Charter Equipment Lease

99


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CHARTER FINANCIAL, INC.,
SERVICER,


CHARTER EQUIPMENT LEASE 1999-1 LLC,
ISSUER,


AND


LASALLE BANK NATIONAL ASSOCIATION
TRUSTEE


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FORM OF SERVICING AGREEMENT


Dated as of July 1, 1999


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TABLE OF CONTENTS


Page


R E C I T A L S 1


ARTICLE 1. DEFINITIONS.........................................................2


ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SERVICER......................3


Section 2.01 Corporate Organization and Authority........................3
Section 2.02 Business and Property.......................................4
Section 2.03 Financial Statements........................................4
Section 2.04 Insurance...................................................4
Section 2.05 Pending Litigation..........................................5
Section 2.06 Transactions Legal and Authorized...........................5
Section 2.07 Governmental Consent........................................5
Section 2.08 Taxes.......................................................5
Section 2.09 Compliance with Law.........................................6
Section 2.10 Ability to Perform..........................................6
Section 2.11 Ordinary Course; No Insolvency..............................6
Section 2.12 Principal Executive Office..................................6
Section 2.13 Servicing Provisions Customary..............................7


ARTICLE 3. ADMINISTRATION OF LEASES............................................7


Section 3.01 Servicer to Act.............................................7
Section 3.02 Lease Amendments and Modifications..........................9
Section 3.03 Defaulted Leases............................................9
Section 3.04 Costs of Servicing; Servicing Fee..........................10
Section 3.05 Other Transactions.........................................11


ARTICLE 4. SERVICER ADVANCES AND SELLER'S SUPPORT.............................11


Section 4.01 Late Lease Payments........................................11
Section 4.02 Early Termination Leases...................................11
Section 4.03 Indemnification............................................12
Section 4.04 Repurchases................................................12
Section 4.05 Payment Advices............................................13


ARTICLE 5. INFORMATION TO BE PROVIDED.........................................13


Section 5.01 Monthly Status Reports; Servicing Reports..................13
Section 5.02 Annual Independent Public Accountant's Report..............14


ARTICLE 6. THE SERVICER.......................................................15


Section 6.01 Merger or Consolidation of the Servicer....................15
Section 6.02 Limitation on Liability of the Servicer and Others.........15


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Section 6.03 Servicer Not to Resign or Be Removed.......................15
Section 6.04 Financial and Business Information.........................16
Section 6.05 Officers' Certificates.....................................17
Section 6.06 Inspection.................................................17
Section 6.07 Servicer to Act as Custodian...............................18


ARTICLE 7. DEFAULT 19


Section 7.01 Servicer Events of Default.................................19
Section 7.02 Termination................................................20
Section 7.03 Trustee to Act; Appointment of Successor...................20
Section 7.04 Servicer to Cooperate......................................21
Section 7.05 Notification to Noteholders................................22
Section 7.06 Remedies Not Exclusive.....................................22


ARTICLE 8. SUBSTITUTION AND ADDITION OF LEASES................................22


Section 8.01 Substitution and Addition..................................22
Section 8.02 Procedure..................................................23
Section 8.03 Objection and Repurchase...................................24
Section 8.04 Servicer's Subsequent Obligations..........................24


ARTICLE 9. ASSIGNMENT.........................................................25


Section 9.01 Assignment to Trustee......................................25
Section 9.02 Assignment by Servicer.....................................25


ARTICLE 10. NATURE OF OBLIGATIONS AND SECURITY THEREFOR.......................25


Section 10.01 Obligations Absolute......................................25
Section 10.02 Further Assurances; Financing Statements..................25


ARTICLE 11. MISCELLANEOUS.....................................................26


Section 11.01 Continuing Obligations....................................26
Section 11.02 GOVERNING LAW.............................................26
Section 11.03 Successors and Assigns....................................26
Section 11.04 Modification..............................................26
Section 11.05 No Proceedings............................................26
Section 11.06 Notices...................................................26
Section 11.07 Counterparts..............................................27
Section 11.08 Nonpetition Covenant......................................27 Schedule 1 - Schedule of Leases Exhibit A - Form of Receivables Servicing Report


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SERVICING AGREEMENT


This SERVICING AGREEMENT is made and dated as of July 1, 1999, by and among CHARTER FINANCIAL, INC., a New York corporation, as servicer (the "Servicer") hereunder, CHARTER EQUIPMENT LEAST 1999 - 1 LLC, as issuer (the "Issuer"), and LaSalle Bank National Association, as Trustee (the "Trustee").


R E C I T A L S


WHEREAS, pursuant to the Seller Contribution and Sale Agreement, Charter Financial, Inc. (the "Seller") is selling and making certain capital contributions to Charter Funding Corporation V (the "Transferor") with respect to the Leases, the related Equipment and other assets described therein (the "Transferred Assets").


WHEREAS, pursuant to the Transferor Contribution and Sale Agreement, the Transferor is selling and making certain capital contribution to Charter Equipment Lease 1999-1 LLC (the "Issuer"), with respect to the Transferred Assets.


WHEREAS, pursuant to the Indenture, the Issuer is pledging the Transferred Assets thereunder for the benefit of the Holders of the Notes (as detailed below) and is issuing one class of [_____]% Class A-1 Lease-Backed Notes, [_____] in the aggregate principal amount of $[_____] (the "Class A-1 Notes"), one class of [_____]% Class A-2 Lease-Backed Notes, [_____] in the aggregate principal amount of $[_____] (the "Class A-2 Notes"), one class of [______]% Class A-3 Lease-Backed Notes, [_____] in the aggregate principal amount of $[_____] (the "Class A-3 Notes"), one class of [_____]% Class A-4 Lease-Backed Notes, [_____] in the aggregate principal amount of $[_____] (the "Class A-4 Notes"; together with the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, the "Class A Notes"), one class of [_____]% Class B Leased-Backed Notes, [_____] (the "Class B Notes"), in the aggregate principal amount of $[_____], one class of [_____]% Class C Lease-Backed Notes, [_____], in the aggregate principal amount of $[_____] (the "Class C Notes"), one class of [_____]% Class D Leased-Backed Notes, [_____] in the aggregate principal amount of $[_____] (the "Class D Notes"); together with the Class A Notes, the Class B Notes, the Class C Notes, and the Class D Notes, are referred to collectively as the "Notes").


WHEREAS, the Servicer and the Trustee desire to enter into this Serving Agreement in order that the Servicer may service the Transferred Assets in accordance with the terms of this Servicing Agreement.


WHEREAS, pursuant to the Indenture, the Issuer is granting, inter alia, to the Trustee, for the benefit of the Holders from time to time of the Notes, a security interest in all right, title and interest of the Issuer in, to and under the Leases, the interests in the Equipment and the other Transferred Assets and this Servicing Agreement.


NOW, THEREFORE, the parties hereto agree, in consideration of the mutual agreements set forth herein and other valuable consideration provided, as follows:


ARTICLE 1. DEFINITIONS


As used in this Servicing Agreement, the following terms have the respective meanings set forth below or set forth in the Section hereof or in any other agreement indicated:


Additional Lease - each separate lease agreement and each lease schedule or supplement (and each master lease agreement insofar as the same relates to any such schedule or supplement) Granted by the Issuer to be a part of the Granted Assets in exchange for all or a portion of the proceeds of an Early Termination Lease that has been prepaid in full pursuant to Section 8.01(b) hereof.


Casualty Loss: with respect to any Lease, any loss, theft, condemnation, governmental taking, destruction, or damage beyond repair of any item of Equipment subject thereto which results, in accordance with the terms of the Lease, in a reduction in the number or amount of any future Lease Payments due thereunder or in the termination of the Lessee's obligation to make future Lease Payments thereunder.


Eligible Lease - as defined in Section 4.02 hereof.


Filing Requirements - Financing Statements necessary to perfect the ownership interest of the Issuer and the perfected security interest of the Trustee in the Leases and the Equipment.


Financing Statement - a statement filed pursuant to the UCC which evidences a perfected security interest in an asset.


Indemnified Party - as defined in Section 4.03 hereof.


Indenture - the Indenture dated as of July 1, 1999 among the Issuer, the Servicer and the Trustee, as the same may be supplemented, modified or amended from time to time in accordance with the terms thereof.


Issuer - Charter Equipment Lease 1999-1 LLC and any successor thereto.


Lien - means a security interest, lien, charge, pledge, equity, or encumbrance of any kind other than tax liens, mechanics liens, and any liens that attach to a Lease by operation of law.


Predecessor Lease - as defined in Section 8.01 hereof.


Private Placement Memorandum - the final Private Placement Memorandum used in connection with the private offering of the Class C Notes and the Class D Notes.


Prospectus - the form of final prospectus to be used in connection with the public offering of the Class A Notes and the Class B Notes, as filed with the Securities and Exchange Commission.


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Registration Statement - the registration statement (File No. 333-64045) filed with the Securities and Exchange Commission for the registration of the Class A Notes and the Class B Notes.


Servicer - the corporation so identified in the first paragraph of this Servicing Agreement and any successor thereto in accordance with the provisions hereof.


Servicer Event of Default - as defined in Section 7.01 hereof.


Servicing Fee - as defined in Section 3.04(a) hereof.


Servicing Report - as defined in Section 5.01(b) hereof.


Substitute Lease - as defined in Section 8.01(a) hereof.


Transferor - Charter Funding Corporation V and any successor thereto.


To the extent capitalized terms are used herein which are not otherwise defined, such terms shall have meanings defined in the Indenture.


ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SERVICER


The Servicer hereby represents and warrants to the accuracy and corrections of the following representations and warranties set forth in Article 2:


Section 2.01 Corporate Organization and Authority.


The Servicer:


(a) is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation,


(b) has all requisite power and authority and all necessary licenses and
permits to own and operate its properties and to carry on its business
as now conducted (except where the failure to have such licenses and
permits would not have a material adverse effect on the business or
condition (financial or otherwise) of the Servicer or impair the
enforceability of any Lease) and to enter into and perform its
obligations under this Servicing Agreement, and the transactions
contemplated hereby, including performance of the duties of the
Servicer and the Servicer's support obligations hereunder, and


(c) has duly qualified and is authorized to do business and is in good
standing as a foreign corporation in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary (except where the failure to be so qualified
or in good standing would not have a material adverse effect on the
Granted Assets or the business or


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condition (financial or otherwise) of the Servicer or impair the
enforceability of any Lease).


Section 2.02 Business and Property.


The Prospectus and the Private Placement Memorandum, accurately describe in all material respects the general nature of the business of the Servicer.


Section 2.03 Financial Statements.


(a) The consolidated balance sheet of the Servicer and its consolidated subsidiaries for the fiscal periods ended December 31, 1998 and December 31, 1997 and the related consolidated statements of income, retained earnings and cash flow for the respective period and fiscal years ended on such dates, all accompanied by reports thereon containing opinions without qualification, except as therein noted, by Ernst & Young, independent certified public accountants, and the unaudited interim consolidated balance sheet of the Servicer and its consolidated subsidiaries as of March 31, 1999 and the related consolidated statements of income, retained earnings and cash flow for the three months ended on such date have been prepared in accordance with generally accepted accounting principles consistently applied, and present fairly the financial position of the Servicer and its subsidiaries as of such dates and the results of their operations for such periods.


(b) Except as disclosed in the Prospectus, the Private Placement Memorandum and the financial statements referred to in the preceding Section 2.03(a), since March 31, 1999 there has been no change in the business, condition or prospects (financial or otherwise) of the Servicer except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. Neither the Servicer nor any of its subsidiaries has any material liabilities or obligations not incurred in the ordinary course of business other than those disclosed in the financial statements referred to in Section 2.03(a) or for which adequate reserves are reflected in such financial statements and certain contingent obligations of the Servicer relating to other asset securitization transactions involving the Servicer.


Section 2.04 Insurance.


In addition to the insurance maintained by the Lessees with respect to the Equipment, the Servicer (or an Affiliate of the Servicer) maintains (i) one or more casualty insurance policies which, in the aggregate, are in an amount not less than the aggregate Outstanding Principal Amount of the Notes, (ii) a general liability insurance policy in the aggregate amount of [$ ] and (iii) an excess liability insurance policy in umbrella form in the aggregate amount of [$ ]. Each of such policies is in full force and effect and covers all equipment owned by the Servicer and the Issuer. All premiums in respect of such policies have been paid. Each of the Trustee and the Issuer are named as loss payees and additional insureds, as their interests may appear, on such casualty and liability policies maintained by the Servicer.


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Section 2.05 Pending Litigation.


There are no proceedings or investigations pending, or to the knowledge (after due inquiry) of the Servicer threatened, against or affecting the Servicer or any subsidiary in or before any court, governmental authority or agency or arbitration board or tribunal, including, but not limited to, any such proceeding or investigation with respect to any environmental or other liability resulting from the ownership or use of any of the Equipment, which, individually or in the aggregate, involve the possibility of materially and adversely affecting the properties, business, prospects, profits or condition (financial or otherwise) of the Servicer and its subsidiaries, or the ability of the Servicer or the Servicer to perform its obligations under this Servicing Agreement. The Servicer is not in default with respect to any order of any court, governmental authority or agency or arbitration board or tribunal.


Section 2.06 Transactions Legal and Authorized.


The compliance by the Servicer with all of the provisions of this Servicing Agreement:


(a) have been duly authorized by all necessary corporate action on the part of the Servicer, and do not require any stockholder approval, or approval or consent of any trustee or holders of any indebtedness or obligations of the Servicer except such as have been duly obtained;


(b) are within the corporate powers of the Servicer; and


are legal and will not conflict with, result in any breach in any of the provisions of, constitute a default under, or result in the creation of any Lien upon any property of the Servicer under the provisions of, any agreement, charter, instrument, by-law or other instrument to which the Servicer is a party or by which it or its property may be bound or result in the violation of any law, regulation, rule, order or judgment applicable to the Servicer or its properties, or any order to which the Servicer or its properties is subject, of or by any government or governmental agency or authority.


Section 2.07 Governmental Consent.


No consent, approval or authorization of, or filing, registration or qualification with, any governmental authority is necessary or required on the part of the Servicer in connection with the execution and delivery of this Servicing Agreement or the performance of its obligations as Servicer.


Section 2.08 Taxes.


(a) All tax returns required to be filed by the Servicer or any subsidiary in any jurisdiction have in fact been filed, and all taxes, assessments, fees and other governmental charges upon the Servicer or any subsidiary, or upon any of their respective properties, income or franchises, shown to be due and payable on such returns have been paid. To the best of the Servicer's knowledge all such tax returns were true and correct and neither the Servicer nor any


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subsidiary knows of any proposed additional tax assessment against it in any material amount nor of any basis therefor.


(b) The provisions for taxes on the books of the Servicer and each of its subsidiaries are in accordance with generally accepted accounting principles.


Section 2.09 Compliance with Law.


The Servicer:


(a) is not in violation of any laws, ordinances, governmental rules or
regulations to which it is subject;


(b) has not failed to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its
property or to the conduct of its business; and


(c) is not in violation in any material respect of any term of any
agreement, charter instrument, by-law or other instrument to
which it is a party or by which it may be bound, which violation
or failure to obtain might materially adversely affect the
business or condition (financial or otherwise) of the Servicer
and its subsidiaries.


Section 2.10 Ability to Perform.


At the date hereof, the Servicer does not believe, nor does it have any reasonable cause to believe, that it cannot perform each and every covenant contained in this Servicing Agreement or its ability to perform as Servicer.


Section 2.11 Ordinary Course; No Insolvency.


The transactions contemplated by the Indenture and this Servicing Agreement are being consummated by the Servicer in furtherance of the Servicer's ordinary business purposes and constitute a practical and reasonable course of action by the Servicer designed to improve the financial position of the Servicer, with no contemplation of insolvency and with no intent to hinder, delay or defraud any of its present or future creditors. The Servicer will not, either as a result of the transaction contemplated by this Servicing Agreement, or immediately before or after such transaction, be insolvent or have an unreasonably small capital for the conduct of its business and the payment of anticipated obligations.


Section 2.12 Principal Executive Office.


The principal executive office of each of the Servicer and the Servicer is located at 530 Fifth Avenue, New York, New York 10036.


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Section 2.13 Servicing Provisions Customary.


The servicing arrangements hereunder, including, without limitation, the terms and conditions pursuant to which the Servicer will act as Servicer and the Servicing Fee to be paid to the Servicer, are consistent with the arrangements and customary practices of the Servicer when providing comparable services to non-affiliated entities and of other servicers in the equipment leasing industry.


ARTICLE 3. ADMINISTRATION OF LEASES


Section 3.01 Servicer to Act.


(a) Notwithstanding the transfers and assignments of the Leases (including the right to receive all payments due or to become due thereunder) and the related interests in the Equipment contemplated hereby, the Servicer, for the benefit of the Issuer, will service and administer each Lease in accordance with the terms thereof and of this Servicing Agreement. The Servicer shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect each Lease from time to time, all in accordance with (i) customary and prudent servicing procedures for leases of a similar type, (ii) all applicable laws, rules and regulations, and (iii) without limitation as to its obligations under the preceding clauses (i) and (ii), no less a standard of care than that which it applies to leases it services for its own account. The Servicer shall provide the Lessees with appropriate invoices and such other notices as may be required to ensure that all Lease Payments, Casualty Payments and Termination Payments in respect of each Lease are remitted by the Lessees to the address specified by the Servicer. The Servicer shall deposit such payments to the Lockbox Account within two Business Days of the receipt thereof. Any other amount received by the Servicer from time to time from the Issuer or any Lessee which is or is intended to be subject to the Lien of the Indenture shall be held in trust by the Servicer, as agent for the Trustee and within two Business Days deposited into the Lockbox Account for application in accordance with the provisions of the Indenture.


(b) The Servicer shall do, and shall have full power and authority to do, subject only to the specific requirements and prohibitions of this Servicing Agreement, any and all things in connection with the servicing and administration of the Leases and the interests in the Equipment which are consistent with the manner in which it services leases and equipment constituting part of its own portfolio and consistent with the customary practices of servicers in the equipment leasing industry, but in performing its duties hereunder, the Servicer will act on behalf and for the benefit of the Issuer, the Trustee and the Holders of the Notes, subject at all times to the provisions of the Indenture, without regard to any relationship which the Servicer or any Affiliate of the Servicer may otherwise have with a Lessee. The Servicer shall at all times act in accordance with the provisions of each Lease, and shall observe and comply with all requirements of law applicable to it. Except as permitted by the terms of any Lease following a default thereunder, the Servicer shall not take any action which would result in the interference with the Lessee's right to quiet enjoyment of the Equipment subject to the Lease during the term thereof. The Servicer shall exercise with respect to each item of Equipment all rights and remedies it, the Issuer or the Trustee shall have against any vendor of the Equipment, subject to the provisions of any Lease, and shall promptly pay all amounts realized from such actions into the Lockbox Account, in accordance with the terms of the Indenture.


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(c) Without limiting the generality of the foregoing, the Servicer agrees to (i) invoice each Lessee monthly (except quarterly, semi-annually or annually in the case of Leases which provide for quarterly, semi-annual or annual Lease Payments, respectively) for all Lease Payments required to be paid by such Lessee in such manner and to the same extent as the Servicer does with respect to leases held for its own account, (ii) maintain with respect to each Lease and each item of Equipment, and with respect to each payment by each Lessee and compliance by each Lessee wi ...