As filed with the Securities and Exchange Commission on May 27, 1998
Registration No. 333-___________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COPELCO CAPITAL FUNDING CORP. XI
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 6799 pending
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
Copelco Capital Funding Corp. XI
East Gate Drive
Mount Laurel, New Jersey 08054-5404
(609) 231-9600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Spencer N. Lempert, Esq.
Copelco Capital Funding Corp. XI
East Gate Drive
Mount Laurel, New Jersey 08054-5404
(609) 231-9600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Peter Humphreys, Esq.
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
(212) 259-6730
Approximate Date of Commencement of Proposed Sale to the
Public: As soon as practicable after the effective date of this registration
statement.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed maximum Amount of
Title of each class of Amount to be Proposed maximum offering aggregate offering registration
securities to be registered registered price per unit(1) price(1) fee(2)
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<S> <C> <C> <C> <C>
Class A-1 Lease-Backed Notes............. $ 1,000,000 100% $ 1,000,000 $ 295.00
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Class A-2 Lease-Backed Notes............. $ 1,000,000 100% $ 1,000,000 $ 295.00
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Class A-3 Lease-Backed Notes............. $ 1,000,000 100% $ 1,000,000 $ 295.00
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Class A-4 Lease-Backed Notes............. $ 1,000,000 100% $ 1,000,000 $ 295.00
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Class B Lease-Backed Notes............... $ 1,000,000 100% $ 1,000,000 $ 295.00
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the commission, acting pursuant to said
section 8(a), may determine.
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<PAGE>
COPELCO CAPITAL FUNDING CORP. XI
CROSS REFERENCE SHEET
(Pursuant To Rule 404(A) And Item 501 Of Regulation S-K)
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Item
No. Name and Caption in Form S-1 Caption in Prospectus
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<S> <C> <C>
1. Forepart of the Registration Statement; Forepart of the Registration Statement; Front Cover Page of
Front Cover Page of Prospectus Prospectus; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages Inside Front Cover and Outside Back Cover Pages of
of the Prospectus Prospectus; Terms of the Notes; Available Information; Table
of Contents
3. Summary Information; Risk Factors and Prospectus Summary; Risk Factors; Certain Legal Aspects;
Ratio of Earnings to Fixed Charges Prepayment and Yield Considerations
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Underwriting
9. Description of Securities to be Registered Prospectus Summary; Description of the Notes;
10. Interest of Named Experts and Counsel *
11. Material Changes *
12. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
</TABLE>
* Not Applicable
<PAGE>
PROSPECTUS
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$--------------
Copelco Capital Funding Corp. XI, Issuer
Copelco Capital, Inc., Servicer
$_________ _____% Class A-1 Lease-Backed Notes, Series 1998-A
$_________ _____% Class A-2 Lease-Backed Notes, Series 1998-A
$_________ _____% Class A-3 Lease-Backed Notes, Series 1998-A
$_________ _____% Class A-4 Lease-Backed Notes, Series 1998-A
$_________ _____% Class B Lease-Backed Notes, Series 1998-A
The Copelco Lease-Backed Notes, Series 1998-A will consist of
the following classes (each, a "Class"): (i) the Class A-1 Notes (the "Class A-1
Notes"), the Class A-2 Notes (the "Class A-2 Notes"), the Class A-3 Notes (the
"Class A-3 Notes") and the Class A-4 Notes (the "Class A-4 Notes"; together with
the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes, the "Class A Notes"),
(ii) the Class B Notes (the "Class B Notes") and (iii) the Class C Notes (the
"Class C Notes"; and together with the Class A Notes and Class B Notes, the
"Notes") Only the Class A Notes and the Class B Notes (together, the "Offered
Notes") will be offered hereby.
The Notes will represent debt obligations of Copelco Capital
Funding Corp. XI (the "Issuer"), a special-purpose bankruptcy remote subsidiary
of Copelco Capital, Inc. ("Copelco Capital"). The assets of the Issuer securing
the Notes will include a pool of healthcare, manufacturing and business
equipment leases, and all of Copelco Capital's interest in the equipment
underlying the leases. The leases and the related interests in the equipment
were originated or acquired by Copelco Capital as described herein and sold or
contributed by Copelco Capital to the Issuer under a sales and servicing
agreement (the "Sales and Servicing Agreement") by and between Copelco Capital
and the Issuer.
(cover continued on next page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
An investment in the Offered Notes involves certain risks. See "Risk
Factors" commencing on page [17] for a discussion of certain factors that
should be considered in connection with an investment in the securities
offered hereby.
THE OFFERED NOTES WILL NOT REPRESENT AN INTEREST IN OR AN OBLIGATION OF COPELCO
FINANCIAL SERVICES GROUP, INC., COPELCO CAPITAL, INC. OR ANY OF THEIR
AFFILIATES, OTHER THAN COPELCO CAPITAL FUNDING CORP. XI, NOR WILL THE OFFERED
NOTES BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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<CAPTION>
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Initial Public
Offering Price Underwriting(1) Proceeds to Issuer(2)
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<S> <C> <C> <C>
Per Class A-1 Lease-Backed Note % % %
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Per Class A-2 Lease-Backed Note % % %
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Per Class A-3 Lease-Backed Note % % %
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Per Class A-4 Lease-Backed Note % % %
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Per Class B Lease-Backed Note % % %
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Total $ $ $
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</TABLE>
(1) The Issuer has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses estimated to be $_______________.
The Offered Notes are offered subject to receipt and
acceptance by the Underwriters, to prior sale and to the Underwriters' right to
reject any order in whole or in part and to withdraw, cancel, or modify any
order without notice. It is expected that delivery of the Offered Notes will be
made in book-entry form through the facilities of The Depository Trust Company,
Cedel Bank, S.A. or the Euroclear System on or about ____ __, 1998.
FIRST UNION CAPITAL MARKETS
The date of this Prospectus is ___________, 1998.
<PAGE>
(cover page continued)
Payments of principal and interest to the holders of the Class
A Notes (the "Class A Noteholders") will have the benefit of limited credit
support consisting of the subordination of the Class B Notes and the Class C
Notes, funds on deposit in the reserve account, Residual Realizations and
amounts on deposit in certain other accounts, if any. The holders of the Class B
Notes (the "Class B Noteholders") will have the benefit of limited credit
support in the form of the subordination of the Class C Notes, funds on deposit
in the reserve account, Residual Realizations and amounts on deposit in certain
other accounts, if any. The Class C Notes are being offered in a private
placement and therefore are not being offered hereby. Capitalized terms used
herein will have the meanings ascribed to such terms herein. The pages on which
terms are defined are set forth on the Index of Terms contained herein.
Interest on the Notes will be payable monthly in arrears on
the twentieth day of the month beginning on ________ __, 1998 (each, a "Payment
Date") with respect to the period from and including the immediately preceding
Payment Date (or with respect to the initial Payment Date, the Issuance Date) to
the day prior to such current Payment Date. Principal payments with respect to
the Offered Notes will be payable on each Payment Date beginning on __________,
1998. The stated maturity date with respect to the Class A-1 Notes is the
Payment Date in ________ and the stated maturity date with respect to the Class
A-2 Notes, Class A-3 Notes, Class A-4 Notes and the Class B Notes is the Payment
Date in ___________. However, if all payments on the leases are made as
scheduled, final payment with respect to the Notes would occur prior to stated
maturity and it is expected that the Notes will mature prior to stated maturity
See "Prospectus Summary -- Expected Maturity; Stated Maturity." In addition,
should an Event of Default, an Early Lease Termination or a Casualty (each, as
described herein) occur, repayment of principal on the Offered Notes may be
earlier than would otherwise be the case.
The Issuer will have the option, subject to certain
conditions, to redeem all, but not less than all, of the Notes and thereby cause
early repayment of the Notes as of any Payment Date on which the Discounted
Present Value of the Performing Leases is less than or equal to 10% of the
Discounted Present Value of the Leases as of the Cut-Off Date (after giving
effect to the payment of principal on such Payment Date). The Issuer will give
notice of such redemption to each Noteholder and the Trustee at least 30 days
before the Payment Date fixed for such prepayment. Upon deposit of funds
necessary to effect such redemption, the Trustee shall pay the remaining unpaid
principal amount on the Notes and all accrued and unpaid interest as of the
Payment Date fixed for redemption. See "Description of the Notes -- Redemption."
The Offered Notes offered hereby are being offered pursuant to
this Prospectus. Sales of the Offered Notes may not be consummated unless the
purchaser has received this Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE
IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE OFFERED NOTES OFFERED HEREBY, INCLUDING PURCHASES OF OFFERED NOTES TO
STABILIZE THE MARKET PRICE AND THE IMPOSITION OF BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES SEE "UNDERWRITING" HEREIN.
AVAILABLE INFORMATION
The Issuer has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Notes offered pursuant to this Prospectus and described herein. For
further information, reference is made to the Registration Statement which may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov pursuant to
Item 502(a) under Regulation S-K as recently amended in SEC Release No. 33-7289
(May 9, 1996). The Issuer will file with the Commission such periodic reports
with respect to the Trust as are required under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations of the
Commission thereunder.
REPORTS TO NOTEHOLDERS
During such time as the Offered Notes remain in book-entry
form, any quarterly and annual reports containing information concerning the
Issuer and the Offered Notes and required to be filed with the Commission will
be sent to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC"), the Euroclear System ("Euroclear") or Cedel Bank, S.A. ("CEDEL") as
registered holders of the Offered Notes pursuant to the Indenture. Such reports
will be made available by DTC, Euroclear or CEDEL and its participants to
holders of interests in the Offered Notes (the "Offered Noteholders") in
accordance with the rules, regulations and procedures creating and affecting
DTC, Euroclear and CEDEL, respectively. See "Description of the Notes--Book
Entry Registration Notes." However, such reports will not be sent directly to
each beneficial owner while the Notes are in book-entry form. Upon the issuance
of fully registered, certificated Notes, such reports will be sent directly to
each Noteholder Such reports will be prepared in accordance with generally
accepted accounting principles.
2
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. A listing of pages
on which some of such terms are defined can be found in the "Index of Terms"
herein.
<TABLE>
<CAPTION>
<S> <C>
Issuer........................ Copelco Capital Funding Corp. XI (the "Issuer"), a Delaware corporation. The
Issuer's offices are located at East Gate Center, 700 East Gate Drive, Mount Laurel,
New Jersey 08054-5404 and its phone number is (609) 231-9600. The Issuer has been
established as a bankruptcy remote entity, wholly-owned by Copelco Capital, Inc.
("Copelco Capital") and is intended to be a limited-purpose corporation.
Accordingly, the Issuer's operations have been restricted so that (a) it does not
engage in business with, or incur liabilities to, any other entity which may bring
bankruptcy proceedings against the Issuer; and (b) the risk that it will be
consolidated into the bankruptcy proceedings of any other entity is diminished. The
Issuer will have no significant assets other than the Trust Fund (as described
below).
Securities Offered............ $___________ aggregate principal amount of ____% Class A-1 Lease-Backed Notes,
Series 1998-A, (the "Class A-1 Notes"), $___________ aggregate principal amount of
_____% Class A-2 Lease-Backed Notes, Series 1998-A (the "Class A-2 Notes"),
$___________ aggregate principal amount of ___% Class A-3 Lease-Backed Notes, Series
1998-A (the "Class A-3 Notes"), and $___________ aggregate principal amount of ___%
Class A-4 Lease-Backed Notes, Series 1998-A (the "Class A-4 Notes"; together with
the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes, the "Class A Notes") and
$___________ aggregate principal amount of ___% Class B Lease-Backed Notes, Series
1998-A (the "Class B Notes"; together with the Class A Notes, the "Offered Notes").
The Class A-1 Notes will be an "eligible security" within the meaning of Rule 2a-7
promulgated under the Investment Company Act of 1940, as amended. In addition, the
Issuer will be issuing, through a private placement, $___________ aggregate
principal amount of ___% Class C Notes (the "Class C Notes"; together with the
Offered Notes, the "Notes"). The Class B Notes will be subordinated to the Class A
Notes to the extent provided in the Indenture as described herein. The Class C Notes
will be subordinated to the Offered Notes to the extent provided in the Indenture as
described herein. The Class C Notes are not offered hereby.
The combined aggregate principal amount of the Class A Notes, the Class B Notes and
the Class C Notes will comprise the initial principal amount (the "Initial Principal
Amount") of the Notes. The aggregate principal amounts of the Class A Notes, the
Class B Notes and the Class C Notes set forth herein are based upon the Discounted
Present Value of the Leases (as defined herein) as of the close of business on
___________, 1998 (the "Cut-Off Date") calculated at the Statistical Discount Rate
(defined herein). The Initial Principal Amount of the Notes will be calculated using
the actual Discount Rate.
Issuance Date................. On or about ____ ____, 1998.
Denominations................. The Offered Notes will be issued in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof, except that one Class A Note and Class B Note
may be issued in another denomination.
3
<PAGE>
Interest Rate................. ___% per annum on the Class A-1 Notes (the "Class A-1 Interest Rate") calculated on
the basis of a year of 360 days and the actual number of days in such Interest
Accrual Period ___% per annum on the Class A-2 Notes (the "Class A-2 Interest
Rate"), ___% per annum on the Class A-3 Notes (the "Class A-3 Interest Rate"), ___%
per annum on the Class A-4 Notes (the "Class A-4 Interest Rate"), ___% per annum on
the Class B Notes (the "Class B Interest Rate") and ___% per annum on the Class C
Notes (the "Class C Interest Rate"), calculated on the basis of a year of 360 days
comprised of twelve 30-day months. With respect to any particular Class, the
"Interest Rate" refers to the applicable rate indicated in the immediately preceding
sentence.
Initial Principal Amount...... $___________ for the Class A-1 Notes (the "Class A-1 Initial Principal Amount"),
$___________ for the Class A-2 Notes (the "Class A-2 Initial Principal Amount"),
$___________ for the Class A-3 Notes (the "Class A-3 Initial Principal Amount"),
$___________ for the Class A-4 Notes (the "Class A-4 Initial Principal Amount",
together with the Class A-1 Initial Principal Amount, Class A-2 Initial Principal
Amount, and the Class A-3 Initial Principal Amount, the "Class A Initial Principal
Amount"), $___________ for the Class B Notes (the "Class B Initial Principal
Amount") and $___________ for the Class C Notes (the "Class C Initial Principal
Amount"). See "Description of the Notes."
Discounted Present Value
of the Leases............. The Discounted Present Value of the Leases (the "Discounted Present Value of the
Leases"), at any given time, shall equal the future remaining scheduled payments
(not including delinquent amounts, Excess Copy Charges, Maintenance Charges and Fee
Per Scan Charges (defined below)) from the Leases (including Non-Performing Leases),
discounted at a rate equal to ___% (the "Discount Rate"), which rate is equal to the
sum of (a) the weighted average Interest Rate of the Class A Notes, the Class B
Notes and the Class C Notes on the Issuance Date and (b) the Servicing Fee Rate of
____% per annum. The "Discounted Present Value of the Performing Leases" equals the
Discounted Present Value of the Leases, reduced by all future remaining scheduled
payments on the Non-Performing Leases (not including delinquent amounts, Excess Copy
Charges, Maintenance Charges or Fee Per Scan Charges), discounted at the Discount
Rate. See "Description of the Notes--General." Each of the Indenture and the Sales
and Servicing Agreement will provide that any calculation of future remaining
scheduled payments made on a Determination Date or with respect to a Payment Date
will be calculated after giving effect to any payments received prior to such date
of calculation to the extent such payments relate to scheduled payments due and
payable by the Lessees with respect to the related Due Period (defined herein) and
all prior Due Periods. "Statistical Discounted Present Value of the Leases" means an
amount equal to the future remaining scheduled payments (not including delinquent
amounts, Excess Copy Charges, Maintenance Charges and Fee Per Scan Charges) from the
Leases as of the Cut-off Date, discounted at a rate equal to ___% (the "Statistical
Discount Rate"). The Statistical Discounted Present Value of the Leases as of the
Cut-Off Date is $___________ and will not vary materially from the Discounted
Present Value of the Leases as of the Cut-Off Date. See "The Series Pool--The
Equipment." The aggregate Discounted Present Value of the Leases as of the Cut-Off
Date, calculated at the Discount Rate is $-----------.
4
<PAGE>
"Non-Performing Leases" are (a) Leases that have become more than 123 days
delinquent or (b) Leases that have been accelerated by the Servicer or Leases that
the Servicer has determined to be uncollectible in accordance with its customary
practices. See "The Series Pool--The Leases." The Seller will represent in the Sales
and Servicing Agreement that at the time of transfer of any Lease to the Issuer,
such Lease was not a Non-Performing Lease.
Expected Maturity; Stated
Maturity.................. The expected maturity dates with respect to the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes, Class A-4 Notes and the Class B Notes are the Payment Dates in
___________, ___________, ___________, ___________ and ___________, respectively.
The stated maturity date with respect to the Class A-1 Notes will be the Payment
Date in ___________ and with respect to all other Notes will be the Payment Date in
___________ . However, if all payments on the Leases are made as scheduled, final
payment with respect to the Notes would occur prior to stated maturity.
The Notes..................... The Notes will represent obligations solely of the Issuer and are secured by
the Trust Fund.
Seller and Servicer........... Copelco Capital, Inc., a Delaware corporation ("Copelco Capital", the "Seller, " or
in its capacity as servicer, the "Servicer"). Copelco Capital will enter into a
sales and servicing agreement (the "Sales and Servicing Agreement") with the Issuer
to sell and service the Leases included in the Series Pool (defined below) and make
Servicer Advances (as defined herein). Concurrently with the sale of the Leases by
Copelco Capital to the Issuer, Copelco Capital's interest in the Equipment (which is
either an ownership interest or a security interest) will be transferred to the
Issuer as a contribution of capital. Contemporaneously with the sale, the Issuer
will transfer its interests in the Leases and Equipment to the Trustee in accordance
with the provisions of the Indenture (as defined herein).
Trust Fund.................... The "Trust Fund" will consist of a pool (the "Series Pool") of healthcare,
manufacturing and business equipment lease contracts (the "Lease Contracts"),
including payments due thereunder (the "Lease Receivables"; together with the Lease
Contracts, the "Leases") and the interest in the related leased equipment (the
"Equipment") transferred by Copelco Capital to the Issuer. In addition, the Trust
Fund will include the funds on deposit in the Reserve Account, if any, and to the
limited extent provided in the Indenture, amounts on deposit in the Residual
Account, if any.
Trustee....................... Manufacturers and Traders Trust Company (the "Trustee"). The Trustee's offices are
located at One M&T Plaza, 7th Floor, Buffalo, New York 14203.
Determination Date............ The fifth day prior to each Payment Date (or the preceding business day, if such day
is not a business day). On such date (each, a "Determination Date"), the Servicer
will determine the amount of payments received on the Leases in respect of the
immediately preceding calendar month (each such period, a "Due Period") which will
be available for distribution on the Payment Date. See "Description of the
Notes--Distributions on Notes."
Payment Date.................. Payments on the Notes will be made on the twentieth day of each month (or if
such day is not a business day, the next succeeding business day), commencing on
_______ __, 1998 (each, a "Payment Date"), to holders of record on the last day of
the immediately preceding calendar month (each, a "Record Date"). See "Description
of the Notes--Distributions on Notes."
5
<PAGE>
Interest Payments............. On each Payment Date, the interest due (the "Interest Payments") with respect to the
Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the
Class B Notes and the Class C Notes since the last Payment Date will be the interest
that has accrued on such Notes since the last Payment Date, or in the case of the
first Payment Date, since the Issuance Date (the "Interest Accrual Period") at the
applicable Interest Rate applied to the then unpaid principal amounts (the
"Outstanding Principal Amounts") of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes and the Class B Notes and the Class C Notes,
respectively, after giving effect to payments of principal to the Class A-1
Noteholders, the Class A-2 Noteholders, the Class A-3 Noteholders, the Class A-4
Noteholders, the Class B Noteholders and the Class C Noteholders, respectively, on
the preceding Payment Date. See "Description of the Notes--General" and
"Distributions on Notes."
Principal Payments............ For each Payment Date, each of the Class A Noteholders, the Class B Noteholders and
the Class C Noteholders will be entitled to receive payments of principal
("Principal Payments"), to the extent funds are available therefor, in the
priorities set forth in the Indenture and described herein below and under
"Application of Payments" and "Description of the Notes--Distributions on Notes." On
each Payment Date, to the extent funds are available therefor, the Principal Payment
will be paid to the Noteholders in the following priority: (a) (i) to the Class A-1
Noteholders only, until the Outstanding Principal Amount on the Class A-1 Notes has
been reduced to zero, the Class A Principal Payment, then (ii) to the Class A-2
Noteholders only, until the Outstanding Principal Amount on the Class A-2 Notes has
been reduced to zero, the Class A Principal Payment, then (iii) to the Class A-3
Noteholders only, until the Outstanding Principal Amount on the Class A-3 Notes has
been reduced to zero, the Class A Principal Payment, and (iv) to the Class A-4
Noteholders, until the Outstanding Principal Amount on the Class A-4 Notes has been
reduced to zero, the Class A Principal Payment, (b) to the Class B Noteholders, the
Class B Principal Payment, (c) to the Class C Noteholders, the Class C Principal
Payment, and (d) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount and/or the Class C Floor exceeds the Class C Target
Investor Principal Amount, Additional Principal (defined below) shall be
distributed, sequentially, as an additional principal payment on the Class A-1
Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, the Class B Notes and the
Class C Notes until the Outstanding Principal Amount of each Class has been reduced
to zero.
The "Class A Principal Payment" shall equal (a) while the Class A-1 Notes are
outstanding, (i) on all Payment Dates prior to the ___________ Payment Date, the
lesser of (1) the amount necessary to reduce the Outstanding Principal Amount on the
Class A-1 Notes to zero and (2) the difference between (A) the Discounted Present
Value of the Performing Leases as of the previous Determination Date and (B) the
Discounted Present Value of the Performing Leases as of the related Determination
Date, and (ii) on the ___________ Payment Date, the entire Outstanding Principal
Amount on the Class A-1 Notes and (b) after the Class A-1 Notes have been paid in
full, the amount necessary to reduce the aggregate Outstanding Principal Amount on
the Class A Notes to the Class A Target Investor Principal Amount (as defined
below).
6
<PAGE>
The "Class B Principal Payment" shall equal (a) while the Class A-1 Notes are
outstanding, zero and (b) after the Outstanding Principal Amount on the Class A-1
Notes has been reduced to zero, the amount necessary to reduce the Outstanding
Principal Amount of the Class B Notes to the greater of the Class B Target Investor
Principal Amount and the Class B Floor.
The "Class C Principal Payment" shall equal (a) while the Class A-1 Notes are
outstanding, zero and (b) after the Outstanding Principal Amount on the Class A-1
Notes has been reduced to zero, the amount necessary to reduce the Outstanding
Principal Amount of the Class C Notes to the greater of the Class C Target Investor
Principal Amount and the Class C Floor.
"Additional Principal" with respect to each Payment Date is an amount equal to (a)
the difference between (i) the Discounted Present Value of the Performing Leases as
of the previous Determination Date and (ii) the Discounted Present Value of the
Performing Leases as of the related Determination Date, less (b) the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal Payment
to be paid on such Payment Date.
The "Class A Target Investor Principal Amount" with respect to each Payment Date is
an amount equal to the product of (a) the Class A Percentage and (b) the Discounted
Present Value of the Performing Leases as of the related Determination Date.
The "Class B Target Investor Principal Amount" with respect to each Payment Date is
an amount equal to the product of (a) the Class B Percentage and (b) the Discounted
Present Value of the Performing Leases as of the related Determination Date.
The "Class C Target Investor Principal Amount" with respect to each Payment Date is
an amount equal to the product of (a) the Class C Percentage and (b) the Discounted
Present Value of the Performing Leases as of the related Determination Date.
The "Class A Percentage" will be equal to ___%. The "Class B Percentage" will be
equal to ___%. The "Class C Percentage" will be equal to ___%.
The "Class B Floor" with respect to each Payment Date means (a) ____% of the initial
Discounted Present Value of the Leases as of the Cut-Off Date, plus (b) the
Cumulative Loss Amount with respect to such Payment Date, minus (c) the sum, as of
the related Determination Date, of the Outstanding Principal Amount on the Class C
Notes and the amount on deposit in the Reserve Account after giving effect to
withdrawals to be made on such Payment Date.
The "Class C Floor" with respect to each Payment Date means (a) ___% of the initial
Discounted Present Value of the Leases as of the Cut-Off Date, plus (b) the
Cumulative Loss Amount with respect to such Payment Date, minus (c) the amount on
deposit in the Reserve Account after giving effect to withdrawals to be made on such
Payment Date; provided, however, that if the Outstanding Principal Amount on the
Class B Notes is equal to the Class B Floor, on such Payment Date, the Class C Floor
will equal the Outstanding Principal Amount on the Class C Notes utilized in the
calculation of the Class B Floor for such Payment Date.
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The "Cumulative Loss Amount" with respect to each Payment Date is an amount equal to
the excess, if any, of (a) the total of (i) the Outstanding Principal Amount of the
Notes as of the immediately preceding Payment Date after giving effect to all
payments made on such Payment Date, minus (ii) the lesser of (A) the Discounted
Present Value of the Performing Leases as of the Determination Date relating to the
immediately preceding Payment Date minus the Discounted Present Value of the
Performing Leases as of the related Determination Date and (B) Available Funds
remaining after the payment of amounts owing the Servicer and in respect of interest
on the Notes on such Payment Date over (b) the Discounted Present Value of
Performing Leases as of the related Determination Date.
The Series Pool............... The Series Pool will consist of the Leases as of the Cut-Off Date, plus any
Substitute Leases (as defined herein) and any Additional Leases (as defined herein)
excluding any Leases which have been replaced by one or more Additional Leases or
Substitute Leases and, the interest of the Issuer in the related Equipment. See "The
Series Pool" and "Certain Legal Matters Affecting a Lessee's Rights and
Obligations."
Copelco Capital will represent and warrant that, as of the Cut-Off Date, all Leases
were current or less than 63 days delinquent and that, as of the initial
Determination Date, the Lessees have made at least one lease payment.
Equipment..................... The Equipment is comprised primarily of computer systems for healthcare
professionals, medical diagnostic and examination equipment for radiology, nuclear
medicine, ultrasound and laboratory analysis, industrial and business equipment such
as machine tools, graphic arts equipment, electronics testing equipment, computers
for businesses and office products such as copiers and facsimile machines. As of the
Cut-Off Date, the Series Pool had approximately __ equipment categories.
Lessees....................... Primarily hospitals, non-hospital medical facilities, physicians, businesses and
individual business owners (each, a "Lessee," and collectively, the "Lessees"). As
of the Cut-Off Date, the Series Pool included ___________ separate Leases and
approximately ___________ Lessees. As of the Cut-Off Date, Leases relating to
Lessees in any one state did not account for more than ___% of the Statistical
Discounted Present Value of the Leases. See "The Series Pool--The Leases."
Certain Lease Terms........... The Leases are triple-net leases, requiring the Lessee to pay all taxes, maintenance
and insurance associated with the Equipment. The Leases are non-cancelable by the
Lessees. All payments under the Leases are absolute, unconditional obligations of
the Lessees without right of offset for any reason Each Lessee entered into its
Lease for specified Equipment designated in schedules incorporated into the Lease.
The schedules, among other things, establish the payments and the term of the Lease
with respect to such Equipment. The Leases have remaining terms to maturity,
calculated as of the Cut-Off Date, of between approximately __ and __ months and a
weighted average term to stated maturity of ___ months. See "The Series Pool--The
Leases."
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Additions, Substitutions and
Adjustments............... Although the Leases will be non-cancelable by the Lessees, Copelco Capital has, from
time to time, permitted early termination by Lessees ("Early Lease Termination") or
other modifications of the lease terms in certain circumstances more fully specified
in the Sales and Servicing Agreement, including, without limitation, in connection
with a full or partial buy-out or equipment upgrade.
In the event of an Early Lease Termination which has been prepaid in full or in
part, the Issuer will have the option to reinvest the proceeds of such Early
Termination Lease in one or more Leases having similar characteristics for such
terminated Lease (each, an "Additional Lease").
In addition, Copelco Capital will have the option to substitute one or more leases
having similar characteristics (each, a "Substitute Lease") for (a) Non-Performing
Leases, (b) Leases subject to repurchase as a result of a breach of representation
and warranty (each a "Warranty Lease") and (c) Leases following a modification or
adjustment to the terms of such Lease (each, an "Adjusted Lease"). The aggregate
Discounted Present Value of the Non-Performing Leases for which Copelco Capital may
substitute Substitute Leases is limited to an amount not in excess of ___% of the
aggregate Discounted Present Value of the Leases as of the Cut-Off Date. The
aggregate Discounted Present Value of Adjusted Leases and Warranty Leases for which
Copelco Capital may substitute Substitute Leases is limited to an amount not in
excess of ____% of the aggregate Discounted Present Value of the Leases as of the
Cut-Off Date.
The terms of a Lease may be modified or adjusted for administrative reasons or at
the request of the lessee, vendor or lessor due to a variety of circumstances,
including changes to the delivery date of equipment, the cost of equipment, the
components of leased equipment or to correct information when a Lease is entered
into Copelco Capital's servicing system. Such modifications may result in
adjustments to the lease commencement date, the monthly payment date, the amount of
the monthly payment or the equipment subject to a Lease.
Additional Leases and Substitute Leases will be originated using the same credit
criteria as the initial Leases. To the extent material, information with respect to
such Additional or Substitute Leases will be included in periodic reports filed with
the Commission as are required under the Exchange Act.
In no event will the aggregate scheduled payments of the Leases, after the inclusion
of the Substitute Leases and Additional Leases be materially less than the aggregate
scheduled payments of the Leases prior to such substitution or reinvestment. In
addition, after giving effect to such additions and substitutions, the aggregate
Booked Residual Value of the Leases will not be materially less than the aggregate
Booked Residual Value of the Leases immediately prior to such substitutions or
additions. Additionally, either the final payment on such Substitute Lease or
Additional Lease will be on or prior to ___________ or, to the extent the final
payment on such Lease is due subsequent to ___________, only scheduled payments due
on or prior to such date may be included in the Discounted Present Value of such
Lease for the purpose of making any calculation under the Indenture.
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In the event that an Early Lease Termination is allowed by Copelco Capital and an
Additional Lease is not provided, the amount prepaid will be equal to at least the
Discounted Present Value of the terminated Lease, plus any delinquent payments. See
"The Series Pool--The Leases."
Payments on Leases............ All payments on Leases will be made by the Lessees to the address specified by the
Servicer. The Servicer will deposit the proceeds of such payments to the Collection
Account (as defined herein) within two Business Days of the receipt thereof. See
"Description of the Notes--Collection Account."
Advances by Servicer.......... Prior to any Payment Date, the Servicer may, but will not be required to, advance
(each, a "Servicer Advance") to the Trustee, an amount sufficient to cover
delinquencies on Leases in the Trust Fund with respect to the prior Due Period. The
Servicer will be reimbursed for Servicer Advances not recovered from late payments
from Available Funds on the Payment Date following the date on which the Servicer
determined such Lease to be a Non-Performing Lease. See "Description of the
Notes--Advances by Servicer."
Servicing Fee................. A Servicing Fee (the "Servicing Fee"), will be paid monthly to the Servicer on each
Payment Date from amounts in the Collection Account and will be calculated by
multiplying one-twelfth of ____% times the lesser of (i) the Outstanding Principal
Amount of the Notes or (ii) the Discounted Present Value of the Performing Leases,
each at the Determination Date for such Payment Date before application of payments
with respect thereto.
The Servicing Fee will be paid to the Servicer for servicing the Series Pool and to
pay certain administrative expenses in connection with the Notes, including Trustee
fees and expenses. See "Copelco Capital's Underwriting and Servicing Practices."
Use of Proceeds............... The net proceeds from the sale of the Offered Notes will be used to purchase the
Leases from Copelco Capital. In addition, the net proceeds from the private
placement of the Class C Notes will be used for the same purpose. Copelco Capital
will use such amounts to repay bank indebtedness and for general corporate purposes.
The Indenture.................
The Notes are to be issued pursuant to, and are to be in such form, bear interest
and be payable on such terms as are prescribed in an indenture (the "Indenture") to
be executed between the Issuer and the Trustee.
Available Funds............... On each Payment Date, the Trustee will use such funds to make required payments of
principal and interest to Noteholders.
Funds received on or prior to the related Determination Date ("Available Funds") will be
available for distribution by the Trustee on a Payment Date and will include:
a) Lease Payments due during the prior Due Period (net of any Excess Copy Charges, Maintenance
Charges and Fee Per Scan Charges);
b) Residual Realizations up to the Residual Amount Cap;
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c) recoveries from Non-Performing Leases to the extent Copelco Capital has not substituted
Substitute Leases for such Non-Performing Leases (except to the extent required to
reimburse unreimbursed Servicer Advances);
d) late charges received on delinquent Lease payments not advanced by the Servicer;
e) proceeds from repurchases by Copelco Capital of Leases as a result of breaches of
representations and warranties to the extent Copelco Capital has not substituted Substitute
Leases for such Leases;
f) proceeds from investment of funds in the Collection Account, the Reserve Account
and the Residual Account, if any;
g) Casualty Payments (as defined herein);
h) Servicer Advances;
i) Termination Payments to the extent the Issuer does not reinvest such Termination Payments
in Additional Leases;
j) funds, if any, on deposit in the Reserve Account; and
k) funds, if any, on deposit in the Residual Account to the limited extent provided in the
Indenture.
Application of Payments....... Monthly distributions will be made by the Trustee from Available Funds in the
following priority:
a) to pay the Servicing Fee;
b) to reimburse unreimbursed Servicer Advances in respect of a prior Payment
Date;
c) to make Interest Payments, owing on the Class A Notes concurrently to the Class
A-1 Noteholders, Class A-2 Noteholders, Class A-3 Noteholders and Class A-4
Noteholders;
d) to make Interest Payments owing on the Class B Notes;
e) to make Interest Payments owing on the Class C Notes;
f) to make the Class A Principal Payment (i) to the Class A-1 Noteholders
only, until the Outstanding Principal Amount on the Class A-1 Notes is reduced
to zero, then (ii) to the Class A-2 Noteholders only, until the Outstanding
Principal Amount on the Class A-2 Notes is reduced to zero, then (iii) to the
Class A-3 Noteholders only, until the Outstanding Principal Amount on the
Class A-3 Notes is reduced to zero and finally, (iv) to the Class A-4
Noteholders until the Outstanding Principal Amount on the Class A-4 Notes
is reduced to zero;
g) to make the Class B Principal Payment;
h) to make the Class C Principal Payment;
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i) to pay the Additional Principal, if any, to the Class A Noteholders then
receiving the Class A Principal Payment as provided in clause (f) above until
the Outstanding Principal Amount on all of the Class A Notes has been reduced to
zero, then to the Class B Noteholders until the Outstanding Principal Amount
on the Class B Notes has been reduced to zero and thereafter to the Class C
Noteholders until the Outstanding Principal Amount on the Class C Notes
has been reduced to zero;
j) to the Reserve Account, an amount equal to the excess of the Required
Reserve Amount over the Available Reserve Amount;
k) following a Residual Event (defined below), to the Residual Account an
amount equal to Residual Realizations up to the Residual Amount Cap; and
l) to the Issuer, the balance, if any.
See "Description of the Notes--Distribution on Notes."
Redemption.................... The Issuer will have the option, subject to certain conditions, to redeem all, but
not less than all, of the Notes and thereby cause early repayment of the Notes as of
any Payment Date on which the Discounted Present Value of the Performing Leases is
less than or equal to 10% of the Discounted Present Value of the Leases as of the
Cut-Off Date (after giving effect to the payment of principal on such Payment Date).
The Issuer will give notice of such redemption to each Noteholder and the Trustee at
least 30 days before the Payment Date fixed for such prepayment Upon deposit of
funds necessary to effect such redemption, the Trustee shall pay the remaining
unpaid principal amount on the Notes and all accrued and unpaid interest as of the
Payment Date fixed for redemption. See "Description of the Notes--Redemption."
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The aggregate Booked Residual Value of the Leases as of the Cut-Off Date
equals $___________.
Subordination................. The Class A Notes will be paid sequentially in accordance with the provisions of the
Indenture and as described in clause (f) under "Application of Payments." The Class
A Notes will be senior in right of payment to the Class B Notes and the Class B
Notes will be senior in right to the Class C Notes to the extent described herein.
See "Description of the Notes--Distributions on Notes."
Reserve Account............... The Noteholders will have the benefit of funds on deposit in an account (the
"Reserve Account") to the extent that there is a shortfall in the amount available
to pay amounts owing the Servicer and to make interest and principal payments on the
Notes, on any Payment Date. The Reserve Account will be funded by an initial deposit
of ____% of the Discounted Present Value of the Leases as of the Cut-Off Date.
Thereafter, to the extent provided in the Indenture, additional deposits will be
made to the Reserve Account to the extent that the amount on deposit in the Reserve
Account (the "Available Reserve Amount") is less than the Required Reserve Amount.
The "Required Reserve Amount" equals the lesser of (a) _____% of the Discounted
Present Value of the Leases as of the Cut-Off Date and (b) the Outstanding Principal
Amount of the Notes Amounts on deposit in the Reserve Account in excess of the
Required Reserve Amount will be disbursed to the Issuer in accordance with the
provisions of the Indenture.
Residual Realizations......... Following the Issuance Date, cash flows realized from the sale or re-lease of the
Equipment following the scheduled expiration dates of the Leases, other than
Equipment subject to Non-Performing Leases (the "Residual Realizations"), shall be
deposited into the Collection Account for distribution until the aggregate Residual
Realizations used (without duplication) to cover amounts owing the Noteholders and
the Servicer, deposited into the Reserve Account, on deposit in the Residual
Account, or withdrawn from the Residual Account as a result of an Available Funds
Shortfall, equals $___________, which represents ___% of the Discounted Present
Value of the Leases as of the Cut-Off Date (the "Residual Amount Cap"), and will
provide additional credit support to the Notes. Actual Residual Realizations may be
more or less than the residual value of the Equipment recorded on the books of the
Issuer (the "Booked Residual Value"). Under certain limited circumstances more fully
described in the Indenture (a "Residual Event"), the Residual Realizations not
distributed to Noteholders, paid to the Servicer or deposited into the Reserve
Account will be deposited in the Residual Account. As provided in the Indenture,
funds on deposit in the Residual Account will be available to cover shortfalls in
the amount available to pay the amounts owing the Servicer and to make interest and
principal payments on the Notes. Following the termination of a Residual Event,
amounts on deposit in the Residual Account will be deposited into the Reserve
Account to the extent that the amount on deposit in the Reserve Account is less than
the Required Reserve Amount and thereafter will be disbursed to the Issuer.
The aggregate Booked Residual Value of the Leases as of the Cut-Off Date equals
$___________.
Federal Income Tax
Considerations............ It is intended that the Class A Notes and the Class B Notes will be characterized as
indebtedness of the Issuer for federal income tax purposes. If characterized as
indebtedness, interest on such Notes will be taxable as ordinary income when
received by a Noteholder on the cash method of accounting and when accrued by
Noteholders on the accrual method of accounting. See "Material Federal Income Tax
Considerations."
ERISA Considerations.......... The Employee Retirement Income Security Act of 1974, as amended ("ERISA") places
certain restrictions on those pension and other employee benefits plans to which it
applies. Pursuant to regulations issued by the United States Department of Labor
defining "plan assets," if the Notes are considered to be indebtedness without
substantial equity features under local law, the assets of the Issuer will not be
considered assets of any ERISA plan holding the Notes, thereby generally avoiding
potential application of ERISA's prohibited transaction rules. However, in certain
circumstances, the prohibited transaction rules may be applicable to the purchase of
the Notes even if the Notes are not deemed to have substantial equity features.
Certain exemptions from the prohibited transaction rules could be applicable,
however, with respect to the acquisition and holding of the Notes. Accordingly, the
Notes may be acquired by ERISA plans, subject to certain restrictions. Before
purchasing any of the Notes, fiduciaries of such plans should determine whether an
investment in the Notes is appropriate under ERISA. See "ERISA Considerations."
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Rating........................ It is a condition to the issuance of the Offered Notes that the [Class A-1 Notes be
rated at least "A-1+", "D-1+", and "F-1+/AAA" and that the Class A-2, A-3 and
A-4 Notes be rated at least "AAA", "AAA" and "AAA" and that the Class B Notes be
rated at least "A", "A" and "A" by Standard & Poor's Ratings Group ("S&P"), Duff &
Phelps Credit Ratings Co. ("DCR"), and Fitch Investors Service, L.P. ("Fitch"),
respectively (each a "Rating Agency"). The ratings assess the likelihood of timely
payment of interest and the ultimate payment of principal to the Noteholders by the
Stated Maturity date. There is no assurance that any rating will not be lowered or
withdrawn if, in the judgement of any Rating Agency, circumstances in the future so
warrant. See "Rating of the Notes."
Material Risks................ Certain material risks may be present in an investment in the Notes See "Risk
Factors."
</TABLE>
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RISK FACTORS
Limited Liquidity. There is currently no public market for the
Offered Notes and there is no assurance that one will develop. The Underwriters
expect, but are not obligated, to make a market in the Offered Notes. There is
no assurance that any such market will be created or, if so created, will
continue. If no public market develops, the Offered Noteholders may not be able
to liquidate their investment in the Offered Notes prior to maturity.
Prepayments and Related Reinvestment Risk. Because the rate of
payment of principal on the Notes will depend, among other things, on the rate
of payment on the Leases, such rate of payments of principal on the Notes cannot
be predicted. Payments on the Leases will include scheduled payments as well as
prepayments permitted by Copelco Capital as the Servicer (to the extent not
replaced with Additional Leases), payments as a result of Non-Performing Leases
(to the extent not replaced by Substitute Leases), Casualty Payments (as defined
herein)(to the extent not replaced by Additional Leases), and payments upon
repurchases by Copelco Capital on account of a breach of certain representations
and warranties in the related Sales and Servicing Agreement (to the extent not
replaced by Substitute Leases)(any such voluntary or involuntary prepayment, a
"Prepayment"). The rate of early terminations of Leases due to Prepayments and
defaults may be influenced by a variety of economic and other factors. For
example, adverse economic conditions and certain natural disasters such as
floods, hurricanes, earthquakes and tornadoes may affect Prepayments. The risk
of reinvesting unscheduled distributions resulting from Prepayments of the Notes
will be borne by the Noteholders. See "Prepayment and Yield Considerations."
Additional Leases and Substitute Leases. As described herein,
pursuant to the Sales and Servicing Agreement, Copelco Capital has the option,
but not the obligation, to designate one or more leases in its portfolio to be
an Additional Lease as a replacement for any partially or fully prepaid lease or
upgraded lease, in which event the scheduled payments from such Additional Lease
will replace (in whole or in part) the remaining scheduled payments on a prepaid
in full Lease. In the event (and only to the extent) that Copelco Capital makes
such a designation, the amount (or portion thereof) received by the Issuer with
respect to a Prepayment will be allocated directly to Copelco Capital and the
payments with respect to the related Notes will be dependent upon the scheduled
payments received on such Additional Leases. In addition, pursuant to the Sales
and Servicing Agreement, Copelco Capital has the option, but not the obligation
to substitute one or more leases as Substitute Leases in exchange for
Non-Performing Leases, Warranty Leases and Adjusted Leases. Accordingly,
payments of principal of and interest on the Notes may be dependent, in part,
upon payments received on such Substitute Leases In addition, to the extent that
Copelco Capital does not designate one or more leases as Additional Leases in
connection with the full or partial prepayment of a Lease or Substitute Leases
in the case of Non-Performing Leases, Warranty Leases or Adjusted Leases, the
Discounted Present Value of the Performing Leases will be decreased. See
"Prepayment and Yield Considerations."
Copelco Capital is not required to designate one or more
leases as an Additional Lease or to substitute Substitute Leases. Accordingly,
Noteholders should not expect that Additional Leases or Substitute Leases will
be available.
Security Interests in the Equipment; Certain Security
Interests Not Perfected. The Leases will consist of either finance Leases (where
substantially all of the value of the Equipment is financed by the lease
payments) or operating leases (where substantially less than all of the value of
the Equipment is recovered through the lease payments). See "The Series
Pool--The Leases." Finance leases include Leases ("Nominal Buy-Out Leases")
which contain a nominal purchase option upon expiration or other terms which may
be deemed effectively to vest equitable ownership of the Equipment in the
Lessee. Prior to the Cut-Off Date, Copelco Capital will have filed Uniform
Commercial Code ("UCC") financing statements in its favor against Lessees in
respect of Equipment, including Equipment subject to Nominal-Buy-Out Leases,
with an original Equipment cost in excess of $25,000 Financing statements in
favor of Copelco Capital with respect to approximately ___% of the Statistical
Discounted Present Value of the Leases will be filed. No action will be taken to
perfect the interest of Copelco Capital in any Equipment to the extent the
original Equipment cost of the related Equipment is less than $25,000. As a
result, Copelco Capital does not have a perfected security interest in Equipment
with an original Equipment cost of less than or equal to $25,000, which
represents approximately ___% of the Statistical Discounted Present Value of the
Leases. In addition, the Indenture and the Sales and Servicing Agreement will
require UCC financing statements identifying security interests in the Equipment
as transferred to, or obtained by, the Issuer or the Trustee and UCC
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financing statements identifying equipment owned by Copelco Capital, transferred
to the Issuer and pledged to the Trustee to be filed in favor of the Issuer or
the Trustee in states in which as of the Closing Date (i) Equipment relating to
not less than 75% of the Discounted Present Value of the Leases as of the
Cut-Off Date is located and (ii) Equipment relating to not less than 75% of the
Booked Residual Value of such Equipment as of the Cut-Off Date is located (the
"Filing Locations"). To the extent UCC financing statements evidencing Copelco
Capital's security interest in the Equipment have not been filed against the
Lessee (i.e., with respect to those Leases relating to Equipment with an
original cost of less than $25,000) and to the extent the Equipment is located
in the states other than the Filing Locations, any such security interests in
the Equipment will not be perfected in favor of Copelco Capital, the Issuer or
the Trustee and another party (such as other creditors of Copelco Capital) may
acquire rights in Copelco Capital's interest in the Equipment superior to those
of the Issuer or the Trustee. See "Certain Legal Matters Affecting a Lessee's
Rights and Obligations." The lack of a perfected security interest in certain
Equipment will result in claims against Lessees being unsecured and may
adversely affect the ability of the Issuer to realize on such Equipment.
Restrictions on Recoveries. State laws impose requirements and
restrictions relating to foreclosure sales and obtaining deficiency judgments
following such sales In the event that the Issuer must rely on repossession and
disposition of Equipment to cover losses on Non-Performing Leases, the Issuer
may not realize the full amount due because of the application of those
requirements and restrictions Other factors that may affect the ability of the
Issuer to realize the full amount due on a Lease include the failure to file
financing statements to perfect the Issuer's security interest in the Equipment
against a Lessee, depreciation, obsolescence, damage or loss of any item of
Equipment, and the application of federal and state bankruptcy and insolvency
laws. As a result, the Noteholders may be subject to delays in receiving
payments and losses See "Certain Legal Matters Affecting a Lessee's Rights and
Obligations."
Insolvency of Copelco Capital. Copelco Capital believes that
each transfer of the Leases to the Issuer should be treated as an absolute and
unconditional sale or assignment. However, in the event of an insolvency of
Copelco Capital, a court could attempt to recharacterize the sale of the related
Leases by Copelco Capital to the Issuer as a loan to Copelco Capital from the
Issuer, secured by a pledge of such Leases or could allow the trustee in
bankruptcy to repudiate the Leases that are operating leases and all obligations
thereunder. Moreover, in the event of an insolvency of Copelco Capital, a court
could attempt to consolidate the assets of the Issuer with those of Copelco
Capital since Copelco Capital will own all of the stock of the Issuer. Either
attempt, even if unsuccessful, could result in delays in payments of the related
Notes. If such attempts were successful, such Notes would be accelerated, and
the Trustee's recovery on behalf of the Noteholders could be limited to the then
current value of the Leases or the underlying Equipment. Thus, the Noteholders
could lose the right to future payments and might incur reinvestment losses on
amounts recovered. Although Copelco Capital believes that the transfer of the
Leases to the Issuer should be treated as an absolute and unconditional sale or
assignment, for accounting and tax purposes the Leases will be treated as assets
of Copelco Capital on its consolidated financial statements and on the tax
return for its consolidated group, which might increase the risk of
recharacterization of the transfer to the Issuer as a financing. See "Certain
Legal Matters Affecting a Lessee's Rights and Obligations."
Credit Enhancement. Credit enhancement with respect to the
Offered Notes will be provided by the subordination of Class C Notes and funds
on deposit in the Reserve Account and, to the limited extent provided in the
Indenture, the Residual Account. In addition, the Class A Notes have the benefit
of the subordination of the Class B Notes. However, on any Payment Date the
amount available to Noteholders is limited to the extent of funds on deposit in
the Collection Account, the Reserve Account and, to the limited extent provided
in the Indenture, the Residual Account. In addition, payment of principal and
interest on the Offered Notes will be supported by the Residual Realizations on
the Equipment up to the Residual Amount Cap. Therefore, if a Lease becomes a
non-performing lease at a time when total losses on the Leases are in excess of
the outstanding principal amount of any subordinated Class and, the amounts, if
any, available to be withdrawn from the Reserve Account and the Residual Account
are reduced to zero, the holders of Notes of any senior Class may be forced to
rely solely on the amount of Residual Realizations on the Equipment for ultimate
payment of principal and interest on such Class of Notes. The aggregate amount
of Residual Realizations available to Noteholders to pay (without duplication)
the amounts owing the Servicer, to be deposited in the Reserve Account, on
deposit in the Residual Account or withdrawn from the Residual Account as the
result of an Available Funds Shortfall after the Issuance Date will not exceed
the Residual Amount Cap.
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Non-Recourse Obligations. The Notes represent debt obligations
of the Issuer secured by the Leases only and do not represent interests in or
recourse obligations of Copelco Capital or any of its affiliates other than the
Issuer. The Issuer is a special purpose corporation with limited assets.
Consequently, the Noteholders must rely solely upon the Leases, the Equipment
and funds in the Reserve Account and the Residual Account, if any, for payment
of principal of and interest on the Notes. If no funds are on deposit in the
Reserve Account or the Residual Account and the payments made on the Leases and
the disposition proceeds of the Equipment are insufficient to make payments on
the Notes, no other assets will be available for the payment of the deficiency.
Book-Entry Registration. The Notes offered hereby initially
will be represented by one or more Notes registered in the name of Cede & Co.
and will not be registered in the names of the beneficial owners or their
nominees. As a result of this, unless and until Definitive Notes are issued,
beneficial owners will not be recognized by the Issuer or the Trustee as
Noteholders, as that term is used in each Indenture. Hence, until such time,
beneficial owners will only be able to exercise the rights of Noteholders
indirectly, through DTC, Euroclear or CEDEL and their respective participating
organizations, and will receive reports and other information provided for under
the Indenture only if, when and to the extent provided by DTC, Euroclear or
CEDEL, as the case may be, and its participating organizations. See "Description
of the Notes--Book-Entry Registration."
Geographic Concentration of Leases. As of the Cut-Off Date,
approximately ___%, ___%, ___%, ___%, ___% and ___% of the Leases (based on
statistical Discounted Present Value of the Leases) were located in [____, ____,
____, ____, ____ and ____,] respectively. No other state accounts for more than
5% of the Leases. See "The Series Pool." Accordingly, adverse economic
conditions or other factors particularly affecting any of these regions could
adversely affect the performance on the Leases.
Commingling of Funds. Under the Indenture, the Servicer is
required to deposit all Lease Payments, Casualty Payments and Termination
Payments received after the Cut-off Date to the Collection Account within two
Business Days of receipt thereof. If bankruptcy or reorganization proceedings
were commenced with respect to the Seller, those funds held by the Seller may be
subject to an automatic stay resulting in a delay in the transfer of such funds
to the Trust Fund.
Insolvency of Lessees; Insolvency of Third Parties. To the
extent Lessees default on the Leases, including through insolvency, Lease
Payments deposited into the Collection Account will decrease and accordingly
Available Funds will be reduced.
Approximately ___% of the Leases were originated by a third
party who has sold the payment stream on the Leases to Copelco Capital but has
not sold its interest in the Equipment. In the event of a bankruptcy of such
third party, the trustee in bankruptcy may seek to repudiate the Leases and, if
successful, Lease Payments on such Leases will cease. Accordingly, Available
Funds could be reduced.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to
purchase the Leases from Copelco Capital. Copelco Capital will utilize the
proceeds from the sale of the Leases to repay bank debt and for general
corporate purposes.
THE SERIES POOL
The Leases. As of the close of business on ________, 1998 (the
"Cut-Off Date"), the Notes will be secured by ________. Leases with
approximately ___________ Lessees. The Lessees are primarily hospitals, medical
facilities, physicians and business owners throughout the United States. The
Leases were originated or acquired by the Business Technology Division, the
Healthcare Division and the Commercial & Industrial Division of Copelco Capital
(or their predecessors) (the "Origination Divisions"). See "Risk Factors,"
"Security for the Notes" and "Certain Legal Matters Affecting a Lessee's Rights
and Obligations." The statistical information included herein was computed using
the Statistical Discounted Present Value of the Leases as of the Cut-Off Date.
The Statistical Discounted Present Value of the Leases will not vary materially
from the Discounted Present Value of the Leases as of the Cut-Off Date.
17
<PAGE>
Approximately __% of the Leases were originated by a third
party who has sold the payment stream on the Leases to Copelco Capital but has
not sold its interest in the Equipment. In the event of a bankruptcy of such
third party, the trustee in bankruptcy may seek to repudiate the Leases and, if
successful, Lease Payments on such Leases will cease. Accordingly, Available
Funds could be reduced.
The Leases are triple-net leases which impose no affirmative
obligations on the Lessor, and are non-cancelable by the Lessees. Under certain
conditions, however, Copelco Capital may consent to prepayment of the Leases.
Generally, Copelco Capital will consent to a prepayment of a Lease where the
Lessee is upgrading the Equipment. All payments under the Leases are absolute,
unconditional obligations of the Lessees without right of offset for any reason
Such payments will be made by the Lessees to the Servicer for the account of the
Issuer.
Each Lessee entered into its Lease for specified Equipment
which may be designated in schedules incorporated into the Lease. To the extent
not set forth in the Lease Contract, the schedules, among other things,
establish the periodic payments and the term of the Lease with respect to such
Equipment. The Leases follow one of several different forms of lease agreement,
with occasional modifications which do not materially affect the basic terms of
the Leases. The weighted average remaining term of the Series Pool is ___
months. Copelco Capital will represent and warrant that, as of Cut-Off Date, all
Leases will be current or less than [63] days delinquent and, as of the initial
Determination Date, all Lessees will have made at least one payment.
Lessees covenant to maintain the Equipment and install it at a
place of business agreed upon with Copelco Capital. Delivery, transportation,
repairs and maintenance are the obligation of the Lessees, and all Lessees are
required to carry, at their respective expense, liability and replacement cost
insurance under terms acceptable to Copelco Capital. Such insurance proceeds
will constitute Casualty Payments (as defined herein). Subject to certain
exceptions, if the Lessee does not provide evidence of insurance coverage within
90 days of the commencement of the Lease, Copelco Capital obtains such insurance
and invoices the Lessee for the cost thereof. Any defaults under a Lease (as
such, a "Non-Performing Lease," as defined herein) permit a declaration as
immediately due and payable all remaining Lease payments under the Lease and the
immediate return of the Equipment. Generally, any payments received six days
after the scheduled payment date are subject to late charges.
"Non-Performing Leases" are (a) Leases that have become more
than 123 days delinquent or (b) Leases that have been accelerated by the
Servicer or Leases that the Servicer has determined to be uncollectible in
accordance with its customary practices.
At the end of the Lease term, the Lessee must return the
Equipment with certification from the manufacturer that the Equipment is in good
working order, normal wear and tear excepted, unless the Lease is renewed or the
Equipment is purchased by the Lessee.
Historically, approximately 90% of the Equipment leased by the
Origination Divisions is purchased or re-leased by the original lessee at the
expiration of the lease term. "Nominal Buy-Out" Leases comprise ___% of the
Leases (by Statistical Discounted Present Value). Pursuant to the terms of the
Leases, the Lessee is generally required to advise Copelco Capital 90 to 120
days prior to the Lease termination of its intent to return the Equipment at the
expiration of the Lease. In most cases, the failure by a Lessee to so advise
Copelco Capital results in an automatic renewal of the Lease for a specified
period. For Equipment which is returned to Copelco Capital by the lessees,
Copelco Capital participates in an active secondary market for the sale of used
equipment.
The Equipment. The Equipment subject to the Leases is
purchased by Copelco Capital under direct specifications and instructions from
the Lessees. As of the Cut-Off Date, the Series Pool had approximately ___
equipment categories.
Certain Information with Respect to the Leases and the
Lessees. The following tables summarize certain information with respect to the
Leases and the Lessees as of the Cut-Off Date.
18
<PAGE>
DISTRIBUTION OF LEASES BY STATE
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of Original
Number of of Number Present Value Value of Original Equipment
State Leases of Leases of Leases Leases Equipment Cost Cost
- ----------------------- ---------- ----------------- ---------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alabama % $ % $ %
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
- ----------------------------------------------------------------------------------------------------------------------
Total % $ % $ %
======================================================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF LEASES BY LEASE BALANCE
Percentage
of
Statistical
Statistical Discounted Percentage
Statistical Discounted Percentage Discounted Present Aggregate of Original
Present Value of the Number of of Number Present Value Value of Original Equipment
Leases Leases of Leases of Leases Leases Equipment Cost Cost
----------------------- ---------- ---------- ------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$0.01 - 5,000.00 % $ % $ %
5,000.01 - 10,000.00
10,000.01 - 15,000.00
15,000.01 - 20,000.00
20,000.01 - 25,000.00
25,000.01 - 30,000.00
30,000.01 - 35,000.00
35,000.01 - 40,000.00
40,000.01 - 45,000.00
45,000.01 - 50,000.00
50,000.01 - 60,000.00
60,000.01 - 70,000.00
70,000.01 - 80,000.00
80,000.01 - 90,000.00
90,000.01 - 100,000.00
100,000.01 - 125,000.00
125,000.01 - 150,000.00
150,000.01 - 175,000.00
175,000.01 - 200,000.00
200,000.01 - 300,000.00
300,000.01 - 400,000.00
400,000.01 - 500,000.00
500,000.01 - 600,000.00
600,000.01 - 700,000.00
700,000.01 - 800,000.00
800,000.01 - 900,000.00
900,000.01 - 1,000,000.00
1,000,000.01-1,500,000.00
1,500,000.01-2,000,000.00
greater than $2,000,000.01
- -------------------------------------------------------------------------------------------------------------------------
Total................. % $ % $ %
=========================================================================================================================
</TABLE>
20
<PAGE>
DISTRIBUTION OF LEASES BY REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of Original
Number of of Number Present Value Value of Original Equipment
Remaining Term Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- ----------- ------------- ------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12 % $ % $ %
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
- ----------------------------------------------------------------------------------------------------------------------
Total................. % $ % $ %
======================================================================================================================
</TABLE>
DISTRIBUTION OF LEASES BY CLASSIFICATION TYPE
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of Original
Number of of Number Present Value Value of Original Equipment
Lease Type Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- ----------- ------------- ------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Finance Lease % $ % $ %
Operating Lease
- ----------------------------------------------------------------------------------------------------------------------
Total................. % $ % $ %
======================================================================================================================
</TABLE>
DISTRIBUTION OF FINANCE LEASES BY PURCHASE OPTION
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of Original
Number of of Number Present Value Value of Original Equipment
Lease Type Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- ----------- ------------- ------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nominal Buyout % $ % $ %
Fair Market Value
Fixed Purchase Option
- ----------------------------------------------------------------------------------------------------------------------
Total................. % $ % $ %
======================================================================================================================
</TABLE>
21
<PAGE>
DISTRIBUTION OF LEASES BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of Original
Number of of Number Present Value Value of Original Equipment
Equipment Type Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- ----------- ------------- ------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anesthesia EQP % $ % $ %
Automated Chemistry
Systems
Automated Hematology
Systems
C.T. Systems
Carts, Stretchers, Wheel
Chairs
Communication Equipment
Computer Systems-Doctors
& Hospitals
Computers
Copiers
Dental Operatory Equipment
ECG (EKG) and
Defibrilators
EEG
Electronics Production
Equipment
Environmental Control
Equipment
Facsimiles
Furniture and Fixtures
Gamma Cameras
Holter Monitors
Hosp Beds; Elec. Stryker
FRMS, Burn Beds
Industrial Production
Equipment
Lasers
Laundry, Kitchen, Food
Srvc Eqp., Central
Supply
Linear Accelerators
Lithotripters and
Dialysis Equipment
Machine Tools
Mammography
MBL X-Ray Systems; C-Arm;
IMG Intensifier
Miscellaneous
Misc Commercial &
Industrial Equipment
Misc Equipment
Misc Hospital Equipment
Misc Lab Eqp (Pthlgy,
Gas, Chrmts, Cntr, Spc)
Misc Vet Eqp; Cages,
Scales, Tables
Misc X-Ray Eqp (Tnks,
Driers, Tbls, Procsrs)
Miscellaneous Computer
Equipment
MRI Systems
Office Furniture &
Equipment
Operating Microscopes
Opthlmc Diag Eqp (Slit
Lamps, Tonometers)
Opt Eqp; Lens Grinding,
Resurfacing
Other Copying Equipment
Packaging Equipment
22
<PAGE>
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of Original
Number of of Number Present Value Value of Original Equipment
Equipment Type Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- ----------- ------------- ------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Patient Monitoring Systems
Patient Room Furnishing &
Fixtures
Personal Computers
Phone, TV, Comm Equipment
Photo Equipment
Photocopy Equipment
Phys Misc Medical Eqp &
Exam Tables
Phys Offc Furn, Fixtures
and Phones
Podiatry Equipment
Processing Equipment
Pulse Oximetry Equipment
Radiographic Fluoroscopic
Systems
Respiratory Therapy
Equipment
Standard X-Ray Systems
Surgical Eqp; Scopes,
Electrosurgical
Telephone
Ultrasound
X-Ray Spec Procdrs
Systems Angiography
- ----------------------------------------------------------------------------------------------------------------------
Total................. % $ % $ %
======================================================================================================================
</TABLE>
Historical Delinquency Information. Lease receivables are
generally evaluated by Copelco Capital for write-down when they become over 92
days delinquent. General delinquency information for equipment leases in the
Origination Divisions that are owned by Copelco Capital is set forth below.
HISTORICAL DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
[March 31,] 1998 December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
$ % $ % $ % $ % $ % $ %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Receivables
Balance(1) __________ __________ __________ _________
- ------------------------------------------------------------------------------------------------------------------------------------
No. of Delinquent
Days
30-59 Days ________ ___ ________ _____ __________ ____ __________ ____ __________ ____ _________ ____
60-89 Days ________ ___ ________ _____ __________ ____ __________ ____ __________ ____ _________ ____
90 Days + ________ ___ ________ _____ __________ ____ __________ ____ __________ ____ _________ ____
Legal ________ ___ ________ _____ __________ ____ __________ ____ __________ ____ _________ ____
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Delinquency $_______ ___% $_______ _____% __________ ____ __________ ____ __________ ____ __________ ____
</TABLE>
- ---------------------------
(1) The Total Receivables Balance is equal to the aggregate future rent owing on
the leases.
Historical Default Experience. All accounts assessed over 92
days past due automatically become non-accruing accounts. Any subsequent
recoveries offset net losses. General charge-off information for leases in the
Origination Divisions that are owned and serviced by Copelco Capital for the
period January 1, 1993 to December 31, 1997 is set forth below.
23
<PAGE>
HISTORICAL CHARGE-OFF EXPERIENCE
<TABLE>
<CAPTION>
[Three] Months
Ended Year Ended December 31,
----------------------------------------------------------
[March 31,] 1998 1997 1996 1995 1994 1993
----------------- -------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Average Receivables $___________ __________ __________ __________ __________
Outstanding(1)........
Net Losses.............. $___________ __________ __________ __________ __________
Net Losses as a Percentage ___________ __________ __________ __________ __________
of Average Receivables
</TABLE>
- ---------------------------
(1) Equals the arithmetic average of the beginning of the period Receivable
Balance and the end of the period Receivable Balance. The Receivables
Balance is equal to the aggregate future rent owing on the leases.
(2) Annualized
There can be no assurance that the levels of delinquency and
loss reflected in the above tables are or will be indicative of the performance
of the Leases in the future.
COPELCO CAPITAL'S UNDERWRITING AND SERVICING PRACTICES
General. Copelco Capital, a Delaware corporation, was
incorporated in October 1986. Copelco Capital is a wholly-owned subsidiary of
Copelco Financial Services Group, Inc. ("Copelco Financial") Copelco Capital's
primary business consists of originating and servicing leases to healthcare
providers, businesses, business owners and individuals in the United States and
Canada. Copelco Capital has multiple locations and is headquartered at 700 East
Gate Drive, Mount Laurel, New Jersey 08054-5400 (as is Copelco Financial) and
its phone number is (609) 231-9600.
In May 1993, Copelco Financial (which was incorporated in July
1982) reorganized its two primary operating subsidiaries, Copelco Credit
Corporation ("Copelco Credit") and Copelco Leasing Corporation ("Copelco
Leasing"), into six strategic business units (each, an "SBU"). Then effective
July 1, 1994, Copelco Leasing was merged into Copelco Credit with Copelco Credit
as the surviving legal entity; Copelco Credit then changed its name to Copelco
Capital, Inc. merging all of the Copelco Leasing and Copelco Capital leasing
operations.
Copelco Capital currently consists of three separate operating
divisions (each, a "Division"): the Business Technology Division, the Healthcare
Division, and the Commercial & Industrial Division. The Business Technology
Division, the Healthcare Division and the Commercial & Industrial Division
originated ___%, ___% and ___%, respectively, of the Leases to be included in
the subject transaction (based upon the Statistical Discounted Present Value of
the Leases.)
The Business Technology Division leases small-ticket office
equipment, primarily photocopiers and computers, to businesses and business
owners throughout the United States and Canada through multiple manufacturer,
vendor and dealer programs. The Business Technology Division is the successor
division to Copelco Capital's Document Imaging, Major Accounts, Computer and
Canadian SBUs. Copelco Capital merged these four units in January 1997 in order
to achieve greater operating and marketing efficiencies.
The Healthcare Division provides a diversified range of
leasing services for the financing of healthcare equipment through multiple
manufacturer, vendor and dealer programs, with particular emphasis upon the
acquisition, leasing and remarketing of high-technology medical equipment to
hospitals, other healthcare facilities, healthcare providers and physicians. The
Healthcare Division is the successor of the Hospital and Healthcare SBU and the
Healthcare Vendor SBU which were consolidated in June, 1995 and the Ambulatory
Care SBU which was merged into the Healthcare Division in November, 1996. The
rationale for the consolidation of the
24
<PAGE>
Healthcare Division was to achieve greater operating efficiencies and eliminate
certain operating and marketing redundancies.
The Commercial & Industrial Division is segmented into three
distinct business units: The Electronics Manufacturing Group, the Financial
Intermediary Group and the Material Handling Group. The Electronics
Manufacturing Group provides equipment leasing services through multiple
manufacturer, vendor and dealer programs, primarily to mid-sized companies. The
equipment financed through this group includes high technology equipment for the
electronics manufacturing service industry, such as printed circuit board
assembly and test equipment. Financial Intermediary Group purchases equipment
lease transactions from third parties involved in the electronics and other
industrial equipment industries.
The Material Handling Group, established in 1998, provides
retail equipment leasing and financing specifically for vendors and
manufacturers in the material handling industry.
As of December 31, 1997, Copelco Capital had total assets of
$2,083,256,000 compared with $1,722,212,000 as of December 31, 1996, total
liabilities of $1,927,558,000 compared with $1,588,614,000 as of December 31,
1996, shareholder's equity of $155,698,000 compared with $133,598,000 as of
December 31, 1996 and total revenues and net income of $253,787,000 and
$32,137,000, respectively, for the year ended December 31, 1997, compared with
$210,461,000 and $29,655,000, respectively, for the year ended December 31,
1996.
Since 1986, Copelco Capital and its predecessors have
participated in 35 equipment lease securitizations involving the issuance of in
excess of $2.7 billion in securities. Copelco Capital and its predecessors
performed all servicing functions in each of these prior transactions, 16 of
which remain outstanding.
Originations. The Business Technology Division leases
small-ticket office equipment, primarily photocopiers and computers, to
businesses and business owners throughout the United States, Canada and Western
Europe. The Business Technology Division originates substantially all of its
leases through marketing programs which are directed at major manufacturers and
various distributors of copier equipment (each, a "Vendor") with the balance
obtained through new leases with existing lessees and referrals. The Business
Technology Division establishes both formal and informal relationships with
Vendors, several of which provide Copelco Capital with a right of first refusal
on all equipment leases with the Vendor's customers. This arrangement provides
the division with a steady flow of lease referrals from Vendors which frequently
use lease financing as a marketing tool. In the majority of these vendor
programs, Copelco Capital generally owns the equipment subject to each lease and
bills and collects lease payments in its own name. For some select private label
vendor programs, Copelco Capital will bill and collect in the vendor's name.
The Business Technology Division also offers a cost per copy
program ("Cost per Copy"), introduced in late 1990, pursuant to which lessees
pay a fixed monthly payment (the "Fixed Payment") for which they are allowed a
certain minimum monthly copy usage. The monthly Fixed Payment represents
equipment financing (the "Equipment Financing Portion") and a monthly
maintenance charge (the "Maintenance Charge"). Copelco Capital funds the Vendors
on the basis of the Equipment Financing Portion of the Fixed Payment and remits
the Maintenance Charge to the Vendors as it is collected every month. Copelco
Capital calculates usage monthly using automated dialed-in copier meter
readings. To the extent that the usage has exceeded the monthly copy allowance,
Copelco Capital bills the lessee incremental charges for the excess copy usage
("Excess Copy Charge"). This Excess Copy Charge is remitted to the Vendors upon
collection by Copelco Capital. Only the Equipment Financing Portion will be
included in the Discounted Present Value of the Leases.
Vendors may choose to use a Copelco Capital lease form or they
may use their own lease agreement. In either case, the credit approval remains
with Copelco Capital. Lease documents for all leasing programs are either
identical to Copelco Capital's standard lease documents or are reviewed by
Copelco Capital to
25
<PAGE>
ensure substantial compliance with its standard terms. Terms of Copelco
Capital's lease documents are standard for virtually all leases, as is
documentation for virtually all private label programs.
The Healthcare Division provides a range of leasing services
for the financing of healthcare equipment with emphasis on the acquisition,
leasing and remarketing of high-technology medical equipment to hospitals, other
healthcare facilities, healthcare providers and physicians. The Healthcare
Division originates leases through five sales groups: National Accounts, Medical
Business, Vendor Services, Home Care, and Ambulatory Care.
The National Accounts sales group solicits contractual
arrangements with major medical equipment manufacturers and distributors
throughout the United States. These contracts usually give Copelco exclusive
rights to handle the financing needs of the manufacturers' customers. Most
manufacturers are publicly-held or subsidiaries of international medical
conglomerates.
The Medical Business sales group provides leasing services
directly to hospitals and to physician group practices rather than through
vendors or manufacturers. The Medical Business marketing unit operates Copelco
Capital's Hospital Instant Lease Line ("HILL") program which grants hospitals a
pre-approved line of credit for the leasing of medium-ticket medical equipment
such as computed tomography scanners, radiographic and other imaging equipment,
laboratory and patient monitoring systems.
The Vendor Services sales group solicits exclusive contractual
arrangements and informal non-exclusive arrangements with local and regional
vendors. Such vendors sell medical equipment to physician group medical
practices and to individual physicians who finance the acquisition of the
equipment by leasing it from Copelco Capital. The Vendor Services marketing unit
operates Copelco Capital's Physician's Instant Lease Line ("PILL") program,
which grants individual physicians and physician group practices a pre-approved
line of credit for use in leasing small- and medium-ticket medical equipment.
The Home Care Sales group leases durable medical equipment
such as respiratory care equipment, patient monitoring devices and medication
delivery systems for use by people who are being treated on an out-patient or
in-home basis for either temporary or chronic health problems. Lessees are
typically wholesalers, distributors and service providers that rent the
equipment to patients who are reimbursed for the rental payments by their health
care insurers.
The Ambulatory Care sales group provides equipment leasing to
out-patient sites providing healthcare services such as diagnostic imaging,
surgical procedures and radiation therapy. Customers range from start-up centers
(typically managed by established organizations) to publicly-held companies.
Transactions may involve new equipment or refinancing of existing equipment,
often in conjunction with expansion or upgrading.
In addition to making fixed payments with respect to certain
health care equipment leases, lessees may pay incremental monthly charges to the
extent the scan usage exceeds the monthly scan allowance ("Fee Per Scan
Charges"). Fee Per Scan Charges will not be included in the Discounted Present
Value of the Leases. The Fee Per Scan Charges are remitted to the Vendors upon
collection by Copelco Capital.
The Commercial & Industrial Division: The Electronics
Manufacturing Group and the Financial Intermediary Group provide equipment
leasing services primarily to mid-sized companies. Since early 1993, the
division has focused on marketing through manufacturers and distributors in the
electronics manufacturing service industry. Currently, approximately ____% of
the leases originated by this division relate to the electronics manufacturing
service industry and approximately ____% represents machine tools and other
production equipment.
The Material Handling Group originates a majority of its
business through its relationship with distributors of material handling
equipment. The Material Handling Group establishes both formal and informal
relationships with vendors, manufacturers, and distributors of material handling
equipment and provides retail leasing and financing for the end-user customers.
26
<PAGE>
Credit Review. Copelco Capital, in conjunction with the parent
holding company, provides organizational oversight for investment/risk
management policy, compliance, credit underwriting and due diligence standards,
and coordinates portfolio concentration guidelines and credit personnel training
for each of its Divisions. Within the parameters established by Copelco Capital,
each Division tailors its underwriting policies to reflect their unique
customers and markets.
Certain credit requests are evaluated under credit scoring
models utilized by Copelco Capital. All credit requests not subject to automated
credit scoring must be underwritten by a credit officer. Applicants declined by
credit scoring may be reviewed by a credit officer. Each credit officer has a
specific assigned lending limit based upon experience and seniority. Credit
approval limits, applicable to single transaction size and individual lessee
exposure, are also assigned to assistant credit managers, group credit officers,
the president of Copelco Capital, and the chief credit officer of Copelco
Capital. In general, transactions in excess of $2,000,000 must be approved by
the senior management of Copelco Financial.
Business Technology Division: Prior to a lease being approved
by the Business Technology Division, the vendor's sales personnel are required
to obtain from the prospective lessee historical financial data and/or bank and
trade references. New and repeat applicants must either complete a comprehensive
credit application or provide bank and trade references.
Credit data are submitted for credit review in Mahwah, New
Jersey and Moberley, Missouri for copiers and Mahwah, New Jersey for computers.
Credit review is performed and lease approvals are given at these locations,
utilizing a computer system designed to handle applications which are telephoned
or telecopied from vendors. Using the computer system, the applicant's credit is
investigated and a credit decision is made.
Lessee evaluation includes an analysis of credit payment
history, business structure, banking history and relationships, and economic
conditions as they relate to the prospective lessee. In the case of a credit
request for equipment having a cost greater than approximately $50,000, the
information collected includes the prospect's most recent financial statements.
If individual guarantors are involved, a consumer credit bureau report is
generally obtained for the guarantors. Potential lessees should generally have
been in business for at least two years and a minimum of two trade references
are required.
The Business Technology Division has also implemented an
automated credit scoring system. The system, designed by Dun & Bradstreet
specifically for the Business Technology Division, was in development over a
two-year period and was formally implemented on January 4, 1994. The system
utilizes various filters for adapting "approve" and "decline" threshold scores
based upon criteria such as credit exposure, payment history (by SIC code),
Vendor and state. The model is consistent with the Business Technology
Division's traditional credit decision-making criteria (i.e., Dun & Bradstreet
data, consumer credit bureau information, and bank and trade references).
Healthcare Division: For leases originated by the Medical
Business sales group, full financial statements are required for credit review,
and a thorough history of past payment patterns is examined. Other items such as
a hospital's location, utility to its community and ownership (public or
private) are also considered. Certain of these transactions are credit scored
under HILL credit scoring parameters. The HILL credit scoring parameters
include, without limitation, the number of beds of the potential lessee, its
occupancy rate and Dun & Bradstreet Information Services ("Dun & Bradstreet")
financial highlight information.
Certain of the leases originated by the Vendor Services group
are credit scored under PILL credit scoring parameters. The PILL credit scoring
parameters include, without limitation, the length of time in practice of the
potential lessee, the potential lessee's medical specialty and a consumer
bankruptcy predictor model acquired by Copelco Capital. The credit review
process for physicians is similar to that of personal lending because the
lessees are predominantly individual physicians (or groups of physicians). Many
of the leases to physicians have personal
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guarantees associated with them and spousal guarantees as well. Lessees are not
required, however, to give Copelco Capital liens on property. The predominant
reason for delinquencies in such leases is cash flow deficiencies and, to a
lesser extent, death of the lessee, in which case settlement with the lessee's
estate can take several months. Such leases are typically processed under the
PILL program. For inexpensive equipment, credit review of physician lessees
involves analysis of credit bureau reports, bank references, duration of
practice and medical specialty. For more expensive equipment, the credit review
involves analysis of personal income tax returns and financial statements of the
practice in addition to credit bureau reports and bank references. There is also
a focus on the length of time that the physician has maintained his or her
private practice.
The PILL and the HILL programs afford Copelco Capital the
ability to analyze physician, physician group practice and hospital credit
quality in advance of the lease decision, thus providing a means by which
physicians in certain medical specialties and certain hospitals may be
pre-approved for a leasing line of credit. They also provide rapid turnaround of
a specific application when it is submitted
National Accounts, Home Health and Ambulatory Care generally
utilize a combination of transactional credit analysis and credit scoring.
Transactions not eligible for credit scoring are reviewed by the Healthcare
Division's credit staff under the supervision of a senior credit officer.
Commercial & Industrial Division: In the Electronic
Manufacturing Group and Financial Intermediary Group, all credit decisions are
made by credit analysts. Credit scoring is not used. In general, transactions in
excess of $50,000 require financial statement disclosure consisting of at least
the three most recent fiscal year-end financial statements and interim financial
statements. Additionally, Dun & Bradstreet reports, bank and other credit
references, trade references, and other information may be evaluated.
Transactions involving small, privately held companies exhibiting limited
financial resources require the financial disclosure and personal guaranty of
the principals. Consideration will also be given to the value of the equipment
securing the transaction, based upon a review by the Group's Asset Management
department. An approval might contain restrictive conditions, including, but not
limited to, a reduced term, guaranties, security deposits, down payments, or a
letter of credit.
The Material Handling Group utilizes a credit review system
similar to and based upon that of the Business Technology Division. The majority
of business originates through dealer/vendor networks, with retail and wholesale
credit applications submitted via fax. The assessment of creditworthiness is
then determined through both automated systems and credit officer analysis with
emphasis on the following factors: time in business, financial strength,
payment/credit history, transaction structure, collateral and industry outlook.
The evaluation of creditworthiness for retail end-user
customers will be accomplished through a modified version of the Business
Technology Division's credit scoring model, in which the filters and scoring
thresholds are adapted to the needs of the Material Handling Group. Retail lease
applicants will generally have been in business for at least two years with
evidence of satisfactory bank and/or comparable secured lender references.
Consumer credit bureau reports will be obtained if individual guarantors or sole
proprietors are considered in the transaction.
The terms of the Leases originated by each of the Divisions
require the lessees to maintain the equipment and install it at a place of
business approved by Copelco Capital. Delivery, transportation, repairs and
maintenance are obligations of lessees, and lessees are required to carry, at
their own expense, liability and replacement cost insurance under terms
acceptable to Copelco Capital. Any lease payment defaults permit Copelco Capital
to declare immediately due and payable all remaining lease payments. At the end
of a lease term, lessees
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must return the leased equipment to Copelco Capital in good working order unless
the lease is renewed or the leased equipment is purchased by the lessee.
Residual Values. The Divisions have realized residual values
which, on average, exceeded the booked residual values in respect of such
leases. For Leases in which there is a pre-determined buy-out price, the buy-out
price is the residual value recorded on Copelco Capital's books. To recover
residuals on the equipment which is returned, Copelco Capital utilizes the
services of its Vendors and also participates in an active secondary market for
the sale of used equipment.
Collections. Collection procedures have been instituted by
Copelco Capital and are uniformally utilized throughout Copelco Capital's
Divisions. A late charge is generally assessed to lessees 6 days after payment
due date. Telephone contact is normally initiated when an account is 15 days
past due, but may be initiated more quickly. All collection activity is entered
into the computerized collection system. Activity notes are input directly into
the collection system in order to facilitate routine collection activity.
Collectors have available at their computer terminals the latest status and
collection history on each account.
Generally, on the day on which a Lease becomes 10 days
delinquent, Copelco Capital's credit and collection review system automatically
generates a computerized late notice which is sent directly to the lessee. When
an account becomes 30 days past due, a default letter is generally sent out to
the lessee and to anyone providing personal guarantees on the Leases. An
acceleration letter is sent to all lessees and guarantors when a Lease becomes
45 days past due, as circumstances warrant. Telephone contact will be continued
throughout the delinquency period. Accounts which become over 90 days past due
are subject to repossession of Equipment and action by collection agencies and
attorneys. Prior to being written down (which is generally prior to the lease
being 123 days delinquent), each lease is evaluated on the merits of the
individual situation, with equipment value being considered as well as the
current financial strength of the lessee.
Sales and Servicing Agreement. Copelco Capital will enter into
an agreement (the "Sales and Servicing Agreement") with the Issuer, pursuant to
which Copelco Capital will, among other things, sell and service the Leases,
make Servicer Advances and forward Excess Copy Charges and Fee Per Scan Charges
to Vendors. In the Sales and Servicing Agreement, Copelco Capital will make
certain representations and warranties regarding the Leases and the Equipment.
In the event that (a) any of such representations and warranties made by Copelco
Capital proves at any time to have been inaccurate in any material respect as of
the Issuance Date or (b) any Lease shall be terminated in whole or in part by a
Lessee, or any amounts due with respect to any Lease shall be reduced or
impaired, as a result of any action or inaction by Copelco Capital (other than
any such action or inaction of Copelco Capital, when acting as Servicer, in
connection with the enforcement of any Lease (other than an Early Lease
Termination) in a manner consistent with the provisions of the Sales and
Servicing Agreement) or any claim by any Lessee against Copelco Capital and, in
any such case, the event or condition causing such inaccuracy, termination,
reduction, impairment or claim shall not have been cured or corrected within 30
days after the earlier of the date on which Copelco Capital is given notice
thereof by the Issuer or the Trustee or the date on which Copelco Capital
otherwise first has notice thereof, Copelco Capital will repurchase such Lease
(a "Warranty Lease") and the Equipment subject thereto by paying to the Trustee
for deposit into the Collection Account, not later than the Determination Date
next following the expiration of such 30-day period, an amount equal to the
Discounted Present Value of such Lease plus any amounts previously due and
unpaid thereon. In addition, subject to the satisfaction of certain requirements
set forth in the Sales and Servicing Agreement, Copelco Capital will have the
option to substitute one or more Substitute Leases for such Warranty Lease. Any
inaccuracy in any representation or warranty with respect to (i) the priority of
the lien of the Indenture with respect to any Lease or (ii) the amount (if less
than represented) of the Lease Payments, Casualty Payments or Termination
Payments under any Lease shall be deemed to be material.
Servicing Fee. The Servicing Fee will be paid monthly on the
Payment Date from amounts in the Collection Account and will be calculated by
multiplying one-twelfth of _____% times the lesser of (i) the Outstanding
Principal Amount of the Notes or (ii) the Discounted Present Value of the
Performing Leases, each at such Payment Date before application of payments with
respect thereto.
The Servicing Fee will be paid to the Servicer for servicing
the Series Pool and for certain administrative expenses in connection with the
Notes, including Trustee Fees.
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THE ISSUER
The Issuer is a wholly-owned bankruptcy-remote subsidiary of
Copelco Capital, formed solely for the purpose of acquiring from Copelco Capital
Leases and Equipment from time to time and issuing notes from time to time as
provided herein. As a bankruptcy-remote entity, the Issuer's operations will be
restricted so that (a) it does not engage in business with, or incur liabilities
to, any other entity (other than the Trustee on behalf of the Noteholders and
the trustee on behalf of the noteholders under indentures similar to the
Indenture) which may bring bankruptcy proceedings against the Issuer and (b) the
risk that it will be consolidated into the bankruptcy proceedings of any other
entity is diminished. The Issuer will have no other assets available to pay
amounts owing under the Indenture except the Trust Fund, including the Leases
and the interests in the Equipment, the proceeds thereof, and the amounts on
deposit in the Collection Account, the Reserve Account and the Residual Account.
The Issuer's address is East Gate Center, 700 East Gate Drive, Mount Laurel, New
Jersey 08054-5400 and its phone number is (609) 231-9600.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
As of the date of this Prospectus, the Issuer has had no
operating history. The net proceeds of the sale of the Notes will be employed to
purchase the Leases. See "Use of Proceeds." The Issuer is prohibited by its
Certificate of Incorporation from engaging in business other than (i) the
purchase of equipment leases and lease receivables (including equipment) from
Copelco Capital and its affiliates, (ii) the issuance of notes collateralized by
its assets and (iii) engaging in acts incidental, necessary or convenient to the
foregoing and permitted under Delaware law. The Issuer's ability to incur,
assume or guaranty indebtedness for borrowed money is also restricted by its
Certificate of Incorporation.
DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
The following table sets forth the executive officers and
directors of the Issuer and their ages and positions as of ______, 1998. Because
the Issuer is organized as a special purpose company and will be largely
passive, it is expected that the officers and directors in such capacity will
participate in the management of the Issuer to a limited extent. Most of the
actions related to maintaining and servicing the assets will be performed by the
Servicer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Name Age Position
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Ian J. Berg 56 Chairman of the Board (Principal Executive Officer), Director
- ---------------------------------------------------------------------------------------------------------------------
Robert J. Lemenze, Jr. 39 President, Chief Operating Officer
- ---------------------------------------------------------------------------------------------------------------------
John Hakemian 59 Director
- ---------------------------------------------------------------------------------------------------------------------
John Fortunato 39 Director
- ---------------------------------------------------------------------------------------------------------------------
Nicholas Antonaccio 51 Vice President - Finance
- ---------------------------------------------------------------------------------------------------------------------
Vickie D. Sloan 44 Director
- ---------------------------------------------------------------------------------------------------------------------
Tadayuki Seki 48 Director
- ---------------------------------------------------------------------------------------------------------------------
Stephen W. Shippie 48 Vice President
- ---------------------------------------------------------------------------------------------------------------------
Spencer Lempert 53 Secretary
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Ian J. Berg has served as Chairman of the Board, (Principal
Executive Officer) and Director of the Issuer since being appointed/elected on
May __, 1998. Mr. Berg founded Copelco Financial in October 1972 and has
continuously served as its President and CEO from inception and is also
currently acting CFO of Copelco Financial. Prior to founding Copelco, Mr. Berg
served as Senior Vice President and Director of MDC Corporation (an AMEX listed
corporation) and as President and Director of MDC Leasing Corporation from 1967
through 1972. He is a past Vice President and Director of the Equipment Leasing
Association (the industry trade association) and a founder, past officer and
Director of the Eastern Association of Equipment Lessors.
Robert J. Lemenze, Jr. has served as President of the Issuer
since being appointed/elected on May __, 1998 Mr. Lemenze was elected
President and Chief Operating Officer of Copelco Capital in January 1997. Prior
to this he served as Vice President of Sales and head of the Document Imaging
Sales Group since joining Copelco Capital in 1987.
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John Hakemian has served as Director since being elected on
March 17, 1997. For the last five years, Mr. Hakemian has served, initially, as
the chief financial officer for a subsidiary of Itochu International (the
Issuer's ultimate parent company in the United States) and, more recently, as
the Vice President - Finance of Itochu International Enterprise.
Nicholas Antonaccio has served as Vice President - Finance
since being elected on May __, 1998. Mr. Antonaccio joined Copelco Capital as
a Vice President and Chief Financial Officer in September 1995. He formerly
served as the Chief Financial Officer of Concord Leasing Company.
Tadayuki Seki has served as Director since being elected on
March 17, 1997. For the last six months, Mr. Seki has served as the Vice
President and Treasurer of Itochu International and for the year and a half
prior, as Assistant Senior Manager and for the three years prior to that, as
General Manager of the Credit Finance Department of the Itochu Corporation in
Japan.
Stephen W. Shippie has served as Vice President since being
elected on May __, 1998. For the last five years, Mr. Shippie has served as
the Vice President-Finance of Copelco Financial.
Spencer Lempert has served as Secretary since being elected on
May __, 1998. For the last five years, Mr. Lempert has served as the General
Counsel for Copelco Financial.
None of the above-listed directors and officers of the Issuer
will be compensated directly by the Issuer nor with any funds or assets of the
Issuer nor will any such directors and officers receive compensation in the
capacities in which they act for the Issuer.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Issuer pursuant to the foregoing provisions, or otherwise, the
Issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Issuer of expenses
incurred or paid by a director, officer or controlling person of the Issuer in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture (the
"Indenture") between the Issuer and Manufacturers and Traders Trust Company, as
trustee (the "Trustee"). The following statements with respect to the Notes are
subject to the detailed provisions of the Indenture, the form of which is filed
as an exhibit to the registration statement of which this Prospectus forms a
part. Whenever any particular section of the Indenture or any term used therein
is referred to, the statement in connection with which such reference is made is
qualified in its entirety by such reference.
General. The Offered Notes represent secured debt obligations
of the Issuer secured by the Trust Fund, and the privately placed Class C Notes
represent subordinated debt obligations of the Issuer only secured by the
related Trust Fund as provided in the related Indenture. Neither represents an
interest in or recourse obligation of Copelco Capital or any of its other
affiliates other than the Issuer. The Issuer is a special purpose corporation
with limited assets. Consequently, Noteholders must rely solely upon the Leases,
the interests in the Equipment,
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funds on deposit in the Collection Account, the Reserve Account and the Residual
Account, if any, for payment of principal of and interest on the Notes.
The Initial Principal Amount of the Notes shall be equal to
the Discounted Present Value of the Leases as of the Cut-Off Date. Such
Discounted Present Value of the Leases, at any given time, shall equal the
future remaining scheduled payments from the related Leases (including
Non-Performing Leases), discounted at the Discount Rate, as set forth in the
Indenture.
Each Note will bear interest from the Issuance Date at the
applicable Interest Rate, calculated on the basis of a year of 360 days
comprised of twelve 30-day months, except in the case of the Class A-1 Notes,
which interest will be calculated on the basis of a year of 360 days and the
actual number of days in such Interest Accrual Period, payable on the twentieth
day of each month (or if such day is not a business day the next succeeding
business day), to the person in whose name the Note was registered at the close
of business on the preceding Record Date. Principal will be payable as set forth
under "Distributions on Notes." Notes may be presented to the corporate trust
office of the Trustee for registration of transfer or exchange (Section 2.03).
Notes may be exchanged without a service charge, but the Issuer may require
payment to cover taxes or other governmental charges (Section 2.03).
Book-Entry Registration. Class A Noteholders and Class B
Noteholders may hold their Notes through DTC (in the United States) or Cedel or
Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Class A Note or
Notes and the global Class B Note or Notes. Cedel and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
Depositaries (as defined herein) which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Citibank will act as depositary for Cedel, and Morgan Guaranty Trust will act as
depositary for Euroclear (in such capacities, the "Depositaries").
DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the UCC and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the settlement of securities transactions
between Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of notes.
Participants include the Underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between Participants will occur in accordance with
DTC rules. Transfers between Cedel Participants (as defined herein) and
Euroclear Participants (as defined herein) will occur in accordance with their
respective rules and operating procedures.
Cross-market transfers between persons holding or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected through
DTC in accordance with DTC rules on behalf of the relevant European
international clearing systems by its Depositary. Cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities
received in Cedel or Euroclear as a result of a transaction with a Participant
will be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear or Cedel Participants on such business day. Cash received
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<PAGE>
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant Cedel or
Euroclear cash account only as of the business day following settlement in DTC.
For information with respect to tax documentation procedures relating to the
Offered Notes, see "Material Federal Income Tax Considerations."
Offered Noteholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Offered Notes may do so only through Participants and
Indirect Participants. In addition, Offered Noteholders will receive all
distributions of principal and interest on the Offered Notes from the Trustee
through DTC and its Participants. Under a book-entry format, Offered Noteholders
will receive payments after the related Distribution Date, as the case may be,
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to its Participants which
thereafter will be required to forward them to Indirect Participants or holders
of beneficial interests in the Offered Notes. It is anticipated that the only
Class A Noteholder and Class B Noteholder will be Cede, as nominee of DTC, and
that holders of beneficial interests in the Class A Noteholders or Class B
Noteholders, respectively, under the Indenture will only be permitted to
exercise the rights of Class A Noteholders or Class B Noteholders, respectively,
under the Indenture indirectly through DTC and its Participants who in turn will
exercise their rights through DTC.
Under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Offered Notes and
is required to receive and transmit distributions of principal of and interest
on the Offered Notes. Participants and Indirect Participants with which holders
of beneficial interests in the Offered Notes have accounts similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of these respective holders.
Because DTC can only act on behalf of Participants, who in
turn act on behalf of Indirect Participants and certain banks, the ability of
holders of beneficial interests in the Offered Notes to pledge Offered Notes to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such Offered Notes, may be limited due to the lack of a
Definitive Note for such Offered Notes.
DTC has advised the Issuer that it will take any action
permitted to be taken by a Class A Noteholder or Class B Noteholder under the
Indenture only at the direction of one or more Participants to whose account
with DTC the Class A Notes or Class B Notes are credited. Additionally, DTC has
advised the Issuer that it may take actions with respect to the applicable Class
A Interest or the Class B Interest that conflict with other of its actions with
respect thereto.
Cedel is incorporated under the laws of Luxembourg as a
professional depository. Cedel holds securities for its participating
organizations ("Cedel Participants") and facilitates the clearance and
settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars. Cedel
provides to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel interfaces with domestic markets in
several countries. As a professional depository, Cedel is subject to regulation
by the Luxembourg Monetary Institute. Cedel Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriters. Indirect access to Cedel
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 29 currencies,
including United States dollars. Euroclear includes various other services,
including securities lending and borrowing and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
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Euroclear Operator and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to Euroclear is also available
to other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship
with persons holding through Euroclear Participants.
Distributions with respect to Offered Notes held through Cedel
or Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See "Material Federal Income Tax Considerations." Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by an Offered Noteholder under the Indenture on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered Notes among participants
of DTC, Cedel and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
Definitive Notes. The Offered Notes will be issued in fully
registered, authenticated form to Beneficial Owners or their nominees (the
"Definitive Notes"), rather than to DTC or its nominee, only if (a) the Issuer
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to such
Notes, and the Trustee or the Issuer is unable to locate a qualified successor
or (b) the Issuer at its option elects to terminate the book-entry system
through DTC (Section 2.06).
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Trustee is required to notify all
Beneficial Owners through DTC of the availability of Definitive Notes for such
Class. Upon surrender by DTC of the Definitive Note representing the Notes and
instructions for reregistration, the Trustee will issue such Definitive Notes,
and thereafter the Trustee will recognize the holders of such Definitive Notes
as Noteholders under the related Indenture (the "Holders") (Section 2.07). The
Trustee will also notify the Holders of any adjustment to the Record Date with
respect to the Notes necessary to enable the Trustee to make distributions to
Holders of the Definitive Notes for such Class of record as of each Payment
Date.
Additionally, upon the occurrence of any such event described
above, distribution of principal of and interest on the Offered Notes will be
made by the Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check, mailed
to the address of such Holder as it appears on the Note register Upon at least
10 days' notice to Noteholders for such Class; however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentation and surrender of such Note at the office or agency specified in the
notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and
exchangeable at the offices of the Trustee or its agent in New York, New York,
which the Trustee shall designate on or prior to the issuance of any Definitive
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Notes with respect to such Class. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith (Section 2.03(e)).
Collection Account. The Trustee will establish and maintain an
Eligible Account (the "Collection Account") into which the Servicer will deposit
all Lease Payments, Casualty Payments, Termination Payments, Residual
Realizations, and recoveries from Non-Performing Leases to the extent Copelco
Capital has not substituted a Substitute Lease for such Non-Performing Lease
(except to the extent required to reimburse unreimbursed Servicer Advances)
(each as defined herein) on or in respect of each Lease included in the Series
Pool within two Business Days of receipt thereof. All Lease Payments, Casualty
Payments, Termination Payments and other payments relating to a Lease received
and so deposited in the Collection Account shall constitute property of the
Issuer, securing payments on the related Notes (Section 3.02(a)).
An "Eligible Account" means either (a) an account maintained
with a depository institution or trust company acceptable to the Rating Agency,
or (b) a trust account or similar account maintained with a federal or state
chartered depository institution, which may be an account maintained with the
Trustee.
A "Casualty Payment" is any payment pursuant to a Lease on
account of the loss, theft, condemnation, governmental taking, destruction, or
damage beyond repair (each, a "Casualty") 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.
A "Lease Payment" is each periodic installment of rent payable
by a Lessee under a Lease. Casualty Payments, Termination Payments, prepayments
of rent required pursuant to the terms of a Lease at or before the commencement
of the Lease, payments becoming due before the applicable Cut-Off Date and
supplemental or additional payments required by the terms of a Lease with
respect to taxes, insurance, maintenance (including, without limitation any
Maintenance Charges), or other specific charges, (including, without limitation,
any Excess Copy Charges and Fee Per Scan Charges), shall not be Lease Payments
hereunder.
A "Termination Payment" is a payment payable by a Lessee under
a Lease upon the early termination of such lease (but not on account of a
casualty or a Lease default) which may be agreed upon by the Servicer, acting in
the name of the Issuer, and the Lessee.
The Trustee shall deposit the following funds into the
Collection Account (Section 3.03(a)), which funds received on or prior to the
related Determination Date with respect to the related Due Period, including any
funds deposited into the Collection Account from the Reserve Account and the
Residual Account, shall be available for distribution ("Available Funds"),
pursuant to the Indenture, on the next succeeding Payment Date:
a) Lease Payments (net of any Excess Copy Charges,
Maintenance Charges and Fee Per Scan Charges) due
during the prior Due Period;
b) Residual Realizations up to the Residual Amount Cap;
c) recoveries from Non-Performing Leases to the extent
Copelco Capital has not substituted Substitute Leases
for such Non-Performing Leases (except to the extent
required to reimburse unreimbursed Servicer Advances);
d) late charges received on delinquent Lease payments not
advanced by the Servicer;
e) proceeds from repurchases by Copelco Capital of Leases
as a result of breaches of representations and
warranties to the extent Copelco Capital has not
substituted Substitute Leases for such Leases;
f) proceeds from investment of funds in the Collection
Account, the Reserve Account and the Residual Account;
g) Casualty Payments;
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h) Termination Payments to the extent the Issuer does not
reinvest such Termination Payments in Additional Leases;
and
i) Servicer Advances.
Reserve Account. The Trustee will establish and maintain an
Eligible Account (the "Reserve Account"). On the Closing Date, the Issuer will
make an initial deposit in an amount equal to ____% of the Discounted Present
Value of the Leases as of the Cut-Off Date into the Reserve Account. In the
event that Available Funds (exclusive of amounts on deposit in the Reserve
Account and the Residual Account) are insufficient to pay the amounts owing the
Servicer, Interest Payments on the Notes and the Class A Principal Payment, the
Class B Principal Payment and the Class C Principal Payment (such payments, the
"Required Payments" and such Shortfall, an "Available Funds Shortfall"), the
Trustee will withdraw from the Reserve Account an amount equal to the lesser of
the funds on deposit in the Reserve Account (the "Available Reserve Amount") and
such deficiency. In addition, on each Payment Date, Available Funds remaining
after the payment of the Required Payments will be deposited into the Reserve
Account to the extent that the Required Reserve Amount exceeds the Available
Reserve Amount. The "Required Reserve Amount" equals the lesser of (a) ____%
of the Discounted Present Value of the Leases as of the Cut-Off Date and (b) the
Outstanding Principal Amount of the Notes. Any amounts on deposit in the Reserve
Account in excess of the Required Reserve Amount will be released to the Issuer
(Section 3.04(c)).
Residual Account. The Trustee will establish and maintain an
Eligible Account (the "Residual Account"). Under certain limited circumstances
more fully described in the Indenture (a "Residual Event"), Residual
Realizations will be deposited in the Residual Account up to the Residual Amount
Cap in accordance with the application of funds described herein under
"Distributions on the Notes." As provided in the Indenture, funds on deposit in
the Residual Account will be available to cover shortfalls in the amount
available to pay the amounts owing the Servicer and to make interest and
principal payments on the Notes. Following the termination of a Residual Event,
amounts on deposit in the Residual Account will be deposited into the Reserve
Account to the extent that the amount on deposit in the Reserve Account is less
than the Required Reserve Amount and thereafter will be disbursed to the Issuer
(Section 3.04(c)).
Distributions on Notes. Payments on the Notes will commence on
______ __, 1998. On or before the fifth day prior to each Payment Date (or the
preceding business day, if such day is not a business day) (each, a
"Determination Date"), the Servicer will determine the Available Funds and the
Required Payments.
For each Payment Date, the interest due with respect to the
Notes will be the interest that has accrued on such Notes since the last Payment
Date, or, in the case of the first Payment Date, since the Issuance Date, at the
applicable Interest Rates applied to the Outstanding Principal Amount of each
Class, after giving effect to payments of principal to Noteholders on the
preceding Payment Date, plus all previously accrued and unpaid interest on the
Notes (the "Interest Payments") (Section 2.01(c)). Funds in the Collection
Account, together with reinvestment earnings thereon, will be used by the
Trustee to make required payments of principal and interest on the related Notes
(Section 3.03(b)).
For each Payment Date, Principal Payments due with respect to
the Class A Notes, the Class B Notes and the Class C Notes will be the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal
Payment, respectively. In addition, to the extent that the Class B Floor exceeds
the Class B Target Investor Principal Amount and/or the Class C Floor exceeds
the Class C Target Investor Principal Amount, Additional Principal shall be
distributed, sequentially, as an additional principal payment on the Class A-1
Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, the Class B Notes and
the Class C Notes until the Outstanding Principal Amount of each Class has been
reduced to zero (Section 3.03(b)).
"Additional Principal" with respect to each Payment Date is an
amount equal to (a) the difference between (i) the Discounted Present Value of
the Performing Leases as of the previous Determination Date and (ii) the
Discounted Present Value of the Performing Leases as of the related
Determination Date, less (b) the Class A Principal Payment, the Class B
Principal Payment and the Class C Principal Payment to be paid on such Payment
Date (Section 1.01).
The "Class A Percentage" equals ___% (Section 1.01).
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The "Class A Principal Payment" means (a) while the Class A-1
Notes are outstanding, (i) on all Payment Dates prior to the ___________ Payment
Date, the lesser of (1) the amount necessary to reduce the Outstanding Principal
Amount on the Class A-1 Notes to zero and (2) the difference between (A) the
Discounted Present Value of the Performing Leases as of the previous
Determination Date and (B) the Discounted Present Value of the Performing Leases
as of the related Determination Date, and (ii) on the ___________ Payment Date,
the entire Outstanding Principal Amount on the Class A-1 Notes and (b) after the
Class A-1 Notes have been paid in full, the amount necessary to reduce the
aggregate Outstanding Principal Amount on the Class A Notes to the Class A
Target Investor Principal Amount (Section 1.01).
The "Class A Target Investor Principal Amount" means the
product of (a) the Class A Percentage and (b) the Discounted Present Value of
the Performing Leases as of the related Determination Date
The "Class B Floor" with respect to each Payment Date means
(a) ___% of the initial Discounted Present Value of the Leases as of the Cut-Off
Date, plus (b) the Cumulative Loss Amount with respect to such Payment Date,
minus (c) the sum, as of the related Determination Date, of the Outstanding
Principal Amount of the Class C Notes and the amount on deposit in the Reserve
Account after giving effect to any withdrawals to be made on such Payment Date
(Section 1.01).
The "Class B Percentage" equals ___% (Section 1.01).
The "Class B Principal Payment" payable on each Payment Date
will be an amount equal to (a) while the Class A-1 Notes are outstanding, zero
and (b) after the Outstanding Principal Amount on the Class A-1 Notes has been
reduced to zero, the amount necessary to reduce the Outstanding Principal Amount
of the Class B Notes to the greater of the Class B Target Investor Principal
Amount and the Class B Floor (Section 1.01).
The "Class B Target Investor Principal Amount" with respect to
each Payment Date will be an amount equal to the product of (a) the Class B
Percentage and (b) the Discounted Present Value of the Performing Leases as of
the related Determination Date (Section 1.01).
The "Class C Floor" with respect to each Payment Date means
(a) ___% of the initial Discounted Present Value of the Leases as of the Cut-Off
Date, plus (b) the Cumulative Loss Amount with respect to such Payment Date,
minus (c) the amount on deposit in the Reserve Account after giving effect to
withdrawals to be made on such Payment Date; provided, however, that if the
Outstanding Class B Principal Amount is equal to the Class B Floor on such
Payment Date, the Class C Floor will equal the Outstanding Class C Principal
Amount utilized in the calculation of the Class B Floor Amount for such Payment
Date (Section 1.01).
The "Class C Percentage" equals ___% (Section 1.01).
The "Class C Principal Payment" payable on each Payment Date
will be an amount equal to (a) while the Class A-1 Notes are outstanding, zero
and (b) after the Outstanding Principal Amount on the Class A-1 Notes has been
reduced to zero, the amount necessary to reduce the Outstanding Principal Amount
of the Class C Notes to the greater of the Class C Target Investor Principal
Amount and the Class C Floor (Section 1.01)
The "Class C Target Investor Principal Amount" with respect to
each Payment Date will be an amount equal to the product of (a) the Class C
Percentage and (b) the Discounted Present Value of the Performing Leases as of
the related Determination Date (Section 1.01).
The "Cumulative Loss Amount" with respect to each Payment Date
is an amount equal to the excess, if any, of (a) the total of (i) the
Outstanding Principal Amount of the Notes as of the immediately preceding
Payment Date after giving effect to all payments made on such Payment Date,
minus (ii) the lesser of (A) the Discounted Present Value of the Performing
Leases as of the Determination Date relating to the immediately preceding
Payment Date minus the Discounted Present Value of the Performing Leases as of
the related Determination Date and (B) Available Funds remaining after the
payment of amounts owing the Servicer and in respect of interest on the Notes on
such Payment Date over (b) the Discounted Present Value of Performing Leases as
of the related Determination Date (Section 1.01).
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The "Discounted Present Value of the Leases," with respect to
the Trust Fund at any given time, shall equal the future remaining scheduled
payments (not including delinquent amounts) from the related Leases (including
Non-Performing Leases (as defined herein)), discounted at the Discount Rate. The
Discount Rate will be equal to the sum of (a) the weighted average Interest Rate
of the Class A Notes (utilizing the Class A-4 Interest Rate), the Class B Notes
and the Class C Notes on the Issuance Date and (b) the Servicing Fee Rate
(Section 1.01).
The "Discounted Present Value of the Performing Leases," with
respect to the Trust Fund at any given time equals the Discounted Present Value
of the Leases, including any Additional Leases and Substitute Leases, reduced by
all future remaining scheduled payments on the related Non-Performing Leases
(not including delinquent amounts), discounted at the Discount Rate. See
"Description of the Notes--General" (Section 1.01).
"Non-Performing Leases" are (a) Leases that are more than 123
days delinquent or (b) Leases that have been accelerated by the Servicer. See
"The Series Pool--The Leases" (Section 1.01).
The "Residual Amount Cap" is $__________, which represents
___% of the Discounted Present Value of the Leases as of the Cut-off Date
(Section 1.01).
A "Residual Event" has the meaning specified in the Indenture
(Section 1.01).
Unless an Event of Default and acceleration of the Notes has
occurred, on or before each Payment Date, the Servicer will instruct the Trustee
to apply or cause to be applied the Available Funds to make the following
payments in the following priority (Section 3.03(b)):
(a) to pay the Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances in respect
of a prior Payment Date;
(c) to make Interest Payments, owing on the Class A Notes
concurrently to the Class A-1 Noteholders, Class A-2
Noteholders, Class A-3 Noteholders and Class A-4
Noteholders;
(d) to make Interest Payments on the Class B Notes;
(e) to make Interest Payments on the Class C Notes;
(f) to make the Class A Principal Payment to (i) the Class
A-1 Noteholders only, until the Outstanding Principal
Amount on the Class A-1 Notes is reduced to zero, then
(ii) to the Class A-2 Noteholders only, until the
Outstanding Principal Amount on the Class A-2 Notes is
reduced to zero, then (iii) to the Class A-3 Noteholders
only, until the Outstanding Principal Amount on the
Class A-3 Notes is reduced to zero, and finally (iv) to
the Class A-4 Noteholders, until the Outstanding
Principal Amount on the Class A-4 Notes is reduced to
zero;
(g) to make the Class B Principal Payment to the Class B
Noteholders;
(h) to make the Class C Principal Payment to the Class C
Noteholders;
(i) to pay the Additional Principal, if any, as an
additional reduction of principal, to the Class A
Noteholders then receiving the Class A Principal
Payment, until the Outstanding Principal Amount as
provided in Clause (f) above on all of the Class A Notes
has been reduced to zero, then to Class B Noteholders
until the Outstanding Principal Amount on the Class B
Notes has been reduced to zero, and finally to Class C
Noteholders, until the Outstanding Principal Amounts on
the Class C Notes has been reduced to zero;
(j) to make a deposit to the Reserve Account in an amount
equal to the excess of the Required Reserve Amount over
the Available Reserve Amount;
(k) during such time as a Residual Event has occurred and is
continuing, to make a deposit to the Residual Account in
an amount equal to the balance of the remaining Residual
Realizations
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on deposit in the Collection Account and included in
Available Funds after giving effect to the allocations
in clauses (a) through (j) above on such Payment Date;
and
(l) to the Issuer, the balance, if any.
Advances by the Servicer. Prior to any Payment Date, the
Servicer may, but will not be required to, advance (each, a "Servicer Advance")
to the Trustee an amount sufficient to cover delinquencies on all Leases with
respect to the prior Due Period. The Servicer will be reimbursed for Servicer
Advances from Available Funds on the second following Payment Date See
"Distribution on Notes" above.
Redemption. The Issuer may, at its option, redeem the Notes,
as a whole, at their principal amount, without premium, together with interest
accrued to the date fixed for redemption if on any payment date the Discounted
Present Value of the Performing Leases is less than or equal to 10% of the
Discounted Present Value of the Leases as of the Cut-Off Date (Sections 2.01 and
1.06.). The Issuer will give notice of such redemption to each Noteholder and
the Trustee at least 30 days before the Payment Date fixed for such prepayment
Upon deposit of funds necessary to effect such redemption, the Trustee shall pay
the remaining unpaid principal amount on the Notes and all accrued and unpaid
interest as of the Payment Date fixed for redemption. See "Description of the
Notes--Redemption."
Events of Default and Notice Thereof. The following events
will be defined in the Indenture as "Events of Default":
(a) default in making Principal Payments or Interest
Payments when such become due and payable;
(b) default in the performance, or breach, by the Issuer of
certain negative covenants limiting its actions;
(c) default in the performance, or breach, of any other
covenant of the Issuer in the Indenture or the Sales and
Servicing Agreement, and continuance of such default or
breach for a period of 30 days after the earliest of (i)
any officer of the Issuer first acquiring the knowledge
thereof, (ii) the Trustee's giving written notice
thereof to the Issuer or (iii) the holders of a majority
of the then Outstanding Principal Amount of the Notes
giving written notice thereof to the Issuer and the
Trustee;
(d) if any representation or warranty of the Issuer or
Copelco Capital made in the Indenture or the Sales and
Servicing Agreement or any other writing provided to the
holders of the Notes proves to be incorrect in any
material respect as of the time when the same has been
made; provided, however, that the breach of any
representation or warranty made by Copelco Capital in
the Sales and Servicing Agreement will be deemed to be
"material" only if it negatively affects the
Noteholders, the enforceability of the Indenture or of
the Notes; and provided, further, that a material breach
of any representation or warranty made by Copelco
Capital in the Sales and Servicing Agreement with
respect to any of the Leases or the Equipment subject
thereto will not constitute an Event of Default if
Copelco Capital repurchases or substitutes for such
Lease and Equipment in accordance with the Sales and
Servicing Agreement; or
(e) insolvency or bankruptcy events relating to the Issuer.
(Section 6.01)
The Indenture will provide that the Trustee shall give the
Noteholders notice of all uncured defaults known to it (the term "default" to
include the events specified above without grace periods) (Sections 6.03 and
7.02).
If an Event of Default under an Indenture of the kind
specified in clause (e) above occurs, the unpaid principal amount of the related
Notes shall automatically become due and payable together with all accrued and
unpaid interest thereon. If any other Event of Default occurs and is continuing,
then the Trustee will, if so
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directed by the holders of 66 2/3% (33 1/3% in the case of a payment default) of
the then Outstanding Principal Amount of the Class A Notes (or if the Class A
Notes are no longer outstanding, the Class B Notes or if the Class B Notes are
no longer outstanding the Class C Notes), or the holders of such percentages of
the then Outstanding Principal Amount of such Notes may declare the unpaid
principal amount of all the Notes to be due and payable immediately, together
with all accrued and unpaid interest thereon (Section 6.02). The Trustee may,
however, if the Event of Default involves other than non-payment of principal or
interest on the Notes, not sell the related Leases and Equipment unless such
sale is for an amount greater than or equal to the Outstanding Principal Amount
of the Notes unless directed to do so by the holders of 66 2/3% (33 1/3% in the
case of a payment default) of the then Outstanding Principal Amount of the Class
A Notes (or if the Class A Notes are no longer outstanding, the Class B Notes or
if the Class B Notes are no longer outstanding the Class C Notes)(Section 6.03).
Subsequent to an Event of Default and following any
acceleration of the Notes pursuant to the Indenture, any moneys that may then be
held or thereafter received by the Trustee shall be applied in the following
order of priority, at the date or dates fixed by the Trustee and, in case of the
distribution of the entire amount due on account of principal or interest, upon
presentation of the Notes and surrender thereof:
First to the payment of all costs and expenses of collection
incurred by the Trustee and the Noteholders (including the reasonable
fees and expenses of any counsel to the Trustee and the Noteholders);
Second if the person then acting as Servicer under the Sales
and Servicing Agreement is not Copelco Capital or an affiliate of
Copelco Capital, to the payment of all Servicer's Fees then due to such
person;
Third first, to the payment of all accrued and unpaid interest
on the Outstanding Principal Amount of the Class A-1 Notes, Class A-2
Notes, Class A-3 Notes and Class A-4 Notes pro-rata to the date of
payment thereof, including (to the extent permitted by applicable law)
interest on any overdue installment of interest and principal from the
maturity of such installment to the date of payment thereof at the rate
per annum equal to the Class A-1 Interest Rate, Class A-2 Interest
Rate, Class A-3 Interest Rate and Class A-4 Interest Rate,
respectively, second to the payment of all accrued and unpaid interest
on the Outstanding Principal Amount of the Class B Notes to the date of
payment thereof, including (to the extent permitted by applicable law)
interest on any overdue installment of interest and principal from the
maturity of such installment to the date of payment thereof at the rate
per annum equal to the Class B Interest Rate, third, to the payment of
all accrued and unpaid interest on the Outstanding Principal Amount of
the Class C Notes to the date of payment thereof, including (to the
extent permitted by applicable law) interest on any overdue installment
of interest and principal from the maturity of such installment to the
date of payment thereof at the rate per annum equal to the Class C
Interest Rate, fourth, to the payment of the Outstanding Principal
Amount of the Class A-1 Notes, fifth, to the payment of the Outstanding
Principal Amount of the Class A-2 Notes, Class A-3 Notes and Class A-4
Notes pro-rata to the date of payment thereof, sixth, to the payment of
the Outstanding Principal Amount of the Class B Notes to the date of
payment thereof, and seventh, to the payment of the Outstanding
Principal Amount of the Class C Notes; provided, that the Noteholders
may allocate such payments for interest, principal and premium at their
own discretion, except that no such allocation shall affect the
allocation of such amounts or future payments received by any other
Noteholder;
Fourth to the payment of amounts then due the Trustee under
the Indenture; and
Fifth to the payment of the remainder, if any, to the Issuer
or any other Person legally entitled thereto (Section 6.06).
The Issuer will be required to furnish annually to the
Trustee, a statement of certain officers of the Issuer to the effect that to the
best of their knowledge the Issuer is not in default in the performance and
observance of the terms of the Indenture or, if the Issuer is in default,
specifying such default (Section 8.09).
The Indenture will provide that the holders of 66-2/3% in
aggregate principal amount of the Class A Notes then outstanding (or if the
Class A Notes are no longer outstanding, the Class B Notes or if the Class B
Notes are no longer outstanding the Class C Notes) will have the right to waive
certain defaults and, subject to
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certain limitations, to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee (Sections 6.12 and 6.13). The Indenture will
provide that in case an Event of Default shall occur (which shall not have been
cured or waived), the Trustee will be required to exercise such of its rights
and powers under such Indenture and to use the degree of care and skill in their
exercise that a prudent man would exercise or use in the conduct of his own
affairs (Section 7.01(b)). Subject to such provisions, the Trustee will be under
no obligation to exercise any of its rights or powers under such Indenture at
the request of any of the Noteholders unless they shall have offered to the
Trustee reasonable security or indemnity(Section 6.12).
Modification of the Indenture. With certain exceptions, under
the Indenture, the rights and obligations of the Issuer and the rights of the
Noteholders may be modified by the Issuer with the consent of the holders of not
less than 66 2/3% in aggregate principal amount of the Notes then outstanding
under the Indenture; but no such modification may be made which would (a) extend
the fixed maturity of any Note, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of principal or interest thereon,
without the consent of the holder of each Note so affected or (b) reduce the
above-stated percentage of Notes, without the consent of the holders of all
Notes then outstanding under such Indenture (Section 9.02).
Servicer Events of Default. The following events and
conditions shall be defined in the Sales and Servicing Agreement as "Servicer
Events of Default":
(a) failure on the part of the Servicer to remit to the
Trustee within three Business Days following the receipt
thereof any monies received by the Servicer required to
be remitted to the Trustee under the Sales and Servicing
Agreement;
(b) so long as Copelco Capital is the Servicer, failure on
the part of Copelco Capital to pay to the Trustee on the
date when due, any payment required to be made by
Copelco Capital pursuant to the Sales and Servicing
Agreement;
(c) default on the part of either the Servicer or (so long
as Copelco Capital is the Servicer) Copelco Capital in
its observance or performance in any material respect of
certain covenants or agreements in the Sales and
Servicing Agreement;
(d) if any representation or warranty of Copelco Capital
made in the Sales and Servicing Agreement shall prove
to be incorrect in any material respect as of the time
made; provided, however, that the breach of any
representation or warranty made by Copelco Capital in
such Sales and Servicing Agreement will be deemed to be
"material" only if it affects the Noteholders, the
enforceability of the Indenture or of the Notes; and
provided, further, that such material breach of any
representation or warranty made by Copelco Capital in
such Sales and Servicing Agreement with respect to any
of the Leases or the Equipment subject thereto will not
constitute a Servicer Event of Default if Copelco
Capital repurchases such Lease and Equipment in
accordance with the Sales and Servicing Agreement to
the extent provided therein;
(e) certain insolvency or bankruptcy events relating to the
Servicer;
(f) the failure of the Servicer to make one or more
payments due with respect to aggregate recourse debt or
other obligations exceeding $5,000,000, or the
occurrence of any event or the existence of any
condition, the effect of which event or condition is to
cause (or permit one or more persons to cause) more
than $5,000,000 of aggregate recourse debt or other
obligations of the Servicer to become due before its
(or their) stated maturity or before its (or their)
regularly scheduled dates of payment so long as such
failure, event or condition shall be continuing and
shall not have been waived by the Person or Persons
entitled to performance;
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(g) a final judgment or judgments (or decrees or orders) for
the payment of money aggregating in excess of $5,000,000
and any one of such judgments (or decrees or orders) has
remained unsatisfied and in effect for any period of 60
consecutive days without a stay of execution.
Servicer Termination. So long as a Servicer Event of Default
under the Sales and Servicing Agreement is continuing, the Trustee shall, upon
the instructions of the holders of 66-2/3% in principal amount of the Notes, by
notice in writing to the Servicer terminate all of the rights and obligations of
the Servicer (but not Copelco Capital's obligations which shall survive any such
termination) under Sales and Servicing Agreement (Section 5.01). On the receipt
by the Servicer of such written notice, all authority and power of the Servicer
under the Sales and Servicing Agreement to take any action with respect to any
Lease or Equipment will cease and the same will pass to and be vested in the
Trustee pursuant to and under the Sales and Servicing Agreement and the
Indenture.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate
amount of each interest payment on such Notes and the yield to maturity of such
Notes are directly related to the rate of payments on the underlying Leases. The
payments on such Leases may be in the form of scheduled payments, Prepayments or
liquidations due to default, casualty and other events, which cannot be
specified at present. Any such payments may result in distributions to
Noteholders of amounts which would otherwise have been distributed over the
remaining term of the Leases. In general, the rate of such payments may be
influenced by a number of other factors, including general economic conditions.
The rate of Principal Payments with respect to any Class may also be affected by
any repurchase of the underlying Leases by Copelco Capital pursuant to the Sales
and Servicing Agreement. In such event, the repurchase price will decrease the
Discounted Present Value of the Performing Leases, causing the corresponding
weighted average life of the Notes to decrease See "Risk Factors--Prepayments."
In the event a Lease becomes a Non-Performing Lease, a
Warranty Lease or an Adjusted Lease, Copelco Capital will have the option to
substitute for the terminated lease another of similar characteristics (a
"Substitute Lease") in an aggregate amount not to exceed 10% of the Discounted
Present Value of the Leases as of the Cut-Off Date with respect to
Non-Performing Leases and in an aggregate amount not to exceed 10% of the
Discounted Present Value of the Leases as of the Cut-Off Date with respect to
Adjusted Leases and Warranty Leases In addition, in the event of an Early Lease
Termination which has been prepaid in full, Copelco Capital will have the option
to transfer an additional lease of similar characteristics (an "Additional
Lease"). The Substitute Leases and Additional Leases will have a Discounted
Present Value of the Leases equal to or greater than that of the Leases being
modified and replaced and the monthly payments on the Substitute Leases or
Additional Leases will be at least equal to those of the terminated Leases
through the term of such terminated Leases. In the event that an Early Lease
Termination is allowed by Copelco Capital and a Substitute Lease is not
provided, the amount prepaid will be equal to at least the Discounted Present
Value of the terminated Lease, plus any delinquent payments.
The effective yield to holders of the Notes will depend upon,
among other things, the amount of and rate at which principal is paid to such
Noteholders. The after-tax yield to Noteholders may be affected by lags between
the time interest income accrues to Noteholders and the time the related
interest income is received by the Noteholders.
The following chart sets forth the percentage of the Initial
Principal Amount of the Class A and Class B Notes which would be outstanding on
the Payment Dates set forth below assuming a CPR of ___% and ___%, respectively
and were calculated using the Statistical Discount Rate. Such information is
hypothetical and is set forth for illustrative purposes only. The CPR
("Conditional Payment Rate") assumes that a fraction of the outstanding Series
Pool is prepaid on each Distribution Date, which implies that each Lease in the
Series Pool is equally likely to prepay. This fraction, expressed as a
percentage, is annualized to arrive at the Conditional Payment Rate for the
Contract Pool. The CPR measures prepayments based on the outstanding Discounted
Present Value of the Leases, after the payment of all Scheduled Payments on the
Leases during such Due Period. The CPR further assumes that all Leases are the
same size and amortize at the same rate and that each Lease will be either paid
as scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of scheduled monthly Lease payments as of the Cut-Off Date,
assume that the Issuer does not exercise its option to redeem the Notes and
assume the Issuance Date is ____ ___, 1998 and the first Payment Date is ______
__, 1998.
42
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3 AND A-4
PRINCIPAL AMOUNTS AND THE INITIAL CLASS B PRINCIPAL
AMOUNT AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
___% CPR ___% CPR
-----------------------------------------------------------------------------------------------------------
Payment Date Class Class Class Class Class Class Class Class Class Class
A-1 A-2 A-3 A-4 B A-1 A-2 A-3 A-4 B
-----------------------------------------------------------------------------------------------------------
% % % % % % % % % %
Issuance Date
August, 1998
September, 1998
October, 1998
November, 1998
December, 1998
January, 1999
February, 1999
March, 1999
April, 1999
May, 1999
June, 1999
July, 1999
August, 1999
September, 1999
October, 1999
November, 1999
December, 1999
January, 2000
February, 2000
March, 2000
April, 2000
May, 2000
June, 2000
July, 2000
August, 2000
September, 2000
October, 2000
November, 2000
December, 2000
January, 2001
February, 2001
March, 2001
April, 2001
May, 2001
June, 2001
July, 2001
August, 2001
September, 2001
October, 2001
November, 2001
December, 2001
January, 2002
February, 2002
March, 2002
April, 2002
May, 2002
</TABLE>
43
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3 AND A-4
PRINCIPAL AMOUNTS AND THE INITIAL CLASS B PRINCIPAL
AMOUNT AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
___% CPR ___% CPR
-----------------------------------------------------------------------------------------------------------
Payment Date Class Class Class Class Class Class Class Class Class Class
A-1 A-2 A-3 A-4 B A-1 A-2 A-3 A-4 B
-----------------------------------------------------------------------------------------------------------
% % % % % % % % % %
June, 2002
July, 2002
August, 2002
September, 2002
October, 2002
November, 2002
December, 2002
January, 2003
February, 2003
March, 2003
April, 2003
May, 2003
June, 2003
July, 2003
August, 2003
September, 2003
October, 2003
November, 2003
December, 2003
January, 2004
February, 2004
March, 2004
April, 2004
WEIGHTED AVERAGE
LIFE(1)(YEARS)
</TABLE>
(1) The weighted average life of a Class A Note or a Class B Note is determined
by (a) multiplying the amount of cash distributions in reduction of the
Outstanding Principal Amount of the respective Offered Note by the number
of years from the Issuance Date to such Payment Date, (b) adding the
results, and (c) dividing the sum by the respective Initial Principal
Amount.
For the ___% CPR and ___% CPR scenarios, if the Issuer
exercises its option to redeem the Notes, the average life of the Class A-1
Notes; Class A-2 Notes; Class A-3 Notes; Class A-4 Notes and Class B Notes would
be ___ years and ___ years; ___ years and ___ years; ___ years and ___ years;
___ years and ___ years and ___ years and ___ years, respectively.
44
<PAGE>
SECURITY FOR THE NOTES
General. Repayment of the Notes will be secured by (a) a first
priority security interest in the underlying Leases perfected both by filing UCC
financing statements against the Issuer and Copelco Capital and by taking
possession of the respective Lease documents, (b) an unperfected security
interest in the related Equipment owned by the Issuer and an assignment of the
Issuer's security interest in such Equipment subject to Nominal Buy-Out Leases,
which security interest was originally perfected by Copelco Capital (for
Equipment with an original cost in excess of $25,000 which assignment will be
recorded in the manner described below) and (c) all funds in the Collection
Account, the Reserve Account and Residual Account.
Residual Realizations. Upon receipt of the final Lease Payment
on a performing Lease, the Equipment subject to that Lease shall be sold or
re-let by the Servicer, with any proceeds from such sale or lease constituting
Residual Values for deposit into the Collection Account for the benefit of the
Noteholders up to the Residual Amount Cap. Actual Residual Realizations may be
more or less than the Booked Residual Value of the related Equipment.
THE TRUSTEE
Manufacturers & Traders will be the Trustee under the
Indenture Copelco Capital, as Seller or Servicer, and its affiliates may from
time to time enter into normal banking and trustee relationships with the
Trustee and its affiliates. The Trustee, the Servicer and any of their
respective affiliates may hold Notes in their own names In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee shall have the power to appoint a co-trustee or a separate trustee under
each Indenture. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Indenture will be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee, who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Issuer
will be obligated to appoint a successor Trustee. The Issuer may also remove
each Trustee if such Trustee ceases to be eligible to continue as such under the
Indenture, fails to perform in any material respect its obligations under such
Indenture, or becomes insolvent. In such circumstances, the Issuer will be
obligated to appoint a successor Trustee. Any resignation or removal of a
Trustee and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
CERTAIN LEGAL MATTERS AFFECTING A LESSEE'S
RIGHTS AND OBLIGATIONS
General. The Leases are triple-net leases, requiring the
Lessees to pay all taxes, maintenance and insurance associated with the
Equipment, and are primarily non-cancelable by the Lessees.
The Leases are "hell or high water" leases, under which the
obligations of the Lessee are absolute and unconditional, regardless of any
defense, setoff or abatement which the Lessee may have against Copelco Capital,
as Seller or Servicer, the Issuer, or any other person or entity whatsoever.
Events of default under the Leases are generally the result of
failure to pay amounts when due, failure to observe other covenants in the
Lease, misrepresentations by, or the insolvency, bankruptcy or appointment of a
trustee or receiver for the Lessee under a Lease. The remedies of the lessor
(and the Issuer as assignee) following a notice and cure period are generally to
seek to enforce the performance by the Lessee of the terms and covenants of the
Lease (including the Lessee's obligation to make scheduled payments) or recover
damages for the breach thereof, to accelerate the balance of the remaining
scheduled payments paid to terminate the rights of the Lessee under such Lease.
Although the Leases permit the lessor to repossess and dispose of the related
Equipment in the event of a lease default, and to credit such proceeds against
the Lessee's liabilities thereunder, such remedies may be limited where the
Lessee thereunder is subject to bankruptcy, or other insolvency proceedings.
45
<PAGE>
UCC and Bankruptcy Considerations. Pursuant to the Sales and
Servicing Agreement, Copelco Capital will sell the Leases to the Issuer, make a
capital contribution to the Issuer of Equipment owned by Copelco Capital and
subject to the Leases, and assign its security interests in the Equipment
subject to Nominal Buy-Out Leases. Copelco Capital will warrant that the sale of
the Leases to the Issuer is a true sale, that the contributions of its rights in
the Equipment is a valid transfer of Copelco Capital's title to the Equipment
and that Copelco Capital is either the owner of the Equipment or has a valid
perfected first priority security interest in the Equipment (for Leases with
leased Equipment having an original equipment cost in excess of $25,000),
including Equipment, subject to Nominal Buy-Out Leases, and accordingly, Copelco
Capital has filed UCC financing statements in its favor against Lessees in
respect of all Equipment in the Series Pool with an original Equipment cost in
excess of $25,000. No action will be taken to perfect the interest of Copelco
Capital in any Equipment in the Series Pool with an original Equipment cost of
less than $25,000. In addition, UCC financing statements identifying security
interests in the Equipment as transferred to, or obtained by, the Issuer or the
Trustee and UCC Financing Statements identifying equipment owned by Copelco
Capital, transferred to the Issuer and pledged to the Trustee will be filed in
favor of the Issuer or the Trustee in the Filing Locations. In the event of the
repossession and resale of Equipment subject to a superior lien, the senior
lienholder would be entitled to be paid the full amount of the indebtedness owed
to it out of the sale proceeds before such proceeds could be applied to the
payment of claims by the Servicer on behalf of the Issuer. Certain statutory
provisions, including federal and state bankruptcy and insolvency laws, may
limit the ability of the Servicer to repossess and resell collateral or obtain a
deficiency judgment in the event of a Lessee default. In the event of the
bankruptcy or reorganization of a Lessee, or Copelco Capital, as Seller or
Servicer, various provisions of the Bankruptcy Code of 1978, 11 U.S.C Section
101-1330 (the "Bankruptcy Code"), and related laws may interfere with, delay or
eliminate the ability of Copelco Capital or the Issuer to enforce its rights
under the Leases.
In the case of operating leases, the Bankruptcy Code grants to
the bankruptcy trustee or the debtor-in-possession a right to elect to assume or
reject any executory contract or unexpired lease. Any rejection of such a lease
or contract constitutes a breach of such lease or contract, entitling the
nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into the
Collection Account and allocated to the Noteholders as more fully described
herein. Upon the bankruptcy of a Lessee, if the bankruptcy trustee or
debtor-in-possession elected to reject a Lease, the flow of scheduled payments
to Noteholders would cease. In the event that, as a result of the bankruptcy of
a Lessee, the Servicer is prevented from collecting scheduled payments with
respect to Leases and such Leases become Non-Performing Leases, no recourse
would be available against Copelco Capital (except for misrepresentation or
breach of warranty) and the Noteholders could suffer a loss with respect to the
Notes. Similarly, upon the bankruptcy of the Issuer, if the bankruptcy trustee
or debtor-in-possession elected to reject a Lease, the flow of Lease payments to
the Issuer and the Noteholders would cease. As noted above, however, the Issuer
has been structured so that the filing of a bankruptcy petition with respect to
it is unlikely. See "The Issuer."
These UCC and bankruptcy provisions, in addition to the
possible decrease in value of a repossessed item of Equipment, may limit the
amount realized on the sale of Equipment to less than the amount due on the
related Lease.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material federal
income tax consequences to the original purchasers of the Notes of the purchase,
ownership and disposition of the Notes. It does not purport to discuss all
federal income tax consequences that may be applicable to investment in the
Notes or to particular categories of investors, some of which may be subject to
special rules. In particular, this discussion applies only to institutional
investors that purchase Notes directly from the Issuer and hold the Notes as
capital assets.
The discussion that follows, and the opinion set forth below
of Dewey Ballantine LLP, special tax counsel to the Issuer ("Tax Counsel"), are
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and treasury regulations promulgated thereunder as in effect on the date
hereof and on existing judicial and administrative interpretations thereof.
These authorities are subject to change and to differing interpretations, which
could apply retroactively. The opinion of Tax Counsel is not binding on the
courts or the Internal Revenue Service (the "IRS"). Potential investors should
consult their own tax advisors in determining the
46
<PAGE>
federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes.
Tax Counsel has prepared the following discussion and is of
the opinion that such discussion is correct in all material respects.
Characterization of the Notes as Indebtedness. In the opinion
of Tax Counsel, although no transaction closely comparable to that contemplated
herein has been the subject of any treasury regulation, revenue ruling or
judicial decision, based on the application of existing law to the facts as set
forth in the applicable agreements, the proper treatment of the Offered Notes is
as indebtedness for federal income tax purposes.
Although it is the opinion of Tax Counsel that the Offered
Notes are properly characterized as indebtedness for federal income tax
purposes, no assurance can be given that such characterization of the Offered
Notes will prevail. If the Offered Notes were treated as an ownership interest
in the Leases, all income on such Leases would be income to the holders of the
Offered Notes, and related fees and expenses would generally be deductible
(subject to certain limitations on the deductibility of miscellaneous itemized
deductions by individuals) and certain market discount and premium provisions of
the Code might apply to a purchase of the Offered Notes.
If, alternatively, the Offered Notes were treated as an equity
interest in the Issuer, distributions on the Offered Notes probably would not be
deductible in computing the taxable income of the Issuer and all or a part of
distributions to the holders of the Offered Notes probably would be treated as
dividend income to those holders. Such an Issuer-level tax could result in a
reduced amount of cash available for distributions to the holders of the Offered
Notes.
Taxation of Interest Income of Noteholders. If characterized
as indebtedness, interest on the Offered Notes will be taxable as ordinary
income for federal income tax purposes when received by Noteholders using the
cash method of accounting and when accrued by Noteholders using the accrual
method of accounting. Interest received on the Offered Notes also may constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense.
Original Issue Discount. It is not anticipated that the
Offered Notes will have any original issue discount ("OID") other than possibly
OID within a de minimis exception and that accordingly the provisions of
sections 1271 through 1273 and 1275 of the Code generally will not apply to the
Offered Notes. OID will be considered de minimis if it is less than 0.25% of the
principal amount of Note multiplied by its expected weighted average life.
Market Discount. A subsequent purchaser who buys a Note for
less than its principal amount may be subject to the "market discount" rules of
Sections 1276 through 1278 of the Code. If a subsequent purchaser of a Note
disposes of such Note (including certain nontaxable dispositions such as a
gift), or receives a principal payment, any gain upon such sale or other
disposition will be recognized, or the amount of such principal payment will be
treated, as ordinary income to the extent of any "market discount" accrued for
the period that such purchaser holds the Note. Such holder may instead elect to
include market discount in income as it accrues with respect to all debt
instruments acquired in the year of acquisition of the Offered Notes and
thereafter. Market discount generally will equal the excess, if any, of the
then-current unpaid principal balance of the Note over the purchaser's basis in
the Note immediately after such purchaser acquired the Note. In general, market
discount on a Note will be treated as accruing over the term of such Note in the
ratio of interest for the current period over the sum of such current interest
and the expected amount of all remaining interest payments, or at the election
of the holder, under a constant yield method. At the request of a holder of a
Note, information will be made available that will allow the holder to compute
the accrual of market discount under the first method described in the preceding
sentence.
The market discount rules also provide that a holder who
incurs or continues indebtedness to acquire a Note at a market discount may be
required to defer the deduction of all or a portion of the interest on such
indebtedness until the corresponding amount of market discount is included in
income.
Notwithstanding the above rules, market discount on a Note
will be considered to be zero if it is less than a de minimis amount, which is
0.25% of the remaining principal balance of the Note multiplied by its expected
weighted average remaining life. If OID or market discount is de minimis, the
actual amount of discount
47
<PAGE>
must be allocated to the remaining principal distributions on the Note and, when
each such distribution is received, capital gain equal to the discount allocated
to such distribution will be recognized.
Market Premium. A subsequent purchaser who buys a Note for
more than its principal amount generally will be considered to have purchased
the Note at a premium. Such holder may amortize such premium, using a constant
yield method, over the remaining term of the Note and, except as future
regulations may otherwise provide, may apply such amortized amounts to reduce
the amount of interest income reportable with respect to such Note over the
period from the purchase date to the date of maturity of the Note. Legislative
history of the Tax Reform Act of 1986 indicates that the amortization of such
premium on an obligation that provides for partial principal payments prior to
maturity should be governed by the methods for accrual of market discount on
such an obligation (described above). A holder that elects to amortize such
premium must reduce tax basis in the related obligation by the amount of the
aggregate deductions (or interest offsets) allowable for amortizable premium. If
a debt instrument purchased at a premium is redeemed in full prior to its
maturity, a purchaser who has elected to amortize premium should be entitled to
a deduction for any remaining unamortized premium in the taxable year of
redemption.
Sale or Exchange of Offered Notes. If a Note is sold or
exchanged, the seller of the Note will recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and the adjusted
basis of the Note. The adjusted basis of a Note will generally equal its cost,
increased by any OID or market discount includible in income with respect to the
Note through the date of sale and reduced by any principal payments previously
received with respect to the Note, any payments allocable to previously accrued
OID or market discount and any amortized market premium. Subject to the market
discount rules, gain or loss will generally be capital gain or loss if the Note
was held as a capital asset. Capital losses generally may be used only to offset
capital gains.
Backup Withholding with Respect to Offered Notes. Payments of
interest and principal, together with payments of proceeds from the sale of
Offered Notes, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a payment to a recipient would be allowed as a credit against
such recipient's federal income tax. Furthermore, certain penalties may be
imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
Foreign Investors in Offered Notes Certain U.S. Federal Income
Tax Documentation Requirements. A beneficial owner of Offered Notes holding
securities through CEDEL of Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons (as defined below), unless (i) each
clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (ii) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners
of Offered Notes that are Non-U.S. Persons (as defined below) can obtain a
complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes, a
new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected
income (Form 4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in
treaty countries (Form 1001). Non-U.S. Persons residing in a country that has a
tax treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If
48
<PAGE>
the treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8 Form 1001 may be filed
by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain
a complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a
Note or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating
to withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations are
proposed to be effective for payments made after December 31, 1997 but provide
that certificates issued on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
Proposed regulations, however, are subject to change prior to their adoption in
final form.
The term "U.S. Person" means (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof, (iii)
an estate that is subject to U.S. federal income tax regardless of the source of
its income. The term "Non-U.S. Person" means any person who is not a U.S. Person
or (iv) a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States fiduciary has
the authority to control all substantial decisions of the trust. This summary
does not deal with all aspects of U.S. federal income tax withholding that may
be relevant to foreign holders of the Offered Notes. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of the Offered Notes.
State, Local and Other Taxes. Investors should consult their
own tax advisors regarding whether the purchase of the Offered Notes, either
alone or in conjunction with an investor's other activities, may subject an
investor to any state or local taxes based on an assertion that the investor is
either "doing business" in, or deriving income from a source located in, any
state or local jurisdiction. Additionally, potential investors should consider
the state, local and other tax consequences of purchasing, owning or disposing
of a Note. State and local tax laws may differ substantially from the
corresponding federal tax law, and the foregoing discussion does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Accordingly, potential investors should consult their own tax advisors with
regard to such matters.
THE FEDERAL AND STATE INCOME TAX DISCUSSIONS SET FORTH ABOVE
ARE INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING
UPON A NOTEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE OFFERED NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS OR IN THE INTERPRETATIONS
THEREOF.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain requirements and restrictions on those
pension and other employee benefits plans to which it applies and on those
persons who are fiduciaries with respect to such plans. In accordance with
ERISA's fiduciary standards, before purchasing the Offered Notes, a fiduciary
should determine whether such an investment is permitted under the documents and
instruments governing the plan and is appropriate for the plan in view of its
overall investment policy and the composition of its portfolio.
Section 406 of ERISA and Section 4975 of the Code prohibit
certain transactions involving the assets of certain plans subject thereto (each
"Benefit Plan") and persons who are "parties in interest," within the meaning of
ERISA, or "disqualified persons," within the meaning of the Code. Certain
transactions involving the purchase, holding or transfer of the Offered Notes
might be deemed to constitute prohibited transactions under
49
<PAGE>
ERISA and the Code if assets of the Issuer were deemed to be assets of a Benefit
Plan. Under regulations issued by the United States Department of Labor set
forth in 29 C.F.R. Section 2510.3101 (the "Plan Asset Regulations"), the assets
of the Issuer would be treated as plan assets of a Benefit Plan for the purposes
of ERISA and the Code only if the Benefit Plan acquires an "Equity Interest" in
the Issuer and none of the exceptions contained in the Plan Asset Regulations is
applicable. An Equity Interest is defined under the Plan Asset Regulations as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. It is
anticipated that the Offered Notes should be treated as indebtedness without
substantial equity features for purposes of the Plan Asset Regulations. However,
even if the Offered Notes are treated as indebtedness for such purposes, the
acquisition or holding of Offered Notes by or on behalf of a Benefit Plan could
be considered to give rise to a prohibited transaction if the Issuer, the
Trustee, the Underwriter or any of their respective affiliates is or becomes a
party in interest or disqualified person with respect to such Benefit Plan. In
this event, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38 regarding investments by bank
collective investment funds; PTCE 84-14, regarding transactions effected by
"qualified professional asset managers," PTCE 95-60, regarding investments by
insurance company general accounts and PTCE 96-23 regarding transactions
effected by In-House Asset Managers. Each investor using assets of a Benefit
Plan which acquires the Offered Notes, or to whom the Offered Notes are
transferred, will be deemed to have represented that the acquisition and
continued holding of the Offered Notes will be covered by one of the exemptions
listed above or another Department of Labor class exemption.
Insurance companies considering the purchase of the Offered
Notes should also consult their own counsel as to the application of the recent
decision by the United States Supreme Court in John Hancock Mutual Life
Insurance Co. v. Harris Trust and Savings Bank (114 S. Ct. 517 (1993)) to such a
purchase. Under that decision, assets held in an insurance company's general
account may be deemed assets of ERISA plans under certain circumstances.
Due to the complexity of these rules and the penalties imposed
upon persons involved in prohibited transactions, it is particularly important
that a fiduciary investing assets of an ERISA plan consult with counsel
regarding the consequences under ERISA of the acquisition and holding of Offered
Notes, including the availability of any administrative exemptions from the
prohibited transaction rules.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
underwriting agreement (the "Underwriting Agreement") for the sale of the
Offered Notes, the Issuer has agreed to sell and _____________________,
________________________ and ________________ (the "Underwriters") have agreed
to purchase the principal amount of the Offered Notes set forth opposite their
names:
<TABLE>
<CAPTION>
Underwriters of the Class A Notes Principal Amount Principal Amount Principal Amount Principal Amount
--------------------------------- of Class A-1 Notes of Class A-2 Notes of Class A-3 Notes of Class A-4 Notes
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
---------------------------------
---------------------------------
---------------------------------
Underwriter of the Class B Notes Principal Amount of Class B Notes
--------------------------------- ---------------------------------
---------------------------------
---------------------------------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed to
purchase the Offered Notes in the amounts set forth above, subject to the terms
and conditions set forth therein. The Issuer has been advised by First Union
Capital Markets Corp., a division of Wheat First Securities, Inc. ("First
Union"), as the representative of the Underwriters, that the
Underwriters propose initially to offer the Notes to the public at the
respective public offering prices set forth on the cover page of this
Prospectus, and to certain dealers at such price, less a concession not in
excess of ___% per Class A-1 Note, ___% per Class A-2 Note, ___% per Class A-3
Note, ___% per Class A-4 Note and ___% per Class B Note. The Underwriters may
allow and such dealers may reallow to other dealers a discount not in excess of
___% per Class A-1 Note, ___% per Class A-2 50
<PAGE>
Note, ___% per Class A-3 Note, ___% per Class A-4 Note and ___% per Class B
Note. After the initial public offering, the public offering price may be
changed.
The Underwriters will each represent and agree that:
(a) it has not offered or sold, and, prior to the expiry of
six months from the Closing Date, will not offer or
sell, any Offered Notes to persons in the United
Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for
purposes of their business, or otherwise in
circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities
Regulations 1995;
(b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the
Offered Notes in, from or otherwise involving the United
Kingdom; and
(c) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by
it in connection with the issue of the Offered Notes to
a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or persons to
whom such document may otherwise lawfully be issued,
distributed or passed on.
The Issuer has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Issuer has been advised by the Underwriters that the
Underwriters presently intend to make a market in the Offered Notes, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in the Offered Notes and any such market
making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Notes.
In connection with the offering of the Offered Notes, certain
Underwriters and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Offered Notes. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M, pursuant to
which such person may bid for or purchase the Offered Notes for the purpose of
stabilizing its market price. In addition, First Union, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the offering) for the account of the other Underwriters, the selling
concession with respect to the Offered Notes that it distributed in the offering
but subsequently purchased for the account of the Underwriters in the open
market. Any of the transactions described in this paragraph may result in the
maintenance of the price of the Offered Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are taken, may be discontinued at any time
without notice.
______________ is serving as the placement agent for the
Class C Notes.
EXPERTS
The balance sheet of Copelco Capital Funding Corp. XI as of
___________, 1998 has been included herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
51
<PAGE>
RATING OF THE OFFERED NOTES
It is a condition to the issuance of the Offered Notes that
the [Class A-1 Notes be rated at least "A-1+", "D-1+" and "F-1+/AAA" and that
the Class A-2, A-3 and A-4 Notes be rated at least "AAA", "AAA" and "AAA" and
that the Class B Notes be rated at least "A", "A" and "A"] by Standard & Poor's
Ratings Group ("S&P"), Duff & Phelps Credit Ratings Co ("DCR"), and Fitch
Investors Service, L.P. ("Fitch"), respectively (each a "Rating Agency").
Such rating will reflect only the views of the Rating Agency
and will be based primarily on the amount of subordination, the availability of
funds on deposit in the Reserve Account and the value of the Leases and
Equipment. The ratings are not a recommendation to purchase, hold or sell the
related Offered Notes, inasmuch as such ratings do not comment as to market
price or suitability for a particular investor. There is no assurance that any
such rating will continue for any period of time or that it will not be lowered
or withdrawn entirely by the Rating Agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse affect on
the market price of the Offered Notes. The rating of the Offered Notes addresses
the likelihood of the timely payment of interest and the ultimate payment of
principal on the Offered Notes by the Stated Maturity date. The rating does not
address the rate of Prepayments that may be experienced on the Leases and,
therefore, does not address the effect of the rate of Lease Prepayments on the
return of principal to the Offered Noteholders.
INDEX OF TERMS
<TABLE>
<CAPTION>
Term(s) Page(s)
<S> <C> <C>
Additional Lease.......................................................................................9, 41
Additional Principal...................................................................................7, 36
Adjusted Lease.............................................................................................9
Available Funds.......................................................................................10, 35
Available Funds Shortfall.................................................................................35
Available Reserve Amount..............................................................................12, 35
Bankruptcy Code...........................................................................................46
Benefit Plan..............................................................................................49
Booked Residual Value.....................................................................................13
Casualty..................................................................................................34
Casualty Payment..........................................................................................34
Cede.......................................................................................................2
CEDEL......................................................................................................2
Cedel Participants........................................................................................33
Class......................................................................................................1
Class A Initial Principal Amount...........................................................................4
Class A Noteholders........................................................................................2
Class A Notes...........................................................................................1, 3
Class A Percentage.....................................................................................7, 36
Class A Principal Payment..............................................................................6, 36
Class A Target Investor Principal Amount...............................................................7, 36
Class A-1 Initial Principal Amount.........................................................................4
Class A-1 Interest Rate....................................................................................4
Class A-1 Notes.........................................................................................1, 3
Class A-2 Initial Principal Amount.........................................................................4
Class A-2 Interest Rate....................................................................................4
Class A-2 Notes.........................................................................................1, 3
Class A-3 Initial Principal Amount.........................................................................4
Class A-3 Interest Rate....................................................................................4
Class A-3 Notes.........................................................................................1, 3
Class A-4 Initial Principal Amount.........................................................................4
Class A-4 Interest Rate....................................................................................4
Class A-4 Notes.........................................................................................1, 3
Class B Floor..........................................................................................7, 36
Class B Initial Principal Amount...........................................................................4
52
<PAGE>
Class B Interest Rate......................................................................................4
Class B Noteholders........................................................................................2
Class B Notes...........................................................................................1, 3
Class B Percentage.....................................................................................7, 36
Class B Principal Payment..............................................................................7, 36
Class B Target Investor Principal Amount...............................................................7, 36
Class C Floor..........................................................................................7, 37
Class C Initial Principal Amount...........................................................................4
Class C Interest Rate......................................................................................4
Class C Notes...........................................................................................1, 3
Class C Percentage.....................................................................................7, 37
Class C Principal Payment..............................................................................7, 37
Class C Target Investor Principal Amount...............................................................7, 37
clearing agency...........................................................................................31
clearing corporation......................................................................................31
Code......................................................................................................46
Collection Account........................................................................................34
Commission.................................................................................................2
Conditional Payment Rate..................................................................................42
Cooperative...............................................................................................33
Copelco Capital...................................................................................1, 3, 5, 4
Copelco Credit............................................................................................24
Copelco Financial.........................................................................................24
Copelco Funding XI.........................................................................................4
Copelco Leasing...........................................................................................24
CopelcoNET................................................................................................28
Cost per Copy.............................................................................................25
Cumulative Loss Amount.................................................................................8, 37
Cut-Off Date...........................................................................................3, 17
DCR...................................................................................................14, 52
Definitive Notes..........................................................................................33
Depositaries..............................................................................................31
Determination Date.....................................................................................5, 36
Discount Rate..............................................................................................4
Discounted Present Value of the Leases.................................................................4, 37
Discounted Present Value of the Performing Leases......................................................4, 37
Division..................................................................................................24
DTC........................................................................................................2
Due Period.................................................................................................5
Dun & Bradstreet..........................................................................................27
Early Lease Termination....................................................................................9
Eligible Account..........................................................................................34
Equipment..................................................................................................5
Equipment Financing Portion...............................................................................25
ERISA.................................................................................................13, 49
Euroclear..................................................................................................2
Euroclear Operator........................................................................................33
Euroclear Participants....................................................................................33
Events of Default.........................................................................................38
Excess Copy Charge........................................................................................25
Exchange Act...............................................................................................2
Fee Per Scan Charges......................................................................................26
Filing Locations..........................................................................................16
First Union...............................................................................................50
Fitch.................................................................................................14, 52
Fixed Payment.............................................................................................25
HILL......................................................................................................26
Holders...................................................................................................34
53
<PAGE>
Indenture.............................................................................................10, 31
Indirect Participants.....................................................................................32
Initial Principal Amount...................................................................................3
Interest Accrual Period....................................................................................6
Interest Payments......................................................................................6, 36
Interest Rate..............................................................................................4
IRS.......................................................................................................46
Issuer..................................................................................................1, 3
Lease Contracts............................................................................................5
Lease Payment.............................................................................................34
Lease Receivables..........................................................................................5
Leases.....................................................................................................5
Lessee.....................................................................................................8
Lessees....................................................................................................8
Maintenance Charge........................................................................................25
Nominal Buy-Out...........................................................................................18
Nominal Buy-Out Leases....................................................................................15
Non-Performing Leases..............................................................................5, 18, 37
Non-U.S. Person...........................................................................................49
Notes...................................................................................................1, 3
Offered Noteholders........................................................................................2
Offered Notes...........................................................................................1, 3
OID.......................................................................................................47
Original Divisions........................................................................................17
Outstanding Principal Amounts..............................................................................6
Participants..............................................................................................31
Payment Date............................................................................................2, 5
PILL......................................................................................................26
Plan Asset Regulations....................................................................................50
Prepayment................................................................................................15
Principal Payments.........................................................................................6
PTCE......................................................................................................50
Rating Agency.........................................................................................14, 52
Record Date................................................................................................5
Registration Statement.....................................................................................2
Required Payments.........................................................................................35
Required Reserve Amount...............................................................................12, 35
Reserve Account.......................................................................................12, 35
Residual Account..........................................................................................35
Residual Amount Cap...................................................................................13, 37
Residual Event....................................................................................13, 35, 37
Residual Realizations.....................................................................................13
S&P...................................................................................................14, 52
Sales and Servicing Agreement.......................................................................1, 5, 29
SBU.......................................................................................................24
Seller.....................................................................................................5
Series Pool................................................................................................5
Service Advance.......................................................................................10, 38
Servicer...................................................................................................5
Servicer Events of Default................................................................................40
Servicing Fee.............................................................................................10
Statistical Discount Rate..................................................................................4
Statistical Discounted Present Value of the Leases.........................................................4
Substitute Lease.......................................................................................9, 41
Tax Counsel...............................................................................................46
54
<PAGE>
Termination Payment.......................................................................................34
Terms and Conditions......................................................................................33
Trust Fund.................................................................................................5
Trustee................................................................................................5, 31
U.SPerson.................................................................................................49
UCC.......................................................................................................15
Underwriters..............................................................................................50
Underwriting Agreement....................................................................................50
Vendor....................................................................................................25
Warranty Lease.........................................................................................9, 29
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
Independent Auditors' Report............................................................. F-2
Balance Sheet of the Issuer as of ___________, 1998...................................... F-3
Notes to Balance Sheet................................................................... F-4
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Copelco Capital Funding Corp. XI:
We have audited the accompanying balance sheet of Copelco Capital Funding Corp.
XI (a wholly-owned subsidiary of Copelco Capital, Inc.) as of ___________, 1998.
This financial statement is the responsibility of Copelco Capital Funding Corp.
XI management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Copelco Capital Funding Corp. XI as
of ___________, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
___________, 1998
New York, New York
F-2
<PAGE>
COPELCO CAPITAL FUNDING CORP. XI
(a wholly-owned subsidiary of Copelco Capital, Inc.)
BALANCE SHEET
_________________, 1998
Asset
-----
Cash $1,000
======
Stockholder's Equity
--------------------
Stockholder's Equity
Common Stock (authorized 1,000
shares, $1 par value, issued and
outstanding 100 shares) $ 100
Additional paid-in capital 900
------
$1,000
======
See accompanying notes to balance sheet.
F-3
<PAGE>
COPELCO CAPITAL FUNDING CORP. XI
(a wholly-owned subsidiary of Copelco Capital, Inc.)
Notes to Balance Sheet
_____________, 1998
(1) Organization
Copelco Capital Funding Corp. XI ("Copelco Funding XI"), a wholly-owned
subsidiary of Copelco Capital, Inc. ("Copelco Capital"), was
incorporated in the State of Delaware on May 1, 1998. Copelco Funding
XI has been inactive since that date.
Copelco Funding XI was organized to engage exclusively in the following
business and financial activities: to acquire equipment described in
certain equipment leases and to purchase equipment leases and lease
receivables from Copelco Capital and any of its affiliates; to issue
and sell notes collateralized by any or all of its assets pursuant to
one or more indentures between Copelco Funding XI and an indenture
trustee; and to engage in any lawful act or activity and to exercise
any power that is incidental and is necessary or convenient to the
foregoing and permitted under Delaware law.
(2) Capital Contribution
Copelco Capital purchased 100 shares of common stock of Copelco Funding
XI for $1,000 on _______, 1998.
F-4
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the affairs
of the Seller or the Issuer or any affiliate thereof or the Leases since the
date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not A-1 qualified to do so
to anyone to whom it is unlawful to make Lease-Backed Notes, Series 1998-A such
offer or solicitation.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION................................. 2
REPORTS TO NOTEHOLDERS................................ 2
PROSPECTUS SUMMARY.................................... 3
RISK FACTORS.......................................... 17
USE OF PROCEEDS....................................... 20
THE SERIES POOL....................................... 20
COPELCO CAPITAL'S UNDERWRITING AND
SERVICING PRACTICES................................ 31
THE ISSUER............................................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION............................. 36
DIRECTORS AND EXECUTIVE OFFICERS
OF THE ISSUER...................................... 36
DESCRIPTION OF THE NOTES.............................. 38
PREPAYMENT AND YIELD
CONSIDERATIONS..................................... 50
SECURITY FOR THE NOTES................................ 54
THE TRUSTEE........................................... 54
CERTAIN LEGAL MATTERS AFFECTING A
LESSEE'S RIGHTS AND OBLIGATIONS.................... 54
MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS..................................... 56
ERISA CONSIDERATIONS.................................. 59
UNDERWRITING.......................................... 60
EXPERTS............................................... 61
RATING OF THE OFFERED NOTES........................... 62
INDEX OF TERMS........................................ i
FINANCIAL STATEMENTS................................. F-1
Until ____________, 1998 (90 days after the date of this Prospectus), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
================================================================================
================================================
$_________
Copelco Capital
Funding Corp. XI
$________ _____% Class A-1
Lease-Backed Notes, Series 1998-A
$_________ _____% Class A-2
Lease-Backed Notes, Series 1998-A
$_________ ____% Class A-3
Lease-Backed Notes, Series 1998-A
$__________ ____% Class A-4
Lease-Backed Notes, Series 1998-A
$__________ _____% Class B
Lease-Backed Notes, Series 1998-A
___________________
P R O S P E C T U S
___________________
FIRST UNION CAPITAL MARKETS
Dated ____ __, 1998
================================================
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to
be incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 1,475.00
Printing and Engraving Expenses................................... *
Trustee's Fees.................................................... *
Legal Fees and Expenses........................................... *
Blue Sky Fees and Expenses........................................ *
Accountants' Fees and Expenses.................................... *
Rating Agency Fees................................................ *
Miscellaneous Fees................................................ $ *
.................................................................. ================
Total. $ *
</TABLE>
* To be filed by Amendment
Item 14. Indemnification of Directors and Officers
The General Corporation Law of Delaware (Section 145) gives
Delaware corporations broad powers to indemnify their present and former
directors and officers and those affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, subject to specified
conditions and exclusions; gives a director or officer who successfully defends
an action the right to be so indemnified; and authorizes said corporation to buy
director's and officers' liability insurance. The Issuer will indemnify its
directors and officers to the fullest extent permitted by such law. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.
Copelco Financial Services Group, Inc. has also purchased
liability policies which indemnify the Registrant's officers and directors
against loss arising from claims by reason of their legal liability for acts as
officers and directors, subject to limitations and conditions as set forth in
the policies.
Pursuant to agreements which the Registrant may enter into
with underwriters or agents (forms of which will be included as exhibits to this
Registration Statement), officers and directors of the Registrant, and
affiliates thereof, may be entitled to indemnification by such underwriters or
agents against certain liabilities, including liabilities under the Securities
Act of 1933, arising from information which has been or will be furnished to the
Registrant by such underwriters or agents that appears in the Registration
Statement or any Prospectus.
II-1
<PAGE>
Item 16. Exhibits and Financial Statements
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
1.1* -- Form of Underwriting Agreement for the Offered Notes.
3.1* -- Certificate of Incorporation of the Issuer.
3.2* -- By-laws of the Issuer.
4.1* -- Form of Indenture, including forms of the Notes and certain other
related agreements as Exhibits thereto.
5.1* -- Opinion of Dewey Ballantine regarding the securities being
registered.
8.1* -- Opinion of Dewey Ballantine regarding the tax treatment of the
Notes.
10.1* -- Form of Sales and Servicing Agreement.
23.1* -- Consent of Dewey Ballantine is included in the opinion filed as
Exhibit 5.1 hereto.
24.1* -- Power of Attorney (Included on Page II-4 hereof).
25.1* -- Statement of Eligibility and Qualification of Trustee (Form T-1).
</TABLE>
* To be filed by amendment.
(b) All financial statements, schedules and historical
financial information have been omitted as they are not
applicable.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 14 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
II-2
<PAGE>
(c) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Laurel, State of New Jersey, on May 22, 1998.
COPELCO CAPITAL FUNDING CORP. XI,
Registrant
By /s/ Ian J. Berg
-----------------------------------------
Name: Ian J. Berg
Title: Chief Executive Officer and
Acting Chief Financial Officer
Each person whose signature appears below constitutes and
appoints Stephen W. Shippie as his/her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him/her in
his/her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Form S-1 and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he/she might or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent or his substitute may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities indicated on the dates indicated below.
Signature Title Date
--------- ----- ----
/s/ Ian J. Berg Chairman of the Board May 22, 1998
- --------------------------------
Ian J. Berg Director
/s/ John Hakemian Director May 22, 1998
- --------------------------------
John Hakemian
/s/ Tadayuki Seki Director May 22, 1998
- --------------------------------
Tadayuki Seki
