-----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, Gm/VDxZboRh6hq1o/tY2ntcPZkOdGKJGfSlIGOs2wX87dILjHHsA6GDzjFq+0bDS XB1h6mhvxJSW2MBU2avT5g== 0000892569-97-002252.txt : 19970815 0000892569-97-002252.hdr.sgml : 19970815 ACCESSION NUMBER: 0000892569-97-002252 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCKFORD INDUSTRIES INC CENTRAL INDEX KEY: 0000945901 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 330075112 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26324 FILM NUMBER: 97660013 BUSINESS ADDRESS: STREET 1: 1851 EAST FIRST ST STREET 2: STE 600 CITY: SANTA ANA STATE: CA ZIP: 92705 BUSINESS PHONE: 7145477166 MAIL ADDRESS: STREET 1: 1851 E FIRST ST STE 600 CITY: SANTA ANA STATE: CA ZIP: 92705 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 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 0-26324 ROCKFORD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 33-0075112 (State of Incorporation) (I.R.S. Employer Identification No.) 1851 E. FIRST ST. SANTA ANA, CA 92705 (Address of principal executive offices) (Zip Code) (714) 547-7166 (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 [ ] THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S NO PAR VALUE COMMON STOCK AT JULY 28, 1997 WAS 4,105,517. 2 ROCKFORD INDUSTRIES, INC. INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS: Consolidated Balance Sheets - 3 June 30, 1997 (unaudited) and December 31, 1996 Consolidated Statements of Operations (unaudited) - 4 Three months and six months ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows (unaudited) - 5 Six months ended June 30, 1997 and 1996 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 - 12 PART II. OTHER INFORMATION 13 SIGNATURES 14
- 2 - 3 ROCKFORD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1997 1996 -------------- -------------- (Unaudited) ASSETS Cash and cash equivalents $ 1,846,014 $ 3,985,350 Restricted cash 10,177,282 6,109,559 Accounts receivable (net of allowance for doubtful accounts of $530,000 at June 30, 1997 and $385,000 at December 31, 1996) 10,147,020 10,039,818 Note receivable from officer 109,761 143,831 Prepaid expenses 1,554,525 884,184 Income taxes receivable 953,234 Net investment in direct finance leases (net of lease receivable and residual valuation allowance of $535,000 at June 30, 1997 and $1,215,000 at December 31, 1996) 24,937,805 35,530,325 Net fixed assets 2,286,797 1,900,810 Discounted lease rentals assigned to lenders 78,361,345 98,151,318 -------------- -------------- $ 129,420,549 $ 157,698,429 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Note payable to bank $ 5,135,148 $ 10,981,549 Accounts payable 6,740,942 6,030,482 Accrued liabilities 3,880,858 5,919,187 Estimated recourse obligations 1,125,000 - Income taxes payable 718,816 - Deferred income taxes 1,460,000 1,820,346 Nonrecourse debt 89,049,495 113,062,823 -------------- -------------- Total liabilities 108,110,259 137,814,387 Commitments and contingencies Stockholders' equity: Series A redeemable preferred stock 1,575,000 1,575,000 Common stock, no par value; 10,000,000 shares authorized; 4,105,517 shares issued and outstanding 14,032,491 14,032,491 Retained earnings 5,702,799 4,276,551 -------------- -------------- Total shareholders' equity 21,310,290 19,884,042 -------------- -------------- $ 129,420,549 $ 157,698,429 ============== ==============
See notes to financial statements - 3 - 4 ROCKFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1997 1996 1997 1996 ----------- ------------ ----------- ------------ REVENUES: Sales of equipment (Note 2) $ - $ 21,422,458 $ - $ 40,922,216 Gain on sale of financing transactions 2,246,361 789,311 4,555,720 2,041,996 Finance income 997,907 1,187,353 2,126,893 2,451,450 Servicing related income 734,195 387,106 1,462,076 666,436 Gain on sale of residuals 81,634 191,901 230,062 286,467 Other income 454,299 122,451 735,646 298,762 ----------- ------------ ----------- ------------ Total revenue 4,514,396 24,100,580 9,110,397 46,667,327 COSTS: Cost of equipment sold (Note 2) 18,958,273 36,523,759 Interest expense 524,293 677,155 1,145,267 1,325,983 ----------- ------------ ----------- ------------ Total costs 524,293 19,635,428 1,145,267 37,849,742 ----------- ------------ ----------- ------------ GROSS PROFIT 3,990,103 4,465,152 7,965,130 8,817,585 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,921,644 3,208,155 5,496,477 6,462,574 ----------- ------------ ----------- ------------ INCOME BEFORE INCOME TAXES 1,068,459 1,256,997 2,468,653 2,355,011 INCOME TAXES 427,461 502,754 987,461 942,004 ----------- ------------ ----------- ------------ NET INCOME $ 640,998 $ 754,243 $ 1,481,192 $ 1,413,007 =========== ============ =========== ============ NET INCOME PER SHARE (Note 2) $ 0.15 $ 0.17 $ 0.34 $ 0.32 =========== ============ =========== ============ NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 611,942 $ 733,824 $ 1,426,246 $ 1,375,226 =========== ============ =========== ============ Weighted average shares outstanding 4,397,000 4,521,000 4,389,000 4,479,000 =========== ============ =========== ============
See notes to financial statements - 4 - 5 ROCKFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, ----------------------------- 1997 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,481,192 $ 1,413,007 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 291,000 144,844 Dividends payable 29,055 37,781 Change in lease receivable allowance (680,000) 200,000 Increase in reserve for possible losses on securitized accounts 1,125,000 - Gain on sale of residuals (230,062) (286,466) Gain on sale of financing transactions (4,555,720) (2,041,996) Initial direct cost amortization 700,707 784,571 Net amortization of deferred interest (2,303,308) (1,910,038) Increase in restricted cash (4,067,723) (1,374,503) Change in accounts receivable, officer note receivable and prepaid expenses (743,473) (5,069,755) Change in accounts payable and accrued liabilities (1,298,814) 1,119,560 Change in income taxes payable 718,816 (1,005,156) Change in deferred income taxes (360,346) (478,402) ------------- ------------- Net cash used in operating activities (9,893,676) (8,466,553) Payments received from lessees 9,987,439 840,719 Proceeds from sale of residuals 782,385 550,515 Purchase of fixed assets (702,921) (607,038) Initial direct cost capitalization (5,030,137) (963,744) Equipment purchased for financing (82,335,000) (60,652,724) ------------- ------------- Net cash used in investing activities (77,298,234) (60,832,272) Proceeds from nonrecourse debt and securitization 90,953,921 58,856,617 Proceeds from notes payable to bank 53,103,548 9,719,570 Preferred stock dividends (54,946) (55,425) Payments on notes payable to bank (58,949,949) (4,641,736) ------------- ------------- Net cash provided by financing activities 85,052,574 63,879,026 ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,139,336) (5,419,799) CASH AND CASH EQUIVALENTS, beginning of year 3,985,350 9,409,305 ------------- ------------- CASH AND CASH EQUIVALENTS, end of year $ 1,846,014 $ 3,989,506 ============= ============= SUPPLEMENTAL Income taxes paid $ 587,494 $ 2,434,128 ============= ============= Interest paid $ 421,899 $ 17,136 ============= ============= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES $ 26,957,384 $ 32,611,928 ============= =============
See notes to financial statements - 5 - 6 ROCKFORD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated financial statements, including the accounts, of Rockford Industries, Inc. and its wholly-owned subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles ("GAAP") for complete financial statements. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K filed with the SEC on March 31, 1997. In the opinion of management, the consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the balance sheets as of June 30, 1997 and December 31, 1996, the statements of income for the three-month and six-month periods ended June 30, 1997 and 1996, and the statements of cash flows for the six month periods ended June 30, 1997 and 1996. The results of operations for the three-month and six-month periods ended June 30, 1997 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending December 31, 1997. NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards No. 125 ("SFAS No. 125"), Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities as of January 1, 1997. SFAS No. 125 has changed the manner in which the Company determines and recognizes the gain recorded upon the transfer of its interest in finance contracts subsequent to December 31, 1996. Additionally, SFAS No. 125 allows the Company to record gains with respect to transfers of its interest in leases previously accounted for as direct finance leases. SFAS No. 125 has also altered the presentation in the Company's consolidated financial statements of revenues, expenses and certain assets and liabilities associated with finance contracts sold. As a result, certain aspects of the Company's financial statements as of June 30, 1997, and for the three-month and six-month periods, may not be directly comparable to the prior period financial statements. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). Under SFAS No. 128, the Company will be required to disclose basic earnings per share ("EPS") and diluted EPS for all periods for which income is presented, which will replace disclosure currently being made for primary EPS and fully-diluted EPS. SFAS No. 128 requires adoption for fiscal periods ending after December 15, 1997. The Company will adopt the provisions of SFAS No. 128 within the 1997 year-end consolidated financial statements. EPS, as computed under SFAS No. 128, is not materially different than EPS presented in the Consolidated Statements of Income for the three months and six months ended June 30, 1997 and 1996. - 6 - 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CUSTOMER FINANCE CONTRACT ACCOUNTING GAIN ON SALE OF FINANCING TRANSACTIONS. Certain of the Company's direct finance leases are initially funded with recourse debt or with the Company's own working capital. The Company warehouses these contracts for a period of time, and during this time utilizes the accounting and income recognition methodology relating to direct finance leases as described below. Subsequently, the Company may securitize the contract or sell them to nonrecourse lenders. The difference between the cash proceeds from the assignment of the remaining payments due under these contracts and the unamortized net investment balance is recorded by the Company as a gain or loss on sale of financing transactions, depending upon whether the cash proceeds are in excess of or less than the unamortized net investment balance. If such sold contracts include a residual payment that is not assigned to the purchaser, the residual interest is recorded on the Company's books at the present value of the estimated residual future value. DIRECT FINANCE LEASES. Equipment financing transactions are classified as direct finance leases when the Company funds the transaction with recourse debt or the Company's own working capital. Additionally, collectability of the contract payments must be reasonably certain and the transaction must meet at least one of the following criteria: (i) the contract transfers ownership of the equipment to the customer at the end of the contract term, (ii) the contract contains a bargain purchase option, (iii) the contract term at inception is at least 75% of the estimated economic life of the financed equipment, or (iv) the present value of the minimum payments required of the customer is at least 90% of the fair market value of the equipment at the inception of the contract. For direct finance leases, the Company records the total contract payments, estimated unguaranteed residual value and initial direct costs (consisting of sales commissions, referral fees and other origination costs) as the gross investment in the direct finance lease. The difference between the gross investment in the direct finance lease and the cost to the Company of the equipment being financed is recorded as unearned income. Interest income is recognized over the term of the contract by amortizing the unearned income using the interest method. GAIN OR LOSS ON SALE OF RESIDUALS. The estimated unguaranteed residual value represents management's estimate of the amount expected to be received at the termination of a direct finance lease as a result of remarketing the equipment originally financed by such contract. Management reviews such estimates quarterly and records a residual valuation allowance if the equipment's estimated fair market value is below its recorded value. When equipment is sold by the Company at the expiration of the contract term, a gain or loss is recorded depending upon whether the net proceeds from the sale are above or below the estimated unguaranteed residual value. - 7 - 8 PRESENTATION OF FINANCIAL STATEMENTS The Company adopted Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as of January 1, 1997. SFAS No. 125 has changed the manner in which the Company determines and recognizes the gain recorded upon the transfer of its interest in finance contracts subsequent to December 31, 1996. Additionally, SFAS No. 125 allows the Company to record gains with respect to transfers of its interest in leases previously accounted for as direct finance leases. SFAS No. 125 has also altered the presentation, in the Company's consolidated financial statements, of revenues, expenses and certain assets and liabilities associated with finance contracts sold. As a result, certain aspects of the Company's financial statements as of June 30, 1997, and for the three months and six months then ended, may not be directly comparable to the prior period financial statements. The following pro forma statements of operations for the three months and six months ended June 30, 1996 reflect certain reclassifications to present the results of the Company's operations for the three months and six months ended June 30, 1996 on a basis comparable to the 1997 presentation. The reclassifications pertain to sales of equipment, cost of equipment sold, and the recording of initial direct costs and estimated bad debt expense. The provisions of SFAS No. 125 may not be applied retroactively, as a result, the accompanying pro forma information reflects only reclassification adjustments to conform presentation. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, ---------------------------------------------------- ACTUAL PRO FORMA RECLASSIFI- ACTUAL 1997 1996 CATIONS(1) 1996 ------ ------ ---------- ------- (IN THOUSANDS) REVENUES: Sales of equipment $ - $ - $21,422 $21,422 Gain on sale of financing transactions 2,246 1,315 (526) 789 Finance income 998 1,187 - 1,187 Servicing related revenue 734 387 - 387 Gain on sale of residuals 82 192 - 192 Other income 454 201 (78) 123 ------ ------ ------- ------- Total revenues 4,514 3,282 20,818 24,100 COSTS: Cost of equipment sold - - 18,958 18,958 Interest expense 524 677 - 677 ------ ------ ------- ------- Total costs 524 677 18,958 19,635 GROSS PROFIT 3,990 2,605 1,860 4,465 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,922 1,348 1,860 3,208 ------ ------ ------- ------- INCOME BEFORE INCOME TAXES 1,068 1,257 - 1,257 INCOME TAXES 427 503 - 503 ------ ------ ------- ------- NET INCOME $ 641 $ 754 $ - $ 754 ====== ====== ======= =======
(1) Represents the reclassification of the following to gain on sale of financing transactions: $21,422 from sales of equipment, $18,958 from cost of equipment sold, $1,612 from selling, general and administrative ("SG&A") expenses relating to initial direct costs, $248 from SG&A expenses relating to estimated bad debt expense on securitized accounts, and the reclassification of $78 in documentation fees from gain on sale of financing transactions to other income. - 8 - 9 PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, --------------------------------------------------- ACTUAL PRO FORMA RECLASSIFI- ACTUAL 1997 1996 CATIONS(1) 1996 -------- -------- ---------- -------- (IN THOUSANDS) REVENUES: Sales of equipment $ - $ - $ 40,922 $ 40,922 Gain on sale of financing transactions 4,556 2,677 (635) 2,042 Finance income 2,127 2,451 - 2,451 Servicing related revenue 1,462 666 - 666 Gain on sale of residuals 230 287 - 287 Other income 735 443 (144) 299 -------- -------- -------- -------- Total revenues 9,110 6,524 40,143 46,667 COSTS: Cost of equipment sold - - 36,523 36,523 Interest expense 1,145 1,326 - 1,326 -------- -------- -------- -------- Total costs 1,145 1,326 36,523 37,849 GROSS PROFIT 7,965 5,198 3,620 8,818 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,496 2,843 3,620 6,463 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 2,469 2,355 - 2,355 INCOME TAXES 988 942 - 942 -------- -------- -------- -------- NET INCOME $ 1,481 $ 1,413 $ - $ 1,413 ======== ======== ======== ========
(1) Represents the reclassification of the following to gain on sale of financing transactions: $40,922 from sales of equipment, $36,524 from cost of equipment sold, $3,127 from selling, general and administrative ("SG&A") expenses relating to initial direct costs, $493 from SG&A expenses relating to estimated bad debt expense on securitized accounts, and the reclassification of $144 in documentation fees from gain on sale of financing transactions to other income. - 9 - 10 RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 AND 1996 FINANCE CONTRACT ORIGINATIONS AND REVENUES. Finance contract originations increased by approximately $12.6 million or 41% to $43.5 million in the quarter ended June 30, 1997 from $30.9 million in the quarter ended June 30, 1996 reflecting the benefit of an expanded sales force and penetration into non-medical markets. Total revenues for the quarter ended June 30, 1997 were $4.5 million as compared to $24.1 million for the quarter ended June 30, 1996. This decrease is due to the adoption of SFAS No. 125 as of January 1, 1997. On a pro forma basis, total revenues for the quarter ended June 30, 1997 were $4.5 million as compared to $3.3 million for the quarter ended June 30, 1996, representing an increase of $1.2 million or 38%. This increase resulted primarily from increased finance contract originations and gains derived from the sale of Company-held finance contracts. GROSS PROFIT. Total gross profit for the quarter ended June 30, 1997 was $4.0 million as compared to $4.5 million for the same quarter in the prior year, representing a decrease of $0.5 million or 11%. This decrease in gross profits was attributable to the reclassification of certain selling costs from selling, general and administrative expenses to gain on sale of financing transactions in the first quarter of 1997 associated with the adoption of SFAS No. 125. On a pro forma basis, gross profit increased from $2.6 million for the quarter ended June 30, 1996 to $4.0 million for the quarter ended June 30, 1997, representing an increase of $1.4 million or 53%. This increase was primarily due to increased finance contract originations, lower cost of funds (borrowing rates), increased gains on sales of financing transactions, servicing fees and other revenues associated with an increasing serviced portfolio. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses in the second quarter of 1997 were $2.9 million as compared to $3.2 million in the second quarter of 1996, representing a decrease of $0.3 million. This decrease was attributable to the reclassification of certain selling costs (bad debt expense on securitized accounts and initial direct costs) from selling, general and administrative expenses as an offset to gain on sale of financing transactions in the second quarter of 1997 associated with the adoption of SFAS No. 125. On a pro forma basis, selling, general and administrative expenses of $2.9 million for the quarter ended June 30, 1997 represented an increase of $1.5 million or 117% from $1.4 million for the same period in 1996. This increase in selling, general and administrative expenses was primarily due to decreased capitalization of initial direct costs and increases in volume related expenses and additional investment in the infrastructure and reserves necessary to service and support an increasing level of finance contract originations and the increased size of the securitized portfolio. NET INCOME. Income before taxes was $1,068,000 for the quarter ended June 30, 1997 as compared to $1,257,000 for the same quarter of the prior year. The effective income tax rate of 40% remained constant for the comparative periods shown. Net income was $641,000 for the quarter ended June 30, 1997 as compared to $754,000 for the same quarter of the prior year, representing an increase of $113,000 or 15%. Net income of $.15 per share on weighted-average shares outstanding of 4,397,000 was earned during the first quarter of 1997, as compared to net income of $.17 per share on weighted-average shares outstanding of 4,521,000 for the first quarter of 1996. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 AND 1996 FINANCE CONTRACT ORIGINATIONS AND REVENUES. Finance contract originations increased by approximately $21.8 million or 36% to $82.3 million for the six months ended June 30, 1997 from $60.5 million for the six months ended June 30, 1996 reflecting the benefit of an expanded sales force and penetration into non-medical markets. Total revenues for the six months ended June 30, 1997 were $9.1 million as compared to $46.7 million for the six months ended June 30, 1996. This decrease is due to the adoption of SFAS No. 125 as of January 1, 1997. On a pro forma basis, total revenues for the six months ended June 30, 1997 were $9.1 million as compared to $6.5 million for the six months ended June 30, 1996, representing an increase of $2.6 million or 40%. This increase resulted primarily from increased finance contract originations and gains derived from the sale of Company-held finance contracts. GROSS PROFIT. Total gross profit for the six months ended June 30, 1997 was $8.0 million as compared to $8.8 million for the same six months in the prior year, representing a decrease of $0.8 million or 10%. This decrease in gross profits was attributable to the reclassification of certain selling costs from selling, general and administrative expenses to gain on sale of financing transactions in the first six months of 1997 associated with the adoption of SFAS No. 125. On a pro forma basis, gross profit increased from $5.2 million for the six months ended June 30, 1996 to $8.0 million for the six months ended June 30, - 10 - 11 1997, representing an increase of $2.8 million or 53%. This increase was primarily due to increased finance contract originations, lower cost of funds (borrowing rates), increased gains on sales of financing transactions, servicing fees and other revenues associated with an increasing serviced portfolio. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses in the six months ended June 30, 1997 were $5.5 million as compared to $6.5 million in the six months ended June 30, 1996, representing a decrease of $1.0 million. This decrease was attributable to the reclassification of certain selling costs (bad debt expense on securitized accounts and initial direct costs) from selling, general and administrative expenses as an offset to gain on sale of financing transactions in the first six months of 1997 associated with the adoption of SFAS No. 125. On a pro forma basis, selling, general and administrative expenses of $5.5 million for the six months ended June 30, 1997 represented an increase of $2.7 million or 93% from $2.8 million for the same period in 1996. This increase in selling, general and administrative expenses was primarily due to decreased capitalization of initial direct costs and increases in volume related expenses and additional investment in the infrastructure and reserves necessary to service and support an increasing level of finance contract originations and the increased size of the securitized portfolio. NET INCOME. Income before taxes was $2,469,000 for the six months ended June 30, 1997 as compared to $2,355,000 for the same six months of the prior year. The effective income tax rate of 40% remained constant for the comparative periods shown. Net income was $1,481,000 for the six months ended June 30, 1997 as compared to $1,413,000 for the same six months of the prior year, representing an increase of $68,000 or 5%. Net income of $.34 per share on weighted-average shares outstanding of 4,389,000 was earned during the first six months of 1997, as compared to net income of $.32 per share on weighted-average shares outstanding of 4,479,000 for the first six months of 1996. LIQUIDITY AND CAPITAL RESOURCES Because equipment financing is a capital intensive business, the Company requires continual access to substantial short and long-term credit to generate its new equipment financings and sales. The principal sources of funding for the Company's equipment finance contracts are (i) funding obtained from sales of asset-backed securities (backed by pools of the Company's equipment finance contracts) to SunAmerica Life Insurance Company ("SunAmerica") and CoreStates Bank, N.A., pursuant to the terms of each securitization arrangement, (ii) nonrecourse borrowings from institutional lenders, and (iii) standard recourse borrowings under its $30 million revolving line of credit ("Revolver") used by the Company from time to time to temporarily fund a portion of its equipment finance contracts, pending more permanent funding arrangements for such contracts. SECURITIZED DEBT. Asset securitization is a process in which a pool of equipment finance contracts is transferred to a wholly-owned special-purpose subsidiary which, in turn, transfers the contracts and the payments due thereunder to a trust which issues trust certificates to investors relating to the contract pool. The source of repayment for the trust certificates is the stream of payments which are made on the equipment finance contracts included in the corresponding pool of transferred contracts. In addition, the special purpose subsidiary pledges, as collateral to support payment of the trust certificates, the equipment underlying the equipment finance contracts in each pool. To the extent adequate payments on the trust certificates are not realized by the investor, the investor (as opposed to the special purpose subsidiary) has the right to the residual value, if any, of the equipment underlying the contracts in the pool should such equipment be resold. The special purpose subsidiary also provides credit enhancement by maintaining, in the case of the Company's securitization program, certain cash reserve accounts or letters of credit in connection with each borrowing under the securitization program. In connection with the securitization programs, the Company has agreed to continue to service the equipment finance contracts included in each pool of transferred contracts on behalf of the certificate holder. In consideration for servicing these contract pools, the Company receives a service fee from the certificate holder. In January 1995, the Company and SunAmerica entered into an asset securitization agreement under which SunAmerica agreed to purchase up to $65.0 million in principal amount of trust certificates. The Company securitized $57.0 million of financing contracts under this facility. In February 1996, the Company and SunAmerica entered into an agreement pursuant to which SunAmerica agreed to purchase up to an additional $l00.0 million in principal amount of trust certificates. Under this agreement, through June 30, 1997, the Company has securitized $95.5 million of its financing contracts with SunAmerica. This agreement with SunAmerica expired on April 30, 1997. A terms sheet was signed in May 1997 and final documentation is in progress that will expand the SunAmerica securitization program under a multi-year facility providing cost of funds at rates lower than previously in effect. Management currently expects that this facility will be finalized during the third quarter of 1997, provided that the negotiations are completed satisfactorily. - 11 - 12 On March 27, l997 CoreStates Bank, N.A. provided the Company with a commitment under which CoreStates provides the Company with a $150 million three-year facility for the securitization of equipment finance contracts. The CoreStates facility provides financing at rates that are about 65 basis points lower than the rates previously available to the Company. Through June 30, 1997, the Company has securitized $64.8 million of its financing contracts with CoreStates. NONRECOURSE DEBT. Prior to the utilization of the securitization funding methodology described above, the Company's principal source of funding had been nonrecourse borrowings from institutional lenders, in connection with which the lender's recourse is to the Company's customers and to the equipment financed, not to the Company. This method of funding is still utilized by the Company for a portion of its finance contract originations. To date, the Company has been successful in attracting nonrecourse lenders and in extending the levels at which existing lenders are willing to provide nonrecourse financing. At June 30, 1997, the Company had recorded nonrecourse debt of $89 million. SHORT-TERM RECOURSE DEBT. The Company has also, from time to time, relied on standard recourse borrowings for the funding of a smaller, short-term portion of its financing needs. The Company has maintained a credit facility with a bank for such short-term borrowings, and under the terms of the agreement, the Company may fund certain finance contracts at rates lower per annum than available through nonrecourse financing. On February 10, 1997, the borrowing limit of this facility was increased to $30.0 million. The terms of this facility provide for advances through July 1998 and contains a feature for pricing at LIBOR plus 1 1/2%. At June 30, 1997, the Company had $5.1 million outstanding under the Revolver. CASH FLOWS. The Company's cash and cash equivalents at June 30, 1997 was $1.8 million compared to $4.0 million at June 30, 1996. During the six months ended June 30, 1997, the Company's cash position decreased by $2.1 million, reflecting the use of cash in operations and investing activities of $9.9 million and $77.3 million, respectively, and the cash provided from financing activities of $85.1 million. The most significant aspects of the change during this period was from cash invested in equipment for financing of $82.3 million and proceeds from nonrecourse debt and securitizations of $91.0 million. This was largely due to the higher level of the Company's finance contract originations. In comparison, the Company's cash position decreased by $5.4 million during the six months ended June 30, 1996, reflecting the use of cash in operations and investing activities of $8.5 million and $60.8 million, respectively, and the cash provided from financing activities of $63.9 million. The change in cash was primarily due to cash used to purchase equipment for financing of $60.7 million and proceeds from nonrecourse debt borrowings and securitizations of $58.9 million. The Company believes that existing cash balances, cash flows from activities, proceeds from securitization arrangements, nonrecourse assignments, and bank credit lines will be sufficient to meet its financing needs for the next twelve months. SEASONALITY Historically, the Company has generally experienced lower originations in its first quarter and relatively higher originations in its fourth quarter. The Company believes that the first quarter has been negatively affected by the requirements of its vendors to rebuild equipment inventories and order backlog at the beginning of a new year and that the fourth quarter is favorably affected by greater customer demand for equipment which is fostered, in part, by budget and tax considerations. IMPACT OF INFLATION The Company funds a majority of its equipment finance contracts with fixed rate loans in order to maintain a spread between the interest rates charged to the Company and those implicit in the financing the Company provides. Due to this timely matching of finance contract yields with funding rates, the Company generally has mitigated the effects of rising interest rates during inflationary periods. General inflation in the economy has driven upward the operating expenses of many businesses, and accordingly, the Company has increased salaries and borne higher prices for most other goods and services. The Company continuously seeks methods of reducing costs and streamlining operations while maximizing efficiencies and internal operating controls through development of cost reducing funding mechanisms, such as the securitization program, and through systems automation and enhancement. While the Company is subject to inflation as described above, the Company believes that inflation does not have a material effect on its operating results. - 12 - 13 SAFE HARBOR STATEMENT The preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations" section contains "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which represent the Company's judgment concerning the future and are subject to risks and uncertainties that could cause the Company's actual operating results and financial position and cash flows to differ materially. Such statements include the following: the Company's expectation that the new securitization facility with SunAmerica, will be finalized during the third quarter of 1997 and the Company's belief that existing cash balances, cash flows from activities, proceeds from securitization arrangement, non-recourse assignments and bank credit lines will be sufficient to meet its financing needs for the next twelve months. The forward-looking statements included herein are based upon current expectations that involve a number of risks and uncertainties. These forward-looking statements are based upon assumptions that the Company will continue to finance medical and other equipment on a regular and predictable basis, that competing conditions within the equipment financing market will not change materially or adversely, that the medical equipment financing market will continue to experience a steady growth, that demand for the Company's financing will remain strong, that the Company will retain existing sales representatives and key management personnel, that the Company will accurately anticipate market demand, that planned financing arrangements with SunAmerica will be completed satisfactorily and that there will be no material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgements with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. - 13 - 14 PART II - OTHER INFORMATION Item 1 - Legal Proceedings - Not Applicable Item 2 - Changes in Securities - Not Applicable Item 3 - Defaults Upon Senior Securities - Not Applicable Item 4 - Submission of Matters to a Vote of Security Holders Annual Meeting of Shareholders (a) The Annual Meeting of Shareholders was held on June 18, 1997. (b) The following directors were elected at the Annual Meeting: 1. Gerry J. Ricco 2. Larry E. Hartmann 3. Brian A. Seigel 4. Floyd S. Robinson 5. Robert S. Vaters There were no other directors whose term of office as director continued after the Annual Meeting. Shareholders representing 2,981,200 shares voted for each of the directors and shareholders representing 2,750 shares withheld authority to vote for each director. (c) At the Annual Meeting, shareholders also voted on amendments to the Company's 1995 Stock Option Plan (the "Plan") to (i) modify the automatic grant feature to increase the number of shares of common stock granted to a non-employee director when he or she is first elected to 5,000 shares and increase the number of shares covered by each annual option grant to a non-employee director as of the date he or she is re-elected to the board to 5,000 shares, (ii) permit one discretionary grant of options to non-employee directors during a 12-month period, including a grant on April 25, 1997 of 20,000 options to each of the two non-employee directors and (iii) increase the number of shares to be issued under the Plan from 350,000 to 550,000 shares. Votes received from shareholders for the Plan amendments were as follows: Votes Against Abstentions and Votes For or Withheld Broker Non-Votes --------- ------------- ---------------- 2,958,095 21,855 4,000 Item 5 - Other Information Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits: 10.32 Pooling and Servicing Agreement, dated as of March 27, 1997, by and among Rockford Lease Funding Corp., the registrant, Texas Commerce Bank National Association and CoreStates Bank, N.A. 10.33 Equipment and Lease Purchase Agreement, dated as of March 27, 1997, by and between among Rockford Lease Funding Corp. and the registrant. 10.34 Purchase Agreement, dated as of March 27, 1997, by and among Rockford Lease Backed Trust 1997-I, the registrant, Texas Commerce Bank National Association and CoreStates Bank, N.A. 10.35 Form of Rockford Lease Funding Corp. Fixed Rate Lease Receivables - Backed Senior Certificate, Series 1997-1 (Class A). 27 Financial Data Schedule (b) Reports on Form 8-K; No reports were filed on Form 8-K during the quarter for which this report is filed. - 14 - 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Rockford Industries, Inc. (Registrant) Date: /s/ GERRY J. RICCO ----------------------------------------------------- Gerry J. Ricco President and Chief Executive Officer and Director (Principal Executive Officer) Date: /s/ KEVIN P. McDONNELL ----------------------------------------------------- Kevin P. McDonnell Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) - 15 - EX-10.32 2 POOLING AND SERVICING AGREEMENT, DATED 3-27-97 1 EXHIBIT 10.32 ROCKFORD LEASE FUNDING CORP. Seller, ROCKFORD INDUSTRIES, INC. Servicer and TEXAS COMMERCE BANK NATIONAL ASSOCIATION Trustee and Back-up Servicer __________________________________________ POOLING AND SERVICING AGREEMENT Dated as of March 27, 1997 __________________________________________ 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II ESTABLISHMENT OF TRUST; CONVEYANCE OF TRUST ASSETS; TITLE AND PRESERVATION OF SECURITY INTERESTS Section 2.01 Establishment of Trust; Initial and Subsequent Closings; Conveyance of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 2.02 Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE III ADMINISTRATION AND SERVICING OF LEASES AND EQUIPMENT Section 3.01 Acceptance of Appointment; Duties of Servicer . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.02 Collection of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 3.03 Servicer Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 3.04 Realization Upon Defaulted Lease Contracts . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 3.05 Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.06 Representations and Warranties of Servicer . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.07 Covenants of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 3.08 Servicing Compensation; Payment of Expenses by Servicer . . . . . . . . . . . . . . . . . 35 Section 3.09 Monthly Statement; Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 3.10 Annual Statement as to Compliance; Notice of Default . . . . . . . . . . . . . . . . . . . 36 Section 3.11 Annual Independent Public Accounts' Servicing Report . . . . . . . . . . . . . . . . . . . 36 Section 3.12 Merger or Consolidation of, or Assumption of the Obligations of, Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 3.13 Servicer Not To Resign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 3.14 Access to Certain Documentation and Information Regarding the Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 3.15 No Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-i- 3 ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.01 Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.02 Establishment of Lockbox Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.04 Establishment of the Class A Certificate Account . . . . . . . . . . . . . . . . . . . . . 40 Section 4.05 Letter of Credit; Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.06 Determination of Principal Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.07 Determination of Interest Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.08 Collections and Allocations; Required Deposits . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.09 Account Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 4.10 Payments under the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 4.11 Investment of Monies Held in the Investment Account and the Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS Section 5.01 Distributions to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 5.02 Annual Certificateholders' Tax Statement . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE VI THE CERTIFICATES Section 6.01 The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.02 Authentication of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.03 Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . 49 Section 6.04 Restrictions on Transfer of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 6.05 Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . . 50 Section 6.06 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.07 Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.08 Access to List of Certificateholders' Names and Addresses . . . . . . . . . . . . . . . . 51 Section 6.09 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 6.10 Non-Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
-ii- 4 ARTICLE VII MATTERS RELATING TO SELLER Section 7.01 Representations and Warranties Regarding Seller . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE VIII ADDITIONAL MATTERS RELATING TO SELLER Section 8.01 Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 8.02 Indemnification of the Trust, Trustee, Bond Insurer, Back-up Servicer and Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 8.03 Additional Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 8.04 Servicer Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 8.05 Annual Independent Public Accountant's Servicing Report; Annual Federal Tax Lien Search; Quarterly Re-underwriting . . . . . . . . . . . . . . . . 66 Section 8.06 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 8.07 Name Change or Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 8.08 Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 8.09 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 ARTICLE IX SERVICER DEFAULTS Section 9.01 Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 9.02 Back-up Servicer to Act; Appointment of Successor . . . . . . . . . . . . . . . . . . . . 70 Section 9.03 Notification to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.05 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE X THE TRUSTEE Section 10.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 10.02 Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 10.03 Trustee Not Liable for Recitals in Certificates . . . . . . . . . . . . . . . . . . . . . 75 Section 10.04 Rockford to Pay Certain of Trustee's Fees and Expenses. . . . . . . . . . . . . . . . . . 75 Section 10.05 Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
-iii- 5 Section 10.06 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 10.07 Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 10.08 Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 10.09 Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . 77 Section 10.10 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 10.11 Trustee May Enforce Claims Without Possession of Certificates . . . . . . . . . . . . . . 79 Section 10.12 Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 10.13 Rights of Bond Insurer to Direct Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 10.14 Representations and Warranties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 10.15 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 10.16. Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 10.17. Review of Lease Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 ARTICLE XI TERMINATION Section 11.01 Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 11.02 Optional Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 11.03 Final Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.01 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 12.02 Protection of Right, Title and Interest to Trust Assets . . . . . . . . . . . . . . . . . 84 Section 12.03 Limitation on Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . 84 Section 12.04 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 12.05 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 12.06 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.07 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.08 Certificates Nonassessable and Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.09 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.10 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.12 Third-Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 12.13 Actions by Certificateholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 12.14 Intention of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 12.15 Merger and Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 12.16 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 12.17 Certificates and Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 12.18 Bond Insurer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
-iv- 6 Section 12.19 Non-Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 EXHIBITS: Exhibit A: Form of Class A Certificate Exhibit B: [Reserved] Exhibit C: Form of Seller Certificate Exhibit D: Form of Monthly Statement Exhibit E: Form of Lease Schedule Exhibit F: Transfer Certificate Exhibit G: Form of Lease File Review Certificate Exhibit H: Form of Supplemental Grant of Substitute Lease Contracts SCHEDULES: Schedule 3.01(b): Servicing Procedures Schedule 9.02: Back-up Servicer Plan
-v- 7 POOLING AND SERVICING AGREEMENT THIS POOLING AND SERVICING AGREEMENT, entered into and dated as of March 27, 1997 (as hereinafter amended and supplemented, this "Agreement"), is by and among ROCKFORD LEASE FUNDING CORP., a New York corporation, as "Seller" hereunder, ROCKFORD INDUSTRIES, INC., a California corporation ("Rockford"), as "Servicer" hereunder, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America ("Trustee" or "Back-up Servicer"), as "Trustee" and "Back-up Servicer" and as the initial "Transfer Agent and Registrar" and "Paying Agent" hereunder. RECITALS Seller, Rockford, Trustee and Back-up Servicer are entering into this Agreement for the following purposes: (a) To effect the creation of the Rockford Lease Backed Trust 1997-1. (b) To acknowledge the transfer from time to time by Seller to the Trust of the Trust Assets. (c) To provide for the issuance by the Trust to or upon the order of Seller from time to time of various certificates evidencing the ownership of undivided interests in the Trust. (d) To provide for the appointment of Rockford as Servicer hereunder and to delineate the duties and responsibilities of Rockford in such capacity. (e) To provide for such other matters as are set forth herein. Now Therefore, in consideration of the premises, the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party agrees as follows for the benefit of the other parties and for the benefit of the Certificateholders and Bond Insurer: ARTICLE I DEFINITIONS Section 1.01 Definitions. Whenever used in this Agreement, the following words and phrases shall have the respective meanings indicated below: "Accounts" shall mean each of the Lockbox Account, the Investment Account, the Class A Certificate Account and the Cash Collateral Account. 8 "Accrual Date" shall mean, with respect to any Certificate, the date upon which interest begins accruing on such Certificates, as specified in such Certificate, which will be March 31, 1997 with respect to the Certificates issued on the Initial Closing Date. "Accrual Interval" shall mean, with respect to each Accrual Period other than the Accrual Period relating to the Initial Payment Date, each period beginning on a Payment Date (or with respect to any Certificates issued on a Subsequent Closing Date during such Accrual Period, the related Subsequent Closing Date) and ending on the day immediately prior to the earlier of the next Subsequent Closing Date or Payment Date, as appropriate. The Accrual Interval with respect to the Accrual Period relating to the Initial Payment Date shall be the period beginning on the Accrual Date (or with respect to any Certificates issued on a Subsequent Closing Date during such Accrual Period, the related Subsequent Closing Date) and ending on the day immediately prior to the earlier of the next Subsequent Closing Date or the Initial Payment Date, as appropriate. Each Accrual Period may consist of multiple Accrual Intervals. "Accrual Period" shall mean the period beginning on the twentieth (20th) day of each month (or, in the case of the Accrual Period that is applicable to the Initial Payment Date, beginning on the Accrual Date for such Certificates) and ending on the nineteenth (19th) day of the immediately following month. "Additional Servicer Fee" shall mean the amount, if any, of the fee payable in accordance herewith to a Successor Servicer appointed pursuant to Section 9.02(a) that is in excess of the Servicer Fee. "Affiliate" of any Person shall mean any other Person directly or indirectly controlling, controlled by or under common direct or indirect control with the first Person. The Trust shall not be deemed an Affiliate of Seller, Rockford or Trustee. "Aggregate Discounted Lease Contract Balance" shall mean at any time of determination, an amount equal to the sum of the Discounted Lease Contract Balances of the Lease Contracts. "Annualized Default Rate" shall mean for any Collection Period, (i) the sum of the Discounted Lease Contract Balances as of the last day of such Collection Period of all Lease Contracts that became Defaulted Lease Contracts during such Collection Period (including any Lease Contracts that have been purchased or substituted), (ii) minus the sum of Recoveries and Residual Proceeds received during such Collection Period, (iii) divided by (A) during the Funding Period, the Aggregate Discounted Lease Contract Balance as of the last day of the third preceding Collection Period or (B) after the Funding Period has terminated, the Aggregate Discounted Lease Contract Balance as of the last day of such Collection Period, (iv) multiplied by twelve. -2- 9 "Applicants" shall have the meaning specified in Section 6.08. "Application for Certificate of Title" shall mean, with regard to each Vehicle for which a Certificate of Title has not been issued naming Seller as owner and the Trustee as secured party, evidence that an application for a Certificate of Title naming Seller as owner and Trustee as secured party has been submitted with the appropriate authority. "Authorized Denominations" as related to the Class A Certificates, shall mean $100,000 or any integral multiple thereof; provided, however, that if on any Closing Date the aggregate principal balance of the Class A Certificates is not an integral multiple of $100,000, then one Certificate may be issued that is not an integral multiple of $100,000. "Available Amount" shall mean, as of any date of determination, the sum of (i) the Available LOC Amount (as defined in the Letter of Credit Reimbursement Agreement) and (ii) the amount on deposit in the Cash Collateral Account (in each case as of such date of determination). "Back-up Servicer" shall mean the institution executing this Agreement as Back-up Servicer or any successor back-up servicer appointed as herein provided. "Back-up Servicer Fee" shall mean an amount, for each Payment Date, equal to one-twelfth (1/12th) of 0.025% of the aggregate of the Certificate Balances of all outstanding Certificates as of the first day of the Collection Period immediately preceding such Payment Date. "Blended Class A Interest Shortfall Rate" shall mean, as of the close of business on any Payment Date, the weighted average of the Certificate Rates for each of the Class A Certificates that have been issued and are outstanding. "Bond Insurer" shall mean MBIA Insurance Corporation, and its permitted successors and assigns. "Bond Insurer Default" shall mean the occurrence and continuance of any of the following events: (a) the failure by the Bond Insurer to make a payment under the Policy in accordance with its terms; or (b) an Insurer Insolvency. "Bond Insurer Premium" shall have the meaning set forth in the Insurance Agreement. -3- 10 "Bond Insurer Premium Rate" shall have the meaning set forth in the Insurance Agreement. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which Bond Insurer or banking institutions in New York, New York or Houston, Texas are authorized or obligated by law or executive order to be closed. "Cash Collateral Account" shall mean the trust account designated as such, established and maintained pursuant to Section 4.05(d). "Cash Collateral Withdrawal" shall have the meaning specified in Section 4.05(d). "Centre Square" shall mean Centre Square Funding Corporation, a Delaware corporation. "Certificate" shall mean any one of the Class A Certificates. "Certificate Balance" shall mean with respect to each Certificate, on any date of determination, an amount equal to (a) the original principal amount of such Certificate minus (b) the aggregate amount of principal distributions in respect of such Certificate made pursuant to Section 5.01. "Certificateholder" or "Holder" shall mean the record holder of a Certificate as shown on the Certificate Register; provided, however, that, solely for the purposes of giving any consent, waiver, request or demand pursuant to this Agreement, any Certificate registered in the name of Seller, Rockford, Trustee or any of their respective Affiliates shall be disregarded. "Certificate of Title" shall mean, with regard to each Vehicle, the original certificate of title relating thereto, which shall name Seller as the owner of such Vehicle and Trustee as secured party. "Certificate Rate" shall mean with respect to each Class A Certificate issued on any Closing Date, the per annum rate of interest for such Certificate (calculated on the basis of a 360 day calendar year) determined pursuant to the Purchase Agreement and set forth on the face of such Certificate. "Certificate Register" shall mean the register maintained by the Trustee pursuant to Section 6.03, providing for the registration of the Certificates and transfers and exchanges thereof. -4- 11 "Class A Certificate" shall mean any one of the certificates authenticated by the Trustee and substantially in the form attached hereto as Exhibit A. "Class A Certificate Account" shall mean the account designated as such, established and maintained pursuant to Section 4.04(a). "Class A Certificate Distributable Amount" shall mean, for any Payment Date, an amount equal to the sum, without duplication, of the Class A Certificate Interest Distributable Amount, the Class A Certificate Interest Shortfall Carryover, the Class A Certificate Principal Distributable Amount and the Class A Certificate Principal Shortfall Carryover. "Class A Certificate Interest Distributable Amount" shall have the meaning specified in Section 4.07(a). "Class A Certificate Interest Shortfall Carryover" shall mean, as of the close of business on any Payment Date, the sum of (a) the excess of (i) the Class A Certificate Interest Distributable Amount for such Payment Date plus any outstanding Class A Certificate Interest Distributable Amount which remains unpaid from any preceding Payment Date, over (ii) the sum of the amount of interest actually deposited in the Class A Certificate Account on the related Deposit Date pursuant to Section 4.08(b)(viii), plus (b) interest on such excess, to the extent permitted by law, at the Blended Class A Interest Shortfall Rate from such Payment Date through the immediately succeeding Payment Date. "Class A Certificate Investor Interest" shall mean, as of any Payment Date, an amount equal to the Initial Class A Certificate Investor Interest minus the aggregate amount of payments of principal distributed to the Holders of the Class A Certificates pursuant to Section 5.01 on or prior to such Payment Date. "Class A Certificate Principal Distributable Amount" shall have the meaning specified in Section 4.06(a). "Class A Certificate Principal Shortfall Carryover" shall mean, as of the close of business on any Payment Date, the excess of (a) the Class A Certificate Principal Distributable Amount for such Payment Date plus any outstanding Class A Certificate Principal Distributable Amount which remains unpaid from any preceding Payment Date over (b) the sum of the amount of principal actually deposited in the Class A Certificate Account on the related Deposit Date pursuant to Section 4.08(b)(ix). "Closing Date" shall mean the Initial Closing Date and each Subsequent Closing Date, as the context requires. -5- 12 "Collection Period" shall mean with respect to each Payment Date, the period commencing on the first day of the calendar month immediately preceding the month in which such Payment Date occurs and ending on the close of business on the last day of such preceding calendar month. "Collections" shall mean, with respect to any Collection Period, all payments and recoveries received and made during such Collection Period relating to the Trust Assets or the Equipment including, but not limited to, (a) all proceeds realized in connection with the early termination of a Lease Contract and all early termination payments made by the Lessee under a Lease Contract, (b) any and all proceeds realized from the sale, re-lease or other remarketing of the Equipment, (c) prepayments, early payments and late payments, (d) Scheduled Payments, (e) Purchase Amounts, (f) Insurance Proceeds, (g) any Guaranty Amounts, (h) Recoveries, (i) Residual Proceeds and (j) Overdue Payments. "Corporate Trust Office" shall mean the principal office of Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of the execution of this Agreement is located at 600 Travis, 8th Floor, Houston, Texas 77002, Attention: Global Trust Services -- Rockford 1997-1. "Cut-Off Date" shall mean (i) with respect to the Initial Closing Date, April 1, 1997 and (ii) with respect to each Subsequent Closing Date, the "Cut-Off Date" for Lease Contracts sold to the Trust on such Subsequent Closing Date as determined pursuant to the Purchase Agreement and specified in the Sale Assignment covering such Lease Contracts. "Debt" of any Person shall mean (a) indebtedness of such Person for borrowed money, (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) obligations of such Person to pay the deferred purchase price of property or services, (d) obligations of such Person as lessee under leases which have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (e) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (f) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (e) above, and (g) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA. "Defaulted Lease Contract" shall mean a Lease Contract as to which Servicer has reasonably determined, in accordance with its customary servicing procedures, that it shall not make a Servicer Advance or that a prior Servicer Advance is unrecoverable; provided, each Lease Contract as to which the Lessee thereunder is delinquent in any portion of the Scheduled Payments for a period of 120 days or more shall automatically be deemed a Defaulted Lease Contract. -6- 13 "Delinquency Rate" shall mean, for any Collection Period, the sum of the Discounted Lease Contract Balances of all Lease Contracts as of the last day of such Collection Period with respect to which a Lessee is more than 30 days delinquent in making the Scheduled Payment or any portion thereof due during such Collection Period (including any such Lease Contracts that have been purchased or substituted), divided by the Aggregate Discounted Lease Contract Balance as of the last day of such Collection Period (including any such Lease Contracts that have been purchased or substituted). "Deposit Date" shall mean, with respect to each Collection Period, the Business Day immediately preceding the related Payment Date. "Determination Date" shall mean the second Business Day preceding each Deposit Date. "Discounted Lease Contract Balance" shall mean, with respect to each Lease Contract, at any time of determination, the present value calculated at the applicable Discount Pool Rate of all of the remaining Scheduled Payments (including, without limitation, those that are past due, but excluding any Scheduled Payment for which a Servicer Advance has been made) constituting the Lease Contract Balance of such Lease Contract; provided, however, that any Lease Contact with a deferral period shall include such deferral period in the calculation of such present value; provided, further, however, that the Discounted Lease Contract Balance of any Lease Contract that is a Defaulted Lease Contract (except for purposes of calculating the Annualized Default Rate), Early Termination Lease Contract or Expired Lease Contract at such time shall be equal to zero. "Discount Pool Rate" shall mean as to all Lease Contracts purchased by the Trust on a particular Closing Date, the Certificate Rate for all Class A Certificates issued on such Closing Date, plus 0.8375% (such percentage being the sum of the Servicing Fee rate, the Bond Insurer Premium Rate, the Trustee Fee rate and the Back-up Servicer Fee rate), and for purposes of this Agreement the resulting rate shall be calculated on the basis of a 360 day year and on actual days elapsed. "Draw Amount" shall have the meaning specified in Section 4.05(b). "Draw Down Date" shall have the meaning specified in Section 4.05(f). "Early Termination Lease Contract" shall mean any Lease Contract that has terminated prior to its Scheduled Expiration Date and with respect to which the related Repurchase Price has been deposited into the Investment Account. "Eligible Institution" means (a) a depository institution or trust company whose long-term unsecured debt obligations are rated at least A by Standard & Poor's and A2 by Moody's, or (b) a federal or state chartered depository institution with accounts subject to -7- 14 regulations regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10(b). "Eligible Investments" shall mean: (a) negotiable instruments or securities represented by instruments in bearer or registered or in book-entry form which evidence (i) direct obligations fully guaranteed by the United States of America; (ii) demand deposits or time deposits in, certificates of deposits of, or bankers' acceptances issued by, any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by Federal or state banking or depository institution authorities, provided, however, that at the time of the Trust's investment or contractual commitment to invest therein, (x) the certificates of deposit or short-term deposits, if any, of such depository institution or trust company shall have a credit rating from Moody's and Standard & Poor's of P-1 and A-1+, respectively, or (y) such time deposits are fully insured by the Federal Deposit Insurance Corporation; or (iii) investments in money market funds rated in the highest investment category by Moody's and Standard & Poor's at the time of the Trust's rating therein or otherwise approved in writing by each Rating Agency and Bond Insurer; (b) demand deposits in the name of the Trust or the Trustee in any depository institution or trust company referred to in (a) (ii) above; (c) commercial paper (having original or remaining maturities of no more than 270 days) having, at the time of the Trust's investment or contractual commitment to invest therein, a credit rating from Moody's and Standard & Poor's of P-1 and A-1+, respectively; (d) repurchase obligations with a term not to exceed thirty (30) days with respect to any security described in clause (a)(i) above and entered into with a depository institution, trust company or corporation (acting as principal) rated in the highest available short term rating category of each Rating Agency at the time of such investment; provided, however, that collateral transferred pursuant to such repurchase obligation must be of the type described in clause (a)(i) above and must (A) be valued daily at current market price plus accrued interest, (B) pursuant to such valuation, equal, at all times, to 105% of the cash transferred by Trustee in exchange for such collateral and (C) be delivered to Trustee or an agent for Trustee, in such a manner as to accomplish perfection of a security interest in the collateral by possession of certificated securities; and (e) any investment approved in writing by Bond Insurer and each Rating Agency. -8- 15 Eligible Investments shall be held to maturity and shall mature no later than the Deposit Date immediately preceding the Payment Date next following the Collection Period during which such investment was made. Eligible Investments otherwise meeting the definition thereof may include, without limitation, those investments for which the Trustee or an Affiliate of the Trustee provides services. "Eligible Lease Contract" shall have the meaning set forth in the Purchase Agreement. "Equipment" shall mean the equipment or other property (including Vehicles) leased pursuant to or otherwise covered by a Lease Contract. "Equipment and Lease Purchase Agreement" shall mean the Equipment and Lease Purchase Agreement of even date herewith, between Rockford and Seller. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Expired Lease Contract" shall mean any Lease Contract that has terminated on its Scheduled Expiration Date and with respect to which the related Repurchase Price has been deposited into the Investment Account. "FDIC" shall mean the Federal Deposit Insurance Corporation, or its successors and assigns. "Fiscal Year" shall mean the 12 month period ending on December 31st of each year. "Funding Period" shall mean the period commencing on the Closing Date through and including the earliest to occur of (i) a Funding Period Trigger Event, (ii) September 20, 1998, unless extended by mutual agreement among Seller, Bond Insurer and the Certificateholders; provided that each Rating Agency receives notification of such extension, (iii) the date designated by Seller upon at least five (5) Business Days prior written notice to the Certificateholders and Bond Insurer or (iv) the date on which the Liquidity Facility is terminated. "Funding Period Trigger Event" shall have the meaning specified in the Purchase Agreement. "Governmental Authority" shall mean the United States of America, any state or other political subdivision thereof, any court and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. -9- 16 "Guaranty Amounts" shall mean any and all amounts paid or payable by any individual guarantor indicated on the applicable Lease Contract. "Independent Director" shall mean at any particular time, any person who (A) is not then, and for five (5) years prior thereto has not been, (1) a shareholder, officer, director, partner or employee or a significant customer, creditor, supplier or independent contractor of Seller, its ultimate parent or any subsidiaries or Affiliates thereof, or (2) a member of the immediate family of any person described in clause (A)(1) hereof, and (B) does not directly or indirectly own any class of voting stock of Seller or any of its Affiliates; provided, however, that an Independent Director may also be, or within the prior five (5) years have been, an independent director of any one or more special purpose corporate subsidiaries of Rockford. "Independent Public Accountants" means any nationally recognized certified public accounting firm; provided, that such firm is independent with respect to the Servicer within the meaning of the Securities Act and is reasonably acceptable to Bond Insurer. "Initial Aggregate Certificate Principal Balance" shall mean on any date, the aggregate original principal balance of all Certificates issued on or prior to such date. "Initial Closing Date" shall mean the date of this Agreement. "Initial Payment Date" shall mean May 20, 1997. "Insurance Agreement" shall mean the Insurance Agreement, dated as of March 27, 1997, by and among Bond Insurer, Seller, Rockford, Trustee and Back-up Servicer. "Insurance Policy" shall mean, with respect to any Lease Contract and Equipment, any insurance policy, whether covering casualty or physical damage to the related Equipment, or insurance for any other purpose. "Insurance Proceeds" shall mean any payments made to the Seller, Servicer or Trustee under an Insurance Policy. "Insurer Insolvency" shall have the meaning set forth in the Insurance Agreement. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Investment Account" shall mean the account designated as such for the deposit of Collections, established and maintained pursuant to Section 4.03. -10- 17 "Investment Company Act" shall mean the Investment Company Act of 1940, as amended. "Late Payment Rate" shall have the meaning specified in the Insurance Agreement. "Lease Contract" shall mean each equipment lease, note and security agreement, conditional sale agreement, loan agreement, note or other instrument listed on the Lease Schedule or otherwise assigned and transferred pursuant to each Sale Assignment or which is a Substitute Lease Contract and any amendments, riders and annexes thereto. "Lease Contract Balance" shall mean, with respect to each Lease Contract at any time of determination, an amount equal to the aggregate of all past due and unpaid Scheduled Payments and remaining Scheduled Payments to be paid on such Lease Contract in accordance with its terms, as such amount shall be reduced from time to time to give effect to any Prepayments made with respect to such Lease Contract. "Lease File" shall mean with respect to each Lease Contract, (a) the original manually executed Lease Contract that constitutes "chattel paper" for purposes of the UCC, (b) if required hereunder, file-stamped copies of UCC-1 financing statements showing the Lessee as debtor/lessee, Rockford as secured party/lessor, and the Equipment covered by the Lease Contract as collateral, which were filed in all appropriate locations in the states in which such Equipment is located, (c) a certified copy of any related master lease agreement, (d) an original certificate of acceptance (and, with respect to Lease Contracts originated on the form attached to the Equipment and Lease Purchase Agreement as Exhibit D-1, an amended certificate of acceptance in the form attached to the Equipment and Lease Purchase Agreement as Exhibit E) and delivery of the Equipment covered by the Lease Contract properly executed by the Lessee, (e) a certificate evidencing that the insurance required to be carried under the Lease Contract is in full force and effect, (f) the original Certificate of Title or Application for Certificate of Title and (g) all other instruments and documents directly relating to such Lease Contract or Equipment, including, without limitation, all other security and books, records and computer tapes related to the foregoing. "Lease Management System" shall mean the computerized electronic lease management system maintained by Servicer for the Lease Contracts. "Lease Receivables" shall mean, with respect to any Lease Contract, all of, and the right to receive all of, (i) the Scheduled Payments, (ii) any Guaranty Amounts, (iii) any Insurance Proceeds, (iv) any Residual Proceeds, (v) any Recoveries and (vi) any Liquidation Proceeds. "Lease Schedule" shall mean a Schedule of all of the Lease Contracts constituting part of the Trust Assets, and shall consist of the Schedule attached to this Agreement on the -11- 18 Closing Date and to each Sale Assignment delivered on each Subsequent Closing Date. The Lease Schedule will be in the form attached hereto as Exhibit E. "Lessee" shall mean with respect to each Lease Contract, the Person or Persons obligated to make payments with respect to such Lease Contract, including any guarantor thereof. "Letter of Credit" shall mean the letter of credit issued by the Letter of Credit Bank pursuant to the Letter of Credit Reimbursement Agreement. "Letter of Credit Bank" shall mean CoreStates Bank, N.A. (or any successor thereto satisfactory to Bond Insurer) pursuant to the Letter of Credit Reimbursement Agreement. "Letter of Credit Commitment" shall have the meaning set forth in the Letter of Credit Reimbursement Agreement. "Letter of Credit Reimbursement Agreement" shall mean the letter of credit reimbursement agreement dated as of March 27, 1997 between Letter of Credit Bank and Rockford (or any replacement therefor satisfactory to Bond Insurer). "Lien" shall mean any security interest, mortgage, deed of trust, charge, pledge, hypothecation, assignment, deposit arrangement, equity, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing. "Liquidation Expenses" shall mean with respect to a Defaulted Lease Contract, in keeping with Servicer's customary procedures and the Servicing Procedures, fees and expenses incurred by Servicer in connection with the collection, repossession (including litigation costs), refurbishing and disposition of the Equipment and other out-of-pocket costs related to the liquidation. "Liquidation Proceeds" shall mean an amount, set forth in the Monthly Statement with respect to the related Collection Period, with respect to a Defaulted Lease Contract, in keeping with Servicer's customary procedures, proceeds from the sale or other disposition of the Equipment, damages for breach of contract, and any other recoveries with respect to such Defaulted Lease Contract and the related Equipment, net of Liquidation Expenses. -12- 19 "Liquidity Facility" shall mean the liquidity facility established pursuant to that certain liquidity agreement dated as of March 27, 1997 by and among CoreStates Bank, N.A., as liquidity agent and the liquidity banks named as parties thereto. "Lockbox Account" shall mean the account designated as such, established and maintained pursuant to Section 4.02. "Lockbox Account Bank" shall have the meaning specified in Section 4.02. "Lockbox Agreement" shall have the meaning specified in Section 4.02. "Lockbox Servicer" shall have the meaning specified in Section 4.02. "Majority Certificateholders" shall mean the Holders of Class A Certificates aggregating not less than 51% of the Class A Certificate Investor Interest. "Minimum LOC Amount" shall mean, as of any date of determination, the greatest of (i) (A) if such date of determination occurs during the Funding Period, the sum of (1) 8.50% of the Class A Certificate Investor Interest and (2) all Residual Proceeds received on or prior to such date of determination, but in no event greater than 10% of the Class A Certificate Investor Interest or (B) if such date of determination occurs following the termination of the Funding Period, 8.50% of the Class A Certificate Investor Interest, (ii) the lesser of (A) 5.00% of the highest Class A Certificate Investor Interest as of any prior Closing Date and (B) $2,000,000.00 and (iii) the Aggregate Discounted Lease Contract Balance of the Lease Contracts relating to the Lessees having the three highest total Discounted Lease Contract Balances. "Monthly Statement" shall mean the statement required to be prepared by Servicer on a monthly basis pursuant to Section 3.09, substantially in the form attached hereto as Exhibit D. "Moody's" shall mean Moody's Investor Service, Inc. and any successor thereof. "Officer's Certificate" shall mean a certificate signed by any Vice President or more senior officer of Seller or Servicer (as applicable) and delivered to Trustee and Bond Insurer. "Opinion of Counsel" shall mean a written opinion of outside counsel which shall be reasonably satisfactory to Trustee and Bond Insurer in form and substance acceptable to Trustee and Bond Insurer. "Optional Purchase Amount" shall have the meaning specified in Section 11.02. -13- 20 "Other Class A Principal Amount" shall mean, with respect to any Payment Date, the amount, if any, deposited into the Class A Certificate Account on the related Deposit Date pursuant to Section 4.08(b)(xiii). On any Payment Date, the Class A Certificate Investor Interest shall be reduced to the extent of any Other Class A Principal Amount distributed to the Class A Certificateholders pursuant to Section 5.01(a)(ii). "Overdue Payments" shall mean, with respect to any Lease Contract, all amounts received during any Collection Period which represent late payments or collections of Scheduled Payments due but delinquent for a previous Collection Period and not previously received. "Paying Agent" shall mean any paying agent appointed pursuant to Section 6.07. "Payment Date" shall mean with respect to each Collection Period, the twentieth (20th) day of the calendar month following such Collection Period, or, if such day is not a Business Day, the next succeeding Business Day. "Person" shall mean any legal person, including any individual, corporation, partnership, joint venture, association, joint- stock company, trust (or beneficiary thereof), unincorporated organization, governmental entity or other entity of similar nature. "Policy" shall mean, with respect to the Class A Certificates, the financial guaranty insurance policy issued by Bond Insurer insuring the Class A Certificates in accordance with the terms thereof. "Post Office Lockbox" shall have the meaning specified in Section 4.02. "Preference Claim" shall have the meaning set forth in Section 4.10 hereof. "Prepayment" shall mean, for each Lease Contract, (a) any payment by the Lessee of a Scheduled Payment (or a portion thereof) due after the Collection Period during which such payment is made and (b) in the case of a Lease Contract repurchased by Seller pursuant to Section 7.01 of the Purchase Agreement, the payment of the Warranty Purchase Amount. "Prepayment Penalty" shall mean the greater of (i) the product of (a) the related Certificate Rate less the interpolated (based on the original weighted average life of the related Class A Certificate) Treasury Rate as of the Determination Date in the next succeeding month less 0.40% and (b) the Discounted Lease Contract Balance of the related Lease Contract and (ii) zero. "Principal Agreements" shall mean this Agreement, the Equipment and Lease Purchase Agreement, the Insurance Agreement, the Purchase Agreement, each Sale -14- 21 Assignment, the Capital Contribution Agreement, the Letter of Credit Reimbursement Agreement and the Lockbox Agreements. "Purchase Agreement" shall mean the Purchase Agreement dated as of date hereof, by and among Seller, Rockford, Trustee and Centre Square. "Purchase Amount" shall mean either the Warranty Purchase Amount or the Optional Purchase Amount, as applicable. "Rating Agencies" shall mean Moody's and Standard & Poor's. "Record Date" shall mean with respect to any Payment Date, the last day of the immediately preceding calendar month or, with respect to the Initial Payment Date, the Initial Closing Date. "Recoveries" shall mean, with respect to the period occurring after the date on which any Lease Contract becomes a Defaulted Lease Contract and with respect to such Defaulted Lease Contract, all payments that Servicer received from or on behalf of a Lessee during such period in respect of such Defaulted Lease Contract or from liquidation or re-leasing of the related Equipment, including but not limited to Liquidation Proceeds, Scheduled Payments, Overdue Payments, Guaranty Amounts, and Insurance Proceeds, as reduced by (i) any unreimbursed Servicer Advances with respect to such Lease Contract and (ii) any reasonably incurred out-of-pocket expenses incurred by Servicer in enforcing such Defaulted Lease Contract. "Repurchase Price" shall have the meaning given to such term in the Equipment and Lease Purchase Agreement. "Requirements of Law" for any Person shall mean requirements arising under any law, treaty, rule or regulation, or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local. "Requisite LOC Amount" shall mean, (i) as of any date of determination during the Funding Period, the sum of (A) 8.50% of the Class A Certificate Investor Interest and (B) all Residual Proceeds received on or prior to such date of determination, but in no event greater than 10% of the Class A Certificate Investor Interest and (ii) as of any date of determination following the termination of the Funding Period, 10.00% of the Class A Certificate Investor Interest and (iii) after the occurrence of a Trigger Event set forth in clause (1) of the definition thereof, 20% of the Class A Certificate Investor Interest; but in no event less than the Minimum LOC Amount. -15- 22 "Residual Proceeds" shall mean, with respect to a Lease Contract that is not a Defaulted Lease Contract and the related Equipment, the net proceeds (including Insurance Proceeds) of any sale, re-lease (including any lease renewal) or other disposition of the related Equipment after receipt of all Scheduled Payments. "Responsible Officer" shall mean any officer of Trustee assigned to and working in Trustee's Corporate Trust Department. "Rockford" shall mean Rockford Industries, Inc., a California corporation. "Sale Assignment" shall have the meaning ascribed to such term in the Purchase Agreement. "Scheduled Expiration Date" shall mean with respect to each Lease Contract the date on which such Lease Contract is scheduled to expire by its terms. "Scheduled Payment" shall mean, with respect to each Lease Contract, each regularly scheduled rental payment (or installment of principal and interest) and any fixed residual payments required to be made by the Lessee under the terms of such Lease Contract. Such term shall not include any Security Deposit, any payment in respect of Tax Amounts, any payment in respect of the placement, maintenance or service of insurance under the terms of the Lease Contract or any amounts due to a third party. "Securities Act" shall mean the Securities Act of 1933, as amended. "Security Deposit" shall mean all security deposit amounts, certificates of deposit and similar credit supports in respect of the Lease Contracts transferred to Trustee from time to time or, if physical possession of the same is not transferred to Trustee, all right, title and interest in respect of the same transferred by Rockford to Seller. "Seller" shall mean Rockford Lease Funding Corp., a New York corporation. "Seller Amounts" shall mean the amounts described as such in Sections 4.05(h) and 4.08(b)(xv) hereof. "Seller Certificate" shall mean the certificate authenticated by Trustee and substantially in the form attached hereto as Exhibit C. "Servicer" shall mean initially Rockford, and thereafter any Person appointed as Successor Servicer pursuant to the terms of this Agreement. "Servicer Advance" shall mean an advance of Scheduled Payments made by the Servicer pursuant to Section 3.03. -16- 23 "Servicer Default" shall have the meaning specified in Section 9.01. "Servicing Fee" shall mean an amount, for each Deposit Date, equal to one-twelfth (1/12th) of 0.50% of the aggregate of the Certificate Balances of all outstanding Certificates as of the first day of the Collection Period immediately preceding such Deposit Date. "Servicing Officer" shall mean any representative of Servicer involved in, or responsible for, the administration and servicing of the Lease Contracts whose name appears on a list of servicing officers furnished to Trustee and Bond Insurer by Servicer, as such list may from time to time be amended. "Servicing Procedures" shall mean the servicing procedures of the Servicer set forth on Schedule 3.01(b) hereto. "Standard & Poor's" shall mean Standard and Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereof. "Stated Maturity" shall mean the Payment Date in the Collection Period which is six months following the Collection Period in which the final Scheduled Payment is due with respect to the Lease Contract funded prior to the end of the Funding Period with the longest original term. "Subsequent Closing Date" shall mean each date upon which Seller shall transfer, assign, set over and otherwise convey Lease Contracts to the Trust as contemplated by Section 2.01(c). "Substitute Lease Contract" shall mean any Lease Contract substituted pursuant to Section 2.03. "Substitution Criteria" shall be satisfied with respect to any Substitute Lease Contract if such Substitute Lease Contract shall (i) be an Eligible Lease Contract; (ii) be with respect to types of Equipment and type of Leases represented in the pool of Lease Contracts previously pledged to the Trustee pursuant to this Agreement; (iii) be with a Lessee whose credit is equal to or better than that of the Lessee under the withdrawn Lease Contract; (iv) be accompanied by a supplement to this Agreement substantially in the form of Exhibit H hereto subjecting such Lease Contract to the provisions hereof and providing with respect to such Substitute Lease Contract the information required in the Lease Schedule; (v) not have been selected using procedures that identified the Lease Contracts as being less desirable or valuable than other comparable equipment leases owned by Rockford; (vi) have a Discounted Lease Contract Balance at least equal to the Discounted Lease Contract Balance of the Lease Contract being withdrawn; and (vii) have a remaining term that is not later than the remaining term of the Lease Contract being withdrawn. -17- 24 "Successor Servicer" shall have the meaning specified in Section 9.02. "Tangible Net Worth Requirement" shall mean the requirement that with respect to Servicer: (a) the total assets of Servicer and its Affiliates which would be shown as assets on a consolidated balance sheet of Servicer and its Affiliates as of such time prepared in accordance with generally accepted accounting principles consistently applied after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of the Affiliates, minus (b) the total liabilities of Servicer and its Affiliates which would be shown as liabilities on a consolidated balance sheet of Servicer and its Affiliates as of such time prepared in accordance with generally accepted accounting principles consistently applied, minus (c) the net book value of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under generally accepted accounting principles consistently applied including, without limitation, good will, trademarks, trade names, service marks, brand names, copyrights, patents, and unamortized debt discount and expense, organizational expenses and the excess of the equity in any Affiliate over the cost of the investment in such Affiliate, minus (d) the amount of any debt obligations to Servicer or any of its Affiliates by any shareholder, officer or director of Servicer or any such Affiliate, is equal to at least the sum of (i) (A) when determining whether a Trigger Event has occurred, $11,800,000 and (B) on any other date of determination, $12,250,000 and (ii) 75% of the cumulative after tax net income since December 31, 1995 of Servicer and its Affiliates. "Tax Amounts" shall have the meaning specified in Section 3.02. "Termination Notice" shall have the meaning specified in Section 9.01. "Transfer Agent and Registrar" shall have the meaning specified in Section 6.03 and shall initially be Trustee's Corporate Trust Office. "Transition Cost" shall mean any reasonable, out-of-pocket, documented expenses and allocated cost of personnel reasonably incurred by a Successor Servicer or Trustee or Bond Insurer in connection with a transfer of servicing from the Servicer to a Successor Servicer as Successor Servicer pursuant to Section 9.02, but not to exceed $50,000.00 in the aggregate. -18- 25 "Trigger Event" shall mean any of the following events (unless waived by Bond Insurer in its sole discretion): (1) for any three consecutive Collection Periods, the average of the Annualized Default Rates for such consecutive Collection Periods shall be equal to or greater than 6.5%; (2) for any three consecutive Collection Periods, the average of the Delinquency Rates shall be equal to or greater than 7.0%; (3) the Tangible Net Worth Requirement is not met; (4) there is a Servicer Default; (5) if either (A) Gerry Ricco or (B) Larry Hartman and Brian Seigel are no longer officers of Rockford or become incapable of working for a period of six (6) months or more; or (6) Bond Insurer makes a payment to Trustee under the Policy; provided, however, that if Rockford or Servicer shall merge, consolidate or effect any other corporate structural change, including without limitation any transfer of a majority of the Servicer's voting securities, Bond Insurer shall have the right, in its sole discretion, to modify the definition of Trigger Event. "Trust" shall mean the trust created by this Agreement, the corpus of which shall consist of the Trust Assets and which shall be known as the "Rockford Lease Backed Trust 1997-1." "Trust Assets" shall mean all Lease Contracts and all other assets, property, interests and rights described in Sections 2.01(c) and (d) as being transferred, assigned, set-over and otherwise conveyed or granted to Trustee for the benefit of the Trust, Bond Insurer and Certificateholders, and the security interests granted to Trustee in respect of the Equipment and other Trust Assets and the Letter of Credit, and all proceeds and income of the foregoing or relating thereto including, without limitation, funds from time to time deposited in the Accounts. "Trust Termination Date" shall mean the earlier to occur of (a) the date on which all Trust Assets have been distributed pursuant to this Agreement, and (b) the day after the date on which the Class A Certificate Investor Interest is first reduced to zero and Bond Insurer has received all amounts owed to it hereunder and under the Insurance Agreement. "Trustee" shall mean the institution executing this Agreement as Trustee or any successor trustee appointed as herein provided. "Trustee Fee" shall mean an amount, for each Payment Date, equal to one-twelfth (1/12th) of 0.0125% of the aggregate of the Certificate Balances of all outstanding Certificates as of the first day of the Collection Period immediately preceding such Payment Date. "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in the relevant jurisdiction. -19- 26 "Vehicle" shall mean a commercial motor vehicle which is the subject of a Lease Contract, including the types of equipment described in Exhibit K to the Purchase Agreement under Asset Codes 35 and 51. "Warranty Purchase Amount" shall mean, for each Lease Contract required to be repurchased by Seller pursuant to Section 7.01 of the Purchase Agreement, the amount required to be paid by Seller for such Lease Contract pursuant to such Section 7.01. Section 1.02 Other Definitional Provisions. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.01, and accounting terms partly defined in Section 1.01 to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles, as applicable, as in effect on the date hereof. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained herein shall control. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (d) With respect to any Collection Period, the "related Determination Date," the "related Record Date," the "related Payment Date," and the "related Deposit Date" shall mean the Determination Date, Record Date, Payment Date and Deposit Date, respectively, next following the end of such Collection Period, and the relationships among Determination Dates, Deposit Dates, Payment Dates and Record Dates shall be correlative to the foregoing relationships. (e) Reference to any agreement shall mean such agreement as it is amended or supplemented from time to time. (f) Reference to any party shall mean that party, its successors and assigns permitted by the terms of this Agreement. -20- 27 ARTICLE II ESTABLISHMENT OF TRUST; CONVEYANCE OF TRUST ASSETS; TITLE AND PRESERVATION OF SECURITY INTERESTS Section 2.01 Establishment of Trust; Initial and Subsequent Closings; Conveyance of Trust Assets. (a) Seller hereby appoints Trustee as trustee of the Trust effective as of the Initial Closing Date, and Trustee hereby acknowledges and accepts such appointment. The Trust shall be administered pursuant to the provisions of this Agreement for the benefit of the Certificateholders and Bond Insurer. Trustee is hereby specifically empowered to conduct any business dealings with Seller and Servicer on behalf of the Trust and Bond Insurer in accordance with the terms of this Agreement, and shall have all the rights, powers and duties of Trustee set forth in this Agreement. The parties hereto intend that the Trust constitute a trust under the laws of the State of New York. (b) [Intentionally Omitted] (c) Effective as of each Closing Date, Seller shall have transferred, assigned, set over and otherwise conveyed pursuant to a Sale Assignment to Trustee for the benefit of the Trust, Bond Insurer and the Certificateholders all right, title and interest of Seller (but none of the obligations), whether then existing or thereafter acquired, in, to and under (i) each Lease Contract and any and all moneys of whatsoever nature (payable upon the occurrence of any event) payable pursuant to each Lease Contract on and after the applicable Cut-Off Date, including (without limitation) each Scheduled Payment, any early termination, any guaranties, stipulated loss casualty value or any past due interest and late charges, and damages and other amounts receivable in connection with the default by the Lessee, (ii) all rights, powers and remedies of Seller under or in connection with each Lease Contract, whether arising under the terms of such Lease Contract, by statute, at law or in equity, or otherwise arising out of any default by the Lessee under such Lease Contract, including (without limitation) all rights to give or receive any notice, consent, approval or waiver thereunder, (iii) all rights, powers and remedies of Seller under the Equipment and Lease Purchase Agreement, (iv) all Security Deposits in respect of each Lease Contract provided by or on behalf of the Lessee thereunder, (v) the Lease Files relating to the Lease Contracts and the contents thereof, (vi) any Insurance Policy or Insurance Proceeds with respect to such Lease Contracts and (vii) to the extent that the same then or thereafter exist, all proceeds, products, rents and profits of the foregoing of any nature whatsoever, including (without limitation) all proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof. As used in this Section 2.01(c), the term "Lease Contracts" shall be deemed to refer to the Lease Contracts covered by the Sale Assignment delivered by Seller in connection with the closing on such Subsequent Closing Date. The foregoing transfer, sale, assignment and conveyance shall not constitute and is not intended to result (and shall not result) in the creation, or an assumption by Trustee, the Trust, Bond Insurer or any Certificateholder, of any obligation of Seller or any other Person in connection with the Lease -21- 28 Contracts or under any agreement or instrument relating thereto, including any obligation to any Lessee under the Lease Contracts. (d) To secure the performance of Seller's obligations hereunder and to secure the payment of all amounts owed from time to time under the Certificates, pursuant to each Sale Assignment Seller shall assign and grant to Trustee for the benefit of the Trust, the Certificateholders and Bond Insurer liens and perfected security interests in (i) all right, title and interest of Seller (whether in the nature of an ownership interest, lien or security interest, or otherwise) in and to each item of Equipment subject to each Lease Contract including, without limitation, all additions, alterations, accessions or modifications thereto or replacements of any part thereof, and all intangibles and other rights associated with the Equipment including, without limitation, any licenses to use or own the Equipment and any manufacturer's or other warranties with respect to the Equipment; provided, however, that the security interest so granted in Equipment having an original value of not more than $50,000 need not be perfected, (ii) to the extent not comprising a part of the Lease Files, any material agreements to which Seller is a party, as assignee or otherwise, relating to such Lease Contracts or Equipment, such as bills of sale, Lessee consents to the sale of the Lease Contracts to Seller, in each case as the same may be modified, amended, supplemented or restated from time to time, (iii) all documents of title, books and records concerning the foregoing property (including, without limitation, all computer programs, tapes, disks and related items containing any such information), and (iv) to the extent the same now or hereafter exist, all proceeds of the foregoing of any nature whatsoever, including (without limitation) all proceeds of sale, proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof. (e) In connection with each transfer of Lease Contracts to Trustee, the parties hereto hereby acknowledge and agree that the Lease Files relating to such Lease Contracts will be delivered to Trustee on or prior to the related Closing Date. (f) In connection with each transfer of Lease Contracts to Trustee, Servicer agrees, at its own expense, to indicate in the Lease Management System that such Lease Contracts have been transferred to the Trust pursuant to this Agreement for the benefit of the Certificateholders and Bond Insurer. In the case of Lease Contracts funded by the initial Certificates which have been prepaid in full after the Initial Cut-Off Date and prior to the Initial Closing Date, Seller shall, on the Initial Closing Date, deposit the Warranty Purchase Amount in the Investment Account in lieu of delivering the documents specified in the preceding sentence to Trustee. (g) Except as otherwise provided in Section 12.14 hereof with respect to tax treatment only, the parties hereto acknowledge that each transfer of Trust Assets (other than the Equipment) to the Trust is intended to be a sale and not a loan and a grant or assignment of a valid first priority perfected security interest in the Equipment (except, with respect to perfection, as set forth in the proviso in Section 2.01(d)), free and clear of all Liens, from the Seller to the Trust and that the Trust Assets not be part of the estate of Seller in the event of an insolvency or bankruptcy of Seller. However, in the event the transfer of the Trust Assets is deemed to be a secured financing, Seller -22- 29 shall be deemed hereunder to have granted to Trustee and does hereby grant to Trustee for the benefit of the Certificateholders and Bond Insurer and to secure payment of all amounts payable under the Certificates, a lien and valid first priority perfected security interest in all of its right, title and interest in and to the Trust Assets (except, with respect to perfection, as set forth in the proviso in Section 2.01(d)), whether now owned or hereafter acquired. For purposes of such grant, this Agreement shall constitute a security agreement and pledge agreement under applicable law with respect to the Trust Assets. With respect to the filing of any UCC financing statements which may be made in connection with any assignment and transfer herein contemplated, such filing shall in no way be construed as being contrary to the intent of the parties that this transaction be treated as a sale to the Trust of all of Seller's right, title and interest in and to the Trust Assets. (h) Subject to the satisfaction of the conditions set forth in the Purchase Agreement, on each Subsequent Closing Date and pursuant to the written order of Seller (in its individual capacity), Trustee shall cause Certificates in an amount evidencing the aggregate principal balance of the Certificates to be issued on such Subsequent Closing Date to be duly authenticated and delivered to Seller or Seller's designee. (i) Trustee shall not be responsible for the value, form, substance, validity, perfection, priority, effectiveness or enforceability of any of the documents in the Lease Files or for or with respect to the efficacy of the Trust or its ability to generate the payments to be distributed to the Certificateholders, Seller or Servicer under this Agreement. To the extent not theretofore accomplished, Servicer agrees on or before each Closing Date (or promptly after the Closing Date in the case of filings which are permitted to be made after the Closing Date under the terms of the Purchase Agreement) (i) to record and file, at its own expense, financing statements (and, subsequently as required, continuation statements with respect to such financing statements) with respect to the Trust Assets 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 of the Trust Assets to the Trust; and (ii) to deliver a certificate with respect to the filing of such financing statements to Trustee, Bond Insurer and Centre Square. Section 2.02 Acceptance by Trustee. (a) Trustee hereby acknowledges its acceptance on behalf of the Trust of the right, title and interest in and to the Trust Assets described in Sections 2.01(c) and (d), and declares that it shall maintain such right, title and interest, upon the trust herein set forth, for the benefit of all Certificateholders and Bond Insurer. (b) Trustee hereby agrees not to disclose to any Person any of the information contained in the Lease Schedule except as is required under applicable law or in connection with the performance of its duties hereunder or in enforcing the rights of the Certificateholders or Bond Insurer or to a Successor Servicer appointed pursuant to Section 9.02. Trustee agrees to take such measures as shall be reasonably requested by Seller to protect and maintain the security and confidentiality of such information, and, in connection therewith, shall allow Seller to inspect -23- 30 Trustee's security and confidentiality arrangements from time to time upon prior notice during normal business hours. Unless otherwise required by applicable law, Trustee shall provide Seller with written notice 15 Business Days prior to any disclosure pursuant to this Section 2.02(b). (c) Trustee shall have no power to create, assume or incur Debt or other liabilities in the name of the Trust or incur or suffer to exist any Lien upon the Trust Assets other than as contemplated in this Agreement. Section 2.03 Lease Receivables; Repurchase; Substitution. (a) If at any time Seller, Bond Insurer or Trustee obtains knowledge, discovers or is notified by Servicer that any of the representations and warranties of Rockford in the Equipment and Lease Purchase Agreement were incorrect at the time as of which such representations and warranties were made, then the Person discovering such defect, omission, or circumstances shall promptly notify Bond Insurer and other parties to this Agreement. (b) In the event that any representation or warranty of Rockford in Section 3.02 of the Equipment and Lease Purchase Agreement is incorrect and materially and adversely affects the interests of the Bond Insurer or the Certificateholders, then Seller shall require Rockford pursuant to the Equipment and Lease Purchase Agreement to eliminate or otherwise cure the circumstance or condition which has caused such representation or warranty to be incorrect, within 30 days (or such longer period as Trustee and Bond Insurer may in their discretion consent to) after the discovery thereof by or notice thereof to Rockford. If Rockford fails or is unable to cure such circumstances or condition within such cure period, then on or before the next succeeding Determination Date after the expiration of such cure period, Seller shall require Rockford to either (i) purchase each Lease Contract and the related Equipment as to which such representation or warranty is incorrect, or (ii) substitute for such Lease Contract and the related Equipment a Substitute Lease Contract and all related Equipment, in each case in accordance with the terms and conditions of the Equipment and Lease Purchase Agreement; provided, however, that each Substitute Lease Contract shall meet the Substitution Criteria and shall be subject to the requirements of Section 2.03(e) hereof. The proceeds of any such repurchase shall be remitted by Rockford or Seller to Servicer for deposit by Servicer in the Investment Account no later than 3:00 p.m. New York time on the related Determination Date. (c) If Seller fails to enforce the purchase or substitution obligation of Rockford under the Equipment and Lease Purchase Agreement, Trustee is hereby appointed attorney-in-fact to act on behalf of and in the name of Seller to require such purchase or substitution. (d) With respect to any Lease Contract to be prepaid or terminated early, Seller shall be entitled either to purchase such Lease Contract and the related Equipment for the Repurchase Price which Seller shall deposit in the Investment Account on or before 3:00 p.m. New York time on the next succeeding Determination Date or to deliver a Substitute Lease Contract therefor meeting the Substitution Criteria; provided, however, that the cumulative Discounted Lease Contract Balance -24- 31 of such prepaid or early-terminated Lease Contracts which are substituted by Seller (measured as of the date of substitution) shall not exceed 5% of the Aggregate Discounted Lease Contract Balance (measured as of the date of substitution); provided, further, that with respect to prepaid or early-terminated Lease Contracts in excess of such 5% limit, Seller shall cause to be deposited into the Investment Account, on or before 3:00 p.m. New York time on the related Determination Date, the related Prepayment Penalty. (e) Seller shall provide to Trustee on the date of delivery of any Substitute Lease Contract submitted by Seller under Section 2.03(b)(ii) or Section 2.03(d) hereof the items listed in (i) and (ii) below, and to Bond Insurer the item listed in (i) below, and Seller shall provide to Trustee and Bond Insurer at the end of each calendar quarter (or, with respect to each Substitute Lease Contract substituted hereunder by Seller on or after the fifteenth day of the last month of such calendar quarter, within fifteen (15) days after the date of such substitution) the items listed in (iii) below with respect to any Substitute Lease Contracts substituted during such period; (i) a supplement to the Equipment and Lease Purchase Agreement and this Agreement substantially in the form of Exhibit "B" to the Equipment and Lease Purchase Agreement and Exhibit "H" hereto, subjecting such Substitute Lease Contract and the related Equipment to the provisions hereof and thereof, and providing with respect to such Substitute Lease Contract and related Equipment the information set forth in the Lease Schedule; (ii) the original executed counterpart of the Lease Contract relating to such Substitute Lease Contract and the related Lease File, including the Original Certificate of Title, if applicable; and (iii) evidence that financing statements have been filed with respect to such Substitute Lease Contract in accordance with the Equipment and Lease Purchase Agreement. (f) If Seller fails to deliver to Trustee a Certificate of Title for a Vehicle within ninety (90) days of the related Closing Date, Seller shall repurchase the related Lease Contract by payment of the Warranty Purchase Amount to Trustee for deposit into the Investment Account no later than 3:00 p.m. New York time on the related Determination Date. Section 2.04. Releases. (a) Seller shall be entitled to obtain a release from the lien of this Agreement for any Lease Contract and the related Equipment at any time: (i) after a payment by Rockford of the Purchase Amount of the Lease Contract; (ii) after a Substitute Lease Contract is substituted for such Lease Contract, in accordance with Section 2.03(b)(ii) or Section 2.03(d) and Section 2.03(e) hereof; or (iii) upon the termination of a Lease Contract following the sale, lease or other disposition of the related Equipment; provided that, in each case, Seller first delivers to Trustee and -25- 32 Bond Insurer an Officer's Certificate (A) identifying the Lease Receivable and the related Lease Contract and Equipment to be released, (B) requesting the release thereof, (C) certifying that the requirements of Section 2.03(b)(ii) or Section 2.03(d), as the case may be, and Section 2.03(e) hereof have been satisfied, in the event such Lease Contract and Equipment are being transferred and assigned the pursuant to clause (ii) hereof, (D) setting forth the amount deposited in the Investment Account with respect thereto, in the event a Lease Contract and the related Equipment are being released from the lien of this Agreement pursuant to clause (i) and (iii) hereof, and (E) certifying that the amount deposited in the Investment Account with respect to such Lease Contract equals (1) the Purchase Amount of the Lease Contract, in the event the release of such Lease Contract and related Equipment pursuant to clause (i) hereof, or (2) equals the entire amount of Recoveries or Residual Proceeds received with respect to such Lease Contract and related Equipment, in the event of a release from the lien of this Agreement pursuant to clause (iii) hereof; provided, however, that upon the termination of any Lease Contract, any Residual Proceeds from the related Equipment shall be placed in the Investment Account prior to Trustee or Seller releasing such Equipment from the security interest granted to the Trustee by Seller pursuant to this Agreement and prior to Seller transferring and assigning such Lease Contract and related Equipment to Rockford pursuant to the Equipment and Lease Purchase Agreement. (b) Upon satisfaction of the conditions specified in subsection (a) above, Trustee shall release from the lien of this Agreement and deliver to or upon the order of Seller the Lease Contract, the Lease Receivable and the Equipment described in Rockford's request for release. ARTICLE III ADMINISTRATION AND SERVICING OF LEASES AND EQUIPMENT Section 3.01 Acceptance of Appointment; Duties of Servicer. (a) Rockford is hereby appointed as Servicer of the Lease Contracts and Equipment. Rockford hereby accepts such appointment and agrees to act as Servicer under this Agreement, for the benefit of the Trust, Bond Insurer and the Certificateholders, and the Certificateholders by their acceptance of the Certificates consent to Rockford's acting as Servicer. Servicer shall service, administer and enforce the Lease Contracts as Servicer and shall have full power and authority to do any and all things in connection with such servicing and administration which it may deem reasonably necessary or desirable in a manner consistent with the other terms of this Agreement. (b) Servicer shall manage, service, administer and make collections on the Lease Contracts using that degree of skill, attention and care consistent with the highest degree of skill and care that Servicer exercises with respect to all comparable equipment leases that it services for itself or others and otherwise in accordance with the Servicing Procedures, accepted practices of prudent lending institutions and applicable law (giving due consideration to Trustee's, Bond -26- 33 Insurer's and Certificateholder's reliance on Servicer). Servicer's duties shall include collection and posting of all payments, responding to inquiries of Lessees, investigating delinquencies, accounting for collections and furnishing monthly and annual statements to Trustee and Bond Insurer with respect to collections and distributions, directing Trustee as to investment of funds in the Accounts and deposits to the Accounts as set forth in this Agreement, and using commercially reasonable best efforts to maintain Trustee's title to or security interest in the Lease Contracts and the Equipment. Servicer 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 reasonably necessary or desirable. If Servicer commences a legal proceeding to enforce a Defaulted Lease Contract pursuant to Section 3.04 or commences or participates in a legal proceeding (including, without limitation, a bankruptcy proceeding) relating to or involving a Lease Contract or Defaulted Lease Contract, Trustee shall thereupon be deemed to have automatically assigned such Lease Contract to Servicer for purposes of commencing or participating in any such proceeding as a party or claimant, and Servicer is authorized and empowered by Trustee, pursuant to this Section 3.01(b), to execute and deliver, on behalf of itself, the Trust, the Certificateholders and/or the Trustee, or any of them, any and all instruments of satisfaction or cancellation, or partial or full release or discharge, and all other notices, demands, claims, complaints, responses, affidavits or other documents or instruments in connection with any such proceedings. Trustee shall furnish Servicer with any executed certificates of title, powers of attorney and other documents reasonably necessary or appropriate to enable Servicer to carry out its servicing and administrative duties under this Agreement. If in any enforcement suit or legal proceeding it shall be held that Servicer may not enforce a Lease Contract on the grounds that it shall not be a real party in interest or a holder entitled to enforce such Lease Contract, Trustee shall, at the Servicer's expense and direction, take steps to enforce such Lease Contract, including bringing suit in its name or the name of the Certificateholders. Without limiting the foregoing, in connection with the Lease Contracts, Servicer shall implement the Servicing Procedures. (c) At the request of a Lessee, Servicer may in its reasonable discretion consent to the assignment or sublease of a unit of Equipment under a Lease Contract provided that such Lessee will remain primarily liable for all obligations under such Lease Contract; provided, however, that the cumulative Discounted Lease Contract Balance of the Lease Contracts with respect to which Servicer grants such consent shall not exceed 5% of the Initial Aggregate Certificate Principal Balance. (d) Upon the expiration or termination of a Lease Contract, and subject to any purchase provisions thereof and the rights of the Lessee, Servicer shall use commercially reasonable best efforts to sell or remarket the Equipment under such Lease Contract on behalf of Seller to any willing purchaser. Proceeds realized in connection with each such sale or remarketing shall be deposited in the Investment Account. Seller hereby appoints Servicer as its attorney in fact for the purpose of selling or remarketing any such Equipment, and Servicer shall have the right and authority, as attorney in fact for Seller, to do any and all things and to execute and deliver any and all instruments on behalf of Seller that Seller could do or execute and deliver directly. The foregoing power of attorney shall be irrevocable and is hereby declared to be coupled with an -27- 34 interest. Seller agrees to execute any and all powers of attorney and other instruments reasonably necessary or convenient to evidence or give effect to the foregoing power of attorney. (e) If within 30 days following a Lease Contract becoming a Defaulted Lease Contract, the Equipment covered by such Lease Contract has not been sold or remarketed and the sales proceeds realized from the sale or remarketing of such Equipment have not been deposited into the Investment Account, then the Trust's security interest in such Equipment may be foreclosed upon and following such foreclosure the provisions of Section 3.04 shall apply. (f) Servicer shall have the responsibility for approving amendments or supplements to Lease Contracts, acting commercially reasonably and in accordance with the Servicing Procedures; provided, however, that any such amendment or supplement shall not materially and adversely affect the interests of the Certificateholders or Bond Insurer. Servicer shall not consent to any amendment which (a) would reduce or forgive any Scheduled Payments, defer the payment of any principal or interest or any Scheduled Payment, reduce the Discounted Lease Contract Balance or extend the term thereof in any manner that would prevent the complete amortization of the Discounted Lease Contract Balance from occurring by six (6) months prior to Stated Maturity, or (b) would result in such Lease Contract, as amended or supplemented, no longer being an Eligible Lease Contract. All payments received under a Lease Contract whose term has been so amended past its scheduled expiration date shall be deposited in the Investment Account. Servicer shall provide Bank-up Servicer, Bond Insurer and Trustee with an amendment to the Lease Schedule reflecting any modifications of any Scheduled Payment. (g) Without limiting the generality of the other provisions of this Agreement which provide that all Lease Files will be delivered to and held by Trustee (except for any Lease Files temporarily made available to Servicer under Section 3.07(b)) and that all Collections will be deposited directly by Servicer to the Lockbox Account not less frequently than twice weekly, on each Tuesday and Thursday, Servicer shall keep separate any Lease Files or Collections received by it until the same are delivered to Trustee or deposited in the Investment Account and shall not commingle such Lease Files or Collections with the files, collections or other assets of Servicer, Seller, or any other Person. Section 3.02 Collection of Payments. (a) Servicer shall use commercially reasonable best efforts to collect all payments called for under the terms and provisions of the Lease Contracts as and when the same shall become due. To the extent any such Collections are received by Servicer outside of the Lockbox Account, such Collections shall be deposited by Servicer in the Investment Account within two Business Days of receipt. Servicer may in its discretion waive any late payment charge or any other similar interest that may be owed in connection with a Lease Contract if Servicer believes in good faith that the cost of pursuing the collection of such charge or interest would outweigh the benefit of such charge or interest. -28- 35 (b) Servicer may permit the prepayment in full of any Lease Contract without the consent of Trustee, provided that all of the following conditions are satisfied: (i) such prepayment is in accordance with the Servicing Procedures and Servicer's usual and customary practices and procedures for prepayments; (ii) the amount of such prepayment is not less than the sum of (x) any past due Scheduled Payments under the Lease Contract and other payments that are past due under the Lease Contract and (y) the Warranty Purchase Amount. All amounts received with respect to all prepayments permitted under this Section 3.02(b) shall be deposited in the Investment Account. (c) Servicer shall use commercially reasonable best efforts to collect all payments with respect to amounts due for sales, use and property taxes and similar taxes or assessments on the Equipment, the Lease Contracts or the rentals or other payments due thereunder ("Tax Amounts") and shall remit such Tax Amounts to the appropriate Governmental Authorities on or prior to the date such payments are due. Tax Amounts may be retained by Servicer for purposes of paying such amounts to the appropriate Governmental Authorities, and in the event any Tax Amount is paid by a Lessee and deposited in the Lockbox Account or Investment Account during any Collection Period, Servicer will instruct Trustee in writing to withdraw such Tax Amount from the Investment Account and pay such Tax Amount on the next Payment Date to Servicer who will then promptly pay such Tax Amount to the applicable Governmental Authorities. Section 3.03 Servicer Advances. If on any Determination Date Servicer determines that any Scheduled Payments due on a Lease Contract in the related Collection Period have not been received prior to such Determination Date, Servicer, to the extent that it determines, in its reasonable discretion, that it can recoup advances of Scheduled Payments from subsequent collections under such Lease Contract, will make a Servicer Advance up to an amount equal to the amount of such delinquent Scheduled Payments not received by the Determination Date. If Servicer determines not to make a Servicer Advance pursuant to the preceding sentence, the related Lease Contract shall be deemed to be a Defaulted Lease Contract. Servicer shall deposit any Servicer Advances into the Investment Account on or prior to 3:00 p.m. New York time on the Determination Date in same day funds. Servicer shall be entitled to be reimbursed for Servicer Advances by subsequent payments by or on behalf of the Lessee under such Lease Contract; provided, Servicer shall not be reimbursed for any Servicer Advance made in respect of a Defaulted Lease Contract after it becomes a Defaulted Lease Contract. Section 3.04 Realization Upon Defaulted Lease Contracts. Servicer shall use commercially reasonable best efforts to repossess or otherwise comparably convert the ownership of any Equipment that it has reasonably determined should be repossessed or otherwise converted following a Lease Contract being classified as a Defaulted Lease Contract. Servicer shall act as remarketing sales and processing agent for Equipment that is so repossessed. Servicer shall follow such practices and procedures as it shall deem reasonably necessary or advisable and consistent with the standard of care set forth in Section 3.01(b), which may include reasonable efforts to enforce the recourse obligations of Lessees and repossessing and selling the Equipment at public or private sale. The foregoing is subject to the provision that, in any case in which the Equipment shall have suffered damage, Servicer shall not expend funds in connection with any repair or -29- 36 towards the repossession of such Equipment unless it shall determine in its reasonable discretion that such repair and/or repossession will increase the Liquidation Proceeds by an amount greater than the amount of such expenses. Servicer shall remit to the Investment Account all Liquidation Proceeds received in connection with the sale or disposition of a Defaulted Lease Contract. Section 3.05 Security Deposits. Servicer shall maintain the Security Deposits on behalf of Trustee, Bond Insurer and the Certificateholders. If at the expiration of a Lease Contract Servicer in its reasonable judgment determines that all or any part of a Security Deposit relating to such Lease Contract should be returned to the Lessee thereunder, such return shall be accomplished. Any Security Deposits or portions thereof which Servicer reasonably determines should not be returned to a Lessee under a Lease Contract at the termination thereof shall be duly endorsed (where applicable) and deposited in the Investment Account. Section 3.06 Representations and Warranties of Servicer. Servicer hereby represents and warrants to the Trust, Trustee, Bond Insurer and each Certificateholder that: (a) Organization and Good Standing. Servicer is a corporation duly organized, validly existing and in good standing under the laws of the State of California, with power and authority to own its properties and to conduct its business as presently conducted. (b) Due Qualification. Servicer is qualified to do business as a foreign corporation and is in good standing and has obtained all necessary licenses and approvals in all states in which the ownership or lease of property or the conduct of its business requires such qualification, except to the extent that the failure to so qualify or obtain such licenses and approvals would not, in the aggregate, materially adversely affect the ability of Servicer to perform its obligations under this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement. (c) Power and Authority. Servicer has the corporate power and authority and legal right (including all requisite approvals, licenses and permits) to execute and deliver this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement and the Equipment and Lease Purchase Agreement and to carry out their respective terms; and the execution, delivery and performance of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement and the Equipment and Lease Purchase Agreement has been duly authorized by Servicer by all necessary corporate action. (d) No Violation. The consummation of the transactions contemplated by and the fulfillment of the terms of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement and the Equipment and Lease Purchase Agreement will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, or require any consent or approval under (as applicable) the certificate of incorporation or bylaws of Servicer or any indenture, agreement, mortgage, deed of trust or other instrument to which Servicer is a party or by which it is bound, or -30- 37 result in the creation or imposition of any material Lien upon any of its material properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument or violate any law or any order, rule or regulation applicable to Servicer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over Servicer or any of its properties which would have a material adverse effect on the ability of Servicer to comply with the terms of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement. (e) No Consent. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any Governmental Authority having jurisdiction over Servicer or any of its properties or assets is required to be obtained by or with respect to Servicer in connection with the execution, delivery and performance by Servicer of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement and the consummation of the transactions contemplated hereby or thereby. (f) Binding Obligation. Each of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement and the Equipment and Lease Purchase Agreement has been duly and validly authorized, executed and delivered by Servicer and each constitutes a valid and legally binding obligation of Servicer, enforceable against Servicer in accordance with its terms as such enforceability is subject to bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally and the availability of equitable remedies. (g) No Proceedings. There are no proceedings or investigations pending, or, to the knowledge of Servicer, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement and the Equipment and Lease Purchase Agreement or (iii) seeking any determination or ruling that might materially and adversely affect the performance by Servicer of its obligations under, or the validity or enforceability, of this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement. (h) Principal Place of Business. Servicer's principal place of business and chief executive office is in the State of California, County of Orange. (i) Course of Business. The servicing of the Lease Contracts as contemplated by this Agreement is in the ordinary course of business of Servicer. -31- 38 (j) Financial Statements. The December 31, 1996 audited financial statements of Servicer heretofore furnished to Centre Square and Bond Insurer are complete and correct and fairly present the financial condition of Servicer and the results of its operations as of the said date or dates and for the period or periods stated, all in accordance with generally accepted accounting principles and practices applied on a consistent basis. (k) Liabilities. Servicer did not have, on December 31, 1996, any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated lawsuits from any unfavorable commitments except as referred to or reflected or provided for in such financial statements as of said date. Since December 31, 1996, there has been no change or event which has had or will have a material adverse effect on the assets, liabilities, financial condition, business or operations of Servicer or the ability of Servicer to perform its obligations under this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement. (l) Information. Without limiting or qualifying any of the preceding representations or warranties of Servicer, all written information heretofore furnished by or made available to Centre Square and Bond Insurer by Servicer for purposes of or in connection with this Agreement, the Purchase Agreement, the Insurance Agreement, the Letter of Credit Reimbursement Agreement or the Equipment and Lease Purchase Agreement was true and correct in all material respects on the date which such information was stated or certified and remains true and correct in all material respects as of the Closing Date, and as of each such date, such information did not omit to state a material fact necessary to make such information not misleading. Section 3.07 Covenants of Servicer. Servicer hereby covenants that: (a) Computer Files. Servicer will, at its own cost and expense, (i) retain the Lease Management System as a master record of the Lease Contracts and (ii) mark the Lease Management System and other physical records of the Lease Contracts to the effect that as to the Lease Contracts and related Equipment listed thereon Seller has sold and assigned all of its right, title and interest therein to the Trust. (b) Safekeeping. From time to time Servicer may request that Trustee deliver to Servicer a Lease File in connection with the enforcement of the related Lease Contract, in which event Trustee shall deliver such Lease File to Servicer at Servicer's expense. Servicer will hold all such Lease Files in its possession as custodian on behalf of the Trust for the use and benefit of all present and future Certificateholders and Bond Insurer. While so acting as a custodian, Servicer will act with reasonable care, using that degree of skill and care consistent with the highest degree of skill and care that Servicer exercises with respect to all comparable lease contracts that Servicer services for itself or others. Servicer will promptly report to Trustee any failure on its part to hold the Lease Files and maintain its accounts, records and computer systems as herein provided and will promptly take appropriate action to remedy any such failure. Nothing herein shall be deemed to require an initial or periodic review by Trustee of the Lease Files. -32- 39 (c) Indemnification. (i) In any suit, proceeding or action brought by Trustee for any sum owing with respect to a Lease Contract, Servicer shall save, indemnify and keep Trustee, its officers, directors, employees and agents harmless from and against all costs, expense, losses, liabilities and damages (including, without limitation, reasonable out-of-pocket attorneys' fees, related disbursements and costs of court) suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the Lessee under such Lease arising out of a breach by Servicer or its agents of any obligation under such Lease Contract or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such Lessee or its successor from Servicer, and all such obligations of Servicer shall be and remain enforceable against and only against Servicer and shall not be enforceable against Trustee or the Trust. (ii) Servicer hereby agrees to defend and indemnify Trustee, Bond Insurer and the Certificateholders and their respective officers, directors, employees and agents against all costs, expenses, losses, liabilities and damages (including, without limitation, reasonable attorneys' fees, related disbursements and costs of court) in respect of the breach by Servicer of any of its obligations under this Agreement or any action taken by Servicer, or failure to take any action by Servicer, relative to any Lease Contract or arising out of any proven failure of compliance of any Lease Contract with the provisions of any applicable law or regulation of any Governmental Authority or as the result of any improper act or omission relating to the custody by Servicer of those Lease Files from time to time delivered to Servicer. (iii) THE INDEMNIFICATIONS PROVIDED TO EACH INDEMNIFIED PARTY IN THIS SECTION 3.07(c) ARE INTENDED TO BE APPLICABLE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW AND SHALL PROTECT EACH SUCH INDEMNIFIED PARTY EVEN IF SUCH INDEMNIFIED PARTY IS NEGLIGENT. (iv) Servicer shall pay any amounts owing under this clause (c) directly to such indemnified Person and no such amounts shall be deposited in any Account. (v) The obligations of Servicer pursuant to this clause (c) shall survive the termination of the Trust. (d) Compliance with Law. Servicer will comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any Governmental Authority applicable to the Trust Assets or any part thereof; provided, Servicer may contest any act, regulation, order, decree or direction in any reasonable manner which shall not adversely affect the rights of the Certificateholders, Bond Insurer and Trustee in the Trust Assets. Servicer shall maintain all state and federal licenses and franchises necessary to perform its obligations hereunder. -33- 40 (e) Preservation of Interest. Servicer shall execute and file (or cause to be executed and filed) such financing statements, continuation statements and any other documents requested by Trustee, Bond Insurer or the Majority Certificateholders or that may be required by law to fully preserve and protect the interest of Trustee, Bond Insurer and the Certificateholders hereunder in and to the Trust Assets, in each case consistent with the other terms and provisions of this Agreement. Servicer shall not assign, sell, pledge, or exchange, or in any way encumber or otherwise dispose of the Lease Contracts or the Equipment except as permitted hereunder. (f) Obligations with Respect to Lease Contracts. Servicer will duly fulfill and comply, in all material respects, with all obligations on the part of the "lessor" or "secured party" that are required, pursuant to the terms of the Lease Contracts, to be performed before or after such Lease Contracts are assigned to Trustee, and Servicer and will do nothing to impair the rights of Trustee, Bond Insurer and Trust in the Trust Assets. Servicer will perform such obligations under and will not change or modify the Lease Contracts, except to the extent expressly permitted pursuant to the terms of this Agreement. No obligation or liability to any Lessee under any of the Lease Contracts is intended to be assumed by the Trust, Trustee, Bond Insurer or the Certificateholders under or as a result of this Agreement or the transactions contemplated hereby, all of the same being hereby expressly disclaimed. Servicer will comply with the Servicing Procedures and will not amend or modify the Servicing Procedures in any material respect without the prior written consent of Bond Insurer. (g) Servicer's Employees and Fidelity Bond. Servicer agrees to indemnify, defend and protect Trustee, Bond Insurer and the Certificateholders from and against, and assumes all liabilities and obligations relating to, all costs, expenses, losses, damages, claims or other liabilities arising out of or relating to the theft or embezzlement of any funds relating to the Trust Assets by Servicer's employees and agents. Without limiting the foregoing, Servicer shall maintain, at its own expense, a blanket fidelity bond, with broad coverage with responsible companies on all officers, employees or other persons acting on behalf of Servicer in any capacity with regard to the Lease Contracts to handle funds, money, documents and papers relating to the Lease Contracts. Any such fidelity bond shall protect Servicer against losses, including forgery, theft, embezzlement, and fraud, of such persons and shall be maintained in a form and amount that would meet the requirements of prudent institutional Lease Contract servicers. No provision of this Section 3.07(g) requiring such fidelity bond shall diminish or relieve Servicer from its duties and obligations as set forth in this Agreement. Servicer shall be deemed to have complied with this provision if one of its respective Affiliates has such fidelity bond and, by the terms of such fidelity bond, the coverage afforded thereunder extends to Servicer. Servicer shall cause each and every sub-servicer for it to maintain a fidelity bond which would meet such requirements. Upon request of Bond Insurer, any Certificateholder or Trustee, Servicer shall cause to be delivered to Trustee and Bond Insurer a certification evidencing coverage under such fidelity bond. Such fidelity bond shall not be canceled or modified in a materially adverse manner. -34- 41 Section 3.08 Servicing Compensation; Payment of Expenses by Servicer. (a) Servicing Fee. As the sole consideration payable to Servicer for the performance of its obligations hereunder, Servicer shall be entitled to receive the Servicing Fee for each Collection Period (payable on the next succeeding Payment Date). (b) Expenses. As between Seller, Trustee, the Certificateholders and Servicer, Servicer shall be required to pay all expenses incurred by it in connection with its activities under this Agreement, including fees and disbursements of independent accountants, taxes imposed on Servicer, amounts owing to the Trustees pursuant to Section 10.04, expenses incurred in connection with distributions and reports to Trustee and Bond Insurer, expenses incurred in connection with the repossession or disposition of Equipment or enforcement of Lease Contracts, including litigation costs and attorneys' fees related thereto, and all other fees and expenses not expressly stated under this Agreement to be for the account of the Trust, provided, however, that with respect to reasonable actual out-of-pocket expenses (including litigation costs and attorneys fees) incurred in connection with the repossession or disposition of Equipment or enforcement of Lease Contracts and set forth in the Monthly Statement, Servicer shall be entitled to reimbursement of such expenses by Lessee or from proceeds of the Equipment to the extent that the lessor would be entitled to such reimbursement in accordance with the terms of the related Lease Contract. Section 3.09 Monthly Statement; Annual Report. (a) Monthly Statement and Tape. Servicer will provide to each Rating Agency, Trustee, Back-up Servicer and Bond Insurer, by 2:00 p.m. New York time on the Determination Date preceding each Payment Date, and Trustee will furnish or cause to be furnished to the Certificateholders, on or immediately following receipt thereof, a statement (the "Monthly Statement") signed by a Servicing Officer similar to the form of Exhibit D setting forth the information as of the last day of the Collection Period immediately preceding the related Payment Date and after giving effect to any withdrawals, deposits and transfers to occur on or before the related Payment Date as well as any other information required by Bond Insurer or either Rating Agency. In addition, Servicer shall provide to the Back-up Servicer and Bond Insurer simultaneous with the delivery of such Monthly Statement a tape or other electronic media containing the detailed account and payment information utilized to prepare such Monthly Statement. (b) Investment Earnings. To enable Servicer to prepare the Monthly Statement, Trustee shall provide to Servicer, upon request, on or before the fifth Business Day following the last day of each Collection Period a statement as to the balances and total amount of investment income earned on funds on deposit in the Investment Account, the Cash Collateral Account, if any, and the Class A Certificate Account during the preceding Collection Period if held by Trustee. (c) Annual Report; Audit. Servicer will provide to Trustee, Bond Insurer and Back-up Servicer within 120 days after the end of each Fiscal Year, a cumulative summary for the previous Fiscal Year, or, in the case of Fiscal Year 1997, the remaining portion thereof, of the Monthly -35- 42 Statements. Any Certificateholder or Bond Insurer may request that a nationally recognized accounting firm be engaged to conduct one or more audits with regard to the Accounts, Monthly Statements and similar financial matters relating to the Trust during any Fiscal Year, in which event Servicer shall engage, at its expense, such accounting firm and Servicer will cooperate with, and provide such information as may reasonably be requested by, such accounting firm. Section 3.10 Annual Statement as to Compliance; Notice of Default. Servicer shall deliver an annual report, for delivery to the Trustee, Bond Insurer and the Rating Agency on or prior to March 31 of each year commencing March 31, 1998, signed by a Servicing Officer stating that (a) a review of the activities of Servicer, and Servicer's performance under this Agreement, for the period ending on the immediately preceding December 31 (or in the case of the initial report, the Initial Closing Date) has been made under such Servicing Officer's supervision and (b) certifying to the best of such officer's knowledge, based on such review, Servicer has or has caused to be performed all of its obligations under this Agreement throughout such year and that no Servicer Default, Funding Period Trigger Event or Trigger Event has occurred, or, if such a Servicer Default, Funding Period Trigger Event or Trigger Event has so occurred and is continuing, specifying each such event, the nature and status thereof and the steps necessary to remedy such event. Section 3.11 Annual Independent Public Accounts' Servicing Report. On or before the first anniversary of the Initial Closing Date and, unless required more frequently by either Rating Agency or Bond Insurer after the occurrence of a Servicer Default, on each yearly anniversary thereafter, Servicer at its expense shall cause a firm of Independent Public Accounts to furnish a statement to the Trustee, Bond Insurer, Centre Square and each Rating Agency to the effect that such firm has examined certain documents and records relating to the servicing of the Lease Contracts and the reporting requirements with respect thereto and that, on the basis of such examination, such servicing and reporting requirements have been conducted in compliance with this Agreement, except for (a) such exceptions as such firm shall believe to be immaterial and (b) such other exceptions as shall be set forth in such statement. Section 3.12 Merger or Consolidation of, or Assumption of the Obligations of, Servicer. Servicer shall not consolidate with or merge into any other corporation or other Person or convey or transfer its properties and assets substantially as an entirety or ownership to any Person, unless: (a) the resulting entity formed by such consolidation or into which Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets or ownership of Servicer substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, shall meet the Tangible Net Worth Requirement and shall expressly assume, by an agreement supplemental hereto, executed and delivered to Trustee in form satisfactory to Trustee and Bond Insurer, the performance of every covenant and obligation of Servicer hereunder; -36- 43 (b) immediately after giving effect to such transaction, no representation or warranty made by the Servicer in any Principal Agreement shall have been breached; (c) Servicer has delivered to Trustee and Bond Insurer an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 3.12 and that all conditions precedent herein provided for relating to such transaction have been complied with; (d) Servicer shall have delivered to Trustee and Bond Insurer an Opinion of Counsel either (1) stating that, in the opinion of such counsel, all financing statements and continuation statements and amendments thereto have been executed and filed that are necessary fully to preserve and protect the interest of the Trustee in the Trust Assets and reciting the details of such filings, or (2) stating that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such interest; and (e) Bond Insurer has given its prior written consent (not to be unreasonably withheld). Servicer shall provide prior written notice of such event to the Rating Agencies and Bond Insurer. If, after the Initial Cut-Off Date, Servicer shall merge, consolidate or effect any other corporate structural change, including without limitation transfer of ownership of the majority of Servicer's voting securities, Bond Insurer shall have the right, in its sole discretion, to modify the Servicer Defaults, the Funding Period Trigger Events and/or the Trigger Events. Section 3.13 Servicer Not To Resign. Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that (a) the performance of its duties hereunder is or becomes impermissible under applicable law, and (b) there is no reasonable action which Servicer could take to make the performance of its duties hereunder permissible under applicable law. Any determination pursuant to clause (a) of this Section 3.13 permitting the resignation of Servicer shall be evidenced by an Opinion of Counsel to such effect and as to clause (b) of this Section 3.13 by an Officer's Certificate, in each case delivered to Trustee and Bond Insurer. No Servicer resignation shall become effective until the Back-up Servicer or a Successor Servicer shall have assumed the responsibilities and obligations of Servicer in accordance with Section 9.02. If within 120 days after the date of the determination in clause (a) the Back-up Servicer shall be prohibited under applicable law or shall otherwise fail to assume the duties of Servicer and a Successor Servicer has not been appointed, Trustee shall without further action be appointed as Successor Servicer hereunder unless Trustee shall be legally unable or shall be unwilling to so act. The provisions of Section 9.01 with respect to the duties of Servicer in effecting the termination of its servicing responsibilities and the transfer of such responsibilities to a Successor Servicer shall be applicable to any resignation pursuant to this Section 3.13. Notwithstanding anything in this Agreement to the contrary, a Successor Servicer appointed under this Section 3.13 shall be deemed to be a Successor Servicer as defined hereunder. -37- 44 Section 3.14 Access to Certain Documentation and Information Regarding the Trust Assets. Servicer shall provide to Trustee, Bond Insurer, the Certificateholders, Back-up Servicer and any accounting firm performing an audit pursuant to Section 3.09(c) access to the documentation and financial records regarding the Trust Assets, such access to be afforded without charge but only (a) upon reasonable request by Trustee, Bond Insurer, Back-up Servicer, such accounting firm or a Certificateholder, (b) during normal business hours and (c) subject to Servicer's normal security and confidentiality procedures. Nothing in this Section 3.14 shall derogate from the obligation of Seller, Bond Insurer, Trustee, Servicer or any such accounting firm to observe any applicable law prohibiting disclosure of information regarding the Lessees and the failure of Servicer to provide access as provided in this Section as a result of such obligation shall not constitute a breach of this Section 3.14. Section 3.15 No Offset. The obligations of Servicer under this Agreement shall not be subject to any defense, counterclaim or right of offset that Servicer has or may have against Seller, Trustee, Bond Insurer the Trust or any Certificateholder, whether in respect of this Agreement, any Trust Asset, or otherwise. ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.01 Rights of Certificateholders. The Certificates shall represent undivided interests in the Trust, including the benefits of any amounts in the Cash Collateral Account and the benefits under the Letter of Credit and the right to receive the Collections and other amounts at the times and in the amounts specified in this Article IV to be deposited in the Accounts or to be paid to the Certificateholders; provided, the aggregate interest represented by the Certificates at any time shall not exceed the Class A Certificate Investor Interest at such time, plus interest on such amounts calculated at the applicable Certificate Rate. Section 4.02 Establishment of Lockbox Account. Prior to the date of this Agreement, Servicer, in the name of Trustee for the benefit of the Certificateholders and Bond Insurer, has, pursuant to agreements (each, a "Lockbox Agreement"), established and shall maintain with the Newark, New Jersey lockbox facility of Financial Telesis, Inc. (the "Lockbox Servicer"), which is an Eligible Institution, a post office lockbox (the "Post Office Lockbox"), and has established and shall maintain with a Pennsylvania office or branch of CoreStates Bank, N.A. (the "Lockbox Account Bank"), which is an Eligible Institution, a lockbox account (the "Lockbox Account"). The Post Office Lockbox shall be serviced by the Lockbox Servicer and shall be used as a payment address only for payments due under or in respect of the Lease Contracts and Equipment. Prior to the date of this Agreement, Servicer shall send or cause to be sent to all Lessees a written notice whereby the Lessees are directed to make all payments in respect of Lease Contracts and Equipment to the Lockbox Account. The Lockbox Servicer shall remove daily all monies and checks, drafts and other instruments of payment contained in the Post Office Lockbox and (where -38- 45 applicable) shall appropriately endorse for payment and deposit such monies and checks, drafts and other instruments in the Lockbox Account no later than the next Business Day following such removal from the Post Office Lockbox. The Lockbox Account Bank shall remove all funds on deposit in the Lockbox Account on a basis mutually agreed upon among the Servicer, Bond Insurer and the Lockbox Account Bank (which shall in no event be less often than every ten days) and deposit such funds in the Investment Account. Funds on deposit in the Post Office Lockbox and in the Lockbox Account shall remain uninvested. Servicer shall cause the Post Office Lockbox and the Lockbox Account to be maintained at an Eligible Institution in the name of the Trustee for the benefit of the Certificateholders and Bond Insurer. Servicer shall give prior written notice to Bond Insurer of (i) the establishment of a new Post Office Lockbox or Lockbox Account, as applicable or (ii) a change in the location of the Post Office Lockbox or Lockbox Account, as applicable. If, at any time, the institution holding the Post Office Lockbox or the Lockbox Account, as the case may be, ceases to be an Eligible Institution, Servicer shall within five (5) Business Days establish a new Post Office Lockbox or Lockbox Account, as the case may be, meeting the conditions specified above with a New York office or branch of an Eligible Institution, and direct the Lockbox Servicer or the Lockbox Bank, as the case may be, to transfer all funds and/or assets on deposit to such new Post Office Lockbox or Lockbox Account, as the case may be, and from the date such new Post Office Lockbox or Lockbox Account, as applicable, is established, it shall be the "Post Office Lockbox" or "Lockbox Account," as applicable. Section 4.03 Establishment of Investment Account. (a) Prior to the date of this Agreement, Servicer shall establish and maintain with a New York office or branch of an Eligible Institution (which may be Trustee) a segregated trust account in the name of the Trustee for the benefit of the Certificateholders and Bond Insurer (the "Investment Account"). Any funds on deposit from time to time in the Investment Account shall be deemed held in trust for the benefit of the Trust, the Certificateholders and Bond Insurer. Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Investment Account and in all proceeds thereof. The Investment Account shall be under the sole dominion and control of Trustee for the benefit of the Certificateholders and Bond Insurer. The Investment Account shall be dedicated to and used solely for the deposit of Collections. On the Initial Closing Date, the Investment Account shall be established with a New York office of Trustee. Servicer shall give prior written notice to Bond Insurer of (i) the establishment of a new Investment Account or (ii) a change in the location of an Investment Account. If, at any time, the institution holding the Investment Account ceases to be an Eligible Institution, Servicer shall within 10 Business Days establish a new Investment Account meeting the conditions specified above with a New York office or branch of an Eligible Institution, and direct the Trustee to transfer any cash and/or any investments to such new Investment Account, and from the date such new Investment Account is established, it shall be the "Investment Account." (b) Funds on deposit in the Investment Account shall be invested in Eligible Investments in the name of Trustee for the benefit of the Certificateholders and Bond Insurer, as directed in -39- 46 writing by the Servicer, that will mature or otherwise be available for withdrawal without penalty on each Deposit Date with all realized interest and other investment earnings (net of losses and investment expenses) to remain a part of the Investment Account. Section 4.04 Establishment of the Class A Certificate Account. (a) Servicer, for the benefit of the Certificateholders and Bond Insurer, shall establish and maintain or cause to be established and maintained in the name of Trustee, on behalf of the Trust, with a New York office or branch of an Eligible Institution (which may be Trustee) a segregated trust account (the "Class A Certificate Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders and Bond Insurer. Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Class A Certificate Account and in all proceeds thereof. The Class A Certificate Account shall be under the sole dominion and control of Trustee for the benefit of the Certificateholders and Bond Insurer. If, at any time, the institution holding the Class A Certificate Account ceases to be an Eligible Institution, Servicer shall within 10 Business Days establish a new account meeting the conditions specified above with a New York office or branch of an Eligible Institution (which may be Trustee), and direct the Trustee to transfer any such amounts to such new account and from the date such new account is established, it shall be the "Class A Certificate Account." (b) [Intentionally omitted] (c) Funds on deposit in the Class A Certificate Account shall remain uninvested. On the Initial Closing Date, the Class A Certificate Account shall be established with a New York office of Trustee. Servicer shall give prior written notice to Bond Insurer of (i) the establishment of a new Class A Certificate Account or (ii) a change in the location of the Class A Certificate Account. Section 4.05 Letter of Credit; Cash Collateral Account. (a) Rockford shall cause Letter of Credit Bank to issue the Letter of Credit to Trustee for the benefit of the Certificateholders and Bond Insurer. (b) On each Determination Date, Servicer shall determine the amount to be drawn under the Letter of Credit equal to the amount (the "Draw Amount") by which the deposits required by Sections 4.08(b)(i) through (x) for the immediately following Deposit Date exceeds the amount which will be on deposit in the Investment Account on such Deposit Date; provided, the amount to be drawn may not exceed the Available LOC Amount. (c) If for any Payment Date the Draw Amount is greater than zero, Servicer shall give prompt written notice to Trustee and Bond Insurer of such positive Draw Amount not later than the close of business on the related Determination Date and instruct Trustee to make a drawing under the Letter of Credit in such amount pursuant to the relevant drawing certificate attached to the Letter of Credit. Upon receipt of such written notice, Trustee shall, no later than 2:30 P.M. -40- 47 (New York time) on the Business Day immediately preceding such Payment Date, make a drawing under the Letter of Credit in an amount equal to the Draw Amount for such Payment Date. Trustee shall make such drawing or the drawing contemplated by Section 4.05(f) by delivering to Letter of Credit Bank, by hand delivery, telex or facsimile transmission, with a copy to Bond Insurer, the relevant drawing certificate substantially in the form attached to the Letter of Credit, appropriately completed, signed by a Responsible Officer and dated the date of presentation thereof. The drawing certificate shall direct Letter of Credit Bank to disburse the amount of such drawing to Trustee for deposit in the Cash Collateral Account by no later than 4:00 P.M. (New York time) on such Business Day. (d) Servicer, for the benefit of the Certificateholders and Bond Insurer, shall establish and maintain, or cause to be established and maintained in the name of Trustee, on behalf of the Trust, with a New York office or branch of an Eligible Institution (which may be Trustee), a segregated trust account bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders and Bond Insurer (the "Cash Collateral Account"). On the Initial Closing Date, the Cash Collateral Account shall be established with the New York office of Trustee. Servicer shall give prior written notice to Bond Insurer of (i) the establishment of a new Cash Collateral Account or (ii) a change in the location of the Cash Collateral Account. Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Cash Collateral Account and in all proceeds thereof. The Cash Collateral Account shall be under the sole dominion and control of Trustee for the benefit of the Certificateholders and Bond Insurer. If, at any time, the institution holding the Cash Collateral Account (other than the Corporate Trust Office of Trustee) ceases to be an Eligible Institution, Trustee shall within 10 Business Days establish a new Cash Collateral Account meeting the conditions specified above with another Eligible Institution (or the Corporate Trust Office of Trustee), transfer any cash and/or any investments to such new Cash Collateral Account, and from the date such new Cash Collateral Account is established it shall be the "Cash Collateral Account." Trustee at the written direction of Servicer shall make withdrawals from the Cash Collateral Account at such time and for the purposes set forth in this Section 4.05 (each a "Cash Collateral Withdrawal"). Cash Collateral Withdrawals shall be made in the priority set forth below and the Available Amount will be reduced by the amount of each such Cash Collateral Withdrawal. Servicer shall not be entitled to any amounts with respect to the Cash Collateral Account. Seller shall not be entitled to any amounts with respect to the Cash Collateral Account, except as set forth below in Section 4.05(h). (e) Funds on deposit in the Cash Collateral Account shall at the written direction of Servicer be invested by Trustee in Eligible Investments in the name of Trustee for the benefit of the Certificateholders and Bond Insurer. All such investments shall be held by Trustee or other depository for the benefit of the Certificateholders and Bond Insurer. Funds held in the Cash Collateral Account shall be invested in Eligible Investments that will mature or otherwise will be available for withdrawal without penalty on each Payment Date. All realized interest and other investment earnings (net of losses and investment expenses) on funds in the Cash Collateral Account shall remain as part of the Cash Collateral Account. -41- 48 (f) In the event Trustee receives written notice from Letter of Credit Bank or Bond Insurer that (i) the then current long-term unsecured debt rating of Letter of Credit Bank is less than "A" by Standard & Poor's or "A" by Moody's or revoked or withdrawn or (ii) there has been instituted by or against Letter of Credit Bank a proceeding relating to bankruptcy, reorganization, insolvency, liquidation, moratorium or any other proceeding affecting the enforcement or creditors' rights and remedies generally (the date of receipt by Trustee of such notice, the "Termination Date"), and such Letter of Credit is not replaced by Servicer with a Letter of Credit acceptable to Bond Insurer from a Letter of Credit Bank acceptable to Bond Insurer prior to the fifteenth day immediately succeeding such Termination Date (or if such date is not a Business Day, the next succeeding Business Day) on such fifteenth day, Trustee shall make a drawing under the Letter of Credit in an amount equal to the Available LOC Amount then in effect by delivering to Letter of Credit Bank, by hand delivery, telex or facsimile transmission, the relevant drawing certificate substantially in the form attached to the Letter of Credit, appropriately completed, signed by a Responsible Officer and dated the date of presentation thereof. The drawing certificate shall direct Letter of Credit Bank to disburse the amount of such drawing to Trustee for deposit in the Cash Collateral Account no later than 11:00 A.M. (New York time) on the next succeeding Business Day. Following such disbursement, the Letter of Credit shall terminate. In the event Trustee receives written notice from Letter of Credit Bank that Letter of Credit Bank has elected to terminate the Letter of Credit pursuant to Section 4.17 of the Letter of Credit Reimbursement Agreement, Trustee, within one Business Day of its receipt of such written notice, shall make a drawing under the Letter of Credit in an amount equal to the Available LOC Amount then in effect by delivering to Letter of Credit Bank, by hand delivery, telex or facsimile transmission, the relevant drawing certificate substantially in the form attached to the Letter of Credit, appropriately completed, signed by a Responsible Officer and dated the date of persentation thereof. The drawing certificate shall direct Letter of Credit Bank to disburse the amount of such drawing to Trustee for deposit in the Cash Collateral Account no later than 11:00 A.M. (New York time) on the next succeeding Business Day. Following such disbursement, the Letter of Credit shall terminate. (g) On each Deposit Date on which the Draw Amount is greater than zero, Trustee, upon written instructions from Servicer delivered pursuant to Section 4.05(c), shall, after taking into account all deposits from Letter of Credit Bank pursuant to Section 4.05(c), make a Cash Collateral Withdrawal in an amount equal to such Draw Amount. Such Cash Collateral Withdrawal, if any, shall be immediately deposited by Trustee in the Investment Account in a timely manner to permit the distribution of the same to the Class A Certificate Account pursuant to Section 4.08(b). (h) On the Stated Maturity, after making those distributions described in Section 4.08(b)(i) through (xv), Trustee shall distribute any amounts remaining in the Cash Collateral Account to Seller as Seller Amounts. -42- 49 Section 4.06 Determination of Principal Amounts. (a) Class A Certificate Principal Distributable Amount. The amount required to be deposited as principal into the Class A Certificate Account on each Deposit Date (the "Class A Certificate Principal Distributable Amount") shall be an amount, as determined by Servicer in the Monthly Statement on the Determination Date, equal to the sum of (i) the amount, if any, by which the Aggregate Discounted Lease Contract Balance as of the beginning of business on the first day of the Collection Period immediately preceding such Deposit Date (plus the initial Aggregate Discounted Lease Contract Balance of any Lease Contracts conveyed to the Trust during such Collection Period) exceeds the Aggregate Discounted Lease Contract Balance as of the close of business on the last day of such Collection Period and (ii) all Prepayment Penalties to the extent deposited into the Investment Account with respect to the related Determination Date pursuant to Section 2.03(d), but in no event more than the Class A Certificate Investor Interest. (b) Class A Certificate Principal Shortfall Carryover Amount. On the Determination Date preceding each Payment Date, Servicer shall determine in the Monthly Statement the amount of any Class A Certificate Principal Shortfall Carryover for such Payment Date. Section 4.07 Determination of Interest Amounts. (a) Class A Certificate Interest Distributable Amount. The amount required to be deposited as interest into the Class A Certificate Account on each Deposit Date (the "Class A Certificate Interest Distributable Amount") shall be an amount, as determined by Servicer in the Monthly Statement, equal to interest accrued on the Certificate Balance (calculated as of the Business Day immediately preceding such Deposit Date) of each Class A Certificate for the applicable Accrual Period (or the Accrual Intervals comprising each such Accrual Period) at the applicable Certificate Rate on the basis of a 360-day year and the actual number of days elapsed during such Accrual Period; provided, however, that with respect to any Class A Certificates issued on any Subsequent Closing Date occurring since the preceding Payment Date, interest shall be calculated with respect to each Accrual Interval based upon the actual number of days elapsed during such Accrual Interval and the Certificate Balance of such Class A Certificates. (b) Class A Certificate Interest Shortfall Carryover Amount. On the Determination Date preceding each Payment Date, Servicer shall determine in the Monthly Statement the amount of any Class A Certificate Interest Shortfall Carryover for such Payment Date. Section 4.08 Collections and Allocations; Required Deposits. (a) To the extent not theretofore accomplished and subject to Section 4.05(g), Servicer shall deposit or cause to be deposited all Collections received by it into the Investment Account as promptly as possible, but in no event later than the second Business Day following its receipt of such Collections. -43- 50 (b) Deposits and Payments. On each Determination Date, Servicer shall instruct Trustee pursuant to the Monthly Statement to, and Trustee shall, apply or cause to be applied funds on deposit in the Investment Account on such Determination Date (after taking into account any Cash Collateral Withdrawal to be deposited therein on the next Deposit Date pursuant to Section 4.05(g)) to make the following payments and deposits on the following dates and in the following mandatory order of priority; provided, however, that the proceeds of claims under the Policy shall be used solely to pay the amounts due under clauses (viii) and (ix) below; and provided further that Trustee shall withdraw from the Investment Account and make interest payments to the Class A Certificateholders based on the Class A Certificate Investor Interest even if it shall not have received the Monthly Statement: (i) To Servicer, on the Payment Date, to the extent of available funds, any Tax Amounts to be paid to Servicer under Section 3.02; (ii) To Servicer on the Payment Date, to the extent of available funds derived from Collections from the related Lease Contracts, any Servicer Advances not previously reimbursed; (iii) To Servicer on the Payment Date, to the extent of available funds, any portion of any Servicer Advances which Servicer has certified to Trustee and Bond Insurer in the applicable Monthly Statement that Servicer in good faith believes it will not be able to recoup from subsequent Collections under the applicable Lease Contracts. (iv) To Servicer on the Payment Date, to the extent of available funds, the Servicing Fee and all unpaid Servicing Fees from prior Payment Dates; (v) To Trustee on the Payment Date, to the extent of available funds, the Trustee Fee and all unpaid Trustee Fees from prior Payment Dates; (vi) To Back-up Servicer on the Payment Date, to the extent of available funds, the Back-up Servicer Fee and all unpaid Back-up Servicer Fees from prior Payment Dates; (vii) To Bond Insurer on the Payment Date, to the extent of available funds, any Bond Insurer Premium then due and any unpaid Bond Insurer Premium from prior Payment Dates, together with interest thereon at the Late Payment Rate; (viii) To the Class A Certificate Account on the Deposit Date, to the extent of available funds, an amount equal to, without duplication, the Class A Certificate Interest Distributable Amount and any Class A Certificate Interest Shortfall Carryover amounts as of the immediately preceding Payment Date; -44- 51 (ix) To the Class A Certificate Account on the Deposit Date, to the extent of available funds, an amount equal to, without duplication, the Class A Certificate Principal Distributable Amount and any Class A Certificate Principal Shortfall Carryover amounts as of the immediately preceding Payment Date; (x) To Bond Insurer on the Payment Date, to the extent of available funds, of any amounts previously paid by Bond Insurer under the Policy and not theretofore repaid, together with interest thereon at the Late Payment Rate and any other amounts due under the Insurance Agreement; (xi) To pay to a Successor Servicer after a Successor Servicer has been appointed pursuant to Section 9.02, the Additional Servicer Fee, if any, and to pay any Successor Servicer, or Trustee or Bond Insurer, any Transition Costs incurred by any Successor Servicer, or Trustee or Bond Insurer and not previously reimbursed (in an amount not to exceed $25,000 in the aggregate); (xii) To reimburse Bond Insurer for any costs or expenses incurred in connection with any enforcement action with respect to this Agreement or the Certificates; (xiii) If the Funding Period has terminated, to the Class A Certificate Account on the Deposit Date, to the extent of available funds, up to an amount equal to the lesser of (A) the amount, if any, by which the Requisite LOC Amount exceeds the Available Amount and (B) the Class A Certificate Investor Interest (net of amounts referred to in (ix) above); (xiv) To pay to any Successor Servicer, or Trustee or Bond Insurer any Transition Costs in excess of the Transition Costs reimbursed pursuant to clause (xi) incurred by any Successor Servicer, or Trustee or Bond Insurer and not previously reimbursed; and (xv) To Seller on the Payment Date, the amount, if any, by which the balance of the funds on deposit in the Investment Account on the last day of the Collection Period prior to such Payment Date exceeds the aggregate of all payments made under clauses (i) through (xiv) above. Section 4.09 Account Agreements. Servicer hereby represents and warrants to Trustee, Bond Insurer and the Certificateholders that Servicer has heretofore given to Trustee, Bond Insurer and Centre Square true and correct copies of all written agreements that constitute the entire agreements relating to the Accounts (the "Account Agreements"), that the Account Agreements have not been amended, supplemented or terminated, and that the Account Agreements are still in full force and effect. Servicer shall not amend, supplement or terminate any of the Account Agreements, enter into any new agreements or understandings relating to the Accounts, or amend, supplement or terminate any such new agreements or understandings, without the prior consent of Trustee, Bond Insurer and Centre Square. -45- 52 Section 4.10 Payments under the Policy. If on the close of business on the third Business Day prior to any Payment Date, the sum of (i) the funds on deposit in the Investment Account and available to be distributed on such Payment Date pursuant to Section 4.08(b) and (ii) the Available Amount are not sufficient (after taking into account the payments required to be made on such Payment Date pursuant to Section 4.08(b)(i)-(vii)) to make the payment of amounts due on the Class A Certificates on such Payment Date in accordance with Section 4.08(b)(viii), the Trustee shall, no later than 12:00 noon, New York time, on the second Business Day immediately preceding such Payment Date, make a claim under the Policy in an amount equal to such insufficiency. In addition, if on the close of business on the third Business Day immediately prior to the Stated Maturity, the sum of (i) the funds on deposit in the Investment Account and available to be distributed on such Payment Date pursuant to Section 4.08(b) and (ii) the Available Amount are not sufficient (after taking into account the payments required to be made on such Payment Date pursuant to Section 4.08(b)(i)-(viii)) to pay in full the Class A Certificate Investor Interest, the Trustee shall, not later than 12:00 noon, New York time, on the second Business Day immediately preceding such Payment Date, make a claim under the Policy in an amount equal to such insufficiency. Proceeds of claims on the Policy shall be deposited in the Class A Certificate Account and shall remain uninvested and shall be used solely to pay amounts due in respect of interest on the Class A Certificates on each Payment Date and principal of the Class A Certificates at the Stated Maturity. In addition, on any day that the Trustee has actual knowledge or receives notice that any amount previously paid to a Class A Certificateholder has been subsequently recovered by a trustee from such Class A Certificateholder pursuant to a final nonappealable order of a court of competent jurisdiction that such payment constitutes a voidable preference within the meaning of the United States Bankruptcy Code (11 U.S.C.), as amended from time to time, to such Class A Certificateholder (a "Preference Claim"), the Trustee shall make a claim within three Business Days upon the Policy for the full amount of such Preference Claim in accordance with the terms of the Policy. Any proceeds of any such Preference Claim received by the Trustee shall be paid to the related Class A Certificateholder. Section 4.11 Investment of Monies Held in the Investment Account and the Cash Collateral Account. In the event that Trustee has not received written directions from Servicer, Trustee shall invest any cash amounts in the Investment Account and the Cash Collateral Account in investments specified in clause (a) of the definition of Eligible Investments. Trustee shall provide to Servicer and Bond Insurer monthly written confirmation of such investments, describing the Eligible Investments in which such amounts have been invested. Any funds in the Investment Account, the Class A Certificate Account and the Cash Collateral Account not so invested must be insured by the Federal Deposit Insurance Corporation to the limits established by such corporation. -46- 53 ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS Section 5.01 Distributions to Certificateholders. (a) On each Payment Date, the Trustee shall distribute, or shall furnish to the Paying Agent for distribution, from the Class A Certificate Account (in accordance with the Monthly Statement) the following amounts: (i) to each Holder of a Class A Certificate of record on the related Record Date, such Certificateholder's pro rata share (based on the ratio of (a) the sum of the products of one-twelfth of the Certificate Rate for each Class A Certificate held by such Certificateholder times the Certificate Balance of such Class A Certificate on such Payment Date (determined without giving effect to payments of principal on such Payment Date under this Section 5.01), to (b) the Class A Certificate Interest Distributable Amount) of the amounts deposited into the Class A Certificate Account in respect of the Class A Certificate Interest Distributable Amount and the Class A Certificate Interest Shortfall Carryover; and (ii) to each Holder of a Class A Certificate of record on the related Record Date, such Certificateholder's pro rata share (based on the aggregate Class A Certificate Investor Interest represented by Class A Certificates held by such Certificateholder and determined without giving effect to payments of principal on such Payment Date under this Section 5.01) of the amounts deposited into the Class A Certificate Account in respect of the Class A Certificate Principal Distributable Amount, the Class A Certificate Principal Shortfall Carryover and the Other Class A Principal Amount. (b) [Intentionally omitted] (c) On each Payment Date, Trustee shall distribute to Seller (in accordance with the Monthly Statement) any amounts required to be distributed to Seller pursuant to Sections 4.05(h) and Section 4.08(b)(xv). (d) Distributions to Certificateholders hereunder shall be made by check mailed to each Certificateholder at such Certificateholder's address appearing on the Certificate Register without presentation or surrender of any Certificate or the making of any notation thereon or by wire transfer to such depository account as the Holder directs Trustee in writing prior to the relevant Record Date. Such distributions shall be made in immediately available funds and except with respect to the final distribution, payment shall be made without presentation or surrender of the Certificates. Distributions to Seller hereunder shall be made by check mailed to Seller at Seller's -47- 54 address appearing on Trustee's books or by wire transfer of immediately available funds to such depository account as Seller directs Trustee in writing prior to the relevant Record Date. Section 5.02 Annual Certificateholders' Tax Statement. On or before January 25 of each calendar year, beginning with calendar year 1998, Servicer shall cause the Paying Agent to furnish to each Person who at any time during the preceding calendar year was a Certificateholder a statement prepared by Servicer showing the total amount of principal and interest distributed to each Certificateholder during the preceding calendar year or the applicable portion thereof during which such Person was a Certificateholder, together with such other customary information (consistent with the treatment of the Certificates as debt for federal and state income tax purposes) as may be necessary or desirable to enable the Certificateholders to prepare their tax returns. Such obligations of the Paying Agent shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by, or caused to be provided by, Servicer pursuant to any requirements of the Internal Revenue Code as from time to time in effect. ARTICLE VI THE CERTIFICATES Section 6.01 The Certificates. The Certificates shall be substantially in the form of Exhibit A and shall, upon issuance, be executed by Seller and delivered to Trustee for authentication and delivery as provided in Section 6.02. The Certificates shall be issuable only in Authorized Denominations. Each Certificate shall be executed by manual or facsimile signature on behalf of Seller by its authorized agent (by manual or facsimile signature). Certificates bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of Seller or Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of Trustee by the manual signature of a duly authorized signatory, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. Section 6.02 Authentication of Certificates. (a) Contemporaneously with the assignment and transfer of the applicable Trust Assets to the Trust on each Closing Date and after satisfaction of the conditions precedent set forth in the Purchase Agreement, a Responsible Officer of Trustee shall authenticate and deliver the Class A Certificates as directed by a written order of Seller. -48- 55 (b) Contemporaneously with the transfer of the applicable Trust Assets to the Trust on the Initial Closing Date, a Responsible Officer of Trustee shall authenticate and deliver to Seller the Seller Certificate. Section 6.03 Registration of Transfer and Exchange of Certificates. Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (the "Transfer Agent and Registrar") in accordance with the provisions of Section 10.15 a register (the "Certificate Register") in which, subject to such reasonable regulations as it may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Certificates and of transfers and exchanges of the Certificates as herein provided. Trustee is hereby initially appointed Transfer Agent and Registrar for the purpose of registering the Certificates and transfers and exchanges of the Certificates as herein provided. Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days' written notice to the Servicer and Bond Insurer. In the event that the Trustee shall no longer be the Transfer Agent and Registrar, Trustee shall appoint a successor Transfer Agent and Registrar acceptable to Bond Insurer. Each permitted transfer hereunder shall be accomplished by surrender of such Certificates for registration of transfer at the Corporate Trust Office. Upon surrender for registration of transfer of any Class A Certificate at any office or agency of the Transfer Agent and Registrar maintained for such purpose, Seller shall execute, and Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Class A Certificates in Authorized Denominations of like aggregate amount. At the option of a Certificateholder, Class A Certificates may be exchanged for other Class A Certificates of Authorized Denominations of like aggregate amount, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange, Seller shall execute, and Trustee shall authenticate and deliver, the Certificates which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to Trustee and the Transfer Agent and Registrar duly executed by the Certificateholder thereof or his attorney duly authorized in writing. No service charge shall be made to the Certificateholders for any registration of transfer or exchange of Certificates, but the Transfer Agent and 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. All Certificates surrendered for registration of transfer and exchange shall be canceled and disposed of or held in accordance with the Trustee's standard retention policy. Each Certificateholder, by acceptance of its Certificates, agrees that the Certificates shall be limited recourse obligations of Seller payable from the Trust Assets, including any proceeds or payments made with respect to the Policy. -49- 56 All fees and expenses of the Transfer Agent and Registrar shall be borne and paid by Trustee. Section 6.04 Restrictions on Transfer of Certificates. Notwithstanding anything to the contrary contained in this Agreement, no transfer or exchange of any Certificate or any beneficial interest therein may be made unless Servicer shall have reasonably determined that such transfer (i) is made pursuant to an exemption from the registration requirements of the Securities Act, and is exempt from any applicable state securities or "Blue Sky" laws (or any requirements thereof have been complied with), (ii) would not cause the Trust or Trustee to be in violation of the Investment Company Act or require the Trust or Trustee to register as an investment company under the Investment Company Act, and (iii) would not be in violation of ERISA or make assets of the Trust "plan assets" under ERISA. In the event that such a transfer is to be made, Servicer or Trustee shall require, in order to assure compliance with the Securities Act, the Investment Company Act, ERISA and applicable state securities or "Blue Sky" laws, that any prospective transferee execute and deliver to Servicer, Bond Insurer and Trustee a written certificate, in the form of Exhibit F, as to the facts surrounding such transfer. Servicer, Bond Insurer or Trustee may also require an Opinion of Counsel reasonably satisfactory to each of them that such transfer may be made pursuant to an exemption from the Securities Act and applicable state securities or "Blue Sky" laws (or in compliance therewith), that such transfer would not be or result in a violation of ERISA or make assets of the Trust "plan assets" under ERISA and that such transfer would not result in a violation of the Investment Company Act or require the Trust or Trustee to register as an "investment company" under the Investment Company Act, which Opinion of Counsel shall be delivered to Servicer, Bond Insurer and Trustee and shall be an expense of the Certificateholder desiring to effect such transfer or such Certificateholder's prospective transferee. Neither Servicer, any Certificateholder, Trustee nor any other Person may register any Certificate under the Securities Act or any other securities law. Section 6.05 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar, Bond Insurer and Trustee such security or indemnity as may be reasonably required by them to save each of them harmless, then, in the absence of notice to Trustee that such Certificate has been acquired by a bona fide purchaser, Seller shall execute and Trustee shall authenticate and the Transfer Agent and Registrar shall deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like class, tenor and denomination. In connection with the issuance of any new Certificate under this Section 6.05, Trustee or the Transfer Agent and Registrar may require the payment by the Certificateholder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of Trustee and the Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 6.05 shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. -50- 57 Section 6.06 Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, Trustee, the Paying Agent, the Transfer Agent and Registrar, Bond Insurer and any agent of any of them may treat the person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 5.01 and for all other purposes whatsoever, and neither Trustee, the Paying Agent, the Transfer Agent and Registrar, Bond Insurer nor any agent of any of them shall be affected by any notice to the contrary. Section 6.07 Appointment of Paying Agent. (a) The Trustee may appoint one or more Paying Agents acceptable to Bond Insurer. The Paying Agent shall make distributions provided by Trustee to Certificateholders from the Class A Certificate Account pursuant to Section 5.01 and shall report the amounts of such distributions to Trustee. Any Paying Agent shall have the revocable power to request the withdrawal of funds from the Class A Certificate Account for the purpose of making distributions referred to above. If the Paying Agent is not Trustee, Trustee may revoke such power and remove the Paying Agent, if Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect and shall revoke such power and remove the Paying Agent at the written direction of Bond Insurer. The Paying Agent shall initially be Trustee. The provisions of Sections 10.01, 10.02 and 10.03 shall apply to Trustee also in its role as Paying Agent, for so long as Trustee shall act as Paying Agent. (b) Trustee shall cause any Paying Agent (other than itself) to execute and deliver to Trustee an instrument in which such Paying Agent shall agree with Trustee that such Paying Agent will hold all sums, if any, held by it for payment to the Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders and shall agree that it shall comply with all requirements of the Internal Revenue Code of 1986, as amended, regarding the withholding of payments in respect of Federal income taxes due from Holders by Trustee or Servicer. Trustee agrees, if it is the Paying Agent hereunder, to comply with the foregoing covenants. (c) All fees and expenses of the Paying Agent shall be borne and paid by Trustee. Section 6.08 Access to List of Certificateholders' Names and Addresses. Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to Servicer, Bond Insurer or the Paying Agent, within five Business Days after receipt by Trustee of a request therefor from Servicer, Bond Insurer or the Paying Agent, respectively, in writing, a list in such form as Servicer, Bond Insurer or the Paying Agent may reasonably require, of the names and addresses of the Certificateholders as of the most recent Record Date for payment of distributions to Certificateholders. If Holders of Certificates (the "Applicants") evidencing not less than 10% of the Class A Certificate Investor Interest apply in writing to Trustee, and such application states that the Applicants desire to communicate with other Certificateholders with respect to their rights under this Agreement or under the Certificates and is accompanied by a copy of the communication which -51- 58 such Applicants propose to transmit, then Trustee, after having been adequately indemnified by such Applicants for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Certificateholders held by Trustee and shall give Servicer and Bond Insurer notice that such request has been made, within five Business Days after the receipt of such application. Such list shall be as of a date no more than 45 days prior to the date of receipt of such Applicants' requests. Every Certificateholder, by receiving and holding a Certificate, agrees with Trustee that neither Trustee, the Transfer Agent and Registrar, nor any of their respective agents shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Certificateholders hereunder, regardless of the source from which such information was obtained. Section 6.09 Authenticating Agent. (a) Trustee may appoint one or more authenticating agents with respect to the Certificates that shall be authorized to act on behalf of Trustee in authenticating the Certificates in connection with the registration of, transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by Trustee or Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of Trustee by its duly authorized authenticating agent and a certificate of authentication executed on behalf of Trustee by such an authenticating agent. (b) Any Person into which the authenticating agent 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 authenticating agent shall be a party, or any Person succeeding to the corporate trust business of the authenticating agent, shall be the successor of the authenticating agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. (c) An authenticating agent may at any time resign by giving written notice of resignation to Trustee, Bond Insurer and to the Servicer. Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent, Bond Insurer and to the Servicer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to Trustee or Bond Insurer, Trustee may and shall at the written direction of Bond Insurer appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to Trustee and Bond Insurer. (d) Trustee agrees to bear and pay all fees and expenses of any such authenticating agent. (e) The provisions of Sections 10.01, 10.02 and 10.03 shall be applicable to any authenticating agent. -52- 59 (f) If an authenticating agent shall have been appointed pursuant to this Section 6.09, the Certificates may have endorsed thereon, in addition to Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Certificates referred to in the within-mentioned Pooling and Servicing Agreement. ______________________________________ as Authenticating Agent for Trustee, By:___________________________________ Authorized Signatory Section 6.10 Non-Petition. Each Certificateholder, by receiving and holding a Certificate agrees that so long as this Agreement is in effect and for one year and one day after its termination, neither it nor any Affiliate thereof will file any involuntary petition or otherwise institute any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceeding under any federal or state bankruptcy or similar law against Seller. ARTICLE VII MATTERS RELATING TO SELLER Section 7.01 Representations and Warranties Regarding Seller. Seller hereby represents and warrants to the Trust, Trustee, Bond Insurer and each Certificateholder: (a) Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, with full power and authority to own its properties and to conduct its business as presently conducted, and to execute, deliver, and perform its obligations under the Principal Agreements. (b) Due Qualification. Seller is duly qualified to do business as a foreign corporation and is in good standing, and has obtained all necessary licenses and approvals in all states in which the ownership or lease of its property or the conduct of its business requires such qualification, except to the extent that the failure to so qualify or obtain such licenses and approvals would not, in the aggregate, materially adversely affect the ability of Seller to perform its obligations under the Principal Agreements. -53- 60 (c) Power and Authority. Seller has the power and authority and legal right (including all requests, approvals, licenses and permits) to execute and deliver the Principal Agreements and to carry out their respective terms; Seller has duly authorized the transfer of all of its right, title and interest in and to the assets assigned and encumbered pursuant to Sections 2.01(c) and (d) by all necessary action; and the execution, delivery, and performance of the Principal Agreements have been duly authorized by Seller by all necessary action. (d) No Violation. The execution and delivery of the Principal Agreements, the Certificates and each conveyance of Trust Assets, the consummation of the transactions contemplated hereby and thereby and the fulfillment of the terms thereof will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, or require any consent or approval under (as applicable) the organizational documents of Seller, or any term of any agreement or other instrument to which Seller is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its material properties pursuant to the terms of such agreement or other instrument, other than any Lien created or imposed pursuant to the terms of any Principal Agreement, or violate any law or, to the best of Seller's knowledge, any material 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 Seller or any of its properties. (e) Principal Place of Business. Seller's principal place of business and chief executive office is in Rockland County, New York at the address set forth in this Agreement, and there are no other such locations. (f) Binding Obligation. Each of the Principal Agreements has been duly authorized, executed and delivered by Seller, and each constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general, and the availability of equitable remedies. (g) No Consent. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or Governmental Authority having jurisdiction over Seller or any of its properties or assets is required to be obtained by or with respect to Seller in connection with the execution, delivery and performance by it of the Principal Agreements and the consummation of the transactions contemplated hereby and thereby. (h) No Proceedings. There are no proceedings or investigations pending, or to the knowledge of Seller threatened, before any court or Governmental Authority (i) asserting the invalidity of any of the Principal Agreements, (ii) seeking to prevent the consummation of any of the transactions contemplated by any of the Principal Agreements or (iii) seeking a determination or ruling that might materially adversely affect the performance by Seller of its obligations hereunder or thereunder or the validity or enforceability of any of the Principal Agreements. -54- 61 (i) Solvency. Seller is solvent and will not become insolvent after giving effect to the transactions contemplated by the Principal Agreements; Seller has not incurred any indebtedness or other payment obligations; and Seller, after giving effect to the transactions contemplated by the Principal Agreements, will have an adequate amount of capital to conduct its business in the foreseeable future. (j) Other Business. Seller has not engaged in any business or incurred any liabilities or obligations other than as set forth in the Principal Agreements. (k) Injunctions. There is no outstanding injunction, writ, restraining order or other order of any nature that adversely affects Seller's performance of its obligations under the Principal Agreements or the consummation of the transactions contemplated thereby. (l) Compliance. Seller is in compliance with all applicable laws, rules, regulations, and orders with respect to the Seller, its business and properties and all of its Lease Contracts and Equipment. (m) Returns. Seller has filed on a timely basis all required tax returns. (n) Name. The legal name of the Seller is as set forth in this Agreement, and the Seller has no tradenames, fictitious names, assumed names or "doing business as" names. (o) Subsidiaries. The Seller has no subsidiaries. (p) Parent of Seller. Rockford is the registered owner of all of the issued and outstanding common stock of the Seller, all of which common stock has been validly issued, is fully paid and nonassessable and is owned of record, free and clear of all mortgages, assignments, pledges, security interests, warrants, options and rights to purchase. (q) Equipment and Lease Purchase Agreement. Seller has entered into the Equipment and Lease Purchase Agreement with Rockford from whom it has acquired the initial Trust Assets on the Closing Date, and from which it will acquire additional Trust Assets on Subsequent Closing Dates, and the representations and warranties made by Rockford relating to the Trust Assets have been, and on each Subsequent Closing Date will be, validly assigned to and are for the benefit of Seller, Trustee, the Trust, Bond Insurer and Certificateholders and such representations and warranties are true and correct in all material respects. (r) Bulk Transfer Laws. The transfer, assignment and conveyance of the Trust Assets by Seller pursuant to this Agreement is not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction. -55- 62 (s) The Lease Contracts. Seller hereby restates and makes each of the representations and warranties with respect to the Lease Contracts that are made by Rockford in Section 3.02 of the Equipment and Lease Purchase Agreement. (t) Separate Existence. Seller is operated in such a manner that it would not be substantively consolidated in the trust estate of any Affiliate, such that the separate existence of Seller and Affiliate would be disregarded, in the event of a bankruptcy or insolvency of Affiliate, and in such regard: (A) Seller is a corporation whose activities are restricted in its certificate of incorporation, a true and complete copy of which has been delivered to Trustee and Bond Insurer pursuant to the Purchase Agreement and such document has not been amended since the date of such delivery; (B) no Affiliate of Seller is involved in the day-to-day management of the Seller; (C) other than the activities undertaken pursuant to this Agreement and the Equipment and Lease Purchase Agreement, Seller engages in no transactions with any Affiliate; (D) Seller maintains separate corporate records and books of account from each Affiliate and otherwise observes corporate formalities and has a separate business office for each Affiliate, including Rockford; (E) the financial statements and books and records of each of its Affiliates prepared after the Initial Closing Date will reflect the separate existence of Seller; (F) Seller maintains its assets separately from the assets of any other Affiliate (including through the maintenance of a separate bank account), and Seller's funds and assets, and records relating thereto, have not been and are not commingled with those of any Affiliate; (G) no Affiliate (1) pays Seller's expenses, (2) guarantees Seller's obligations, or (3) advances funds to Seller for the payment of expenses or otherwise; (H) no Affiliate acts as an agent of Seller in any capacity (except as Servicer hereunder) and Seller does not act as agent for any Affiliate, but instead presents itself to the public as a corporation separate and apart from each of its other Affiliates, independently engaged in the business of having contributed to it by Rockford, and transferring undivided interests in, the Trust Assets; and -56- 63 (I) Seller will at all times be a corporation (1) having at least one Independent Director who shall at no time be a shareholder, director, officer or employee of any Affiliate, and (2) the certificate of incorporation of which provides that Seller shall not take any action requiring the unanimous consent of all directors of Seller without the consent of the Independent Director; (u) Sale or Absolute Assignment. For accounting purposes, Seller will treat the sale of all Lease Receivables pursuant to this Agreement as a sale, or absolute assignment, of its full right, title and ownership interest in such Lease Receivables to Trustee and Seller has not in any other manner accounted for the transactions in Lease Receivables by Seller contemplated hereby. (v) Taxes. Seller has filed on a timely basis all tax returns (federal, state, and local) required to be filed and has paid or made adequate provisions for the payment of all taxes, assessments, and other governmental charges due from Seller. (w) Material Information. All information heretofore or hereafter furnished by or on behalf of Seller to Trustee, Bond Insurer and Certificateholders in connection with this Agreement or any transaction contemplated hereby is and will be true and complete in all material respects and does not and will not omit to state a material fact necessary to make the statements contained therein not misleading. The representations and warranties of Seller set forth in this Section 7.01 shall be deemed to be remade, without further act by any Person, on and as of each Closing Date. ARTICLE VIII ADDITIONAL MATTERS RELATING TO SELLER Section 8.01 Covenants of Seller. (a) Security Interests. Seller hereby covenants that it will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Trust Assets now existing or hereafter created, or any interest therein prior to the termination of this Agreement pursuant to Article XI; and Seller shall defend the right, title and interest of the Trust in, to and under the applicable Trust Assets now existing or hereafter created, against all claims of third parties. (b) Preservation of Security Interest. Seller shall execute and cause Servicer to file such continuation statements, certificate of title documents and any other documents requested by Trustee or Bond Insurer or which may be required by law to fully preserve and protect the interest of the Trust and Trustee in the Trust Assets. -57- 64 (c) Maintenance of Office, etc. Seller will not, without providing at least thirty (30) days prior written notice to Trustee and Bond Insurer and without filing such amendments to any previously filed financing statements or certificates of title as Trustee or applicable law may require, (i) change the location of its principal executive office, or (ii) change its name, identity or corporate structure in any manner which would make any financing statement or continuation statement filed by Servicer in accordance with this Agreement seriously misleading or otherwise ineffective under the UCC or other relevant laws. (d) Further Assurances. Seller will make, execute or endorse, acknowledge, and file or deliver to Trustee from time to time such schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Trust Assets as Trustee or Bond Insurer may request and reasonably require. (e) Notice of Liens. Seller shall notify Trustee and Bond Insurer promptly after becoming aware of any Lien on any Trust Asset. (f) Rights. Seller will enforce its rights under the Equipment and Lease Purchase Agreement. (g) Obligations with Respect to Lease Contracts. Seller will duly fulfill all obligations on its part to be fulfilled under or in connection with each Lease Contract and will do nothing to impair the rights of the Trust in the Lease Receivables, the Lease Contracts and any other Trust Assets. As long as there is no event of default under the applicable Lease Contract, Seller will not disturb the Lessee's quiet and peaceful possession of the related Equipment and the Lessee's unrestricted use thereof for its intended purpose. (h) Compliance with Law. Seller will comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any governmental authority applicable to the Lease Contracts or any part thereof; provided, however, that Seller may contest any act, regulation, order, decree or direction in any reasonable manner which shall not materially and adversely affect the rights of the Trust in the Lease Receivables, the Contracts, the Trust Assets or the related Equipment. Seller will comply, in all material respects, with all requirements of law applicable to Seller. (i) Consolidated Return. Seller and Rockford are members of an affiliated group within the meaning of section 1504 of the Internal Revenue Code of 1986, as amended, which has filed, and will continue to file, a consolidated return for federal income tax purposes at all times until the termination of this Agreement. (j) Preservation of the Equipment. Seller warrants that with respect to each Lease Receivable transferred by Seller to the Trust, at the time of such transfer, Seller was the lawful owner and possessor of the Equipment related to such Lease Receivable (except with respect to -58- 65 Equipment in which it has a valid security interest) and that it will warrant and defend such Equipment against all Persons, claims and demands whatsoever. Seller shall not assign, sell, pledge, or exchange, or in any way encumber or otherwise dispose of the Equipment, except as permitted under this Agreement. (k) Taxable Income from the Lease Contracts. Seller shall treat the Lease Contracts as owned by it for federal income tax purposes, and the affiliated group of which Seller is a member within the meaning of section 1504 of the Internal Revenue Code of 1986, as amended, shall treat the Lease Contracts as owned by Seller for federal income tax purposes and shall report and include in gross income for federal, state and local income tax purposes in its consolidated or combined return the rental and other income from the Lease Contracts and deduct the interest paid or accrued, in accordance with the applicable method of accounting for federal income tax purposes, with respect to the Class A Certificates. (l) Use of Proceeds. The proceeds from the sale of the Certificates will be used by Seller to pay existing indebtedness of Rockford that was secured by Lease Contracts transferred to Seller on the Initial Closing Date or on any Subsequent Closing Date, pay the expenses associated with the issuance of the Certificates and the funding of the accounts described in Article IV hereof, and for general corporate purposes, including the payment of administrative expenses and dividends. Section 8.02 Indemnification of the Trust, Trustee, Bond Insurer, Back-up Servicer and Certificateholders. Rockford shall indemnify and hold harmless the Trust, Trustee, Bond Insurer, Back-up Servicer and each Certificateholder and their respective officers, directors, employees and agents from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions of Servicer or Seller with respect to the Trust pursuant to this Agreement or, without gross negligence or bad faith on the part of Trustee, arising out of Trustee's acceptance and administration of its trust hereunder, and from and against any taxes that may at any time be assessed against Trustee or the Trust with respect to the transactions contemplated herein, including, without limitation, any sales, gross receipts, general corporation, tangible personal property, privilege or license tax and expenses in defending against the same, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim. Any such indemnification shall not be payable from the assets of the Trust. The provisions of this Section 8.02 shall run directly to and be enforceable by an injured party subject to the limitations hereof, and the obligations of Seller under this Section 8.02 shall survive the termination of the Trust. THE INDEMNIFICATION PROVIDED TO EACH INDEMNIFIED PARTY IN THIS SECTION 8.02 IS INTENDED TO BE APPLICABLE TO THE FULLEST EXTENT PERMITTED BY LAW AND SHALL PROTECT EACH SUCH INDEMNIFIED PARTY EVEN IF SUCH INDEMNIFIED PARTY IS NEGLIGENT. Rockford shall pay any amounts owing under this Section 8.02 directly to such indemnified Person and such amounts shall not be deposited in any Account. The obligations of Rockford pursuant to this Section 8.02 shall survive the termination of the Trust. -59- 66 Section 8.03 Additional Obligations. (a) Seller agrees to hold in trust for the Trust and remit to Servicer any payments received by Seller in respect of the Trust Assets within one Business Day after receipt thereof by Seller. (b) Seller shall not, without the prior consent of Bond Insurer, (i) consent to any amendment of the Equipment and Lease Purchase Agreement, (ii) consent to any assignment of any rights of Servicer hereunder (except as specifically permitted hereunder), or (iii) amend its certificate of incorporation. (c) Seller covenants and agrees that it shall not have the authority to (or no shareholder shall have authority to cause Seller to): (i) engage in any business or activity other than in connection with, or relating to, or the carrying out of, the activities described in Article SECOND of Seller's certificate of incorporation; (ii) incur any other indebtedness or assume or guaranty any indebtedness of any other person or entity; (iii) merge or consolidate with or convey or transfer its properties and assets substantially as an entity to any Person, other than to an Affiliate of Seller, without obtaining the unanimous consent of its board of directors, which consent must include the consent of the Independent Director and prior consent of Bond Insurer, and any such merger or consolidation with, or conveyance or transfer to, an Affiliate of Seller shall be subject to the following conditions: (A) the surviving or resulting corporation shall be a corporation organized under the laws of the United States or any state thereof and its certificate of incorporation shall contain the same restrictions as are contained in the Seller's certificate of incorporation; (B) the surviving or resulting corporation (if other than Seller) shall expressly assume by a supplement to applicable Principal Agreements all of the Corporation's liabilities and obligations thereunder; (C) the consummation of such merger or consolidation shall not result in the lowering of the rating of the Certificates by any Rating Agency which is then rating the Certificates; and (D) such Affiliate shall be a newly-formed corporation with no outstanding liabilities and shall be acceptable to Bond Insurer. -60- 67 (iv) institute proceedings to be adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition or consent to a petition seeking reorganization or relief 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 Seller or a substantial part of its property, or make any assignment for the benefit of creditors or, except as required by law, admit in writing its inability to pay its debts generally as they become due, or take any corporate action in furtherance of any such action, without, in each case, the prior unanimous consent of its board of directors, which consent must include the consent of the Independent Director; (v) amend, alter in any manner or delete any provision of Seller's certificate of incorporation without obtaining the unanimous consent of the Board of Directors, which consent must include the consent of the Independent Director and the prior consent of Bond Insurer; or (vi) dissolve or liquidate, in whole or in part, if any Certificates or obligations to the Insurer in connection therewith are outstanding; or (vii) enter into any amendment of any of the Principal Agreements without the prior consent of Bond Insurer. (b) Seller shall conduct its affairs in accordance with the following provisions: (i) Seller shall furnish to Trustee, Bond Insurer and each Rating Agency copies of the form of each proposed amendment to its Certificate of Incorporation at least ten (10) business days prior to the proposed date of adoption of any such proposed amendment; (ii) Seller will observe all customary formalities of independent corporation existence; (iii) Seller shall maintain separate corporate records and books of account from those of Rockford and its other affiliates (or any other Person or entity), and Seller shall not commingle its funds or other assets with those of any Person or entity; (iv) Seller shall hold appropriate meetings of its board of directors and shareholders, or take actions by unanimous written consent to the extent permitted by applicable law, to authorize Seller's corporate actions; (v) Seller shall at all times hold itself out to the public (including, without limitation, to Rockford and the creditors of Rockford), in Seller's own name, as a separate and distinct entity from Rockford and its other affiliates; -61- 68 (vi) Seller shall at all times ensure that its capitalization is adequate in light of its business and purposes, and shall not declare or pay any dividend or other distribution with respect to its capital stock or make any payment on account of the purchase, redemption or other acquisition or retirement of its capital stock or any warrant, option or other right to acquire any such capital stock, either directly or indirectly, pay or deliver or commit to pay or deliver any monies or assets to Rockford or any other affiliate whether in cash or other property of Seller, if the effect thereof would be to leave Seller inadequately capitalized in light of the nature of its business and its then anticipated capital requirements to conduct its business as then being conducted or would cause Seller to not have a positive net worth; (vii) Seller will not engage in any business transaction with any affiliate of Seller unless such transaction is approved by its board of directors (including approval by the Independent Director) as a transaction with terms and conditions available at the time to Seller at least as favorable to Seller as for comparable transactions on an arms' length basis with unaffiliated Persons; (viii) Seller will not guarantee, assume or become liable for the obligations of Rockford or any of its other affiliates (or any other Person or entity) or advance funds to, or accept funds from, Rockford or any of its affiliates (or any other Person or entity) for the payment of expenses, except as expressly provided in the Principal Agreements and no shareholder shall guaranty, assume or become liable for the obligations of the Seller, except as expressly provided in the Agreements; and (ix) Seller will not act as an agent of Rockford or any of its other affiliates (or any other Person or entity) in any capacity; and (x) Seller will have no subsidiaries or any other affiliate that is controlled by Seller (d) At all times, at least one of the directors of Seller shall be an Independent Director. (e) Trustee, Bond Insurer and any Certificateholder and their respective representatives shall at all times, upon reasonable prior notice, have full and free access during normal business hours to all books, correspondence and written and computer records of Seller as appropriate to verify Seller's compliance with the Principal Agreements, and Trustee and such Certificateholder and their representatives may examine and audit the same, and make photocopies thereof, and Seller agrees to render to Trustee, Bond Insurer and any such Certificateholder and their representatives, not at the expense of Bond Insurer, such clerical and other assistance as may be reasonably requested with regard thereto. -62- 69 (f) Seller shall maintain separate corporate records and books of account from those of Rockford and its Affiliates or any other Person and Seller shall not commingle its funds or other assets with those of any other Person. (g) Seller will hold appropriate meetings of its Board of Directors and stockholders, or take actions by unanimous written consent if permitted by applicable law, to authorize Seller's corporate actions. (h) Seller will at all times hold itself out to the public, including Rockford, under Seller's own name, as a separate and distinct entity from Rockford and its Affiliates. (i) Seller will not (i) declare or pay any dividend or other distribution with respect to its capital stock, (ii) make any payment on account of the purchase, redemption or other acquisition or retirement of its capital stock or any warrant, option or other right to acquire any such capital stock, or (iii) either directly or indirectly, pay or deliver or commit to pay or deliver any monies or assets to Rockford or any other Affiliate whether in cash or other property of Seller, if the effect thereof would be to leave Seller inadequately capitalized to conduct its business as then being conducted or would cause Seller to not have positive net worth. (j) Seller will not engage in business transactions with any Affiliate unless it is approved by the Board of Directors (including approval by the Independent Director as a transaction with terms and conditions available at the time to Seller at least as favorable to Seller as for comparable transactions on an arm's length basis with unaffiliated Persons and entities. (k) On or before April 30 of each year, beginning in 1998, Seller shall deliver to Trustee, Bond Insurer and each Certificateholder an Officer's Certificate certifying that Seller has, during the preceding year, (i) observed all of the requirements of this Section 8.03, and (ii) observed all of the requisite corporate formalities and conducted its business and operations in such a manner as required for Seller to maintain its separate corporate existence from any other entity. (l) Seller shall operate its business and maintain its separate corporate existence in a manner so that Seller will not be substantively consolidated with Rockford and Seller's separate existence disregarded in event of Rockford's bankruptcy. (m) Seller shall at all times cause its certificate of incorporation to provide that Seller's activities and business are limited to the transactions contemplated by the Principal Agreements and activities incidental thereto. (n) Seller shall at all times cause the financial statements of Rockford to reflect the separate corporate existence of Seller. (o) Seller shall cause all of its business correspondence to reflect that business is being conducted in Seller's own name. -63- 70 Section 8.04 Servicer Reporting Requirements. (a) Servicer will deliver to each Holder of outstanding Class A Certificates, Bond Insurer, Back-up Servicer and Trustee (if different from Back-up Servicer): (1) Quarterly Statements - within ninety (90) days after the end of each of the first three quarterly fiscal periods in each fiscal year of the Servicer commencing with the quarter ending June 30, 1997, three copies of: (A) a balance sheet of Servicer, as at the end of such quarter, and (B) a statement of income, retained earnings and cash flow of Servicer for that quarter and for the portion of the fiscal year ending with such quarter; all accompanied by a certificate signed by a principal financial officer of Servicer stating that such financial statements present fairly the financial condition of Servicer and have been prepared in accordance with generally accepted accounting principles consistently applied; (2) Annual Statements -- within one hundred twenty (120) days after the end of each fiscal year of Servicer commencing with the fiscal year ending December 31, 1997, three copies of: (A) a consolidated and consolidating balance sheet of Servicer and its consolidated subsidiaries, with consolidating schedules for each of its consolidated subsidiaries at the end of that year, and (B) consolidated and consolidating statements of income, retained earnings and cash flow of Servicer and its consolidated subsidiaries for that year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion of a firm of Independent Public Accountants stating that such financial statements present fairly the financial condition of Servicer and its consolidated subsidiaries and have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur and footnote), and that the examination of such accountants in connection with such financial statements has been made in connection with generally accepted auditing standards, and included examining, on a test basis, evidence supporting the amounts and disclosures on the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation; (3) Notice of Event of Servicer Default, Trigger Event and Funding Period Trigger Event -- immediately upon becoming aware of the existence of any -64- 71 condition or event which constitutes Servicer Default or a Trigger Event or a Funding Period Trigger Event, a written notice describing its nature and period of existence and what action Servicer is taking or proposes to take with respect thereto; (4) Report on Proceedings -- promptly upon Servicer's becoming aware of: (i) any proposed or pending investigation of it by any governmental authority or agency, or (ii) any court or administrative proceeding which involves or may involve the possibility of materially and adversely affecting the properties, business, prospects, profits or conditions (financial or otherwise) of Servicer, a written notice specifying the nature of such investigation or proceeding and what action the Servicer is taking or proposes to take with respect thereto and evaluating its merits; or (iii) any notice from any agency or governmental body having authority over the conduct of its business that it is to cease and desist, or to undertake, any practice, program, procedure or policy employed by it in the conduct of its business, and such cessation or undertaking will materially adversely affect its ability to perform its obligations hereunder; or (iv) any litigation claiming damages in excess of $100,000 from Servicer or which may otherwise have a material adverse effect on the business, financial condition, property or prospects of the Servicer; (5) Requested Information -- with reasonable promptness, any other data and information which may be reasonably requested by Bond Insurer or Trustee from time to time, including without limitation any information required to be made available at any time to any prospective transferee of any Certificates in order to satisfy the requirements of Rule 144A under the Securities Act. (6) Officer's Certificates -- With each set of financial statements delivered pursuant to Section 8.04(a), Servicer will deliver an Officer's Certificate stating (i) that the officer signing such certificate has reviewed the relevant terms of this Agreement and the Principal Agreements to which Servicer is a party and has made, or caused to be made under such officer's supervision, a review of the activities of Servicer during the period covered by the statements then being furnished, (ii) that the review has not disclosed the existence of any Servicer Default or, if a Servicer Default exists, describing its nature and what action Servicer has -65- 72 taken and is taking with respect thereto, and (iii) that on the basis of such review the officer signing such certificate is of the opinion that during such period Servicer has serviced the Lease Contracts in compliance with the procedures hereof except as described in such certificate. (b) On or before each April 15, commencing April 15, 1998, so long as any of the Certificates are outstanding, Servicer shall furnish to Bond Insurer and Trustee an Officer's Certificate either stating that such action has been taken with respect to the recording, filing, rerecording and refiling of any financing statements and continuation statements as is necessary to maintain the interest of Trustee created by this Agreement with respect to the Trust and reciting the details of such action or stating that no such action is necessary to maintain such interests. Such Officer's Certificate shall also describe the recording, filing, rerecording and refiling of any financing statements and continuation statements that will be required to maintain the interest of Trustee in the Trust until the date such next Officer's Certificate is due. Servicer will use its best efforts to cause any necessary recordings or filings to be made with respect to the Trust. Section 8.05 Annual Independent Public Accountant's Servicing Report; Annual Federal Tax Lien Search; Quarterly Re- underwriting. (a) Servicer at its expense shall cause Independent Public Accounts (who may also render and deliver other services to Servicer and its Affiliates) to prepare a statement to Back-up Servicer, Trustee, Certificateholders, Bond Insurer and Rating Agencies dated as of June 30, 1998, and annually as of each June 30 thereafter, to the effect that the Independent Public Accountants have examined the Servicing Procedures, manuals, guides and records of Servicer, and the accounts and records of Servicer relating to the Lease Contracts and the Lease Files (which procedures, manuals, guides and records shall be described in one or more schedules to such statement), that such Independent Public Accountants have compared the information contained in the Monthly Statements delivered in the prior twelve months (except for the initial report which shall be for the period from the Initial Closing Date to June 30, 1998) with information contained in the accounts and records for such period, and that, on the basis of such examination and comparison, nothing has come to the Independent Public Accountant's attention to indicate that Servicer has not, during the relevant period, serviced the Lease Contracts in compliance with such Servicing Procedures, manuals and guides and in the same manner required by Servicer's standards and with the same degree of skill and care consistent with that which Servicer customarily exercises with respect to similar contracts owned by it and otherwise in compliance with this Agreement, that such accounts and records have not been maintained in accordance with the Principal Agreements, that the information contained in the Monthly Statements does not reconcile with the information contained in the accounts and records or that such certificates, accounts and records have not been properly prepared and maintained in all material respects or in accordance with the requirements of this Agreement, except in each case for (a) such exceptions as the Independent Public Accountant shall believe to be immaterial and (b) such other exceptions as shall be set forth in such statement. On or before September 30 of each year, commencing on September 30, 1997, Servicer shall deliver to Back-up Servicer, Trustee, Certificateholders and Bond Insurer a copy of such statement. -66- 73 (b) Promptly after the end of Servicer's fiscal year, Servicer, at its expense, shall cause a search of any and all federal tax liens against the affiliated group of which Seller and Rockford are members within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Affiliated Group") as of the end of such fiscal year to be conducted and shall deliver to Back-up Servicer, Trustee, Bond Insurer and Certificateholders on or before July 31 of each year, commencing July 31, 1997, an Officer's Certificate signed by a Servicing Officer (i) stating that there are no outstanding federal tax liens filed against any member of the Affiliated Group or (ii) listing the outstanding federal tax liens filed against any member of such Affiliated Group. In the event any such certificate shall disclose any such federal tax liens, Servicer shall promptly thereafter, satisfy any such federal tax liens. (c) In accordance with the schedule set forth in the next succeeding sentence, Servicer shall cause Independent Public Accountants or other Persons acceptable to Bond Insurer to (1) re-underwrite a 10% sample (or, at Seller's option, a sample size that will allow for a 99% confidence level or such smaller sample as consented to by Bond Insurer in writing) of Lease Contracts conveyed to the Trust since the prior re-underwriting review and (2) contact the related Lessee and confirm in writing such Lessee's lease obligations. Servicer shall cause the foregoing (collectively, a "Review") to occur (i) monthly until the earlier to occur of (A) October 1997 or (B) the month preceding the month in which the Initial Aggregate Certificate Principal Balance exceeds $30,000,000; (ii) thereafter, during each month in which the Initial Aggregate Certificate Principal Balance has increased by at least $20,000,000 since the immediately preceding Review, until such time as the Initial Aggregate Certificate Principal Balance exceeds $75,000,000; (iii) thereafter, semi-annually. Section 8.06 Filing. No later than the Initial Closing Date, with respect to the Lease Contracts and Equipment purchased by the Trust on the Initial Closing Date, and no later than the related Subsequent Closing Date with respect to Lease Contracts and Equipment purchased by the Trust on the such Subsequent Closing Date, Rockford and the Seller shall file UCC-1 financing statements or other lien perfection documents described in Section 2.04 of the Purchase Agreement. From time to time, Servicer shall take or cause to be taken such actions and execute such documents as are necessary to perfect and protect the Trust's, Bond Insurer's and Certificateholders' interests in the Lease Contracts, and the Equipment owned by Seller against all other Persons, including, without limitation, the filing of financing statements or vehicle lien applications, amendments thereto and continuation statements, the execution of transfer instruments and the making of notations on or taking possession of all records or documents of title. Section 8.07 Name Change or Relocation. If any change in either Rockford's or Seller's name, identity, structure or the location of its principal place of business or chief executive office occurs, then Rockford or Seller, as the case may be, shall deliver ten (10) days prior written notice of such change or relocation to Servicer, Bond Insurer, and Trustee and no later than five (5) days after the effective date of such change or relocation, Servicer shall file such amendments or -67- 74 statements as may be required to preserve and protect Certificateholders' or Bond Insurer's interests in the Trust Assets. Section 8.08 Chief Executive Office. During the term of this Agreement, Seller will maintain its chief executive office and principal place of business in one of the States of the United States. Section 8.09 Costs and Expenses. Servicer agrees to pay all reasonable costs and disbursements in connection with the perfection and the maintenance of perfection, as against all third parties, of the Trust's, Bond Insurer's and Certificateholders' right, title and interest in and to the Trust Assets. ARTICLE IX SERVICER DEFAULTS Section 9.01 Servicer Defaults. If any one of the following events (a "Servicer Default") shall occur: (a) any failure by Servicer to endorse and deposit on a daily basis the contents of the Lockbox Account pursuant to Section 4.02, to direct the Lockbox Account Bank to make deposits in the Investment Account at the times specified herein, to make any Servicer Advance in accordance with Section 3.03, to make any deposits to the Investment Account of Collections received or required to be made by Servicer at the times specified herein, to give instructions or notice to Trustee to make a required drawing under the Letter of Credit or to make a Cash Collateral Withdrawal or to make the payments and deposits on a Deposit Date in accordance with Section 4.08(b); (b) failure on the part of Servicer to deliver the Monthly Statement in accordance with Section 3.09; (c) failure on the part of Servicer duly to observe or perform in any material respect any other covenants or agreements of Servicer set forth in this Agreement, which 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 Servicer by the Trustee, or to Servicer and Trustee by the Majority Certificateholders or Bond Insurer; or Servicer shall delegate or attempt to delegate its duties under this Agreement; (d) any representation, warranty or certification made by Servicer in this Agreement or in any certificate delivered pursuant to this Agreement shall prove to have been incorrect when made, which has a material adverse effect on the rights of the Certificateholders or Bond Insurer or on the ability of Servicer to perform its obligations hereunder and which continues to be incorrect in any material respect for a period of 30 days after the date on which written notice of such failure, -68- 75 requiring the same to be remedied, shall have been given to Servicer by Trustee, or to Servicer and Trustee by the Majority Certificateholders or Bond Insurer; (e) Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to Servicer or of or relating to all or substantially all of its property; or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or 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 insolvency or reorganization statute, make any assignment for the benefit of creditors or voluntarily suspend payment of its obligations; a petition is filed against Servicer seeking relief under the bankruptcy, arrangement, reorganization or other debtor relief laws of the United States or any state or other competent jurisdiction, and such petition, order, judgment or decree shall have remained in force, undischarged or unstayed for a period of sixty (60) days after its entry; (f) in the case of Rockford while acting as Servicer, any of the events referred to in Section 2.02(j), (k) or (l) of the Purchase Agreement shall have occurred; or (g) a Trigger Event shall have occurred; provided, however, that if, after the Initial Cut-Off Date, Servicer shall merge, consolidate or effect any other corporate structural change, including without limitation any sale of the majority of its voting securities or transfer of ownership, Bond Insurer shall have the right, in its sole discretion, to modify the Servicer Defaults then, Trustee may or, at the written direction of Bond Insurer, by notice then given in writing to Servicer (a "Termination Notice"), shall terminate all of the rights and obligations of Servicer as "Servicer" hereunder and in and to the Trust Assets and the proceeds thereof. After receipt by Servicer of such Termination Notice, all authority and power of Servicer under this Agreement shall, with the prior written consent of Bond Insurer, pass to and be vested in the Back-up Servicer; and, without limitation, Seller, Back-up Servicer and Trustee are hereby authorized and empowered (upon the failure of Servicer to cooperate) to execute and deliver, on behalf of Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. Servicer agrees to cooperate with Seller, Back-up Servicer, Bond Insurer and Trustee and any Successor Servicer in effecting the termination of the responsibilities and rights of Servicer to conduct servicing hereunder, including, without limitation, the transfer to such Successor Servicer of all authority of Servicer to service the Trust Assets provided for under this Agreement, and all authority over the Accounts and over all Collections which shall on the date of transfer be held by Servicer for deposit, or which have been deposited by Servicer in the Investment Account or the Class A Certificate Account or which shall thereafter be received with respect to the Trust Assets, -69- 76 and in assisting the Successor Servicer and in enforcing all rights to Insurance Proceeds. Servicer shall promptly transfer its Lease Management System relating to the Trust Assets to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request, and shall promptly transfer to the Successor Servicer all other records, the Lease Files, correspondence and documents necessary for the continued servicing of the Trust Assets in the manner and at such times as the Successor Servicer shall reasonably request. To the extent that compliance with this Section 9.01 shall require Servicer to disclose to the Successor Servicer information of any kind which Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as Servicer shall deem reasonably necessary to protect its interest. Section 9.02 Back-up Servicer to Act; Appointment of Successor. (a) On and after the receipt by Servicer of a Termination Notice pursuant to Section 9.01, Servicer shall continue to perform all servicing functions under this Agreement until a Successor Servicer acceptable to Bond Insurer has assumed such servicing functions. Back-up Servicer has agreed to the back-up servicing plan, attached hereto as Schedule 9.02, which plan may be amended from time to time by mutual agreement of Trustee, Back-up Servicer and Bond Insurer. Upon receipt by Servicer and Back-up Servicer of a Termination Notice and consent from Bond Insurer, Back-up Servicer shall be deemed to have been appointed and to have accepted appointment as "Successor Servicer" and shall succeed to the rights and obligations of Servicer on the date specified in the Termination Notice or as otherwise mutually agreed by Servicer, Trustee, Back-up Servicer and Bond Insurer established pursuant to the preceding sentence without further action on the part of any Person; provided, Back-up Servicer shall have the right to designate a Successor Servicer to act as Servicer in lieu of Back-up Servicer, subject to the approval of Bond Insurer. In the event that Back-up Servicer shall be prohibited under applicable law or shall otherwise fail to assume the duties of Servicer, or shall be terminated as Servicer pursuant to Section 9.01, Bond Insurer may appoint a Successor Servicer and if Bond Insurer fails to do so Trustee shall as promptly as possible after the giving of a Termination Notice appoint a Successor Servicer acceptable to Bond Insurer and such Successor Servicer shall accept its appointment by written assumption in a form acceptable to Trustee and Bond Insurer; any such Successor Servicer (other than Back-up Servicer) to be subject to the approval of Bond Insurer. In the event that a Successor Servicer has not been appointed and has not accepted its appointment at the time when Servicer ceases to act as a Servicer, Trustee, without further action, shall automatically be appointed the Successor Servicer, unless Trustee shall be legally unable or shall be unwilling to so act, in which event Trustee shall petition a court of competent jurisdiction to appoint and establish a servicing entity having a net worth of not less than $1,000,000 and whose regular business includes the servicing of leases of equipment and is acceptable to Bond Insurer. (b) Upon its appointment, Successor Servicer shall be the successor in all respects to Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the -70- 77 Successor Servicer and except that Servicer Advances shall be repayable to the Servicer or Successor Servicer, as the case may be, that actually made such Servicer Advances. (c) In connection with such appointment and assumption, Trustee shall be entitled to such compensation, or may make such arrangements for the compensation of Successor Servicer out of Collections, as it and such Successor Servicer shall agree; provided, no such compensation shall be in excess of that provided in Section 3.08 unless agreed to in writing by Bond Insurer. (d) All authority and power granted to Servicer or any Successor Servicer under this Agreement shall automatically cease and terminate upon termination of the Trust pursuant to Section 11.01 and shall pass to and be vested in Seller and, without limitation, Seller is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of the transfer of servicing rights. The Successor Servicer agrees to cooperate with Seller in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Trust Assets. The Successor Servicer shall transfer its electronic records relating to the Trust Assets to Seller in such electronic form as Seller may reasonably request and shall transfer all other records, correspondence and documents to Seller in the manner and at such times as Seller shall reasonably request. Section 9.03 Notification to Certificateholders. Upon the occurrence of any Servicer Default, Servicer shall give prompt written notice thereof to Trustee and Bond Insurer, and Trustee thereupon shall give notice to the Certificateholders at their respective addresses appearing in the Certificate Register. Upon any termination or appointment of a Successor Servicer pursuant to this Article IX, Trustee shall give prompt written notice thereof to the Certificateholders at their respective addresses appearing in the Certificate Register and to Bond Insurer. Section 9.04 Waiver of Past Defaults. Bond Insurer or the Majority Certificateholders, may with the prior written consent of the Bond Insurer, on behalf of all Holders of Certificates, waive in writing any default by Seller, Servicer or Successor Servicer in the performance of their respective obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. Written notice of any such waiver shall be promptly given by the Trustee to the Bond Insurer. Section 9.05 Limitation. In the event that Back-up Servicer is appointed Successor Servicer hereunder, it shall be entitled to the following rights, remedies, and protections in carrying out its duties as Servicer hereunder: (i) the Successor Servicer shall not be liable for any act or omission in carrying out its duties hereunder except for its own negligence, reckless disregard of its duties, bad faith or willful misconduct; (ii) the Successor Servicer may rely on and be fully -71- 78 protected in acting or refraining from acting in accordance with any resolution, certificate, letter, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other documents received by it which it has reason to believe is genuine and signed or presented to it by a proper party; and (iii) the Successor Servicer shall not be responsible or liable for the value or collectibility of any Lease Contract, except to the extent resulting from the Successor Servicer's negligence, reckless disregard of its duties, bad faith or willful misconduct. ARTICLE X THE TRUSTEE Section 10.01 Duties of Trustee. (a) Trustee, prior to the occurrence of a Servicer Default and after the curing or waiving of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Principal Agreements to which it is a party. If a Servicer Default has occurred and shall be continuing (the appointment of a Successor Servicer including Trustee being deemed to constitute a cure of such Servicer Default), Trustee shall exercise such of the rights and powers vested in it by this Agreement, 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. (b) Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. (c) Subject to Section 10.01(a), no provision of this Agreement shall be construed to relieve Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct, provided: (i) Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of Trustee, selected by Trustee with due care, unless it shall be proved that Trustee was negligent in ascertaining the pertinent facts; (ii) Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Bond Insurer relating to the time, method and place of conducting any proceeding for any remedy available to Trustee, or exercising any trust or power conferred upon Trustee, under this Agreement; (iii) Trustee shall not be charged with knowledge of any failure by Servicer to comply with the obligations of Servicer referred to in clause (a) of Section 9.01 unless a Responsible Officer of Trustee obtains actual knowledge of such failure, default or event or -72- 79 Trustee receives written notice of such failure, default or event from Servicer, Bond Insurer or the Majority Certificateholders; (iv) prior to the occurrence of any Servicer Default, and after the curing or waiving of all such Servicer Defaults that may have occurred, the duties and obligations of Trustee shall be determined solely by the express provisions of the Principal Agreements, Trustee shall not be liable except for the performance of such duties and obligations as shall be specifically set forth in the Principal Agreements, no implied covenants or obligations shall be read into this Agreement against Trustee and, in the absence of bad faith on the part of the Trustee, Trustee may conclusively rely on the truth of the statements and the correctness of the opinions expressed in any certificates or opinions furnished to Trustee and conforming to the requirements of this Agreement; and (v) without limiting the generality of this Section 10.01 or Section 10.02, Trustee shall have no duty (i) to see to any recording, filing, or depositing of this Agreement, any agreement referred to herein, or any financing statement or continuation statement evidencing a security interest in the Lease Contracts or to see to the maintenance of any such recording, filing or depositing or to any rerecording, refiling or redepositing of any thereof, (ii) to see to any insurance of the Equipment or to effect or maintain any such insurance, (iii) to see to the payment or discharge of any tax, assessment or other governmental charge or any Lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the Trust, (iv) to confirm or verify the contents of any reports or certificates of Servicer delivered to the Trustee pursuant to this Agreement believed by Trustee to be genuine and to have been signed or presented by the proper party or parties, or (v) to inspect the Equipment at any time or ascertain or inquire as to the performance or observance of any of Seller's or Servicer's representations, warranties or covenants or Servicer's duties and obligations as Servicer. (d) Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer or the Successor Servicer under this Agreement except during such time, if any, as Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, Servicer in accordance with the terms of this Agreement. (e) Except for actions expressly authorized by this Agreement, Trustee shall take no action reasonably likely to impair the interests of the Trust or Bond Insurer in any Trust Asset now existing or hereafter created or to impair the value of any Trust Asset now existing or hereafter created. -73- 80 (f) Except as specifically provided herein, Trustee shall have no power to vary the corpus of the Trust including, without limitation, the power to (i) accept any substitute obligation for a Trust Asset initially contributed to the Trust, (ii) add any other investment, obligation or security to the Trust or (iii) withdraw from the Trust any Trust Assets, except for a withdrawal permitted hereunder. (g) In the event that the Paying Agent or the Transfer Agent and Registrar shall not be Trustee and fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Agreement, Trustee shall be obligated promptly to perform such obligation, duty or agreement in the manner so required. Section 10.02 Certain Matters Affecting the Trustee. Except as otherwise provided in Section 10.01: (a) Trustee may rely on and shall be protected in acting on, or in refraining from acting in accordance with, any resolution, Officer's Certificate, written notice from a Servicing Officer, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; (b) Trustee may consult with counsel, and any Opinion of Counsel satisfactory to Bond Insurer shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (c) 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 hereunder or in relation hereto, at the request, order or direction of the Certificateholders, pursuant to the provisions of this Agreement, unless the Certificateholders shall have offered to Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve Trustee of the obligations, upon the occurrence of any Servicer Default which is continuing to exercise such of the rights and powers vested in it by this Agreement, and to 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; (d) Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (e) Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, -74- 81 approval, bond or other paper or document, unless requested in writing so to do by Bond Insurer or the Majority Certificateholders; (f) 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; (g) except as expressly required under the Principal Agreements, Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Trust Assets for the purpose of establishing the presence or absence of defects, the compliance by Seller or the Servicer with their representations and warranties or for any other purpose; and (h) whenever in the administration of the provisions of this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action to be taken hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of Trustee, be deemed to be conclusively proved and established by an Officer's Certificate or written notice of a Servicing Officer, and such Officer's Certificate or written notice of a Servicing Officer, in the absence of negligence or bad faith on the part of Trustee, shall be full warrant to Trustee for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof. Section 10.03 Trustee Not Liable for Recitals in Certificates. Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 10.14, Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Lease Contract or related document. Trustee shall not be accountable for (i) the use or application by Seller of any of the Certificates or the use or application by Seller of the proceeds of such Certificates, or for the use or application of any funds paid to Seller in respect of the Trust Assets or deposited in or withdrawn from the Investment Account, the Cash Collateral Account or any Class A Certificate Account or (ii) any funds drawn under the Letter of Credit, in each case by direction of Servicer and shall not be responsible for filing any financing or continuation statements or certificates of title relating to the Trust Assets under the UCC or other applicable law of any applicable jurisdiction. Section 10.04 Rockford to Pay Certain of Trustee's Fees and Expenses. Rockford covenants and agrees to pay to Trustee from time to time, and Trustee shall be entitled to receive, such fees and expenses as are set forth in a letter agreement between Rockford and Trustee. The obligations of Rockford under this Section 10.04 shall survive the termination of the Trust and the resignation or removal of Trustee and the resignation or removal of Rockford as Servicer. Section 10.05 Eligibility Requirements for Trustee. There shall at all times be a Trustee hereunder which shall be acceptable to Bond Insurer and a national banking association organized and doing business under the laws of the United States of America or of any State, authorized -75- 82 under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 10.05, 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 Trustee shall cease to be eligible in accordance with the provisions of this Section 10.05, it shall resign immediately in the manner and with the effect hereunder specified in this Article X. Section 10.06 Resignation or Removal of Trustee. (a) Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to Seller, Servicer, Bond Insurer and the Certificateholders. Upon receiving such notice of resignation, Seller shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee; provided, any such successor trustee must be approved by Bond Insurer, which consent shall not be unreasonably withheld or delayed. If no successor trustee shall have been so appointed and have accepted within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee acceptable to Bond Insurer. (b) If at any time Trustee shall cease to be eligible in accordance with the provisions of Section 10.05 and shall fail to resign after written request therefor by Seller with the consent of Bond Insurer or by Bond Insurer, or if at any time Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of Trustee or of its property shall be appointed, or any public officer take charge or control of Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then Seller may with the prior written consent of Bond Insurer and shall at the direction of Bond Insurer, remove Trustee and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to Trustee so removed and one copy to the successor trustee at least 30 days in advance of the effective date of such removal; provided, any such successor trustee must be approved by Bond Insurer. In addition to the foregoing rights, and provided Seller first obtains the written consent of the Bond Insurer (which may be given or withheld in the sole and absolute discretion of the Bond Insurer), Seller may remove Trustee at any time without cause and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to Trustee so removed and one copy to the successor trustee; provided, any such successor trustee must be approved by the Bond Insurer. (c) Any resignation or removal of Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 10.06 shall not become effective until acceptance of appointment by the successor trustee acceptable to Bond Insurer as provided in Section 10.07 and any liability of Trustee arising hereunder shall survive such appointment of a successor trustee. Rockford shall promptly pay all fees and expenses owed to the outgoing Trustee as well as all other amounts due Trustee hereunder. -76- 83 Section 10.07 Successor Trustee. (a) Any successor trustee appointed as provided in Section 10.06 shall execute, acknowledge and deliver to Seller, and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor Trustee all documents and statements held by it hereunder, and Seller and the predecessor 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 trustee all such rights, powers, duties and obligations, including, without limitation, the execution of any documentation necessary to transfer the Letter of Credit to the successor Trustee. (b) No Person shall be appointed as successor trustee hereunder unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 10.05. (c) Upon acceptance of appointment by a successor trustee as provided in this Section 10.07, such successor trustee shall mail notice of such succession hereunder to Bond Insurer all the Certificateholders at their respective addresses as shown in the Certificate Register. Section 10.08 Merger or Consolidation of Trustee. Any Person into which 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 Trustee shall be a party, or any Person succeeding to the corporate trust business of Trustee, shall be the successor of Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 10.05, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 10.09 Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust or Trust Assets may at the time be located, Trustee shall have the power and may 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, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders and Bond Insurer, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 10.09, such powers, duties, obligations, rights and trusts as Trustee 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 10.05 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 10.07; provided, however, that each co-trustee or separate trustee must be acceptable to Bond Insurer. The appointment of any co-trustee or separate trustee shall not relieve the Trustee of any of its obligations under the Principal Agreements. -77- 84 (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon Trustee shall be conferred or imposed upon and exercised or performed by 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 Trustee joining in such act), except to the extent that under any laws of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), 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 Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; (iii) Trustee may at any time and shall at the direction of Bond Insurer accept the resignation of or remove any separate trustee or co-trustee; and (iv) all duties owed hereunder to the Trustee shall be deemed to be owed to each separate trustee and co-trustee. (c) Any notice, request or other writing given to 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 X. 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 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, Trustee. Every such instrument shall be filed with Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute 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 to 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 Trustee, to the extent permitted by law, without the appointment of a new or successor Trustee. Section 10.10 Tax Returns. In the event the Trust shall be required to file tax returns, Servicer, as soon as practicable after it is made aware of such requirement, shall prepare or cause to be prepared any tax returns required to be filed by the Trust and shall remit such returns to Trustee -78- 85 for signature at least five Business Days before such returns are due to be filed. Servicer shall also prepare or shall cause to be prepared all tax information required by law to be distributed to Certificateholders and shall deliver such information to Trustee at least five Business Days prior to the date it is required by law to be distributed to Certificateholders. Trustee, upon written request, will furnish the Servicer with all such information known to Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust. In no event shall Trustee or Servicer be liable for any liabilities, costs or expenses of the Trust or the Certificateholders arising under any tax law, including without limitation, Federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from a failure to comply therewith). Section 10.11 Trustee May Enforce Claims Without Possession of Certificates. All rights of action and claims under this Agreement or the Certificates may be prosecuted and enforced by Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by Trustee shall be brought in its own name as Trustee and shall be consented to, prior to institution, by Bond Insurer. Any recovery of judgment shall, after provision for the payment of the reasonable compensation and reasonable out-of-pocket expenses, disbursements and advances of Trustee, its agents and counsel, be for the ratable benefit of the Certificateholders and Bond Insurer in respect of which such judgment has been obtained. Section 10.12 Suits for Enforcement. If a Servicer Default shall have occurred and be continuing, Trustee, subject to the provisions of Section 10.01 and with the prior written consent of Bond Insurer, proceed to protect and enforce its rights and the rights of the Certificateholders and Bond Insurer under this Agreement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the execution of any power granted in this Agreement or for the enforcement of any other legal, equitable or other remedy as Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of Trustee or the Certificateholders. Section 10.13 Rights of Bond Insurer to Direct Trustee. Bond Insurer shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to Trustee, or exercising any trust or power conferred on Trustee; provided, subject to Section 10.01, Trustee shall have the right to decline to follow any such direction if Trustee being advised by counsel selected by it with due care determines that the action so directed may not lawfully be taken, or if Trustee in good faith shall determine that the proceedings so directed would be illegal or expose it to a material risk of adverse personal liability; and provided further, nothing in this Agreement shall impair the right of Trustee to take any action deemed proper by Trustee and which is not inconsistent with such direction. Section 10.14 Representations and Warranties of Trustee. Trustee represents and warrants that: -79- 86 (i) Trustee is a national banking association, organized, existing and in good standing under the laws of the United States of America; (ii) Trustee has full power, authority and right to execute, deliver and perform each of the Principal Agreements to which it is a party, and has taken all necessary action to authorize the execution, delivery and performance by it of each of the Principal Agreements to which it is a party; (iii) the execution, delivery and performance by Trustee of the Principal Agreements (a) will not violate any provision of any law or regulation governing the banking and trust powers of Trustee or any order, writ, judgment, or decree of any court, arbitrator or Governmental Authority applicable to Trustee or any of its assets, (b) will not violate any provision of the corporate charter or by-laws of Trustee, (c) will not violate any provision of, or default under, or result in the creation or imposition of any Lien on any properties included in the Trust Assets pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking to which it is a party or which is binding upon it or upon any of its assets except as permitted hereunder, and (d) will not require any additional authorization, consent or approval or the giving of any prior notice to, or the prior filing or registration with, any Governmental Authority or agency regulating the activities of Trustee or any successor Trustee; (iv) there is no litigation pending or, to the best knowledge of Trustee, threatened, before or by any court, public body or board calling into question the creation, organization or existence of Trustee, or the authority or ability of Trustee to accept the Trust and perform its duties and obligations hereunder and under the other Principal Agreements; and (v) each of the Principal Agreements to which it is a party have been duly executed and delivered by Trustee, and each constitutes a legal, valid and binding obligation of Trustee enforceable against Trustee in accordance with its terms. Section 10.15 Maintenance of Office or Agency. Trustee will maintain at its expense in Houston, Texas, an office or offices or agency or agencies where notices and demands to or upon Trustee in respect to the Certificates and this Agreement may be served. The Trustee initially appoints the Corporate Trust Office as its office for such purposes. Trustee will give prompt written notice to the Servicer, Bond Insurer and to each Certificateholder of any change in the location of the Certificate Register or any such office or agency. Section 10.16. Servicer Default. Trustee shall promptly notify each Rating Agency, Bond Insurer and Centre Square upon becoming aware that a Servicer Default has occurred. Section 10.17. Review of Lease Files. Within three Business Days after Trustee receives the Lease Files for the Lease Contracts assigned to the Trustee for the benefit of the -80- 87 Certificateholders and Bond Insurer on a Closing Date, Trustee shall review the Lease Files and shall deliver to the Certificateholders and Bond Insurer a certificate in the form attached as Exhibit G whereby the Trustee confirms that its review of the Lease Files for the Lease Contracts has been completed without any exceptions other than those noted therein. Within six months after the end of the Funding Period, Trustee shall review the Lease Files and shall deliver to the Certificateholders and Bond Insurer certification that it has reviewed the Lease Files with respect to Lease Contracts relating to Vehicles and that all original Certificates of Title have been delivered to Trustee. Within 90 days of the Initial Closing Date, Trustee shall certify to Bond Insurer that an amended certificate of acceptance in the form of Exhibit E to the Equipment and Lease Purchase Agreement in connection with Lease Contracts originated on the form attached as Exhibit D-1 to the Equipment and Lease Purchase Agreement is in the related Lease Files. ARTICLE XI TERMINATION Section 11.01 Termination of Trust. (a) The respective obligations and responsibilities of Seller, Servicer and Trustee created hereby (other than the obligation of Trustee to make payments to the Certificateholders as hereafter set forth and other than liability for any breach by any such party prior to the date of such termination of any of its obligations, representations or warranties under this Agreement) shall terminate, except with respect to the duties described in Sections 3.07(c), 8.02 and 11.03(b), upon the Trust Termination Date. (b) If on the Trust Termination Date there are any unpaid amounts due with respect to the Certificates, Trustee shall, at the written direction of Bond Insurer, sell, dispose of or otherwise liquidate an amount of the Trust Assets remaining in the Trust, sufficient to pay any such unpaid amounts, in a commercially reasonable manner and on commercially reasonable terms. The proceeds of such sale, disposition or liquidation shall be treated as Collections, deposited into the appropriate accounts, and distributed in accordance with Section 4.08(b). Trustee will rely upon the advice and instructions of Bond Insurer with respect to the manner and terms of any such sale. Section 11.02 Optional Purchase. Seller will have the option (and, if the Seller elects not to exercise such option, Bond Insurer will have the option) but not the obligation, on or after the earlier to occur of the Payment Date as of which the Aggregate Discounted Lease Contract Balance (adjusted, however, to include the present value of any Scheduled Payments for which Servicer Advances have been made that Servicer in good faith believes it will be able to recoup from subsequent Collections under the applicable Lease Contracts) has declined to 10% or less of the Initial Aggregate Certificate Principal Balance, to purchase all, but not less than all, of Trustee's right, title and interest in the Equipment and the Lease Contracts at a price equal to (a) the Class A Certificate Investor Interest plus (b) accrued interest on the Class A Certificates for one month, plus (c) any Servicing Fees due plus (d) all amounts due to Bond Insurer hereunder and under the Insurance Agreement (the "Optional Purchase Amount"). The Optional Purchase Amount will be paid in immediately available funds on the Business Day preceding a Payment Date into the -81- 88 Investment Account and will be distributed by Trustee to the Certificateholders, the Servicer and Bond Insurer. Section 11.03 Final Distribution. (a) Written notice of any termination, specifying the Payment Date upon which the Certificateholders shall surrender their Certificates for payment of the final distribution and cancellation, shall be given (subject to at least two Business Days' prior notice from Servicer to Trustee and Bond Insurer) by Trustee to the Certificateholders, mailed not later than the fifth Business Day of the month that includes such final Payment Date specifying (i) the Payment Date upon which final payment of the Certificates will be made upon presentation and surrender of Certificates at the office or offices of the Paying Agent therein designated, (ii) the amount of any such final payment, (iii) that the Record Date otherwise applicable to such Payment Date is not applicable, payments being made only upon presentation and surrender of the Certificates at the office or offices therein specified and (iv) that the Certificates shall cease to bear interest on such final Payment Date. Servicer's notice to Trustee and Bond Insurer in accordance with the preceding sentence shall be accompanied by an Officer's Certificate setting forth the information specified in Section 3.09 covering the period during the then current calendar year through the date of such notice. Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to the Certificateholders. (b) Notwithstanding the termination of the Trust, all Collections in respect of Trust Assets held by Servicer and all funds then on deposit in the Accounts, up to an amount at least equal to the outstanding Class A Certificate Investor Interest and the unpaid interest thereon, up to the final Payment Date, at the Certificate Rate, shall continue to be held in trust for the benefit of the Certificateholders and the Paying Agent or Trustee shall pay such funds in the manner provided in Section 4.08(b). In the event that all of the Certificateholders shall not surrender their Certificates for cancellation within 30 days after the date specified in the above-mentioned written notice, 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 30 days after the second notice all the Certificateholders shall not have surrendered their Certificates for cancellation, Trustee shall distribute to Seller all funds then on deposit in such accounts, all liability of Trustee and Bond Insurer with respect to such funds shall thereafter cease and the remaining Certificateholders shall thereafter look only to Seller for the payment of any sums to which they may be entitled in respect of their Certificates. 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 by the Servicer. ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.01 Amendment. (a) This Agreement may be amended from time to time by written agreement executed by each of Servicer, Back-up Servicer, Seller and Trustee, with the consent of Bond Insurer but without the consent of any of the Certificateholders, to cure any -82- 89 ambiguity or to correct or supplement any provisions herein which may be inconsistent with any other provisions herein; provided, such action shall not, as evidenced by an Opinion of Counsel delivered by Servicer to Trustee and Bond Insurer, adversely affect in any material respect the interests of the Certificateholders and such Opinion of Counsel shall further state that the execution of such amendment is authorized or permitted by this Agreement. Trustee may, subject to the provisions in the immediately preceding sentence, but shall not be obligated to, enter into any such amendment which affects Trustee's rights, duties or immunities under this Agreement or otherwise. (b) This Agreement may also be amended from time to time by written agreement executed by each of Servicer, Back-up Servicer, Seller and Trustee with the consent of Bond Insurer and the Majority Certificateholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or modifying in any manner the rights of the Certificateholders; provided, no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Certificate without the consent of such Certificateholder, (ii) change the definition of or the manner of calculating the Class A Certificate Investor Interest or Class A Certificate Distributable Amount without the consent of each affected Certificateholder, (iii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of each Certificateholder or (iv) change the definition of Requisite LOC Amount, Minimum LOC Amount, Available Amount, or Majority Certificateholders without the consent of each Certificateholder. Servicer shall deliver to Trustee and Bond Insurer, upon execution and delivery of any amendment pursuant to this clause (b), an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement. Trustee may, but shall not be obligated to, enter into any such amendment which affects Trustee's rights, duties or immunities under this Agreement or otherwise. (c) Not less than five days prior to the execution of any amendment to this Agreement under Section 12.01(b), Trustee shall furnish written notice of such amendment including a copy of the text of the proposed amendment to Bond Insurer and each Certificateholder. Promptly after the execution of any other amendment or consent Trustee shall furnish written notification of the substance of such amendment to Bond Insurer, each Rating Agency and each Certificateholder. (d) It shall not be necessary for the consent of Certificateholders under this Section 12.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such Certificateholders shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable requirements as Trustee may prescribe. Section 12.02 Protection of Right, Title and Interest to Trust Assets. (a) Servicer shall cause this Agreement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the Bond Insurer's, Certificateholder's and Trustee's right, title and interest to the Trust Assets and its security interest in the Equipment and other Trust Assets to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully -83- 90 to preserve and protect the right, title and interest of Trustee hereunder to all property comprising the Trust Assets and its security interest in the Equipment and other Trust Assets, all as provided in, and subject to, Section 2.01(g). Servicer shall deliver to Trustee a financing statement recording chart containing the filing information with respect to any documents recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. Seller and Servicer shall cooperate fully in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this Section 12.02(a). (b) Servicer will give Bond Insurer and Trustee prompt written notice of any relocation of any office from which it services Trust Assets or keeps records concerning the Trust Assets or of its principal executive office and whether, as a result of such relocation, the applicable provisions of the relevant UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trustee's security interest in the Trust Assets, the Equipment and the proceeds thereof. Servicer will at all times maintain each office from which it services Trust Assets and its principal executive office within the United States of America. Section 12.03 Limitation on Rights of Certificateholders. (a) The death, incapacity or dissolution of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death, incapacity or dissolution entitle such Certificateholder's legal representatives, heirs, successors or assigns to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Certificateholder shall have any right to vote (except with respect to the matters specifically provided herein) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by any of the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless Bond Insurer has given its prior written consent, such Certificateholder previously shall have given to Trustee written notice of any default hereunder, and unless the Majority Certificateholders shall have made written request upon Trustee to institute such actions, suit or proceeding in its own name as Trustee hereunder and shall have offered to Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with -84- 91 every other Certificateholder and Trustee, that no one or more Certificateholder shall have the right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb or prejudice the rights of the Certificateholders of any other of the Certificates, or to obtain or seek to obtain priority over or preference to any other such Certificateholder (except as expressly provided in Section 4.08(b)), or to enforce any right under this Agreement, except in the manner herein provided. For the protection and enforcement of the provisions of this Section 12.03, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 12.04 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, 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 12.05 Notices. All demands, notices, and communications under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (i) one (1) Business Day after it is delivered against receipt of registered or certified mail or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested; (ii) when delivered by courier with appropriate evidence of receipt; or (iii) one (1) Business Day after it is transmitted via facsimile transmission with appropriate evidence of receipt at the following address of the recipient: (a) in the case of Seller, at 747 Chestnut Ridge Road, Suite 300, Chestnut Ridge, New York 10977, (b) in the case of Servicer, at 1851 East First Street, Suite 900, Santa Ana, California 92705, (c) in the case of Trustee, at the Corporate Trust Office, (d) in the case of Back-up Servicer, at the Corporate Trust Office, (e) in the case of Moody's, at 99 Church Street, New York, New York 10007, Attention: ABS Surveillance Group, (f) in the case of Standard & Poor's, at 26 Broadway, New York, New York, Attention: Asset Backed Surveillance Group, and (g) in the case of Bond Insurer, at 113 King Street, Armonk, New York 10504 (fax number (914) 765-3810, Attention: Insured Portfolio Management-Structured Finance (IPM-SF). Any party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section 12.05 for giving notice and by otherwise complying with any applicable terms of this Agreement. Section 12.06 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 rights of the Certificateholders thereof. Section 12.07 Assignment. This Agreement may not be assigned by Servicer, Trustee, Back-up Servicer or Seller without the prior consent of the Bond Insurer. -85- 92 Section 12.08 Certificates Nonassessable and Fully Paid. It is the intention of Seller and the Certificateholders that the Certificateholders shall not be personally liable for obligations of the Trust, that the interests represented by the Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and that Certificates upon authentication thereof by Trustee pursuant to Section 6.02 are and shall be deemed fully paid. Section 12.09 Further Assurances. Seller and Servicer agree to do and perform from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by Bond Insurer or Trustee more fully to effect the purposes of this Agreement in a manner consistent with this Agreement, including, without limitation, the execution of any financing statements or continuation statements or other documents or instruments relating to the Trust Assets for filing under the provisions of the UCC or other relevant laws of any applicable jurisdiction. Section 12.10 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of Trustee, Bond Insurer or the Certificateholders, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 12.11 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 12.12 Third-Party Beneficiary. The Bond Insurer is an express third party beneficiary of this Agreement and is entitled to enforce this Agreement as if it were a party hereto. Section 12.13 Actions by Certificateholders. (a) Wherever in this Agreement a provision is made that an action may be taken or a notice, demand or instruction given by Certificateholders, such action, notice or instruction may be taken or given by any Certificateholder, unless such provision requires a specific percentage of Certificateholders. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall be evidenced in such manner as is satisfactory to Trustee and shall bind such Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by Trustee or Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. -86- 93 Section 12.14 Intention of Parties. For purposes of Federal, state and local income and franchise taxes and any other tax imposed on or measured by income, the parties to this Agreement and the Certificateholders, by acceptance of the Certificates, intend that the Certificates will be treated as indebtedness, and except to the extent otherwise required by law, (i) each Certificateholder, by acceptance of its Certificate, agrees to treat the interests evidenced by the Certificates as indebtedness, and further agrees that any Certificateholder acquiring an interest in a Certificate through it may do so only subject to an obligation to comply with this Agreement as to the treatment of such Certificate as indebtedness for tax purposes, and (ii) the Seller agrees to treat the transactions contemplated by this Agreement as a financing, and to include in the computation of its Federal, state and local income and franchise taxes and any other tax imposed on or measured by income, all items of income, gain, loss, deduction and credit attributable to the ownership of the Lease Contracts, subject to the indebtedness represented by the Certificates. Section 12.15 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 other 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 12.16 Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Section 12.17 Certificates and Opinions of Counsel. (a) Any certificate delivered hereunder may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless the Person delivering such certificate knows, or in the exercise of reasonable care should know, that such opinion with respect to the matters upon which such certificate may be based as aforesaid is erroneous. Any Opinion of Counsel or certificate delivered hereunder may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of Servicer, or Seller, as the case may be, stating that the information with respect to such factual matters is in the possession of the Servicer or Seller, as the case may be, unless such counsel or the Person delivering such certificate knows, or in the exercise of reasonable care should know, that such certificate, opinion or representations with respect to such matters are erroneous. Any Opinion of Counsel delivered hereunder may contain exceptions and qualifications satisfactory to Trustee and Bond Insurer. (b) Any Opinion of Counsel or certificate delivered hereunder may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by Independent Public Accountants, unless such counsel or the Person delivering such certificate, as the case may be, knows that the certificate or opinions or representations with respect to the accounting matters upon which the certificate or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. -87- 94 (c) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments hereunder, they may, but need not, be consolidated and form one instrument. Section 12.18 Bond Insurer Default. If a Bond Insurer Default occurs and is continuing, the Bond Insurer's right to consent hereunder and to direct the Trustee shall be suspended until remedied and, during such suspension, in all provisions of this Agreement where the Bond Insurer's consent or direction is required or permitted, the consent or direction of the Majority Certificateholders shall be required or permitted unless the terms of this Agreement require the consent or direction of a larger number of Holders. Section 12.19 Non-Petition. Each party hereto agrees that so long as this Agreement is in effect and for one year and one day after its termination, neither it nor any Affiliate thereof will file any involuntary petition or otherwise institute any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceeding under any federal or state bankruptcy or similar law against Seller. -88- 95 IN WITNESS WHEREOF, Seller, Servicer, Back-up Servicer and Trustee have caused this Pooling and Servicing Agreement to be duly executed by their respective officers as of the day and year first above written. ROCKFORD LEASE FUNDING CORP. as Seller By: __________________________________ Name: Title: ROCKFORD INDUSTRIES, INC. as Servicer By: __________________________________ Name: Title: TEXAS COMMERCE BANK NATIONAL ASSOCIATION as Trustee and Back-up Servicer and as the Initial Registrar and Transfer Agent and Paying Agent By: __________________________________ Name: Title: -89- EX-10.33 3 EQUIPMENT AND LEASE PURCHASE AGMT, DATED 3-27-97 1 EXHIBIT 10.33 EQUIPMENT AND LEASE PURCHASE AGREEMENT THIS EQUIPMENT AND LEASE PURCHASE AGREEMENT (this "Agreement"), dated as of March 27, 1997, is entered into by and between ROCKFORD LEASE FUNDING CORP., a New York corporation ("Purchaser"), and ROCKFORD INDUSTRIES, INC., a California corporation ("Seller"). RECITALS Any capitalized terms used but not defined in these recitals shall have the meaning ascribed thereto in Article I below. Contemporaneously with the execution of this Agreement, (a) Purchaser, as seller, Seller, as servicer, and Texas Commerce Bank National Association ("Trustee"), as trustee and back-up servicer, have executed that certain Pooling and Servicing Agreement of even date herewith (the "Pooling and Servicing Agreement"), and (b) Purchaser, as seller, Centre Square Funding Corporation ("Centre Square"), as purchaser, and Seller and Trustee have executed that certain Purchase Agreement, of even date herewith (the "Purchase Agreement"). The Commitment Letter provides for the issuance of up to $150,000,000 outstanding principal balance of certificates, as of any date of determination, pursuant to the Pooling and Servicing Agreement and other pooling and servicing agreements (determined on an aggregate basis by including the original principal amount of any certificates issued under all pooling and servicing agreement(s) entered into pursuant thereto). The Certificates described below evidence fractional undivided interests in a Trust with a corpus consisting of a pool of Lease Contracts serviced by Seller. Under the terms of the Purchase Agreement, Centre Square has agreed, subject to certain conditions, to purchase the Certificates from Purchaser. Purchaser desires to purchase from Seller the Lease Contracts that will be assigned by Purchaser to the Trust under the Purchase Agreement and the Pooling and Servicing Agreement, together with the Equipment covered by the Lease Contracts, and Seller desires to sell such Lease Contracts and Equipment to Purchaser, in accordance with the terms and provisions of this Agreement. NOW, THEREFORE, in consideration of the agreements herein contained, the parties agree as follows. -1- 2 ARTICLE I DEFINITIONS Section 1.01. Certain Definitions. The following terms shall have the meanings given them below: "Available Commitment Amount" shall mean, as of any date of determination, $150,000,000, less the aggregate outstanding principal amount of all Certificates previously issued and authenticated pursuant to the Pooling and Servicing Agreement, plus the aggregate outstanding principal amount of all Certificates previously issued and authenticated pursuant to any other pooling and servicing agreement entered into pursuant to the terms of the Commitment Letter. "Bill of Sale and Assignment" shall mean the form of Bill of Sale and Assignment attached hereto as Exhibit "A". "Commitment Letter" shall mean that certain letter agreement dated November 4, 1996 by and between Seller and CoreStates Capital Markets Group, a division of CoreStates Bank, N.A. "Principal Agreements" means this Agreement, the Pooling and Servicing Agreement, the Purchase Agreement, the Capital Contribution Agreement, and the Insurance Agreement. "Repurchase Price" shall have the meaning given to such term in Section 6.01(a) hereof. "Residual Value" means, with respect to the Equipment covered by a Lease Contract, the amount, if any, by which (a) the fair market value of such Equipment as of the Closing Date on which such Equipment is sold to Purchaser, exceeds (b) the Discounted Lease Contract Balance of such Lease as of such Closing Date. Section 1.02. Other Definitions. Other capitalized terms used, but not defined herein, shall have the meanings given them in the Pooling and Servicing Agreement. -2- 3 ARTICLE II PURCHASE AND SALE OF EQUIPMENT AND LEASE CONTRACTS Section 2.01. [Intentionally Omitted] Section 2.02. Initial Closing Date Conditions. The Purchaser's obligations hereunder shall be subject to the satisfaction (or waiver thereof by the Purchaser, the Trustee, the Bond Insurer and Centre Square) on the Initial Closing Date of each of the conditions precedent set forth in Section 2.02 of the Purchase Agreement, which conditions precedent are hereby incorporated by reference herein to the extent they relate to Seller, with respect to the Lease Contracts and related Equipment covered by this Agreement. Section 2.03. Closings. (a) Subject to the terms and conditions set forth herein, on each Closing Date Seller shall sell to Purchaser, and Purchaser shall purchase from Seller, those Eligible Lease Contracts and other rights and interests to be conveyed by Purchaser to the Trust on the Closing Date under the terms of the Purchase Agreement and the Pooling and Servicing Agreement, together with the Equipment covered thereby; provided, however, that the sum for all Closing Dates of the Aggregate Discounted Lease Contract Balance as of each Closing Date of the Lease Contracts purchased on such Closing Date shall not exceed the Available Commitment Amount. The purchase price for the Eligible Lease Contracts and related Equipment to be sold on each Closing Date shall be equal to the Aggregate Discounted Lease Contract Balance of such Eligible Lease Contracts. Notwithstanding anything to the contrary contained herein, all Closing Dates must occur no later than the date on which the Funding Period is terminated. Purchaser shall have no further right or obligation to purchase Lease Contracts and Equipment on or after the date on which the Funding Period is terminated. (b) Payment for and delivery of the Lease Contracts and related Equipment to be purchased by Purchaser from Seller on a Closing Date shall be made at a closing at the offices of Purchaser set forth in Section 8.05(a) hereof at 12:00 noon New York City time on the relevant Closing Date. Payment of the purchase price for the Lease Contracts and related Equipment shall be made by Purchaser in federal or other immediately available funds to Seller's account at CoreStates Bank, N.A., ABA no. 031-0000-11 for credit to loan account no. 14127-10740, account title: CoreStates Controlled Account for Rockford Industries, Inc., REF. Rockford. Section 2.04. Subsequent Closing Conditions. Purchaser's obligation to purchase and otherwise accept Lease Contracts and related Equipment from Seller on any Subsequent Closing Date shall be subject to the satisfaction (or waiver by Purchaser with the consent of the Bond Insurer) on such Subsequent Closing Date of the following conditions precedent (references in this Section 2.04 to "Bill of Sale and Assignment", "Lease Contracts" and "Equipment" shall be deemed to refer to the Bill of Sale and Assignment to be executed by -3- 4 Seller in connection with such Subsequent Closing Date and the Lease Contracts and Equipment covered by such Bill of Sale and Assignment): (a) The Pooling and Servicing Agreement, the Purchase Agreement, the Capital Contribution Agreement and the Insurance Agreement shall be in full force and effect. (b) The representations and warranties of Seller in the Principal Agreements shall be true and correct in all material respects on and as of the Subsequent Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and Seller shall have complied with all the agreements and satisfied all the conditions under the Principal Agreements in all material respects on its part to be performed or satisfied at or prior to the Subsequent Closing Date. (c) A Bill of Sale and Assignment properly executed by Seller and conveying the Lease Contracts and Equipment and other rights and interests to Purchaser shall have been delivered to Purchaser. (d) All conditions to closing as set forth in Section 2.03 and Section 2.04 of the Purchase Agreement shall have been fulfilled, to the extent they may be fulfilled prior to the performance by Purchaser of its obligations under this Agreement. Section 2.05. Execution of Bill of Sale and Assignment. In connection with each sale and purchase of Lease Contracts and Equipment hereunder, Seller shall execute a Bill of Sale and Assignment substantially in the form of Exhibit "A" hereto and deliver the same to Purchaser. Section 2.06. Intent of the Parties. Except as provided in Section 5.02 hereof with respect to tax treatment only, it is the intention of the parties to this Agreement that the conveyance of Seller's right, title and interest in and to the Lease Contracts and Equipment pursuant to this Agreement shall constitute a purchase and sale and not a loan. If, notwithstanding the foregoing, the conveyance of the Lease Contracts and Equipment to Purchaser is characterized by any third party as a pledge, the parties intend that Seller shall be deemed hereunder to have granted (and does hereby grant) to Purchaser a first priority perfected security interest in all of Seller's right, title and interest in, to and under the Lease Contracts, Equipment and other rights, titles and interests covered by the Bill of Sale and Assignments and all monies due or to become due with respect thereto after the applicable Cut-Off Date, and all proceeds of any of the foregoing and that this Agreement shall constitute a security agreement under applicable law. -4- 5 Section 2.07. Servicing of Lease Contracts and Equipment. In connection with the contribution, assignment, transfer and conveyance of the Lease Contracts and the Equipment to the Purchaser pursuant to this Agreement, the Seller hereby agrees to service the Lease Contracts and Equipment for the benefit of the Purchaser (and its successors and assigns) in accordance with the terms and conditions of the Pooling and Servicing Agreement. Section 2.08. Delivery of Lease Contracts. The Seller shall deliver the Lease Contracts and the items described in the definition of Lease Files to the Trustee so that the Trustee may retain possession thereof as provided in the Pooling and Servicing Agreement. Section 2.09. Review of Lease Files. (a) If the Purchaser, the Seller or the Trustee (who shall thereupon notify the Seller and the Trustee) discovers that any Lease Contract documents required to be in the Lease File are missing or defective (that is, mutilated, damaged, defaced, incomplete, improperly dated, clearly forged or otherwise physically altered) in any material respect, the Seller shall correct or cure such omission, defect or other irregularity within 30 days from the date the Seller discovered, or is notified by the Trustee of, such omission or defect and, if the Seller does not correct or cure such omission or defect within such period, the Seller shall repurchase such Lease Contract from the Purchaser or substitute a Substitute Lease Contract therefor, each in accordance with Section 6.01(a) hereof. (b) If the original Certificate of Title with respect to any Vehicle covered by a Lease Contract is not delivered to the Trustee within 90 days after the Closing Date on which such Lease Contract was sold to the Purchaser hereunder, then the Seller shall repurchase such Lease Contract from the Purchaser or substitute a Substitute Lease Contract therefor, each in accordance with Section 6.01(a) hereof. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser as follows: Section 3.01. Regarding Seller. (a) Seller has the corporate power and authority to execute and deliver the Principal Agreements and to carry out their terms. (b) The consummation of the transactions contemplated by and the fulfillment of the terms of the Principal Agreements will not conflict with or require any consent or approval under (as applicable) the certificate of incorporation or by-laws of Seller. The -5- 6 consummation of the transactions contemplated by and the fulfillment of the terms of the Principal Agreements also will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, or require any consent or approval under (as applicable) the certificate of incorporation or by-laws of Seller or any material term of any material indenture, agreement, mortgage, deed of trust or other instrument to which Seller is a party or by which it is bound, (ii) result in the creation or imposition of any material Lien upon any of its material properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, or (iii) violate any law or any order, rule or regulation applicable to Seller of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over Seller or any of its properties, which conflict, breach, Lien or violation might reasonably be expected to have a material adverse effect on the ability of Seller to comply with the terms of any of the Principal Agreements or a material adverse effect on the Lease Contracts, Equipment, and other rights and interests to be sold to Purchaser under this Agreement. (c) No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any Governmental Authority having jurisdiction over Seller or any of its properties or assets is required to be obtained by or with respect to Seller in connection with the execution, delivery and performance by Seller of the Principal Agreements and the consummation of the transactions contemplated hereby and thereby. The Seller has obtained all necessary licenses, permits and charters required to be obtained by the Seller, which failure to obtain would render any portion of the Principal Agreements unenforceable and would have a material adverse effect on the Bond Insurer or the Certificateholders. (d) The Principal Agreements have been duly and validly authorized, executed and delivered by Seller and constitute valid and legally binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as such enforceability is subject to bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally and the availability of equitable remedies. (e) There are no proceedings or investigations pending, or, to the knowledge of Seller, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (i) asserting the invalidity of any of the Principal Agreements, (ii) seeking to prevent the consummation of any of the transactions contemplated by any of the Principal Agreements, (iii) seeking any determination or ruling that might materially and adversely affect the performance by Seller of its obligations under, or the validity or enforceability of, any of the Principal Agreements, or (iv) if determined adversely might reasonably be expected to have a material adverse effect on the Lease Contracts, Equipment and other rights and interests to be sold to Purchaser under the terms of this Agreement. -6- 7 (f) The representations and warranties made by Seller in the Purchase Agreement, the Pooling and Servicing Agreement, the Capital Contribution Agreement and the Insurance Agreement are true and correct. (g) The chief executive office and principal place of business of Seller is located in Orange County, California, at the address set forth in this Agreement, and there have been no other such locations during the last four calendar months. (h) Seller is solvent and will not become insolvent after giving effect to the transactions contemplated by the Principal Agreements, Seller has not incurred any indebtedness or other payment obligations beyond its ability to pay; and Seller, after giving effect to the transactions contemplated by the Principal Agreements, will have an adequate amount of capital to conduct its business in the foreseeable future. (i) There is no outstanding injunction, writ, restraining order or other order of any nature that reasonably may be expected to adversely affect Seller's performance of its obligations under the Principal Agreements or the consummation of the transactions contemplated thereby. (j) Seller is in compliance in all material respects with all applicable laws, rules, regulations, and orders with respect to the Seller, its business and properties and all of its Lease Contracts and Equipment. Seller has all material applicable permits, licenses and authorizations necessary for the conduct of its business and the ownership of its material assets. (k) Seller has filed on a timely basis all required tax returns. (l) All of the pension or profit sharing plans of Seller or any of its Affiliates have been fully funded in accordance with the applicable obligations of Seller and such Affiliates. (m) The legal name of Seller is as set forth in this Agreement. Seller has not changed its name in the last six years and does not have any trade names, fictitious names, assumed names or "doing business as" names, except that Seller is qualified to do business in the States of New Jersey and Oklahoma under the fictitious name "Rockford Financial, Inc." (n) Seller has valid business reasons for selling the Lease Contracts and related Equipment rather than obtaining a loan using such assets as collateral. -7- 8 (o) No event has occurred which materially and adversely affects Seller's operations or its ability to perform its obligations under or to consummate the transactions contemplated by the Principal Agreements. Section 3.02. Regarding the Lease Contracts and Related Equipment. As of each Closing Date: (a) There is no restriction or limitation in any of the Lease Contracts or otherwise on the sale of the Lease Contracts and Equipment to Purchaser pursuant to the terms of this Agreement or on the assignment by Purchaser of the Lease Contracts and other rights and interests to the Trustee pursuant to the terms of the Purchase Agreement and the Pooling and Servicing Agreement. The transfer, assignment and contribution to the Purchaser of the Lease Contracts, Lease Receivables and the Seller's right, title and interest in any item of Equipment will not violate the terms or provisions of any such Lease Contract or Lease Receivables or any other agreements to which the Seller then is a party or by which it is bound. (b) Seller owns, or will own immediately prior to the sale of such Lease Contract and Equipment to Purchaser hereunder, the Equipment covered by each Lease Contract (except for any computer software included therein, for which Seller's interest is limited to a non-exclusive transferable license) or has, or will have immediately prior to the sale of such Lease Contract and Equipment to Purchaser hereunder, a first priority perfected security interest in such Equipment. (c) The Seller will cause its records to be marked to reflect the transfer of the Lease Contracts to the Purchaser. (d) With respect to each Lease Contract, only one original of such Lease Contract exists and such Lease Contract along with all documents set forth in the definition of Lease File has been delivered to the Trustees. (e) Each Lease Contract is genuine and in full force and effect in accordance with its terms. Each Lease Contract is noncancelable by the Lessee during the term of such Lease Contract, and nothing has occurred or failed to be performed which would or might permit any Lessee to terminate such Lease Contract or suspend or reduce any payments or obligations due or to become due in respect of such Lease Contract by reason of default by the lessor party under such Lease Contract. No Lessee in respect of a Lease Contract is the subject of a bankruptcy, insolvency or other similar proceeding. (f) There does not exist any default or any delinquency beyond 30 days in the payment of any Scheduled Payments due under any Lease Contract and there does not exist any other default, breach, violation or event permitting acceleration, termination or -8- 9 repossession under any Lease Contract or any event which, with notice and the expiration of any applicable grace or cure period, would constitute such a default, breach, violation or event permitting acceleration, termination or repossession under such Lease Contract. To the best of the Seller's knowledge, no Lease Contract is reflected on the Seller's computer records as having been referred to counsel. Seller has no reason to believe that the Scheduled Payments under any Lease Contract will not be timely and fully paid. (g) No right of the Seller with respect to a Lessee's failure to pay any payment due under any Lease Contract has been waived by the Seller. (h) The Seller has done nothing to materially impair the rights of the Purchaser, the Trustee, the Certificateholders or the Bond Insurer in the Lease Contracts or the payments due thereunder. (i) All requirements of any federal, state or local law, rule or regulation, including without limitation, usury, truth-in-lending and equal credit opportunity laws, applicable to each Lease Contract (including the origination, acquisition and servicing thereof) have been complied with in all material respects, and no party to any Lease Contract is in violation of any such law, rule or regulation. No Lease Contract violates any other agreement between Seller or any of its Affiliates and the Lessee thereunder. (j) No Lease Contract will have been originated in or be subject to the laws of any jurisdiction whose laws would make the assignment and transfer thereof pursuant to the terms hereof or any transaction contemplated by the Principal Agreements unlawful. (k) Each Lease Contract has the following characteristics: (i) such Lease Contract was originated in the United States, Canada or Puerto Rico, and the Scheduled Payments thereunder are payable in U.S. dollars by a Lessee domiciled in the United States, Canada or Puerto Rico; (ii) at least one Scheduled Payment has been made by the Lessee under such Lease Contract; (iii) no Lessee in respect of such Lease Contract is an Affiliate of Purchaser; (iv) the Lessee under such Lease Contract has unconditionally accepted the Equipment covered by such Lease Contract after reasonable opportunity to inspect and test and has not notified the Seller of any defects therein; (v) such Lease Contract conforms in all material respects to one of the forms of Lease Contract as set forth in Exhibit D-1, D-2 or D-3 to this Agreement; -9- 10 (vi) Scheduled Payments due under such Lease Contract on and after the Cut-Off Date are payable into the Lockbox Account; (vii) such Lease Contract has an original term of less than 72 months; (viii) such Lease Contract has a final Scheduled Payment due no later than 6 months prior to the Stated Maturity; (ix) the Lessee under such Lease Contract does not have any contractual right to prepay the Scheduled Payments due under such Lease Contract; (x) such Lease Contract does not permit the substitution, exchange or addition of any Equipment subject to such Lease Contract which would result in any reduction of the amount of payments or change the timing of the payments due under the Lease Contract; (xi) such Lease Contract is an Eligible Lease Contract and complies with all applicable laws for the purposes for which the Equipment covered thereby is permitted to be used thereunder; (xii) such Lease Contract constitutes "chattel paper" under the UCC; and (xiii) such Lease Contract is not a "consumer lease" as defined in Article 2A of the UCC. (l) As of the time of each assignment, transfer and contribution pursuant to the terms of this Agreement, no Lessee will have been released, in whole or in part, from any of its obligations in respect of any such Lease Contract; no such Lease Contract will have been satisfied, canceled, extended or subordinated, in whole or in part, or rescinded, and no Equipment covered by any such Lease Contract will have been released from such Lease Contract, in whole or in part, nor will any instrument have been executed that would effect any such satisfaction, release, cancellation, subordination or rescission. (m) Each Lease Contract is a valid, binding and legally enforceable obligation of the parties thereto, enforceable in accordance with its terms by the Purchaser (and by the Trustee as assignee) (subject to bankruptcy, insolvency and other similar laws affecting creditors' rights in general and the availability of equitable remedies). (n) Each item of Equipment is subject to a Lease Contract. (o) No item of Equipment has been repossessed. -10- 11 (p) Other than financing statements or similar statements or instruments of registration under the law of any jurisdiction on file or registered in any public office covering any interest of any kind in the Lease Contracts or Equipment which (i) are to be terminated, released or assigned to Trustee on or prior to the Closing Date hereunder, or (ii) are to be filed pursuant to this Agreement or the Pooling and Servicing Agreement, there are no such statements or instruments on file. (q) The Lessee under each Lease Contract is personally and unconditionally liable for the payment and performance of its obligations in respect of such Lease Contract. Pursuant to the terms of each Lease Contract, as of the Cut-Off Date the Lessee under each Lease Contract will be absolutely required to make to Trustee all payments (including, without limitation, all Scheduled Payments under such Lease Contract in respect of periods on and after the Cut-Off Date) and perform all obligations under such Lease Contract without abatement, deferment or defense of any kind or for any reason. No Lease Contract is subject to any right of claim, rescission, set-off, counterclaim, abatement or defense, including (without limitation) any defense of usury, nor will the operation of any of the terms of any Lease Contract or the exercise of any right or remedy thereunder render such Lease Contract or the obligations thereunder unenforceable, or subject the same to any right of claim, rescission, set-off, counterclaim, abatement or defense. No Lessee has asserted any such right of claim, rescission, set-off, counterclaim, abatement or defense to its obligations under its Lease Contract. (r) None of the Lease Contracts have been modified, amended or extended at any time (in the manner of an extension in the maturity date, a change in the amount or time of payment of any installment of rent, or in any way which would individually or in the aggregate materially adversely affect the Purchaser's or the Trustee's rights thereunder or would prohibit payment by the Lessee to the Trustee or otherwise), no indulgences or waivers have been granted in respect of the obligations of any Lessee under any Lease Contract, and none of Seller, Purchaser or any Affiliate of either such party has advanced any monies on behalf of or to cure any breach or default by any Lessee. (s) Each Lease Contract requires the Lessee thereunder at its own cost and expense to maintain the Equipment leased thereunder in good repair, condition and working order, and to the best of Seller's knowledge each Lessee is currently in compliance with such requirement. (t) Each Lease Contract requires the Lessee thereunder to pay all fees, taxes (except income taxes), and other charges or liabilities arising with respect to the Equipment leased thereunder or the use thereof, to keep the Equipment free and clear of any and all liens, security interests and other encumbrances, to hold harmless the lessor thereunder and its successors and assigns against the imposition of any such fees, charges, liabilities and -11- 12 encumbrances, to bear all risk of loss associated with the Equipment covered by or securing the obligations under such Lease Contract during the term of such Lease Contract and to maintain at the cost of the Lessee public liability and casualty insurance in respect of such Equipment covered by such Lease Contract. (u) Each Lease Contract prohibits without the lessor's prior written consent any relocation of the Equipment covered by such Lease Contract and requires the Lessee thereunder to execute such agreements and documents (including without limitation any UCC-1 financing statements or amendments thereto) as may reasonably be requested by the lessor in connection with any such relocation. (v) None of the Lease Contracts or any agreement with any Lessee requires the consent or approval of any Lessee with respect to the sale, assignment and transfer by Seller or Purchaser of their respective right, title and interest in and to such Lease Contracts and the Equipment covered thereby and grants of security interests in the Equipment under the Principal Agreements. (w) The rights with respect to each Lease Contract are assignable by the Seller without the consent of any person other than consents which will have been obtained on or before the Closing Date. (x) Each Lease Contract, Lease Receivable and the Seller's interest in the Equipment have not been sold, transferred, assigned or pledged by the Seller to any Person other than the Purchaser. (y) All federal, state and local sales, use, property and other similar taxes (and penalties and interest thereon) in respect to the Lease Contracts, any Equipment covered by or securing the obligations under the Lease Contracts, or any payments on the Lease Contracts, that have become due and payable have been paid to every applicable Governmental Authority. (z) The interest of Seller in respect of the Equipment covered by or securing the obligations under such Lease Contract has been duly perfected by the filing or recording in applicable jurisdictions of UCC financing statements or other documents sufficient to perfect Seller's interest in such Equipment in accordance with the perfection requirements of Section 2.01(d) of the Pooling and Servicing Agreement. Without limiting the generality of the foregoing, as to each such Lease Contract, Seller has properly filed in the appropriate locations in the state in which the Equipment covered by such Lease Contract is located properly executed UCC financing statements showing the Lessee as the lessee/debtor, Seller as the lessor/secured party, and the Equipment as collateral, and the same are in full force and effect. All Equipment is located within the United States, Canada or Puerto Rico. -12- 13 (aa) Each Lease Contract involves the lease of tangible personal property owned by Seller or the loan of money secured by a security interest in tangible personal property owned by the Lessee thereunder, except in such case any computer software included therein, for which Seller's interest is limited to a non-exclusive, transferable license. (bb) All filings and recordings required to perfect the title of Trustee to the Lease Contracts and Lease Receivables and Trustee's security interest in the Equipment in accordance with the perfection requirements of Section 2.01(d) of the Pooling and Servicing Agreement have been, or by the applicable Closing Date will be, accomplished and are, or by the applicable Closing Date will be, in full force and effect. (cc) The Scheduled Payments due under the Lease Contracts covered by this Agreement, if paid in accordance with the Lease Schedule, are in an amount adequate to pay the original principal balance of the Class A Certificates and Class B Certificates issued or to be issued under the Pooling and Servicing Agreement in connection with this Agreement and interest thereon at the respective interest rates set forth in such Certificates and the Servicing Fee, Back-up Servicer Fee, Bond Insurer Premium, Trustee Fee applicable to such Lease Contracts. (dd) Each Lease Contract was originated or acquired by Rockford in the ordinary course of its business and at the time of such origination or acquisition satisfied Rockford's origination criteria for equipment leases of the type of the Lease Contracts (including, without limitation, credit, type of equipment, gross receivable limitation and other criteria). (ee) The Equipment covered by each Lease Contract is insured against loss by fire and such other hazards as are customary for personal property of the same or similar type, such insurance being in an amount not less than the full replacement value of such Equipment subject to customary deductions, all in accordance with Section 3.02(x) of the Purchase Agreement. (ff) In the event of a casualty of any item of Equipment or early termination of any Lease Contract, the Lessee is obligated to pay all future Scheduled Payments with respect to such item. (gg) The sale, transfer and conveyance by Seller of the Lease Contracts and related Equipment to Purchaser are not a "bulk transfer" within the meaning of Article 6 of the UCC as in effect in any applicable jurisdiction. (hh) Seller has not received any notice challenging its ownership or the priority of its security interest in the Equipment covered by any Lease Contract, and there are no proceedings pending before any court or Governmental Authority or threatened by any Lessee or other party, (i) asserting the invalidity of any Lease Contract, (ii) seeking to -13- 14 prevent payment and performance by any Lessee of any Lease Contract or any other agreement between such Lessee and Seller, or (iii) seeking any determination or ruling that might adversely affect the validity or enforceability of any Lease Contract. (ii) As to each Lease Contract, there are no agreements or understandings between Seller and the Lessee in respect of such Lease Contract or otherwise binding on Seller other than as expressly set forth in the written instruments contained in the Lease Files. (jj) None of the Lessees is a Governmental Authority or a merchant with respect to the Equipment leased under any Lease Contract. (kk) The Lease Schedule contains a statement of the amount and number of Scheduled Payments payable by each Lessee under each Lease Contract for periods on and after the Cut-Off Date applicable to such Lease Contract together with certain other information as reflected thereon. The information set forth in the Lease Schedule is true, complete and correct in all respects. (ll) To the best knowledge of Seller, the historical delinquency and loss information set forth in Exhibit "H" to the Purchase Agreement is true and correct. (mm) Seller has good and legal title to each of the Lease Contracts and Equipment (except for any computer software included therein, for which Seller's interest is limited to a non-exclusive, transferable license) and/or a first priority security interest in the Equipment in accordance with the perfection requirements of Section 2.01(d) of the Pooling and Servicing Agreement, in all cases free and clear of any encumbrances and adverse claims, except for the rights of the Lessees in and to the Equipment that are expressed in and under the Lease Contracts. The Seller has paid in full to the manufacturers or supplier or Lessee, as the case may be, the purchase price and any rebated charges in connection with the acquisition of the Equipment. (nn) Neither Seller nor any of its Affiliates is a party to any contract for the servicing of the Lease Contracts or the related Equipment, other than the Pooling and Servicing Agreement. (oo) Seller is not a party to any contract to sell or otherwise transfer any of the Lease Contracts or Equipment, other than the Principal Agreements and any purchase option rights granted to Lessees under the terms of their respective Lease Contracts as to the Equipment covered by such Lease Contract. (pp) Neither Purchaser nor Seller has given any power of attorney (irrevocable or otherwise) to any Person for any purpose relating to the Lease Contracts or the Equipment, -14- 15 except for any power of attorney granted to any service entity that files UCC financing statements on Rockford's or Seller's behalf. (qq) Each Lease Contract and related Equipment, when transferred to the Purchaser hereunder, shall have been validly sold and delivered to Purchaser by Seller (who immediately prior to such assignment shall have owned full legal and equitable title to each Lease Contract). Upon delivery to Purchaser of the Lease Files, and execution and delivery of Bill of Sale and Assignments of all of the Lease Contracts and the related Equipment by Seller in favor of Purchaser, all of Seller's right, title and interest in and to the Lease Contracts and the related Equipment shall be validly and effectively transferred to Purchaser. (rr) After giving effect to each assignment, transfer and contribution contemplated by this Agreement, the Purchaser will be (i) the sole owner of, and have good and marketable title to, the related Lease Contract and (ii) the holder of a valid perfected first priority security interest in the related Equipment in accordance with the perfection requirements of Section 2.01(d) of the Pooling and Servicing Agreement. At the time each Lease Contract, Lease Receivable and related Equipment is assigned, transferred and contributed to the Purchaser, the Lease Contract and the Lease Receivable (including the right to receive all payments due or to become due thereunder) and the Seller's interest in the Equipment (subject to the perfection requirements of Section 2.01(d) of the Pooling and Servicing Agreement) will be free and clear of all liens other than (w) the rights of each Lessee under the Lease Contracts to which such Lessee is a party, (A) the lien created by the Pooling and Servicing Agreement, and (B) with respect to the Equipment subject to an equipment note, conditional sales contract or finance lease (subject to the perfection requirements of Section 2.01(d) of the Pooling and Servicing Agreement) , liens subordinate to the lien of the Pooling and Servicing Agreement, and there will be no delinquent taxes or other outstanding charges affecting the Equipment which are or may be liens prior to, equal to or coordinate with, or subordinate to, the lien of the Trustee under the Pooling and Servicing Agreement. (ss) Immediately after the transfers and conveyances to the Purchaser as contemplated in this Agreement, all necessary action will have been taken by the Seller to validly convey to the Purchaser (i) all right, title and interest of the Seller and in and to each Lease Contract and all Scheduled Payments to become due thereunder and (ii) all right, title and interest of the Seller in and to the related Equipment. (tt) Seller is not selling the Equipment and the Lease Contracts with actual intent to hinder, delay or defraud any entity to which it is or will hereafter become indebted, is not insolvent on the Closing Date and will not become insolvent as a result of such sale, is not engaged in a business or transaction, or about to engage in a business or a transaction, for which any property remaining with Seller is an unreasonably small capital, and does not intend to incur, and does not believe that it will incur, debts that would be beyond its ability to pay as such debts mature. -15- 16 (uu) Neither the Trustee nor the Bond Insurer has notified the Seller that the Lease Contract is unacceptable for purchase by the Purchaser. (vv) As of the Cut-off Date, no Lease Contract has a balloon payment greater than 10% of the purchase price of the related Equipment. (ww) All of the representations and warranties made by Purchaser in Section 3.02 of the Purchase Agreement with respect to Lease Contracts and Equipment that are not otherwise made by Seller hereunder are hereby incorporated by reference herein as if made by Seller with respect to the Lease Contracts and the related Equipment covered by this Agreement. In the event of any inconsistency between any of the representations and warranties set forth in this Section 3.02 and those set forth in Section 3.02 of the Purchase Agreement, Seller shall be deemed to have made the respective representations and warranties set forth in Section 3.02 of the Purchase Agreement. Section 3.03. Other Representations. ---------------------- (a) The written information supplied by Seller to the Bond Insurer and the Rating Agencies in connection with obtaining a rating for the Certificates did not contain any untrue statement of a material fact or omit to state any material fact required to be stated in order to make such information not misleading. (b) No tax, assessment or other governmental charge will become payable by Centre Square or the Trust as a result of (i) the sale, assignment and transfer to the Trust of the Lease Contracts pursuant to the Principal Agreements or (ii) the sale of the Certificates to Centre Square as contemplated by the Purchase Agreement (other than taxes imposed upon Centre Square's or the Trust's gross or net income). Neither the ownership of the Certificates nor the transfer of the Lease Contracts or any other assets to the Trust shall, in and of itself, result in Centre Square becoming subject to taxation or in its being deemed to be doing business in any jurisdiction in which any Lessee is located. (c) Neither Seller nor any of its respective officers, directors, employees or agents has employed any broker, finder or financial advisor or incurred any liability for any fees or commissions to any person in connection with the offering, issuance or sale of the Certificates except for any fees payable by Seller to Centre Square or any affiliate thereof. Section 3.04. Reconfirmation. Seller agrees that its participation in the transactions contemplated herein on each Closing Date shall constitute, without further act, a confirmation that each of its respective representations and warranties contained herein are -16- 17 true and correct on and as of such Closing Date as though made on and as of such Closing Date (except that the representations and warranties under Section 3.02 shall apply only to the Lease Contracts and Equipment conveyed on such Closing Date). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 4.01. Generally. Purchaser represents and warrants to Seller that: (a) Purchaser has the power and authority to execute and deliver this Agreement and to carry out its terms. (b) This Agreement has been duly authorized, executed and delivered by Purchaser, and constitutes a legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and the availability of equitable remedies. ARTICLE V COVENANTS OF SELLER Section 5.01. Generally. Seller agrees that it shall: (a) Indicate on its computer files that all of the Seller's right title and interest in the Lease Contracts and Equipment sold and conveyed hereunder have been sold to Purchaser and that such Lease Contracts and the Seller's interest in the related Equipment have been sold by Purchaser to the Trustee for the benefit of the Certificateholders and the Bond Insurer; (b) Except for the transfers hereunder, Seller shall not sell, pledge, assign or transfer to any other person, or grant, create, incur, assume or suffer to exist any Lien on any Lease Contract or Equipment sold to Purchaser, or any interest therein; Seller will promptly notify Purchaser and Bond Insurer after Seller learns of the existence of any Lien on any Lease Contract or Equipment; and Seller shall defend the right, title and interest of Purchaser in, to and under the Lease Contract and Equipment sold to Purchaser, against all claims of third parties; -17- 18 (c) Take such actions, and provide to Purchaser and Bond Insurer such information, relating to the Lease Contracts, Equipment and the Lease Schedule as Purchaser or Bond Insurer shall from time to time require by notice to Seller to permit Purchaser to duly perform its duties and obligations under the Purchase Agreement, the Insurance Agreement or the Pooling and Servicing Agreement; (d) Respond to any inquiries with respect to ownership of a Lease Contract or related Equipment sold and purchased hereunder by stating that, from and after the applicable Closing Date relating thereto, Seller is no longer the owner of such Lease Contract and Equipment and that ownership of such Lease Contract is held by the Trust and ownership of such Equipment is held by the Purchaser, subject to the Lease Contract; and (e) Allow Purchaser and Bond Insurer and their representatives, upon reasonable prior notice, to have full and free access during normal business hours to all books, correspondence, and written and computer records of Seller as appropriate to verify Seller's compliance with this Agreement, and the accuracy of its representations and warranties hereunder, and allow Purchaser and Bond Insurer and their respective representatives to examine and audit the same, and make photocopies thereof, and Seller shall render to Purchaser and Bond Insurer and their respective representatives, at Seller's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Section 5.02. Characterization of Transactions for Tax Purposes. The Purchase Agreement and the transactions contemplated by the Pooling and Servicing Agreement have been structured with the intention that they will be treated as a financing transaction for purposes of federal, state and local income and franchise taxes and any other tax imposed on or measured by income and that the Certificates will be treated as indebtedness. Seller and Purchaser each agree to take no action inconsistent with the treatment of such transactions as a financing transaction and the Certificates as indebtedness for such tax purposes. Seller agrees to treat the transactions contemplated by the Principal Agreements as a sale of Lease Contracts and Equipment from Seller to Purchaser, and a sale of Lease Contracts from Purchaser to the Trust, for financial accounting purposes. ARTICLE VI REPURCHASE OBLIGATION Section 6.01. Repurchase Upon Breach of Certain Representations and Warranties. (a) The representations and warranties of Seller set forth in Section 3.02 hereof with respect to each Lease Contract and related Equipment shall continue so long as such Lease Contract remains outstanding. Upon discovery by Seller, Purchaser, Trustee, Bond Insurer or any Certificateholder that any such representation or warranty with respect to any -18- 19 Lease Contract and related Equipment was incorrect as of the time made, such Person shall give prompt notice thereof to the other Persons. In the event that any such representation or warranty with respect to any Lease Contract and related Equipment is incorrect and materially and adversely affects the interest of the Certificateholders or the Bond Insurer in such Lease Contract or related Equipment or the value of such Lease Contract or related Equipment, Seller shall eliminate or otherwise cure the circumstance or condition which has caused such representation or warranty to be incorrect, within 30 days (or such longer period as Trustee and Bond Insurer may in its discretion consent to) after the discovery thereof by or notice thereof to Seller. If Seller fails or is unable to cure such circumstance or condition within such cure period (or if Seller is otherwise required to repurchase a Lease Contract or to provide a Substitute Lease Contract therefor under Section 2.09 hereof, and the respective cure period set forth in Section 2.09 hereof has expired), then by 3:00 p.m. New York City time on the next succeeding Determination Date after the expiration of the applicable cure period, Seller shall either (i) purchase each Lease Contract and the related Equipment as to which such representation or warranty is incorrect, or (ii) substitute for such Lease Contract and the related Equipment a Substitute Lease Contract and all related Equipment; provided, however, that each Substitute Lease Contract shall meet the Substitution Criteria and shall be subject to the requirements of Section 6.02 (b) hereof. The purchase price to be paid by Seller for the repurchase of any such Lease Contract and related Equipment (the "Repurchase Price") shall be equal to the sum of (A) the Warranty Purchase Amount for the Lease Contract, plus (B) the Residual Value of the Equipment covered by the Lease Contract, plus (C) interest on such Residual Value at the Discount Pool Rate applicable to such Lease Contract from the Initial Closing Date to the date that such Lease Contract and Equipment are repurchased. The proceeds of such Repurchase Price shall be remitted by Seller to Servicer for deposit by Servicer in the Investment Account on the date of closing of such repurchase. (b) It is understood and agreed that the obligation of Seller under Section 6.01(a) hereof to provide a substitute for or to repurchase any Lease Contract and related Equipment shall, together with (but without duplication) the indemnification rights contained in the Principal Agreements, constitute the sole remedies against Seller available to Purchaser, Centre Square, the Trust, the Certificateholders or Trustee on behalf of the Certificateholders respecting the breach by Seller of any representation or warranty under Section 3.02 hereof. Section 6.02. Repurchase or Substitution of Leases. ------------------------------------- (a) With respect to any Lease Contract to be prepaid or terminated early, Seller shall in each such case be entitled either to purchase such Lease Contract and the related Equipment for the Repurchase Price or to deliver a Substitute Lease Contract therefor meeting the Substitution Criteria; provided, however, that the cumulative Discounted Lease Contract Balance of prepaid or early terminated Lease Contracts which are substituted by -19- 20 Purchaser (measured as of the date of substitution) shall not exceed 10% of the Aggregate Discounted Lease Contract Balance (measured as of the date of substitution). (b) Seller shall provide to Purchaser and Trustee on the date of delivery of any Substitute Lease Contract submitted by Seller under Section 6.01(a)(ii) or Section 6.02(a) hereof the items listed in (i) and (ii) below, and to Bond Insurer the item listed in (i) below, and Seller shall provide to Purchaser, Trustee and Bond Insurer at or before the end of each calendar quarter (or, with respect to each Substitute Lease Contract substituted by Seller hereunder on or after the fifteenth (15th) day of the last month of such calendar quarter, within fifteen (15) days after the date of such substitution), the items listed in (iii) below with respect to any Substitute Lease Contracts substituted during such period; (i) a supplement to this Agreement and to the Pooling and Servicing Agreement substantially in the form of Exhibit "B" hereto and Exhibit "H" to the Pooling and Servicing Agreement, subjecting such Substitute Lease Contract and all related Equipment to the provisions hereof and thereof, and providing with respect to the Substitute Lease Contract and related Equipment the information set forth in the Lease Schedule; (ii) the original executed counterpart of the Lease Contract relating to such Substitute Lease Contract and the related Lease File, including (without limitation) any related Certificate of Title; and (iii) evidence that financing statements have been filed with respect to such Substitute Lease Contract in accordance with the terms of this Agreement and Section 2.01(d) of the Pooling and Servicing Agreement Section 6.03. Transfer and Assignment. ------------------------ (a) Seller shall be entitled to the transfer and assignment of any Lease Contract and the related Equipment by Purchaser to at any time: (i) after a payment by Seller of the Repurchase Price under Section 6.01(a) for such Lease Contract and related Equipment; (ii) after a Substitute Lease Contract is substituted for such Lease Contract in accordance with Section 6.01(a)(ii) or Section 6.02(a) hereof; or (iii) upon the termination of a Lease Contract following the sale, lease or other disposition of the related Equipment; provided, that, in each such case, the Seller first delivers to Purchaser, Trustee and Bond Insurer an Officer's Certificate (A) identifying the Lease Receivable and the related Lease Contract and Equipment to be so transferred and assigned, (B) requesting the transfer and assignment thereof, (C) certifying that the requirements of Section 6.01(a)(ii) and Section 6.02 hereof have been satisfied, in the event such Lease Contract and Equipment are being transferred and assigned pursuant to clause (iii) hereof, (D) setting forth the amount deposited in the Investment Account with respect to such Lease Contract and Equipment, in the event such -20- 21 Lease Contract and Equipment are being transferred and assigned the pursuant to clause (i) or (iii) hereof, and (D) certifying that the amount so deposited in the Investment Account equals (1) the Repurchase Price required to be paid under Section 6.01(a) for such Lease Contract and related Equipment, in the event of a transfer and assignment pursuant to clause (i) hereof, or (2) the entire amount of Recoveries or Residual Proceeds received with respect to such Lease Contract and related Equipment, in the event of a transfer and assignment pursuant to clause (iii) hereof; provided, however, that upon the termination of any Lease Contract, any Residual Proceeds from the related Equipment shall be placed in the Investment Account prior to Trustee releasing such Equipment from the security interest granted to the Trustee by Purchaser pursuant to the Pooling and Servicing Agreement and prior to Purchaser transferring and assigning such Lease Contract and related Equipment to Seller pursuant to this Agreement. (b) Upon satisfaction of the conditions specified in Section 6.03(a) hereof, Purchaser shall release to Seller the related Lease Files and shall execute and deliver to or upon the order of Seller such instruments of transfer or assignment of such Lease Contract and related Equipment, in each case without recourse, representation or warranty, as Seller shall reasonably request (as shall be prepared by and at the expense of Seller). Section 6.04. Merger or Consolidation of, or Assumption of the Obligations of the Seller. (a) Except as hereinafter provided, the Seller will keep in full effect its existence, rights and franchises as a corporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Lease Contracts and to perform its duties under this Agreement. (b) Any person into which the Seller may be merged or consolidated, or to whom the Seller has sold substantially all of its assets, or any corporation resulting from any merger, conversion or consolidation to which the Seller shall be a party, or any Person succeeding to the business of the Seller shall he the successor of the Seller hereunder and under the Pooling and Servicing Agreement, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Immediately after giving effect to such transaction, (i) no representation or warranty made pursuant to Section 3.01 hereof shall have been breached, (ii) the Seller shall deliver to the Purchaser, Bond Insurer, the Trustee and each Certificateholder a certificate of an officer of the Seller and an Opinion of Counsel each stating that such consolidation, merger, or succession complies with this Section 6.04, that all conditions precedent, if any, provided for in this Agreement relating to such transaction have been complied with and that the surviving entity has succeeded to all of the duties and obligations of the Seller under this Agreement and the Pooling and Servicing Agreement, and (z) the -21- 22 Seller shall deliver to the Purchaser, the Trustee, Bond Insurer, the Rating Agency and each Certificateholder an Opinion of Counsel either (1) stating that, in the opinion of such Counsel, all financing statements or other lien documents with respect to Lease Contracts and continuation statements and amendments thereto that are necessary to fully preserve and protect the interest of the Purchaser in the Lease Contracts have been executed and filed, or delivered, as the case may be, and reciting the details of such statements and documents, or (2) stating that, in the opinion of such Counsel, no such action shall be necessary to preserve and protect such interest. The Seller shall provide prior written notice of any such event to the Rating Agencies and the Bond Insurer . Section 6.05. Preservation of Security Interest. The Seller shall execute and file such financing statements or other lien documents with respect to Lease Contracts relating to Vehicles and cause to be executed and filed such continuation statements, all in such manner and in such places as may be required by law to fully preserve, maintain, and protect the interest of the Purchaser under this Agreement in the Lease Contracts and in the proceeds thereof. The Seller shall deliver (or cause to be delivered) to the Purchaser and the Trustee file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. The Seller shall not be required to file financing statements with respect to the Equipment, except to the extent provided in the Pooling and Servicing Agreement. Section 6.06. Preservation of Name, etc. The Seller will 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 the Seller in accordance with Section 6.05 hereof or the Pooling and Servicing Agreement seriously misleading within the meaning of ss. 9-402 (7) of the UCC, unless it shall have given the Purchaser, the Bond Insurer and the Trustee at least ten (10) days prior written notice thereof and shall have made such filings as are required by Sections 2.01(c) and (d) of the Pooling and Servicing Agreement in connection therewith. Section 6.07. Preservation of Office. The Seller will give the Purchaser, the Bond Insurer and the Trustee at least ten (10) 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 and shall make such filings as are required by Sections 2.01(c) and (d) of the Pooling and Servicing Agreement in connection therewith. Section 6.08. Electronic Ledger. The Seller will mark the Lease Files and the Lease Management System to the effect that the Lease Contracts and Equipment have been contributed to the Purchaser and that they have been transferred and assigned to the Trust pursuant to the Pooling and Servicing Agreement. -22- 23 Section 6.09. Obligations with Respect to Lease Contracts. The Seller will duly fulfill all obligations on its part to be fulfilled under or in connection with each Lease Contract, will not purport to change or modify the terms of the Lease Contracts except as expressly permitted by the terms of the Pooling and Servicing Agreement and will do nothing to impair the rights of the Purchaser or the Trust in the Lease Contracts, the Equipment or the Vehicles. In the event that the rights of the Seller under any Lease Contract, any guaranty of the related Lessee's obligations under any Lease Contract, or any Insurance Policy are not assignable to the Purchaser or to the Trust, the Seller will enforce such rights on behalf of the Trust. Section 6.10. Compliance with Law. The Seller will comply, in all material respects, with all material acts, rules, regulations, orders, decrees and directions of any governmental authority applicable to the Trust Assets or any part thereof; provided, however, that the Seller may contest any act, regulation, order, decree or direction in any reasonable manner which shall not materially and adversely affect the rights of the Purchaser or the Trust in the Trust Assets. Section 6.11. Conveyance of Trust Assets; Security Interests. Except for the transfers and conveyances hereunder and pursuant to the Pooling and Servicing Agreement, the Seller will not sell, pledge, assign or transfer to any Person, or grant, create, incur, assume or suffer to exist any Lien, on any Trust Asset, or any interest therein and the Seller shall defend the right, title, and interest of the Purchaser and its successors and assigns in, to, and under the Trust Assets, against all claims of third parties claiming through or under the Seller, or any of its affiliates. Section 6.12. Notification of Breach. The Seller will advise the Purchaser and the Trustee promptly, in reasonable detail, following discovery by or notice to the Seller of any breach by the Seller of any of its representations, warranties and covenants contained herein. Section 6.13. Pooling and Servicing Agreement. On the Initial Closing Date, the Seller shall enter into the Pooling and Servicing Agreement with the Purchaser, the Backup Servicing and the Trustee. Section 6.14. Further Assurances. The Seller will make, execute or endorse, acknowledge and file or deliver to the Purchaser 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 Trust Assets and other rights covered by this Agreement, as the Purchaser may request and reasonably require. -23- 24 Section 6.15. Notice of-Liens. The Seller shall notify the Purchaser and the Trustee promptly after becoming aware of any Lien on any Trust Asset. Section 6.16. Purchaser Status. The Seller shall not amend the certificate of incorporation of the Purchaser without the prior written consent of the Rating Agencies, the Bond Insurer and the Majority Certificateholders. Section 6.17. Purchaser's Stock. The Seller will not transfer, assign, convey or sell the Common Stock of the Purchaser issued to it pursuant to the Capital Contribution Agreement. In furtherance of the Seller's negative covenant pursuant to the preceding sentence, the Seller will deliver to the Trustee on the Initial Closing Date each certificate representing any Common Stock of the Purchaser held by the Seller and the Seller promptly will deliver to the Trustee upon receipt by the Seller each certificate representing any additional shares of the capital stock of the Purchaser at any time thereafter acquired by the Seller to hold in escrow until the Trust is terminated. ARTICLE VII INDEMNITY Section 7.01. Indemnities. (a) Seller shall defend and hold harmless, and hereby indemnifies, Purchaser, Trustee (except to the extent the following result from the gross negligence or willful misconduct of Trustee), the Trust, Centre Square, the Bond Insurer and the Certificateholders from and against any taxes that may at any time be asserted against Purchaser, Trustee, the Trust, Centre Square, the Bond Insurer or the Certificateholders or their respective directors, officers, employees and agents, with respect to (i) the execution and delivery of the Principal Agreements, (ii) the issuance of the Certificates, (iii) the depositing of funds into the Cash Collateral Account, and (iv) the sale, transfer and assignment of Lease Contracts and other rights and interests to Trustee for the benefit of the Certificateholders and the Bond Insurer, including, without limitation, any sales, gross receipts, general corporation, tangible or intangible personal property, privilege, or license taxes (but not including any taxes asserted with respect to ownership of the Equipment or Trust Assets or federal or other income taxes, including franchise taxes measured by net income, arising out of the transactions contemplated by the Principal Agreements), and reasonable out-of-pocket costs and expenses in defending against the same. (b) Seller shall defend and hold harmless, and hereby indemnifies, Purchaser, Trustee, the Trust, Centre Square, the Bond Insurer and the Certificateholders, and their respective directors, officers, employees and agents, from and against any loss, liability or expense incurred by reason of (i) Seller's willful misfeasance, bad faith, or negligence in the performance of its duties under the Principal Agreements, or (ii) any action taken or failed -24- 25 to be taken as required by the terms of the Principal Agreements, by Seller in respect of any of the Lease Contracts or Equipment. (c) Seller shall defend and hold harmless, and hereby indemnifies, Purchaser, Trustee, the Trust, Centre Square, the Bond Insurer and the Certificateholders, from and against any and all loss, liability, damage, judgment, claim, deficiency or expense that arises out of or is based upon (i) a breach at any time by Seller of its representations, warranties and covenants contained in the Principal Agreements, (ii) any information certified in any schedule or other writing delivered by Seller hereunder, being untrue in any material respect when any such representation was made or schedule delivered, or (iii) any act or omission in respect of a Lease Contract or its related Equipment occurring prior to the Closing Date on which the Lease Contract and Equipment were purchased hereunder; provided, however, that Seller shall not be so required to indemnify Purchaser, Trustee, the Trust, Centre Square and the Certificateholders for or on account of or arising from or in connection with any breach of a representation or warranty a remedy for the breach of which is provided in Article VI hereof, except in respect of claims, demands and causes of action of Lessees, Governmental Agencies, or other third parties. (d) Seller shall also indemnify, defend and hold harmless Purchaser, Trustee, the Trust, Centre Square, the Bond Insurer and the Certificateholders and their respective directors, officers, employees and agents, from and against any loss, liability or expense incurred by reason of the violation by any of such parties of federal or state securities laws in connection with the sale of the Certificates, to the extent such violation results from (i) any information furnished by or on behalf of Seller that in turn was furnished to the Certificateholders or the Bond Insurer, or (ii) the failure of Seller to furnish to Purchaser and the Bond Insurer any information known by any officer or agent of Seller and that was not otherwise known by any officer or agent of Bond Insurer, Centre Square or any of its Affiliates. (e) THE INDEMNITIES OF SELLER UNDER THIS SECTION 7.01 SHALL APPLY NOTWITHSTANDING THAT A CLAIM, DEMAND, LIABILITY, LOSS, COST OR EXPENSE IS ATTRIBUTABLE IN WHOLE OR IN PART TO THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. (f) Indemnification under this Section 7.01 shall include reasonable out-of-pocket fees and expenses of counsel and expenses of litigation, shall survive the execution, delivery and performance of this Agreement regardless of any investigation made by the indemnified parties or any other Person, and shall also survive termination of the Trust or the repurchase of a Lease Contract. If Seller shall have made any indemnity payments to Purchaser, Trustee, Centre Square, the Trust and the Certificateholders pursuant to this Section 7.01 and Purchaser, Trustee, Centre Square, the Trust and the Certificateholders thereafter shall collect -25- 26 any of such amounts from persons other than Seller, Purchaser, Trustee, Centre Square, the Trust or the Certificateholders, as the case may be, shall promptly upon receipt thereof repay such amounts (or use its best efforts to cause Purchaser, Trustee, Centre Square or the Certificateholders to repay such amounts) to Seller, without interest. ARTICLE VIII MISCELLANEOUS Section 8.01. Survival. Each of the parties agrees that the representations, warranties and agreements made by it herein and in any certificate or other instrument delivered pursuant hereto shall be deemed to be relied upon by the other party hereto, notwithstanding any investigation heretofore or hereafter made by such other party or on its behalf, and that the representations, warranties and agreements made by each of the parties hereto herein or in any such certificate or other instrument shall survive the delivery and payment for the Lease Contracts and Equipment. The provisions of this Section 8.01 shall survive any termination or cancellation of this Agreement. Section 8.02. Governing Law; Counterparts. This Agreement is to be governed by, and interpreted, construed and enforced in accordance with, the internal law of the State of New York without regard to principals of conflicts of laws. This Agreement may be executed in two or more 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 8.03. Amendments. Subject to the provisions of Section 8.10, this Agreement or any term hereof may not be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought provided that the Bond Insurer shall have given its prior written consent. The Seller shall give prompt written notice of any amendment to this Agreement to each of the Rating Agencies. Section 8.04. Headings. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. Section 8.05. Notices. All demands, notices, and communications under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (a) when delivered against receipt of registered or certified mail or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested; (b) when delivered by courier with appropriate evidence of receipt; or (c) upon transmission via facsimile transmission with appropriate evidence of receipt at the following address of the recipient: (i) in the case of Seller, at 1851 East First Street, Suite 900, Santa Ana, California -26- 27 92705, (ii) in the case of Purchaser, at 747 Chestnut Ridge Road, Suite 300, Chestnut Ridge, New York 10977 and (iii) in the case of Bond Insurer, at 113 King Street, Armonk, New York 10504, Attention: Insured Portfolio Management -- Structured Finance. Any party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section 8.05 for giving notice and by otherwise complying with any applicable terms of this Agreement. Section 8.06. 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. Section 8.07. Assignment. This Agreement may not be assigned by Seller or Purchaser without the prior consent of the Bond Insurer. Subject to the foregoing, this Agreement shall inure to the benefit of, and be binding on, the parties hereto, and their successors and assigns. Section 8.08. Further Assurances. Seller and Purchaser agree to do and perform from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by either party, Bond Insurer, Centre Square or the Trustee more fully to effect the purposes of this Agreement in a manner consistent with this Agreement, including, without limitation, the execution of any financing statements or continuation statements or other documents or instruments relating to the Lease Contracts and the Equipment for filing under the provisions of the UCC or other relevant laws of any applicable jurisdiction. Section 8.09. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any party hereto, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 8.10. Third-Party Beneficiaries. In addition to being for the benefit of Purchaser, each covenant, representation and warranty of Seller under this Agreement is expressly for the direct benefit of the Trustee, the Trust, Centre Square, the Certificateholders, and Bond Insurer, their respective successors and assigns as fully as if the Trustee, the Trust, Centre Square, Bond Insurer and the Certificateholders were parties to this Agreement and such covenants were made with, and such representations and warranties were made to, the Trustee, the Trust, Centre Square, Bond Insurer and the Certificateholders. -27- 28 Seller acknowledges that the Trustee, on behalf of the Trust and Bond Insurer, and Centre Square, have executed the Pooling and Servicing Agreement and the Purchase Agreement and the Certificateholders have purchased the Certificates in reliance, in part, on Seller's covenants, representations and warranties under this Agreement. The Trustee, Centre Square, Bond Insurer and/or the Certificateholders may directly enforce against Seller in their own names each of Seller's covenants, representations and warranties under this Agreement, without the joinder of Purchaser. Notwithstanding any other term or provision hereof, no amendment of this Agreement shall be effective as to Centre Square, the Trustee, the Trust, Bond Insurer and the Certificateholders unless such amendment has been approved by Centre Square, the Trustee, Bond Insurer, and the Majority Certificateholders. Centre Square, Bond Insurer, the Trustee, the Trust and the Certificateholders do not assume, and shall have no liability for, any of the obligations of Purchaser under this Agreement. [Intentionally left blank.] -28- 29 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ROCKFORD LEASE FUNDING CORP. By: ------------------------------------- Larry Hartmann President ROCKFORD INDUSTRIES, INC. By: ------------------------------------- Gerry J. Ricco President -29- 30 EXHIBITS -------- A. Bill of Sale and Assignment B. Supplement to Equipment and Lease Purchase Agreement (Substitute Leases) C. [Intentionally left blank.] D-1 Form of Lease Contract D-2 Form of Lease Contract D-3 Form of Promissory Note and Security Agreement E. Form of Amended Certificate of Acceptance -30- EX-10.34 4 PURCHASE AGREEMENT, DATED 3-27-97 1 EXHIBIT 10.34 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement"), dated as of March 27, 1997, is entered into by and among ROCKFORD LEASE FUNDING CORP., a New York corporation ("Seller"), ROCKFORD INDUSTRIES, INC., a California corporation ("Rockford"), CENTRE SQUARE FUNDING CORPORATION, a Delaware corporation ("Purchaser"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America (the "Trustee"), in its capacity as trustee under the trust created pursuant to the Pooling and Servicing Agreement described below. RECITALS Contemporaneously with the execution of this Agreement, Seller, as seller, Rockford, as servicer and Trustee, as trustee and back-up servicer, have executed that certain Pooling and Servicing Agreement dated of even date herewith (the "Pooling and Servicing Agreement"). Seller proposes, subject to the terms and conditions stated herein, to sell to Purchaser Class A Certificates issued pursuant to the Pooling and Servicing Agreement. Such Class A Certificates shall, as of any date of determination, have an outstanding principal balance not to exceed $150,000,000 (the "Commitment Amount"). Capitalized terms used in this Agreement have the meanings provided in Article I below. The Certificates described below evidence fractional undivided interests in a Trust with a corpus consisting of a pool of Lease Contracts serviced by Rockford. Purchaser desires to purchase from Seller the Class A Certificates to be issued from time to time by the Trust, and Seller desires to sell the Class A Certificates to Purchaser, subject to the terms and provisions of this Agreement. NOW, THEREFORE, in consideration of the agreements herein contained, the parties agree as follows. ARTICLE I DEFINITIONS Section 1.01 Certain Definitions. The following terms shall have the meanings given them below: "Balloon Lease" shall mean any Lease Contract with respect to which the final Scheduled Payment exceeds three times the highest Scheduled Payment previously made with respect to such Lease Contract. "Bill of Sale and Assignment" shall have the meaning given such term in the Equipment and Lease Purchase Agreement. 2 "Computer Equipment" shall include the types of equipment described on Exhibit K hereto under the following Asset Codes: 5 and 20. "Eligible Lease Contract" shall mean, as of the relevant date, a Lease Contract: (a) which, if included in the Trust, would not cause any representation or warranty of Seller contained in Section 3.02 hereof to be untrue or incorrect; and (b) with respect to which Purchaser has not notified Seller that such Lease Contract is unacceptable for purchase. "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either: (a) (i) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator (or other similar official) for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue unstayed or undismissed for a period of 15 days; or (ii) an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person (i) shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or (ii) shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or (iii) shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing. "Funding Period Trigger Event" shall mean at any time during the term of the Pooling and Servicing Agreement the failure of any condition described in Subsections 2.04(e)-(j) and (l)-(kk) hereof to be satisfied. "Hard Assets" shall include the types of equipment described on Exhibit K hereto under the following Asset Codes: 21, 22, 23, 24, 25, 30 and 50. "Liquidity Agent" means CoreStates Bank, N.A. and its successors and assigns under the Liquidity Facility. -2- 3 "Medical Equipment" shall include the types of equipment described on Exhibit K hereto under the following Asset Codes: 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, 28, 36 and 65. "Sale Assignment" shall mean a Sale Assignment in the form attached hereto as Exhibit B. Such assignment is without recourse, but subject to Seller's covenants, representations, warranties and indemnities specifically provided herein. "Soft Assets" shall include the types of equipment described on Exhibit K hereto under the following Asset Codes: 18 and 20.01. "Subsequent Closing Notice" has the meaning given to such term in Section 2.03(b). "Treasury Rate" shall have the meaning given such term in Section 2.05. "Warranty Purchase Amount" shall have the meaning given such term in Section 7.01(c). Section 1.02 Other Definitions. Other capitalized terms used, but not defined herein, shall have the meanings given them in the Pooling and Servicing Agreement. ARTICLE II PURCHASE AND SALE OF CERTIFICATES Section 2.01 [Intentionally Omitted] Section 2.02 Initial Closing Date Conditions. Trustee's obligations hereunder shall be subject to the satisfaction (or waiver by Trustee, Bond Insurer and Purchaser) on the Initial Closing Date of each of the following conditions precedent: (a) On or before the Initial Closing Date, Seller and Rockford shall deliver or cause to be delivered the following documents to Trustee, Purchaser and Bond Insurer: (i) An Officer's Certificate of Seller substantially in the form of Exhibit C and an Officer's Certificate of Rockford substantially in the form of Exhibit D; (ii) Opinions of Counsel for Seller and Rockford substantially in the form of Exhibit E with respect to the treatment of the transfer from Rockford to Seller as a "true sale," certain bankruptcy issues with respect to Seller, tax and securities issues and the first priority perfected security interest of Trustee in the Trust Assets; (iii) Copies of resolutions of the board of directors of Seller approving the execution, delivery and performance by Seller of the Principal Agreements and the transactions contemplated hereunder and thereunder, certified by the secretary or any -3- 4 assistant secretary of Seller, and copies of resolutions of the board of directors of Rockford approving the execution, delivery and performance by Rockford of the Principal Agreements and the transactions contemplated thereunder, certified by the secretary or any assistant secretary of Rockford; (iv) Officially certified, dated not more than thirty (30) days prior to the Initial Closing Date, evidence of due incorporation and good standing of Seller under the laws of New York and of Rockford under the laws of California, and evidence of Seller's and Rockford's respective good standing and authority to conduct business under the laws of California and each other jurisdiction in which the ownership or leasing of property by such party or the conduct of its business requires qualification, except for those jurisdictions for which both of the following are satisfied: (a) the failure to so qualify in such jurisdiction will not impair the ability of Seller or Rockford to enforce in such jurisdiction the obligations of the Lessee under any Lease Contracts covering Equipment located in such jurisdiction, and (b) the failure to so qualify in such jurisdiction and in all other jurisdictions in which it is not qualified would not, in the aggregate, materially adversely affect the assets, liabilities, financial condition, business or operations of Seller or Rockford or the ability of either such party to perform its obligations under the Principal Agreements; (v) Submission for filing of all UCC-1 financing statements and UCC-3 assignments prepared by Seller's counsel described in Exhibit F or other instruments necessary to perfect the first priority ownership or security interests granted and assigned by Seller under the Principal Agreements and Sale Assignments to Trustee for the benefit of the Certificateholders and Bond Insurer in the Lease Contracts, Equipment and other rights, titles and interests referred to hereunder (other than UCC-1 financing statements naming the Lessees under the Lease Contracts as debtors) to be filed or recorded in all such appropriate places as are required to protect the Trust's interest in the Lease Contracts, Equipment and such other rights, titles and interests; (vi) Evidence of the deposit by Seller into the Investment Account of any amounts paid on the Lease Contracts since the related Cut-Off Date; (vii) An Officer's Certificate of Servicer identifying Servicing Officers; (viii) An Officer's Certificate of Servicer stating that the Lease Contracts and Lease Files have been delivered to Trustee, and that Servicer has marked the Lease Management System and other physical records of the Lease Contracts to the effect that, as to the Lease Contracts, Seller has sold and assigned all of its right, title and interest therein to the Trust; (ix) Evidence that Servicer has in effect the fidelity bond or employee dishonesty policy described in Section 3.07(g) of the Pooling and Servicing Agreement; -4- 5 (x) A properly executed copy of the Equipment and Lease Purchase Agreement; (xi) The initial Lease Schedule for the Lease Contracts and the related Lease Files; (xii) Secretary's Certificate of Rockford covering the resolutions adopted by its Board of Directors as to Principal Agreements, incumbency and signatures of the officers of Rockford signing the Principal Agreements, and the certificate of incorporation and bylaws of Rockford; (xiii) UCC Lien search of recent date issued by the Office of the Secretary of State of the State of California and the other states listed on Exhibit J hereto covering Rockford and reflecting no financing statement filings against the Lease Contracts and related Equipment other than those to be terminated on or before the Initial Closing Date; (xiv) [Intentionally Omitted]; (xv) Secretary's Certificate of Seller covering the resolutions adopted by its Board of Directors as to Principal Agreements, the incumbency and signatures of the officers of Seller signing the Principal Agreements, and the certificate of incorporation and bylaws of Seller; (xvi) UCC Lien searches of recent date issued by the Offices of the Secretaries of State of New York and California covering Seller and reflecting no financing statement or lien filings against Seller or any assets of Seller other than those made pursuant to the Pooling and Servicing Agreement and naming Trustee as secured party; (xvii) A Capital Contribution Agreement in the form of Exhibit G properly executed by Rockford and Seller (the "Capital Contribution Agreement"); (xviii) Such other documents, Opinions of Counsel and certificates as Trustee or Bond Insurer may request; (xix) With respect to Vehicles owned by the Seller, Seller (A) shall have delivered to Trustee, Certificates of Title or Applications for Certificates of Title, and (B) shall deliver to Trustee within ninety (90) days of the Initial Closing Date, original Certificates of Title for such Vehicles; and -5- 6 (xx) With respect to Vehicles in which Seller has a security interest, Seller (A) shall have delivered to Trustee, vehicle lien applications necessary to perfect the Trust's security interest in such Vehicles, and (B) shall deliver to Trustee within ninety (90) days of the Initial Closing Date Certificates of Title with respect to such Vehicles naming Trustee as first lienholder. (b) The Pooling and Servicing Agreement, the Equipment and Lease Purchase Agreement, the Letter of Credit Reimbursement Agreement, each of the Lockbox Agreements and the Capital Contribution Agreement shall be in full force and effect. (c) Trustee or its agent shall have received, and shall hold in trust pursuant to the Pooling and Servicing Agreement, all documents, instruments and other assets required by the Pooling and Servicing Agreement to be delivered to Trustee with respect to and on behalf of the Trust as of the Initial Closing Date including an original executed counterpart of each Lease Contract identified on the Lease Contract Schedule and the related certificates of acceptance as set forth in clause (d) of the definition of "Lease File". (d) The representations and warranties of Seller in the Principal Agreements and in any Officer's Certificate delivered to Trustee, Bond Insurer or Purchaser in connection therewith shall be true and correct in all material respects on and as of the Initial Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and Seller shall have complied with all the agreements and satisfied all the conditions under the Principal Agreements and the Capital Contribution Agreement in all material respects on its part to be performed or satisfied at or prior to the Initial Closing Date. (e) The representations and warranties of Rockford in the Principal Agreements and in any Officer's Certificate delivered to Trustee, Bond Insurer or Purchaser in connection therewith shall be true and correct in all material respects on and as of the Initial Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and Rockford shall have complied with all the agreements and satisfied all the conditions under the Principal Agreements and the Capital Contribution Agreement in all material respects on its part to be performed or satisfied at or prior to the Initial Closing Date. (f) Seller and Rockford shall have paid or shall have made arrangements for payment of all taxes, fees and governmental charges, if any, in connection with the execution and delivery of the Principal Agreements and the assignment of other rights and interests by Seller to the Trust under this Agreement. (g) There shall have been no occurrence which would, in Purchaser's or Bond Insurer's reasonable judgment, have a material adverse effect on (i) the assets, liabilities, financial condition, business or operations of Rockford or Seller from the facts represented or warranted under the Principal Agreements, or (ii) the ability of Rockford or Seller to meet its obligations under the Principal Agreements. -6- 7 (h) No change shall have occurred in any law, rule or regulation that would prohibit the consummation of any transaction contemplated hereby, that would impose limits on the amount of Certificate Interest that the Certificateholders may legally receive or that would impose a tax or levy (other than tax on income generally) on the Certificates or payments received in respect of the Certificates. (i) No action, proceeding or investigation shall have been instituted or threatened, nor shall any order, judgment or decree have been issued or proposed to be issued by any court, agency or authority to set aside, restrain, enjoin or prevent the consummation of any transaction contemplated hereby or seeking material damages against Trustee, the Trust, Purchaser or the Certificateholders in connection with the transactions contemplated by the Principal Agreements. (j) No final judgment shall have been rendered against Rockford or any of its Affiliates in an amount greater than $100,000 which is not covered by insurance or which, within 30 days after the entry of such judgment, is not discharged or execution thereof stayed pending appeal, or which is not discharged within 60 days after the expiration of such stay. (k) No event of default (or event which, with the giving of notice or the lapse of time, or both, would constitute an event of default) shall have occurred and be continuing under any loan or credit agreement or any other evidence of indebtedness given by Rockford or any of its Affiliates in connection with any single credit facility extended to Rockford or any of its Affiliates which has at the time an outstanding principal balance of $100,000 or more. (l) Not more than one of the persons who hold the offices of President or Executive Vice President of Rockford on the date of this Agreement shall have ceased to be employed on a full-time basis by Rockford. (m) The Tangible Net Worth Requirement shall be satisfied. (n) Seller or Rockford shall pay or reimburse Bond Insurer for all costs and expenses incurred by Bond Insurer in connection with the Principal Agreements and the transactions contemplated thereby. (o) The Rating Agencies shall have notified Bond Insurer that the Rating Agencies have deemed the Certificates an "investment grade risk" to Bond Insurer. (p) Bond Insurer shall have delivered the Policy to Trustee. (q) Evidence of the deposit by Rockford of $58,650.44 into the Investment Account shall have been delivered to Bond Insurer. (r) Bond Insurer shall have received evidence that Trustee has received the Letter of Credit and that the Available LOC Amount equals the Minimum LOC Amount. -7- 8 If any of the conditions specified in this Section 2.02 shall not have been fulfilled when and as provided by this Agreement, or if any of the opinions, certificates or other documents mentioned above or elsewhere in this Agreement shall not be satisfactory in form and substance to Purchaser and Purchaser's special counsel, and Bond Insurer and Bond Insurer's special counsel, this Agreement and all Purchaser's obligations hereunder may be canceled by Purchaser at or at any time prior to, the Initial Closing Date. Notice of such cancellation shall be given to Seller and Bond Insurer in writing, or by telephone or telecopy confirmed in writing. Such cancellation shall be without prejudice to any rights, claims or remedies that Purchaser may have pursuant to this Agreement or otherwise against Seller or any other person by reason of such cancellation. Section 2.03 Subsequent Closings. (a) Subject to the terms and conditions set forth herein, on each Subsequent Closing Date (i) Seller shall assign to Trustee, for the benefit of the Certificateholders and Bond Insurer, the Eligible Lease Contracts and other rights and interests to be conveyed to the Trust on the Subsequent Closing Date, (ii) Rockford shall cause the Available Amount to equal or exceed the Minimum LOC Amount (calculated after giving effect to the conveyance of the Lease Contracts to be conveyed to the Trust and the issuance of the related Class A Certificates on such Subsequent Closing Date), (iii) Trustee shall issue to or upon the order of Seller Class A Certificates having an original aggregate certificate principal balance equal to the Aggregate Discounted Lease Contract Balance of such Lease Contracts as of the Subsequent Closing Date, representing 100% of the Certificates to be issued on the Subsequent Closing Date, and (iv) Purchaser and/or its designated affiliate shall purchase such Class A Certificates from Seller for a price equal to the original aggregate principal amount of such Certificates; provided, however, that such purchase shall not cause the Class A Certificate Investor Interest to exceed the Commitment Amount and Trustee shall not accept further Lease Contracts if to do so would cause the Class A Certificate Investor Interest to exceed the Commitment Amount. Notwithstanding anything to the contrary contained herein, all Subsequent Closing Dates must occur no later than the date on which the Funding Period is terminated. Trustee shall not accept Lease Contracts and Purchaser shall not purchase Class A Certificates on or after the date on which the Funding Period is terminated. (b) Not later than the fifth Business Day preceding a Subsequent Closing Date, Seller, by personal delivery, telecopy or other means of delivery, shall give Trustee, Bond Insurer and Purchaser notice (the "Subsequent Closing Notice") of the proposed Subsequent Closing Date. Each such notice shall specify the date of the proposed Subsequent Closing Date (which shall be a Business Day), shall include a copy of the Lease Schedule for the Lease Contracts to be assigned to Trustee on the Subsequent Closing Date, and shall specify the weighted average of the remaining terms of such Lease Contracts, the approximate applicable Treasury Rate under Section 2.05 for such weighted average (with the precise calculation to be communicated to Trustee, Bond Insurer and Purchaser one Business Day prior to the proposed Subsequent Closing Date), and the approximate aggregate principal amount (with the precise calculation to be communicated to Trustee, Bond Insurer and Purchaser one Business Day prior to the proposed Subsequent Closing Date) and approximate applicable Certificate Rates of Certificates to be issued in connection with such proposed closing (with the precise calculation to be communicated to Trustee, Bond Insurer and Purchaser one Business Day prior to the proposed Subsequent Closing Date); provided, in no event shall the Class A Certificate Investor Interest ever -8- 9 exceed the Commitment Amount and in no event shall the aggregate principal amount of Certificates to be issued in connection with such proposed closing be less than $3,000,000. (c) Seller hereby agrees, subject to the terms of this Agreement, to assign to Trustee for the benefit of the Certificateholders and Bond Insurer on each Subsequent Closing Date, Eligible Lease Contracts with an Aggregate Discounted Lease Contract Balance as of the Subsequent Closing Date that is not less than the aggregate original principal balance of the Certificates to be issued on such Subsequent Closing Date. (d) Payment for and delivery of the Certificates to be purchased by Purchaser from Seller on a Subsequent Closing Date shall be made at a closing at the offices of Purchaser c/o CoreStates Bank, N.A., 1345 Chestnut Street, Philadelphia, Pennsylvania 19101 at 12:00 noon Philadelphia time on the Subsequent Closing Date. Payment of the purchase price for the Certificates shall be made by Purchaser in federal or other immediately available funds, against delivery to Purchaser of the Certificates to be purchased on such Subsequent Closing Date, registered in Purchaser's name or in the name of Purchaser's nominee. Section 2.04 Subsequent Closing Conditions. Trustee's obligation to accept Lease Contracts and issue Certificates to or upon the order of Seller on a Subsequent Closing Date and Purchaser's obligation to purchase such Certificates shall be subject to the satisfaction (or waiver by Trustee, Bond Insurer and Purchaser) on such Subsequent Closing Date of each of the conditions set forth in Section 2.03 and the following conditions precedent (references in this Section 2.04 to "Sale Assignment" and "Lease Contracts" shall be deemed to refer to the Sale Assignment to be executed by Seller in connection with such Subsequent Closing Date and the Lease Contracts covered by such Sale Assignment): (a) On or before each Subsequent Closing Date, Seller and Rockford shall deliver or cause to be delivered the following documents to Trustee, Bond Insurer and Purchaser; (i) An Officer's Certificate of Seller substantially in the form of Exhibit C and an Officer's Certificate of Rockford substantially in the form of Exhibit D (or, in either or both cases, an Officer's Certificate satisfactory to Purchaser and Bond Insurer stating that the statements made in the Officer's Certificate delivered in connection with the later of the Initial Closing Date or the most recent Subsequent Closing are true and complete as if made on and as of the Subsequent Closing Date, and that the instruments attached thereto have not been replaced or modified); (ii) (intentionally left blank) (iii) (intentionally left blank) (iv) (intentionally left blank) (v) (intentionally left blank) -9- 10 (vi) The Lease Schedule for the Lease Contracts and the related Lease Files; (vii) An Officer's Certificate of Servicer stating that the Lease Contracts and Lease Files have been delivered to Trustee, and that Servicer has marked the Lease Management System and other physical records of the Lease Contracts to the effect that, as to the Lease Contracts, Seller has sold and assigned all of its right, title and interest therein to the Trust; (viii) A Bill of Sale and Assignment properly executed by Rockford conveying the Lease Contracts and related Equipment to Seller; (ix) Releases and UCC-3 termination statements executed by any existing lender(s) as to the Lease Contracts and Equipment covered thereby; (x) A Sale Assignment properly executed by Seller and conveying the Lease Contracts to Trustee for the benefit of the Certificateholders and Bond Insurer; (xi) Secretary's Certificate of Seller covering the resolutions adopted by its Board of Directors as to the Sale Assignment and the incumbency and signatures of the officers of Seller signing the Sale Assignment; (xii) With respect to Vehicles owned by the Seller, Seller (A) shall have delivered to Trustee, Certificates of Title or Applications for Certificates of Title, and (B) shall deliver to Trustee within ninety (90) days of such Closing Date, original Certificates of Title for such Vehicles; and (xiii) With respect to Vehicles in which Seller has a security interest, Seller (A) shall have delivered to Trustee, vehicle lien applications necessary to perfect the Trust's security interest in such Vehicles, and (B) shall deliver to Trustee within ninety (90) days of such Closing Date Certificates of Title with respect to such Vehicles naming Trustee as first lienholder. (b) No Servicer Default shall have occurred as provided (and defined) in Section 9.01 of the Pooling and Servicing Agreement, other than a Servicer Default that is waived in writing by Bond Insurer, or Purchaser with the prior written consent of Bond Insurer. (c) The Equipment and Lease Purchase Agreement, Pooling and Servicing Agreement, the Letter of Credit Reimbursement Agreement, the Lockbox Agreements, the Insurance Agreement and Capital Contribution Agreement shall remain in full force and effect. (d) Trustee shall certify that Trustee or its agent shall have received, and shall hold in trust pursuant to the Pooling and Servicing Agreement, all documents, instruments and other assets required by the Pooling and Servicing Agreement to be delivered to Trustee with respect to and on behalf of the Trust as of the Subsequent Closing Date, including the original executed counterpart of each Lease Contract identified in the related Lease Schedule. Such Lease Files shall have been -10- 11 delivered to the Trustee for inspection at least three Business Days before the Subsequent Closing Date. (e) The representations and warranties of Seller in the Principal Agreements and in any Officer's Certificate delivered to Trustee, Bond Insurer or Purchaser in connection therewith shall be true and correct in all material respects on and as of the Subsequent Closing Date, with the same effect as though such representations and warranties had been made on and as of such date, and Seller shall have complied with all the agreements and satisfied all the conditions under the Principal Agreements and the Capital Contribution Agreement in all material respects on its part to be performed or satisfied at or prior to the Subsequent Closing Date. (f) The representations and warranties of Rockford in the Principal Agreements and in any Officer's Certificate delivered to Trustee, Bond Insurer or Purchaser in connection therewith shall be true and correct in all material respects on and as of the Subsequent Closing Date, with the same effect as though such representations and warranties had been made on and as of such date, and Rockford shall have complied with all the agreements and satisfied all the conditions under the Principal Agreements and the Capital Contribution Agreement in all material respects on its part to be performed or satisfied at or prior to the Subsequent Closing Date. (g) Seller and Rockford shall have paid or shall have made arrangements for payment of all taxes, fees and governmental charges, if any, in connection with the sale of the Lease Contracts and related Equipment by Rockford to Seller under the Equipment and Lease Purchase Agreement, the assignment of the Lease Contracts and its interest in the Equipment and other rights and interests by Seller to the Trust under this Agreement and the issuance of the Certificates. (h) There shall have been no occurrence which would, in Purchaser's or Bond Insurer's reasonable judgment, have a material adverse effect on (i) the assets, liabilities, financial condition, business or operations of Rockford or Seller from the facts represented or warranted under the Principal Agreements, or (ii) the ability of Rockford or Seller to meet its obligations under the Principal Agreements. (i) No change shall have occurred in any law, rule or regulation that would prohibit the consummation of any transaction contemplated hereby, that would impose limits on the amount of Certificate Interest that the Certificateholders may legally receive or that would impose a tax or levy (other than tax on income generally) on the Certificates or payments received in respect of the Certificates. (j) No action, proceeding or investigation shall have been instituted or threatened, nor shall any order, judgment or decree have been issued or proposed to be issued by any court, agency or authority to set aside, restrain, enjoin or prevent the consummation of any transaction contemplated hereby or seeking material damages against Trustee, the Trust, Purchaser, Bond Insurer or the Certificateholders in connection with the transactions contemplated by the Principal Agreements. (k) Seller shall have delivered to Trustee, Bond Insurer and Purchaser an Officer's Certificate of Seller and Servicer confirming (i) the deposit in the Investment Account of all funds -11- 12 received with respect to the Lease Contracts from the applicable Cut-Off Date to the Subsequent Closing Date, and (ii) that the Available Amount equals or exceeds the Minimum LOC Amount (calculated after giving effect to the conveyance of the Lease Contracts to be conveyed to the Trust and the issuance of the related Class A Certificates on such Subsequent Closing Date), and Trustee shall have delivered to Purchaser and Bond Insurer a certificate of a Responsible Officer confirming the amounts so indicated by Seller and Servicer in such Officer's Certificate. (l) No final judgment shall have been rendered against Rockford or any of its Affiliates in an amount greater than $100,000 which is not covered by insurance or which, within 30 days after the entry of such judgment, is not discharged or execution thereof stayed pending appeal, or which is not discharged within 60 days after the expiration of such stay. (m) No event of default (or event which, with the giving of notice or the lapse of time, or both, would constitute an event of default) shall have occurred and be continuing under any loan or credit agreement or any other evidence of indebtedness given by Rockford or any of its Affiliates in connection with any single credit facility extended to Rockford or any of its Affiliates which has at the time an outstanding principal balance of $100,000 or more. (n) [Intentionally Omitted.] (o) The Tangible Net Worth Requirement shall be satisfied. (p) Seller or Rockford shall pay or reimburse Purchaser and Bond Insurer for all unreimbursed or unpaid costs and expenses incurred by Purchaser in connection with the Principal Agreements and the transactions contemplated thereby. (q) Purchaser and Bond Insurer shall have received a true and complete copy of Rockford's and Seller's most recent financial statements (whether or not audited). (r) No more than 35% of the Aggregate Discounted Lease Contract Balance is attributable to Lease Contracts where the business of the Lessee thereunder is characterized as "non-medical", and no more than 5% of the Aggregate Discounted Lease Contract Balance is attributable to Lease Contracts with the Lessee located in Puerto Rico or Canada, and no more than 1% of the Aggregate Discounted Lease Contract Balance is attributable to Lease Contracts with the Lessee located in the Province of Quebec. (s) Neither Seller nor Rockford shall have failed to make any payment or deposit required to be made by it hereunder or under any of the Principal Agreements. (t) An Event of Bankruptcy shall not have occurred with respect to Seller or Rockford. (u) A Trigger Event shall not have occurred and the Funding Period has not ended. (v) The Class A Certificate Investor Interest shall not be greater than the Aggregate Discounted Lease Contract Balance. -12- 13 (w) Seller and Rockford shall have maintained a first priority perfected security interest in the Lease Receivables and the Lease Files for the benefit of Certificateholder and Bond Insurer. (x) Bond Insurer shall not have determined that the issuance of a Class A Certificate will impose an adverse regulatory impact on Bond Insurer. (y) [Intentionally omitted] (z) The immediately preceding Closing Date shall not have occurred more than three months prior to the date of such Subsequent Closing Date. Except with respect to Subsequent Closing Dates occurring in April, May and June of 1997, the Aggregate Discounted Lease Contract Balances of Lease Contracts conveyed to the Trust in the calendar quarter immediately preceding such Subsequent Closing Date shall have equaled at least $10,000,000. The Aggregate Discounted Lease Contract Balances of the Lease Contracts conveyed to the Trust during the current calendar quarter, including the Lease Contracts to be conveyed on the related Subsequent Closing Date shall not exceed $30,000,000. (aa) The Available Amount on any three consecutive Deposit Dates shall not have been less than the Minimum LOC Amount on such Deposit Dates. (bb) The average of the Annualized Default Rates for any three consecutive Collection Periods shall not have equaled or exceeded 5.0%. (cc) The average of the Delinquency Rates for any three consecutive Collection Periods, for any three consecutive Collection Periods shall not have equaled or exceeded 6.5%. (dd) Rockford shall not have defaulted under any other agreement evidencing indebtedness over $1,000,000 and such default has not been accelerated. (ee) Trustee has no actual knowledge that a Servicer Default, a Funding Period Trigger Event or a Trigger Event has occurred, and has received the Officer's Certificate set forth in Section 2.04(a)(i). (ff) Neither the Class A Certificateholders nor Trustee shall have received a letter from Bond Insurer confirming that the Policy no longer remains in full force and effect as of the related Closing Date. (gg) After Servicer has established a Lockbox Account pursuant to the Pooling and Servicing Agreement, Servicer shall have provided Back-up Servicer with a signed lockbox letter or its equivalent with respect to any such Lockbox Account. (hh) Bond Insurer shall have received evidence of the deposit by Trustee into the Investment Account of any amounts paid on the Lease Contracts included since the related Cut-Off Date. -13- 14 (ii) Bond Insurer shall have received such other documents, certificates and opinions as it shall have requested including without limitation, no more often than semi-annually, Opinions of Counsel, copies of which shall be delivered to each of the Rating Agencies, with respect to the treatment of transfers from Rockford to Seller as a "true sale," certain bankruptcy issues with respect to Seller and its Affiliates and the perfected first priority security interest of Trustee in Lease Contracts. (jj) Trustee continues to maintain a first priority perfected security interest in the Trust Assets on behalf of the Certificateholders and Bond Insurer consistent with the terms of the Principal Agreements. (kk) Gerry Ricco and at least one of Larry Hartman or Brian Seigel are officers of Rockford. Section 2.05 Determination of Certificate Rates. The Certificate Rate for the Class A Certificates issued on the Initial Closing Date shall be 7.19% per annum (calculated on the basis of a 360 day year). The Certificate Rate for the Class A Certificates issued on any Subsequent Closing Date shall be a per annum rate (calculated in each case on the basis of a 360 day year) equal to the Treasury Rate plus 0.80%. As used in this Agreement, the term "Treasury Rate" shall mean, with respect to any Subsequent Closing Date, the interpolated treasury rate based on the weighted average life of the Class A Certificates (sold on such Subsequent Closing Date). The treasury rates to be used in the calculation shall be obtained from Bloomberg's "PX1" screen at 11:00 a.m. New York time three (3) Business Days preceding such Subsequent Closing Date. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser and Bond Insurer as follows: Section 3.01 Regarding Seller. (a) Seller was incorporated on March 19, 1997 and has transacted no business prior to the Initial Closing Date other than in preparation for the issuance of the Certificates and otherwise as permitted by its organizational documents. (b) The representations and warranties made by Seller in the Equipment and Lease Purchase Agreement, the Insurance Agreement and the Pooling and Servicing Agreement are true and correct. (c) The chief executive office and principal place of business of Seller is located in Rockland County, New York. -14- 15 (d) There is no order or action pending, or, to the best knowledge of Seller, threatened, against Seller that has or if determined adversely might reasonably be expected to have (x) a material adverse effect on Seller's ability to perform its obligations under the Principal Agreements or any aspect of the transactions contemplated thereby, or (y) a material adverse effect on the Lease Contracts and other rights and interests to be assigned to Trustee for the benefit of the Certificateholders and Bond Insurer under the terms of this Agreement and the Pooling and Servicing Agreement. Section 3.02 Regarding the Trust Assets. As of each Subsequent Closing Date: (a) There is no restriction or limitation in any of the Lease Contracts or otherwise on the assignment or sale of the Lease Contracts and Equipment to Seller pursuant to the terms of the Equipment and Lease Purchase Agreement or on the assignment of the Lease Contracts and other rights and interests to Trustee pursuant to the terms of this Agreement and the Pooling and Servicing Agreement. (b) Seller owns, or will own immediately prior to the assignment of such Lease Contract to Trustee hereunder, the Equipment covered by each Lease Contract (except for any computer software included therein, for which Seller's interest is limited to a non-exclusive, transferable license) or has, or will have immediately prior to the assignment of such Lease Contract to the Trustee hereunder, a first priority perfected security interest in such Equipment. (c) With respect to each Lease Contract, only one original executed copy of such Lease Contract exists and such original has been delivered to the Trustee along with the related Lease File. (d) Each Lease Contract is genuine and in full force and effect in accordance with its terms, and nothing has occurred or failed to be performed which would or might permit any Lessee to terminate such Lease Contract or suspend or reduce any payments or obligations due or to become due in respect of such Lease Contract by reason of default by the lessor party under such Lease Contract. No Lessee in respect of a Lease Contract is the subject of a bankruptcy, insolvency or other similar proceeding. (e) There does not exist any default or delinquency in excess of 30 days in the payment of any Scheduled Payments due under any Lease Contract and there does not exist any other default, breach, violation or event permitting acceleration, termination or repossession under any Lease Contract or any event which, with notice and the expiration of any applicable grace or cure period, would constitute such a default, breach, violation or event permitting acceleration, termination or repossession under such Lease Contract. Seller has no reason to believe that the Scheduled Payments under any Lease Contract will not be timely and fully paid. (f) All requirements of any federal, state or local law, rule or regulation, including without limitation, usury laws, the Federal Truth-in-Lending Act, the Fair Credit Reporting Act, the Fair Debt Collections Practices Act and any other applicable consumer credit, equal opportunity and disclosure laws, if any, applicable to each Lease Contract (including the origination, acquisition and servicing thereof) have been complied with in all material respects, and no party to any Lease Contract is in -15- 16 violation of any such law, rule or regulation. No Lease Contract violates any other agreement between Seller or any of its Affiliates and the Lessee thereunder. (g) Each Lease Contract has the following characteristics: (i) such Lease Contract was originated in the United States, Canada or Puerto Rico and the Scheduled Payments thereunder are payable in U.S. dollars by a Lessee domiciled in the United States, Canada or Puerto Rico; (ii) at least one Scheduled Payment has been made by the Lessee under such Lease Contract; (iii) no Lessee in respect of such Lease Contract is an Affiliate of Seller or Rockford; (iv) the Lessee under such Lease Contract has unconditionally accepted the Equipment covered by such Lease Contract after reasonable opportunity to inspect and test and has not notified Seller or Rockford of any defects therein; (v) Scheduled Payments due under such Lease Contract on and after the Cut-Off Date are payable into the Lockbox Account; (vi) the Lessee under such Lease Contract does not have any contractual right to prepay the Scheduled Payments due under such Lease Contract or to cancel the Lease Contract during the term of such Lease Contract; (vii) such Lease Contract is an Eligible Lease Contract and complies with all applicable laws for the purposes for which the Equipment covered thereby is permitted to be used thereunder; and (viii) such Lease Contract constitutes "chattel paper" under the UCC. (h) Each Lease Contract is a valid, binding and legally enforceable obligation of the parties thereto, enforceable in accordance with its terms (subject to bankruptcy, insolvency and other similar laws affecting creditors' rights in general and the availability of equitable remedies) and all parties had requisite authority and capacity to execute such Lease Contract. (i) Each item of Equipment is subject to a Lease Contract. (j) Other than financing statements or similar statements or instruments of registration under the law of any jurisdiction on file or registered in any public office covering any interest of any kind in the Lease Contracts or Equipment which (i) are to be terminated, released or assigned to Trustee on or prior to the Closing Date hereunder, or (ii) are to be filed pursuant to this Agreement or the Pooling and Servicing Agreement, there are no such statements or instruments on file. -16- 17 (k) Each Lease Contract is a lease contract having predetermined fixed rental payments due on a regular basis (without regard to any guaranteed purchase options of the respective Lessee), that are not subject to change based upon a fluctuating index or reference rate; provided, however, that (i) the Aggregate Discounted Lease Contract Balances of the Lease Contracts that have step or deferred rental payments does not exceed 50% of the Aggregate Discounted Lease Contract Balance and (ii) the Aggregate Discounted Lease Contract Balances of the Lease Contracts that have variable payments or are Balloon Leases does not exceed 50% of the Aggregate Discounted Lease Contract Balance. Lease Contracts allowing deferred payments require the related Lessees to make regular level payments within six months from the origination of the related Lease Contracts. Lease Contracts allowing step payments require the related Lessees to make regular, level payments within one year from origination of the related Lease Contracts. In determining whether to lease Equipment to any particular Lessee, Rockford considered each Lessee's ability to pay any increases in the rental payments due under the terms of the related Lease Contract. No Scheduled Payment with respect to any Lease Contract exceeds 10% of the original Discounted Lease Contract Balance with respect to such Lease Contract. (l) The Lessee under each Lease Contract is personally liable for the payment and performance of its obligations in respect of such Lease Contract. Pursuant to the terms of each Lease Contract, as of the Cut-Off Date the Lessee under each Lease Contract will be absolutely and unconditionally required to make to Trustee all payments (including, without limitation, all Scheduled Payments under such Lease Contract in respect of periods on and after the Cut-Off Date) and perform all obligations under such Lease Contract without abatement, deferment or defense of any kind or for any reason. No Lease Contract is subject to any right of claim, rescission, set-off, counterclaim, abatement or defense, including (without limitation) any defense of usury, nor will the operation of any of the terms of any Lease Contract or the exercise of any right or remedy thereunder render such Lease Contract or the obligations thereunder unenforceable, or subject the same to any right of claim, rescission, set-off, counterclaim, abatement or defense. No Lessee has asserted any such right of claim, rescission, set-off, counterclaim, abatement or defense to its obligations under its Lease Contract. (m) None of the Lease Contracts have been modified, amended, satisfied, canceled, subordinated or extended, in whole or in part at any time (in the manner of an extension in the maturity date, a change in the amount or time of payment of any installment of rent or otherwise), no indulgences, releases or waivers have been granted in respect of the obligations or any portion thereof of any Lessee under any Lease Contract, and none of Seller, Rockford or any Affiliate of either such party has advanced any monies on behalf of or to cure any breach or default by any Lessee and each Lease Contract complies with the Credit and Collection Policies of the Seller. (n) Each Lease Contract requires the Lessee thereunder at its own cost and expense to maintain the Equipment leased thereunder in good repair, condition and working order during the term of such Lease Contract, and to the best of Seller's knowledge each Lessee is currently in compliance with such requirement. (o) Each Lease Contract requires the Lessee thereunder to promptly pay all fees, taxes (except income taxes), and other charges or liabilities arising with respect to the Equipment leased -17- 18 thereunder or the use thereof, to keep the Equipment free and clear of any and all liens, security interests and other encumbrances, to hold harmless the lessor thereunder and its successors and assigns against the imposition of any such fees, charges, liabilities and encumbrances, to bear all risk of loss associated with the Equipment covered by or securing the obligations under such Lease Contract during the term of such Lease Contract and to maintain at the cost of the Lessee public liability and casualty insurance in respect of such Equipment covered by such Lease Contract in an amount at least equal to the replacement value of the Equipment and, upon the occurrence of a casualty, to pay any difference between the proceeds of such insurance and the Discounted Lease Contract Balance of such Lease Contract. (p) Each Lease Contract prohibits without the lessor's prior written consent any relocation of the Equipment covered by such Lease Contract and requires the Lessee thereunder to execute such agreements and documents (including without limitation any UCC-1 financing statements or amendments thereto) as may reasonably be requested by the lessor in connection with any such relocation. No item of Equipment has been relocated from the jurisdiction set forth in the Lease Contract or, if Seller has knowledge of any such relocation, to the extent such Equipment has a value greater or equal to $50,000, all UCC filings necessary to continue the first priority security interest in such Equipment have been made. (q) None of the Lease Contracts or any agreement with any Lessee requires the consent or approval of any Lessee with respect to the sale, assignment and transfer by Rockford or Seller of their respective right, title and interest in and to such Lease Contracts and the Equipment covered thereby and Seller's grant of a security interest in the Equipment. (r) All federal, state and local sales, use, property and other similar taxes (and penalties and interest thereon) in respect to the Lease Contracts, any Equipment covered by or securing the obligations under the Lease Contracts, or any payments on the Lease Contracts, that have become due and payable have been paid to every applicable Governmental Authority. (s) As to each Lease Contract in respect of Equipment with an original value in excess of $50,000, the interest of Seller in respect of such Equipment covered by or securing the obligations under such Lease Contract has been duly perfected by the filing or recording in applicable jurisdictions of UCC financing statements or other documents sufficient to perfect Seller's interest in such Equipment. As to each Lease Contract in respect of a Vehicle or Vehicles, the interest of Seller in respect of such Vehicle or Vehicles has been duly perfected through delivery of vehicle lien applications necessary to protect its security interest in a Vehicle or Vehicles naming Trustee as first lienholder with respect to each Vehicle. All Equipment is located within the United States. (t) Each Lease Contract involves the lease of tangible personal property owned by Seller or the loan of money secured by a security interest in tangible personal property owned by the Lessee thereunder, except in the case of any computer software included therein, for which Seller's interest is limited to a non-exclusive, transferable license. (u) All filings and recordings required to perfect the title of Trustee to the Lease Contracts and Lease Receivables and Trustee's security interest in the Equipment have been, or by the applicable -18- 19 Closing Date will be, accomplished and are, or by the applicable Closing Date will be, in full force and effect. (v) The Scheduled Payments due under the Lease Contracts covered by this Agreement, if paid in accordance with the Lease Schedule, are in an amount adequate to pay the original principal balance of the Class A Certificates issued or to be issued under the Pooling and Servicing Agreement in connection with this Agreement and interest thereon at the respective interest rates set forth in such Certificates, the Back-up Servicer Fee, the Bond Insurer Premium, the Trustee Fee and the Servicing Fee applicable to such Lease Contracts. (w) Each Lease Contract was originated or acquired by Rockford in the ordinary course of its business and at the time of such origination or acquisition satisfied Rockford's origination criteria for equipment leases of the type of the Lease Contracts (including, without limitation, credit, type of equipment, gross receivable limitation and other criteria as set forth on Exhibit A). If such Lease Contract was acquired by Rockford, it was acquired from a broker or leasing company that originated such leases pursuant to agreed-upon and well-articulated underwriting and documentation standards acceptable to Bond Insurer and with whom Rockford has regularly dealt in the past. (x) Each Lease Contract requires that the Equipment covered thereby be insured as of the Closing Date against loss by fire and such other hazards as are customary for personal property of the same or similar type, such insurance being in an amount not less than the full replacement value of such Equipment subject to customary deductions. On the related Closing Date Seller shall provide a certificate of insurance that each item of Equipment is currently insured for such loss or damage under the Servicer's blanket fire and extended coverage insurance policy and naming Seller and Trustee as loss payee, as their respective interests may appear; provided, however, that no such certificate need be provided with respect to Lease Contracts for which the aggregate original cost of the Equipment covered by such Lease Contracts does not exceed $75,000. (y) The sale, transfer and conveyance by Seller of the Lease Contracts and the security interests of Seller in the related Equipment to Trustee are not a "bulk transfer" within the meaning of Article 6 of the UCC as in effect in any applicable jurisdiction. (z) Seller has not received any notice challenging its ownership or the priority of its security interest in the Equipment covered by any Lease Contract, and there are no proceedings pending before any court or Governmental Authority or threatened by any Lessee or other party, (i) asserting the invalidity of any Lease Contract, (ii) seeking to prevent payment and performance by any Lessee of any Lease Contract or any other agreement between such Lessee and Seller or Rockford, or (iii) seeking any determination or ruling that might adversely affect the validity or enforceability of any Lease Contract. (aa) As to each Lease Contract, there are no agreements or understandings between Seller or Rockford, on the one hand, and the Lessee, on the other hand, in respect of such Lease Contract or otherwise binding on Seller or Rockford other than as expressly set forth in the written instruments contained in the Lease Files. -19- 20 (bb) None of the Lessees is a Governmental Authority. (cc) The Lease Schedule contains a statement of the amount and number of Scheduled Payments payable by each Lessee under each Lease Contract for periods on and after the Cut-Off Date applicable to such Lease Contract together with certain other information as reflected thereon. The information set forth in the Lease Schedule is true, complete and correct in all respects. (dd) The historical delinquency and loss information set forth in Exhibit H is true and correct. (ee) Seller has good and legal title to each of the Lease Contracts and Equipment (except for any computer software included therein, for which Seller's interest is limited to a non-exclusive transferable license) and a first priority security interest in the Equipment, in all cases free and clear of any encumbrances and adverse claims, except for the rights of the Lessees in and to the Equipment that are expressed in and under the Lease Contracts. On or prior to each Closing Date, Seller shall deliver the Lease Contracts to Trustee and grant or assign a security interest in the Equipment to Trustee, in each case free and clear of any encumbrances and adverse claims (other than the rights described in the exception in the immediately preceding sentence), and neither Rockford nor Seller has received any notice of conflict with respect thereto that asserts the rights of others. (ff) None of Rockford, Seller or any of their Affiliates is a party to any contract for the servicing of the Lease Contracts or related Equipment, other than the Pooling and Servicing Agreement. (gg) Seller is not a party to any contract to sell or otherwise transfer any of the Lease Contracts or Equipment, other than the Principal Agreements and any purchase option rights granted to Lessees under the terms of their respective Lease Contracts as to the Equipment covered by such Lease Contract. (hh) Neither Rockford nor Seller has given any power of attorney (irrevocable or otherwise) to any Person for any purpose relating to the Lease Contracts or the Equipment, except for any power of attorney granted to any service entity that files UCC financing statements on Rockford's or Seller's behalf. (ii) Each Lease Contract, when assigned to Trustee, for the benefit of the Certificateholders and Bond Insurer, and included in the corpus of the Trust shall have been validly assigned and delivered to Trustee, for the benefit of the Certificateholders and Bond Insurer, by Seller (who immediately prior to such assignment shall own full legal and equitable title to each Lease Contract). Upon delivery to Trustee, for the benefit of the Certificateholders and Bond Insurer, of the Lease Files, and execution and delivery of Sale Assignments of all of the Lease Contracts by Seller in favor of Trustee, for the benefit of the Certificateholders and Bond Insurer, all of Seller's right, title and interest in and to the Lease Contracts shall be validly and effectively transferred to the Trust. (jj) Seller is not selling the Lease Contracts with actual intent to hinder, delay or defraud any entity to which it is or will hereafter become indebted, is not insolvent on the Closing Date and -20- 21 will not become insolvent as a result of such sale, is not engaged in a business or transaction, or about to engage in a business or a transaction, for which any property remaining with Seller is an unreasonably small capital, and does not intend to incur, and does not believe that it will incur, debts that would be beyond its ability to pay as such debts mature. (kk) Each Lease Contract constitutes an "eligible account" within the meaning of Rule 3a-7(b)(1) under the Investment Company Act. (ll) [Intentionally omitted]. (mm) The Discounted Lease Contract Balance of each Lease Contract acquired by Rockford from any third party, when added to the aggregate of the Discounted Lease Contract Balances of all other Lease Contracts acquired by Rockford from third parties then constituting part of the Trust Assets, does not exceed 8% of the Aggregate Discounted Lease Contract Balances. (nn) The Discounted Lease Contract Balance of each Lease Contract, when added to the aggregate of the Lease Contract Balances of all other Lease Contracts with the same Lessee or any of its Affiliates then constituting part of the Trust Assets, does not exceed 1.5% of the Aggregate Discounted Lease Contract Balance. (oo) Each Lease Contract has a remaining term that is not less than 12 months and an original term of not greater than 84 months. (pp) Each Lease Contract covers the leasing of Equipment to be used in the Lessee's profession, trade or business and such Lessee is in possession of such Equipment and is the end user of such equipment; provided, however, that the Aggregate Discounted Lease Contract Balance of the Lease Contracts with respect to which the related Equipment is Medical Equipment and the related Lessee is not the end user of the related Equipment and is not sub-leasing such Equipment to any other user or sub-lessee does not exceed 5% of the Aggregate Discounted Lease Contract Balance. (qq) Each Lease Contract meets the criteria for an "A Credit Lease" as set forth in Exhibit A. (rr) The Discounted Lease Contract Balance of such Lease Contract shall not exceed $250,000. (ss) After the transfer of the Lease Receivable with respect to any Lease Contract to the Trust (and based upon the Discounted Lease Contract Balances), (i) the Lessees located in any single state will be obligated with respect to Lease Contracts accounting for no more than 15% of the Aggregate Discounted Lease Contract Balance except that Lessees located in New York and Lessees located in California may in each case be obligated with respect to Lease Contracts accounting for no more than 25% of the Aggregate Discounted Lease Contract Balance, (ii) Lease Contracts with respect to Equipment which consists of each Asset Code included in the definition of Hard Assets will account for no more than 20% of the Aggregate Discounted Lease Contract Balance, (iii) Lease Contracts with respect to Equipment which consists of each Asset Code included in the definition of -21- 22 Soft Assets will account for no more than 10% of the Aggregate Discounted Lease Contract Balance, (iv) Lease Contracts with respect to Equipment which consists of Computer Equipment will account for no more than 25% of the Aggregate Discounted Lease Contract Balance, (vi) Lease Contacts with respect to Equipment which consists of the types of equipment described on Exhibit K hereto under Asset Code 27 will account for no more than 12% of the Aggregate Discounted Lease Contract Balance, (vii) Lease Contracts with respect to Equipment which consists of the types of equipment described on Exhibit K hereto under Asset Codes 35 or 51 will account for no more than 3% of the Aggregate Discounted Lease Contract Balance, (vii) Lease Contracts with respect to Equipment which consists of the types of equipment described on Exhibit K hereto under Asset Code 80 will account for no more than 15% of the Aggregate Discounted Lease Contract Balance, (viii) Lease Contracts with the Lessee located in Puerto Rico or Canada will account for no more than 5% of the Aggregate Discounted Lease Contract Balance, (ix) Lease Contracts with respect to Equipment of the same type will not exceed 20% of the Aggregate Discounted Lease Contract Balance, (x) Lease Contracts with respect to data communications equipment and telecommunications equipment will not exceed 10% or 5%, respectively, of the Aggregate Discounted Lease Contract Balance and (xi) the weighted average of the original terms of the Lease Contracts will not exceed 50 months. (tt) Each Lease Contract does not permit the substitution, exchange or addition of any Equipment subject to such Lease Contract. (uu) No Lease Contract will have been selected on any basis which would cause such Lease Contract to be more likely to default than Lease Contracts in Seller's portfolio generally. (vv) In the case of each Lease Contract which consist of a master lease and one or more exhibits or schedules thereto, (i) Seller has not assigned, and will not assign, such master lease in its entirety or in part (except for the assignment of its rights under such master lease as collateral in connection with the financing of a schedule issued pursuant to and incorporating the terms of such master lease and not constituting a Lease Contract), and has not delivered and will not deliver physical possession of such master lease, to any Person other than Trustee, (ii) such exhibits or schedules constitute a separate contract to which all representations and warranties of this section apply and are not part of any other contract not sold to the Trust and (iii) no schedule shall be related to an upgrade of Equipment unless the entire item of Equipment is financed under such schedule. (ww) No Lease Contract will have been originated in or be subject to the laws of any jurisdiction whose laws would make the assignment and transfer thereof pursuant to the terms hereof or any transaction contemplated by the Principal Agreement unlawful. (xx) Seller has no knowledge that any Lessee under a Lease Contract is a Person involved in the business of selling equipment of the same type as the Equipment subject to such Lease Contract. (yy) Seller has duly performed all material obligations on its part required to be performed by it under or in connection with each Lease Contract, including, without limitation, giving any notices or consents necessary to effect the contribution, assignment, transfer and conveyance of the Lease Contract fromthe Seller to the Trust and has done nothing to materially impair the rights of Trustee, the Certificateholders or Bond Insurer in the Lease Contracts or the payments due thereunder. -22- 23 (zz) All of the Lease Contracts conform in all material respect to one of the forms of Lease Contract as set forth in Exhibit D-1, D-2 and D-3 to the Equipment and Lease Purchase Agreement. As provided in Section 10.17 of the Pooling and Servicing Agreement, with respect to the Lease Contracts that conform to Exhibit D-1, an amended certificate of acceptance in the form of Exhibit E to the Equipment and Lease Purchase Agreement has been included in the Lease File and delivered to the Trustee. (aaa) [Reserved] (bbb) [Reserved] (ccc) The computer tape from which the selection of the Lease Contracts was made, was made available to Bond Insurer's auditors by Seller prior to the Closing Date and was complete and accurate as of its date and includes a description of the same Lease Contracts that are described in the Lease Schedule. (ddd) Seller has not taken any action to convey to any Person any right to payments received under the Lease Contracts, the insurance policies insuring the related Equipment, or any other property being conveyed by Seller pursuant to the Equipment and Lease Purchase Agreement, and Trustee has the right under each Lease Contract to exercise appropriate remedies with respect to the related Equipment without obtaining the consent of any third parties. (eee) Seller and Rockford will cause their records to be marked to reflect the transfer of the Lease Contracts and Equipment to Seller and the grant of a first priority perfected security interest, to the extent a first priority perfected security interest in such Equipment is otherwise required hereunder, in the Trust Assets to Trustee for the benefit of the Certificateholders and Bond Insurer. (fff) Each Lease Contract obligates the related Lessee to make all Scheduled Payments thereunder in full notwithstanding the collection by the lessor of a security deposit with respect thereto. The calculation of the Discounted Lease Contract Balance of each Lease Contract does not include any security deposits or advance payments collected by or on behalf of the lessor which are applied to Scheduled Payments. (ggg) The sale, transfer, assignment and conveyance contemplated by the Equipment and Lease Purchase Agreement and the Pooling and Servicing Agreement is not subject to and will not result in any tax, fee or governmental charge payable by Seller to any federal, state or local government ("Transfer Taxes") other than Transfer Taxes which have been or will be paid by Seller as due. In the event that the Seller or Trustee receives actual notice of any Transfer Taxes arising out of such transfer, assignment and conveyance, on written demand by Seller or Trustee, or upon Rockford's otherwise being given notice thereof, Rockford shall pay, and otherwise indemnify and hold Seller, Trustee, and Bond Insurer harmless on an after-tax basis, from and against any and all such Transfer Taxes (it being understood that the Certificateholders, Trustee, and Bond Insurer shall have no obligation to pay such Transfer Taxes.) -23- 24 (hhh) None of the Lease Contracts are either "consumer credit contracts" or "purchase money loans" as such terms are defined in 16 C.F.R. Section 433.1. (iii) Liquidity Agent has not notified Seller or Rockford that the Lease Contract is unacceptable for purchase under the Liquidity Facility. Section 3.03 Other Representations. (a) Seller and persons acting on its behalf have offered Class A Certificates to, or solicited offers to buy Class A Certificates from, or otherwise approached or negotiated with respect thereto with no prospective purchasers other than Purchaser. Seller has not sold, offered to sell or solicited any offer to buy, and agrees that it shall not sell, offer to sell, or solicit any offer to buy, directly or indirectly, the Certificates or any similar securities in a manner which would render the issuance or sale of the Certificates pursuant to the Principal Agreements a violation of Section 5 of the Securities Act, require registration of the Trust created by the Pooling and Servicing Agreement under the Investment Company Act, or require qualification of the Pooling and Servicing Agreement under the Trust Indenture Act of 1939 as presently in effect (the "1939 Act"), nor has Seller authorized, nor shall it authorize, any person to act in such manner. (b) The written information supplied by Seller or Rockford to Purchaser or Bond Insurer in connection with the transactions contemplated by the Principal Agreements did not contain any untrue statement of a material fact or omit to state any material fact required to be stated in order to make such information not misleading. (c) No tax, assessment or other governmental charge will become payable by Purchaser or the Trust as a result of (i) the sale, assignment and transfer to the Trust of the Lease Contracts pursuant to the Principal Agreements or (ii) the sale of the Certificates to Purchaser as contemplated hereby (other than taxes imposed upon Purchaser's or the Trust's gross or net income). Neither the ownership of the Certificates nor the transfer of the Lease Contracts or any other assets to the Trust shall, in and of itself, result in Purchaser becoming subject to taxation or in its being deemed to be doing business in any jurisdiction in which any Lessee is located. (d) Neither Seller nor Rockford nor any of their respective officers, directors, employees or agents has employed any broker, finder or financial advisor or incurred any liability for any fees or commissions to any person in connection with the offering, issuance or sale of the Certificates except for any fees payable to Purchaser or any Affiliate thereof. Section 3.04 Reconfirmation. Seller agrees that its participation in the transactions contemplated herein and in the Equipment and Lease Purchase Agreement on each Closing Date shall constitute, without further act, a confirmation that each of its respective representations and warranties contained herein are true and correct on and as of such Closing Date as though made on and as of such Closing Date (except that the representations and warranties under Section 3.02 shall apply only to the Lease Contracts conveyed on such Closing Date and the Equipment covered thereby). -24- 25 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ROCKFORD Section 4.01 Representations and Warranties. Rockford hereby represents and warrants to Purchaser and Bond Insurer as follows: (a) There has been no change in the business, operations, financial condition, properties, prospects or assets of Rockford since September 30, 1996 which would have a material adverse effect on its ability to perform its obligations under the Principal Agreements. (b) The representations and warranties made by Rockford in the Pooling and Servicing Agreement and in Sections 3.01 and 3.03 of the Equipment and Lease Purchase Agreement are true and correct in all material respects. The representations and warranties made by Rockford in Section 3.02 of the Equipment and Lease Purchase Agreement are true and correct in all material respects. (c) Rockford and any Affiliates of Rockford who will be servicing any Lease Contracts pursuant to the Pooling and Servicing Agreement are qualified to do business, are in good standing and have obtained all necessary licenses and permits in all jurisdictions in which the conduct of their respective businesses or their activities in originating or servicing the Lease Contracts require such qualification or such licenses or permits, except where the failure to so qualify or to hold such licenses or permits would not have a material adverse effect on the transactions contemplated by the Principal Agreements or the Certificates. (d) Rockford is the beneficial owner of 100% of the shares of the voting and capital stock of Seller, subject to no claims, liens, encumbrances or interests of any kind of any person. (e) The representations and warranties of Seller under Sections 7.01 of the Pooling and Servicing Agreement and under Section 3.02(dd) of this Agreement are true and correct. (f) Rockford has the corporate power and authority to execute and deliver the Principal Agreements and to carry out its terms; and the execution, delivery and performance of the Principal Agreements have been duly authorized by Rockford by all necessary corporate action. (g) The consummation of the transactions contemplated by and the fulfillment of the terms of the Principal Agreements will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, or require any consent or approval under (as applicable) the certificate of incorporation or bylaws of Rockford or any material term of any material indenture, agreement, mortgage, deed of trust or other instrument to which Rockford is a party or by which it is bound, or result in the creation or imposition of any material Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument or violate any law or any order, rule or regulation applicable to Rockford of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over Rockford or any of its properties which -25- 26 would have a material adverse effect on the ability of Rockford to comply with the terms of the Principal Agreements. (h) No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any Governmental Authority having jurisdiction over Rockford or any of its properties or assets is required to be obtained by or with respect to Rockford in connection with the execution, delivery and performance by Rockford of the Principal Agreements and the consummation of the transactions contemplated hereby and thereby. (i) The Principal Agreements have been duly and validly authorized, executed and delivered by Rockford and constitutes a valid and legally binding obligation of Rockford, enforceable against Rockford in accordance with its terms as such enforceability is subject to bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally and the availability of equitable remedies. (k) There are no proceedings or investigations pending, or, to the knowledge of Rockford, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (i) asserting the invalidity of any of the Principal Agreements, (ii) seeking to prevent the consummation of any of the transactions contemplated by any of the Principal Agreements or (iii) seeking any determination or ruling that might materially and adversely affect the performance by Rockford of its obligations under, or the validity or enforceability, of any of the Principal Agreements. Section 4.02 Reconfirmation. Rockford agrees that its participation in the transactions contemplated herein and in the Equipment and Lease Purchase Agreement on each Closing Date shall constitute, without further act, a confirmation that each of its respective representations and warranties contained herein are true and correct on and as of such Closing Date as though made on and as of such Closing Date. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 5.01 Generally. Purchaser represents and warrants to Seller that: (a) Purchaser has the power and authority to execute and deliver this Agreement and to carry out its terms. This Agreement has been duly authorized, executed and delivered by Purchaser, and constitutes a legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and the availability of equitable remedies. (b) Purchaser is an "accredited investor" within the meaning of Rule 501 of the Securities Act. (c) The Certificates to be purchased on each Subsequent Closing Date will be, purchased by Purchaser hereunder for Purchaser's account for investment, and not with a view to the resale -26- 27 thereof, it being understood, however, that the disposition of Purchaser's property shall at all times be within Purchaser's control. ARTICLE VI COVENANTS OF SELLER AND ROCKFORD Section 6.01 Generally. So long as any Certificate shall be outstanding: (a) Seller shall cause Trustee to make all distributions on or with respect to such Certificates to Purchaser to the extent of the funds available in the applicable Accounts pursuant to the instructions attached hereto as Exhibit I, together with sufficient information (including interest rate, designation of Certificate and the issuer thereof, total payment and principal and interest portions of such payment) to identify the source of such payment including the nominee names in which the Certificate may be held. While Purchaser has the right, at any time, to change the location of the account to which payments on the Certificates should be made by giving written notice of such change to Trustee, Purchaser represents to Trustee that it has no present intention of changing such account location. (b) Each of Seller and Rockford shall deliver to Purchaser and Bond Insurer their consolidated audited annual financial statements and unaudited quarterly financial statements (prepared for the first three quarters of each fiscal year on a quarterly basis in the ordinary course of business), within a reasonable time after such statements have been prepared in final form and in any event within 45 days after the end of the period covered by such statement in the case of a quarterly statement, or within 90 days after the end of the period covered by such statement in the case of an annual statement. (c) Rockford shall not, prior to the termination of the Trust pursuant to Section 11.01 of the Pooling and Servicing Agreement, sell, assign, mortgage, hypothecate, transfer, pledge, create a security interest in or lien on, encumber, give, place in trust (voting or other) or otherwise dispose of any or all of or any rights or entitlement deriving from the voting or capital stock of Seller, or agree to do any of the foregoing, without the prior written consent of Purchaser and Bond Insurer, which may be given or withheld at their sole discretion. (d) Rockford shall maintain its corporate existence and good standing and shall cause Seller to maintain its corporate existence and good standing, and Rockford shall not, nor shall it cause or permit Seller to, prior to the termination of the Trust pursuant to Section 11.01 of the Pooling and Servicing Agreement, amend Seller's corporate charter, liquidate or dissolve or, except in compliance with the Pooling and Servicing Agreement, consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person without the prior written consent of Purchaser and Bond Insurer, which may be given or withheld in their sole discretion. (e) Seller shall not offer or sell any Certificates or any other interests of any kind in the Trust to any Person other than Purchaser. -27- 28 (f) Seller and Rockford shall comply with the terms of the Equipment and Lease Purchase Agreement in all material respects, and, in the event that Rockford shall fail so to comply, Seller agrees that it shall enforce the Equipment and Lease Purchase Agreement against Rockford to the fullest extent permitted therein and by applicable law. (g) Rockford shall cause Seller to comply with the provisions of Sections 8.01(c) and 8.03 of the Pooling and Servicing Agreement. (h) As long as no default in payment on the part of any Lessee exists under any Lease Contract, Seller will do nothing to disturb or impair such Lessee's use and quiet enjoyment of the Equipment. (i) Seller will not amend its Certificate of Incorporation or Bylaws in any manner without the approval of the Bond Insurer. (j) Seller will keep in full force and effect its existence, rights and franchises as a corporation under the laws of its jurisdiction of incorporation and will preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is necessary to protect the validity and enforceability of any of the Lease Contracts or to permit performance of Seller's duties under the Principal Agreements. Seller shall not merge or consolidate with or sell or transfer all or substantially all of its property to any other Person. (k) Seller and Rockford will not amend or terminate the Equipment and Lease Purchase Agreement or any Lease Contract, or waive any rights or obligations of any party under such agreements. (l) Seller and Rockford will cause all Collections with respect to the Trust Assets to be paid directly the Lockbox Account and agree to hold in trust and promptly pay to the Servicer all amounts received by Seller or Rockford in respect of the Trust Assets. (m) Seller and Rockford will each comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any Governmental Authority applicable to the Lease Contracts or any part thereof; provided, however, that Seller or Rockford may contest any act, regulation, order, decree or direction in any reasonable manner which shall not materially and adversely affect the rights of Trustee, Certificateholders or Bond Insurer (for the benefit of the Certificateholders and Bond Insurer) in the Lease Receivables and the Lease Contracts and the related Equipment. Each of Seller and Rockford will comply, in all material respects, with all requirements of law applicable to each such party. (n) Each of Seller and Rockford will not, without providing at least 30 days notice to the Trustee and Bond Insurer and without filing such amendments to any previously filed financing statements as the Trustee or Bond Insurer may require or as may be required in order to maintain the Trustee's perfected security interest in the Trust Assets (a) change the location of its principal executive office, or (b) change its name, identity or company structure in any manner which would make any financing statement or continuation statement filed by Seller or Rockford in accordance -28- 29 with the Pooling and Servicing Agreement or this Agreement seriously misleading within the meaning of Article 9-402(7) of any applicable enactment of the UCC. (o) At any time and from time to time upon reasonable notice during regular business hours, permit Purchaser or Bond Insurer or any of their agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of Seller or Rockford relating to the Lease Receivables, including, without limitation the related Lease Contracts and other agreements, and (B) to visit the offices and properties of Seller and Rockford for the purpose of examining such materials described above, and to discuss matters relating to Lease Receivables or Rockford's or Seller's performance hereunder with any of the officers or employees of Seller or Rockford having knowledge of such matters and from time to time permit Independent Public Accountants or other auditors acceptable to Purchaser and Bond Insurer to conduct a review of Seller's and Rockford's books and records relating to the Lease Receivables and the systems relating thereto. (p) Seller shall notify Purchaser and Bond Insurer of any change to the terms of the Lockbox Account or any payment instructions given to any Lessee. (q) Rockford shall not make any material change in its credit and collection policy or the Servicing Procedures and shall comply with such credit and collection policy and the Servicing Procedures including, without limitation, the filing of appropriate financing statements against the Equipment under each Lease Contract. (r) Seller and Rockford shall maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Lease Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Lease Receivables. (t) Seller and Rockford shall deliver notice to Purchaser and Bond Insurer of any Funding Period Trigger Event or Trigger Event within 2 days of such party's knowledge thereof. (u) Within 10 days after each Subsequent Closing Date, Seller shall deliver to Trustee, Bond Insurer and Purchaser file-stamped copies of all UCC-1 financing statements (with any applicable Lease Schedules annexed as exhibits thereto) and UCC-3 assignments described in Exhibit F or other instruments necessary to perfect the first priority ownership or security interests granted and assigned by Seller under the Principal Agreements and Sale Assignments to Trustee for the benefit of the Certificateholders and Bond Insurer in the Lease Contracts, Equipment and other rights, titles and interests referred to hereunder (other than UCC-1 financing statements naming the Lessees under the Lease Contracts as debtors) to be filed or recorded in all such appropriate places as are required to protect the Trust's interest in the Lease Contracts, Equipment and such other rights, titles and interests. (v) Seller shall promptly deliver to Purchaser and Bond Insurer copies of all reports and registration statements filed by Seller or any Affiliate of Seller with the Securities and Exchange Commission. -29- 30 ARTICLE VII REPURCHASE OBLIGATION Section 7.01 Repurchase Upon Breach of Certain Representations and Warranties. (a) The representations and warranties of Seller set forth in Section 3.02 with respect to each Lease Contract and related Equipment shall continue so long as such Lease Contract remains outstanding. Upon discovery by Seller, Rockford, Bond Insurer or Trustee that any of such representations or warranties with respect to any Lease Contract and related Equipment were incorrect as of the time made, the party making such discovery shall give prompt notice to the other parties hereto and Bond Insurer. In the event any breach of a representation or warranty with respect to any Lease Contract and related Equipment materially and adversely affects the interest of the Certificateholders or Bond Insurer in such Lease Contract and related Equipment or the value of such Lease Contract and related Equipment, as determined by Rockford, Purchaser, Bond Insurer or the Majority Certificateholders and set forth in an Officer's Certificate, Seller shall eliminate or cure the circumstance or condition causing the defect within 30 days (or such longer period as Trustee may in its discretion consent to) after the discovery thereof or repurchase such Lease Contract and the security interest in the Equipment covered by such Lease Contract. The price for such repurchase shall be the Warranty Purchase Amount for the Lease Contract, and shall be deposited by Seller in cash in the Investment Account on the date of closing of such repurchase. (b) It is understood and agreed that the obligation of Seller to repurchase any Lease Contract as to which a breach by Seller under Section 3.02 occurred and is continuing and to make the payments which may be required by this Section 7.01 shall, together with (but without duplication) the indemnification rights contained in the Principal Agreements, constitute the sole remedies against Seller respecting such breach available to Servicer, the Trust, the Certificateholders, Bond Insurer or Trustee on behalf of the Certificateholders and Bond Insurer. (c) As used herein, the term "Warranty Purchase Amount" shall mean, with respect to a Lease Contract repurchased hereunder, the Discounted Lease Contract Balance of such Lease Contract as of the most recent Payment Date (adjusted, however, to include the present value of any Scheduled Payments for which Servicer Advances have been made that Servicer in good faith believes it would have been able to recoup from subsequent Collections under the Lease Contract), together with interest, to the extent allowed by law, on such amount at the Discount Pool Rate for such Lease Contract from and including such Payment Date to and excluding the next succeeding Payment Date. Section 7.02 Release of Lease Contract. Upon notification from Seller and confirmation by Trustee that the Warranty Purchase Amount for a Lease Contract has been deposited in the Investment Account, Trustee shall release to Seller the related Lease Files and shall execute and deliver such instruments of transfer or assignment of such Lease Contract and the security interest in the related Equipment, in each case without recourse, representation or warranty, as Seller shall reasonably request (as shall be prepared by and at the expense of Seller). -30- 31 ARTICLE VIII GRANT OF SECURITY INTEREST Section 8.01 Grant of Security Interest. To secure the performance of Seller's obligations hereunder and in addition, in furtherance of the sale and transfer contemplated hereunder, Seller, pursuant to each Sale Assignment, assigns and grants to Trustee, for the benefit of the Certificateholders and Bond Insurer, a first priority lien and security interest in all right, title and interest of Seller in and to each item of Equipment subject to each Lease Contract and certain other collateral described therein. ARTICLE IX INDEMNITY Section 9.01 Indemnities. (a) Seller shall defend and hold harmless, and hereby indemnifies, Trustee (except to the extent the following result from the gross negligence or willful misconduct of Trustee), the Trust, Bond Insurer, Purchaser and the Certificateholders from and against any taxes that may at any time be asserted against Trustee, the Trust, Purchaser or the Certificateholders or their respective directors, officers, employees and agents, with respect to (i) the execution and delivery of the Principal Agreements, (ii) the issuance of the Certificates, (iii) the depositing of funds into the Cash Collateral Account and (iv) the sale, transfer and assignment of Lease Contracts and other rights and interests to Trustee for the benefit of the Certificateholders, including, without limitation, any sales, gross receipts, general corporation, tangible or intangible personal property, privilege, or license taxes (but not including any taxes asserted with respect to ownership of the Trust Assets or federal or other income taxes, including franchise taxes measured by net income, arising out of the transactions contemplated by the Principal Agreements), and reasonable out-of-pocket costs and expenses in defending against the same. (b) Seller shall defend and hold harmless, and hereby indemnifies, Trustee, Bond Insurer, the Trust, Purchaser and the Certificateholders, and their respective directors, officers, employees and agents, from and against any loss, liability or expense incurred by reason of (i) Seller's willful misfeasance, bad faith, or negligence in the performance of its duties under the Principal Agreements; (ii) any action taken or failed to be taken as required by the terms of the Principal Agreements or the Lease Contracts, by Seller in respect of any of the Lease Contracts or Equipment, (iii) the failure of Seller to sell the Class A Certificates designated in a Subsequent Closing Notice to Purchaser after delivery of such Subsequent Closing Notice, (iv) the commingling of the funds of the Trust with the funds of any other party, (v) failure to maintain insurance in accordance with Rockford's policies or (vi) the failure of Seller or Rockford to pay any taxes when due. (c) Seller shall defend and hold harmless, and hereby indemnifies, Trustee, the Trust, Purchaser, Bond Insurer and the Certificateholders, from and against any and all loss, liability, damage, judgment, claim, deficiency or expense that arises out of or is based upon (i) a breach at any time by Seller of its representations, warranties and covenants contained in the Principal Agreements or the -31- 32 Lease Contracts, (ii) any information certified in any schedule or other writing delivered by Seller hereunder, being untrue in any respect when any such representation was made or schedule delivered, (iii) any act or omission in respect of a Lease Contract or its related Equipment occurring prior to the Closing Date on which the Lease Contract became a Trust Asset; provided, however, that Seller shall not be so required to indemnify Trustee, the Trust, Purchaser and the Certificateholders for or on account of or arising from or in connection with any breach of a representation or warranty a remedy for the breach of which is provided in Article VII, except in respect of claims, demands and causes of action of Lessees, Governmental Agencies, or other third parties, (iv) any claim of a Lessee including but limited to any product liability claim, (v) the early termination, rejection or non-assumption of a Lease Contract relating to a Lease Receivable or (vi) any dispute, claim, offset or defense of any Lessee to the payment of any Lease Receivable. (d) Seller shall also indemnify, defend and hold harmless Trustee, the Trust, Purchaser, Bond Insurer and the Certificateholders and their respective directors, officers, employees and agents, from and against any loss, liability or expense incurred by reason of the violation by any of such parties of federal or state securities laws in connection with the sale of the Certificates, to the extent such violation results from (i) any information furnished by or on behalf of Seller that in turn was furnished to the Certificateholders, or (ii) the failure of Seller to furnish to Purchaser any information known by any officer or agent of Seller and that was not otherwise known by any officer or agent of Purchaser or any of its Affiliates. (e) THE INDEMNITIES OF SELLER UNDER THIS SECTION 9.01 SHALL APPLY NOTWITHSTANDING THAT A CLAIM, DEMAND, LIABILITY, LOSS, COST OR EXPENSE IS ATTRIBUTABLE IN WHOLE OR IN PART TO THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. (f) Indemnification under this Section 9.01 shall include reasonable out-of-pocket fees and expenses of counsel and expenses of litigation, shall survive the execution, delivery and performance of this Agreement regardless of any investigation made by the indemnified parties or any other Person, and shall also survive termination of the Trust or the repurchase of a Lease Contract. Payment of any amounts from the Seller under this Section 9.01 shall be solely from amounts distributed to the Seller pursuant to Section 4.08(b)(xv) of the Pooling and Servicing Agreement. If Seller shall have made any indemnity payments to Trustee, Purchaser, the Trust and the Certificateholders pursuant to this Section 9.01 and Trustee, Purchaser, the Trust and the Certificateholders thereafter shall collect any of such amounts from persons other than Seller, Trustee, Purchaser, the Trust or the Certificateholders, as the case may be, and shall promptly upon receipt thereof repay such amounts to Seller, without interest. ARTICLE X MISCELLANEOUS Section 10.01 Expenses. Whether or not the transactions contemplated by the Principal Agreements shall be consummated, Seller and Rockford shall pay and reimburse Purchaser for Purchaser's cost and expenses incurred in connection with such transactions, including without limitation, (i) Purchaser's reasonable out-of-pocket cost and expenses (other than the fees and expenses of Purchaser's legal counsel) incurred in preparing and reproducing the Principal Agreements and the -32- 33 Certificates, (ii) the reasonable out-of-pocket cost of Purchaser's performance of and compliance with all agreements and conditions contained in the Principal Agreements to be performed or complied with by Purchaser (including collateral audit fees for up to one year (or thereafter, if a Trigger Event or Funding Period Trigger Event has occurred)) and (iii) Bond Insurer's actual out-of-pocket expenses, including attorney's fees and expenses and audit fees. Payment of any amounts from the Seller under this Section 10.01 shall be solely from amounts distributed to the Seller pursuant to Section 4.08(b)(xv) of the Pooling and Servicing Agreement. Section 10.02 Survival. Each of the parties agrees that the representations, warranties and agreements made by it herein and in any certificate or other instrument delivered pursuant hereto shall be deemed to be relied upon by the other parties hereto, notwithstanding any investigation heretofore or hereafter made by any such other party or on its behalf, and that the representations, warranties and agreements made by each of the parties hereto herein or in any such certificate or other instrument shall survive the delivery and payment for the Certificates. The provisions of this Section 10.02 shall survive any termination or cancellation of this Agreement. Section 10.03 [Intentionally Omitted.] Section 10.04 [Intentionally Omitted.] Section 10.05 Governing Law; Counterparts. This Agreement is to be governed by, and interpreted, construed and enforced in accordance with, the internal law of the State of New York without regard to principles of conflicts of laws. This Agreement may be executed in two or more 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 10.06 Amendments. This Agreement or any term hereof may not be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the parties hereto and with the prior written consent of Bond Insurer. Trustee shall promptly provide a copy of any amendment to this Agreement to each Rating Agency. Section 10.07 Headings. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. Section 10.08 Notices. All demands, notices, and communications under this Agreement shall be in writing and shall be deemed to have been duly given, made and received (a) when delivered against receipt of registered or certified mail or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested; (b) when delivered by courier with appropriate evidence of receipt; or (c) upon transmission via facsimile transmission with appropriate evidence of receipt at the following address of the recipient: (i) in the case of Seller, at 747 Chestnut Ridge Road, Suite 300, Chestnut Ridge, New York 10977, (ii) in the case of Rockford, at 1851 East First Street, Suite 900, Santa Ana, California 92705, (iii) in the case of Trustee, at the Corporate Trust Office, (iv) in the case of Purchaser, at c/o CoreStates Bank, N.A., 1345 Chestnut Street; Philadelphia, Pennsylvania 19101, Attn.: Conduit Administrator, and (v) in the case of Bond Insurer, at 113 King Street, Armonk, New York 10504 (fax number (914) 765-3810), Attn.: Insurer Portfolio Management-Structured Finance (IPM- SF). Any party may alter the address to which communications are to be sent by giving notice -33- 34 of such change of address in conformity with the provisions of this Section 10.08 for giving notice and by otherwise complying with any applicable terms of this Agreement. Section 10.09 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 rights of the Certificateholders or Bond Insurer thereof. Section 10.10 Assignment. This Agreement may not be assigned by Seller or Rockford without the prior consent of the Majority Certificateholders and Bond Insurer. Subject to the foregoing, this Agreement shall inure to the benefit of, and be binding on, the parties hereto, and their successors and assigns. Section 10.11 Further Assurances. Seller and Rockford agree to do and perform from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by Trustee, Bond Insurer or Purchaser more fully to effect the purposes of this Agreement in a manner consistent with this Agreement, including, without limitation, the execution of any financing statements or continuation statements or other documents or instruments relating to the Trust Assets for filing under the provisions of the UCC or other relevant laws of any applicable jurisdiction. Section 10.12 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of Trustee, Bond Insurer or the Certificateholders, any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 10.13 Third-Party Beneficiary. Bond Insurer is an express third party beneficiary of this Agreement and is entitled to enforce this Agreement as if it were a party hereto. Section 10.14 Intention of Parties. This Agreement and the transactions contemplated by the Pooling and Servicing Agreement have been structured with the intention that they will be treated as a financing transaction for purposes of federal, state and local income and franchise taxes and any other tax imposed on or measured by income and that the Certificates will be treated as indebtedness. Seller, Rockford and Purchaser agree to take no action inconsistent with the treatment of such transactions as a financing transaction and the Certificates as indebtedness for such tax purposes. Section 10.15 Non-Petition Covenant. Seller, Rockford, Bond Insurer, Trustee and Purchaser each hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of the Certificates, it will not institute against, or join any other Person or entity in instituting against, the Trust, Seller or Purchaser, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law. Section 10.16 Bond Insurer Default. If a Bond Insurer Default occurs and is continuing, Bond Insurer's right to consent hereunder and to direct the Trustee shall be suspended until remedied -34- 35 and, during such suspension, in all provisions of this Agreement where Bond Insurer's consent or direction is required or permitted, the consent or direction of the Majority Certificateholders shall be required or permitted unless the terms of this Agreement require the consent or direction of a larger number of Holders. Section 10.17. Limited Recourse. Purchaser agrees that Certificates shall be limited recourse obligations of Seller payable solely from Trust Assets in accordance with the Pooling and Servicing Agreement. Bond Insurer, Rockford, Seller and Trustee each agree that the obligations of Purchaser hereunder shall be limited recourse obligations of Purchaser payable solely from funds payable to Purchaser as holder of the Class A Certificates in accordance with the Pooling and Servicing Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ROCKFORD LEASE FUNDING CORP. By: _________________________________ Name: Larry Hartmann Title: President ROCKFORD INDUSTRIES, INC. By: _________________________________ Name: Gerry J. Ricco Title: President TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Trustee By: _________________________________ Name: Title: CENTRE SQUARE FUNDING CORPORATION By: _________________________________ Name: Title: -35- 36 EXHIBITS A Description of "A" Credit Lease Criteria B Form of Sale Assignment C Form of Officer's Certificate (Seller) D Form of Officer's Certificate (Rockford) E Form of Opinions of Counsel for Seller and Rockford F UCC Filing Requirements G Capital Contribution Agreement H Historic Delinquency and Loss Data I Certificate Payment Instructions J UCC Searches K Asset Code List EX-10.35 5 FORM OF ROCKFORD LEASE FUNDING CORPORATION 1 EXHIBIT 10.35 EXHIBIT A NO. ___. Initial Class A Certificate Investor Interest $ ____________ THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. RESALE AND TRANSFERS OF THIS CERTIFICATE MAY BE FURTHER RESTRICTED AS PROVIDED HEREIN AND IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Rockford Lease Backed Trust 1997-1 Fixed Rate Lease Receivables-Backed Senior Certificates (Class A) Evidencing an undivided interest in a trust, the corpus of which consists of a portfolio of Lease Contracts and interests in Equipment and certain related property, as more fully described in the Pooling and Servicing Agreement referred to herein. To the extent not defined herein, capitalized terms used herein have the meanings assigned to such terms in the Pooling and Servicing Agreement referred to herein. As of ___________, 199__ the Class A Certificate Investor Interest represented by this Class A Certificate is $____________. As of any date of determination the aggregate principal amount of this Certificate shall be equal to $____________ as reduced by payments of principal on this Class A Certificate made pursuant to Section 5.01(a) of the Pooling and Servicing Agreement. Interest with respect to this Class A Certificate will accrue at a fixed rate equal to _____% per annum (calculated on the basis of a 360 day year) commencing as of the date of execution of this Class A Certificate by the Seller as reflected below. Past due interest will itself bear interest at the same fixed rate. This certifies that _______________________________(the "Certificateholder") is the registered Holder of a Class A Certificate representing the ownership of an undivided interest in the Rockford Lease Backed Trust 1997-1, the corpus of which consists of certain Trust Assets as defined in the Pooling and Servicing Agreement, dated as of March 27, 1997 (the "Pooling and Servicing Agreement") among Rockford Lease Funding Corp., as Seller, Rockford Industries, Inc., as Servicer, 2 and Texas Commerce Bank National Association, as Trustee and Back-up Servicer, including but not limited to (a) effective as of the Initial Closing Date, (i) each Lease Contract and any and all moneys of whatsoever nature (payable upon the occurrence of any event) payable pursuant to each Lease Contract on and after the applicable Cut-Off Date, including (without limitation) each Scheduled Payment, any early termination, any guaranties, stipulated loss casualty value or any past due interest and late charges, and damages and other amounts receivable in connection with the default by the Lessee, (ii) all rights, powers and remedies of Seller under or in connection with each Lease Contract, whether arising under the terms of such Lease Contract, by statute, at law or in equity, or otherwise arising out of any default by the Lessee under such Lease Contract, including (without limitation) all rights to give or receive any notice, consent, approval or waiver thereunder, (iii) all rights, powers and remedies of Seller under the Equipment and Lease Purchase Agreement, (iv) all Security Deposits in respect of each Lease Contract provided by or on behalf of the Lessee thereunder, (v) all of the Lease Files relating to the Lease Contracts and the contents thereof, (vi) all amounts on deposit from time to time in the Lockbox Account, Investment Account, each Certificate Account and the Cash Collateral Account, (vii) any Insurance Policy or Insurance Proceeds with respect to such Lease Contracts, and (viii) to the extent that same now or hereafter exist, all proceeds, products, rents and profits of the foregoing of any nature whatsoever, including (without limitation) all proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof (as used in this clause (a), the term "Lease Contracts" shall be deemed to refer to Lease Contracts covered by the Sale Assignment delivered by Seller in connection with the closing on the Initial Closing Date); and (b) effective as of each Subsequent Closing Date, (i) each Lease Contract and any and all moneys of whatsoever nature (payable upon the occurrence of any event) payable pursuant to each Lease Contract on and after the applicable Cut-Off Date, including (without limitation) each Scheduled Payment, any early termination, any guaranties, stipulated loss casualty value or any past due interest and late charges, and damages and other amounts receivable in connection with the default by the Lessee, (ii) all rights, powers and remedies of Seller under or in connection with each Lease Contract, whether arising under the terms of such Lease Contract, by statute, at law or in equity, or otherwise arising out of any default by the Lessee under such Lease Contract, including (without limitation) all rights to give or receive any notice, consent, approval or waiver thereunder, (iii) all rights, powers and remedies of Seller under the Equipment and Lease Purchase Agreement, (iv) all Security Deposits in respect of each Lease Contract provided by or on behalf of the Lessee thereunder, (v) all of the Lease Files relating to the Lease Contracts and the contents thereof, (vi) any Insurance Policy or Insurance Proceeds with respect to such Lease Consents, and (vii) to the extent that same then or thereafter exist, all proceeds, products, rents and profits of the foregoing of any nature whatsoever, including (without limitation) all proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof (as used in this clause (b), the term "Lease Contracts" shall be deemed to refer to the Lease Contracts covered by the Sale Assignment delivered by Seller in connection with the closing on such Subsequent Closing Date). This Class A Certificate is issued under and is subject to the terms, provisions and conditions of the Pooling and Servicing Agreement, as amended from time to time, to which the Certificateholder by virtue of the acceptance hereof assents and by which the Certificateholder is bound. On each Payment Date, the Trustee or Paying Agent shall distribute to the Class A Certificateholders as of the related Record Date their pro rata share of the Class A Certificate Distributable Amounts as determined pursuant to the Pooling and Servicing Agreement. Distributions with respect to this Class A Certificate will be made by the Trustee or Paying Agent by check or wire transfer (except for the final distribution in respect of this Class A Certificate) without the presentation or surrender of this Class A Certificate or the making of any notation thereon. -2- 3 This Class A Certificate is one of a class of Certificates, each of which represents a debt obligation of the Seller secured solely by the Trust Assets. In addition to the foregoing described Certificates, a Seller Certificate will be issued to the Seller pursuant to the Pooling and Servicing Agreement which will represent the Seller's equity interest in the Equipment, subject to the prior security interest of the Trustee therein. The Pooling and Servicing Agreement permits, with certain exceptions, the amendment thereof and the modification of the rights and obligations of the parties thereunder and the Certificateholders with the consent of the Majority Certificateholders and Bond Insurer; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Certificate without the consent of such Certificateholder, (ii) change the definition of or the manner of calculating the Class A Certificate Investor Interest or Class A Certificate Distributable Amount, without the consent of each affected Certificateholder, (iii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of each Certificateholder, or (iv) change the definition of Requisite Cash Collateral Amount, Available Cash Collateral Amount, Minimum Cash Collateral Amount, or Majority Certificateholders without the consent of each Certificateholder. Any such amendment and any such consent by this Certificateholder shall be conclusive and binding on such Certificateholder and upon all future Holders of this Class A Certificate and of any Class A Certificate issued on registration of transfer hereof, in exchange hereof or in lieu hereof whether or not notation thereof is made upon this Class A Certificate. Subject to certain restrictions on transfer set forth in Section 6.04 of the Pooling and Servicing Agreement, the transfer of this Class A Certificate shall be registered in the Certificate Register upon surrender of this Class A Certificate for registration of transfer at an office or agency maintained by the Transfer Agent and Registrar, accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Certificateholder or such Certificateholder's attorney duly authorized in writing, and thereupon one or more new Class A Certificates of Authorized Denominations and for the same aggregate Class A Certificate Investor Interests will be issued to the designated transferee or transferees. As provided in the Pooling and Servicing Agreement and subject to certain limitations therein set forth, Class A Certificates are exchangeable for new Class A Certificates evidencing like aggregate Class A Certificate Investor Interests as requested by the Certificateholder surrendering such Class A Certificates. No service charge may be imposed on the Certificateholders for any such exchange but the Trustee or Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The Trustee, the Paying Agent, the Bond Insurer and the Transfer Agent and Registrar, and any agent of any of them, may treat the Person in whose name this Class A Certificate is registered on the Certificate Register as the owner hereof for all purposes, and none of the Trustee, the Payment Agent, the Bond Insurer or the Transfer Agent and Registrar, nor any agent of any of them or of any such agent shall be affected by notice to the contrary except in certain circumstances described in the Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits, but does not require, Seller to repurchase or if Seller fails to exercise such option, the Bond Insurer to purchase, from the Trust all Lease Contracts and interests in Equipment owned by the Trust as of a particular date provided in the Pooling and Servicing Agreement. The exercise of such right may effect early retirement of the Certificates; provided, however, that the Seller's right to so repurchase is subject to certain limitations as expressed in the Pooling and Servicing Agreement. -3- 4 The Pooling and Servicing Agreement and this Class A Certificate shall be construed in accordance with and governed by the laws of the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class A Certificate shall not be entitled to any benefit under the Pooling and Servicing Agreement, or be valid for any purpose. IN WITNESS WHEREOF, the Seller has caused this Class A Certificate to be duly executed. ROCKFORD LEASE BACKED TRUST 1997-1 By:________________________________ Name:______________________________ Title:_____________________________ Date: __________, 199__ -4- 5 CERTIFICATE OF AUTHENTICATION This is one of the Class A Certificates referred to in the within-mentioned Pooling and Servicing Agreement. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Trustee By:__________________________________ Authorized Signatory Date: _________________ -5- EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 2ND QUARTER 10-Q. 0000945901 ROCKFORD INDUSTRIES, INC. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 12,023,296 0 36,259,586 1,065,000 0 0 3,269,797 983,000 129,420,549 108,110,259 0 0 1,575,000 14,032,491 5,702,799 129,420,549 4,555,720 9,110,397 0 0 4,027,862 1,468,615 1,145,267 2,468,653 987,461 0 0 0 0 1,481,192 .34 .34
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