, any other obligor upon the Notes, the Seller, ALS and any Affiliate of any of the foregoing Persons, (ii) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Seller, ALS or any Affiliate of any of the foregoing Persons and (iii) is not connected with the Issuer, any such other obligor, 16 the Seller, ALS or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Independent Certificate: A certificate or opinion to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1 of the Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Indenture Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in the Indenture and that the signer is Independent within the meaning thereof. Indirect Participant: A securities broker, dealer, bank, trust company or other Person that clears through or maintains a custodial relationship with a Clearing Agency Participant, either directly or indirectly. Initial Assignment: Any Initial PA Assignment or Initial PSA Assignment. Initial Conveyed Assets: As defined in Section 2.01 of the Purchase Agreement. Initial Cutoff Date: October 1, 2000. Initial Loans: As defined in Section 2.01(a) of the Pooling and Servicing Agreement. Initial Loan Balance: With respect to a Loan, the aggregate amount advanced under such Loan toward the purchase price of the Equipment, including insurance premiums, service and warranty contracts, federal excise and sales taxes and other items customarily financed as part of an Equipment Note and related costs, less payments received from the Obligor prior to the Cutoff Date with respect to such Loan to principal. Initial PA Assignment: As defined in Section 2.01(a) of the Purchase Agreement. Initial PSA Assignment: As defined in Section 2.01 of the Pooling and Servicing Agreement. Initial Reserve Account Deposit: 1.0% of the Aggregate Initial Loan Balance. Insolvency Event: With respect to a specified Person, (i) the entry of a decree or order by a court, agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator, receiver or liquidator for such Person, in any bankruptcy, insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of such Person's affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (ii) the consent by such Person to the appointment of a conservator, receiver or liquidator in any bankruptcy, insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to such Person or of or relating to substantially all of such Person's property, or (iii) such Person shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable bankruptcy, insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations. 17 Institutional Accredited Investor: An institutional "accredited investor" as defined in Rule 501(a)(1)-(3),(7) or (8) (all of the equity investors of which are accredited investors specified in Rule 501(a)(1),(2),(3) or (7)) of Regulation D under the Securities Act. Insurance Policy: With respect to a Loan, an insurance policy covering physical damage, credit life, credit disability, theft, mechanical breakdown or similar event to any item of Equipment securing such Loan. Insurance Proceeds: With respect to any Loan, proceeds of any Insurance Policy with respect to such Loan. Insured Amount: As defined in the Ambac Policy. Insured Payment: As defined in the Ambac Policy. Insurer Default: The Insurer has failed (and continues to fail) to make any payment required under the Ambac Policy in accordance with the terms thereof. Insurer: Ambac Assurance Corporation, a Wisconsin corporation. Interest Only Period Loan: With respect to any Determination Date, any Loan for which the Scheduled Payment relating to the period containing such Determination Date did not include a scheduled payment of principal. Interest Only Period Loan Ratio: For a Pool as of any Determination Date, the result of the aggregate Loan Balance of all Interest Only Period Loans of the Combined Loans of such Pool divided by the aggregate Loan Balance of all Loans (including Interest Only Period Loans) of the Combined Loans of such Pool. Interest Period: The period of time in which interest on the unpaid principal balance of each class of Notes will accrue at the applicable Interest Rate from the Closing Date or the most recent Distribution Date on which interest has been paid to but excluding the next Distribution Date. Interest Rate: For any Distribution Date, (a) with respect to the Class A-1 Notes, 7.09% per annum, (b) with respect to the Class A-2 Notes, the lesser of (i) LIBOR plus 0.40% per annum and (ii) the Asset Rate, (c) with respect to the Class B-1 Notes, 9.00% per annum, and (d) with respect to the Class B-2 Notes, the lesser of (i) LIBOR plus 2.75% per annum, and (ii) the Asset Rate. Interested Parties: The Issuer and each other party identified or described in the Purchase Agreement or the Transfer and Servicing Agreements as having an interest as owner, trustee, secured party or Beneficiary with respect to the Purchased Property. Investment Earnings: Investment earnings on funds deposited in the Designated Accounts, the Lockbox Account and the Certificate Distribution Account, net of losses and investment expenses, during the applicable Monthly Period. 18 Issuer: The party named as such in the Pooling and Servicing Agreement and in the Indenture until a successor replaces it and, thereafter, means the successor. Issuer Order and Issuer Request: A written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee. LIBOR: With respect to each Distribution Date, the rate for deposits in ----- U.S. Dollars for a period of one month which appears on Telerate Service Page 3750 as of 11:00 a.m., London time, on the day that is two LIBOR Business Days prior to the preceding Distribution Date (or in the case of the first Distribution Date, the Closing Date). If the rate does not appear on that date on Telerate Service Page 3750 (or any other page as may replace that page on that service, or if that service is no longer offered, any other service for displaying LIBOR or comparable rates as may be selected by the Indenture Trustee after consultation with the Seller), then LIBOR will be the Reference Bank Rate. LIBOR Business Day: Any day on which commercial banks in London are open for business. Lien: Any security interest, lien, charge, pledge, equity or encumbrance of any kind other than (i) liens for taxes not yet due and payable, (ii) mechanics' liens, (iii) any liens that attach by operation of law, and any (iv) liens being contested by appropriate measures. Liquidation Expenses: The out of pocket expenses reasonably incurred by the Servicer in connection with the repossession, refurbishment and disposition of the collateral relating to a Defaulted Loan. Liquidation Proceeds: The proceeds of the liquidation of any Defaulted Loan, net of Liquidation Expenses. LLC Agreement: The Limited Liability Company Agreement of the Seller, dated as of November 28, 2000, as amended, supplemented or modified from time to time. Loan: An Equipment Note in Pool 1 or Pool 2 and all rights and obligations thereunder. Loan Balance: With respect to any Loan, as of an Accounting Date, the Initial Loan Balance thereof minus the sum of: (i) the principal portion of all Scheduled Payments received on or after the applicable Cutoff Date and on or prior to the Accounting Date, (ii) the principal portion of all Prepayments received, and (iii) the principal portion of proceeds from any Insurance Policies covering the Equipment, Liquidation Proceeds and proceeds from any Guaranties received and allocated to principal by the Servicer (it being understood that Servicer Advances with respect to any Loan do not decrease the Loan Balance of such Loan). Loan File: The documents listed in Section 2.03 of the Pooling and Servicing Agreement pertaining to a particular Loan, all other documents or instruments evidencing or governing such Loan and all other agreements, instruments, documents and records maintained by the Servicer on behalf of the Issuer and relating to such Loan. 19 Loan Schedule: The list of Loans to be delivered to the Custodian in connection with the delivery of Collateral Documents. Lockbox: The post office box specified in the Lockbox Agreement. Lockbox Account: As defined in Section 5.01(a)(iv) of the Pooling and Servicing Agreement. Lockbox Agreement: The Lockbox Agreement, dated as of November 28, 2000, among the Servicer, the Issuer, the Indenture Trustee, Mellon Bank, N.A. and Mellon Financial Services Corporation #1 as amended, supplemented or modified or superceded from time to time. Lockbox Bank: Mellon Bank, any successor in interest thereof or any other Lockbox Bank designated by the Servicer and acceptable to the Insurer and the Indenture Trustee. Monthly Advance: The amount, as of an Accounting Date, which the Servicer advances on the respective Loan pursuant to Section 5.06 of the Pooling and Servicing Agreement. Monthly Advance Reimbursement Amount: With respect to a Pool for any Distribution Date, the aggregate for each Loan in such Pool of the sum of (a) amounts received in the related Monthly Period on each Loan to the extent that the Servicer has previously made an unreimbursed Monthly Advance, (b) to the extent that the Servicer, in its sole discretion, determines that any prior unreimbursed Monthly Advances are not collectable, the unreimbursed amounts of those Monthly Advances and (c) the amount of any unreimbursed Monthly Advances under the Lockbox Agreement. Monthly Period: With respect to a Determination Date, a Record Date and a Distribution Date, the calendar month preceding the month in which such date occurs. With respect to an Accounting Date, the calendar month in which such Accounting Date occurs. Monthly Report: As defined in Section 4.09 of the Pooling and Servicing Agreement. New York UCC: The UCC as in effect in the State of New York. Noteholders: Holders of the Notes pursuant to the Indenture and, with respect to any class of Notes, Holders of such class of Notes pursuant to the Indenture. Note Depository: The depositary from time to time selected by the Indenture Trustee on behalf of the Trust in whose name the Notes are registered prior to the issue of Definitive Notes. The first Note Depository shall be Cede & Co., the nominee of the initial Clearing Agency. Note Depository Agreement: The agreement, dated the Closing Date, among the Issuer, the Indenture Trustee and The Depository Trust Company, as the initial Clearing Agency relating to the Class A Notes, substantially in the form of Exhibit C to the Indenture, as the same may be amended and supplemented from time to time. Note Distribution Account: The account designated as such, established and maintained pursuant to Section 5.01(a)(ii) of the Pooling and Servicing Agreement. 20 Note Owner: With respect to a Book-Entry Note, the Person who is the beneficial owner of such Book-Entry Note, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an Indirect Participant, in each case in accordance with the rules of such Clearing Agency). Note Pool Factor: With respect to any class of Notes and any Distribution Date, a seven-digit decimal figure computed by the Servicer which is equal to the Note Principal Balance for such class as of the close of such Distribution Date divided by the initial Note Principal Balance for such class. Note Principal Balance: With respect to any class of Notes and any Distribution Date, the initial aggregate principal balance of such class of Notes, reduced by all previous payments to the Noteholders of such class in respect of principal of such Notes. Note Register: With respect to any class of Notes, the register of such Notes specified in Section 2.4 of the Indenture. Note Registrar: The registrar at any time of the Note Register, appointed pursuant to Section 2.4 of the Indenture. Notes: Collectively, the Class A Notes and the Class B Notes. Obligor: With respect to any Loan, the purchaser or any co-purchaser of the related Equipment or any other Person, other than the maker of any Guaranty, who owes payments under a Loan. Officer's Certificate: A certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1 of the Indenture, and delivered to the Indenture Trustee. Unless otherwise specified, any reference in the Indenture to an officer's certificate shall be to an Officer's Certificate of any Authorized Officer of the Issuer. Opinion of Counsel: A written opinion of counsel, who may, except as otherwise expressly provided, be an employee of the Seller or the Servicer. In addition, for purposes of the Indenture: (i) such counsel shall be satisfactory to the Indenture Trustee and the Insurer; (ii) the opinion shall be addressed to the Indenture Trustee as Trustee and the Insurer and (iii) the opinion shall comply with any applicable requirements of Section 11.1 of the Indenture and shall be in form and substance satisfactory to the Indenture Trustee and the Insurer. Optional Purchase Price: As defined in Section 9.01 of the Pooling and Servicing Agreement. Outstanding: With respect to the Notes, as of the date of determination, all Notes theretofore authenticated and delivered under the Indenture except: 21 (i) Notes theretofore canceled by the Indenture Trustee or delivered to the Indenture Trustee for cancellation; (ii) Notes or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture Trustee 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 the Indenture or provision therefor, satisfactory to the Indenture Trustee, has been made; and (iii) Notes in exchange for or in lieu of other Notes which have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; provided, however, that in determining whether the Holders of the requisite Outstanding Amount of the Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder or under any Basic Document, Notes owned by the Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes that the Indenture Trustee knows to be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgor's right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of the foregoing Persons. Outstanding Amount: As of any date, the aggregate principal amount of all Notes, or a class of Notes, as applicable, Outstanding at such date. Outstanding Monthly Advances: As of an Accounting Date with respect to a Loan, all Monthly Advances made as of or prior to such Accounting Date with respect to such Loan minus the portion of Monthly Advance Reimbursement Amounts received with respect to such amounts on any date prior to such Accounting Date pursuant to Section 8.2 of the Indenture. Owner: For purposes of the Purchase Agreement, the Custodial Agreement and the Pooling and Servicing Agreement, the "Owner" of a Loan means (i) ALER until the execution and delivery of the Transfer and Servicing Agreements and (ii) thereafter, the Issuer; provided that ALS or ALER, as applicable, shall be the "Owner" of any Loan from and after the time that such Person shall acquire such Loan, pursuant to Section 5.04 of the Purchase Agreement, Section 2.06 and 3.08, as applicable, of the Pooling and Servicing Agreement, any other provision of the Transfer and Servicing Agreements. Owner Trust Estate: All right, title and interest of the Trust in and to the property and rights assigned to the Trust pursuant to Article II of the Pooling and Servicing Agreement, all funds on deposit from time to time in the Lockbox Account, Reserve Account, Collection Account and the Certificate Distribution Account and all other property of the Trust from time to time, including any rights of the Owner Trustee and the Trust pursuant to the Pooling and Servicing Agreement and the Administration Agreement. 22 Owner Trustee: Wilmington Trust Company, a Delaware banking corporation, not in its individual capacity but solely as trustee under the Trust Agreement, or any successor trustee under the Trust Agreement. PA Assignment: As defined in Section 2.01(b) of the Purchase Agreement. Partial Prepayment: With respect to a Distribution Date and to any Loan, a Prepayment other than a Full Prepayment. Party: A Party as defined in Section 6.01 of the Pooling and Servicing Agreement. Paying Agent: With respect to the Indenture, the Indenture Trustee or any other Person that meets the eligibility standards for the Indenture Trustee specified in Section 6.11 of the Indenture and is authorized by the Issuer to make the payments to and distributions from the Collection Account and the Note Distribution Account, including payment of principal of or interest on the Notes on behalf of the Issuer. With respect to the Trust Agreement, any paying agent or co-paying agent appointed pursuant to Section 3.9 of the Trust Agreement that meets the eligibility standards for the Owner Trustee specified in Section 6.13 of the Trust Agreement, and initially the Owner Trustee. Permanent Regulation S Global Notes: As defined in Section 2.1 of the Indenture. Person: Any legal person, including any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Physical Property: (i) Bankers' acceptances, commercial paper, negotiable certificates of deposit and other obligations that constitute "instruments" within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of physical delivery and (ii) certificated securities. Pool: Pool 1 or Pool 2. Pool 1: A segregated pool of fixed-rate Equipment Notes originated by ALS and listed on the Schedule of Loans. Pool 2: A segregated pool of floating-rate Equipment Notes originated by ALS and listed on the Schedule of Loans. Pool Criteria: With respect to any addition of Substitute Loans or Replacement Loans to a Pool, as of the applicable Cutoff Date for such addition, or, if applicable, the amendment, modification, extension or assumption of any Loan as required under the Pooling and Servicing Agreement, the following criteria must be met: (i) if the Loans are being added to Pool 1, the Weighted Average Annual Percentage Rate of the Combined Loans in Pool 1 as of the last day of the prior Monthly Period must not be less than the Weighted Average Annual Percentage Rate of the Loans 23 in such Pool (prior to giving effect to such additions) as of the last day of the prior Monthly Period minus 0.10%; (ii) if the Loans are being added to Pool 2, the Weighted Average Margin over the prime rate of the Combined Loans in Pool 2 as of the last day of the prior Monthly Period must not be less than the Weighted Average Margin over the prime rate of the Loans in such Pool (prior to giving effect to such additions) as of the last day of the prior Monthly Period minus 0.10%; (iii) the Weighted Average Remaining Term of the Combined Loans in the Trust as of the last day of the prior Monthly Period must not be greater than the Weighted Average Remaining Term of the Loans in the Trust (prior to giving effect to such additions) as of the last day of the prior Monthly Period plus 2.0 months; (iv) if Interest Only Period Loans are being added, the Interest Only Period Loan Ratio of the Combined Loans in the Trust as of the last day of the prior Monthly Period must not be greater than 25.0%; (v) if Balloon Loans are being added, the Balloon Loan Ratio of the Combined Loans in the Trust as of the last day of the prior Monthly Period must not be greater than 5.0%; (vi) if any Loan being added is denominated in Canadian dollars or whose Obligor has its principal place of business in Canada, the aggregate Loan Balance for the Combined Loans in the Trust which (A) are denominated in Canadian dollars or (B) are obligations of Obligors whose principal place of business is located in Canada must not in total exceed 1% of the Aggregate Loan Balance as of the last day of the prior Monthly Period for the Trust; (vii) if a Loan is being added whose Obligor is the Obligor with the largest aggregate Loan Balance outstanding as of the applicable Accounting Date, the aggregate Loan Balance for the Combined Loans in the Trust as of the last day of the prior Monthly Period of the Loans of such Obligor must not exceed 6.5% of the Aggregate Loan Balance as of the last day of the prior Monthly Period for the Trust. (viii) if a Loan whose Obligor is one of the Top Four Obligors is being added, the aggregate Loan Balance for the Combined Loans in the Trust as of the last day of the prior Monthly Period of the Loans of the Top Four Obligors must not exceed the greater of 14.11% of the Aggregate Loan Balance as of the last day of the prior Monthly Period for such Pool or the percentage of the Aggregate Loan Balance of the Loans of the Top Four Obligors as of the last day of the prior Monthly Period; and (ix) the aggregate Loan Balance for the Combined Loans in the Trust as of the last day of the prior Monthly Period on the Loans of any Obligor other than the Top Four Obligors must not exceed 1.5% of the Aggregate Loan Balance of the Trust as of the last day of the prior Monthly Period for such Pool if Loans of such Obligor are added to the Trust. 24 Pooling and Servicing Agreement: The Pooling and Servicing Agreement, dated as of November 28, 2000, among ALS, the Seller and the Issuer, as amended, supplemented or modified from time to time. Portfolio Trigger: The average of the Delinquency Ratio for the prior three consecutive Monthly Periods shall exceed 2.0% or the average of the Default Ratio for the prior three consecutive Monthly Periods shall exceed 1.0%. Predecessor Note: With respect to any particular Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purpose of this definition, any Note authenticated and delivered under Section 2.5 of the Indenture in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. Preference Amount: As defined in the Ambac Policy. Prepayment: Collections on a Loan held by the Trust made during a Monthly Period (including Warranty Payments and Administrative Purchase Payments) which are not late fees, prepayment charges or certain other similar fees or charges and which would be allocated to principal prepayments pursuant to Section 3.11 of the Pooling and Servicing Agreement. Principal Distributable Amount: With respect to each Pool and for any Distribution Date, an amount equal to (a) the Aggregate Loan Balance of the related Pool as of the close of business on the Accounting Date second preceding such Distribution Date or, in the case of the first Distribution Date, the Initial Cutoff Date minus (b) the Aggregate Loan Balance of the related Pool as of the close of business on the Accounting Date immediately preceding such Distribution Date, in each case including the Loan Balance as of the applicable Accounting Date of any Replacement Loan or Substitute Loan added or to be added during the Monthly Period following such Accounting Date but excluding any Warranty Loan for which a Substitute Loan was or is to be added during the Monthly Period following such Accounting Date. Private Holder: As defined in Section 2.15 of the Indenture. Proceeding: Any suit in equity, action at law or other judicial or administrative proceeding. Program: As defined in subsection 4.02(a) of the Pooling and Servicing Agreement. Purchase Agreement: The Purchase Agreement, dated as of November 28, 2000, between ALS and the Seller, as amended, supplemented or modified from time to time. Purchase Date: As defined in Section 2.01 of the Purchase Agreement. Purchase Price: As defined in subsection 2.02 of the Purchase Agreement. 25 Purchased Property: As of any date, means all of the Designated Loans and the Related Security transferred by ALS to ALER pursuant to Section 2.01 of the Purchase Agreement as of or prior to such date. QIB: Qualified Institutional Buyers as defined in the Rule 144A of the Securities Act. Rating Agencies: As of any date, the nationally recognized statistical rating organizations requested by the Seller to provide ratings on the Notes which are rating the Notes on such date. Rating Agency Condition: With respect to any action, the condition that each Rating Agency shall have been given at least 10 days (or such shorter period as is acceptable to each Rating Agency), prior notice thereof and that each of the Rating Agencies shall have notified the Seller, the Servicer the Issuer and the Insurer in writing that such action shall not result in a downgrade or withdrawal of the then current rating of the Notes. Record Date: (i) with respect to the Notes and with respect to any Distribution Date, the close of business on the day immediately preceding such Distribution Date, or if Definitive Notes are issued, the last day of the preceding Monthly Period; and (ii) with respect to the Certificates and with respect to any Distribution Date, the last day of the preceding Monthly Period. Redemption Date: The Distribution Date specified by the Servicer or the Issuer pursuant to Section 10.1(a) of the Indenture. Redemption Price: An amount equal to the aggregate of the Outstanding Amount of such Notes, together with all accrued and unpaid interest thereon as of the Redemption Date and Carryover Amounts. Reference Bank Rate: With respect to any Distribution Date, the per annum rate determined on the basis of the rates at which deposits in U.S. Dollars are offered by the reference banks (which will be four major banks that are engaged in transactions in the London interbank market, selected by the Indenture Trustee after consultation with the Seller) as of 11:00 a.m., London time, on the day that is two LIBOR Business Days prior to the immediately preceding Distribution Date to prime banks in the London interbank market for a period of one month, in amounts approximately equal to the principal amount of the then outstanding Series 2 Notes. The Indenture Trustee will request the principal London office of each of the reference banks to provide a quotation of its rate. If at least two quotations are provided, the rate will be the arithmetic mean of the quotations, rounded upwards to the nearest one-sixteenth of one percent. If on that date fewer than two quotations are provided as requested, the rate will be the arithmetic mean, rounded upwards to the nearest one-sixteenth of one percent, of the rates quoted by one or more major banks in New York City, selected by the Indenture Trustee after consultation with the Seller, as of 11:00 a.m., New York City time, on that date to leading European banks for United States dollar deposits for a period of one month in amounts approximately equal to the principal amount of either class of Series 2 Notes then outstanding. If no quotation can be obtained, then the Reference Bank Rate will be the rate for the prior Distribution Date. 26 Registered Holder: The Person in whose name a Note is registered on the Note Register on the applicable Record Date. Reimbursement Amount: As defined in the Ambac Policy. Related Security: As defined in Section 2.01 of the Purchase Agreement. Replacement Assignment: As defined in Section 2.02 of the Pooling and Servicing Agreement. Replacement Cutoff Date: The close of business on the last day of the month preceding the Replacement Date. Replacement Date: As defined in Section 2.02 of the Pooling and Servicing Agreement. Replacement Loan: As defined in Section 2.02 of the Pooling and Servicing Agreement. Repurchase Event: As defined in Section 5.04 of the Purchase Agreement. Required Deposit Rating: A rating on short-term unsecured debt obligations of P-1 by Moody's Investors Service and A-1+ by Standard & Poor's Ratings Services. Any requirement that short-term unsecured debt obligations have the "Required Deposit Rating" means that such short-term unsecured debt obligations have the foregoing required ratings from each of such rating agencies. Reserve Account: The account designated as such, established and maintained pursuant to Section 4.07(a) of the Pooling and Servicing Agreement. Reserve Account Property: As defined in the Granting Clause of the Indenture. Responsible Officer: With respect to the Indenture Trustee or the Owner Trustee, any officer within the Corporate Trust Office of such trustee, and, with respect to the Servicer, the President, any Vice President, Assistant Vice President, Secretary, Assistant Secretary or any other officer or assistant officer of such Person customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. Revised Article 8: Revised Article 8 (1994 Version) (and corresponding amendments to Article 9) as promulgated in 1994 by the National Conference of Commissioners on Uniform State Laws, in the form in which it has been adopted in the State of New York. Rule 144A: Rule 144A under the Securities Act. Rule 144A Global Note: As defined in Section 2.1 of the Indenture. Schedule of Designated Loans: With respect to any PA Assignment, the Schedule of Loans attached thereto as Schedule I. 27 Schedule of Loans: The schedule of Loans, annexed to the Pooling and Servicing Agreement and on file at the locations listed on Exhibit C to the Pooling and Servicing Agreement, as it may be amended from time to time in accordance with the Pooling and Servicing Agreement. Scheduled Payment: A payment which (i) is in the amount required under the terms of a Loan then in effect, except, in the case of any Loan secured by more than one items of Equipment, including any changes in the terms of such Loan resulting from a Full Prepayment with respect to any item of Equipment related thereto, (ii) is payable by the Obligor and (iii) includes finance charges equivalent to the then applicable Annual Percentage Rate. When Scheduled Payment is used with reference to a Distribution Date, it means the payment which is due in the related Monthly Period; provided, however, that in the case of the first Distribution Date, the Scheduled Payment shall include all such payments due from the Obligor on or after the Initial Cutoff Date. Securities: The Notes and the Certificates. Securities Act: The Securities Act of 1933, as amended. Securities Intermediary: As defined in Section 5.01(b)(i) of the Pooling and Servicing Agreement. Security Entitlement: Has the meaning given such term in Section 8-102(a)(17) of the New York UCC. Securityholder: Any of the Noteholders or Certificateholders. Seller: The Person executing the Pooling and Servicing Agreement as the Seller, or its successor in interest pursuant to Section 6.03 of the Pooling and Servicing Agreement. Series: Either or both of the Series 1 Notes or the Series 2 Notes. Series 1 Notes: The Class A-1 Notes and the Class B-1 Notes. Series 2 Notes: The Class A-2 Notes and the Class B-2 Notes. Servicer: The Person executing the Pooling and Servicing Agreement as the Servicer, or its successor in interest pursuant to Section 7.02 of the Pooling and Servicing Agreement. Servicer Default: As defined in Section 8.01 of the Pooling and Servicing Agreement. Servicer Default Trigger: The average of the Delinquency Ratio for the prior three consecutive Monthly Periods shall exceed 3.0% or the average of the Default Ratio for the prior three consecutive Monthly Periods shall exceed 1.5%. 28 Servicer's Certificate: A certificate, completed by and executed on behalf of the Servicer, in accordance with Section 3.10 of the Pooling and Servicing Agreement. Servicing Standards: As defined in Section 3.01 of the Pooling and Servicing Agreement. Specified Reserve Account Balance: With respect to any Distribution Date means the lesser of (a) 1.75% of the Aggregate Initial Loan Balance and (b) the outstanding principal balance of the Notes. Subsequent Assignment: Any Subsequent PA Assignment, Substitution Assignment or Replacement Assignment. Subsequent Conveyed Assets: As defined in Section 2.01 of the Purchase Agreement. Subsequent Cutoff Date: The Accounting Date for the Monthly Period ending prior to the transfer of a Designated Loan by means of the applicable Subsequent Assignment. Subsequent PA Assignment: As defined in Section 2.01(b) of the Purchase Agreement. Subsequent Purchase Date: As defined in Section 2.01 of the Purchase Agreement. Substitute Loans: As defined in Section 2.07 of the Pooling and Servicing Agreement. Substitution Assignment: As defined in Section 2.07 of the Pooling and Servicing Agreement. Substitution Cutoff Date: The close of business on the last day of the month preceding the Substitution Date. Substitution Date: As defined in Section 2.07(a) of the Pooling and Servicing Agreement. Supplemental Servicing Fee: All late fees, prepayment charges and other administrative fees and expenses or similar charges allowed by applicable law with respect to Loans, collected (from whatever source) on the Loans held by the Trust during the applicable Monthly Period less, if paid by the Issuer and not already offset against the Total Servicing Fee or the Supplemental Servicing Fee, any conversion fee payable in connection with the appointment of the Back-up Servicer as successor Servicer that was payable by the Servicer to whom such Supplemental Servicing Fee is payable or any payment to the Lockbox Bank (other than reimbursement of the Lockbox Bank for amounts transferred to the Issuer in error). Temporary Notes: The Notes specified as such in Section 2.3 of the Indenture. Temporary Regulation S Global Notes: As defined in Section 2.1 of the Indenture. Top Four Obligors: With respect to all Loans in the Trust, the Obligors with the four largest respective aggregate Loan Balance amounts outstanding as of the applicable Accounting Date. 29 Total Servicing Fee: The sum of the Basic Servicing Fee and any unpaid Basic Servicing Fees from all prior Distribution Dates less, if paid by the Issuer and not already off set against the Total Servicing Fee or the Supplemental Servicing Fee, any conversion fee payable in connection with the appointment of the Back-up Servicer as successor Servicer that was payable by the Servicer to whom such Total Servicing Fee is payable or any payment to the Lockbox Bank other than reimbursement of the Lockbox Bank for amounts transferred to the Issuer in error. Transfer and Servicing Agreements: The Purchase Agreement, the assignments pursuant to Section 2.01 of the Purchase Agreement, the Pooling and Servicing Agreement, the Trust Agreement, the Indenture, the Administration Agreement and the Custodial Agreement. Treasury Regulations: The regulations, including proposed or temporary regulations, promulgated under the Code. References herein to specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations. Trust: Alliance Laundry Equipment Receivables Trust 2000-A, a Delaware business trust created by the Trust Agreement. Trust Agreement: The Trust Agreement dated as of November 28, 2000 between the Seller and the Owner Trustee as amended, modified or supplemented from time to time. Trust Estate: As defined in the Granting Clause of the Indenture. Trust Indenture Act or TIA: The Trust Indenture Act of 1939 as in force on the date hereof, unless otherwise specifically provided. Trustees: The Owner Trustee and the Indenture Trustee. UCC: The Uniform Commercial Code as in effect from time to time in the relevant jurisdiction. Uncertificated Security: As of any date, has the meaning given to such term under the applicable UCC as in effect on such date. U.S. Person: The meaning specified under Regulation S of the Securities Act. Warranty Event: With respect to a Loan, the receipt by the Seller of notice of an event or condition that with the passage of time would result in such Loan becoming a Warranty Loan. Warranty Loan: A Loan which the Warranty Purchaser has become obligated to repurchase pursuant to Section 2.03 or 2.06 of the Pooling and Servicing Agreement or Section 5.04 of the Purchase Agreement. Warranty Payment: With respect to a Distribution Date and to a Warranty Loan repurchased as of the related Accounting Date, the sum of (i) the Loan Balance of such Loan, (ii) 30 the interest portion of all due and past due and unpaid Scheduled Payments and (iii) any other amounts due and owing on such Loan. Warranty Purchaser: Either (i) the Seller pursuant to Section 2.06 of the Pooling and Servicing Agreement or (ii) ALS pursuant to Section 5.04 of the Purchase Agreement. Weighted Average Annual Percentage Rate: For any Accounting Date, a percentage equal to the sum for all Loans in Pool 1 of the product of each Loan's (a) Loan Balance and (b) Annual Percentage Rate, divided by the Aggregate Loan Balance of Pool 1. Weighted Average Margin: For any Accounting Date, a percentage equal to the sum for all Loans in Pool 2 of the product of each Loan's (a) Loan Balance and (b) margin over the prime rate used to calculate the interest rate for such Loan, divided by the Aggregate Loan Balance of Pool 2. Weighted Average Remaining Term: For any Accounting Date, the sum for all Loans in a Pool of the product of each Loan's (i) Loan Balance and (ii) remaining number of Scheduled Payments, divided by the Aggregate Loan Balance of that Pool. 31 PART II - RULES OF CONSTRUCTION (a) Accounting Terms. As used in this Appendix or the Basic Documents, accounting terms which are not defined, and accounting terms partly defined, herein or therein shall have the respective meanings given to them under generally accepted accounting principles. To the extent that the definitions of accounting terms in this Appendix or the Basic Documents are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained in this Appendix or the Basic Documents will control. (b) "Hereof," etc. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Appendix or any Basic Document will refer to this Appendix or such Basic Document as a whole and not to any particular provision of this Appendix or such Basic Document; and Section, Schedule and Exhibit references contained in this Appendix or any Basic Document are references to Sections, Schedules and Exhibits in or to this Appendix or such Basic Document unless otherwise specified. The word "or" is not exclusive. (c) Reference to Distribution Dates. With respect to any Distribution Date, the "related Monthly Period," and the "related Record Date," will mean the Monthly Period and Record Date, respectively, immediately preceding such Distribution Date, and the relationships among Monthly Periods and Record Dates will be correlative to the foregoing relationships. (d) Number and Gender. Each defined term used in this Appendix or the Basic Documents has a comparable meaning when used in its plural or singular form. Each gender-specific term used in this Appendix or the Basic Documents has a comparable meaning whether used in a masculine, feminine or gender-neutral form. (e) Including. Whenever the term "including" (whether or not that term is followed by the phrase "but not limited to" or "without limitation" or words of similar effect) is used in this Appendix or the Basic Documents in connection with a listing of items within a particular classification, that listing will be interpreted to be illustrative only and will not be interpreted as a limitation on, or exclusive listing of, the items within that classification. 32 EX-10.52 5 dex1052.txt TRUST AGREEMENT Exhibit 10.52 TRUST AGREEMENT BETWEEN ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC SELLER AND WILMINGTON TRUST COMPANY OWNER TRUSTEE DATED AS OF NOVEMBER 28, 2000 TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS 1 1.1 Definitions 1 ARTICLE II ORGANIZATION 1 2.1 Name 1 2.2 Office 1 2.3 Purposes and Powers 1 2.4 Appointment of Owner Trustee 2 2.5 Initial Capital Contribution of Owner Trust Estate 2 2.6 Declaration of Trust 2 2.7 Liability of the Certificateholders 3 2.8 Title to Trust Property 3 2.9 Situs of Trust 3 2.10 Representations and Warranties of the Seller 3 ARTICLE III THE CERTIFICATES 4 3.1 Initial Certificate Ownership 4 3.2 Form of the Certificates 4 3.3 Execution, Authentication and Delivery 5 3.4 Registration; Registration of Transfer and Exchange of Certificates 5 3.5 Mutilated, Destroyed, Lost or Stolen Certificates 6 3.6 Persons Deemed Certificateholders 7 3.7 Access to List of Certificateholders' Names and Addresses 7 3.8 Maintenance of Corporate Trust Office 7 3.9 Appointment of Paying Agent 8 3.10 Seller as Certificateholder 8 ARTICLE IV ACTIONS BY OWNER TRUSTEE 8 4.1 Prior Notice to Certificateholders with Respect to Certain Matters 8 4.2 Action by Certificateholders with Respect to Certain Matters 9 4.3 Action by Certificateholders with Respect to Bankruptcy 10 4.4 Restrictions on Certificateholders' Power 10 4.5 Majority Control 10 ARTICLE V APPLICATION OF TRUST FUNDS; CERTAIN DUTIES 10 5.1 Establishment of Certificate Distribution Account 10 5.2 Application of Trust Funds 11 5.3 Method of Payment 11 5.4 Accounting and Reports to the Certificateholders, the Internal Revenue Service and Others 12 5.5 Signature on Returns; Tax Matters Partner 12 ARTICLE VI THE OWNER TRUSTEE 12 6.1 Duties of Owner Trustee 12 6.2 Rights of Owner Trustee 13 6.3 Acceptance of Trusts and Duties 13 6.4 Action upon Instruction by Certificateholders 15 6.5 Furnishing of Documents 16 6.6 Representations and Warranties of Owner Trustee 16 6.7 Reliance; Advice of Counsel 16 6.8 Owner Trustee May Own Certificates and Notes 17 6.9 Compensation and Indemnity 17 6.10 Replacement of Owner Trustee 17 6.11 Merger or Consolidation of Owner Trustee 19 6.12 Appointment of Co-Trustee or Separate Trustee 19 6.13 Eligibility Requirements for Owner Trustee 20 ARTICLE VII TERMINATION OF TRUST AGREEMENT 21 7.1 Termination of Trust Agreement 21 ARTICLE VIII AMENDMENTS 22 8.1 Amendments Without Consent of Certificateholders, Controlling Party, or Noteholders 22 8.2 Amendments With Consent of Certificateholders and Controlling Party 22 8.3 Form of Amendments 22 ARTICLE IX MISCELLANEOUS 23 9.1 No Legal Title to Owner Trust Estate 23 9.2 Limitations on Rights of Others 23 9.3 Notices 24 9.4 Severability 24 9.5 Counterparts 24 9.6 Successors and Assigns 24 9.7 No Petition Covenant 24 9.8 No Recourse 25 9.9 Headings 25 9.10 Governing Law 25 9.11 Certificate Transfer Restrictions 25 9.12 Administrator 25 EXHIBITS Exhibit A Form of Certificate Exhibit B Form of Certificate of Trust 1 TRUST AGREEMENT, dated as of November 28, 2000 between Alliance Laundry Equipment Receivables LLC, a Delaware limited liability company, as Seller, and Wilmington Trust Company, a Delaware banking corporation, as Owner Trustee. The Seller and the Owner Trustee hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. Certain capitalized terms used in this Agreement shall have the respective meanings assigned to them in Part I of Appendix A to the Pooling and Servicing Agreement of even date herewith, among the Seller, the Servicer and the Trust (as it may be amended and supplemented from time to time, the "Pooling and Servicing Agreement"). All references herein to "the Agreement" or "this Agreement" are to this Trust Agreement as it may be amended and supplemented from time to time, the Exhibits hereto and the capitalized terms used herein which are defined in such Appendix A, and all references herein to Articles, Sections and subsections are to Articles, Sections and subsections of this Agreement unless otherwise specified. The rules of construction set forth in Part II of such Appendix A shall be applicable to this Agreement. ARTICLE II ORGANIZATION SECTION 2.1 Name. The Trust created hereby shall be known as "Alliance Laundry Equipment Receivables Trust 2000-A" in which name the Owner Trustee may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued on behalf of the Trust. SECTION 2.2 Office. The office of the Trust shall be in care of the Owner Trustee at the Corporate Trust Office or at such other address in Delaware as the Owner Trustee may designate by written notice to the Certificateholders and the Seller. SECTION 2.3 Purposes and Powers. The purpose of the Trust is to engage in the following activities: (a) to acquire, manage and hold the Loans; (b) to issue the Notes pursuant to the Indenture and the Certificates pursuant to this Agreement, to sell, transfer or exchange the Notes and to transfer and exchange the Certificates; (c) to acquire property and assets from the Seller pursuant to the Pooling and Servicing Agreement, to make payments or distributions on the Securities to the Securityholders, to 2 make deposits into and withdrawals from the Reserve Account and other accounts established pursuant to the Basic Documents and to pay the organizational, start-up and transactional expenses of the Trust; (d) to assign, grant, transfer, pledge, mortgage and convey the Trust Estate pursuant to the terms of the Indenture and to hold, manage and distribute to the Certificateholders pursuant to the terms of this Agreement and the Pooling and Servicing Agreement any portion of the Trust Estate released from the lien of, and remitted to the Trust pursuant to, the Indenture; (e) to enter into and perform its obligations and exercise its rights under the Basic Documents to which it is to be a party; (f) to engage in those activities, including entering into agreements, that are necessary, suitable, desirable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (g) subject to compliance with the Basic Documents, to engage in such other activities as may be required in connection with conservation of the Owner Trust Estate and the making of payments or distributions to the Securityholders. The Trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement or the Basic Documents. SECTION 2.4 Appointment of Owner Trustee. The Seller hereby appoints the Owner Trustee as trustee of the Trust effective as of the date hereof, to have all the rights, powers and duties set forth herein. SECTION 2.5 Initial Capital Contribution of Owner Trust Estate. The Seller hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges receipt in trust from the Seller, as of the date hereof, of the foregoing contribution, which shall constitute the initial Owner Trust Estate and shall be deposited in the Certificate Distribution Account. The Seller shall pay organizational expenses of the Trust as they may arise or shall, upon the request of the Owner Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the Owner Trustee. SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares that it shall hold the Owner Trust Estate in trust upon and subject to the conditions and obligations set forth herein and in the Pooling and Servicing Agreement for the use and benefit of the Certificateholders, subject to the obligations of the Trust under the Basic Documents. It is the intention of the parties hereto that the Trust constitute a business trust under the Business Trust Statute, that this Agreement constitute the governing instrument of such business trust and that 3 the Certificates represent the equity interests therein. The rights of the Certificateholders shall be determined as set forth herein and in the Business Trust Statute and the relationship between the parties hereto created by this Agreement shall not constitute indebtedness for any purpose. It is the intention of the parties hereto that, solely for purposes of federal income taxes, state and local income and franchise taxes, and any other taxes imposed upon, measured by, or based upon gross or net income, the Trust shall be treated as a division or branch of the Originator. The parties agree that, unless otherwise required by appropriate tax authorities, the Trust shall file or cause to be filed annual or other necessary returns, reports and other forms consistent with the characterization of the Trust as a division or branch of the Originator for such tax purposes. SECTION 2.7 Liability of the Certificateholders. No Certificateholder shall have any personal liability for any liability or obligation of the Trust. SECTION 2.8 Title to Trust Property. Legal title to all the Owner Trust Estate shall be vested at all times in the Trust as a separate legal entity except where applicable law in any jurisdiction requires title to any part of the Owner Trust Estate to be vested in a trustee or trustees, in which case title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a separate trustee, as the case may be. SECTION 2.9 Situs of Trust. The Trust shall be located and administered in the State of Delaware. All bank accounts maintained by the Owner Trustee on behalf of the Trust shall be located in the State of Delaware or the State of New York. The Trust shall not have any employees in any state other than Delaware; provided, however, that nothing herein shall restrict or prohibit the Owner Trustee from having employees within or without the State of Delaware. Payments shall be received by the Trust only in Delaware or New York, and payments and distributions shall be made by the Trust only from Delaware or New York. The only office of the Trust shall be the Corporate Trust Office in Delaware. SECTION 2.10 Representations and Warranties of the Seller. The Seller hereby represents and warrants to the Owner Trustee that: (a) The Seller has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted and had at all relevant times, and now has, power, authority and legal right to acquire and own the Loans. (b) The Seller is duly qualified to do business as a foreign limited liability company in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualifications. 4 (c) The Seller has the power and authority to execute and deliver this Agreement and to carry out its terms, the Seller has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Issuer as part of the Trust and the Seller has duly authorized such sale and assignment to the Issuer by all necessary corporate action; and the execution, delivery and performance of this Agreement have been duly authorized by the Seller by all necessary corporate action. (d) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms of this Agreement do not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice or lapse of time) a default under, the certificate of formation or limited liability company agreement of the Seller, or any indenture, agreement or other instrument to which the Seller is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than pursuant to the Basic Documents), or violate any law or, to the Seller's knowledge, any order, rule or regulation applicable to the Seller of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or any of its properties. (e) This Agreement, when duly executed and delivered, shall constitute a legal, valid and binding obligation of the Seller enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (f) There are no proceedings or, to the Seller's knowledge, investigations pending or, to the Seller's knowledge, threatened before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over the Seller or its properties (i) asserting the invalidity of this Agreement or any Certificates issued pursuant hereto or, (ii) seeking to prevent the issuance of such Certificates or the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, such Certificates or this Agreement. ARTICLE III THE CERTIFICATES SECTION 3.1 Initial Certificate Ownership. Upon the formation of the Trust by the contribution by the Seller pursuant to Section 2.5 and until the issuance of the Certificates, the Seller shall be the sole beneficiary of the Trust. SECTION 3.2 Form of the Certificates. 5 The Certificates shall be substantially in the form set forth in Exhibit A. The Certificates shall be executed on behalf of the Trust by manual or facsimile signature of a Responsible Officer of the Owner Trustee. Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be, when authenticated pursuant to Section 3.3, validly issued and entitled to the benefits of the Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the authentication and delivery of such Certificates or did not hold such offices at the date of authentication and delivery of such Certificates. The Certificates shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods (with or without steel engraved borders) all as determined by the officers executing such Certificates, as evidenced by their execution of such Certificates. The Certificates shall be issued in fully-registered form and shall be in definitive form only. The terms of the Certificates set forth in Exhibit A shall form part of this Agreement. SECTION 3.3 Execution, Authentication and Delivery. Concurrently with the sale of the Loans to the Trust pursuant to the Pooling and Servicing Agreement, the Owner Trustee shall cause the Certificates to be executed on behalf of the Trust, authenticated and delivered to or upon the written order of the Seller, signed by its chief executive officer or any vice president, without further corporate action by the Seller, in authorized denominations. No Certificate shall entitle its holder to any benefit under this Agreement, or shall be valid for any purpose, unless there shall appear on such Certificate a certificate of authentication substantially in the form set forth in Exhibit A, executed by the Owner Trustee, or a bank or trust company designated by the Owner Trustee as the Owner Trustee's authenticating agent (the "Authentication Agent"), by manual signature. Such authentication shall constitute conclusive evidence that such Certificate shall have been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates. The Certificate Registrar shall keep or cause to be kept, at the office or agency maintained pursuant to Section 3.8, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Owner Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as provided herein. The Owner Trustee shall be the initial Certificate Registrar. Upon any resignation of a Certificate Registrar, the Owner Trustee shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Certificate Registrar. 6 The initial Certificateholders may at any time, without consent of the Noteholders, sell, transfer, convey or assign in any manner its rights to and interests in the Certificates, provided that certain conditions are satisfied, including: (i) such action will not result in a reduction or withdrawal of the rating of any class of Notes, (ii) the Certificateholders provide to the Owner Trustee and the Indenture Trustee an opinion of independent counsel that such action will not cause the Trust to be treated as an association (or publicly traded partnership) taxable as a corporation for Federal income tax purposes, (iii) such transferee or assignee agrees to take positions for tax purposes consistent with the tax positions agreed to be taken by the Certificateholders and (iv) the conditions set forth in Section 9.11 have been satisfied. In addition, no transfer of a Certificate shall be registered unless the transferee shall have provided to the Owner Trustee and the Certificate Registrar an opinion of counsel that in connection with such transfer no registration of the Certificates is required under the Securities Act or applicable state law or that such transfer is otherwise being made in accordance with all applicable federal and state securities laws. Subject to Section 3.4(b), upon surrender for registration of transfer of any Certificate at the office or agency maintained pursuant to Section 3.8, the Owner Trustee shall execute on behalf of the Trust, authenticate and deliver (or shall cause the Authentication Agent to authenticate and deliver), in the name of the designated transferee or transferees, one or more new Certificates in authorized denominations of a like aggregate amount dated the date of authentication by the Owner Trustee or any authenticating agent. At the option of a Holder, Certificates may be exchanged for other Certificates of a like aggregate percentage interest upon surrender of the Certificates to be exchanged at the Corporate Trust Office maintained pursuant to Section 3.8. Whenever any Certificates are so surrendered for exchange, the Owner Trustee shall execute on behalf of the Trust, authenticate and deliver (or shall cause the Authentication Agent to authenticate and deliver) one or more Certificates dated the date of authentication by the Owner Trustee or any Authentication Agent. Such Certificates shall be delivered to the Holder making the exchange. Every Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Owner Trustee and the Certificate Registrar duly executed by the Holder or his attorney duly authorized in writing and such other documents and instruments as may be required by Section 9.11. Each Certificate surrendered for registration of transfer or exchange shall be canceled and subsequently destroyed or otherwise disposed of by the Owner Trustee or Certificate Registrar in accordance with its customary practice. No service charge shall be made for any registration of transfer or exchange of Certificates, but the Owner Trustee or the Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. 7 SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Certificate Registrar, or the Certificate Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Certificate Registrar, the Owner Trustee and the Trust such security or indemnity as may be required by them to hold each of them harmless, then, in the absence of notice to the Certificate Registrar or the Owner Trustee that such Certificate has been acquired by a bona fide purchaser, the Owner Trustee shall execute on behalf of the Trust and the Owner Trustee shall authenticate and deliver (or shall cause the Authentication Agent to authenticate and deliver), in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a replacement Certificate in authorized denominations of a like amount; provided, however, that if any such destroyed, lost or stolen Certificate, but not a mutilated Certificate, shall have become or within seven days shall be due and payable, then instead of issuing a replacement Certificate the Owner Trustee may pay such destroyed, lost or stolen Certificate when so due or payable. If, after the delivery of a replacement Certificate or distribution in respect of a destroyed, lost or stolen Certificate pursuant to subsection 3.5(a), a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the Owner Trustee shall be entitled to recover such replacement Certificate (or such distribution) from the Person to whom it was delivered or any Person taking such replacement Certificate from such Person to whom such replacement Certificate was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Owner Trustee in connection therewith. In connection with the issuance of any replacement Certificate under this Section 3.5, the Owner Trustee may require the payment by the Holder of such Certificate of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Owner Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 3.5 in replacement of any mutilated, destroyed, lost or stolen Certificate shall constitute an original additional contractual obligation of the Trust, whether or not the mutilated, destroyed, lost or stolen Certificate shall be found at any time or be enforced by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Certificates duly issued hereunder. The provisions of this Section 3.5 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 Certificates. 8 SECTION 3.6 Persons Deemed Certificateholders. Prior to due presentation of a Certificate for registration of transfer, the Owner Trustee or the Certificate Registrar may treat the Person in whose name any Certificate shall be registered in the Certificate Register as the Certificateholder of such Certificate for the purpose of receiving distributions pursuant to Article V and for all other purposes whatsoever, and neither the Owner Trustee nor the Certificate Registrar shall be bound by any notice to the contrary. SECTION 3.7 Access to List of Certificateholders' Names and Addresses. The Owner Trustee shall furnish or cause to be furnished to the Servicer and the Seller, within 15 days after receipt by the Owner Trustee of a request therefor from the Servicer or the Seller in writing, a list, in such form as the Servicer or the Seller may reasonably require, of the names and addresses of the Certificateholders as of the most recent Record Date. Each Holder, by receiving and holding a Certificate, shall be deemed to have agreed not to hold any of the Servicer, the Seller or the Owner Trustee accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 3.8 Maintenance of Corporate Trust Office. The Owner Trustee shall maintain in the Borough of Manhattan, the City of New York, an office or offices or agency or agencies where Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Owner Trustee in respect of the Certificates and the Basic Documents may be served. The Owner Trustee initially designates the offices of Harris Trust Company, 58 Pine Street, 19th Floor, Wall Street Plaza, New York, New York, as its principal office for such purposes. The Owner Trustee shall give prompt written notice to the Seller and to the Certificateholders of any change in the location of the Certificate Register or any such office or agency. SECTION 3.9 Appointment of Paying Agent. The Paying Agent shall make distributions to Certificateholders from the Certificate Distribution Account pursuant to Section 5.2 and shall report the amounts of such distributions to the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw funds from the Certificate Distribution Account for the purpose of making the distributions referred to above. The Owner Trustee may revoke such power and remove the Paying Agent if the Owner Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. The Paying Agent shall initially be the Owner Trustee and any co-paying agent chosen by the Owner Trustee. Wilmington Trust Company shall be permitted to resign as Paying Agent upon 30 days' written notice to the Owner Trustee. Upon resignation of the Paying Agent, the Owner Trustee shall appoint a successor to act as Paying Agent (which shall be a bank or trust company) or, if it elects not to make such an appointment, assume the duties of Paying Agent. The Owner Trustee shall cause such successor Paying Agent or any additional Paying Agent appointed by the Owner Trustee to execute and deliver to the Owner Trustee an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Owner Trustee that as Paying Agent, such successor Paying Agent or additional Paying Agent shall hold all sums, if any, held by it for distribution to the Certificateholders in trust for 9 the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. The Paying Agent shall return all unclaimed funds to the Owner Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Owner Trustee. The provisions of Sections 6.3, 6.6, 6.7, 6.8 and 6.9 shall apply to the Owner Trustee also in its role as Paying Agent, for so long as the Owner Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 3.10 Seller as Certificateholder. The Seller in its individual or any other capacity may become the owner or pledgee of Certificates and may otherwise deal with the Owner Trustee or its Affiliates as if it were not the Seller. ARTICLE IV ACTIONS BY OWNER TRUSTEE SECTION 4.1 Prior Notice to Certificateholders with Respect to Certain Matters. The Owner Trustee shall not take action with respect to the following matters, unless (i) the Owner Trustee shall have notified the Certificateholders in writing of the proposed action at least 30 days before the taking of such action, and (ii) the Certificateholders shall not have notified the Owner Trustee in writing prior to the 30th day after such notice is given that such Certificateholders have withheld consent or provided alternative direction: (a) the initiation of any claim or lawsuit by the Trust (other than an action to collect on a Receivable or an action by the Indenture Trustee pursuant to the Indenture) and the compromise of any action, claim or lawsuit brought by or against the Trust (other than an action to collect on a Receivable or an action by the Indenture Trustee pursuant to the Indenture); (b) the election by the Trust to file an amendment to the Certificate of Trust, a conformed copy of which is attached hereto as Exhibit B; (c) the amendment of the Indenture by a supplemental indenture in circumstances where the consent of the Controlling Party or any Noteholder is required; (d) the amendment of the Indenture by a supplemental indenture in circumstances where the consent of the Controlling Party or any Noteholder is not required and such amendment materially adversely affects the interests of the Certificateholders; (e) the amendment, change or modification of the Administration Agreement, except to cure any ambiguity or to amend or supplement any provision in a manner that would not materially adversely affect the interests of the Certificateholders; 10 (f) the appointment pursuant to the Indenture of a successor Note Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a successor Certificate Registrar, or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its obligations under the Indenture or this Agreement, as applicable; or (g) the amendment of the Pooling and Servicing Agreement in circumstances where the consent of the Controlling Party or any Noteholder is required. SECTION 4.2 Action by Certificateholders with Respect to Certain Matters. The Owner Trustee shall not have the power, except upon the written direction of the Certificateholder, with the consent of the Insurer so long as the Insurer is the Controlling Party, to remove the Administrator under the Administration Agreement pursuant to Section 10 thereof, Certificateholder, with the consent of the Insurer so long as the Insurer is the Controlling Party, to appoint a successor Administrator pursuant to Section 10 of the Administration Agreement, Controlling Party, to remove the Servicer under the Pooling and Servicing Agreement pursuant to Section 8.02 thereof Controlling Party, except as expressly provided in the Basic Documents, to sell the Loans or any interest therein after the termination of the Indenture, (e) Certificateholder, with the consent of the Insurer so long as the Insurer is the Controlling Party, to initiate any claim, suit or proceeding by the Trust or compromise any claim, suit or proceeding brought by or against the Trust, (f) Certificateholder, with the consent of the Insurer so long as the Insurer is the Controlling Party, to authorize the merger, consolidation or conversion of the Trust with or into any other business trust or entity or (g) Certificateholder, with the consent of the Insurer so long as the Insurer is the Controlling Party, to amend the Certificate of Trust. The Owner Trustee shall take the actions referred to in the preceding sentence only upon written instructions signed by the Certificateholders. SECTION 4.3 Action by Certificateholders with Respect to Bankruptcy. The Owner Trustee shall not have the power to commence a voluntary proceeding in bankruptcy relating to the Trust without the unanimous prior approval of the Controlling Party and the unanimous approval of the Independent Manager of the Seller. SECTION 4.4 Restrictions on Certificateholders' Power. The Certificateholders shall not direct the Owner Trustee to take or refrain from taking any action if such action or inaction would be contrary to any obligation of the Trust or the Owner Trustee under this Agreement or any of the Basic Documents or would be contrary to Section 2.3, nor shall the Owner Trustee be obligated to follow any such direction, if given. 11 SECTION 4.5 Majority Control. Except as expressly provided herein, any action that may be taken or consent that may be given or withheld by the Certificateholders under this Agreement shall be effective if such action is taken or such consent is given or withheld by the Holders of a majority of the ownership interest in the Trust outstanding as of the close of the preceding Distribution Date. Except as expressly provided herein, any written notice, instruction, direction or other document of the Certificateholders delivered pursuant to this Agreement shall be effective if signed by Holders of Certificates evidencing not less than a majority of the ownership interest in the Trust at the time of the delivery of such notice. ARTICLE V APPLICATION OF TRUST FUNDS; CERTAIN DUTIES SECTION 5.1 Establishment of Certificate Distribution Account. The Servicer, for the benefit of the Certificateholders, shall establish and maintain at the Wilmington Trust Company in the name of the Trust an Eligible Deposit Account known as the Alliance Laundry Equipment Receivables Trust 2000-A Certificate Distribution Account (the "Certificate Distribution Account"), bearing an additional designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders. The Owner Trustee shall possess all right, title and interest in and to all funds on deposit from time to time in the Certificate Distribution Account and in all proceeds thereof. Except as otherwise provided herein or in the Pooling and Servicing Agreement, the Certificate Distribution Account shall be under the sole dominion and control of the Owner Trustee for the benefit of the Certificateholders. If, at any time, the Certificate Distribution Account ceases to be an Eligible Deposit Account, the Servicer shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, as to which each Rating Agency may consent) establish a new Certificate Distribution Account as an Eligible Deposit Account and shall cause the Owner Trustee to transfer any cash and/or any investments in the old Certificate Distribution Account to such new Certificate Distribution Account. SECTION 5.2 Application of Trust Funds. On each Distribution Date, the Owner Trustee shall (based on the information contained in the Servicer's Certificate delivered on the related Determination Date) distribute to the Certificateholders, on a pro rata basis, amounts deposited in the Certificate Distribution Account pursuant to Sections 4.07(b), 5.01(b)(i), 5.05 and 9.02(b) of the Pooling and Servicing Agreement. On each Distribution Date, the Owner Trustee shall send to each Certificateholder the statement described in Section 4.09(a) of the Pooling and Servicing Agreement and Section 8.2 of the Indenture. 12 If any withholding tax is imposed on the Trust's distributions (or allocations of income) to a Certificateholder, such tax shall reduce the amount otherwise distributable to the Certificateholder in accordance with this Section 5.2. The Owner Trustee is hereby authorized and directed to retain from amounts otherwise distributable to the Certificateholders sufficient funds for the payment of any tax that is legally owed by the Trust (but such authorization shall not prevent the Owner Trustee from contesting any such tax in appropriate proceedings and withholding payment of such tax, if permitted by law, pending the outcome of such proceedings). The amount of any withholding tax imposed with respect to a Certificateholder shall be treated as cash distributed to such Certificateholder at the time it is withheld by the Trust and remitted to the appropriate taxing authority. If there is a possibility that withholding tax is payable with respect to a distribution (such as a distribution to a non-U.S. Certificateholder), the Owner Trustee may in its sole discretion withhold such amounts in accordance with this subsection 5.2(c). If a Certificateholder wishes to apply for a refund of any such withholding tax, the Owner Trustee shall reasonably cooperate with such Certificateholder in making such claim so long as such Certificateholder agrees to reimburse the Owner Trustee for any out-of-pocket expenses incurred. If the Indenture Trustee holds escheated funds for payment to the Trust pursuant to Section 3.3(e) of the Indenture, the Owner Trustee shall, upon notice from the Indenture Trustee that such funds exist, submit on behalf of the Trust an Issuer Order to the Indenture Trustee pursuant to Section 3.3(e) of the Indenture instructing the Indenture Trustee to pay such funds to or at the order of the Seller. SECTION 5.3 Method of Payment. Subject to Section 7.1(c), distributions required to be made to Certificateholders on any Distribution Date shall be made to each Certificateholder of record on the related Record Date (i) by wire transfer, in immediately available funds, to the account of such Holder at a bank or other entity having appropriate facilities therefor or, where possible, by intra-bank book entry credit, if such Certificateholder shall have provided to the Certificate Registrar appropriate written instructions at least five Business Days prior to such Record Date and the distribution required to be made to such Certificateholders exceeds $100,000 or (ii) by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register. SECTION 5.4 Accounting and Reports to the Certificateholders, the Internal Revenue Service and Others. The Owner Trustee shall maintain (or cause to be maintained) the books of the Trust on the basis of a fiscal year ending December 31 on the accrual method of accounting, deliver to each Certificateholder, as may be required by the Code and applicable Treasury Regulations or otherwise, such information as may be required to enable each Certificateholder to prepare its federal income tax returns, file such tax returns relating to the Trust and make such elections as may from time to time be required or appropriate under any applicable state or federal statute or rule or regulation thereunder so as to maintain the Trust's characterization as a division or branch of the Originator for federal income tax purposes, cause such tax returns to be signed in the manner required by law and collect or cause to be collected any withholding 13 tax as described in and in accordance with subsection 5.2(c) with respect to income or distributions to Certificateholders. SECTION 5.5 Signature on Returns; Tax Matters Partner. The Owner Trustee shall sign on behalf of the Trust any and all tax returns of the Trust, unless applicable law requires a Certificateholder to sign such documents, in which case such documents shall be signed by the Seller. ARTICLE VI THE OWNER TRUSTEE SECTION 6.1 Duties of Owner Trustee. The Owner Trustee undertakes to perform such duties, and only such duties, as are specifically set forth in this Agreement, the Pooling and Servicing Agreement and the other Basic Documents, including the administration of the Trust in the interest of the Certificateholders, subject to the Basic Documents and in accordance with the provisions of this Agreement and the Pooling and Servicing Agreement. No implied covenants or obligations shall be read into this Agreement, the Pooling and Servicing Agreement or any other Basic Document against the Owner Trustee. Notwithstanding the foregoing, the Owner Trustee shall be deemed to have discharged its duties and responsibilities hereunder and under the Basic Documents to the extent the Administrator has agreed in the Administration Agreement to perform any act or to discharge any duty of the Owner Trustee hereunder or under any Basic Document, and the Owner Trustee shall not be liable for the default or failure of the Administrator to carry out its obligations under the Administration Agreement. In the absence of bad faith on its part, the Owner Trustee may conclusively rely upon certificates or opinions furnished to the Owner Trustee and conforming to the requirements of this Agreement in determining the truth of the statements and the correctness of the opinions contained therein; provided, however, that the Owner Trustee shall have examined such certificates or opinions so as to determine compliance of the same with the requirements of this Agreement. The Owner Trustee may not be relieved from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that: (a) this subsection 6.1(d) shall not limit the effect of subsection 6.1(a) or (b); 14 (b) the Owner Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Owner Trustee was negligent in ascertaining the pertinent facts; and (c) the Owner Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 4.1, 4.2 or 6.4. Subject to Sections 5.1 and 5.2, monies received by the Owner Trustee hereunder need not be segregated in any manner except to the extent required by law or the Pooling and Servicing Agreement and may be deposited under such general conditions as may be prescribed by law, and the Owner Trustee shall not be liable for any interest thereon. The Owner Trustee shall not take any action that (i) is inconsistent with the purposes of the Trust set forth in Section 2.3 or (ii) would, to the actual knowledge of a Responsible Officer of the Owner Trustee, result in the Trust's becoming taxable as a corporation for federal income tax purposes. The Certificateholders shall not direct the Owner Trustee to take action that would violate the provisions of this Section 6.1. SECTION 6.2 Rights of Owner Trustee. The Owner Trustee is authorized and directed to execute and deliver the Basic Documents and each certificate or other document attached as an exhibit to or contemplated by the Basic Documents to which the Trust is to be a party, in such form as the Seller shall approve as evidenced conclusively by the Owner Trustee's execution thereof. In addition to the foregoing, the Owner Trustee is authorized, but shall not be obligated, to take all actions required of the Trust pursuant to the Basic Documents. The Owner Trustee is further authorized from time to time to take such action as the Administrator recommends with respect to the Basic Documents. SECTION 6.3 Acceptance of Trusts and Duties. Except as otherwise provided in this Article VI, in accepting the trusts hereby created, Wilmington Trust Company acts solely as Owner Trustee hereunder and not in its individual capacity and all Persons having any claim against the Owner Trustee by reason of the transactions contemplated by this Agreement or any Basic Document shall look only to the Owner Trust Estate for payment or satisfaction thereof. The Owner Trustee accepts the trusts hereby created and agrees to perform its duties hereunder with respect to such trusts but only upon the terms of this Agreement. The Owner Trustee also agrees to disburse all monies actually received by it constituting part of the Owner Trust Estate upon the terms of this Agreement. The Owner Trustee shall not be liable or accountable hereunder or under any Basic Document under any circumstances, except for its own negligent action, its own negligent failure to act or its own willful misconduct or in the case of the inaccuracy of any representation or warranty contained in Section 6.6 and expressly made by the 15 Owner Trustee. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence): (a) the Owner Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any Loan or the perfection and priority of any security interest created by any Loan in any Equipment or the maintenance of any such perfection and priority, or for or with respect to the sufficiency of the Owner Trust Estate or its ability to generate the distributions and payments to be made to Certificateholders under this Agreement or to Noteholders under the Indenture, including, without limitation: the existence, condition and ownership of any Equipment; the existence and enforceability of any insurance thereon; the existence and contents of any Loan on any computer or other record thereof; the validity of the assignment of any Loan to the Trust or of any intervening assignment; the completeness of any Loan; the performance or enforcement of any Loan; the compliance by the Seller or the Servicer with any warranty or representation made under any Basic Document or in any related document or the accuracy of any such warranty or representation or any action of the Administrator, the Trustee or the Servicer or any subservicer taken in the name of the Owner Trustee; (b) the Owner Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with the instructions of the Administrator or any Certificateholder; (c) no provision of this Agreement or any Basic Document shall require the Owner Trustee to expend or risk funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder or under any Basic Document, if the Owner Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it; (d) under no circumstances shall the Owner Trustee be liable for indebtedness evidenced by or arising under any of the Basic Documents, including the principal of and interest on the Notes or any amounts payable with respect to the Certificates; (e) the Owner Trustee shall not be responsible for or in respect of and makes no representation as to the validity or sufficiency of any provision of this Agreement or for the due execution hereof by the Seller or for the form, character, genuineness, sufficiency, value or validity of any of the Owner Trust Estate or for or in respect of the validity or sufficiency of the Basic Documents, the Notes, the Certificates (other than the certificate of authentication on the Certificates) or of any Loans or any related documents, and the Owner Trustee shall in no event assume or incur any liability, duty or obligation to any Noteholder or to any Certificateholder, other than as expressly provided for herein and in the Basic Documents; 16 (f) the Owner Trustee shall not be liable for the default or misconduct of the Administrator, the Indenture Trustee, the Seller or the Servicer under any of the Basic Documents or otherwise and the Owner Trustee shall have no obligation or liability to perform the obligations of the Trust under this Agreement or the Basic Documents that are required to be performed by the Administrator under the Administration Agreement, the Indenture Trustee under the Indenture, the Servicer under the Pooling and Servicing Agreement or the Originator under the Purchase Agreement; and (g) the Owner Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation under this Agreement or otherwise or in relation to this Agreement or any Basic Document, at the request, order or direction of any of the Certificateholders, unless such Certificateholders have offered to the Owner Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee to perform any discretionary act enumerated in this Agreement or in any Basic Document shall not be construed as a duty, and the Owner Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act. SECTION 6.4 Action upon Instruction by Certificateholders. Subject to Section 4.4, the Certificateholders may by written instruction direct the Owner Trustee in the management of the Trust. Such direction may be exercised at any time by written instruction of the Certificateholders pursuant to Section 4.5. Notwithstanding the foregoing, the Owner Trustee shall not be required to take any action hereunder or under any Basic Document if the Owner Trustee shall have reasonably determined, or shall have been advised by counsel, that such action is likely to result in liability on the part of the Owner Trustee or is contrary to the terms hereof or of any Basic Document or is otherwise contrary to law. Whenever the Owner Trustee is unable to decide between alternative courses of action permitted or required by the terms of this Agreement or any Basic Document, or is unsure as to the application, intent, interpretation or meaning of any provision of this Agreement or the Basic Documents, the Owner Trustee shall promptly give notice (in such form as shall be appropriate under the circumstances) to the Certificateholders requesting instruction as to the course of action to be adopted, and, to the extent the Owner Trustee acts in good faith in accordance with any such instruction received, the Owner Trustee shall not be liable on account of such action to any Person. If the Owner Trustee shall not have received appropriate instructions within ten days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action which is consistent, in its view, with 17 this Agreement or the Basic Documents, and as it shall deem to be in the best interests of the Certificateholders, and the Owner Trustee shall have no liability to any Person for any such action or inaction. SECTION 6.5 Furnishing of Documents. The Owner Trustee shall furnish to the Certificateholders, promptly upon receipt of a written request therefor, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and any other instruments furnished to the Owner Trustee under the Basic Documents. SECTION 6.6 Representations and Warranties of Owner Trustee. The Owner Trustee hereby represents and warrants to the Seller, for the benefit of the Certificateholders, that: (a) It is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. The eligibility requirements set forth in Section 6.13 (a) - (c) are satisfied with respect to it. (b) It has full power, authority and legal right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. (c) The execution, delivery and performance by it of this Agreement (i) shall not violate any provision of any law or regulation governing the banking and trust powers of the Owner Trustee or any order, writ, judgment or decree of any court, arbitrator or governmental authority applicable to the Owner Trustee or any of its assets, (ii) shall not violate any provision of the corporate charter or by-laws of the Owner Trustee, or (iii) shall not violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of any lien on any properties included in the Trust pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking to which it is a party, which violation, default or lien could reasonably be expected to have a materially adverse effect on the Owner Trustee's performance or ability to perform its duties as Owner Trustee under this Agreement or on the transactions contemplated in this Agreement. (d) The execution, delivery and performance by the Owner Trustee of this Agreement shall not require the authorization, consent or approval of, the giving of notice to, the filing or registration with, or the taking of any other action in respect of, any governmental authority or agency regulating the corporate trust activities of it. (e) This Agreement has been duly executed and delivered by the Owner Trustee and constitutes the legal, valid and binding agreement of the Owner Trustee, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' 18 rights in general and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. SECTION 6.7 Reliance; Advice of Counsel. The Owner Trustee shall incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties and need not investigate any fact or matter in any such document. The Owner Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any entity as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the method of the determination of which is not specifically prescribed herein, the Owner Trustee may for all purposes hereof rely on a certificate, signed by the chief executive officer, or any vice president or by the treasurer or other authorized officers of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. In the exercise or administration of the trusts hereunder and in the performance of its duties and obligations under this Agreement or the Basic Documents, the Owner Trustee: may act directly or through its agents, attorneys, custodians or nominees pursuant to agreements entered into with any of them, and the Owner Trustee shall not be liable for the conduct or misconduct of such agents, attorneys, custodians or nominees if such agents, attorneys, custodians or nominees shall have been selected by the Owner Trustee with reasonable care; and may consult with counsel, accountants and other skilled professionals to be selected with reasonable care and employed by it. The Owner Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the opinion or advice of any such counsel, accountants or other such Persons and not contrary to this Agreement or any Basic Document. SECTION 6.8 Owner Trustee May Own Certificates and Notes. The Owner Trustee in its individual or any other capacity may become the owner or pledgee of Certificates or Notes and may deal with the Seller, the Administrator, the Indenture Trustee and the Servicer in transactions in the same manner as it would have if it were not the Owner Trustee. SECTION 6.9 Compensation and Indemnity. The Owner Trustee shall receive as compensation for its services hereunder such fees as have been separately agreed upon before the date hereof between the Seller and the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Servicer for its other reasonable expenses hereunder, including the reasonable compensation, expenses and disbursements of such agents, custodians, nominees, representatives, experts and counsel as the Owner Trustee may employ in connection with the exercise and performance of its rights and its duties hereunder. The Servicer shall indemnify the Owner Trustee and its successors, assigns, agents and servants in accordance with the 19 provisions of Section 7.01 of the Pooling and Servicing Agreement. The compensation and indemnities described in this Section 6.9 shall survive the resignation or termination of the Owner Trustee or the termination of this Agreement. Any amounts paid to the Owner Trustee pursuant to this Article VI shall be deemed not to be a part of the Owner Trust Estate immediately after such payment. SECTION 6.10 Replacement of Owner Trustee. The Owner Trustee may give notice of its intent to resign and be discharged from the trusts hereby created by written notice thereof to the Administrator; provided that no such resignation shall become effective, and the Owner Trustee shall not resign, prior to the time set forth in Section 6.10(c). The Administrator may appoint a successor Owner Trustee by delivering a written instrument, in duplicate, to the resigning Owner Trustee and the successor Owner Trustee. If no successor Owner Trustee shall have been appointed and have accepted appointment within 30 days after the giving of such notice, the resigning Owner Trustee giving such notice may petition any court of competent jurisdiction for the appointment of a successor Owner Trustee. The Administrator shall remove the Owner Trustee if: (a) the Owner Trustee shall cease to be eligible in accordance with the provisions of Section 6.13 and shall fail to resign after written request therefor by the Administrator; (b) the Owner Trustee shall be adjudged bankrupt or insolvent; (c) a receiver or other public officer shall be appointed or take charge or control of the Owner Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; or (d) the Owner Trustee shall otherwise be incapable of acting. If the Owner Trustee gives notice of its intent to resign or is removed or if a vacancy exists in the office of Owner Trustee for any reason, the Administrator shall promptly appoint a successor Owner Trustee by written instrument, in duplicate (one copy of which instrument shall be delivered to the outgoing Owner Trustee so removed and one copy to the successor Owner Trustee) and shall pay all fees owed to the outgoing Owner Trustee. Any resignation or removal of the Owner Trustee and appointment of a successor Owner Trustee pursuant to any of the provisions of this Section 6.10 shall not become effective and no such resignation shall be deemed to have occurred until a written acceptance of appointment is delivered by the successor Owner Trustee to the outgoing Owner Trustee and the Administrator, all fees and expenses due to the outgoing Owner Trustee are paid and, if the Insurer is the Controlling Party, such successor Owner Trustee is reasonably acceptable to the Controlling Party. Any successor Owner Trustee appointed pursuant to this Section 6.10 shall be eligible to act in such capacity in accordance with Section 6.13 and, following compliance 20 with the preceding sentence, shall become fully vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with like effect as if originally named as Owner Trustee. The Administrator shall provide notice of such resignation or removal of the Owner Trustee to each of the Rating Agencies. The predecessor Owner Trustee shall upon payment of its fees and expenses deliver to the successor Owner Trustee all documents and statements and monies held by it under this Agreement. The Administrator and the predecessor Owner Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Owner Trustee all such rights, powers, duties and obligations. Upon acceptance of appointment by a successor Owner Trustee pursuant to this Section 6.10, the Administrator shall mail notice of the successor of such Owner Trustee to all Certificateholders, the Indenture Trustee, the Insurer, the Noteholders and the Rating Agencies. SECTION 6.11 Merger or Consolidation of Owner Trustee. Any Person into which the Owner 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 Owner Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided such Person shall be eligible pursuant to Section 6.13, and without the execution or filing of any instrument or any further act on the part of any of the parties hereto; provided, however, that the Owner Trustee shall mail notice of such merger or consolidation to the Rating Agencies. SECTION 6.12 Appointment of Co-Trustee or Separate Trustee. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Owner Trust Estate or any Financed Vehicle may at the time be located, the Administrator and the Owner Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Owner Trustee to act as co-trustee, jointly with the Owner Trustee, or as separate trustee or trustees, of all or any part of the Owner Trust Estate, and to vest in such Person, in such capacity, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 6.12, such powers, duties, obligations, rights and trusts as the Administrator and the Owner Trustee may consider necessary or desirable. If the Administrator shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, the Owner Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee under this Agreement shall be required to meet the terms of eligibility as a successor trustee pursuant to Section 6.13 and no notice of the appointment of any co-trustee or separate trustee shall be required pursuant to Section 6.10. 21 Each separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (a) all rights, powers, duties and obligations conferred or imposed upon the Owner Trustee shall be conferred upon and exercised or performed by the Owner Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Owner Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Owner Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Owner Trustee; (b) no trustee under this Agreement shall be personally liable by reason of any act or omission of any other trustee under this Agreement (unless such other trustee acts or fails to act at the direction of such first trustee); and (c) the Administrator and the Owner Trustee acting jointly may at any time accept the resignation of or remove any separate trustee or co-trustee. Any notice, request or other writing given to the Owner Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Owner Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Owner Trustee. Each such instrument shall be filed with the Owner Trustee and a copy thereof given to the Administrator. Any separate trustee or co-trustee may at any time appoint the Owner Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Owner Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. SECTION 6.13 Eligibility Requirements for Owner Trustee. The Owner Trustee shall at all times: (a) be a corporation satisfying the provisions of Section 3807(a) of the Business Trust Statute; (b) be authorized to exercise corporate trust powers; (c) have a combined capital and surplus of at least $50,000,000 and be subject to supervision or examination by federal or 22 state authorities; and (d) have a long-term unsecured debt rating of at least Baa3 by Moody's Investors Service or be otherwise satisfactory to Moody's Investors Service. If such corporation shall publish reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 6.13, 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 Owner Trustee shall cease to be eligible in accordance with the provisions of this Section 6.13, the Owner Trustee shall resign immediately in the manner and with the effect specified in Section 6.10. ARTICLE VII TERMINATION OF TRUST AGREEMENT SECTION 7.1 Termination of Trust Agreement. This Agreement (other than Section 6.9) and the Trust shall terminate and be of no further force or effect on the final distribution by the Owner Trustee of all monies or other property or proceeds of the Owner Trust Estate in accordance with the terms of the Indenture, the Pooling and Servicing Agreement (including the exercise by the Servicer of its option to purchase the Loans pursuant to Section 9.01 of the Pooling and Servicing Agreement) and Article V. The bankruptcy, liquidation, dissolution, death or incapacity of any Certificateholder shall not (x) operate to terminate this Agreement or the Trust, nor (y) entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of all or any part of the Trust or the Owner Trust Estate nor (z) otherwise affect the rights, obligations and liabilities of the parties hereto. Except as provided in Section 7.1(a), neither the Seller nor any Certificateholder shall be entitled to revoke or terminate the Trust or this Agreement. Notice of any termination of the Trust specifying the Distribution Date upon which the Certificateholders shall surrender their Certificates to the Paying Agent for payment of the final distribution and cancellation, shall be given by the Paying Agent by letter to Certificateholders mailed within five Business Days of receipt of notice of termination of the Pooling and Servicing Agreement from the Servicer given pursuant to Section 9.02(b) of the Pooling and Servicing Agreement, stating: (i) the Distribution Date upon or with respect to which the final distribution on the Certificates shall be made upon presentation and surrender of the Certificates at the office of the Paying Agent; (ii) the amount of any such final distribution; and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, distributions being made only upon presentation and surrender of the Certificates at the office of the Paying Agent therein specified. The Paying Agent shall give such notice to the Certificate Registrar (if other than the Owner Trustee) and the Paying Agent at the time such notice is given to Certificateholders. Upon presentation and surrender of the Certificates, the Paying Agent 23 shall cause to be distributed to Certificateholders amounts distributable on such Distribution Date pursuant to Section 5.2. If all of the Certificateholders shall not surrender their Certificates for cancellation within six months after the date specified in the written notice specified in Section 7.1(c), the Owner Trustee shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Certificates shall not have been surrendered for cancellation, the Owner Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds and other assets that shall remain subject to this Agreement. Subject to applicable laws with respect to escheat of funds, any funds remaining in the Trust after exhaustion of such remedies in the preceding sentence shall be deemed property of the Seller and distributed by the Owner Trustee to the Seller. Upon the winding up of the Trust and its termination, the Owner Trustee shall cause the Certificate of Trust to be canceled by filing a certificate of cancellation with the Secretary of State in accordance with the provisions of Section 3810 of the Business Trust Statute. (f) Within sixty days of the later of (i) the cancellation of all of the Certificates pursuant to Section 7.1(c) or Section 7.1(d), or (ii) payment to the Seller of funds remaining in the Trust pursuant to Section 7.1(d), the Owner Trustee shall provide each of the Rating Agencies with written notice stating that all Certificates have been so canceled or such funds have been so paid to the Seller. ARTICLE VIII AMENDMENTS SECTION 8.1 Amendments Without Consent of Certificateholders, Controlling Party, or Noteholders. This Agreement may be amended by the Seller and the Owner Trustee without the consent of any of the Noteholders, Controlling Party or the Certificateholders (but with prior notice to each of the Rating Agencies) to (i) cure any ambiguity, (ii) correct or supplement any provision in this Agreement that may be defective or inconsistent with any other provision in this Agreement or any other Basic Document, (iii) add to the covenants, restrictions or obligations of the Seller or the Owner Trustee, (iv) evidence and provide for the acceptance of the appointment of a successor trustee with respect to the Owner Trust Estate and add to or change any provisions as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee pursuant to Article VI, or (v) add, change or eliminate any other provision of this Agreement in any manner that shall not, as evidenced by an Officer's Certificate, adversely affect in any material respect the interests of the Noteholders, Insurer or the Certificateholders. 24 SECTION 8.2 Amendments With Consent of Certificateholders and Controlling Party. This Agreement may also be amended from time to time by the Seller and the Owner Trustee with the consent of Controlling Party as of the close of business on the preceding Distribution Date and the consent of the Holders of Certificates evidencing not less than a majority of the ownership interests in the Trust as of the close of business on the preceding Distribution Date (which consent, whether given pursuant to this Section 8.2 or pursuant to any other provision of this Agreement, shall be conclusive and binding on such Person and on the Insurer, all future holders of such Notes or Certificates and of any Notes or Certificates issued upon the transfer thereof or in exchange thereof or in lieu thereof whether or not notation of such consent is made upon the Notes or Certificates) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the rights of the Insurer, the Noteholders or the Certificateholders; provided, however, that no such amendment may be made to this Agreement which would be prohibited under the proviso of Section 9.2 of the Indenture if such amendment were to be made to the Indenture unless the consent that would have been required therein, if such amendment were to be made to the Indenture, shall have been obtained. SECTION 8.3 Form of Amendments. Promptly after the execution of any amendment, supplement or consent pursuant to Section 8.1 or 8.2, the Owner Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder, the Insurer and the Indenture Trustee. It shall not be necessary for the consent of Certificateholders, the Insurer, the Noteholders or the Indenture Trustee pursuant to Section 8.2 to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents (and any other consents of Certificateholders provided for in this Agreement or in any other Basic Document) and of evidencing the authorization of the execution thereof by the Insurer, Certificateholders and Noteholders shall be subject to such reasonable requirements as the Owner Trustee may prescribe. Promptly after the execution of any amendment to the Certificate of Trust, the Owner Trustee shall cause the filing of such amendment with the Secretary of State. Prior to the execution of any amendment to this Agreement or the Certificate of Trust, the Owner Trustee shall be entitled to receive and rely upon an Officer's Certificate stating that the execution of such amendment is authorized or permitted by this Agreement and that all conditions precedent to such execution have been satisfied. The Owner Trustee may, but shall not be obligated to, enter into any such amendment which affects the Owner Trustee's own rights, duties or immunities under this Agreement or otherwise. 25 ARTICLE IX MISCELLANEOUS SECTION 9.1 No Legal Title to Owner Trust Estate. The Certificateholders shall not have legal title to any part of the Owner Trust Estate. The Certificateholders shall be entitled to receive distributions with respect to their undivided ownership interest therein only in accordance with Articles V and VII. No transfer, by operation of law or otherwise, of any right, title, and interest of the Certificateholders to and in their ownership interest in the Owner Trust Estate shall operate to terminate this Agreement or the trusts hereunder or entitle any transferee to an accounting or to the transfer to it of legal title to any part of the Owner Trust Estate. SECTION 9.2 Limitations on Rights of Others. Except for Section 9.12 and as otherwise provided herein, the provisions of this Agreement are solely for the benefit of the Owner Trustee, the Seller, the Certificateholders, the Administrator and, to the extent expressly provided herein, the Insurer, the Indenture Trustee and the Noteholders, and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Owner Trust Estate or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. This Agreement shall also inure to the benefit of the Insurer so long as the Insurer is the Controlling Party. Without limiting the generality of the foregoing, all covenants and agreements in this Agreement which confer rights upon the Insurer shall be for the benefit of and run directly to the Insurer, and the Insurer shall be entitled to rely on and enforce such covenants, subject, however, to the limitations on such rights provided in this Agreement and the Basic Documents. The Insurer may disclaim any of its rights and powers under this Agreement (but not its duties and obligations under the Policy) upon delivery of a written notice to the Trust. With respect to the Insurer, the Owner Trustee undertakes to perform or observe only such of the covenants and obligations of the Owner Trustee as are expressly set forth in this Agreement, and no implied covenants or obligations with respect to the Insurer shall be read into this Agreement or the other Basic Documents against the Owner Trustee. The Owner Trustee shall not be deemed to owe any fiduciary duty to the Insurer, and shall not be liable to any such person for the failure of the Trust to perform its obligations to such persons other than as a result of the gross negligence or willful misconduct of the Owner Trustee in the performance of its express obligations under this Agreement. SECTION 9.3 Notices. All demands, notices and communications upon or to the Seller, the Servicer, the Administrator, the Indenture Trustee, the Owner Trustee, the Insurer, the Rating Agencies or any Certificateholder under this Agreement shall be delivered as specified in Appendix B to the Pooling and Servicing Agreement. SECTION 9.4 Severability. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed enforceable to the fullest extent permitted, and if not so permitted, shall be deemed severable from the remaining covenants, 26 agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the holders thereof. SECTION 9.5 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts (and by different parties on separate counterparts), each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. SECTION 9.6 Successors and Assigns. All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, the Seller, the Owner Trustee and each Certificateholder and their respective successors and permitted assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by a Certificateholder shall bind the successors and assigns of such Certificateholder. SECTION 9.7 No Petition Covenant. Notwithstanding any prior termination of this Agreement, the Trust (or the Owner Trustee on behalf of the Trust), and each Certificateholder, by accepting a Certificate (or interest therein), hereby covenant and agree that they shall not, prior to the date which is one year and one day after the termination of this Agreement acquiesce, petition or otherwise invoke or cause the Seller to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Seller under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller. SECTION 9.8 No Recourse. Each Certificateholder by accepting a Certificate (or interest therein) acknowledges that such Person's Certificate (or interest therein) represents beneficial interests in the Trust only and does not represent interests in or obligations of the Seller, the Servicer, the Administrator, the Owner Trustee, the Indenture Trustee or any Affiliate thereof and no recourse, either directly or indirectly, may be had against such parties or their assets, except as may be expressly set forth or contemplated in this Agreement, the Certificates or the Basic Documents. Except as expressly provided in the Basic Documents, neither the Seller, the Servicer nor the Owner Trustee in their respective individual capacities, nor any of their respective partners, beneficiaries, agents, officers, directors, employees or successors or assigns, shall be personally liable for, nor shall recourse be had to any of them for, the distribution of any amount with respect to the Certificates, or the Owner Trustee's performance of, or omission to perform, any of the covenants, obligations or indemnifications contained in the Certificates or this Agreement, it being expressly understood that said covenants and obligations have been made by the Owner Trustee solely in its capacity as the Owner Trustee. Each Certificateholder by the acceptance of a Certificate (or beneficial interest therein) shall agree that, except as expressly provided in the Basic Documents, in the case of nonpayment of any 27 amounts with respect to the Certificates, it shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom. SECTION 9.9 Headings. The headings of the various Articles and Sections herein are for purposes of reference only and shall not affect the meaning or interpretation of any provision hereof. SECTION 9.10 Governing Law. This Agreement shall be construed in accordance with the internal laws of the State of Delaware, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. SECTION 9.11 Certificate Transfer Restrictions. The Certificates may not be acquired by or for the account of an employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of Title I of ERISA, a plan described in Section 4975(e)(1) of the Code or any entity whose underlying assets include plan assets by reason of a plan's investment in the entity (each, a "Benefit Plan"). By accepting and holding a Certificate, the Holder thereof shall be deemed to have represented and warranted that it is not a Benefit Plan. SECTION 9.12 Administrator. The Administrator is authorized to execute on behalf of the Trust all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Trust to prepare, file or deliver pursuant to the Basic Documents. Upon request, the Owner Trustee shall execute and deliver to the Administrator a power of attorney appointing the Administrator its agent and attorney-in-fact to execute all such documents, reports, filings, instruments, certificates and opinions. 28 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed by their respective officers hereunto duly authorized, as of the day and year first above written. WILMINGTON TRUST COMPANY as Owner Trustee By: Name: Title: ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC, as Seller By: Name: Title: Acknowledged and Accepted: ALLIANCE LAUNDRY SYSTEMS LLC, as Servicer By: Name: Title: 1 EXHIBIT A NUMBER R-1 OWNERSHIP INTEREST: 100% SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF (i) AN "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (ii) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (iii) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY. BY ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER HEREOF AND THE CERTIFICATE OWNER SHALL EACH BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT IT IS NOT A BENEFIT PLAN. THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON NOVEMBER 28, 2000, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. Alliance Laundry Equipment Receivables Trust 2000-A CERTIFICATE evidencing a fractional undivided interest in the Trust, as defined below, the property of which includes a pool of commercial loans evidenced by notes secured by, commercial laundry equipment manufactured by Alliance Laundry Systems LLC and others, which loans have been sold to the Trust by Alliance Laundry Equipment Receivables LLC. (This Certificate does not represent an interest in or obligation of Alliance Laundry Equipment Receivables LLC, Alliance Laundry Systems LLC, the Owner Trustee or any of their respective affiliates, except to the extent described below.) 2 THIS CERTIFIES THAT Alliance Laundry Equipment Receivables LLC is the registered owner of a nonassessable, fully-paid, fractional undivided interest in Alliance Laundry Equipment Receivables Trust 2000-A (the "Trust"). The Trust was created pursuant to a trust agreement, dated as of November 28, 2000 and as further amended, restated or supplemented from time to time, the "Trust Agreement"), between the Seller and Wilmington Trust Company, as owner trustee (the "Owner Trustee"), a summary of certain of the pertinent provisions of which is set forth below. To the extent not otherwise defined herein, the capitalized terms used herein have the meanings assigned to them in the Trust Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Trust Agreement, the terms of which are incorporated herein by reference and made a part hereof, to which Trust Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. The Holder of this Certificate acknowledges and agrees that its rights to receive distributions in respect of this Certificate are subordinated to the rights of the Noteholders and Insurer as and to the extent described in the Pooling and Servicing Agreement and the Indenture. Each Certificateholder with respect to a Certificate, by its acceptance of a Certificate, covenants and agrees that such Certificateholder with respect to a Certificate, shall not, prior to the date which is one year and one day after the termination of the Trust Agreement, acquiesce, petition or otherwise invoke or cause the Seller to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Seller under any federal or state bankruptcy, insolvency, reorganization or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller. Distributions on this Certificate shall be made as provided in the Trust Agreement by the Owner Trustee by wire transfer, check mailed or, where possible, intra-bank book entry to the Certificateholder of record in the Certificate Register without the presentation or surrender of this Certificate or the making of any notation hereon. Except as otherwise provided in the Trust Agreement and notwithstanding the above, the final distribution on this Certificate shall be made after due notice by the Owner Trustee of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office maintained for such purpose by the Owner Trustee at the Harris Trust Company, 58 Pine Street, 19th Floor, Wall Street Plaza, New York, New York. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 3 Unless the certificate of authentication hereon shall have been executed by an authorized officer of the Owner Trustee by manual signature, this Certificate shall not entitle the Holder hereof to any benefit under the Trust Agreement or the Pooling and Servicing Agreement or be valid for any purpose. THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 4 IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in its individual capacity, has caused this Certificate to be duly executed. Dated: November__, 2000 ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: Name: Title: OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Trust Agreement. WILMINGTON TRUST COMPANY [WILMINGTON TRUST COMPANY not in its individual not in its individual capacity but solely capacity but solely as Owner Trustee [OR] as Owner Trustee by __________________________________, as Authenticating Agent By:_________________________ Authorized Officer By: __________________________________ Authorized Officer] 5 REVERSE OF CERTIFICATE The Certificates do not represent an obligation of, or an interest in, the Seller, the Servicer, the Indenture Trustee, the Owner Trustee or any affiliates of any of them and no recourse may be had against such parties or their assets, except as may be expressly set forth or contemplated herein or in the Trust Agreement or the Basic Documents. In addition, this Certificate is not guaranteed by any governmental agency or instrumentality and is limited in right of payment to certain collections and recoveries with respect to the Loans (and certain other amounts), all as more specifically set forth herein and in the Trust Agreement and the Pooling and Servicing Agreement. A copy of each of the Pooling and Servicing Agreement and the Trust Agreement may be examined during normal business hours at the principal office of the Seller, and at such other places, if any, designated by the Seller, by any Certificateholder upon written request. The Trust Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Seller and the rights of the Certificateholders under the Trust Agreement at any time by the Seller and the Owner Trustee with the consent of (i) the Controlling Party, and (ii) Certificateholders whose Certificates evidence not less than a majority of the ownership interest in the Trust, each as of the close of the preceding Distribution Date. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and on all future Holders of this Certificate and of any Certificate issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon this Certificate. The Trust Agreement also permits the amendment thereof, in certain circumstances, without the consent of the Controlling Party, the Holders of any of the Certificates or the Notes. As provided in the Trust Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registerable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies of the Certificate Registrar maintained by the Owner Trustee at the Harris Trust Company, 58 Pine Street, 19th Floor, Wall Street Plaza, New York, New York, accompanied by (i) a written instrument of transfer in form satisfactory to the Owner Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing and (ii) certain opinions required by Section 3.4 of the Trust Agreement, and thereupon one or more new Certificates of authorized denominations evidencing the same aggregate interest in the Trust will be issued to the designated transferee. The initial Certificate Registrar appointed under the Trust Agreement is Wilmington Trust Company. The Owner Trustee, the Certificate Registrar and any agent of the Owner Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Owner Trustee, the Certificate Registrar or any such agent shall be affected by any notice to the contrary. 6 The obligations and responsibilities created by the Trust Agreement and the Trust created thereby shall terminate upon the distribution to Certificateholders of all amounts required to be distributed to them pursuant to the Trust Agreement and the Pooling and Servicing Agreement and the disposition of all property held as part of the Trust. 7 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________________________________________ (Please print or type name and address, including postal zip code, of assignee) ________________________________________________________________________________ the within Certificate, and all rights thereunder, hereby irrevocably constituting and appointing _________________________________________________________ Attorney to transfer said Certificate on the books of the Certificate Registrar, with full power of substitution in the premises. Dated: _____________________________* Signature Guaranteed: _____________________________* * NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. 1 EXHIBIT B CERTIFICATE OF TRUST OF Alliance Laundry Equipment Receivables Trust 2000-A THIS Certificate of Trust of Alliance Laundry Equipment Receivables Trust 2000-A (the "Trust"), is being duly executed and filed on behalf of the Trust by the undersigned, as trustee, to form a business trust under the Delaware Business Trust Act (12 Del. C. ss.3801 et seq.) (the "Act"). 1. Name. The name of the business trust formed by this Certificate of Trust is Alliance Laundry Equipment Receivables Trust 2000-A. 2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware is WILMINGTON TRUST COMPANY, 110 North Market, CFS/9th Floor, Wilmington, Delaware 19890, Attention: Corporate Trustee Administration. 3. This Certificate of Trust shall be effective upon filing. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Trust in accordance with Section 3811(a)(1) of the Act. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as trustee of the Trust. By: _______________________________ Name: Title: 1 EX-10.53 6 dex1053.txt ADMINISTRATION AGREEMENT Exhibit 10.53 ADMINISTRATION AGREEMENT AMONG ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A ISSUER AND ALLIANCE LAUNDRY SYSTEMS LLC ADMINISTRATOR AND THE BANK OF NEW YORK INDENTURE TRUSTEE DATED AS OF NOVEMBER 28, 2000 ADMINISTRATION AGREEMENT, dated as of November 28, 2000 among ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A, a Delaware business trust (the "Issuer"), ALLIANCE LAUNDRY SYSTEMS LLC, a Delaware limited liability company, as administrator (the "Administrator"), and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Indenture Trustee (the "Indenture Trustee"). W I T N E S S E T H : WHEREAS, the Issuer is issuing Notes pursuant to an Indenture, dated as of November 28, 2000 (as amended and supplemented from time to time, the "Indenture"), between the Issuer and the Indenture Trustee; WHEREAS, the Issuer has entered into (or assumed) certain agreements in connection with the issuance of the Notes and the Certificates, including (i) the Pooling and Servicing Agreement, (ii) the Note Depository Agreement, (iii) the Indenture and (iv) the Ambac Insurance Agreement; WHEREAS, pursuant to the Basic Documents, the Issuer and Wilmington Trust Company, as Owner Trustee, are required to perform certain duties in connection with (a) the Notes and the Trust Estate and (b) the Certificates; WHEREAS, the Issuer and the Owner Trustee desire to have the Administrator perform certain of the duties of the Issuer and the Owner Trustee referred to in the preceding clause, and to provide such additional services consistent with the terms of this Agreement and the Basic Documents as the Issuer and the Owner Trustee may from time to time request; WHEREAS, the Administrator has the capacity to provide the services required hereby and is willing to perform such services for the Issuer and the Owner Trustee on the terms set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties agree as follows: 1. Certain Definitions. Capitalized terms used but not otherwise defined herein shall have the respective meanings assigned them in Part I of Appendix A to the Pooling and Servicing Agreement of even date herewith among the Issuer, Alliance Laundry Equipment Receivables LLC and Alliance Laundry Systems LLC, as Servicer (as it may be amended, supplemented or modified from time to time, the "Pooling and Servicing Agreement"). All references herein to "the Agreement" or "this Agreement" are to this Administration Agreement as it may be amended, supplemented or modified from time to time, the exhibits hereto and the capitalized terms used herein which are defined in such Appendix A, and all references herein to Sections and subsections are to Sections and subsections of this Agreement unless otherwise specified. The rules of construction set forth in Part II of such Appendix A shall be applicable to this Agreement. 2. Duties of the Administrator. (a) Duties with Respect to the Depository Agreements and the Indenture. (i) The Administrator agrees to perform all its duties as Administrator and the duties of the Issuer and the Owner Trustee under the Indenture and the Note Depository Agreement. In addition, the Administrator shall consult with the Owner Trustee regarding the duties of the Issuer and the Owner Trustee under the Indenture or the Note Depository Agreement. The Administrator shall monitor the performance of the Issuer and shall advise the Owner Trustee when action is necessary to comply with the duties of the Issuer and the Owner Trustee under the Indenture or the Note Depository Agreement. The Administrator shall prepare for execution by the Issuer or the Owner Trustee or shall cause the preparation by other appropriate persons of all such documents, reports, filings, instruments, certificates, notices and opinions as shall be the duty of the Issuer or the Owner Trustee, as applicable, to prepare, file or deliver pursuant to the Indenture or the Note Depository Agreement. In furtherance of the foregoing, the Administrator shall take all appropriate action that it is the duty of the Issuer or the Owner Trustee to take pursuant to the Indenture including such of the foregoing as are required with respect to the following matters under the Indenture (references are to sections of the Indenture): (i) the preparation of or obtaining of the documents and instruments required for authentication of the Notes and delivery of the same to the Indenture Trustee (Section 2.2); (ii) causing the Note Register to be kept and giving the Indenture Trustee notice of any appointment of a new Note Registrar and the location, or change in location, of the Note Register (Section 2.4); (iii) the notification of Noteholders of the final principal payment on their Notes (Section 2.7(e)); (iv) the preparation, obtaining or filing of the instruments, opinions and certificates and other documents required for the release of collateral (Section 2.9); (v) the preparation of Definitive Notes and arranging the delivery thereof (Section 2.12); (vi) the maintenance of an office in the Borough of Manhattan, the City of New York, for registration of transfer or exchange of Notes (Section 3.2); (vii) causing newly appointed Paying Agents, if any, to deliver to the Indenture Trustee the instrument specified in the Indenture regarding funds held in trust (Section 3.3(c)); (viii) the direction to the Indenture Trustee to deposit monies with Paying Agents, if any, other than the Indenture Trustee (Section 3.3(b)); (ix) the obtaining and preservation of the Issuer's qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of the Indenture, the Notes, the Collateral and each other instrument and agreement included in the Trust Estate (Section 3.4); (x) the preparation of all supplements, amendments, financing statements, continuation statements, instruments of further assurance and other instruments, in accordance with Section 3.5 of the Indenture, necessary to protect the Trust Estate (Section 3.5); (xi) the delivery of the Opinion of Counsel on the Closing Date, in accordance with Section 3.6(a) of the Indenture, as to the Trust Estate, and the annual delivery of the Opinion of Counsel, the Officer's Certificate and certain other statements, in accordance with Sections 3.6(b) and 3.9 of the Indenture, as to compliance with the Indenture (Sections 3.6 and 3.9); (xii) the identification to the Indenture Trustee in an Officer's Certificate of a Person with whom the Issuer has contracted to perform its duties under the Indenture (Section 3.7(b)); (xiii) the notification of the Indenture Trustee, the Insurer and the Rating Agencies of a Servicer Default and, if such Servicer Default arises from the failure of the Servicer to perform any of its duties under the Pooling and Servicing Agreement, the taking of all reasonable steps available to remedy such failure (Section 3.7(d)); (xiv) the preparation and obtaining of documents and instruments required for the release of the Issuer from its obligations under the Indenture (Section 3.11(b)); (xv) the delivery of notice to the Indenture Trustee, the Insurer and the Rating Agencies, of each Default, Event of Default, Early Payout Event, Servicer Default and default by the Seller and ALS of their respective obligations under the Pooling and Servicing Agreement and the Purchase Agreement (Section 3.19); (xvi) the monitoring of the Issuer's obligations as to the satisfaction and discharge of the Indenture and the preparation of an Officer's Certificate and the obtaining of the Opinion of Counsel and the Independent Certificate relating thereto (Section 4.1); (xvii) the compliance with any written directive of the Indenture Trustee with respect to the sale of the Trust Estate in a commercially reasonable manner if an Event of Default shall have occurred and be continuing (Section 5.4); (xviii) the preparation and delivery of notice to Noteholders of the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee (Section 6.8); (xix) the preparation of any written instruments required to confirm more fully the authority of any co-trustee or separate trustee and any written instruments necessary in connection with the resignation or removal of any co-trustee or separate trustee (Sections 6.8 and 6.10); (xx) the furnishing of the Indenture Trustee with the names and addresses of Noteholders during any period when the Indenture Trustee is not the Note Registrar (Section 7.1); (xxi) the preparation of an Issuer Request and Officer's Certificate and the obtaining of an Opinion of Counsel and Independent Certificates, if necessary, for the release of the Trust Estate (Sections 8.4 and 8.5); (xxii) the preparation of Issuer Orders and the obtaining of Opinions of Counsel with respect to the execution of amendments or waivers and, if applicable, the mailing to the Noteholders of notices with respect to such amendments or waivers (Sections 9.1, 9.2 and 9.3); (xxiii) the execution and delivery of new Notes conforming to any amendment (Section 9.6); (xxiv) the notification of Noteholders and the Rating Agencies of redemption of the Notes or the duty to cause the Indenture Trustee to provide such notification (Sections 10.1 and 10.2); (xxv) the preparation of all Officer's Certificates and Opinions of Counsel with respect to any requests by the Issuer to the Indenture Trustee to take any action under the Indenture (Section 11.1(a)); (xxvi) the preparation and delivery of Officer's Certificates and the obtaining of Independent Certificates, if necessary, for the release of property from the lien of the Indenture (Section 11.1(b)); (xxvii) the notice or other communication to the Rating Agencies, upon the failure of the Indenture Trustee to give such notice or other communication pursuant to Section 11.4 (Section 11.4); (xxviii) the preparation and delivery to Noteholders and the Indenture Trustee of any agreements with respect to alternate payment and notice provisions (Section 11.6); and (xxix) the recording of the Indenture, if applicable (Section 11.15). (b) The Administrator additionally agrees to perform all its duties as Administrator and the duties of the Issuer and the Owner Trustee under the Ambac Insurance Agreement. In addition, the Administrator shall consult with the Owner Trustee regarding the duties of the Issuer and the Owner Trustee under the Ambac Insurance Agreement. The Administrator shall monitor the performance of the Issuer and shall advise the Owner Trustee when action is necessary to comply with the duties of the Issuer and the Owner Trustee under the Ambac Insurance Agreement. The Administrator shall prepare for execution by the Issuer or the Owner Trustee or shall cause the preparation by other appropriate persons of all such documents, reports, filings, instruments, certificates, notices and opinions as it shall be the duty of the Issuer or the Owner Trustee, as applicable, to prepare, file or deliver pursuant to the Ambac Insurance Agreement. In furtherance of the foregoing, the Administrator shall take all appropriate action that is the duty of the Issuer or the Owner Trustee to take pursuant to the Ambac Insurance Agreement including such of the foregoing as are required with respect to the following matters under the Ambac Insurance Agreement (references are to sections of the Ambac Insurance Agreement): (i) the maintenance of the Issuer's existence as a business trust and the obtaining and preservation of the Issuer's qualification to do business in each jurisdiction in which such qualification is or shall be necessary under the Basic Documents and shall maintain all licenses, permits, charters and registrations material to the conduct of its business (Section 2.9(b)); (ii) the notification of the Insurer of the occurrence of certain material events (Section 2.9(d)); (iii) permitting, upon reasonable prior notice of the Insurer, access to the Issuer's records and an annual field examination of the Issuer by the Insurer's independent public accountants (Sections 2.9 (c) and (e)); (iv) the taking of all actions necessary to exempt the sale of the Notes from registration under the Securities Act or any under any applicable securities laws of any state of the United States (Section 2.9(f)); (v) to the extent the Issuer shall otherwise be preparing the same, the delivery of the financial statements of the Issuer to the Insurer (Section 2.9(g)); (vi) the provision of such other information in respect of the Loans and the Basic Documents and such other financial or operational information in respect of the Issuer that the Insurer may reasonably request (Section 2.9(h)); (vii) the preparation and delivery of notice to the Insurer prior to the consummation of any action or failure to act that is reasonably likely to result in a Material Adverse Change (as defined in the Ambac Insurance Agreement) or reasonably likely to interfere with the enforcement of any of the Insurer's rights under the Basic Documents (Section 2.10 (a)); (viii) the delivery to the Insurer of prior written notice of any amendment to the Basic Documents or the Offering Memorandum required by law and a copy of any such amendment (Section 2.10(b)); (c) In addition, the Administrator will indemnify the Owner Trustee and its agents for, and hold them harmless against, any losses, liability or expense incurred without gross negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of the transactions contemplated by the Trust Agreement, including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties under the Trust Agreement. 3. Additional Duties. In addition to the duties of the Administrator set forth above, the Administrator shall perform such calculations and shall prepare for execution by the Issuer or the Owner Trustee or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates, notices and opinions as it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Basic Documents, and at the request of the Owner Trustee shall take all appropriate action that it is the duty of the Issuer or the Owner Trustee to take pursuant to the Basic Documents. Subject to Section 7 of this Agreement, and in accordance with the directions of the Owner Trustee, the Administrator shall administer, perform or supervise the performance of such other activities in connection with the Trust Estate (including the Basic Documents) as are not covered by any of the foregoing provisions and as are expressly requested by the Owner Trustee and are reasonably within the capability of the Administrator. Notwithstanding anything in this Agreement or the Basic Documents to the contrary, the Administrator shall be responsible for promptly notifying the Owner Trustee if any withholding tax is imposed on the Trust's payments to a Certificateholder as contemplated in Section 5.2(c) of the Trust Agreement. Any such notice shall specify the amount of any withholding tax required to be withheld by the Owner Trustee pursuant to such provision. Notwithstanding anything in this Agreement or the Basic Documents to the contrary, the Administrator shall be responsible for performance of the duties of the Owner Trustee set forth in Sections 5.2(d), 5.4(a), (b), (c) and (d) and the last two sentences of Section 5.4, and Section 5.5 of the Trust Agreement with respect to, among other things, accounting and reports to Certificateholders. The Administrator may satisfy any obligations it may have with respect to clauses (ii) and (iii) above by retaining, at the expense of the Administrator, a firm of independent public accountants acceptable to the Owner Trustee which shall perform the obligations of the Administrator thereunder. If a withholding tax specified in the previous clause (ii) is due, such accountants or the Administrator shall provide the Owner Trustee with a letter specifying which withholding tax specified in the preceding clause (ii) is then required and specifying the procedures to be followed to comply with the Code (a) on or before December 15, 2000 if such withholding tax is due in connection with a payment made on the first Distribution Date or (b) in all other instances, thirty days before such tax is to be withheld. Such accountants or the Administrator shall update such letter if and to the extent it shall no longer be accurate. The Administrator shall perform the duties of the Administrator specified in Section 6.10 of the Trust Agreement required to be performed in connection with the resignation or removal of the Owner Trustee, and any other duties expressly required to be performed by the Administrator under the Trust Agreement. In carrying out the foregoing duties or any of its other obligations under this Agreement, the Administrator may enter into transactions with or otherwise deal with any of its Affiliates; provided, however, that the terms of any such transactions or dealings shall be in accordance with any directions received from the Issuer and shall be, in the Administrator's opinion, no less favorable to the Issuer than would be available from Persons that are not Affiliates of the Administrator. The Administrator hereby agrees to execute on behalf of the Issuer all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Basic Documents. Notwithstanding anything in this Agreement or the Basic Documents to the contrary, the Administrator shall be responsible for performance of the duties of ALER set forth in Section 2.6(iii) of the Trust Agreement. 4. Non-Ministerial Matters. With respect to matters that in the reasonable judgment of the Administrator are non-ministerial, the Administrator shall not take any action unless, within a reasonable time before the taking of such action, the Administrator shall have notified the Owner Trustee of the proposed action and the Owner Trustee shall not have withheld consent or provided an alternative direction. For the purpose of the preceding sentence, "non-ministerial matters" shall include: (a) the amendment of or any supplement to the Indenture; (b) the initiation of any claim or lawsuit by the Issuer and the compromise of any action, claim or lawsuit brought by or against the Issuer; (c) the amendment, change or modification of any of the Basic Documents; (d) the appointment of successor Note Registrars, successor Paying Agents and successor Indenture Trustees pursuant to the Indenture or the appointment of successor Administrators or successor Servicers, or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee of its obligations under the Indenture; and (e) the removal of the Indenture Trustee. Notwithstanding anything to the contrary in this Agreement, the Administrator shall not be obligated to, and shall not, (x) make any payments to the Noteholders under the Basic Documents, (y) sell the Trust Estate pursuant to Section 5.4 of the Indenture or (z) take any other action that the Issuer directs the Administrator not to take on its behalf. 5. Successor Servicer and Administrator. The Issuer shall undertake, as promptly as possible after the giving of notice of termination to the Servicer of the Servicer's rights and powers pursuant to Section 8.02 of the Pooling and Servicing Agreement, to cause the other parties thereto to enforce the provisions of Sections 8.02, 8.03 and 8.04 of the Pooling and Servicing Agreement with respect to the appointment of a successor Servicer. Such successor Servicer shall, upon compliance with Sections 10(e)(ii) and (iii), become the successor Administrator hereunder. 6. Records. The Administrator shall maintain appropriate books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Issuer, the Insurer, the Owner Trustee and the Seller at any time during normal business hours. 7. Compensation. As compensation for the performance of the Administrator's obligations under this Agreement and as reimbursement for its expenses related thereto, the Servicer shall pay the Administrator a monthly fee in the amount of $1500. 8. Additional Information To Be Furnished to the Issuer. The Administrator shall furnish to the Insurer and the Issuer from time to time such additional information regarding the Trust Estate as the Issuer and the Insurer shall reasonably request. 9. Independence of the Administrator. For all purposes of this Agreement, the Administrator shall be an independent contractor and shall not be subject to the supervision of the Issuer or the Owner Trustee with respect to the manner in which it accomplishes the performance of its obligations hereunder. Unless expressly authorized by the Issuer, the Administrator shall have no authority to act for or represent the Issuer or the Owner Trustee in any way and shall not otherwise be deemed an agent of the Issuer or the Owner Trustee. 10. No Joint Venture. Nothing contained in this Agreement (i) shall constitute the Administrator and either of the Issuer or the Owner Trustee as members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (ii) shall be construed to impose any liability as such on any of them or (iii) shall be deemed to confer on any of them any express, implied or apparent authority to incur any obligation or liability on behalf of the others. 11. Other Activities of Administrator. Nothing herein shall prevent the Administrator or its Affiliates from engaging in other businesses or, in its sole discretion, from acting in a similar capacity as an administrator for any other person or entity even though such person or entity may engage in business activities similar to those of the Issuer, the Owner Trustee or the Indenture Trustee. 12. Term of Agreement; Resignation and Removal of Administrator. This Agreement shall continue in force until the dissolution of the Issuer, upon which event this Agreement shall automatically terminate. Subject to Section 10(e), the Administrator may resign its duties hereunder by providing the Issuer with at least 60 days' prior written notice in accordance with Appendix B of the Pooling and Servicing Agreement. Subject to Section 10(e), the Issuer, with the consent of the Insurer so long as the Insurer is the Controlling Party, may remove the Administrator, without cause by providing the Administrator with at least 60 days' prior written notice. Subject to Section 10(e), at the sole option of the Issuer, with the consent of the Insurer so long as the Insurer is the Controlling Party, the Administrator may be removed immediately upon written notice of termination from the Issuer to the Administrator if any of the following events shall occur: (a) the Administrator shall default in the performance of any of its duties under this Agreement and, after notice from the Issuer of such default, shall not cure such default within ten days (or, if such default cannot be cured in such time, shall not give within ten days such assurance of cure as shall be reasonably satisfactory to the Issuer); (b) a court having jurisdiction in the premises shall enter a decree or order for relief, and such decree or order shall not have been vacated within 60 days, in respect of the Administrator in any involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Administrator or any substantial part of its property or order the winding-up or liquidation of its affairs; or (c) the Administrator shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official for the Administrator or any substantial part of its property, shall consent to the taking of possession by any such official of any substantial part of its property, shall make any general assignment for the benefit of creditors or shall fail generally to pay its debts as they become due. The Administrator agrees that if any of the events specified in clauses (ii) or (iii) of this Section 10(d) shall occur, it shall give written notice thereof to the Issuer, the Insurer and the Indenture Trustee within seven days after the happening of such event. No resignation or removal of the Administrator pursuant to this Section 10 shall be effective until (i) a successor Administrator, acceptable to the Insurer so long as the Insurer is the Controlling Party, shall have been appointed by the Issuer, (ii) such successor Administrator shall have agreed in writing to be bound by the terms of this Agreement in the same manner as the Administrator is bound hereunder, and (iii) the Rating Agency Condition has been satisfied with respect to such proposed appointment. 13. Action upon Termination, Resignation or Removal. Promptly upon the effective date of termination of this Agreement pursuant to Section 10(a) or the resignation or removal of the Administrator pursuant to Section 10(b) or (c), respectively, the Administrator shall be entitled to be paid by the Servicer all fees and reimbursable expenses accruing to it to the effective date of such termination, resignation or removal. The Administrator shall forthwith upon such termination pursuant to Section 10(a) deliver to the Issuer all property and documents of or relating to the Trust Estate then in the custody of the Administrator. In the event of the resignation or removal of the Administrator pursuant to Section 10(b) or (c), respectively, the Administrator shall cooperate with the Issuer and take all reasonable steps requested by the Indenture Trustee to assist the Issuer in making an orderly transfer of the duties of the Administrator. 14. Notices. All demands, notices and communications upon or to the Issuer, either Trustee, the Administrator or the Rating Agencies under this Agreement shall be delivered as specified in Appendix B to the Pooling and Servicing Agreement. 15. Amendments. This Agreement may be amended from time to time with prior notice to the Rating Agencies by a written amendment duly executed and delivered by the Issuer, the Administrator and the Indenture Trustee, with the written consent of the Owner Trustee and, so long as the Insurer is the Controlling Party, the consent of the Insurer, but without the consent of the Securityholders, for any of the following purposes: (a) to add provisions hereof for the benefit of the Securityholders or to surrender any right or power herein conferred upon the Administrator; (b) to cure any ambiguity or to correct or supplement any provision herein which may be inconsistent with any other provision herein or in any other Basic Document; (c) to evidence and provide for the appointment of a successor Administrator hereunder and to add to or change any of the provisions of this Agreement as shall be necessary to facilitate such succession; and (d) to add any provisions to, or change in any manner or eliminate any of the provisions of, this Agreement, or modify in any manner the rights of the Securityholders; provided, however, that such amendment under this Section 13(a)(iv) shall not, as evidenced by an Opinion of Counsel, materially and adversely affect in any material respect the interest of any Securityholder or the Insurer. Prior to the execution of any amendment pursuant to this Section 13(a), the Administrator shall furnish written notification of the substance of such amendment to each of the Rating Agencies. In addition to the foregoing, this Agreement may also be amended by the Issuer, the Administrator and the Indenture Trustee with prior notice to the Rating Agencies and with the written consent of the Owner Trustee and the Controlling Party, for the purpose of adding any provisions to, changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of Securityholders; provided, however, that no amendment may be made to this Agreement which would be prohibited under the proviso of Section 9.2 of the Indenture if such amendment were to be made to the Indenture unless the consent that would have been required as described therein, if such amendment were to be made to the Indenture, shall have been obtained. Notwithstanding Sections 13(a) and (b), the Administrator may not amend this Agreement without the permission of the Seller, which permission shall not be unreasonably withheld. 16. Successors and Assigns. This Agreement may not be assigned by the Administrator unless such assignment is previously consented to in writing by the Issuer, the Insurer, so long as the Insurer is the Controlling Party, and the Owner Trustee and subject to the satisfaction of the Rating Agency Condition in respect thereof. An assignment with such consent and satisfaction, if accepted by the assignee, shall bind the assignee hereunder in the same manner as the Administrator is bound hereunder. Notwithstanding the foregoing, this Agreement may be assigned by the Administrator without the consent of the Issuer or the Owner Trustee to a corporation or other organization that is a successor (by merger, consolidation or purchase of assets) to the Administrator, provided that such successor organization executes and delivers to the Issuer, the Owner Trustee and the Indenture Trustee an agreement in which such corporation or other organization agrees to be bound hereunder by the terms of such assignment in the same manner as the Administrator is bound hereunder. Subject to the foregoing, this Agreement shall bind any successors or assigns of the parties hereto. 17. GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without giving effect to any choice of law or conflict provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 18. Headings. The section headings hereof have been inserted for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 19. Separate Counterparts. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 20. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the holders thereof. 21. Not Applicable to Alliance Laundry Systems in Other Capacities. Nothing in this Agreement shall affect any obligation ALS may have in any other capacity. 22. Limitation of Liability of Owner Trustee and Indenture Trustee. (a) Notwithstanding anything contained herein to the contrary, this instrument has been executed on behalf of the Issuer by Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee on behalf of the Trust and in no event shall Wilmington Trust Company have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. For all purposes of this Agreement, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Article VI of the Trust Agreement. (a) Notwithstanding anything contained herein to the contrary, this Agreement has been executed by The Bank of New York, not in its individual capacity but solely in its capacity as Indenture Trustee and in no event shall The Bank of New York have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Issuer. 23. Third-Party Beneficiary. Each of the Seller, only to the extent provided in Section 13(c), and the Owner Trustee is a third-party beneficiary to this Agreement and is entitled to the rights and benefits hereunder and may enforce the provisions hereof as if it were a party hereto. The Insurer and its successors and assigns shall be third-party beneficiaries to the provisions of this Agreement, as it may be supplemented or amended, and shall be entitled to rely upon and directly to enforce the provisions of this Agreement. 25. Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived, or supplemented except as provided herein. The Administrator, by entering into this Agreement, along with the Indenture Trustee pursuant to the Indenture, hereby covenant and agree that they shall not, prior to the date which is one year and one day after the termination of this Agreement with respect to the Issuer pursuant to Section 4.1 of the Indenture, acquiesce, petition or otherwise invoke or cause the Seller or the Issuer to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Seller or the Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or the Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller or the Issuer. * * * * * IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A By: WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee on behalf of the Trust By:_______________________________________ Name: Title: THE BANK OF NEW YORK, as Indenture Trustee By:_______________________________________ Name: Title: ALLIANCE LAUNDRY SYSTEMS LLC, as Administrator and as Servicer By:_______________________________________ Name: Bruce P. Rounds Title: Vice-President, Chief Financial Officer and Treasurer EX-10.54 7 dex1054.txt LIMITED LIABILITY COMPANY AGREEMENT Exhibit 10.54 LIMITED LIABILITY COMPANY AGREEMENT OF ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC DATED AS OF NOVEMBER 28, 2000 TABLE OF CONTENTS Page ---- ARTICLE I. GENERAL PROVISIONS; CAPITAL CONTRIBUTIONS; DEFINITIONS Section 1.1 Formation 1 Section 1.2 Name 1 Section 1.3 Purpose 1 Section 1.4 Powers 2 Section 1.5 Limitations on the Company's Powers 2 Section 1.6 Members 4 Section 1.7 Special Member 5 Section 1.8 Registered Office; Registered Agent; Place of Business 5 Section 1.9 Capital Contributions 5 Section 1.10 Term 6 Section 1.11 Limited Liability 6 Section 1.12 No State-Law Partnership 6 ARTICLE II. CAPITAL ACCOUNTS Section 2.1 Capital Accounts 7 Section 2.2 Computation of Amounts 7 Section 2.3 Distribution in Kind 7 ARTICLE III. DISTRIBUTIONS AND ALLOCATIONS Section 3.1 Distributions 8 Section 3.2 Allocation of Profits and Losses 8 ARTICLE IV. MANAGEMENT AND MEMBER RIGHTS Section 4.1 Management Authority 8 Section 4.2 Independent Manager 9 Section 4.3 Officers 10 Section 4.4 Indemnification 12 ARTICLE V. MEMBERS Section 5.1 Transfer of Company Interest 12 Section 5.2 Member Rights; Meetings 13 Section 5.3 Additional Members 14 Section 5.4 Resignation of a Member 14 Section 5.5 Termination of a Member 14 i Section 5.6 Outside Businesses 14 ARTICLE VI. DURATION Section 6.1 Duration 15 Section 6.2 Winding Up 15 Section 6.3 Termination 16 ARTICLE VII. VALUATION Section 7.1 Valuation 16 ARTICLE VIII. BOOKS OF ACCOUNT; MEETINGS Section 8.1 Books 16 Section 8.2 Fiscal Year 16 Section 8.3 Tax Allocation and Reports 16 ARTICLE IX. MISCELLANEOUS Section 9.1 Amendments 17 Section 9.2 Successors 17 Section 9.3 Governing Law; Severability 17 Section 9.4 Notices 17 Section 9.5 Complete Agreement; Headings, Counterparts 18 Section 9.6 Partition 18 Section 9.7 Benefits of Agreement; No Third-Party Rights 18 Section 9.8 Binding Agreement 18 Section 9.9 No Strict Construction 18 APPENDIX A. DEFINITIONS SCHEDULE 1 MEMBER AND MANAGER INFORMATION EXHIBIT A FORM OF MANAGER AGREEMENT ii THIS LIMITED LIABILITY COMPANY AGREEMENT dated as of November 28, 2000 (this "Agreement"), is adopted, executed and agreed to, for good and valuable consideration, by the sole Initial Member and the person specified in accordance with Section 1.7 who shall initially be Douglas K. Johnson, upon the occurrence of events specified herein, as Special Member. Certain terms used herein are defined in Appendix A attached hereto. Terms used herein not otherwise defined shall have the meanings set forth in Appendix A to the Pooling and Servicing Agreement. ARTICLE I. GENERAL PROVISIONS; CAPITAL CONTRIBUTIONS; DEFINITIONS Section 1.1 Formation. The formation of Alliance Laundry Equipment Receivables LLC (the "Company") pursuant to and in accordance with the Delaware Limited Liability Company Act, 6 Del. C. ss.18-101, et seq., as amended from time to time (the "Act"), occurred on November 22, 2000. Ivana Pesic, as an authorized person, within the meaning of the Act, has executed, delivered and filed the certificate of formation of the Company (which certificate of formation as amended from time to time is referred to as the "Certificate of Formation"). Upon the Initial Member's (i) execution of this Agreement or a counterpart hereof and (ii) the making of the capital contribution required by Section 1.9, such Initial Member shall be admitted to the Company as its sole initial member. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation of the Company as provided in the Act. Section 1.2 Name. The name of the Company will be "Alliance Laundry Equipment Receivables LLC" or such other name or names as the Board of Managers may from time to time designate. Section 1.3 Purpose. (a) The purposes of the Company are to engage in the following activities: (i) to acquire from time to time any right, title and interest in and to equipment loans related to commercial laundry equipment, monies due thereunder and proceeds related thereto, security interests in the equipment financed thereby and other assets, insurance policies related thereto and other related assets (collectively, "Receivables") pursuant to the Basic Documents; (ii) to acquire, own, hold, service, sell, assign, pledge, invest, lend and otherwise deal with the Receivables, related insurance policies, cash, marketable securities and any proceeds or further rights associated with any of the foregoing pursuant to the Basic Documents; (iii) to transfer the Receivables to Alliance Laundry Equipment Receivables Trust 2000-A (the "Trust"); 1 (iv) to obtain and sell or otherwise transfer any series or class of certificates, notes or other securities issued by the Trust (collectively, "Securities"); (v) to hold and enjoy all of the rights and privileges of the Securities; (vi) to perform its obligations under the Basic Documents; and (vii) to engage in any activity and to exercise any powers permitted to limited liability companies under the laws of the State of Delaware that are related or incidental to the foregoing and necessary, convenient or advisable to accomplish the foregoing, including the entering into referral, management, servicing and administration agreements. (b) The Company, by or through any of its officers on behalf of the Company, may enter into and perform its obligations under the Basic Documents and all documents, agreements or certificates contemplated thereby or related thereto, all without any further act, vote or approval of any Member or any of its Managers or officers notwithstanding any other provision of this Agreement, the Act or applicable law, rule or regulation. The foregoing authorization shall not be deemed a restriction on the powers of any officer to enter into other agreements on behalf of the Company to carry out the purposes set out in this Section 1.3. Section 1.4 Powers. Subject to Section 1.5, the Company shall (i) have and exercise all powers necessary, convenient or incidental to accomplish its purposes as set forth in Section 1.3 and (ii) have and exercise all of the powers and rights conferred upon limited liability companies formed pursuant to the Act. Section 1.5 Limitations on the Company's Powers. (a) This Section 1.5 is being adopted in order to comply with certain provisions required in order to qualify the Company as a "special purpose" entity. The Company shall not engage in any business or activity other than as set forth in Section 1.3(a) hereof. (b) The Company shall not incur (i) any indebtedness, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or bankers' acceptances, (ii) any obligations constituting capitalized lease obligations or the deferred purchase price of property or (iii) any obligations to guarantee or secure with a lien upon property of the Company (other than a lien created in connection with a sale of property) any such indebtedness or obligations of another person, other than Permitted Indebtedness. 2 (c) The Company shall not, so long as any Permitted Indebtedness is outstanding, amend, alter, change or repeal the definition of "Independent Manager" or Sections 1.3, 1.4, 1.5, 1.7, 4.1, 4.2, 4.4, 5.1, 5.3, 5.4, 5.5, 6.1, 6.2, 6.3, 9.1 or 9.7 or Schedule 1 of this Agreement without the unanimous written consent of the Board of Managers (including each of the Independent Managers) and the satisfaction of the Rating Agency Condition with respect thereto; provided, however, that subject to this Section 1.5, the Members shall have the right to amend, alter, change or repeal any provisions contained in this Agreement in accordance with Section 9.1. (d) Notwithstanding any other provision of this Agreement and any provision of law that otherwise so empowers the Company, the Members or the Board of Managers, the Company shall not be authorized or empowered, nor shall the Members or the Board of Managers permit the Company, without the prior unanimous written consent of the Board of Managers (including each of the Independent Managers), to take any Material Action (except as otherwise provided in the Act); provided, however, that the Board may not vote on, or authorize the taking of, any Material Action, unless there are at least two Independent Managers then serving in such capacity. (e) The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Managers (including the Independent Managers) shall determine that the preservation thereof is no longer desirable for the conduct of its business and that the loss thereof is not disadvantageous in any material respect to the Insurer and the holders of the Permitted Indebtedness and the Company shall deliver to the Indenture Trustee and the Insurer an Officer's Certificate to that effect. The Company shall also: (i) maintain its own separate books and records and bank accounts; (ii) at all times hold itself out to the public as a legal entity separate from the Members and any other Person; (iii) have the Board of Managers composed differently from that of the Members and any other Person; (iv) file its own tax returns, if any, as may be required under applicable law, to the extent (a) not part of a consolidated group filing a consolidated return or returns or (b) not treated as a division for tax purposes of another taxpayer, and pay any taxes so required to be paid under applicable law; 3 (v) not commingle its assets with assets of any other Person (except as contemplated by the Basic Documents); (vi) conduct its business in its own name and comply with all organizational formalities to maintain its corporate existence; (vii) [reserved]; (viii) pay its own liabilities only out of its own funds; (ix) maintain an arm's length relationship with its Affiliates and its Members; (x) pay the salaries of its own employees and maintain a sufficient number of employees in light of its contemplated business operations, if any; (xi) not hold out its credit or assets as being available to satisfy the obligations of others nor guarantee or become obligated for the debts of any other entity (except as contemplated by the Basic Documents); (xii) allocate fairly and reasonably any overhead for shared office space; (xiii) use separate stationery, invoices and checks; (xiv) not pledge its assets for the benefit of any other Person, except as contemplated by the Basic Documents; (xv) correct any known misunderstanding regarding its separate identity; (xvi) maintain adequate capital in light of its contemplated business purposes; (xvii) cause the Board of Managers to meet at least annually or act pursuant to written consent and keep minutes of such meetings and actions and observe all other Delaware limited liability company formalities; and (xviii) not acquire any obligations or securities of a Member or any Affiliate (except as contemplated by the Basic Documents); and (xix) cause the Directors, Officers, agents and other representatives of the Company to act at all times with respect to the Company consistently and in furtherance of the foregoing and in the best interest of the Company. 4 Failure of the Company, or any Member, Manager or officer on behalf of the Company, to comply with any of the covenants set forth in this Section 1.5 shall not affect the status of the Company as a separate legal entity or the limited liability of the Member. Section 1.6 Members. The name and the mailing address of the Initial Member is set forth on Schedule 1 attached hereto. The Board of Managers shall amend from time to time Schedule 1 to reflect any future addition, resignation, withdrawal or termination of Members. Subject to Section 1.5, Members may act by written consent. Section 1.7 Special Member. Upon the occurrence of any event that causes the Initial Member to cease to be a Member of the Company (other than (i) upon the assignment by the Initial Member of all of its limited liability company interest in the Company and the admission of the transferee pursuant to Section 5.1 or (ii) the resignation of the Initial Member and the admission of an additional Member of the Company pursuant to Section 5.4), one person acting as an Independent Manager, who shall be specified from time to time by resolution of the Board of Managers and shall have executed a signature page to this Agreement and who shall initially be Douglas K. Johnson, shall, without any action of any Person and simultaneously with the Initial Member ceasing to be a member of the Company, automatically be admitted to the Company as a Special Member and shall continue the Company without dissolution. No Special Member may resign from the Company or transfer its rights as Special Member unless (i) a successor Special Member has been admitted to the Company as Special Member by executing a counterpart to this Agreement and (ii) such successor has also accepted its appointment as Independent Manager pursuant to Section 4.2; provided, however, the Special Member shall automatically cease to be a member of the Company upon the admission to the Company of a substitute Member. Each Special Member shall be a member of the Company that has no interest in the profits, losses and capital of the Company and has no right to receive any distributions of Company assets. Pursuant to Section 18-301 of the Act, a Special Member shall not be required to make any capital contributions to the Company and shall not receive a limited liability company interest in the Company. A Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, the Company, including, without limitation, the merger, consolidation or conversion of the Company. In order to implement the admission to the Company of each Special Member, each Person acting as an Independent Manager shall execute a counterpart to this Agreement. Prior to its admission to the Company as a Special Member, each person acting as an Independent Manager shall not be a member of the Company. Section 1.8 Registered Office; Registered Agent; Place of Business. The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the initial registered agent named in the Certificate of Formation or such other office (which need not be a place of business of the Company) as the Board of Managers may designate from time to time in the manner provided by law. The registered agent of the Company in the State of Delaware shall be the initial registered agent named in the Certificate of Formation or such other person or persons as the Board of Managers may designate from 5 time to time in the manner provided by law. The Company will maintain a chief executive office and principal place of business at such place or places inside or outside the State of Delaware as the Board of Managers may designate from time to time. Section 1.9 Capital Contributions. (a) The Initial Member shall, promptly following the execution of this Agreement, contribute to the capital of the Company the amount set forth on Schedule 1. The Initial Member is not required to make any additional capital contribution to the Company. However, the Initial Member may make additional capital contributions to the Company at any time at the sole discretion of such Initial Member. All such contributions shall take the form of (i) the Initial Member's right, title and interest in and to Authorized Assets or (ii) a cash transfer. The Persons hereafter admitted as Members of the Company shall make such contributions of cash (or promissory obligations), property or service to the Company as shall be determined by the Board of Managers at the time of each such admission. The Persons hereafter admitted as Members of the Company shall not be required to make any additional capital contribution to the Company. However, each such Person may make additional capital contributions to the Company at any time upon the written consent of such Person. All such additional contributions shall take the form of a cash transfer or a deed cash transfer as contemplated by Section 2.02 of the Purchase Agreement unless otherwise approved by the Board of Managers at the time of each such contribution. The Board of Managers shall amend Schedule 1 from time to time to reflect any capital contribution made by any Participant. The provisions of this Agreement, including this Section 1.9, are intended solely to benefit the Participants and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Company (and no such creditor of the Company shall be a third-party beneficiary of this Agreement) and no Participant or Special Member shall have any duty or obligation to any creditor of the Company to make any contribution to the Company or to issue any call for capital pursuant to this Agreement. (b) No Participant shall have any responsibility to restore any negative balance in such Participant's Capital Account or to contribute to or in respect of liabilities or obligations of the Company, whether arising in tort, contract or otherwise, or return distributions made by the Company except as required by the Act or other applicable law. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Participants for liabilities of the Company. (c) No interest shall be paid by the Company on capital contributions or on balances in Capital Accounts. (d) A Participant shall not be entitled to withdraw any part of its Capital Account or to receive any distributions from the Company except as provided in Articles III and VI; nor shall a Participant be entitled to make any capital contribution to the Company other than as expressly provided herein. Any Participant may, with the approval of the Board of 6 Managers, make loans to the Company, and any loan by a Participant to the Company shall not be considered to be a capital contribution for any purpose and shall not result in an increase in the amount of the Capital Account of such Participant. Section 1.10 Term. The Company shall continue until dissolved and terminated in accordance with Article VI of this Agreement. Section 1.11 Limited Liability. To the fullest extent permitted by law, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be the debts, obligations and liabilities solely of the Company, and no Member, Special Member, Manager or any officer of the Company shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member, Special Member, Manager or officer of the Company. Section 1.12 No State-Law Partnership. The Participant(s) intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Participant be a partner or joint venturer of any other Participant, for any purposes, and neither this Agreement nor any other document entered into by the Company or any Participant shall be construed to suggest otherwise. Section 1.13 Return of Contributions. The contributions of the Members are to be returned to the Members only upon the termination and liquidation of the LLC in accordance with Article VI of this Agreement but contributions may be returned prior to such time with the consent of the Independent Manager. ARTICLE II. CAPITAL ACCOUNTS Section 2.1 Capital Accounts. A "Capital Account" will be established for each Participant on the books of the Company and will be adjusted as follows: (a) Such Participant's contributions to the capital of the Company will be credited to such Participant's Capital Account when received by the Company. (b) At the end of each fiscal year of the Company and upon dissolution and winding up of the Company pursuant to Article VI, Profits for such period allocated to such Participant pursuant to Section 3.2 shall be credited and Losses for such period allocated to such Participant pursuant to Section 3.2 shall be debited, as the case may be, to such Participant's Capital Account. (c) Any amounts distributed to such Participant will be debited against such Participant's Capital Account. (d) Such Participant's Capital Account will otherwise be adjusted in accordance with Treas. Reg. ss.1. 704-1(b)(2)(iv). 7 Section 2.2 Computation of Amounts. For purposes of computing the amount of any item of income, gain, loss, deduction or expense to be reflected in Capital Accounts, the determination, recognition and classification of each such item shall be the same as its determination, recognition and classification for federal income tax purposes; provided that (a) any income that is exempt from Federal income tax shall be added to such taxable income or losses and any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i), shall be subtracted from such taxable income or losses; (b) if the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) (in connection with a distribution of such property) or (f) (in connection with a revaluation of Capital Accounts), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property; and (c) if property that is reflected on the books of the Company has a Book Value that differs from the adjusted tax basis of such property, depreciation, amortization and gain or loss with respect to such property shall be determined by reference to such Book Value. Section 2.3 Distribution in Kind. If property is to be distributed in kind to the Participant(s) pursuant to this Agreement, (i) the value of such property shall first be adjusted pursuant to Section 2.2(b) to its value (as determined pursuant to Article VII as of the date of such distribution), (ii) the Capital Accounts of the Participant(s) shall be adjusted immediately prior to the distribution as if such property were sold at its value (as so determined) and (iii) the value of such property (as so determined) received by each Participant shall be debited against such Participant's respective Capital Account at the time of distribution. ARTICLE III. DISTRIBUTIONS AND ALLOCATIONS Section 3.1 Distributions. Distributions of cash or other assets (except Authorized Assets) of the Company shall be made at such times and in such amounts as the Board of Managers may determine. Unless the Board of Managers determines otherwise, distributions shall be made to Participant's pro rata based on the Percentage Interests held by each Participant. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a distribution to any Participant on account of such Participant's interest in the Company if such distribution would violate Section 18-607 of the Act or other applicable law or any Basic Document. 8 Section 3.2 Allocation of Profits and Losses. Except as may be required by the Code, each item of income, gain, loss, deduction or expense to the Company shall be allocated among the Participant(s) in proportion to the Percentage Interests held by each Participant. ARTICLE IV. MANAGEMENT AND MEMBER RIGHTS Section 4.1 Management Authority. (a) Subject to Section 1.5, the business and affairs of the Company shall be managed by or under the direction of a board of one or more Managers (the "Board of Managers"). Subject to Section 1.5, the Members may determine at any time in their sole and absolute discretion the number of Managers to constitute the Board of Managers. The authorized number of Managers may be increased or decreased by the Members at any time in their sole and absolute discretion, upon notice to all Managers, and subject in all cases to Section 1.5. The initial number of Managers shall be five, two of which shall be Independent Managers pursuant to Section 4.2. Each Manager elected, designated or appointed shall hold office until a successor is elected and qualified or until such Manager's earlier death, resignation or removal. Each Manager (other than the Independent Managers) shall execute and deliver the Manager Agreement. Managers need not be Members. Each Manager shall be a natural person. (b) Subject to Section 1.5, the Board of Managers shall have the power to do any and all acts necessary, convenient or incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise. Subject to Sections 1.3(b) and 1.5, the Board of Managers has the authority to bind the Company. Notwithstanding the last sentence of Sentence 18-402 of the Act, no Member, unless such Member is also a Manager and acts as its capacity as Manager, shall have any authority to act for or bind the Company but shall have only the right to vote on or approve the actions herein specified to be voted on or approved by the Members or as otherwise specified in the Act. (c) The Board of Managers may hold meetings, both regular and special, within or outside the State of Delaware. Regular meetings of the Board of Managers may be held without notice at such time and at such place as shall from time to time be determined by the Board of Managers. Special meetings of the Board of Managers may be called by any one or more of the Managers on not less than one (1) day's (or such shorter period as shall be agreed to by such Manager) notice to each Manager by telephone, facsimile, mail, telegram or any other means of communication. (d) At all meetings of the Board of Managers, a majority of the Managers shall constitute a quorum for the transaction of business and, except as otherwise provided in any other provision of this Agreement, the act of a majority of the 9 Managers present at any meeting at which there is a quorum shall be the act of the Board of Managers. If a quorum shall not be present at any meeting of the Board of Managers, the Managers present at such meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board of Managers may be taken without a meeting if all members of the Board of Managers, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Managers. (e) Managers may participate in meetings of the Board of Managers, by means of telephone conference or similar communications equipment that allows all persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in person at the meeting and shall be counted for purposes of determining whether a quorum exists. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Company. (f) The Board of Managers shall have the authority to fix the compensation of Managers. The Managers may be paid their expenses, if any, of attendance at meetings of the Board of Managers, which may be a fixed sum for attendance at each meeting of the Board of Managers or a stated salary as Manager. No such payment shall preclude any Manager from serving the Company in any other capacity and receiving compensation therefor. (g) Subject to Section 4.2, unless otherwise restricted by law, any Manager or the entire Board of Managers, may be removed, with or without cause, at any time by the Members, and, subject to Section 4.2, any vacancy caused by any such removal may be filled by action of the Members. (h) Subject to Section 4.2, in exercising the rights and performing the duties of Managers under this Agreement, each Manager shall have a fiduciary duty of loyalty and care similar to that of a director of a business corporation organized under the General Corporation Law of the State of Delaware. Section 4.2 Independent Managers. As long as any Permitted Indebtedness is outstanding, the Members shall cause the Company at all times to have at least two Independent Managers who will be appointed as Managers by the Members. The initial Independent Managers shall execute and deliver Independent Manager Agreements. To the fullest extent permitted by Section 18-1101(c) of the Act, the Independent Managers shall consider only the interests of the Company, including its respective creditors, in acting or otherwise voting on any Material Action or the matters referred to in Section 1.5(c). No resignation or removal of an Independent Manager, and no appointment of a successor Independent Manager, shall be effective until the successor Independent Manager shall have accepted his or her appointment by an Independent Manager Agreement and, if such person shall be designated as the Special 10 Member, shall have executed a counterpart of this Agreement. All right, power and authority of an Independent Manager shall be limited to the extent necessary to exercise those rights and perform those duties specifically set forth in this Agreement. Except as provided in the third sentence of this Section 4.2, in exercising such Independent Manager's rights and performing such Independent Manager's duties under this Agreement, an Independent Manager shall have a fiduciary duty of care similar to that of a director of a business corporation organized under the General Corporation Law of the State of Delaware. Notwithstanding the last sentence of Section 18-402 of the Act, except as expressly provided in this Agreement, the Independent Managers shall not bind the Company. No Independent Manager shall at any time serve as trustee in bankruptcy for any Affiliate of the Company. In the event of a vacancy in the position of Independent Manager, the Members shall, as soon as practicable, appoint a successor Independent Manager. Notwithstanding anything to the contrary set forth herein, the Company shall not take any Material Action until such successor Independent Manager is appointed. Section 4.3 Officers. (a) The officers of the Company shall consist of at least a Chief Executive Officer, a Secretary and a Treasurer. The officers of the Company may also consist of one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. The Board of Managers shall appoint a Chief Executive Officer, a Secretary and a Treasurer. The Board of Managers may appoint such other officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as specified in this Agreement or as shall be determined from time to time by the Board of Managers. The salaries of all officers and agents of the Company shall be fixed by or in the manner prescribed by the Board of Managers. The officers of the Company shall hold office until their successors are chosen and qualified. Any officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board of Managers. Any vacancy occurring in any office of the Company shall be filled by the Board of Managers. The Board of Managers may delegate to any such officer, person or entity such authority to act on behalf of the Company as the Board of Managers may from time to time deem appropriate in its sole discretion. (b) Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the Members, if any, and the Board of Managers, shall be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Board of Managers are carried into effect. The Chief Executive Officer shall execute all bonds, mortgages and other contracts, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed; (ii) where signing and execution thereof shall be expressly delegated by the Board of Managers to some other officer or agent of the Company, including Section 4.1(b); and (iii) as otherwise permitted by Section 4.3(f). 11 (c) Vice President. In the absence of the Chief Executive Officer or in the event of the Chief Executive Officer's inability or refusal to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Managers, or in the absence of any designation, then in the order of their election), shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The Vice Presidents, if any, shall perform such other duties and have such other powers as the Board of Managers may from time to time prescribe. (d) Secretary and Assistant Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall attend all meetings of the Board of Managers and all meetings of the Members, if any, and record all the proceedings of the meetings of the Company and of the Board of Managers in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members, if any, and special meetings of the Board of Managers, and shall perform such other duties as may be prescribed by the Board of Managers or the Chief Executive Officer, under whose supervision the Secretary shall serve. The Assistant Secretary, if any, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Managers (or if there be no such determination, then in order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Managers may from time to time prescribe. (e) Treasurer and Assistant Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board of Managers. The Treasurer shall disburse the funds of the Company as may be ordered by the Board of Managers, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and to the Board of Managers, at its regular meetings or when the Board of Managers so requires, an account of all of the Treasurer's transactions and of the financial condition of the Company. The Assistant Treasurer, if any, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Managers (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Managers may from time to time prescribe. (f) Officers. The Officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by the Board of Managers not inconsistent with 12 this Agreement, shall have the power and authority, subject to Section 1.5, to bind the Company. (g) When the taking of such action has been authorized by the Board of Managers, any officer of the Company or any other person or entity specifically authorized by the Board of Managers may execute any contract or other agreement or document on behalf of the Company and may execute and file on behalf of the Company with the Secretary of State of the State of Delaware any certificates of amendment to the Certificate of Formation, one or more restated certificates of formation and certificates of merger or consolidation and, upon the dissolution and completion of winding up of the Company, at any time when there are no Members, or as otherwise provided in the Act, a certificate of cancellation canceling the Certificate of Formation. Except to the extent otherwise provided herein, each officer shall have a fiduciary duty of loyalty and care similar to that of officers of business corporations organized under the General Corporation Law of the State of Delaware. Section 4.4 Indemnification. Except as limited by law and subject to the provisions of this Section 4.4, each Person shall be entitled to be indemnified and held harmless on an as incurred basis by the Company (but only after first making a claim for indemnification available from any other source and only to the extent indemnification is not provided by that source) to the fullest extent permitted under the Act and other applicable law (including indemnification for negligence, gross negligence and breach of fiduciary duty to the extent so authorized), as amended from time to time (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment), against all losses, liabilities and expenses, including attorneys' fees and expenses, arising from claims, actions and proceedings in which such Person may be involved, as a party or otherwise, by reason of such Person being or having been a Manager, Participant, Special Member or officer of the Company, or by reason of such Person serving at the request of the Company as a director, officer, member, manager, partner, employee or agent of another limited liability company or of a corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan whether or not such Person continues to be such or serve in such capacity at the time any such loss, liability or expense is paid or incurred. The rights of indemnification provided in this Section 4.4 will be in addition to any rights to which such Person may otherwise be entitled by contract or as a matter of law and shall extend to such Person's successors and assigns. In particular, and without limitation of the foregoing, such Person shall be entitled to indemnification by the Company against expenses (as incurred), 13 including attorneys' fees and expenses, incurred by such person or entity upon the delivery by such Person to the Company of a written undertaking (reasonably acceptable to the Board of Managers) to repay all amounts so advanced if it shall ultimately be determined that such person or entity is not entitled to be indemnified under this Section 4.4. The Company may, to the extent authorized from time to time by the Board of Managers, grant rights to indemnification and to advancement of expenses to any employee or agent of the Company to the fullest extent of the provisions of this Section 4.4 with respect to the indemnification and advancement of expenses of the Managers, Participants and officers of the Company, provided however, indemnification of expenses to any employee or agent of the Company will be subordinated to the full repayment of the Noteholders. ARTICLE V. MEMBERS Section 5.1 Transfer of Company Interest. (a) Subject to Section 5.3, no Participant shall sell, assign, transfer or otherwise dispose of, whether voluntarily or involuntarily or by operation of law (a "Transfer"), all or any portion of such Participant's interest in the Company without the prior written consent of the Board of Managers, which consent may be given or withheld in its sole discretion. No Participant shall pledge or otherwise encumber all or any portion of such Participant's interest in the Company, without the prior written consent of the Board of Managers, which consent may be given or withheld in its sole and absolute discretion. (b) Notwithstanding any other provision of this Agreement, any Transfer by the Participants in contravention of any of the provisions of this Section 5.1 shall be void and ineffective, and shall not bind, or be recognized by, the Company. (c) If and to the extent any Transfer of an interest in the Company is made pursuant to and in accordance with the terms of this Agreement, this Agreement (including the Appendix, Schedule and Exhibits hereto) shall be amended by the Board of Managers to reflect the Transfer of the Company interest to the transferee, to admit the transferee as a Member and to reflect the elimination of the transferring Participant (or the reduction of such transferring Participant's interest in the Company) and (if and to the extent then required by the Act) a certificate of amendment to the Certificate of Formation reflecting such admission and elimination (or reduction) shall be filed in accordance with the Act. The effectiveness of the Transfer of an interest in the Company permitted hereunder and the admission of any substitute Member pursuant to Section 5.3 shall be deemed effective upon the later to occur of the time of Transfer of an interest in the Company to such transferee or the first date that the Board of Managers receives evidence of such Transfer, including the terms thereof. If the transferring Participant has transferred all or any of its interest in the Company pursuant to this Section 5.1, then, upon the later to occur of the time of such Transfer or the first date that the Board of 14 Managers receives evidence of such Transfer, including the terms thereof, the transferring Participant shall cease to be a Participant with respect to such interest. (d) Any person or entity who acquires in any manner whatsoever any interest in the Company, irrespective of whether such person or entity has accepted and adopted in writing the terms and provisions of this Agreement, shall be deemed by the acceptance of the benefits of the acquisition thereof to have (i) made all of the capital contributions, (ii) received all of the distributions, and (iii) agreed to be subject to and bound by all of the terms and conditions of this Agreement, that any predecessor in such interest in the Company made, received and was subject to or bound. Section 5.2 Member Rights; Meetings. (a) No Member, unless such Member is also a Manager and acts in its capacity as Manager, shall have any right, power or duty, including the right to approve or vote on any matter, except as expressly required by the Act or other applicable law or as expressly provided for hereunder. (b) Unless a greater vote is required by the Act or as expressly provided for hereunder, the affirmative vote of a Majority in Interest of the Members entitled to vote shall be required to approve any proposed action. (c) Meetings of the Members for the transaction of such business as may properly come before such Members shall be held at such place, on such date and at such time as a Member or Members holding a Majority in Interest shall determine. Special meetings of Members for any proper purpose or purposes may be called at any time by the Board of Managers or the Member or Members holding a Majority in Interest. The Company shall deliver oral or written notice (written notice may be delivered by mail) stating the date, time, place and purposes of any meeting to each Member entitled to vote at the meeting. Such notice shall be given not less than four (4) and not more than sixty (60) days before the date of the meeting. (d) Any action required or permitted to be taken at an annual or special meeting of the Members may be taken without a meeting, without prior notice, and without a vote, provided that written consents, setting forth all proposed actions to be taken at such meeting, are signed by the Members holding at least the minimum Percentage Interest that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote on such action were present and voted. Every written consent shall bear the date and signature of each Member who signs such consent. Prompt notice of the taking of action without a meeting by less than unanimous written consent shall be given to all Members who have not consented in writing to such action. 15 Section 5.3 Additional Members. The Board of Managers shall have the sole right to admit additional Members upon such terms and conditions and at such time or times as the Board of Managers shall in its sole discretion determine; provided that, notwithstanding the foregoing, so long as any Permitted Indebtedness remains outstanding, no additional Members may be admitted to the Company. In connection with any such admission, the Board of Managers shall amend Schedule 1 to reflect the name, address and capital contribution of the additional Member and the new Percentage Interests of all Participants. Section 5.4 Resignation of a Member. So long as any Permitted Indebtedness is outstanding, the Initial Member may not resign without prior written consent of the Indenture Trustee and the Insurer. A Member (other than the Initial Member) may resign from the Company with the written consent of the Board of Managers. The sole Member shall not be permitted to resign pursuant to this Section 5.4 unless an additional member of the Company is admitted to the Company. Such admission shall be deemed effective immediately prior to the resignation, and, immediately following such admission, the resigning Member shall cease to be a member of the Company. Section 5.5 Termination of a Member. Notwithstanding the provisions of Section 5.4, a person or entity will no longer be a Member for purposes of this Agreement upon an Event of Withdrawal. The Terminated Member shall only be entitled to continue to receive allocation of Profits and Losses and distributions of the Company, including distributions pursuant to Article V hereof, as and when paid by the Company, to the same extent such Terminated Member was entitled to such distributions as a Member. Except as provided in Section 8.1, such Terminated Member's successors and assigns will not be entitled to participate in any Company decision or determination, and such Terminated Member's successors and assigns will acquire only such Terminated Member's right to receive allocation of Profits and Losses and to share in Company distributions. Section 5.6 Outside Businesses. Any Participant or Special Member may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company, and the Company and the Participants shall have no rights by virtue of this Agreement in and to such independent ventures or the income or gains derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. No Participant shall be obligated to present any particular investment opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Participant shall have the right to take for such Participant's own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. Section 5.7 Waiver of Rejection Right. In the event of a Bankruptcy of the Member, the Member hereby agrees to waive any right to reject this Agreement under the federal bankruptcy laws. ARTICLE VI. DURATION 16 Section 6.1 Duration. Subject to the provisions of Section 6.2 of this Agreement, the Company shall be dissolved and its affairs wound up and terminated upon the first to occur of the following: (a) The determination of the Board of Managers including the Independent Managers; or (b) The entry of a decree of judicial dissolution under Section 18-802 of the Act. Upon the occurrence of any event that causes the last remaining member of the Company to cease to be a member of the Company, to the fullest extent permitted by law, the personal representative of such member is hereby authorized to, and shall, within 90 days after the occurrence of the event that terminated the continued membership of such member in the Company, agree in writing (i) to continue the Company and (ii) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of the Company, effective as of the occurrence of the event that terminated the continued membership of the last remaining member of the Company in the Company Except as otherwise set forth in this Article VI, the Members intend for the Company to have perpetual existence. Notwithstanding any other provision of this Agreement, the Bankruptcy of any Member of Special Member shall not cause such Member or Special Member to cease to be a member of the Company and upon the occurrence of such an event, the business of the Company shall continue without dissolution. Section 6.2 Winding Up. Upon dissolution of the Company, the Company shall be liquidated in an orderly manner. The Board of Managers shall be the liquidator pursuant to this Agreement and shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The costs of liquidation shall be borne as the Company's expense. The steps to be accomplished by the liquidator are as follows: (a) First, the liquidator shall satisfy all of the Company's debts and liabilities to creditors other than Participants (whether by payment or the reasonable provision for payment thereof); (b) Second, the liquidator shall satisfy all of the Company's debts and liabilities to Participants (whether by payment or the reasonable provision for payment thereof); (c) Third, all remaining Authorized Assets shall be sold on terms and conditions as favorable to the Company as are obtainable in the market; provided, that no Affiliate of the Company shall be entitled to acquire such Authorized Assets unless the 17 purchase price to be paid by such Affiliate is at least as high as the price specified in the highest bona fide bid for such Authorized Assets from a third party, provided, however, that Affiliates of the Company shall be entitled to acquire such Authorized Assets if (x) no bona fide bids are received for such Authorized Assets (after reasonable efforts to obtain such bids) and (y) such acquisition is at a price at least equal to the fair value of such Authorized Assets, as established in written advice to the Company from a Person, selected by the Independent Managers, engaged in the brokering or valuation of financial assets such as Authorized Assets; and (d) Fourth, all remaining assets shall be distributed to the Participants in accordance with Section 3.1. Section 6.3 Termination. The Company shall terminate when all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Participants in the manner provided for in this Article VI, and the Certificate of Formation of the Company shall have been canceled in the manner required by the Act. ARTICLE VII. VALUATION Section 7.1 Valuation. For purposes of this Agreement, the value of any property contributed by or distributed to any Participant shall be valued as determined by the Board of Managers. ARTICLE VIII BOOKS OF ACCOUNT; MEETINGS Section 8.1 Books. The Board of Managers will maintain on behalf of the Company complete and accurate books of account of the Company's affairs at the Company's principal office, which books will be open to inspection by any Member (or such Member's authorized representative) at any time during ordinary business hours and shall be maintained in accordance with the Act. Section 8.2 Fiscal Year. The fiscal year of the Company shall end on December 31 of each year. Section 8.3 Tax Allocation and Reports. (a) The income, gains, losses, deductions and credits of the Company will be allocated, for federal, state and local income tax purposes, among the Participants in accordance with the allocation of such income, gains, losses, deductions and credits among the Participants for computing their Capital Accounts, except as otherwise provided in the Code or other applicable law. 18 (b) In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss, deduction and expense with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Participants so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its fair market value at the time of contribution. (c) Within 75 days after the end of each fiscal year, the Tax Matters Partner (as defined below) shall cause the Company to furnish each Participant with a copy of the Company's tax return and form K-1 for such fiscal year. (d) The Company hereby designates the Initial Member to act as the "Tax Matters Partner" (as defined in Section 6231(a)(7) of the Code) in accordance with Sections 6221 through 6233 of the Code. (e) If and for so long as the Company has only one Member, the Company shall make an election on IRS Form 8832 to be treated as a domestic entity with a single owner electing to be disregarded as a separate entity. ARTICLE IX. MISCELLANEOUS Section 9.1 Amendments. Subject to Section 1.5, this Agreement may be amended or modified from time to time only by a written instrument adopted by the unanimous consent of its Board of Managers; provided, however, that any amendment or modification reducing disproportionately a Participant's Percentage Interest or other interest in the profits or losses or in distributions or increasing such Participant's capital contribution shall be effective only with such Participant's consent. Notwithstanding anything to the contrary in this Agreement, so long as the Insurer is the Controlling Party and any Permitted Indebtedness is outstanding, this Agreement may not be modified, altered, supplemented or amended without prior written consent of the Controlling Party. Section 9.2 Successors. Except as otherwise provided herein, this Agreement will inure to the benefit of and be binding upon the Participants and their respective legal representatives, heirs, successors and permitted assigns. Section 9.3 Governing Law; Severability. The Agreement will be construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws, and, to the maximum extent possible, in such manner as to comply with the terms and conditions of the Act. If it is determined by a court of competent jurisdiction that any provision of this Agreement is invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. Section 9.4 Notices. All notices, demands and other communications to be given and delivered under or by reason of provisions under this Agreement shall be in writing 19 and shall be deemed to have been given when personally delivered, mailed by first class mail (postage prepaid and return receipt requested), sent by telecopy or sent by reputable overnight courier service (charges prepaid) to the addresses or telecopy numbers set forth in Schedule 1 hereto or to such other addresses or telecopy numbers as have been supplied in writing to the Company. Section 9.5 Complete Agreement; Headings, Counterparts. This Agreement terminates and supersedes all other agreements concerning the subject matter hereof previously entered into among any of the parties. Descriptive headings are for convenience only and will not control or affect the meaning or construction of any provision of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, feminine or the neuter gender shall include the masculine, the feminine and the neuter. This Agreement may be executed in any number of counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts together will constitute one agreement. Section 9.6 Partition. Except as otherwise expressly provided in this Agreement, to the fullest extent permitted by law, each Participant and Special Member hereby irrevocably waives any right or power that such Participant might have to cause the Company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Company, to compel any sale of all or any portion of the assets of the Company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of the Company. No Participant shall have any interest in any specific assets of the Company, and no Participant shall have the status of a creditor with respect to any distribution pursuant to Section 3.1 hereof. The interest of the Participants in the Company is personal property. Section 9.7 Benefits of Agreement; Third-Party Rights. The Insurer and its successors and assigns shall be a third party beneficiary of this Agreement, as it may be supplemented or amended, and shall be entitled to rely upon and directly to enforce such provisions of this Agreement. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of the Company or by any creditor of any Participant or Special Member. Nothing in this Agreement shall be deemed to create any right in any Person (except as otherwise provided in Section 4.4) not a party hereto, and this Agreement shall not be construed in any respect to be a contract in whole or in part for the benefit of any third Person. Section 9.8 Binding Agreement. Notwithstanding any other provision of this Agreement, each Member agrees that this Agreement constitutes a legal, valid and binding agreement of the Member, and is enforceable against the Member by the Independent Managers, in accordance with its terms. In addition, the Independent Manager shall be a intended beneficiary of this Agreement except as provided in Section 9.8. 20 Section 9.9 No Strict Construction. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Persons (if more than one) then parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. In addition, the Independent Manager shall be an intended beneficiary of this Agreement. Section 9.10 Effectiveness. Pursuant to Section 18-201(d) of the Act, this Agreement shall be effective as of the Closing Date. * * * * * * * * * 21 IN WITNESS WHEREOF, the Initial Member hereto has caused this Agreement to be signed as of the date first above written. INITIAL MEMBER: ALLIANCE LAUNDRY SYSTEMS LLC By: ___________________________________________ Bruce P. Rounds Vice President, Chief Financial Officer and Treasurer IN WITNESS WHEREOF, the Special Member hereto has caused this Agreement to be signed as of November 28, 2000. SPECIAL MEMBER: Name:_______________________________________ Douglas K. Johnson 1 APPENDIX A. DEFINITIONS A. When used in this Agreement, the following terms not otherwise defined herein have the following meanings: "Act" has the meaning set forth in Section 1.1. "Affiliate" means, with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such Person. "Agreement" has the meaning set forth in the preamble to this Agreement. "Assignee" means person or entity to whom an Company interest has been transferred in a Transfer described in Section 4.6, unless and until such person or entity becomes a Member with respect to such Company interest. "Authorized Assets" means Equipment Notes and related assets. "Bankruptcy" means, with respect to any Person, if such Person (i) makes an assignment for the benefit of creditors, (ii) files a voluntary petition in bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceeding, (iv) files a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, (v) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding of this nature, (vi) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the Person or of all or any substantial part of its seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, if the proceeding has not been dismissed, or if within 90 days after the appointment without such Person's consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated. With respect to the Member, the foregoing definition of "Bankruptcy" is intended to replace and shall supersede and replace the definition of "Bankruptcy" set forth in Sections 18-101(1) and 18-304 of the Act. "Basic Documents" means the Certificate of Trust, the Trust Agreement, the Purchase Agreement, the Pooling and Servicing Agreement, any Assignment, the Custodial Agreement, the Administration Agreement, the Indenture, the Note Depository Agreement, the Ambac Insurance Agreement, the Lockbox Agreement, the Independent Manager Agreements, the Independent Manager Services Agreement and the other documents and certificates delivered in connection therewith. "Book Value" means, with respect to any Company property, the Company's adjusted basis for federal income tax purposes, except that the initial Book Value of any property 2 contributed by a Member to the Company shall be the value of such property on the date of such contribution, as agreed by the Board of Managers and the Member contributing the property, and the Book Value of any Company property shall be adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) (in connection with a distribution of such property) or (f) (in connection with a revaluation of Capital Accounts). "Board of Managers" has the meaning set forth in Section 4.1(a). "Capital Account" has the meaning set forth in Section 2.1. "Certificate of Formation" has the meaning set forth in Section 1.1. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. "Company" has the meaning set forth in Section 1.1. "Control" means the possession, directly or indirectly, or the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or general partnership or managing member interests, by contract or otherwise. "Controlling" and "Controlled" shall have correlative meanings. "Event of Withdrawal" means the death or dissolution of a Member. "Independent Manager" means a natural person who, for the five-year period prior to such person's appointment as Independent Manager (or independent director with respect to corporations) has not been, and during the continuation of such person's service as Independent Manager such Independent Manager is not: (i) an employee, director, stockholder, manager, partner or officer of the Company or any of its Affiliates (other than such person's service as an Independent Manager of the Company or any of the Initial Member's Affiliates); (ii) a customer or supplier of the Company or any of its Affiliates; (iii) a beneficial owner at the time of such individual's appointment as an Independent Manager, or at any time thereafter while serving as an Independent Manager, of more than 2% of the voting securities of the Initial Member of any of its subsidiaries or affiliates; (iv) is not affiliated with a significant customer, supplier or creditor of the Initial Member or any of its affiliates or subsidiaries; (v) does not have any significant personal service contracts with the Initial Member or any of its affiliates or subsidiaries; (vi) has prior experience as an independent director for a corporation whose charter documents require the unanimous consent of all independent directors thereof before such corporation could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law; (vii) has at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities; or (viii) is not any member of the immediate family of a person described in (i) or (ii). An Independent 3 Manager of the Company is hereby designated as a Manager of the Company within the meaning of Section 18-101(10) of the Act. "Independent Manager Agreement" means an agreement by and between the Company and an Independent Manager relating to such Independent Manager's position as Independent Manager. "Independent Manager Services Agreement" means an agreement by and between the Company and a Person relating to the identification of qualified individuals to serve as Independent Managers. "Initial Member" means Alliance Laundry Systems LLC, a Delaware limited liability company, as the sole member of the Company. "Lockbox Agreements" means any agreement relating to the provision of lockbox or other account services. "Losses" for any period means all items of Company loss, deduction and expense for such period determined according to Section 2.2. "Majority in Interest" means a majority of Percentage Interests of all Participants. "Manager" means each Person identified as such on Schedule 1 as a manager, and any successor thereto. Each Manager is hereby designated as a "manager" of the Company within the meaning of Section 18-101 (10) of the Act. "Manager Agreement" means the Manager Agreement in the form attached hereto as Exhibit A. "Material Action" means to consolidate or merge the Company with or into any Person, or sell all or substantially all of the assets of the Company, or to institute proceedings to have the Company or the Issuer be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against the Company or the Issuer or file a petition seeking, or consent to, reorganization or relief with respect to the Company or the Issuer under any applicable federal or state law relating to bankruptcy, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or the Issuer or a substantial part of its property, or make any assignment (or consent to the making of any assignment) for the benefit of creditors of the Company, or admit in writing the Company's inability to pay its debts generally as they become due, or, to the fullest extent permitted by law, take action in furtherance of any such action, or dissolve or liquidate (or consent to the dissolution or liquidation of) the Company or the Issuer or except to the extent permitted by the Basic Documents, engage in any business activity not contemplated hereby, sell all or substantially all of the assets of the Company or incur debt not contemplated by the Basic Documents. 4 "Member" means any of the parties identified on Schedule 1 as a member or admitted as a member after the date of this Agreement in accordance with the terms hereof, in each case for so long as such person continues to be a member hereunder; provided, however, the term "Member" shall not include the Special Members. "Officer's Certificate" means a certificate signed by any officer of the Company who is authorized to act for the Company in matters relating to the Company. "Participant" means a Member, a Terminated Member or an Assignee. "Percentage Interest" means, in respect of each Participant, such Participant's interest in the income, gains, losses, deductions and expenses of the Company as set forth on Schedule 1. "Permitted Indebtedness" means the indebtedness for borrowed money of the Company and the other liabilities and obligations arising under the Notes and the other Basic Documents. "Pooling and Servicing Agreement" means the Pooling and Servicing Agreement dated as of November 28, 2000 among the Initial Member, the Company and Alliance Laundry Equipment Receivables Trust 2000-A. "Profits" for any period means all items of Company income and gain for such period determined according to Section 2.2. "Special Member" means, upon such Person's admission to the Company as a member of the Company pursuant to Section 1.7, a person acting as an Independent Manager, in such person's capacity as a member of the Company. A Special Member shall have only the rights and duties expressly set forth in this Agreement. "Terminated Member" means a person who has ceased to be a Member pursuant to Section 5.5. "Transfer" has the meaning set forth in Section 5.1(a). B. Rules of Construction. Definitions in this Agreement apply equally to both the singular and plural forms of the defined terms. The words "include" and "including" shall be deemed to be followed by the phrase "without limitation." The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section, paragraph or subdivision. The Section titles appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All Section, paragraph, clause, Exhibit or Schedule references not attributed to a particular document shall be references to such parts of this Agreement. 5 CERTIFICATE OF FORMATION OF ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC This Certificate of Formation of Alliance Laundry Equipment Receivables LLC (the "LLC"), dated as of November __, 2000, is being duly executed and filed by [__________], as an authorized person, to form a limited liability company under the Delaware Limited Liability Company Act (6 Del. C. ss.18-101, et seq.). FIRST. The name of the limited liability company formed hereby is Alliance Laundry Equipment Receivables LLC. SECOND. The address of the registered office of the LLC in the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. THIRD. The name and address of the registered agent for service of process on the LLC in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation as of the date first above written. _________________________________ Name: Authorized Person EX-10.55 8 dex1055.txt INSURANCE AND INDEMNITY AGREEMENT EXHIBIT 10.55 INSURANCE AND INDEMNITY AGREEMENT Dated as of November 28, 2000 AMBAC ASSURANCE CORPORATION as Insurer ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A as Issuer ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC as Seller ALLIANCE LAUNDRY SYSTEMS LLC and THE BANK OF NEW YORK as Indenture Trustee ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A Equipment Loan Backed Notes TABLE OF CONTENTS Page ARTICLE I DEFINITIONS ................................................ 2 Section 1.1. Defined Terms ......................................... 2 Section 1.2. Other Definitional Provisions ......................... 4 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS .................. 4 Section 2.1. Representations and Warranties of Alliance ............ 4 Section 2.2. Affirmative Covenants of Alliance ..................... 5 Section 2.3. Negative Covenants of Alliance ........................ 8 Section 2.4. Representations and Warranties of the Insurer ......... 9 Section 2.5. Representations; Warranties and Covenants of the Seller 10 Section 2.6. Affirmative Covenants of the Seller ................... 10 Section 2.7. Negative Covenants of the Seller ...................... 13 Section 2.8. Representations and Warranties of the Issuer .......... 14 Section 2.9. Affirmative Covenants of the Issuer ................... 16 Section 2.10. Negative Covenants of the Issuer ...................... 18 ARTICLE III THE AMBAC POLICY; REIMBURSEMENT ............................ 19 Section 3.1. Issuance of the Ambac Policy .......................... 19 Section 3.2. Payment of Fees and Premium ........................... 20 Section 3.3. Reimbursement Obligation .............................. 20 Section 3.4. Indemnification ....................................... 21 Section 3.5. Payment Procedure ..................................... 24 Section 3.6. Subrogation ........................................... 24 ARTICLE IV FURTHER AGREEMENTS ......................................... 25 Section 4.1. Effective Date; Term of the Insurance Agreement ....... 25 Section 4.2. Further Assurances and Corrective Instruments ......... 25 Section 4.3. Obligations Absolute .................................. 25 Section 4.4. Assignments; Reinsurance; Third-Party Rights .......... 26 Section 4.5. Liability of the Insurer .............................. 27 Section 4.6. Annual Servicing Audit and Certification .............. 27 ARTICLE V DEFAULTS AND REMEDIES ...................................... 28 Section 5.1. Defaults .............................................. 28 Section 5.2. Remedies; No Remedy Exclusive ......................... 29
TABLE OF CONTENTS (continued) Page Section 5.3. Waivers ............................................... 29 ARTICLE VI MISCELLANEOUS .............................................. 29 Section 6.1. Amendments, Etc ....................................... 29 Section 6.2. Notices ............................................... 30 Section 6.3. Severability .......................................... 31 Section 6.4. Governing Law ......................................... 31 Section 6.5. Consent to Jurisdiction ............................... 31 Section 6.6. Consent of the Insurer ................................ 32 Section 6.7. Counterparts .......................................... 32 Section 6.8. Headings .............................................. 32 Section 6.9. Trial by Jury Waived .................................. 32 Section 6.10. Limited Liability ..................................... 32 Section 6.11. Entire Agreement ...................................... 32 Section 6.12. Indenture Trustee ..................................... 33 Section 6.13. Third-Party Beneficiary ............................... 33 Section 6.14. No Proceedings ........................................ 33 Section 6.15. Limited Recourse ...................................... 33 EXHIBIT A FORM OF AMBAC POLICY ................................................... 1 EXHIBIT B AGREED UPON PROCEDURES ................................................. 1
INSURANCE AND INDEMNITY AGREEMENT (as it may be amended, modified or supplemented from time to time, this "Insurance Agreement"), dated as of November 28, 2000, by and among AMBAC ASSURANCE CORPORATION, as Insurer (the "Insurer"), ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A, as Issuer (the "Issuer"), ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC, as Seller (the "Seller"), ALLIANCE LAUNDRY SYSTEMS LLC ("Alliance"), and THE BANK OF NEW YORK, as Indenture Trustee (the "Indenture Trustee"). PRELIMINARY STATEMENTS A. The Indenture, dated as of November 28, 2000, relating to Alliance Laundry Equipment Receivables Trust 2000-A Equipment Loan Backed Notes, by and among the Issuer and the Indenture Trustee (as it may be amended, modified or supplemented from time to time as set forth therein, the "Indenture") provides for, among other things, the issuance of the Class A Notes. B. The parties hereto desire that the Insurer issue the Ambac Policy to the Indenture Trustee for the benefit of the Noteholders and to, among other things, specify the conditions precedent thereto, the premium in respect thereof and the indemnity, reimbursement, reporting and other obligations of the parties hereto other than the Insurer in consideration thereof. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1. Defined Terms. Unless the context clearly requires otherwise, all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Pooling and Servicing Agreement dated as of November 28, 2000 by and among the Seller, the Issuer and Alliance, as Originator and Servicer (the "Agreement") or, if not defined therein, in the Ambac Policy described below. For purposes of this Insurance Agreement, the following terms shall have the following meanings: "Alliance" means Alliance Laundry Systems LLC, a Delaware limited liability company, in its capacity as Originator, Servicer or otherwise. "Ambac" means Ambac Assurance Corporation, a Wisconsin domiciled stock insurance corporation. "Ambac Policy" means the Certificate Guaranty Insurance Policy, AB0407BE, together with all endorsements thereto, issued by the Insurer to the Indenture Trustee, for the benefit of the Noteholders, in the form attached as Exhibit A to this Insurance Agreement. "Class A Notes" means collectively, the Class A-1 Notes and the Class A-2 Notes, issued by the Issuer under the Indenture. "Closing Date" means November 28, 2000. "Company Party" has the meaning specified in Section 4.1. 2 "Documents" means the Basic Documents and any other information relating to the Trust Estate, the Issuer, the Seller, or Alliance furnished to the Insurer by the Issuer, the Seller or Alliance. "Event of Default" has the meaning specified in Section 5.1 hereof. "Fee Letter" means that certain letter agreement dated as of the date hereof between the Issuer and Ambac setting forth certain fees and other matters referred to herein, as the same may be amended or supplemented from time to time in accordance therewith and with this Insurance Agreement. "Indemnified Party" has the meaning specified in Section 3.4 hereof. "Indemnifying Party" has the meaning specified in Section 3.4 hereof. "Indenture Trustee" means The Bank of New York, as indenture trustee under the Indenture, and any successor thereto under the Indenture. "Independent Public Accountant" means any of (a) Arthur Andersen & Co., (b) Deloitte & Touche, (c) PricewaterhouseCoopers, (d) Ernst & Young and (e) KPMG (and any successors of any of the foregoing); provided that such firm is independent with respect to Alliance or any subservicer, as the case may be, within the meaning of the Securities Act. "Initial Purchaser" means Lehman Brothers Inc. "Insurance Agreement" has the meaning given such term in the initial paragraph hereof. "Insurer" means Ambac and any successor thereto, as issuer of the Ambac Policy. "Insurer Information" has the meaning given such term in Section 3.4(a)(v). "Investment Company Act" means the Investment Company Act of 1940, including, unless the context otherwise requires, the rules and regulations thereunder, as amended from time to time. "Issuer" means Alliance Laundry Equipment Receivables Trust 2000-A, a Delaware business trust, or any of its successors or permitted assigns as provided for in the Indenture. "Late Payment Rate" means the lesser of (a) the greater of (i) the per annum rate of interest publicly announced from time to time by Citibank, N.A. as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by Citibank, N.A.), plus 2% per annum and (ii) the then applicable highest rate of interest on the Class A Notes and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. "Material Adverse Change" means, in respect of any Person, a material adverse change in (i) the business, financial condition, results of operations or properties of such Person on a consolidated basis with its subsidiaries or (ii) the ability of such Person to perform its obligations under any of the Basic Documents. "Moody's" means Moody's Investors Service and any successor thereto. "Noteholder" means any Holder of Class A Notes, other than a Company Party. "Note Purchase Agreement" means the Note Purchase Agreement dated as of November 13, 2000 among the Initial Purchaser, the Seller and Alliance with respect to the offer and sale of the Class A Notes, as amended, modified or supplemented from time to time. 3 "Offering Document" means the Confidential Offering Memorandum dated November 13, 2000, in respect of the offering and sales of the Class A Notes, any amendment or supplement thereto, and any other offering document in respect of the Notes that makes reference to the Ambac Policy. "Originator" means Alliance Laundry Systems, LLC, a Delaware limited liability company, as ALS under the Purchase Agreement, and Originator under the Agreement. "Person" means an individual, joint stock company, trust, unincorporated association, joint venture, corporation, limited liability company, business or owner trust, partnership or other organization or entity (whether governmental or private). "Premium" means the premium payable in accordance with the Fee Letter. "Purchase Agreement" means the Purchase Agreement dated as of November 28, 2000 between ALS and the Seller with respect to the sale of the Loans, as amended, modified or supplemented from time to time. "Rating Agencies" means Moody's and S&P. "Securities Act" means the Securities Act of 1933, including, unless the context otherwise requires, the rules and regulations promulgated thereunder, as amended from time to time. "Securities Exchange Act" means the Securities Exchange Act of 1934, including, unless the context otherwise requires, the rules and regulations promulgated thereunder, as amended from time to time. "Seller" means Alliance Laundry Equipment Receivables LLC, a Delaware limited liability company. "Servicer" means Alliance Laundry Systems LLC, a Delaware limited liability company, as servicer under the Agreement, and any successor thereto in such capacity. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto. "Transaction" means the transactions contemplated by the Basic Documents. "Trust Agreement" means, with respect to the Issuer, the Trust Agreement of the Issuer, as amended from time to time. Section 1.2. Other Definitional Provisions. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Insurance Agreement shall refer to this Insurance Agreement as a whole and not to any particular provision of this Insurance Agreement, and Section, subsection, Schedule and Exhibit references are to this Insurance Agreement unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The words "include" and "including" shall be deemed to be followed by the phrase "without limitation." ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS Section 2.1. Representations and Warranties of Alliance. 4 Alliance hereby makes to and for the benefit of the Insurer each of the representations and warranties made by Alliance, whether in its capacity as Originator, Servicer or otherwise, in each of the Basic Documents to which it is a party, including, but not limited to, Sections 2.05 and 6.01 of the Agreement and Sections 3.01 and 3.02 of the Purchase Agreement. Such representations and warranties are incorporated herein by this reference as if fully set forth herein, and may not be amended except by an amendment complying with the terms of the last sentence of Section 6.1. In addition, Alliance represents and warrants as of the Closing Date as follows: (a) The offer and sale of the Notes by the Issuer comply in all material respects with all requirements of law, including all registration requirements of applicable securities laws. Without limiting the generality of the foregoing, the Offering Document does not contain any untrue statement of a material fact and does not omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (b) The Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. The Issuer is not required to be registered as an "investment company" under the Investment Company Act. Neither the offer nor the sale of the Notes by the Issuer will be in violation of the Securities Act or any other federal or state securities law. Alliance will satisfy any of the information reporting requirements of the Securities Exchange Act arising out of the Transaction to which it, the Issuer or the Seller is subject. (c) The information or statements contained in the Documents furnished to the Insurer by Alliance, as amended, supplemented or superseded on or prior to the date hereof, taken as a whole, does not, if restated at and as of the date hereof, contain any statement of a material fact or omit to state a material fact necessary to make such information or statements misleading in any material respect. Section 2.2. Affirmative Covenants of Alliance. Alliance hereby makes, to and for the benefit of the Insurer, all of the covenants made by Alliance, whether in its capacity as Originator or Servicer, in the Basic Documents to which it is a party, including, but not limited to, Section 3.07 of the Agreement. Such covenants are hereby incorporated herein by this reference as if fully set forth herein, and may not be amended except by an amendment complying with the terms of the last sentence of Section 6.1. In addition, Alliance hereby agrees that during the term of this Insurance Agreement, unless the Insurer shall otherwise expressly consent in writing: (a) Compliance with Agreements and Applicable Laws. Alliance shall comply with the terms and conditions of and perform its obligations under the Basic Documents to which it is a party and shall comply in all material respects with any law, rule or regulation applicable to it. (b) Existence. Subject to Section 2.3(c) hereof, it shall maintain its existence as a limited liability company and shall at all times continue to be duly organized under the laws of the State of Delaware and duly qualified and duly authorized (as described in Sections 3.02(b) and (c) of the Purchase Agreement) and shall conduct its business in accordance with the terms of its certificate of formation and operating agreement and shall maintain all licenses, permits, charters and registrations which are material to the conduct of its business. 5 (c) Compliance Certificate. As soon as practicable and in any event within 50 days after the end of each of the first three fiscal quarters and 95 days after the fiscal year end of Alliance, Alliance shall deliver to the Insurer a compliance certificate signed by a senior financial officer of Alliance stating that to the best of such Person's knowledge, no Event of Default hereunder and no event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default hereunder exists, or if any such event exists, stating the nature and status thereof (including all relevant financial and other information and amounts used in determining whether such events exist). (d) Notice of Material Events. Alliance shall be obligated promptly to inform the Insurer in writing of the occurrence of any of the following: (i) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation, or disciplinary proceeding by or against Alliance that would likely result in a Material Adverse Change with respect to Alliance or the promulgation of any proceeding or any proposed or final ruling in connection with any such litigation, investigation or proceeding which would reasonably likely to result in a Material Adverse Change with respect to Alliance; (ii) not less than thirty (30) days after the date thereof, any change in the location of the principal office of Alliance; (iii) within two (2) Business Days of the occurrence thereof, the occurrence of any Event of Default hereunder; or (iv) the receipt of written notice that (A) any license, permit, charter, registration or approval necessary for the conduct of Alliance's business is to be, or may be, suspended or revoked and such suspension or revocation would be reasonably likely to result in a Material Adverse Change with respect to Alliance or (B) Alliance is to cease and desist any practice, procedure or policy employed by Alliance in the conduct of its business, and such cessation would be reasonably likely to result in a Material Adverse Change with respect to Alliance. (e) Access to Records; Discussions with Officers and Accountants. Upon reasonable prior written notice of the Insurer, at any time and in any event at least annually, Alliance shall permit the Insurer or its authorized agents: (i) to inspect the books and records of Alliance, as they may relate to the Transaction, the Trust Estate, the Notes, or the obligations of Alliance under the Basic Documents; (ii) to discuss the affairs, finances and accounts of Alliance with the principal executive officer and the principal financial officer of Alliance; and (iii) through independent public accountants designated by the Insurer, to discuss the affairs, finances and accounts of Alliance with Alliance's independent accountants, provided that an officer of Alliance shall have the right to be present during such discussions. 6 Such inspections and discussions shall be conducted during normal business hours at Alliance's cost and expense, subject to Section 3.3(b) hereof, and shall not unreasonably disrupt the business of Alliance. (f) Disclosure Document. Each Offering Document delivered with respect to the Notes shall clearly disclose that the Ambac Policy is not covered by the property/casualty insurance security fund specified in Article 76 of the New York Insurance Law. (g) Closing Documents. Alliance shall provide or cause to be provided to the Insurer an executed original copy of each Basic Document and a copy of each other document executed in connection with the closing of the Transaction within 30 days of the Closing Date. (h) Field Examination by Independent Public Accountants. Upon reasonable prior written notice of the Insurer at any time, Alliance shall permit Alliance's independent public accountants or, if such independent public accountants are not acceptable to the Insurer, Independent Public Accountants designated by the Insurer, annually to conduct a field examination of Alliance pursuant to an agreed upon procedures scope attached in the form of Exhibit B hereto, and in connection therewith shall permit such independent public accountants or Independent Public Accountants, as the case may be, without limitation: (i) to inspect the books and records of Alliance as they may relate to the Transaction, the Trust Estate, the Notes, or the obligations of Alliance under the Basic Documents; (ii) to discuss the affairs, finances and accounts of Alliance with the principal executive officer and the principal financial officer of Alliance; and (iii) to discuss the affairs, finances and accounts of Alliance with Alliance's independent accountants, provided that an officer of Alliance shall have the right to be present during such discussions. Such inspections and discussions shall be conducted during normal business hours at Alliance's cost and expense, subject to Section 3.3(b) hereof, and shall not unreasonably disrupt the business of Alliance. (i) Financial Reporting. Alliance shall provide or cause to be provided to the Insurer the following (which, other than management letters and certificates, Alliance may deliver by electronic mail): (i) Annual and Quarterly Financial Statements. The financial statements required pursuant to Section 4.02(d) of the Agreement, as and when required pursuant to such section. (ii) Compliance Certificate. Together with the financial statements required under Section 4.02(d) of the Agreement, a compliance certificate signed by Alliance's principal financial officer stating that to the best of such Person's knowledge, (i) Alliance is in compliance with its obligations hereunder and under the other Basic Documents, and (ii) no Event of Default, Servicer Default, or Early Payout Event exists hereunder or under the other Basic Documents and no event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default, Servicer 7 Default, or Early Payout Event exists hereunder or under the other Basic Documents, and if any such event exists, stating the nature and status thereof (including all relevant financial and other information and amounts used in determining whether such Event of Default, Servicer Default, or Early Payout Event exists). (iii) Monthly Financial Statements. As soon as available, but in any event not later than 30 days after the end of each month occurring during each fiscal year of Alliance (other than the third, sixth, ninth and twelfth such months), the unaudited consolidated balance sheets of Alliance and its subsidiaries as at the end of such month, and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, certified by the principal financial officer (but solely in the event it is required to be so certified pursuant to any financing or servicing agreement) as being fairly stated in all material respects (subject to normal year end audit adjustments and the absence of footnotes). (iv) S.E.C. Filings. Promptly after the filing thereof, copies of all registration statements and annual, quarterly or other regular reports which Alliance or any subsidiary files with the Securities and Exchange Commission. (j) Credit and Collections Policy. Within 90 days after the end of each fiscal year of Alliance, Alliance shall deliver to the Insurer a complete copy of the Credit and Collection Policy then in effect. (k) Financial Projections. Projected financial information prepared by Alliance in the ordinary course of business and delivered by Alliance to any of its other lenders, including revisions of previously delivered information, in each case concurrently with delivery thereof to such other lenders. (l) Public Debt Ratings. Promptly, but in any event within 15 days after the date of any upgrade in Alliance's public debt ratings and 2 Business Days of any downgrade in such ratings, Alliance shall deliver to the Insurer a written certification of Alliance's public debt ratings after giving effect to such change. (m) Trigger Events. Alliance shall include in the Servicer's Certificate delivered pursuant to Section 3.10 of the Agreement a certification signed by Alliance's principal financial officer stating that to the best of such Person's knowledge, no Servicer Default, Early Payout Event or Event of Default (hereunder and under the Indenture) has occurred and is continuing. (n) Exemption from Securities Act Registration. Alliance shall take all actions necessary to exempt the sale of the Notes from registration under the Securities Act and under any applicable securities laws of any state of the United States where any Notes may be offered or sold by the Issuer. (o) Other Information. Alliance shall provide to the Insurer such other information (including non-financial information) in respect of the Loans, the Transaction and the Basic Documents and such other financial or operating information in respect of Alliance, the Seller, the Issuer or any of their Affiliates, in each case, which the Insurer may from time to time reasonably request. 8 Section 2.3. Negative Covenants of Alliance. Alliance hereby agrees that during the term of this Insurance Agreement, unless the Insurer shall otherwise expressly consent in writing: (a) Impairment of Rights. Alliance shall not take any action, or fail to take any action, if such action or failure to take action (x) is reasonably likely to result in a Material Adverse Change pursuant to clause (ii) of the definition of "Material Adverse Change" or (y) is reasonably likely to interfere with the enforcement of any rights of the Insurer under or with respect to any of the Basic Documents. Alliance shall give the Insurer written notice of any such action or failure to act promptly prior to the date of consummation of such action or failure to act. Alliance shall furnish to the Insurer all information requested by it that is reasonably necessary to determine compliance with this paragraph. (b) Amendments, Etc. Alliance shall not modify, amend or waive, or consent to any modification or amendment of, any of the terms, provisions or conditions of the Basic Documents to which it is a party without the prior written consent of the Insurer thereto, but excluding any amendment to the Basic Documents or Offering Document required by law, provided that Alliance shall provide the Insurer with reasonable prior written notice of any such amendment and a copy thereof. (c) Limitation on Mergers, Etc. Except as expressly permitted by the Agreement, Alliance shall not consolidate with or merge with or into any Person or transfer all or substantially all of its assets to any Person (each, a "Transaction") or liquidate or dissolve. Without limiting the foregoing, no Transaction shall be consummated unless Alliance shall delivered to the Insurer (a) an Officer's Certificate reasonably satisfactory to it, stating that such consolidation, conversion, merger, or succession and such agreement of assumption comply with this Section and the other Basic Documents that all conditions precedent, if any, provided for in this Agreement and the other Basic Documents relating to such transaction have been complied with, and (b) an opinion of counsel, reasonably satisfactory to it, stating that, in the opinion of such counsel, (1) the agreement of assumption is the valid and binding obligations of the parties thereto and effective to accomplish the assumption of liabilities contemplated therein, (2) either (A) 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, the Indenture Trustee, the Insurer and the Noteholders in the Loans and reciting the details of such filings, or (B) no such action shall be necessary to preserve and protect such interest in either case, such opinion shall cover the matters covered in the opinion delivered pursuant to Section 3.6(a) of the Indenture, taking into account changes of law, and (3) after giving effect to such merger or consolidation, Alliance (or its successor) would not be substantively consolidated with the Seller or the Issuer in the event of a bankruptcy of Alliance or its successor. (d) Change in Lockbox Processor. Alliance shall not permit a change in the Lockbox Account or the lockbox processor designated in the Lockbox Agreement without the prior written consent of the Insurer. Section 2.4. Representations and Warranties of the Insurer. The Insurer represents and warrants to the Indenture Trustee (on behalf of the Noteholders), the Issuer, the Seller and Alliance as follows: 9 (a) Organization and Licensing. The Insurer is a stock insurance corporation duly organized, validly existing and in good standing under the laws of the State of Wisconsin. (b) Corporate Power. The Insurer has the corporate power and authority to issue the Ambac Policy and execute and deliver this Insurance Agreement and to perform all of its obligations hereunder and thereunder. (c) Authorization; Approvals. All proceedings legally required for the issuance of the Ambac Policy and the execution, delivery and performance of this Insurance Agreement have been taken and all licenses, orders, consents or other authorizations or approvals of the Insurer's Board of Directors or stockholders or any governmental boards or bodies legally required for the enforceability of the Ambac Policy have been obtained or are not material to the enforceability of the Ambac Policy. (d) Enforceability. The Ambac Policy, when issued, will constitute, and this Insurance Agreement constitutes, a legal, valid and binding obligation of the Insurer, enforceable in accordance with its terms, subject to insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity and subject to principles of public policy limiting the right to enforce the indemnification provisions contained therein and herein, insofar as such provisions relate to indemnification for liabilities arising under federal securities laws. (e) No Litigation. There are no actions, suits, proceedings or investigations pending or, to the best of the Insurer's knowledge, threatened against it at law or in equity or before or by any court, governmental agency, board or commission or any arbitrator which, if decided adversely, would materially and adversely affect its ability to perform its obligations under the Ambac Policy or this Insurance Agreement. (f) No Conflict. The execution by the Insurer of this Insurance Agreement will not, and the satisfaction of the terms hereof will not, conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or By-Laws of the Insurer, or any restriction contained in any contract, agreement or instrument to which the Insurer is a party or by which it is bound or constitute a default under any of the foregoing which would materially and adversely affect its ability to perform its obligations under the Ambac Policy or this Insurance Agreement. Section 2.5. Representations; Warranties and Covenants of the Seller. The Seller hereby makes to and for the benefit of the Insurer each of the representations, warranties and covenants made by the Seller in the Basic Documents to which it is a party, including, but not limited to, Section 2.05 and 6.01 of the Agreement. Such representations, warranties and covenants are incorporated herein by this reference as if fully set forth herein, and may not be amended except by an amendment complying with the terms of the last sentence of Section 6.1. In addition, the Seller represents and warrants as of the Closing Date as follows: (a) The offer and sale of the Notes by the Issuer comply in all material respects with all requirements of law, including all registration requirements of applicable securities laws. Without limiting the generality of the foregoing, the Offering Document does not contain any untrue statement of a material fact and does not omit to state a material fact necessary to 10 make the statements made therein, in light of the circumstances under which they were made, not misleading. (b) The Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. The Issuer is not required to be registered as an "investment company" under the Investment Company Act. Neither the offer nor the sale of the Notes by the Issuer will be in violation of the Securities Act or any other federal or state securities law. The Seller will satisfy any of the information reporting requirements of the Securities Exchange Act arising out of the Transaction to which it is subject. (c) The information or statements contained in the Documents furnished to the Insurer by Seller, as amended, supplemented or superseded on or prior to the date hereof, taken as a whole, does not, if restated at and as of the date hereof, contain any statement of a material fact or omit to state a material fact necessary to make such information or statements misleading in any material respect. Section 2.6. Affirmative Covenants of the Seller. The Seller hereby makes, to and for the benefit of the Insurer, all of the covenants of the Seller set forth in the Basic Documents to which it is a party. Such covenants are incorporated herein by this reference, and may not be amended except by an amendment complying with the terms of the last sentence of Section 6.1. In addition, the Seller hereby agrees that during the term of this Insurance Agreement, unless the Insurer shall otherwise expressly consent in writing: (a) Compliance with Agreements and Applicable Laws. It shall comply with the terms and conditions of and perform its obligations under the Basic Documents to which it is a party and shall comply with all material requirements of any law, rule or regulation applicable to it. (b) Existence. It shall maintain its existence as a limited liability company and shall at all times continue to be duly organized under the laws of the State of Delaware and duly qualified and duly authorized (as described in Sections 3.03(b) and (c) of the Purchase Agreement) and shall conduct its business in accordance with the terms of its certificate of formation and operating agreement and shall maintain all licenses, permits, charters and registrations which are material to the conduct of its business. (c) Access to Records; Discussions with Officers and Accountants. Upon reasonable prior written notice of the Insurer, at any time and any event at least annually, the Seller shall permit the Insurer or its authorized agents: (i) to inspect the books and records of the Seller; (ii) to discuss the affairs, finances and accounts of the Seller with the principal executive officer and the principal operating officer of the Seller; and (iii) through independent public accountants designated by the Insurer, to discuss the affairs, finances and accounts of the Seller with the Seller's independent accountants, provided that an officer of the Seller shall have the right to be present during such discussions. 11 Such inspections and discussions shall be conducted during normal business hours at the cost and expense of the Seller, subject to Section 3.3(b) hereof, and shall not unreasonably disrupt the business of the Seller. (d) Notice of Material Events. The Seller shall be obligated promptly to inform the Insurer in writing of the occurrence of any of the following: (i) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation, or disciplinary proceeding by or against the Seller that would likely result in a Material Adverse Change with respect to the Seller or the promulgation of any proceeding or any proposed or final ruling in connection with any such litigation, investigation or proceeding which would reasonably likely to result in a Material Adverse Change with respect to the Seller; (ii) not less than thirty (30) days after the date thereof, any change in the location of the principal office of the Seller; (iii) within two (2) Business Days of the occurrence thereof, the occurrence of an Event of Default hereunder in respect of the Seller; (iv) the commencement of any proceedings by or against the Seller under any applicable reorganization, liquidation, rehabilitation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for such Seller or any of its assets; or (v) the receipt of written notice that (A) any license, permit, charter, registration or approval necessary for the conduct of the Seller's business is to be, or may be, suspended or revoked and such suspension or revocation would be reasonably likely to result in a Material Adverse Change with respect to the Seller or (B) the Seller is to cease and desist any practice, procedure or policy employed by the Seller in the conduct of its business, and such cessation would be reasonably likely to result in a Material Adverse Change with respect to the Seller. (e) Field Examination by Independent Public Accountants. Upon the prior written notice of the Insurer at any time, each of the Seller shall permit the independent public accountants of the Seller or, if such independent public accountants are not acceptable to the Insurer, Independent Public Accountants designated by the Insurer, annually to conduct a field examination of the Seller pursuant to an agreed upon procedures scope attached in the form of Exhibit B hereto, and in connection therewith shall permit such independent public accountants or Independent Public Accountants, as the case may be, without limitation: (i) to inspect the books and records of the Seller; and (ii) to discuss the affairs, finances and accounts of the Seller with the Seller's independent accountants, provided that an officer of the Seller shall have the right to be present during such discussions. 12 Such inspections and discussions shall be conducted during normal business hours at the cost and expense of such Seller, subject to Section 3.3(b) hereof, and shall not unreasonably disrupt the business of the Seller. (f) Exemption from Securities Act Registration. The Seller shall take all actions necessary to exempt the sale of the Notes from registration under the Securities Act and under any applicable securities laws of any state of the United States where Notes may be offered or sold by the Issuer. (g) Financial Reporting. To the extent the Seller shall otherwise be preparing the same, the Seller shall provide or cause to be provided to the Insurer, as soon as practicable and in any event within 95 days after the end of each fiscal year of the Seller annual balance sheets of the Seller as at the end of such fiscal year and the notes thereto, and the related statements of income and cash flows and the respective notes thereto for such fiscal year certified by the principal financial officer of the Seller. (h) Other Information. The Seller shall provide to the Insurer such other information (including non-financial information) in respect of the Loans, the Transaction and the Basic Documents and such other financial or operating information in respect of the Seller, in each case, which the Insurer may from time to time reasonably request. (i) Operation of the Seller. The Seller shall: (1) be a limited purpose, limited liability company whose primary activities are restricted pursuant to its certificate of formation and operating agreement; (2) not engage in any action that would cause the separate legal identity of the Seller not to be respected, including, without limitation, (a) holding itself out as being liable for the debts of any other party or (b) acting other than through its duly authorized agents; (3) not be involved in the day-to-day management of Alliance; (4) not incur, assume or guarantee any indebtedness except for such indebtedness as may be incurred by the Seller in connection with the issuance of the Notes or as otherwise permitted by the Insurer; (5) act solely in its own name in the conduct of its business, including business correspondence and other communications, and shall conduct its business so as not to mislead others as to the identity of the entity with which they are concerned; (6) maintain separate company records and books of account, deposit accounts (and funds therein) or other assets and shall not commingle its deposit accounts (and funds therein) with the deposit accounts (and funds therein) of any entity; 13 (7) not engage in any business or activity other than in connection with or relating to its certificate of formation and operating agreement; (8) not form, or cause to be formed, any subsidiaries (other than the Issuer); (9) comply with all restrictions and covenants in, and shall not fail to comply with the limited liability company formalities established in, its certificate of formation and operating agreement; (10) manage its day-to-day business without the involvement of Alliance except pursuant to its obligations as Servicer; (11) maintain a separate office from that of Alliance, which may be located on Alliance's premises; (12) not act as an agent of Alliance; (13) maintain at all times two independent managers as required by its articles of organization and operating agreement; (14) ensure that, to the extent that it shares the same officers or other employees as any of its Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees; (15) ensure that, to the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in doing so shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Seller contracts or does business with vendors or service providers when the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions between the Seller and its Affiliates shall only be on an arm's-length basis; (16) require that all full-time employees of the Seller identify themselves as such and not as employees of Alliance (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as the Seller's employees); and (17) compensate all employees, consultants and agents directly, from the Seller's bank accounts, for services provided to the Seller by such employees, consultants and agents, and, to the extent any employee, consultant or agent of the Seller is also an employee, consultant or agent of Alliance, allocate 14 the compensation of such employee, consultant or agent between the Seller and Alliance on a basis which reflects the services rendered to the Seller and Alliance. Section 2.7. Negative Covenants of the Seller. The Seller hereby agrees that during the term of this Insurance Agreement, unless the Insurer shall otherwise expressly consent in writing: (a) Impairment of Rights. The Seller shall not take any action, or fail to take any action, if such action or failure to take action (x) is reasonably likely to result in a Material Adverse Change or (y) is reasonably likely to interfere with the enforcement of any rights of the Insurer under or with respect to any of the Basic Documents. The Seller shall give the Insurer written notice of any such action or failure to act promptly prior to the date of consummation of such action or failure to act. The Seller shall furnish to the Insurer all information requested by it that is reasonably necessary to determine compliance with this paragraph. (b) Amendments, Etc. The Seller shall not modify, amend or waive, or consent to any modification, amendment or waiver of, any of the terms, provisions or conditions of the Basic Documents to which it is a party or its organizational documents, including, without limitation, its certificate of formation and operating agreement, without the prior written consent of the Insurer thereto, but excluding any amendment to the Basic Documents or Offering Document required by law, provided that the Seller shall provide the Insurer with prior written notice of any such amendment and a copy thereof. (c) Limitation on Mergers, Etc. The Seller shall not consolidate with or merge with or into any Person or transfer all or substantially all of its assets to any Person or liquidate or dissolve except as expressly permitted in the Agreement. (d) Operating Expenses. The Seller shall not permit Alliance to pay any of the Seller's operating expenses except pursuant to allocation arrangements that comply with the requirements of Section 2.6(i)(17) above. (e) Certain Other Limitations. The Seller shall not permit the Seller to be named as an insured on the insurance policy covering the property of Alliance, or enter into an agreement with the holder of such policy whereby in the event of a loss in connection with such property, proceeds are paid to the Seller. Section 2.8. Representations and Warranties of the Issuer. The Issuer hereby makes, to and for the benefit of the Insurer, each of the representations and warranties made by the Issuer in the Basic Documents to which it is a party. Such representations and warranties are incorporated herein by this reference as if fully set forth herein, and may not be amended except by an amendment complying with the terms of Section 6.1. In addition, the Issuer represents and warrants as of the Closing Date as follows: (a) Due Organization and Qualification. The Issuer is a Delaware business trust, duly organized, validly existing and in good standing under the laws of Delaware. The Issuer is duly qualified to do business, is in good standing and has obtained all necessary licenses, permits, charters, registrations and approvals (together, "approvals") necessary for the conduct of its business as currently conducted and as described in the Offering Document and the performance of its obligations under the Basic Documents in each jurisdiction in which the 15 failure to be so qualified or to obtain such approvals would render any Basic Document unenforceable in any respect or would have a material adverse effect upon the Transaction. (b) Power and Authority. The Issuer has all necessary Delaware business trust power and authority to conduct its business as currently conducted and as described in the Offering Document, to execute, deliver and perform its obligations under the Basic Documents and to consummate the Transaction. (c) Due Authorization. The execution, delivery and performance of the Basic Documents by the Issuer has been duly authorized by all necessary Delaware business trust action and do not require any additional approvals or consents, or other action by or any notice to or filing with any Person, including any governmental entity, which have not previously been obtained. (d) Noncontravention. The execution and delivery by the Issuer of the Basic Documents to which it is a party, the consummation of the Transaction and the satisfaction of the terms and conditions of the Basic Documents do not and will not: (i) conflict with or result in any breach or violation of any provision of the certificate of trust or Trust Agreement of the Issuer or any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award currently in effect having applicability to either the Issuer or any of its properties, including regulations issued by any administrative agency or other governmental authority having supervisory powers over the Issuer; (ii) constitute a default by the Issuer under, result in the acceleration of any obligation under, or breach any material provision of any loan agreement, mortgage, indenture or other agreement or instrument to which the Issuer either is a party or by which any of its properties are or may be bound or affected; or (iii) result in or require the creation of any lien upon or in respect of any assets of the Issuer, except as otherwise expressly contemplated by the Basic Documents. (e) Legal Proceedings. There is no action, proceeding or investigation by or before any court, governmental or administrative agency or arbitrator against or affecting the Issuer, any properties or rights of the Issuer or the Trust Estate pending or, to the Issuer's knowledge, threatened, which, in any case, if decided adversely to the Issuer, is reasonably likely to result in a Material Adverse Change with respect to the Issuer. (f) Valid and Binding Obligations. The Basic Documents constitute the legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their respective terms, except as such enforceability may be limited by insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equitable principles. The Class A Notes, when executed, authenticated and delivered in accordance with the Indenture, will be validly issued and outstanding and entitled to the benefits of the Indenture. (g) Compliance with Law, Etc. No practice, procedure or policy employed, or proposed to be employed, by the Issuer in the conduct of its business violates any law, 16 regulation, judgment, agreement, order or decree applicable to the Issuer, that, if enforced, is reasonably likely to result in a Material Adverse Change with respect to the Issuer. (h) Accuracy of Information. The information or statements contained in the Documents furnished to the Insurer by the Issuer, as amended, supplemented or superseded on or prior to the date hereof, taken as a whole, does not, if restated at and as of the date hereof, contain any statement of a material fact or omit to state a material fact necessary to make such information or statements misleading in any material respect. (i) Compliance with Securities Laws. The offer and sale of the Notes by the Issuer comply in all material respects with all requirements of law, including all registration requirements of applicable securities laws. Without limiting the foregoing, the Offering Document does not contain any untrue statement of a material fact and does not omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Neither the offer nor the sale of the Notes by the Issuer has been or will be in violation of the Securities Act or any other federal or state securities laws. The Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. The Issuer is not required to be registered as an "investment company" under the Investment Company Act. The Issuer will satisfy the information reporting requirements of the Securities Exchange Act arising out of the Transaction. (j) Solvency; Fraudulent Conveyance. The Issuer is solvent and will not be rendered insolvent by the Transaction and, after giving effect to the Transaction, the Issuer will not be left with an unreasonably small amount of capital with which to engage in its business, and the Issuer does not intend to incur, nor believes that it has incurred, debts beyond its ability to pay as they mature. The Issuer does not contemplate the commencement of insolvency, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official with respect to it or any of its assets. The Issuer is not pledging the Trust Estate under the Indenture with any intent to hinder, delay or defraud its creditors. (k) Principal Place of Business. The principal place of business of the Issuer is Wilmington, Delaware and its books and records with respect to the Loans are located at Wilmington, Delaware, Ripon, Wisconsin and Chicago, Illinois. Section 2.9. Affirmative Covenants of the Issuer. The Issuer hereby makes, to and for the benefit of the Insurer, all of the covenants of the Issuer set forth in the Basic Documents to which it is a party, including, but not limited to, Article III of the Indenture. Such covenants are incorporated herein by this reference, and may not be amended except by an amendment complying with the terms of Section 6.1. In addition, the Issuer hereby agrees that during the term of this Insurance Agreement, unless the Insurer shall otherwise expressly consent in writing: (a) Compliance with Agreements and Applicable Laws. It shall comply with the terms and conditions of and perform its obligations under the Basic Documents to which it is a party and shall comply with all material requirements of any law, rule or regulation applicable to it. 17 (b) Existence. It shall maintain its existence as a business trust and shall at all times continue to be duly organized under the laws of the State of Delaware and duly qualified and duly authorized (as described in subsections 2.8(a), (b) and (c) hereof) and shall conduct its business in accordance with the terms of its certificate of trust and Trust Agreement and shall conduct its business in accordance with the terms of its trust agreement and shall maintain all licenses, permits, charters and registrations which are material to the conduct of its business. (c) Access to Records; Discussions with Officers and Accountants. Upon reasonable prior written notice of the Insurer, at any time and any event at least annually, the Issuer shall permit the Insurer or its authorized agents: (i) to inspect the books and records of the Issuer; (ii) to discuss the affairs, finances and accounts of the Issuer with the principal executive officer and the principal financial officer of the Issuer; and (iii) through independent public accountants designated by the Insurer, to discuss the affairs, finances and accounts of the Issuer with the Issuer's independent accountants, provided that an officer of the Issuer and an officer of Alliance shall have the right to be present during such discussions. Such inspections and discussions shall be conducted during normal business hours at the cost and expense of the Issuer, subject to Section 3.3(b) hereof, and shall not unreasonably disrupt the business of the Issuer. (d) Notice of Material Events. The Issuer shall be obligated promptly to inform the Insurer in writing of the occurrence of any of the following: (i) the submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation, or disciplinary proceeding by or against the Issuer that would likely result in a Material Adverse Change with respect to the Issuer or the promulgation of any proceeding or any proposed or final ruling in connection with any such litigation, investigation or proceeding which would reasonably likely to result in a Material Adverse Change with respect to the Issuer; (ii) not less than thirty (30) days after the date thereof, any change in the location of the principal office of the Issuer; (iii) the occurrence of an Event of Default hereunder in respect of the Issuer; (iv) the commencement of any proceedings by or against the Issuer under any applicable reorganization, liquidation, rehabilitation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for such Issuer or any of its assets; or (v) the receipt of written notice that (A) any license, permit, charter, registration or approval necessary for the conduct of the Issuer's business is to be, or may be, suspended or revoked and such suspension or revocation would be reasonably 18 likely to result in a Material Adverse Change with respect to such Issuer or (B) the Issuer is to cease and desist any practice, procedure or policy employed by the Issuer in the conduct of its business, and such cessation would be reasonably likely to result in a Material Adverse Change with respect to such Issuer. (e) Field Examination by Independent Public Accountants. Upon reasonable prior written notice of the Insurer at any time, each of the Issuer shall permit the independent public accountants of the Issuer or, if such independent public accountants are not acceptable to the Insurer, Independent Public Accountants designated by the Insurer, annually to conduct a field examination of the Issuer pursuant to an agreed upon procedures scope attached in the form of Exhibit B hereto, and in connection therewith shall permit such independent public accountants or Independent Public Accountants, as the case may be, without limitation: (i) to inspect the books and records of the Issuer; and (ii) to discuss the affairs, finances and accounts of the Issuer with the Issuer's independent accountants, provided that an officer of the Issuer shall have the right to be present during such discussions. Such inspections and discussions shall be conducted during normal business hours at the cost and expense of such Issuer, subject to Section 3.3(b) hereof, and shall not unreasonably disrupt the business of the Issuer. (f) Exemption from Securities Act Registration. The Issuer shall take all actions necessary to exempt the sale of the Notes from registration under the Securities Act and under any applicable securities laws of any state of the United States where Notes may be offered or sold by the Issuer. (g) Financial Reporting. To the extent the Issuer shall otherwise be preparing the same, the Issuer shall provide or cause to be provided to the Insurer, as soon as practicable and in any event within 95 days after the end of each fiscal year of the Issuer annual balance sheets of the Issuer as at the end of such fiscal year and the notes thereto, and the related statements of income and cash flows and the respective notes thereto for such fiscal year certified by the principal financial officer of the Issuer. (h) Other Information. The Issuer shall provide to the Insurer such other information (including non-financial information) in respect of the Loans, the Transaction and the Basic Documents and such other financial or operating information in respect of the Issuer, in each case, which the Insurer may from time to time reasonably request. (i) Operation of the Issuer. The Issuer shall: (1) be a Delaware business trust whose primary activities are restricted pursuant to its Trust Agreement: (2) not be involved in the day-to-day management of Alliance; (3) not incur, assume or guarantee any indebtedness except for such indebtedness as may be incurred by the Issuer in connection with the issuance of the Notes or as otherwise permitted by the Insurer; 19 (4) not commingle its deposit accounts (and funds therein) or other assets with the deposit accounts (and funds therein) or other assets of any entity other than the Seller; (5) manage its day-to-day business without the involvement of Alliance except pursuant to its obligations as Servicer; (6) maintain a separate office from that of Alliance; (7) not act as an agent of Alliance; (8) not form, or cause to be formed, any subsidiaries; (9) act solely in its own name or in the name of the Seller in the conduct of its business, including business correspondence and other communications, and shall conduct its business so as not to mislead others as to the identity of the entity with which they are concerned; (10) ensure that, to the extent that it shares the same officers or other employees as any of its Affiliates (other than the Seller), the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees; (11) ensure that, to the extent that it jointly contracts with any of its stockholders or Affiliates (other than the Seller) to do business with vendors or service providers or to share overhead expenses, the costs incurred in doing so shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Issuer contracts or does business with vendors or service providers when the goods and services provided are partially for the benefit of any other Person (other than the Seller), the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions between the Seller and its Affiliates (other than the Seller) shall only be on an arm's-length basis; (12) require that all full-time employees of the Issuer identify themselves as such and not as employees of Alliance (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as the Issuer's employees); and (13) compensate all employees, consultants and agents directly, from the Issuer's bank accounts, for services provided to the Issuer by such employees, consultants and agents, and, to the extent any employee, consultant or agent of the Issuer is also an employee, consultant or agent of Alliance, allocate the compensation of such employee, consultant or agent between the Issuer and Alliance on a basis which reflects the services rendered to the Issuer and Alliance. 20 Section 2.10. Negative Covenants of the Issuer. The Issuer hereby agrees that during the term of this Insurance Agreement, unless the Insurer shall otherwise expressly consent in writing: (a) Impairment of Rights. The Issuer shall not take any action, or fail to take any action, if such action or failure to take action (x) is reasonably likely to result in a Material Adverse Change or (y) is reasonably likely to interfere with the enforcement of any rights of the Insurer under or with respect to any of the Basic Documents. The Issuer shall give the Insurer written notice of any such action or failure to act promptly prior to the date of consummation of such action or failure to act. The Issuer shall furnish to the Insurer all information requested by it that is reasonably necessary to determine compliance with this paragraph. (b) Amendments, Etc. The Issuer shall not modify, amend or waive, or consent to any modification, amendment or waiver of, any of the terms, provisions or conditions of the Basic Documents to which it is a party, or any of its organization documents, including, without limitation, its trust agreement and certificate of trust and Trust Agreement, without the prior written consent of the Insurer thereto, but excluding any amendment to the Basic Documents or Offering Document required by law, provided that the Issuer shall provide the Insurer with prior written notice of any such amendment and a copy thereof. (c) Limitation on Mergers, Etc. The Issuer shall not consolidate with or merge with or into any Person or transfer all or substantially all of its assets to any Person or liquidate or dissolve. (d) Operating Expenses. The Issuer shall not permit Alliance to pay any of the Issuer's operating expenses except pursuant to allocation arrangements that comply with the requirements of Section 2.9(h)(13) above. (e) Certain Other Limitations. The Issuer shall not permit the Issuer to be named as an insured on the insurance policy covering the property of Alliance, or enter into an agreement with the holder of such policy whereby in the event of a loss in connection with such property, proceeds are paid to the Issuer. ARTICLE III THE AMBAC POLICY; REIMBURSEMENT Section 3.1. Issuance of the Ambac Policy. The Insurer agrees to issue the Ambac Policy on the Closing Date subject to satisfaction of the conditions precedent set forth below: (a) Payment of Initial Premium and Expenses. The applicable parties shall have been paid their related fees and expenses payable in accordance with Section 3.2. (b) Documents. The conditions to consummation of the transactions set forth in Section 4.01 and 4.02 of the Purchase Agreement shall have been satisfied. 21 (c) Credit and Collection Policy. The Insurer shall have received a complete copy of the Credit and Collection Policy then in effect certified by the principal financial officer of Alliance; (d) Representations and Warranties; Certificate. The representations and warranties of Alliance, the Seller and the Issuer set forth or incorporated by reference in this Insurance Agreement shall be true and correct on and as of the Closing Date as if made on the Closing Date, and the Insurer shall have received a certificate of appropriate officers of Alliance, the Seller and the Issuer to that effect; (e) No Litigation, Etc. No suit, action or other proceeding, investigation or injunction, or final judgment relating thereto, shall be pending or, to such party's knowledge, threatened before any court, governmental or administrative agency or arbitrator in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with any of the Basic Documents or the consummation of the Transaction; (f) Legality. No statute, rule, regulation or order shall have been enacted, entered or deemed applicable by any government or governmental or administrative agency or court that would make the Transaction illegal or otherwise prevent the consummation thereof; (g) No Event of Default. No Event of Default or Early Payout Event shall have occurred; (h) Satisfaction of Conditions of the Note Purchase Agreement. All conditions in the Note Purchase Agreement relating to the Initial Purchasers' obligation to purchase the Notes shall have been fulfilled to the satisfaction of the Insurer, with such satisfaction deemed to have occurred upon issuance of the Ambac Policy. The Insurer shall have received copies of each of the documents, and shall be entitled to rely on each of the documents, required to be delivered to any Initial Purchaser pursuant to the Note Purchase Agreement, including, without limitation, the items described in clauses (a) through (s) of Section 7 of the Note Purchase Agreement (other than the opinion of counsel to the Insurer); (i) Issuance of Ratings. The Insurer shall have received confirmation that the Class A Notes will be rated BBB by S&P and an Baa2 by Moody's; (j) Approvals, Etc. The Insurer shall have received true and correct copies of all approvals, licenses and consents, if any, required in connection with the Transaction; (k) Additional Items. The Insurer shall have received such other documents, instruments, approvals or opinions in form and substance reasonably satisfactory to the Insurer as shall be reasonably requested by the Insurer, including evidence reasonably satisfactory to the Insurer that the conditions precedent, if any, in the Basic Documents have been satisfied; and (l) Satisfactory Documentation. The Insurer and its counsel shall have determined that all documents, the Notes and opinions to be delivered in connection with the Notes conform to the terms of the Indenture, the Offering Document and this Insurance Agreement. 22 Section 3.2. Payment of Fees and Premium. (a) Legal and Accounting Fees. Seller shall pay or cause to be paid on the Closing Date all reasonable, out-of-pocket (i.e., excluding internal legal or accounting expenses) and documented legal fees, auditors' fees and disbursements incurred by the Insurer in connection with the issuance of the Ambac Policy and the other Basic Documents through the Closing Date. Additional fees of the Insurer's counsel or auditors payable in connection with the Basic Documents incurred after the Closing Date shall be paid by Alliance as provided in Section 3.3 below. (b) Rating Agency Fees. Seller shall promptly pay the initial fees of the Rating Agencies with respect to the Notes and the transactions contemplated hereby following receipt of a statement with respect thereto. Alliance shall pay or cause to be paid any subsequent fees of the Rating Agencies with respect to, and directly allocable to, the Class A Notes to the extent that such fees and expenses result from actions of the Rating Agencies that are requested by Alliance. The Insurer shall not be responsible for any fees or expenses of the Rating Agencies. The fees for any other rating agency shall be paid by the party requesting such other agency's rating. (c) Premium. In consideration of the issuance by the Insurer of the Ambac Policy, the Issuer shall pay or cause to be paid the Premiums to the Insurer as set forth in the Fee Letter in accordance with and from the funds specified by Section 8.2 of the Indenture, commencing on the day the Ambac Policy is issued, until the Ambac Policy has terminated in accordance with its terms. The Premium paid under the Indenture shall be nonrefundable without regard to whether any Notice is delivered to the Insurer requiring the Insurer to make any payment under the Ambac Policy or any other circumstances relating to the Notes or provision being made for payment of the Notes prior to maturity. Section 3.3. Reimbursement Obligation. (a) The Issuer agrees absolutely and unconditionally to reimburse the Insurer for any amounts paid by the Insurer under the Ambac Policy, plus the amount of any other due and payable and unpaid Reimbursement Amounts which reimbursement shall be due and payable on the date that any such amount is paid thereunder only from amounts available for such payment under the Indenture, in an amount equal to the amounts so paid and all amounts previously paid that remain unreimbursed, together (without duplication) with interest on any and all amounts remaining unreimbursed (to the extent permitted by law, if in respect of any unreimbursed amounts representing interest) from the date such amounts became due until paid in full (after as well as before judgment), at a rate of interest equal to the Late Payment Rate. (b) Alliance agrees to pay to the Insurer, promptly, but in no event later than 30 days after receipt of an invoice, as follows: any and all documented out-of-pocket (e.g., excluding internal legal or accounting expenses), charges, fees, costs and expenses that the Insurer may reasonably pay or incur, including reasonable attorneys' and accountants' fees and expenses, in connection with (i) the enforcement, defense or preservation of any rights in respect of any of the Basic Documents, including defending, monitoring or participating in any litigation or proceeding (including any insolvency proceeding in respect of any Transaction participant or any affiliate thereof) relating to any of the Basic Documents, any party to any of the Basic Documents (in its capacity as such a party) or the Transaction, including without limitation the costs and fees of inspections by the Insurer or audits or field examinations by accountants, or 23 (ii) any amendment, waiver or other similar action with respect to, or related to, any Basic Document, whether or not executed or completed. Notwithstanding anything in this Agreement to the contrary, provided that no Event of Default, Early Payout Event or Servicer Default has occurred and is continuing, the reimbursable costs and expenses of the Insurer pursuant to Section 2.2(e), 2.2(h), 2.6(c), 2.6(e), 2.9(c) and 2.9(e) shall not exceed $25,000 in any period of twelve consecutive months. (c) Each party agrees to pay to the party to whom such amounts are owed on demand interest at the Late Payment Rate on any and all amounts described in Sections 3.3(b) and 3.4 after the date such amounts become due and payable until payment thereof in full. Section 3.4. Indemnification. (a) In addition to any and all of the Insurer's rights of reimbursement, indemnification or subrogation, and to any other rights of the Insurer pursuant hereto or under law or in equity, Alliance agrees to pay, and to protect, indemnify and save harmless, the Insurer and its officers, directors, shareholders, employees, agents and each Person, if any, who controls the Insurer within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act from and against, any and all claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) of any nature arising out of or relating to the transactions contemplated by the Basic Documents by reason of: (i) any statement, omission or action (other than of or by the Insurer with respect to the Insurer Information as defined in subsection (v) below) in connection with the offering, issuance, sale or delivery of any of the Notes; (ii) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of Alliance in connection with the Transaction; (iii) the violation by Alliance of any domestic or foreign law, rule or regulation, or any judgment, order or decree applicable to them; (iv) the breach by Alliance of any representation, warranty or covenant under any of the Basic Documents; or (v) any untrue statement or alleged untrue statement of a material fact contained in the Offering Document or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) arise out of or are based upon any untrue statement or omission in the Offering Document in the information with respect to the Insurer reviewed and approved in writing by the Insurer and included (including the financial statements incorporated by reference therein) under 24 the heading "The Insurer and the Policy - The Insurer" in the Offering Document (the "Insurer Information"). (b) In addition to any and all of the Insurer's rights of reimbursement, indemnification, subrogation and to any other rights of the Insurer pursuant hereto or under law or in equity, the Servicer agrees to pay, and to protect, indemnify and save harmless, the Insurer and its officers, directors, shareholders, employees, agents and each Person, if any, who controls the Insurer within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act from and against, any and all claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) of any nature arising out of or relating to the transactions contemplated by the Basic Documents by reason of: (i) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of the Servicer in connection with the Transaction; (ii) the violation by the Servicer of any domestic or foreign law, rule or regulation, or any judgment, order or decree applicable to it; (iii) the breach by the Servicer of any representation, warranty or covenant (other than 3.07(i) of the Agreement) under any of the Basic Documents; or (iv) the occurrence, in respect of the Servicer, under any of the Basic Documents of any Servicer Default or any event which, with the giving of notice or the lapse of time or both, would constitute any Servicer Default (it being understood that this clause (iv) is not intended to cover losses resulting from the occurrence of a Servicer Default under Section 8.01(j) or (l) of the Agreement. (c) In addition to any and all of the Insurer's rights of reimbursement, indemnification or subrogation, and to any other rights of the Insurer pursuant hereto or under law or in equity, the Seller agrees to pay, and to protect, indemnify and save harmless, the Insurer and its officers, directors, shareholders, employees, agents and each Person, if any, who controls the Insurer within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act from and against, any and all claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) of any nature arising out of or relating to the transactions contemplated by the Basic Documents by reason of: (i) any statement, omission or action (other than of or by the Insurer with respect to the Insurer Information as defined in subsection (v) below) in connection with the offering, issuance, sale or delivery of any of the Notes; (ii) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of the Seller or the Issuer in connection with the Transaction; 25 (iii) the violation by the Seller or the Issuer of any domestic or foreign law, rule or regulation, or any judgment, order or decree applicable to them; (iv) the breach by the Seller or the Issuer of any representation, warranty or covenant under any of the Basic Documents; or (v) any untrue statement or alleged untrue statement of a material fact contained in the Offering Document or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) arise out of or are based upon any untrue statement or omission in the Offering Document in the information with respect to the Insurer reviewed and approved in writing by the Insurer and included (including the financial statements incorporated therein) under the heading "The Insurer and the Policy - The Insurer" in the Offering Document. (d) The Insurer agrees to pay, and to protect, indemnify and save harmless the Seller, the Issuer and their respective officers, directors, shareholders, employees, agents and each Person, if any, who controls the Seller or the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act from and against, any and all claims, losses, liabilities (including penalties), actions, suits, judgments, demands, damages, costs or expenses (including reasonable fees and expenses of attorneys, consultants and auditors and reasonable costs of investigations) of any nature arising out of or by reason of any untrue statement or alleged untrue statement of a material fact contained in the Insurer Information in any Offering Document or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) If any action or proceeding (including any governmental investigation) shall be brought or asserted against any Person (each, an "Indemnified Party") in respect of which the indemnity provided in Section 3.4(a), (b), (c) or (d) may be sought from another Person (the "Indemnifying Party") each such Indemnified Party shall promptly notify the Indemnifying Party in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel satisfactory to the Indemnified Party and the payment of all expenses and reasonable legal fees; provided that failure to notify the Indemnifying Party shall not relieve it from any liability it may have to such Indemnified Party except to the extent that it shall be actually prejudiced thereby. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof at the expense of the Indemnified Party and may assume the defense of any such action or claim in reasonable cooperation with, and with the reasonable cooperation of, the Indemnifying Party; provided, however, that the fees and expenses of separate counsel to the Indemnified Party in any such proceeding shall be at the expense of the Indemnifying Party if (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii) the Indemnifying Party shall have failed to assume the defense of such action or proceeding or employ counsel reasonably satisfactory to the Indemnified Party in any such action or proceeding within a reasonable time after the commencement of such action or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both the Indemnified Party and the Indemnifying 26 Party, and the Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnifying Party (in which case, if the Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for the Indemnified Parties, which firm shall be designated in writing by the Indemnified Party). Unless it shall be in default of its obligations hereunder, the Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without its written consent to the extent that any such settlement shall be prejudicial to the Indemnifying Party, which consent shall not be unreasonably withheld or delayed, but, if settled with its written consent, or if there is a final judgment for the plaintiff in any such action or proceeding with respect to which the Indemnifying Party shall have received notice in accordance with this subsection (e), the Indemnifying Party agrees to indemnify and hold the Indemnified Parties harmless from and against any loss or liability by reason of such settlement or judgment. (f) To provide for just and equitable contribution if the indemnification provided by the Indemnifying Party is determined to be unavailable or insufficient to hold harmless any Indemnified Party (other than due to application of this Section), each Indemnifying Party shall contribute to the losses incurred by the Indemnified Party on the basis of the relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other hand. The relative fault of each Indemnifying Party, on the one hand, and each Indemnified Party, on the other, shall be determined by reference to, among other things, whether the breach or alleged breach is within the control of, the Indemnifying Party or the Indemnified Party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such breach. No Person guilty of fraudulent misrepresentation (within the meaning of Section (11)f of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Section 3.5. Payment Procedure. In the event of any payment by the Insurer for which reimbursement is sought under Section 3.3, the Issuer, Alliance and the Seller agree to accept the voucher or other evidence of payment as prima facie evidence of the propriety thereof and the liability, if any, described in Section 3.3 therefor to the Insurer. All payments to be made to the Insurer under this Insurance Agreement shall be made to the Insurer in lawful currency of the United States of America in immediately available funds at the notice address for the Insurer as specified in the Indenture by no later than 5:00 P.M. (New York time) or as the Insurer shall otherwise direct by written notice to the other parties hereto on the date when due. In the event that the date of any payment to the Insurer or the expiration of any time period hereunder occurs on a day that is not a Business Day, then such payment or expiration of time period shall be made or occur on the next succeeding Business Day with the same force and effect as if such payment was made or time period expired on the scheduled date of payment or expiration date. 27 Section 3.6. Subrogation. The parties hereto acknowledge that, to the extent of any payment made by the Insurer pursuant to the Policy, the Insurer shall be fully subrogated to the extent of such payment and any interest due thereon, to the rights of the Class A Noteholders to any moneys paid or payable in respect of the Class A Notes under the Basic Documents or otherwise subject to applicable law. The parties hereto agree to such subrogation and further agree to execute such instruments and to take such actions as, in the sole and reasonable judgment of the Insurer, are necessary to evidence such subrogation and to perfect the rights of the Insurer to receive any such moneys paid or payable in respect of the Class A Notes under the Basic Documents or otherwise. ARTICLE IV FURTHER AGREEMENTS Section 4.1. Effective Date; Term of the Insurance Agreement. This Insurance Agreement shall take effect on the Closing Date and shall remain in effect until the later of (a) such time as the Insurer is no longer subject to a claim under the Ambac Policy and the Ambac Policy shall have been surrendered to the Insurer for cancellation and (b) such time as all amounts payable to the Insurer by the Issuer, the Seller or Alliance (each, together with any affiliates thereof, a "Company Party" and collectively, the "Company Parties") hereunder or under the Basic Documents and the Class A Notes shall have been irrevocably paid and redeemed in full and such Notes shall have been cancelled; provided, however, that the provisions of Sections 3.2, 3.3 and 3.4 hereof shall survive any termination of this Insurance Agreement. Section 4.2. Further Assurances and Corrective Instruments. (a) Except at such times as a Insurer Default shall exist or shall have occurred, neither Alliance, the Seller, the Issuer nor the Indenture Trustee shall grant any waiver of rights under any of the Basic Documents to which any of them is a party without the prior written consent of the Insurer and any such waiver without prior written consent of the Insurer shall be null and void and of no force or effect. (b) Each of the parties hereto agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as the Insurer may reasonably request and as may be required in the Insurer's reasonable judgment to effectuate the intent and purpose of this Insurance Agreement and the other Basic Documents. Without limiting the foregoing, each of the Company Parties which is a party to any of the Basic Documents hereby authorizes the Indenture Trustee and the Controlling Party, at the expense of the Issuer, to execute and file financing statements covering the assets covered by any Assignment or owned by the Issuer in such jurisdictions as may be required to confirm title thereto and perfect and maintain the lien thereon, including, without limitation, filings required to maintain perfection pursuant to revised Article 9 of the Uniform Commercial Code, provided, however, that prior to a Default or Event of Default, any filings intended solely to perfect a lien on Exempt Collateral shall be at the expense of the party effecting such filing. In addition, each of the parties hereto agrees to cooperate with the Rating Agencies in connection with any review of the Transaction conducted during normal business hours and in a manner that does not unreasonably disrupt the business 28 of Alliance, the Seller or the Issuer, that may be undertaken by the Rating Agencies after the date hereof upon prior written notice. (c) The Seller shall not cause or permit the Issuer to issue any notes or other evidences of indebtedness, or to otherwise incur any indebtedness, other than the indebtedness represented by the Notes. (d) Alliance, as Servicer, and the Indenture Trustee shall provide the Insurer with copies of all notices required to be delivered pursuant to the Lockbox Agreement. Section 4.3. Obligations Absolute. (a) The obligations of Company Parties hereunder shall be absolute and unconditional and shall be paid or performed strictly in accordance with this Insurance Agreement and the other Basic Documents under all circumstances irrespective of: (i) any lack of validity or enforceability of, or any amendment or other modifications of, or waiver with respect to, any of the Basic Documents or the Notes; (ii) any exchange or release of any other obligations hereunder; (iii) the existence of any claim, setoff, defense, reduction, abatement or other right that a Company Party which is a party to any of the Basic Documents may have at any time against the Insurer or any other Person; (iv) any document presented in connection with the Ambac Policy proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) any payment by the Insurer under the Ambac Policy against presentation of a certificate or other document that does not strictly comply with the terms of the Ambac Policy; (vi) any failure of the Company Parties to receive the proceeds from the sale of the Notes; and (vii) any other circumstances, other than payment in full, that might otherwise constitute a defense available to, or discharge of, such party in respect of any Basic Document. (b) The Company Parties and any and all others who are now or may become liable for all or any part of the obligations of the Company Parties under this Insurance Agreement agree to be bound by this Insurance Agreement and (i) to the extent permitted by law, waive and renounce any and all redemption and exemption rights and the benefit of all valuation and appraisement privileges against the indebtedness and obligations evidenced by any Basic Document or by any extension or renewal thereof; (ii) waive presentment and demand for payment, notices of nonpayment and of dishonor, protest of dishonor and notice of protest; (iii) waive all notices in connection with the delivery and acceptance hereof and all other notices in connection with the performance, default or enforcement of any payment hereunder, except as 29 required by the Basic Documents; (iv) waive all rights of abatement, diminution, postponement or deduction, all defenses, other than payment, and all rights of setoff or recoupment arising out of any breach under any of the Basic Documents, by any party thereto or any beneficiary thereof, or out of any obligation at any time owing to any of the Company Parties; (v) agree that their liabilities hereunder shall be unconditional and without regard to any setoff, counterclaim or the liability of any other Persons for the payment hereof; (vi) agree that any consent, waiver or forbearance hereunder with respect to an event shall operate only for such event and not for any subsequent event; (vii) consent to any and all extensions of time that may be granted by the Insurer with respect to any payment hereunder or other provisions hereof and to the release of any security at any time given for any payment hereunder, or any part thereof, with or without substitution, and to the release of any Person or entity liable for any such payment; and (viii) consent to the addition of any and all other makers, endorsers, guarantors and other obligors for any payment hereunder, and to the acceptance of any and all other security for any payment hereunder, and agree that the addition of any such obligors or security shall not affect the liability of the parties hereto for any payment hereunder. (c) Nothing herein shall be construed as prohibiting any party hereto from pursuing any rights or remedies it may have against any Person in a separate legal proceeding. Section 4.4. Assignments; Reinsurance; Third-Party Rights. (a) This Insurance Agreement shall be a continuing obligation of the parties hereto and shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. None of the Company Parties may assign its rights under this Insurance Agreement, or delegate any of its duties hereunder, without the prior written consent of the Insurer. Any assignments made in violation of this Insurance Agreement shall be null and void. (b) The Insurer shall have the right to give participations in its rights under this Insurance Agreement and to enter into contracts of reinsurance with respect to the Ambac Policy upon such terms and conditions as the Insurer may in its discretion determine; provided, however, that no such participation or reinsurance agreement or arrangement shall relieve the Insurer of any of its obligations hereunder or under the Ambac Policy, and provided further that any reinsurer or participant will not have any rights against the Company Parties, the Noteholders or the Indenture Trustee and that the Company Parties, the Noteholders and the Indenture Trustee shall have no obligation to have any communication or relationship with any reinsurer or participant in order to enforce the obligations of the Insurer hereunder and under the Ambac Policy. (c) In addition, the Insurer shall be entitled to assign or pledge to any bank, other lender or reinsurer providing liquidity or credit with respect to Transaction or the obligations of the Insurer in connection therewith, any rights of the Insurer under the Basic Documents or with respect to any real or personal property or other interests pledged to the Insurer or in which the Insurer has a security interest, in connection with the Transaction, subject in each case to the liens granted pursuant to the Basic Documents, provided, that no such bank or other lender shall thereby obtain any direct right against Company Parties, the Noteholders or the Indenture Trustee, and further provided, that no such assignment or pledge shall give any assignee the right to exercise any discretionary authority that the Basic Documents provide shall be 30 exercisable by the Insurer or relieve the Insurer of any of its obligations hereunder or under the Ambac Policy. (d) Except as provided herein with respect to participants and reinsurers, nothing in this Insurance Agreement shall confer any right, remedy or claim, express or implied, upon any Person not a party hereto, including, particularly, any Noteholders, other than the rights of the Insurer against the Company Parties and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their successors and permitted assigns. Neither the Indenture Trustee nor any Noteholders shall have any right to payment from any Premiums paid or payable hereunder or under the Indenture or from any amounts paid by the Issuer, the Seller or Alliance pursuant to Sections 3.3 or 3.4 hereof. Section 4.5. Liability of the Insurer. Neither the Insurer nor any of its officers, directors or employees shall be liable or responsible for: (a) the use that may be made of the Ambac Policy by the Indenture Trustee or for any acts or omissions of the Indenture Trustee in connection therewith; or (b) the validity, sufficiency, accuracy or genuineness of documents delivered to the Insurer in connection with any claim under the Ambac Policy, or of any signatures thereon, even if such documents or signatures should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged (unless the Insurer shall have actual knowledge thereof). In furtherance and not in limitation of the foregoing, the Insurer may accept documents that appear on their face to be in order, without responsibility for further investigation. Section 4.6. Annual Servicing Audit and Certification. If an Event of Default, Servicer Default or Early Payout Event shall have occurred and be continuing, the annual servicing audit required pursuant to Section 4.02 of the Agreement shall be performed by Independent Public Accountants acceptable to the Insurer at the cost of Alliance. The Insurer confirms that each of the Independent Public Accountants (other than PricewaterhouseCoopers) is an acceptable Independent Public Accountant until the Insurer otherwise notifies Alliance in writing. ARTICLE V DEFAULTS AND REMEDIES Section 5.1. Defaults. The occurrence of any of the following events shall constitute an "Event of Default" hereunder: (a) Any representation or warranty made by any of the Company Parties hereunder or under the Basic Documents, or in any certificate furnished hereunder or under the Basic Documents, shall prove to be untrue or misleading in any material respect; provided, however, that if such Company Party effectively cures any such defect in any representation or warranty under any Basic Document or certificate or report furnished under any Basic Document, within the time period specified in the related document as the cure period therefor, such defect shall not in and of itself constitute an Event of Default; 31 (b) Alliance or the Issuer shall fail to pay or deposit when due any amount required to be paid or deposited by it hereunder or under any other Basic Document, or (ii) a legislative body has enacted any law that declares or a court of competent jurisdiction shall find or rule that this Insurance Agreement or the Indenture is not valid and binding on the Company Parties hereto or thereto; (c) The occurrence and continuance of a Servicer Default under the Agreement or an Event of Default under the Indenture; (d) Any failure on the part of any Company Party duly to observe or perform in any material respect any other of the covenants or agreements on the part of such Company Party contained in this Insurance Agreement or in any other Basic Document which continues unremedied beyond any cure period provided therein, or, in the case of this Insurance Agreement, for a period of 30 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to Alliance by the Insurer (with a copy to the Indenture Trustee) or by the Indenture Trustee (with a copy to the Insurer); (e) The entry of a decree or order by a court or agency or supervisory authority having jurisdiction in the premises for appointment of a conservator, receiver or liquidator or similar official for any Company Party which is a party to any Basic Document in any bankruptcy, insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings or for the winding up or liquidation of their respective affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (f) The consent by any Company Party which is a party to any Basic Document to the appointment of a conservator or receiver or liquidator or similar official in any bankruptcy, insolvency, readjustment of debt, marshaling of assets and liabilities, or similar proceedings of or relating to such Company Party or of relating to substantially all of their respective property; or any such Company Party shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable bankruptcy, insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; provided, however, that to the extent that any event described in clause (a), (b) or (d) above in respect of any Company Party shall be based solely on breach of a representation and warranty or covenant of such Company Party made in any Basic Document (other than this Insurance Agreement) which breach shall also be the basis for an Event of Default under the Indenture or a Servicer Default, then such event shall not constitute an Event of Default hereunder unless it shall also constitute such Event of Default under the Indenture or a Servicer Default. Section 5.2. Remedies; No Remedy Exclusive. (a) Upon the occurrence of an Event of Default hereunder, the Insurer may take whatever action at law or in equity as may appear necessary or desirable in its judgment to collect the amounts, if any, then due under this Insurance Agreement, the Purchase Agreement, the Agreement, the Indenture or any other Basic Document or to enforce performance and observance of any obligation, agreement or covenant of the Company Parties under this Insurance Agreement, the Purchase Agreement, the Agreement, the Indenture or any other Basic Document, either in its own capacity or in its capacity as Controlling Party. 32 (b) Unless otherwise expressly provided, no remedy herein conferred or reserved is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under this Insurance Agreement, the Purchase Agreement, the Agreement, the Indenture or any other Basic Document, or existing at law or in equity. No delay or omission to exercise any right or power accruing under this Insurance Agreement, the Purchase Agreement, the Agreement, the Indenture or any other Basic Document upon the happening of any event set forth in Section 5.1 shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle Insurer to exercise any remedy reserved to the Insurer in this Article, it shall not be necessary to give any notice, other than such notice as may be required by this Article. Section 5.3. Waivers. (a) No failure by the Insurer to exercise, and no delay by the Insurer in exercising, any right hereunder shall operate as a waiver thereof. The exercise by the Insurer of any right hereunder shall not preclude the exercise of any other right, and the remedies provided herein to the Insurer are declared in every case to be cumulative and not exclusive of any remedies provided by law or equity. (b) The Insurer shall have the right, to be exercised in its complete discretion, to waive any Event of Default hereunder, by a writing setting forth the terms, conditions and extent of such waiver signed by the Insurer and delivered to Alliance and the Indenture Trustee. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence which gave rise to the Event of Default so waived and not to any other similar event or occurrence which occurs subsequent to the date of such waiver. ARTICLE VI MISCELLANEOUS Section 6.1. Amendments, Etc. This Insurance Agreement may be amended, modified, supplemented or terminated only by written instrument or written instruments signed by the parties hereto. No consent of any reinsurer or participant contracted with by the Insurer pursuant to Section 4.4(b) hereof shall be required for any amendment, modification, supplement or termination hereof. Alliance agrees to provide a copy of any amendment to this Insurance Agreement promptly to the Indenture Trustee and the Rating Agencies. No act or course of dealing shall be deemed to constitute an amendment, modification, supplement or termination hereof. The other Basic Documents may be amended only with the prior written consent of the Insurer. Section 6.2. Notices. All demands, notices and other communications to be given hereunder shall be in writing (except as otherwise specifically provided herein) and shall be (i) mailed by prepaid registered or certified mail, return receipt requested, or (ii) personally delivered by messenger or overnight courier (with confirmation of receipt) and in either case telecopied to the recipient as follows: (a) To the Insurer: 33 Ambac Assurance Corporation One State Street Plaza New York, New York 10004 Attention: Structured Finance Department - ABS Telecopy No.: 212-208-3547 Confirmation: 212-668-0340 (in each case in which notice or other communication to the Insurer refers to Servicer Default, an Event of Default (hereunder or under the Indenture), an Early Payout Event, a claim on the Ambac Policy or any event with respect to which failure on the part of the Insurer to respond shall be deemed to constitute consent or acceptance, then a copy of such notice or other communication shall also be sent to the attention of the general counsel of each of the Insurer and the Indenture Trustee and shall be marked to indicate "URGENT MATERIAL ENCLOSED.") (b) To Alliance: Alliance Laundry Systems LLC Shepard Street P.O. Box 990 Ripon, WI 54971-0990 Attention: Chief Financial Officer Telecopy No.: Confirmation No.: (c) To the Issuer: Alliance Laundry Equipment Receivables Trust 2000-A c/o Wilmington Trust Company, as Owner Trustee Rodney Square North 1100 North Market Street CFS, Ninth Floor Wilmington, Delaware 19890 Attention: Telecopy No.: Confirmation No.: 34 With a copy to Alliance at the address set forth in clause (b) above (d) To the Seller: Alliance Laundry Equipment Receivables LLC Shepard Street P.O. Box 990 Ripon, WI 54971-0990 Attention: Chief Financial Officer Telecopy No.: Confirmation No.: With a copy to Alliance at the address set forth in clause (b) above (e) To the Indenture Trustee: The Bank of New York One Wall Street New York, New York 10286 Attention: Corporate Trust Administration Telecopy No.: Confirmation No.: A party may specify an additional or different address or addresses by writing mailed or delivered to the other parties as aforesaid. All such notices and other communications shall be effective upon receipt. Section 6.3. Severability. In the event that any provision of this Insurance Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, the parties hereto agree that such holding shall not invalidate or render unenforceable any other provision hereof. The parties hereto further agree that the holding by any court of competent jurisdiction that any remedy pursued by any party hereto is unavailable or unenforceable shall not affect in any way the ability of such party to pursue any other remedy available to it. Section 6.4. Governing Law. This Insurance Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws provisions. Section 6.5. Consent to Jurisdiction. (a) THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE BASIC DOCUMENTS OR THE TRANSACTION OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RELATING THERETO, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING SHALL BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES AGREE THAT A FINAL NONAPPEALABLE JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR 35 PROCEEDING IS IMPROPER OR THAT THE RELATED DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. (b) To the extent permitted by applicable law, the parties shall not seek and hereby waive the right to any review of the judgment of any such court by any court of any other nation or jurisdiction which may be called upon to grant an enforcement of such judgment. (c) Service on any party hereto may be made by mailing or delivering copies of the summons and complaint and other process which may be served in any suit, action or proceeding to such party at its address listed in Section 6.2(b) herein. Such address may be changed by the applicable party or parties by written notice to each of the other parties hereto. (d) Nothing contained in this Insurance Agreement shall limit or affect any party's right to serve process in any other manner permitted by law or to start legal proceedings relating to any of the Basic Documents against any other party or its properties in the courts of any jurisdiction. Section 6.6. Consent of the Insurer. In the event that the consent of the Insurer is required under any of the Basic Documents, the determination whether to grant or withhold such consent shall be made by the Insurer in its sole discretion without any implied duty towards any other Person, except to the extent a different standard may apply as expressly provided therein. Section 6.7. Counterparts. This Insurance Agreement may be executed in counterparts by the parties hereto, and all such counterparts shall constitute one and the same instrument. Section 6.8. Headings. The headings of Articles and Sections and the Table of Contents contained in this Insurance Agreement are provided for convenience only. They form no part of this Insurance Agreement and shall not affect its construction or interpretation. Section 6.9. Trial by Jury Waived. Each party hereby waives, to the fullest extent permitted by law, any right to a trial by jury in respect of any litigation arising directly or indirectly out of, under or in connection with any of the Basic Documents or any of the transactions contemplated thereunder. Each party hereto (A) certifies that no representative, agent or attorney of any party hereto has represented, expressly or otherwise, that it would not, in the event of litigation, seek to enforce the foregoing waiver and (B) acknowledges that it has been induced to enter into the Basic Documents to which it is a party by, among other things, this waiver. Section 6.10. Limited Liability. No recourse under any Basic Document shall be had against, and no personal liability shall attach to, any officer, employee, director, affiliate or shareholder of any party hereto, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise in respect of any of the Basic Documents, the Class A Notes or the Ambac Policy, it being expressly agreed and understood that each Basic Document is solely a corporate 36 obligation of each party hereto, and that any and all personal liability, either at common law or in equity, or by statute or constitution, of every such officer, employee, director, affiliate or shareholder for breaches of any party hereto of any obligations under any Basic Document is hereby expressly waived as a condition of and in consideration for the execution and delivery of this Insurance Agreement. Section 6.11. Entire Agreement; Facsimile Signatures. This Insurance Agreement, the Fee Letter and the Ambac Policy set forth the entire agreement between the parties with respect to the subject matter hereof and thereof, and supersede and replace any agreement or understanding that may have existed between the parties prior to the date hereof in respect of such subject matter. Execution and delivery of this Insurance Agreement by facsimile signature shall constitute execution and delivery of this Insurance Agreement for all purposes hereof with the same force and effect as execution and delivery of a manually signed copy hereof. Section 6.12. Indenture Trustee. The Indenture Trustee hereby acknowledges and agrees to perform all its obligations and duties pursuant to the Basic Documents to which it is a party thereto. Section 6.13. Third-Party Beneficiary. Each of the parties hereto agrees that the Insurer shall have all rights of an intended third-party beneficiary in respect of each of the Basic Documents. Section 6.14. No Proceedings. Each of the parties hereto agrees that it will not institute against the Issuer or Seller any involuntary proceeding or otherwise institute any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceeding under any federal or state bankruptcy or similar law until the date which is one year and one day since the last day on which any Notes shall have been outstanding. Section 6.15. Limited Recourse. Each of the parties hereto agrees that any obligation of the Issuer hereunder or under any of the other Basic Documents will be payable by the Issuer solely from funds when, if and to the extent available for such purpose pursuant to the Indenture and that any amount in excess of the amount so available shall not constitute a current claim against the Issuer therefor. 37 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the day and year first above mentioned. AMBAC ASSURANCE CORPORATION, as Insurer By: _________________________________ Name: Title: ALLIANCE LAUNDRY SYSTEMS LLC By: _________________________________ Name: Title: ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES TRUST 2000-A, as Issuer By: _________________________________ Name: Title: Signature Page 1 Insurance and Indemnity Agreement 38 ALLIANCE LAUNDRY EQUIPMENT RECEIVABLES LLC, as Seller By: _________________________________ Name: Title: THE BANK OF NEW YORK, not in its individual capacity, but solely as Indenture Trustee By: _________________________________ Name: Title: Signature Page 2 Insurance and Indemnity Agreement 39 EXHIBIT A FORM OF AMBAC POLICY EXHIBIT B AGREED UPON PROCEDURES (Can be amended with mutual agreement of Ambac and Alliance) 1. Independent Public Accountants reasonably acceptable to the Note Insurer ("Auditor") will compare the aggregate amount of all Collections received by the Servicer during three Collection Periods selected by Auditor per year (each such Collection Period referred to herein as a "Review Period") against the amounts reported in the monthly Servicer Reports and to the aggregate amount of Collections indicated on the Servicer's or Alliance Laundry System's ("Alliance") accounting system or a "tape" derived from the accounting system ("Accounting Systems") noting any exceptions. 2. Auditor will select a total of 50 (25 from Pool #1 and 25 from Pool #2) individual cash receipts posted to the Lockbox Account during the Review Periods (each such cash receipt being a "Selected Receipt"). Auditor will compare the amount of loan payments included on a copy of the check and the remittance advice relating to such Selected Receipts to against the amounts reflected on the Accounting Systems, noting any exceptions. 3. For each of the Selected Receipts, Auditor will compare the amount of the loan payment posted to the Accounting Systems to the amount of the loan payment indicated in the relevant Contract and Files maintained by Alliance or the Servicer noting any exceptions. 4. For any of the Selected Receipts which indicate a remittance of sales tax, the Auditor will trace such sales tax remittances prepared by the management of Alliance or the Servicer (the "Management Schedule") detailing tax payments received by tax jurisdiction noting any exceptions. Auditor will also trace the sales tax remittance to the supporting schedules included in the applicable sales tax return noting any exceptions. Auditor will recalculate the summation amounts on three of the ten largest sales tax returns and additionally verify that the dates on Alliance's or the Servicer's checks remitting payment to the respective states is within the required filing period. 5. Auditor will recalculate the interest expense prepared by the Servicer for one Review Period by using (i) the outstanding Note balance at the beginning of the period as set forth in the related Servicer Report and (ii) the amount shown as the Note rate relating to such Review Period. The amount of interest expense so recalculated will be compared against the information provided in the monthly Servicer Report, noting any exceptions. 6. Auditor will confirm the amount of early pay-offs received during each of the Review Periods based on a comparison of the information contained in the relevant Servicer Reports to the information contained in the Accounting Systems. 7. Management will provide a list of all early pay-off Contracts during each of the Review Periods. Auditor will select a total of five Contracts listed as "early pay-offs" from the pay-off schedule. For each Contract so selected, Auditor will compare the amount deposited into the Lock-Box Account or the Collection Account in respect of such Contract with the amount of early pay-off specified in the pay-off schedule, noting any exceptions. 8. Using the dates reflected on the copy of the check (or top portion of the check) and remittance advice, Auditor will verify that the respective Selected Receipt posting or effective date related to the underlying loan transaction in the Accounting Systems was in the same month as reflected on the copy of the check (or top portion of the check) and the remittance advice noting any exceptions. 9. Auditor will obtain from management a schedule of Contracts which have become Defaulted Contracts during each Review Period and will compare the Note Balance of each Defaulted Contract to the information on the Accounting Systems and on a total basis to the related Servicer Report, noting any exceptions. 10. Auditor will select 10 Defaulted Contracts from each Review Period and trace Recoveries for each of those contracts recorded on the Accounting System to the related Servicer Reports, noting any exceptions. 11. Auditor will select one monthly bank reconciliation for one Lockbox Account. Auditor will verify the mathematical accuracy of the bank reconciliation. Auditor will trace the balance per the bank to the bank statement, the book balance to the general ledger and the amounts listed as reconciling items in the bank reconciliation to the Servicer Report, as applicable. 12. Auditor will select one monthly bank reconciliation for the Collection Account. Auditor will verify the mathematical accuracy of the bank reconciliation. Auditor will trace the balance per the bank to the bank statement, the book balance to the general ledger and the amounts listed as reconciling items in the bank reconciliation to the Servicer Report, as applicable. 13. Auditor will verify whether the Servicer has procedures in place to monitor and make or cause to be made UCC financing or continuation statements based on reasonable details provided by the Servicer. 14. The Servicer will conduct a mailing verification of 50 contracts requesting confirmation as of each fiscal year end of: (i) loan schedule number (if appropriate); (ii) whether the loan is still in existence; (iii) remaining payments; and (iv) payment amount. Auditor will compare responses received to such information to the information in the Accounting Systems, noting any exceptions. 15. Auditor will compare the Aggregate Loan Balances and the balance for each Note at the close of business on the last day of each Review Period as reported in the Servicer Report to the information indicated in the Accounting Systems, noting any exceptions. 16. For the Selected Receipts, Auditor will verify whether the Accounting Systems correctly identify ownership interest in the related receivables for the Selected Receipts. 17. For each Review Period, Auditor will recalculate the Delinquency Ratio, Defaulted Ratio, and Cummulative Trigger, as defined in the Agreement set forth in the Servicer's records and the related Servicer Report. Auditors will compare such information with the numeric information used in such calculations in the Accounting Systems or Alliance's General Ledger, as applicable, noting any exceptions, and will verify the mathematical accuracy of the calculations. 18. Auditor will compare 10 Contracts included in the Servicer Report by delinquency category against the information in the Accounting Systems for accuracy of the aging, noting any exceptions. 19. For each Review Period, Auditor will compare information obtained from the Accounting System and provided by Management to recalculate the "Pool Criteria", as defined in the Servicing Agreement, to information indicated in the related Servicer Reports, noting any exceptions. EX-21.1 9 dex211.txt SUBSIDIARIES OF ALIANCE LAUNDRY EXHIBIT 21.1 SUBSIDIARIES OF ALLIANCE LAUNDRY SYSTEMS LLC ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NAME OF SUBSIDIARY PLACE OF INCORPORATION ------------------ ---------------------- - -------------------------------------------------------------------------------- 1. Alliance Laundry Corporation Delaware - -------------------------------------------------------------------------------- 2. Alliance Commercial Appliance Delaware Receivables LLC - -------------------------------------------------------------------------------- 3. Alliance Commercial Appliances Delaware Finance LLC - -------------------------------------------------------------------------------- 4. Alliance Laundry S.A. Argentina - -------------------------------------------------------------------------------- 5. Alliance Laundry Receivables Delaware Warehouse LLC - -------------------------------------------------------------------------------- 6. Alliance Laundry Equipment Delaware Receivables LLC - -------------------------------------------------------------------------------- EX-27.1 10 dex271.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF ALLIANCE LAUNDRY HOLDINGS LLC FOR THE YEAR ENDED DECEMBER 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001063698 ALLIANCE LAUNDRY HOLDINGS LLC 1,000 12-MOS 12-MOS DEC-31-2000 DEC-31-2000 5,585 0 11,294 (719) 37,462 62,447 177,025 (123,168) 212,757 43,378 323,569 6,000 0 67,498 (229,359) 212,757 256,660 265,441 197,558 197,558 0 411 35,947 (4,581) 20 (4,601) 0 0 0 (4,601) 0 0
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