<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 33-84918
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 21, 1995
PRELIMINARY PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 2, 1994)
- --------------------------------------------------------------------------------
PSSFC EQUIPMENT LEASE TRUST 1995-1
$
% LEASE BACKED CERTIFICATES, CLASS A
(LOGO) PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
PHOENIX LEASING INCORPORATED
ORIGINATOR/SERVICER
- -------------------------------------------------------------------------------
The Class A Lease Backed Certificates (the "Class A Certificates") hereby
offered by Prudential Securities Secured Financing Corporation represent the
right to receive repayment of the Initial Class A Certificate Principal Balance
($ ) of the Class A Certificates and monthly interest at a rate of %
per annum on the unpaid portion of such principal amount. The rights to receive
such payments are based solely upon the interests represented by the Class A
Certificates in the PSSFC Equipment Lease Trust 1995-1 (the "Trust") formed
pursuant to a Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of November 1, 1995, among Phoenix Leasing Incorporated,
as servicer of the receivables (the "Servicer"), Prudential Securities Secured
Financing Corporation (the "Depositor") and Bankers Trust Company, as trustee
(the "Trustee"). The assets of the Trust will consist of certain finance
leases, installment sale contracts, loan contracts and all monies relating
thereto received after the Cut-Off Date (the "Leases"), the underlying equipment
or property leased thereby, if any, (the "Equipment," together with the Leases,
the "Receivables") and certain other property but will not include any warrants
issued by a Lessee to PLI.
Principal and interest will be paid to the Class A Certificateholders monthly
on the 25th day (or the next succeeding business day thereafter) of each month,
commencing in December, 1995, as further described herein. The final payment of
principal and interest on the Class A Certificates is expected to be made on
February 25, 2003 (the "Expected Final Payment Date") but, in any event, shall
be made no later than February 25, 2004.
Phoenix Leasing Incorporated, a financial services and asset management
company ("PLI"), will agree in the Contribution Agreement to use its best
efforts to cause the transfer to Phoenix Receivables II, Inc. (the "Phoenix
Finance Subsidiary"), of additional, qualifying Equipment and the related Leases
during the period from and including the Closing Date to but excluding the
December 1996 Payment Date, or, if a Required Amortization Event (as defined
herein) occurs with respect to a Payment Date prior to the December 1996 Payment
Date, such earlier Payment Date (the December 1996 or such earlier Payment Date
being the "Initial Amortization Date") (such period being the "Interest-Only
Period"). The Pooling and Servicing Agreement and the Receivables Transfer
Agreement will provide that, to the extent such additional qualifying Equipment
(the "New Equipment") and related Leases (the "New Leases") (the New Equipment,
New Leases and other property appurtenant thereto is the "New Transferred
Property") are available from PLI during the Interest-Only Period, an amount
equal to all Base Principal Amount, Residual Receipts and Defaulted Residual
Receipts will be disbursed by the Trust in consideration of the transfer to the
Trust of New Transferred Property. Beginning with the Initial Amortization Date,
to the extent of Available Funds, an amount equal to the Base Principal Amount
and Residual Receipts shall be distributed as principal to the holders of the
Class A Certificates and the Class B Certificates as described herein.
On and after the Initial Amortization Date the Depositor will have the option
on each Payment Date to transfer New Transferred Property to the Trust. Such
New Transferred Property shall relate to New Leases having an aggregate Lease
Principal Balance not in excess of the aggregate amount of Prepayments deposited
to the Collection Account with respect to the prior Collection Period. The
Trust shall disburse upon the order of the Depositor, as stated in the Pooling
and Servicing Agreement, an amount equal to the aggregate Lease Principal
Balances of such New Leases.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SERVICER, ANY SUCCESSOR
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE
UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY THE DEPOSITOR OR THE SERVICER. SEE ALSO "SPECIAL
CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE RISK FACTORS SET FORTH UNDER "SPECIAL
CONSIDERATIONS" ON PAGE S-16 HEREIN AND ON PAGE 14 IN THE PROSPECTUS.
The Class A Certificates will be purchased by Prudential Securities
Incorporated (the "Underwriter") from the Depositor and will be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale.
Proceeds to the Depositor from the sale of the Class A Certificates will be
approximately ____% of the Initial Class A Certificate Balance (as defined
herein), before deducting expenses estimated to be approximately $_________ in
the aggregate.
The Class A Certificates are offered subject to prior sale, when, as, and if
accepted by the Underwriter and subject to the approval of certain legal matters
by counsel for the Underwriter. It is expected that delivery of the Class A
Certificates will be made only in book-entry form through the Same Day Funds
Settlement System of The Depository Trust Company on or about November 30, 1995.
PRUDENTIAL SECURITIES INCORPORATED
November , 1995
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THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------------------------
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Class A Certificates offered pursuant to this
Prospectus Supplement. This Prospectus Supplement and the related Prospectus,
which form a part of the Registration Statement, omit certain information
contained in such Registration Statement pursuant to the Rules and Regulations
of the Commission. The Registration Statement can be inspected and copied at the
Public Reference Room at the Commission at 450 Fifth Street, N.W., Washington,
D.C. and the Commission's regional offices at Seven World Trade Center, 13th
Floor, New York, New York, 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
------------------------------------------
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, periodic and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Company
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holders of the Certificates. See "Description of the Securities -- Reports to
Securityholders" in the accompanying Prospectus (the "Prospectus"). Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Depositor will cause to be filed with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder and as are otherwise agreed to by the Commission. Copies of such
periodic reports may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
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SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT ON THE PAGES INDICATED IN THE "INDEX OF TERMS" OR, TO THE EXTENT NOT
DEFINED HEREIN, HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE PROSPECTUS.
ISSUER . . . . . . . . . . . PSSFC Equipment Lease Trust 1995-1 (the
"Trust" or the "Issuer").
DEPOSITOR . . . . . . . . . . Prudential Securities Secured Financing
Corporation (the "Depositor"), a Delaware
corporation. The Depositor will acquire the
Receivables pursuant to the Transfer
Agreements and will then transfer the
Receivables to the Trust. The principal
executive offices of the Depositor are
located at One New York Plaza, 12th Floor,
New York, New York 10292, and its telephone
number is (212) 778-7085.
SERVICER . . . . . . . . . . Phoenix Leasing Incorporated, a California
corporation (the "Servicer"). The principal
executive offices of the Servicer are located
at 2401 Kerner Boulevard, San Rafael,
California 94901, and its telephone number is
(415) 485-4500.
TRUSTEE . . . . . . . . . . . Bankers Trust Company (the "Trustee"), a New
York banking corporation. The corporate
trust offices of the Trustee are located at
Four Albany Street, New York, New York 10006,
and its telephone number is (212) 250-2500.
CUT-OFF DATE . . . . . . . . With respect to the Initial Leases, the close
of business on November 1, 1995. With
respect to any New Lease transferred to the
Trust, the close of business on the day
preceding the date of such transfer.
CLOSING DATE . . . . . . . . On or about November 30, 1995.
PAYMENT DATES
AND RECORD DATES . . . . . . Payment Dates will be on the 25th day of each
month, or the next succeeding Business Day,
commencing in December, 1995. Record Dates
are the last calendar day of each month.
THE TRANSFER
AGREEMENTS . . . . . . . . . The Initial Leases have heretofore been
originated by the Servicer and assigned by
the Servicer to one of two subsidiaries of
the Servicer (each, a "Subsidiary" and
together, the "Subsidiaries"). On or prior
to the date of formation of the Trust, the
Subsidiaries will have assigned the Initial
Leases back to the Servicer. On the date of
formation of the Trust, the Servicer will
transfer all of its right, title and interest
in and to the Initial Leases, the Initial
Equipment and the property appurtenant
thereto (collectively, the "Initial
Transferred Property") to a special- purpose
finance vehicle, Phoenix Receivables II, Inc.
(the "Phoenix Finance Subsidiary") pursuant
to a Contribution Agreement dated as of
November 1, 1995 (the "Contribution
Agreement") between the Servicer
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and the Phoenix Finance Subsidiary. The Phoenix
Finance Subsidiary will then further transfer
the Initial Transferred Property to the
Depositor pursuant to a Receivables Transfer
Agreement dated as of November 1, 1995 (the
"Receivables Transfer Agreement") between the
Phoenix Finance Subsidiary and the Depositor.
The Contribution Agreement and the Receivables
Transfer Agreement are together referred to as
the "Transfer Agreements." Pursuant to the
Pooling and Servicing Agreement, the Depositor
will transfer the Trust Assets (including from
time to time the New Leases and New Equipment)
to the Trust. The Initial Transferred Property,
together with any New Transferred Property are
referred to as the "Transferred Property."
TRUST ASSETS . . . . . . . The assets of the Trust will consist of,
initially, (i) a pool of Equipment (the "Initial
Equipment"), (ii) non-cancelable equipment
leases, installment sale contracts and loans
relating to such Equipment and certain other
loans and leases (collectively, the "Initial
Leases") and all payments due and proceeds
received thereunder subsequent to the Cut-Off
Date with respect to the Initial Leases, together
with other property appurtenant thereto.
Thereafter, New Transferred Property may be
transferred to the Trust. The Initial Leases,
together with any New Leases are referred to as
the "Leases" and the Initial Equipment together
with any New Equipment are referred to as the
"Equipment."
On each Payment Date prior to the Initial
Amortization Date, an amount equal to all Base
Principal Amount, Residual Receipts and Defaulted
Residual Receipts will be disbursed by the Trust
in consideration of the transfer of New
Transferred Property relating to Leases having an
aggregate Lease Principal Balance on such Payment
Date equal as nearly as practicable to the amount
of such Base Principal Amount, Residual Receipts
and Defaulted Residual Receipts. Beginning with
the Initial Amortization Date, to the extent of
Available Funds, an amount equal to the Base
Principal Amount and Residual Receipts shall be
distributed as principal to the holders of the
Class A Certificates and the Class B Certificates
as described herein.
On and after the Initial Amortization Date, the
Depositor will have the option on each Payment
Date to transfer to the Trust New Leases having
an aggregate Lease Principal Balance not in
excess of the aggregate amount of Prepayments
received by the Servicer during the prior
Collection Period and to remove an amount of cash
equal to the aggregate Lease Principal Balances
of such New Leases. The Depositor's option to
transfer New Leases to replace prepaid Leases on
and after the Initial Amortization Date is
limited to $5,000,000.
Pursuant to the Contribution Agreement, the
Servicer will make certain representations and
warranties to the Phoenix Finance Subsidiary and
the Phoenix Finance Subsidiary will make certain
representations and warranties to the Depositor,
with respect to, among other things, the
Equipment and the Leases, which representations
and warranties will be assigned to the Trustee
under the Pooling and Servicing Agreement.
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THE CLASS A CERTIFICATES The Class A Certificates will represent the right
to receive a specified principal amount and
monthly interest at a rate of % per annum on
the unpaid portion of that principal amount. The
rights to such payments are based solely on the
interest in the Trust represented by the Class A
Certificates.
The Class A Certificates will be issued in a
principal amount of $ , which is
approximately ____% of the aggregate Lease
Principal Balance of the Initial Leases as of the
Cut-Off Date with respect to the Initial Leases
(the "Initial Aggregate Lease Principal
Balance"). The Initial Aggregate Lease Principal
Balance will be derived using a discount rate
which is the sum of (i) the weighted average of
the Class A Certificate Rate and the Class B
Certificate Rate and (ii) 1.50% (the "Discount
Rate"), applied to Scheduled Payments and Final
Lease Payments only; Neither Residual Receipts
nor Defaulted Residual Receipts enter into this
calculation. For purposes of this Preliminary
Prospectus Supplement, the Discount Rate is
assumed to be 8.4834% per annum, which rate is
not expected to be materially different from the
actual Discount Rate.
The Class A Certificates are available in
book-entry form only, through the facilities of
DTC.
The Trust will also issue two classes of
subordinate certificates, the Class B
Certificates and the Trust Certificate (together,
the "Subordinate Certificates," and collectively
with the Class A Certificates, the
"Certificates").
The Subordinate Certificates are not offered
hereby, and will be issued initially to the
Depositor, which will deliver them to the Phoenix
Finance Subsidiary as partial consideration for
the conveyance of the Initial Transferred
Property to the Depositor. The Phoenix Finance
Subsidiary expects that the Class B Certificates
will be privately placed with one or more
qualified institutional investors. The Phoenix
Finance Subsidiary expects to retain the Trust
Certificate.
As described above under "Trust Assets" and below
under "Flow of Funds," from time to time the
Depositor may transfer New Transferred Property
to the Trust. The Pooling and Servicing
Agreement provides that, unless a Required
Amortization Event occurs prior to the December
1996 Payment Date, amounts calculated by
reference to Base Principal Amount, Residual
Receipts and Defaulted Residual Receipts which
would otherwise be paid to the holders of the
Certificates will be disbursed upon the order of
the Depositor, as stated in the Pooling and
Servicing Agreement, in consideration of the
transfer of New Transferred Property, with the
result that the holders of the Certificates will
receive payments of interest only, and no
payments of principal, on each Payment Date prior
to the December 1996 Payment Date. See
"Description of the Certificates" and "Prepayment
and Yield Considerations" herein.
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THE LEASES . . . . . . . . The Leases consist or, in the case of the New
Leases, will consist, of transactions originated
by the Servicer.
Approximately 85% of the Initial Leases consist
of an agreement, including, as applicable,
schedules, supplements and amendments to a master
lease, pursuant to which specified Equipment is
leased to a lessee at a specified monthly rental.
Approximately 15% of the Initial Leases take the
form of loan contracts consisting of notes and
accompanying security agreements. Each New Lease
will be in the form of a lease or a loan.
Certain of the Initial Leases that take the form
of leases contain provisions requiring that the
related Lessee purchase the related Equipment at
the end of the related Lease term for an amount
which may in certain cases be the fair market
value of the related Equipment at Lease maturity.
Such amount may be (i) a specified amount or (ii)
a minimum specified amount plus an unspecified
excess amount which together with the minimum
specified amount is the lesser of (a) the fair
market value of the related Equipment at Lease
maturity or (b) a maximum specified amount. Any
payment of such a specified amount or minimum
specified amount received from a Lessee in
connection with a required purchase by such
Lessee at maturity of the related Lease is a
"Final Lease Payment." Certain of the Initial
Leases that take the form of leases may require a
payment of an amount in excess of such a minimum
specified amount in connection with a required
purchase by a Lessee at maturity of the related
Lease. Any such excess amount received from a
Lessee is an "Excess Amount."
Certain Initial Leases that take the form of
leases do not contain a provision requiring the
Lessee to purchase the related Equipment, but
rather contain an end-of-term purchase option
(such Initial Leases, the "Purchase Option
Leases"). Such purchase options are exercisable
at varying amounts, and are referred to as
"Purchase Option Payments." In the event that a
Lessee under a Purchase Option Lease does not
exercise its purchase option, such Lessee is
required to return the related Equipment to the
Servicer and the Servicer is required to sell
such Equipment at the best price obtainable. The
Servicer may, but has no obligation to, purchase
any such returned Equipment. The amounts of (x)
any Purchase Option Payments, (y) other proceeds
of the sale of Equipment in the event that the
related Lessee under a Purchase Option Lease does
not exercise its purchase option at the end of
such Lease, and (z) Excess Amounts are
collectively referred to as "Residual Receipts."
Final Lease Payments are not "Residual Receipts."
All proceeds of the sale of Equipment related to
Defaulted Leases and any amounts collected as
judgments against a Lessee or others related to
the failure of such Lessee to pay any required
amounts under the related Lease or to return the
Equipment, in each case as reduced by (i) any
unreimbursed Servicer Advances with respect to
such Lease or such Equipment and (ii) any
reasonably incurred out-of-pocket expenses
incurred by the Servicer in enforcing such Lease
or in liquidating such Equipment are referred to
as "Defaulted Residual Receipts".
S-6
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Generally, Lessees do not have the right to
prepay their obligations under the Initial
Leases; however, pursuant to the terms of the
Pooling and Servicing Agreement, the Servicer may
allow prepayment by a Lessee of an amount not
less than the sum of (1) the Lease Principal
Balance of the related Lease as of the
immediately preceding Payment Date (but without
deduction for any security deposit previously
paid by such Lessee to the Servicer and not
deposited in the Collection Account), (2) an
amount equal to the product of one-twelfth of the
Discount Rate and such Lease Principal Balance,
(3) any Scheduled Payments theretofore due and
unpaid by such Lessee and (4) any Final Lease
Payment or any exercised Purchase Option Payment
due or to become due under such Lease (such
amounts, collectively, the "Prepayment Amount").
The Servicer will also be permitted to remove
Equipment and the related Lease from the Trust
for the purpose of negotiating an upgrade or
trade-in of the Equipment with the Lessee, but
only upon deposit into the Trust of the Lease
Principal Balance of such Lease, plus accrued
interest at the Discount Rate and other
outstanding amounts and fees (the "Reconveyance
Amount"). Upon deposit of the Reconveyance
Amount in the Collection Account, the Servicer
will also be permitted to remove any Lease and
the related Equipment with respect to which the
Lessee is in default or such default is, in the
Servicer's judgment, imminent. The "Lessee" is
the obligor under each Initial Lease, including
any guarantor.
All of the Initial Leases that are in the forms
of leases are "net leases" (i.e., the Lessee
assumes all responsibility with respect to the
related Equipment, including the obligation to
pay all costs relating to its operation,
maintenance, repair and, with certain exceptions
described herein, insurance). The Initial Leases
that are in the form of leases also contain
provisions which unconditionally obligate the
Lessee to make all Scheduled Payments and any
Final Lease Payment thereunder.
The Initial Equipment and related Leases have
been selected from the Contributors' portfolios
of equipment and lease contracts based on the
criteria specified in the Transfer Agreements and
any New Equipment and New Leases must conform to
such criteria at the time of the transfer of such
New Equipment and New Leases into the Trust.
The Initial Equipment represents 325 Leases. As
of the Cut-Off Date with respect to the Initial
Leases, the weighted average remaining term to
maturity was approximately 44.79 months. The
final Scheduled Payment or Final Lease Payment on
the Initial Lease with the latest maturity is due
in March, 2001. As of the Cut-Off Date, the
average Lease Principal Balance of the Initial
Leases was approximately $91,775.24. The Initial
Leases amortize their respective Lease Principal
Amounts on the actuarial method. See "The
Receivables Pool" herein for more information
concerning the Initial Leases.
AFFIRMATIVE COVENANTS . . . PLI will covenant and agree in the Contribution
Agreement, among other things, during the
Interest-Only Period, (i) to remain in the
business of
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<PAGE> 8
originating and purchasing equipment and related
leases substantially similar to the Initial
Equipment and Initial Leases, (ii) to use its
best efforts to originate and purchase such
equipment and related leases in a quantity no
less than the cumulative amount of Base
Principal Amount, Residual Receipts and
Defaulted Residual Receipts during the
Interest-Only Period, (iii) not to sell, or
enter into agreements to sell, such equipment or
related leases to others in a manner which would
materially and adversely affect PLI's ability to
perform its obligations under the Contribution
Agreement to make available New Leases for
transfer to the Trust.
FLOW OF FUNDS . . . . . . . The Pooling and Servicing Agreement will require
that the Trustee establish an account (the
"Collection Account") and that the Servicer
deposit to the Collection Account all collections
received by the Servicer on the Leases no later
than two business days following the Servicer's
determination that such amounts relate to the
Leases or the Equipment.
On each Payment Date prior to the Initial
Amortization Date, the Trustee will be required
to make the following payments from the Available
Funds and the Residual Receipts then on deposit
in the Collection Account, in the following order
of priority:
(i) from the Available Funds, to the
Servicer, the Servicer Fee then due,
together with any unrecoverable Servicer
Advances and certain miscellaneous
amounts;
(ii) from the Available Funds then
remaining in the Collection Account, to
the Class A Certificateholders, the Class
A Certificate Interest and Class A Overdue
Interest for the related Collection
Period;
(iii) from the Available Funds then
remaining in the Collection Account, to
the Class B Certificateholders, the Class
B Certificate Interest and the Class B
Overdue Interest for the related
Collection Period;
(iv) from the Available Funds and
Residual Receipts then remaining in the
Collection Account, and from amounts then
remaining in the New Transferred Property
Funding Account, an amount which would be,
in the absence of losses, equal to the sum
of (A) the Base Principal Amount with
respect to such Payment Date and (B) the
Residual Receipts and the Defaulted
Residual Receipts received by the Servicer
during the prior Collection Period to the
Depositor up to an amount equal to the
aggregate Lease Principal Balances of the
New Leases available to be transferred to
the Trust and the remainder to the New
Transferred Property Funding Account;
(v) from the amount then remaining in
the Collection Account, to the Servicer,
certain miscellaneous amounts; and
(vi) to the Holder of the Trust
Certificate, any remaining amounts.
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On any Payment Date prior to the Initial
Amortization Date, PLI shall have no obligation
to make available to the Trust the amount by
which (i) an amount equal to the sum of (a) the
Base Principal Amount with respect to such
Payment Date and (b) the Residual Receipts and
the Defaulted Residual Receipts received by the
Servicer during the prior Collection Period
exceeds (ii) the actual amount of the sum of (a)
the Available Funds and Residual Receipts then
remaining in the Collection Account and (b) the
amounts then remaining in the New Transferred
Property Funding Account.
On and after the Payment Date which is also the
Initial Amortization Date, the Trustee will be
required to make the following payments from the
Available Funds and the Residual Receipts then on
deposit in the Collection Account, in the
following order of priority:
(i) from the Available Funds, to the
Servicer, the Servicer Fee then due,
together with any unrecoverable Servicer
Advances and certain miscellaneous
amounts;
(ii) from the Available Funds then
remaining in the Collection Account, to
the Class A Certificateholders, the Class
A Certificate Interest and Class A Overdue
Interest for the related Collection
Period;
(iii) until the Class A Certificate
Principal Balance has been reduced to
zero, to the Class A Certificateholders,
(a) from the Available Funds then
remaining in the Collection Account, the
sum of (1) the Class A Base Principal
Distribution Amount for such Payment Date,
and (2) any Class A Overdue Principal and
(b) one-half of the Residual Receipts
received by the Servicer during the prior
Collection Period;
(iv) from the Available Funds then
remaining in the Collection Account, to
the Class B Certificateholders, the Class
B Certificate Interest and the Class B
Overdue Interest for the related
Collection Period;
(v) until the Class B Certificate
Principal Balance has been reduced to
zero, to the Class B Certificateholders,
(a) from the Available Funds then
remaining in the Collection Account, the
sum of (1) the Class B Base Principal
Distribution Amount for such Payment Date,
and (2) any Class B Overdue Principal and
(b) one-half of the Residual Receipts
received by the Servicer during the prior
Collection Period;
(vi) from the Available Funds then
remaining in the Collection Account, to
the Servicer, certain miscellaneous
amounts; and
(vii) to the Holder of the Trust
Certificate, any remaining amounts.
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<PAGE> 10
See "Description of the Certificates - Flow of
Funds" in this Prospectus Supplement for the
definitions of certain defined terms used above.
SUBORDINATION PROVISIONS The credit enhancement available for the benefit
of the Class A Certificateholders is provided by
the "Subordinate Certificates" (i.e., the Class
B Certificates and the Trust Certificate). The
Trust Certificate is subordinate to the Class B
Certificates.
The Certificates have been issued in an aggregate
initial principal amount equal to the Initial
Aggregate Lease Principal Balance of $ in the
following proportions: Class A Certificates,
approximately 72% (the "Class A Percentage"),
Class B Certificates, approximately ____% (the
"Class B Percentage") and the Trust Certificate,
approximately ____%.
The cash flow and subordination provisions of the
Pooling and Servicing Agreement provide that
Available Funds and Residual Receipts on each
Payment Date will be used to fund payments to the
Certificateholders (and to pay the fees and
expenses of the Servicer). "Available Funds" with
respect to a Payment Date generally includes
amounts collected during the immediately
preceding Collection Period with respect to the
Leases and the Equipment, including Scheduled
Payments, Final Lease Payments and Defaulted
Residual Receipts.
On each Payment Date prior to the Initial
Amortization Date, with respect to amounts due to
the Certificateholders, the Pooling and Servicing
Agreement first requires that there be paid
interest (together with any overdue interest and
interest thereon) to the Class A
Certificateholders, and, second, interest
(together with any overdue interest and interest
thereon) to the Class B Certificateholders.
On and after the Payment Date which is also the
Initial Amortization Date, with respect to
amounts due to the Certificateholders, the
Pooling and Servicing Agreement first requires
funding of both interest and principal payments
to the Class A Certificateholders, and second,
the funding of both interest and principal
payments to the Class B Certificateholders, as
further described herein.
The amount to be allocated as a payment of
principal is the sum of (i) the Base Principal
Amount and (ii) Residual Receipts received by the
Servicer during the prior Collection Period.
The Pooling and Servicing Agreement defines
"Residual Receipts" to mean all Purchase Option
Payments, Excess Amounts, and proceeds of the
sale of Equipment in the event the related Lessee
does not purchase the Equipment at the end of the
related Lease. The Pooling and Servicing
Agreement defines "Defaulted Residual Receipts"
to mean all proceeds of the sale of Equipment
related to Defaulted Leases and any amounts
collected as judgments against a Lessee or others
related to the failure of such Lessee to pay any
required amounts under the related Lease or to
return the Equipment, in each case as reduced
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by (i) any unreimbursed Servicer Advances with
respect to such Lease or such Equipment and (ii)
any reasonably incurred out-of-pocket expenses
incurred by the Servicer in enforcing such Lease
or in liquidating such Equipment.
On each Payment Date on and after the Payment
Date which is also the Initial Amortization Date,
50% of the Residual Receipts received by the
Servicer during the prior Collection Period will
be due to the Class A Certificateholders as a
payment of principal until the Class A
Certificate Principal Balance has been reduced to
zero and 50% of the Residual Receipts will be due
to the Class B Certificateholders as a payment of
principal until the Class B Certificate Principal
Balance has been reduced to zero. Defaulted
Residual Receipts will be included in Available
Funds and will be distributed as further
described herein.
The effect of the foregoing will be, in the
absence of losses, to accelerate to some degree,
beginning on the Initial Amortization Date, the
amortization of the Class A Certificates and the
Class B Certificates relative to the amortization
of the Lease pool. As a result of these
provisions the relative proportion of the Trust's
assets represented by the Class A Certificates
and by the Class B Certificates will decline over
time, with a relative increase in the proportion
of the Trust's assets represented by the Trust
Certificate.
The "Base Principal Amount," with respect to any
Payment Date, is generally equal to the decrease
in the aggregate Lease Principal Balance from the
beginning of the prior Collection Period to the
end of the prior Collection Period. This
decrease will generally be an amount equal to the
sum of actual principal collections during the
prior Collection Period, Reconveyance Amounts
delivered to the Trustee in connection with the
removal of Leases, plus the Lease Principal
Balance of any Lease which became a "Defaulted
Lease" during such Collection Period. A Lease
becomes a "Defaulted Lease" at the earlier of the
date on which (i) four Scheduled Payments are due
and unpaid as of any Calculation Date or (ii) the
Servicer determined in accordance with its
customary servicing practices that eventual
payment of the remaining Scheduled Payments and
Final Lease Payment, if any, is unlikely or (iii)
such Lease has been rejected by or on behalf of
the Lessee in a bankruptcy proceeding. The
Pooling and Servicing Agreement requires that a
Defaulted Lease be assigned a Lease Principal
Balance of zero.
On each Payment Date on and after the Payment
Date which is also the Initial Amortization Date,
approximately 72% (the "Class A Percentage") of
the Base Principal Amount will be due to the
Class A Certificateholders as the "Class A Base
Principal Distribution Amount" until the Class A
Certificate Principal Balance has been reduced to
zero. Approximately ____% (the "Class B
Percentage") of the Base Principal Amount will be
due to the Class B Certificateholders as the
"Class B Base Principal Distribution Amount"
until the Class B Certificate Principal Balance
has been reduced to zero.
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Since the Available Funds on any Payment Date on
and after the Payment Date which is also the
Initial Amortization Date, are applied in the
order of priority described above under "Flow of
Funds" until such Available Funds are exhausted,
the effect of (x) including deemed losses (i.e.,
the Lease Principal Balance of any Defaulted
Lease) in the "Base Principal Amount" and (y)
assigning payment of the "Class A Base Principal
Distribution Amount" a higher priority than
either (i) the "Class B Base Principal
Distribution Amount" or (ii) payments to the
Holder of the Trust Certificate is to allocate
losses first, to the Holder of the Trust
Certificate and second, to the Class B
Certificateholders.
Through the operation of the "Class A Overdue
Principal" and "Class B Overdue Principal"
provisions, Class A Certificateholders and Class
B Certificateholders are entitled to receive any
aggregate, cumulative shortfalls of Class A Base
Principal Distribution Amounts and Class B Base
Principal Amounts not paid on prior Payment
Dates.
If, prior to the Initial Amortization Date, the
Trust Certificate Principal Balance is reduced
below 5%, then PLI will be required on the next
Payment Date to arrange for the transfer to the
Trust of New Transferred Property relating to New
Leases having an aggregate Lease Principal
Balance necessary to increase the Trust
Certificate Principal Balance to the 5% level.
SERVICING . . . . . . . . . The Servicer will be responsible for servicing,
managing and administering the Transferred
Property and enforcing and making collections on
the Leases. The Servicer will be required to
exercise the degree of skill and care in
performing these functions that it customarily
exercises with respect to similar property owned
or serviced by the Servicer. The Servicer will
be entitled to receive (a) a monthly fee (the
"Servicer Fee") of the product of (i) one-twelfth
of 1.50% and (ii) the aggregate outstanding Lease
Principal Balance of all Leases as of the
beginning of the previous Collection Period,
payable out of the Collection Account, (b) late
payment fees and (c) certain other fees paid by
the Lessees ("Servicing Charges"), as
compensation for acting as Servicer.
Under certain limited circumstances, the Servicer
may resign or be removed, in which event either
the Trustee or a third party meeting the
requirements set forth in the Pooling and
Servicing Agreement will be appointed as
successor Servicer. See "Description of the
Certificates -- Events of Servicing Termination."
The Servicer will be required to cause amounts
collected on the Leases on behalf of the Trust to
be deposited to the Collection Account maintained
by the Trustee no later than two business days
following the Servicer's determination that such
amounts relate to the Leases or the Equipment.
See "Description of the Certificates --
Collection Account and Investment of Funds." The
Servicer will also be required to make advances
for delinquent Scheduled Payments and Final Lease
Payments, but only to the extent it determines in
its sole discretion that
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such advances will be recoverable in future
periods. See "Description of the Certificates
-- Servicer Advances."
SUBSTITUTION AND
MODIFICATIONS . . . . . . . The Pooling and Servicing Agreement permits the
Servicer, subject to certain requirements, to
make substitutions in replacement of Defaulted
Leases or modify Leases, provided that (x) the
substitute Lease, or the Lease as modified, has a
Lease Principal Balance not lower than the Lease
Principal Balance of the substituted Lease, or
the Lease prior to such modification, as the case
may be, (y) the substituted or modified Lease may
not have a maturity date later than the maturity
date of any other Lease then held by the Trust
and (z) the aggregate, cumulative Lease Principal
Balance of such substituted or modified Leases
may not exceed 10% of the Initial Aggregate Lease
Principal Balance.
ADVANCES . . . . . . . . . Subject to the limitations described herein, on
the third business day prior to any Payment Date,
the Servicer will be required to make an advance
to the Trustee in an amount sufficient to cover
all amounts due and unpaid on any Delinquent
Lease (a "Servicer Advance") as of the fifth
business day immediately preceding such Payment
Date (the "Determination Date").
A "Delinquent Lease" will mean, as of any
Determination Date, any Lease (other than a Lease
which became a Defaulted Lease prior to such
Determination Date) with respect to which more
than 90% of the Scheduled Payment was not
received when due by the Servicer as of the close
of business on the last day of the month in which
such payment was due. With respect to any
Delinquent Lease, whenever the Servicer shall
have determined that it will be unable to recover
a Servicer Advance or a portion thereof on such
Delinquent Lease, the Servicer will not be
required to make such Servicer Advance or portion
thereof, but will be required to enforce its
remedies (including acceleration) under such
Lease. Furthermore, if at any time Phoenix
Leasing Incorporated is no longer the Servicer,
no Servicer Advances will be required. The
Pooling and Servicing Agreement shall provide
that, in the event that the Servicer determines
that any Servicer Advances previously made are
Nonrecoverable Advances, or any Delinquent Leases
for which the Servicer has made a Servicer
Advance in respect thereof become Defaulted
Leases, the Trustee shall draw on the Collection
Account to repay such Servicer Advances.
OPTIONAL REMOVAL . . . . . The holder of the Trust Certificate will have the
option, subject to certain conditions set forth
in the Pooling and Servicing Agreement, including
the deposit of the sum specified in the Pooling
and Servicing Agreement, to remove all, but not
less than all, of the property in the Trust, and
thereby cause early retirement of the
Certificates as of any Payment Date following the
date on which the aggregate Class A Certificate
Principal Balance and the Class B Certificate
Principal Balance is less than 10% of the Initial
Class A Certificate Principal Balance and the
Initial Class B Certificate Principal Balance. In
the event of such a removal, the entire
outstanding Class A Certificate
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Principal Balance and the Class B Certificate
Principal Balance, together with accrued
interest thereon at the related Certificate
Rate, will be required to be paid to the Class A
Certificateholders and the Class B
Certificateholders on such Payment Date.
LIMITED REMOVAL
OBLIGATION . . . . . . . . PLI will be obligated to accept the reconveyance
of a piece of Equipment and the related Lease
from the Trustee and to deposit the Reconveyance
Amount if the interest of the Trust, in any of
the related Equipment, the related Lease, or the
related Lease file is materially adversely
affected by a breach of a representation or
warranty made by PLI with respect to such Lease
and if such breach has not been cured as of the
last day of the month following the month of
discovery of such breach.
CERTAIN LEGAL
ASPECTS OF THE LEASES . . . The Phoenix Finance Subsidiary will warrant that
the transfer to the Trust of the Transferred
Property is either a valid transfer and
assignment of the Transferred Property or the
grant of a security interest in the Transferred
Property. The Phoenix Finance Subsidiary will
warrant that if the transfer to the Trust is
deemed to be a grant to the Trust of a security
interest in the Transferred Property, then the
Trust will have a first priority perfected
security interest therein, except for the
Equipment and certain liens which have priority
over previously perfected security interests by
operation of law, and, with certain exceptions,
in the proceeds thereof. The Servicer will be
required to take such action as is required to
perfect the Trust's interest in the Transferred
Property except as discussed below with respect
to the Equipment. If the Subsidiaries, PLI, the
Phoenix Finance Subsidiary, the Depositor, the
Servicer or the Trustee, while in possession of
an item of Transferred Property, sells or pledges
and delivers such Transferred Property to another
party, in violation of the Pooling and Servicing
Agreement, there is a risk that the purchaser
could acquire an interest in such an item of
Transferred Property having priority over the
Trust's interest.
Because of the administrative burden and expense
that would be entailed in so doing, none of the
Subsidiaries, PLI, the Phoenix Finance
Subsidiary, the Depositor nor the Servicer has
filed or will be required to file UCC (as herein
defined) financing statements in favor of the
Trustee identifying the Equipment related to the
Franchise Business leases as collateral pledged
to the Trustee on behalf of the Trust. In the
absence of such filings any security interest in
the related Equipment will not be perfected in
favor of the Trustee and the Trustee shall have
no liability with respect to such lack of
perfection. Upon request, the Servicer will be
required to make such filings with respect to
Defaulted Leases. UCC financing statements
identifying the Equipment related to the Growth
Capital leases as collateral pledged to the Trust
will be filed in California, Washington and New
Jersey, but will not be filed in any other
jurisdiction in which such Equipment is located.
See "Special Considerations" and "Certain Legal
Aspects of the Receivables" in the Prospectus.
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TAX STATUS . . . . . . . . Tax Counsel is of the opinion that under existing
law the Class A Certificates will be
characterized as indebtedness for federal income
tax purposes. Under the Pooling and Servicing
Agreement, the Depositor, the Servicer, the
Certificateholders and other parties will agree
to treat the Class A Certificates as debt for all
income tax purposes. See "Certain Federal Income
Tax Consequences" in the Prospectus Supplement
for additional information concerning the
application of federal income tax laws.
RATING OF THE
CLASS A CERTIFICATES . . . It is a condition to the issuance of the Class A
Certificates that they be rated at least "A" by
Duff & Phelps Credit Rating Co. (the "Rating
Agency").
ERISA CONSIDERATIONS . . . Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Class A Certificates are not
generally eligible for purchase by employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"). See "ERISA Considerations"
herein and in the Prospectus.
SPECIAL CONSIDERATIONS . . For a discussion of certain factors that should
be considered by prospective investors in the
Class A Certificates, see "Special
Considerations" herein and in the Prospectus.
LEGAL MATTERS . . . . . . . Certain legal matters relating to the
Certificates will be passed upon for the
Contributors, the Phoenix Finance Subsidiary, PLI
and the Servicer by Thelen, Marrin, Johnson &
Bridges, Los Angeles, and for the Underwriter by
Dewey Ballantine, New York, New York. Certain
Federal income tax matters will be passed upon
for the Issuer by Dewey Ballantine, New York, New
York.
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<PAGE> 16
SPECIAL CONSIDERATIONS
Prospective Class A Certificateholders should consider, among
other things, the following factors in connection with the purchase of the Class
A Certificates:
INTERESTS IN THE RECEIVABLES. The Receivables have heretofore
been originated by the Servicer and assigned by the Servicer to the
Subsidiaries. On or prior to the date of formation of the Trust, the
Subsidiaries will have assigned the Initial Leases back to the Servicer. The
Servicer will transfer the Receivables to the Phoenix Finance Subsidiary, the
Phoenix Finance Subsidiary will transfer the Receivables to the Depositor, and
the Depositor will transfer the Receivables to the Trust. The Phoenix Finance
Subsidiary will warrant in the Receivables Transfer Agreement to the Depositor
is either a valid assignment, transfer and conveyance or the grant of a
security interest, and the Depositor will warrant in the Pooling and Servicing
Agreement that the transfer of the Receivables to the Trust is either a valid
assignment, transfer and conveyance of the Receivables to the Trust or the
grant to the Trustee for the benefit of the Certificateholders of a security
interest in the Receivables. The Phoenix Finance Subsidiary will warrant that
if the transfer to the Trust is deemed to be a grant to the Trust of a security
interest in the Receivables, then the Trustee will have a first priority
perfected security interest therein and, with certain exceptions, in the
proceeds thereof. If the Subsidiaries, PLI, the Phoenix Finance Subsidiary,
the Depositor, the Servicer or the Trustee, while in possession of an item of
Receivables, sells or pledges and delivers such item of Receivables to another
party, in violation of the Pooling and Servicing Agreement, there is a risk
that such other party could acquire an interest in such item of Receivables
having priority over the Trust's interest. The Pooling and Servicing Agreement
provides that the Servicer will maintain possession of the Lease Files. PLI
will make certain representations and warranties with respect to its ownership
of the Receivables prior to the date of transfer to the Phoenix Finance
Subsidiary. The Phoenix Finance Subsidiary will make certain representations
and warranties with respect to its ownership of the Receivables as of the date
of the transfer to the Depositor. PLI will be obligated to accept the
reconveyance of any item of Receivables from the Trustee if there is a breach
of such representations and warranties that materially adversely affects the
interests of the Depositor or the Trust in such item of Receivables and such
breach has not been cured.
Because of the administrative burden and expense, UCC
financing statements identifying any of the Equipment related to the Franchise
Business leases as collateral pledged to the Trust will not be filed in any
jurisdiction. In the absence of such filings, no security interest in the
related Equipment will be perfected in favor of the Trust and the Trustee shall
have no liability with respect to such lack of perfection; consequently, any
tax, government or other subsequent lien on the property of the Holder of the
Trust Certificate may have priority over the Trust's interest in the related
Equipment. UCC financing statements identifying the Equipment related to the
Growth Capital leases as collateral pledged to the Trust will be filed in
California, Washington and New Jersey, but will not be filed in any other
jurisdiction in which such Equipment is located.
THE RECEIVABLES POOL
THE EQUIPMENT
The Equipment subject to the Leases is described below.
SMALL COMPUTER SYSTEMS, PERSONAL COMPUTERS AND WORKSTATIONS.
The Equipment includes small computer systems, as well as personal computers
and workstations. A small computer system typically consists or a central
processing unit, disk or tape drives or both, printers and interactive
typewriters or video display type terminals, and will often also possess data
communication capabilities of a limited nature. A small computer system is
generally used by businesses in various functions such as accounting, inventory
control and sales management operations.
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Personal (or micro) computers leased pursuant to the Leases
include central processing units that generally use Intel or Motorola based
processors. The peripherals used with these processors include hard disk
drives, graphic display systems, memory, and networking hardware and software
that enable individual personal computers to communicate with one another
across a local area network. These microsystems run MS/DOS, Windows, OS/2 and
Macintosh operating systems.
Workstations leased pursuant to the Leases are high
performance engineering and design systems that are far more sophisticated and
complex than microcomputers. Sun Microsystems, Hewlett-Packard, Digital
Equipment Corporation, Silicon Graphics and IBM are the primary manufacturers
of these systems that utilize central processors known as RISC, or Reduced
Instruction Set technology, that offer dramatic performance increases over
conventional processor designs. These workstations are able to communicate
with each other at very high speeds and are the overwhelming choice of
technical professionals in many fields.
LABORATORY AND TEST EQUIPMENT. Laboratory and test equipment
leased pursuant to the Leases includes microscopes, centrifuges, spectrometers
and spectrophotometers, incubators, laminar flow hoods and environmental
control systems. The laboratory gear and test equipment is used across a broad
range of scientific disciplines including biotechnology research and
development.
PRODUCTION, MANUFACTURING AND FABRICATION EQUIPMENT. This
Equipment includes virtually any type of equipment typically used by companies
that are in a position to commence (or continue) production of recently
developed products. This is equipment that the lessee would use in the
manufacture of its product. To facilitate remarketing, PLI endeavors to
include only equipment that could easily be used by others in the production of
similar products.
FURNITURE AND FIXTURES. This Equipment includes virtually any
type of furniture or fixtures used by a company in connection with its
business, including without limitation wall, window and floor coverings, signs,
appliances, furnishings, fixtures and certain leasehold improvements.
INTANGIBLES. Intangibles include certain soft costs including
but not limited to: installation, freight and shipping charges related to
Equipment, and franchise fees due to the franchisor.
OTHER EQUIPMENT. Other Equipment types include copiers and
high volume duplication equipment, phone and telecommunications systems,
recreational equipment, consumer electronics, such as televisions, stereos and
video cassette recorders, computer software products and other office,
manufacturing and capital equipment.
THE LEASES
Approximately 85% of the Initial Leases consist of an
agreement, including, as applicable, schedules, supplements and amendments to a
master lease, pursuant to which specified Equipment is leased to a lessee at a
specified monthly rental. Approximately 15% of the Initial Leases take the
form of loan contracts consisting of notes and accompanying security
agreements. Each New Lease will be in the form of a lease or a loan.
All of the Initial Leases that take the form of leases are
"net leases" (i.e., the Lessee assumes all responsibility with respect to the
related Equipment, including the obligation to pay all costs relating to its
operation, maintenance, repair). In addition, all Initial Leases that take the
form of leases contain "hell or high water" clauses unconditionally obligating
the Lessee to make periodic payments, without setoff, at the time and on the
dates specified in such Lease, notwithstanding default by the Servicer, either
Subsidiary or any assignee of the Servicer or either Subsidiary under such
Lease, damage to or destruction of the related Equipment or any other event.
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Most of the Initial Leases that take the form of leases are
viewed by the Subsidiaries and the Servicer as "true" leases and not as leases
intended for security as defined in Section 1-201(37) of the Uniform Commercial
Code (the "UCC") in effect in the state of California. Under a true lease the
lessor bears the risk of ownership and no title is conferred upon the lessee.
The lessee under a true lease has the right to the temporary use of equipment
for a term shorter than the economic life of such equipment in exchange for
payments at scheduled intervals during the lease term and the lessor retains a
significant "residual" economic interest in the leased equipment.
Predominantly all of the Initial Leases that take the form of leases are
recorded by the Servicer and were recorded by the Subsidiaries under generally
accepted accounting principles ("GAAP") as either direct financing leases in
which the lessor has title to the equipment and which provide for a "residual"
payment in the form of a required "balloon" payment or an optional purchase at
lease maturity, sales-type leases (installment sale contracts) in which the
lessor has title to the equipment but which do not provide for a "residual"
payment (i.e., the periodic scheduled payments fully amortize the equipment
cost) or as notes, under which the lessee has title to the equipment and no
"residual" payment is required.
Lessees under the Initial Leases that take the form of leases
may, upon prior written notice to the Servicer, assign or sublease the related
Equipment, provided that the Servicer consents to the assignee or sublessee in
accordance with the terms of the related Lease. The right to receive such
prior written notice and grant or deny such consent shall be exercised by the
Servicer pursuant to the authority delegated to it in the related Lease.
Notwithstanding any such assignment or sublease, each Lessee will remain liable
for the lessee obligations under the related Lease and such Lease will remain
part of the assets of the Trust.
The Certificates are secured by 325 Initial Leases with an
initial aggregate Lease Principal Balance of approximately $29,826,953.01.
The Initial Leases consist of transactions originated by the
Servicer and assigned by the Servicer to one of the Subsidiaries. On or prior
to the date of formation of the Trust, the Subsidiaries will have assigned the
Initial Leases back to the Servicer. The Servicer will transfer the
Receivables to the Phoenix Finance Subsidiary, the Phoenix Finance Subsidiary
will transfer the Receivables to the Depositor, and the Depositor will transfer
the Receivables to the Trust.
Certain of the Initial Leases that take the form of leases
contain provisions requiring that the related Lessee purchase the related
Equipment at the end of the related Lease term for an amount, which may in
certain cases be the fair market value of the related Equipment at Lease
maturity. Such amount may be (i) a specified amount or (ii) a minimum
specified amount plus an unspecified excess amount which together with the
minimum specified amount is the lesser of (a) the fair market value of the
related Equipment at Lease maturity or (b) a maximum specified amount. Any
payment of such a specified amount or minimum specified amount received from a
Lessee in connection with a required purchase by such Lessee at maturity of the
related Lease is a "Final Lease Payment." Any such excess amount received from
a Lessee is an "Excess Amount".
Certain Initial Leases that take the form of leases do not
contain a provision requiring the related Lessee to purchase the related
Equipment, but rather contain an end-of-term purchase option (such Leases, the
"Purchase Option Leases"). Such purchase options are exercisable at varying
amounts, and are referred to as "Purchase Option Payments." In the event that
a Lessee under a Purchase Option Lease does not exercise its purchase option,
such Lessee is required to return the related Equipment to the Servicer and the
Servicer is required to sell such Equipment at the best price obtainable. PLI
may, but has no obligation to, purchase any such returned Equipment. The
amounts of (x) any Purchase Option Payments, (y) other proceeds of the sale of
Equipment in the event that the related Lessee under a Purchase Option Lease
does not exercise its purchase option at the end of the related Lease, and (z)
Excess Amounts are collectively referred to as "Residual Receipts." Final
Lease Payments are not "Residual Receipts." All proceeds of the sale of
Equipment related to Defaulted Leases and any amounts
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collected as judgments against a Lessee or others related to the failure of
such Lessee to pay any required amounts under the related Lease or to return
the Equipment, in each case as reduced by (i) any unreimbursed Servicer
Advances with respect to such Lease or such Equipment and (ii) any reasonably
incurred out-of-pocket expenses incurred by the Servicer in enforcing such
Lease or in liquidating such Equipment are referred to as "Defaulted Residual
Receipts".
The Initial Leases that take the form of leases are
exclusively on a "net" basis, that is, the lessee is responsible for all
operating expenses, including taxes and insurance premiums. All of the Lessees
under the Initial Leases are obligated to: 1) remit all Lease Payments due; 2)
operate the related Equipment in compliance with the manufacturers'
instructions; 3) maintain and service the related Equipment; and 4) insure the
related Equipment against casualty losses, public liability for bodily injury
and against property damage.
References herein to percentages of Lessees refer in each case
to the percentage of the aggregate Lease Principal Balance of the Initial
Leases as of the Cut-Off Date.
As of the Cut-Off Date, the Initial Leases had remaining terms
to maturity of 20 to 65 months. The final Scheduled Payment or Final Lease
Payment on the Initial Lease with the latest maturity is in March, 2001. As of
the Cut-Off Date, the Lease Principal Balances of the Initial Leases range from
$2,104.07 to $668,060.17. No more than 2.75% of the initial aggregate Lease
Principal Balance is attributable to any one Lessee (including affiliates of
such Lessee), and the average Lease Principal Balance is approximately
$91,775.24. No more than 4.91% of the Initial Aggregate Lease Principal
Balance is attributable to any one franchisor.
The Initial Leases generally do not provide for a right of the
Lessee to prepay. However, under the Pooling and Servicing Agreement, the
Servicer is permitted to allow prepayment in an amount not less than the
Prepayment Amount. In addition, in the event that a Lessee requests an upgrade
or trade-in of Equipment, the Servicer may remove such Equipment and related
Lease from the Pool of Receivables, but only upon payment of an amount equal to
the sum of (1) the Lease Principal Balance as of the first day of the
Collection Period preceding such removal, (2) one month's interest thereon at
the Discount Rate, and (3) any Scheduled Payments due and outstanding under
such Lease that have not been paid by the Lessee (collectively the
"Reconveyance Amount").
SUBSTITUTIONS AND MODIFICATIONS
Pursuant to the Pooling and Servicing Agreement, the Servicer
will have the right (but not the obligation) at any time to substitute one or
more Receivables (each a "Substitute Receivable") for a Receivable
("Predecessor Receivable") if:
(i) the Predecessor Receivable then meets the requirements
for being a "Defaulted Lease"; and
(ii) the aggregate Lease Principal Balance(s) of such
Substitute Receivable or Receivables is at least equal to the
aggregate Lease Principal Balance(s) of such Substitute Receivable or
Receivables, each as of the Calculation Date immediately following the
date of such substitution; and
(iii) the Substitute Receivable or Receivables does not have
a maturity date later than the maturity date of any other Lease held
by the Trust.
In addition, the Servicer has the right to modify the payment
terms of the Leases under certain circumstances, provided the Lease, as
modified, (i) has a Lease Principal Balance not lower than the Lease Principal
Balance of the Lease prior to the modification and (ii) does not have a
maturity date
S-19
<PAGE> 20
later than the latest maturity date of any other Lease then held by the Trust.
See "Description of the Certificates -- Remittance and Other Servicing
Procedures" for a description of additional provisions regarding modifications.
The Pooling and Servicing Agreement further provides that the
aggregate Lease Principal Balance of all Leases substituted or modified may not
exceed 10% of the Initial Aggregate Lease Principal Balance.
Upon repossession and disposition of any Equipment subject to
a Defaulted Lease, any deficiency remaining will be pursued to the extent
deemed practicable by the Servicer. The Servicer on behalf of the Holder of
the Trust Certificate is directed to maximize the Net Residual Value of the
Equipment relating to any Defaulted Lease, and, in such regard, the Servicer
may sell such Equipment at the best available price, refurbish such Equipment
and re-lease such Equipment to third parties, or take any other commercially
reasonable steps to maximize such Equipment's Net Residual Value. Liquidation
proceeds with respect to any such Defaulted Lease, including any future
payments received with respect to such Defaulted Leases, shall be paid to the
Collection Account. If the Servicer reasonably believes that the Net Residual
Value of any Equipment is zero or de minimis, it will dispose of such Equipment
in accordance with its standard procedures.
Following is certain statistical information relating to the
Receivables Pool, calculated as of the Cut-Off Date. Certain columns may not
add to 100% due to rounding.
S-20
<PAGE> 21
DISTRIBUTION OF THE LEASES BY LEASE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Current Discounted Percentage of Initial
Lease Principal Balance Number of Aggregate Lease Aggregate Lease Principal
as of the Cut-Off Date Leases Principal Balance Balance
----------------------------- --------- ------------------- -------------------------
<S> <C> <C> <C>
$ 0 to $ 5,000 5 $ 14,860.35 0.05
$ 5,001 to $ 10,000 5 37,948.01 0.13
$ 10,001 to $ 15,000 6 77,964.67 0.26
$ 15,001 to $ 20,000 7 120,298.67 0.40
$ 20,001 to $ 25,000 19 434,180.25 1.46
$ 25,001 to $ 50,000 87 3,264,318.87 10.94
$ 50,001 to $ 75,000 58 3,484,231.36 11.68
$ 75,001 to $100,000 33 2,898,415.26 9.72
$100,001 to $150,000 51 6,174,576.07 20.70
$150,001 to $200,000 25 4,238,895.49 14.21
$200,001 to $250,000 12 2,692,919.08 9.03
$250,001 to $300,000 6 1,617,799.56 5.42
$300,001 to $350,000 3 944,530.91 3.17
$350,001 to $400,000 1 363,912.00 1.22
$400,001 to $450,000 3 1,261,183.86 4.23
$450,001 to $500,000 1 477,191.72 1.60
$500,001 to $600,000 2 1,055,666.72 3.54
$600,001 to $750,000 1 668,060.17 2.24
- -------------------------------------------------------------------------------------------------------
Total . . . . . . 325 $29,826,953.01 100.00%
=======================================================================================================
</TABLE>
S-21
<PAGE> 22
DISTRIBUTION OF THE LEASES BY LESSEE INDUSTRY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Percentage of Initial
Number Aggregate Lease Aggregate Lease
Industry Type of Leases Principal Balance Principal Balance
- ------------------------------------------ --------- ----------------- -------------------------
<S> <C> <C> <C>
Biomedical 39 $ 5,478,032.72 18.37
Communications Equipment 18 2,000,075.44 6.71
Computer Peripheral Equipment 3 645,126.91 2.16
Computer System 1 25,579.98 .09
Consumer Retail/Misc. 3 352,024.93 1.18
Food Service 36 4,260,859.24 14.29
General and Warehouse Retail 2 74,616.72 .25
Hospitality 136 7,793,956.56 26.13
Multimedia Equipment 1 194,663.94 .65
Other 1 508,094.37 1.70
Printing, Copying Supplies and Services 9 575,723.70 1.93
Semiconductor 7 540,692.52 1.81
Services 10 796,302.84 2.67
Software 59 6,581,203.15 22.06
- ---------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . 325 $29,826,953.01 100.00%
=========================================================================================================
</TABLE>
DISTRIBUTION OF THE LEASES BY ORIGINAL EQUIPMENT COST
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Percentage of
Original Number of Aggregate Lease Initial Aggregate Lease
Equipment Cost Leases Principal Balance Principal Balance
-------------- ------ ----------------- -----------------------
<S> <C> <C> <C>
$ 0 to $ 5,000 5 $ 14,860.35 0.05
$ 5,001 to $ 10,000 5 37,948.01 0.13
$ 10,001 to $ 15,000 7 94,347.94 0.32
$ 15,001 to $ 20,000 10 191,799.25 0.64
$ 20,001 to $ 25,000 16 383,813.66 1.29
$ 25,001 to $ 50,000 92 3,555,927.10 11.92
$ 50,001 to $ 75,000 54 3,338,826.15 11.19
$ 75,001 to $100,000 39 3,549,354.50 11.90
$100,001 to $150,000 50 6,452,240.58 21.63
$150,001 to $200,000 19 3,342,237.75 11.21
$200,001 to $250,000 14 3,281,650.22 11.00
$250,001 to $300,000 5 1,426,296.16 4.78
$300,001 to $350,000 1 331,636.88 1.11
$350,001 to $400,000 2 776,188.95 2.60
$400,001 to $450,000 2 848,906.92 2.85
$450,001 to $500,000 2 985,286.09 3.30
$500,001 to $600,000 1 547,572.35 1.84
$600,001 to $750,000 1 668,060.17 2.24
- ---------------------------------------------------------------------------------------------------------
Total . . . . . . . . 325 $29,826,953.01 100.00%
=========================================================================================================
</TABLE>
S-22
<PAGE> 23
<TABLE>
<CAPTION>
DISTRIBUTION OF THE LEASES BY LESSEE BILLING ADDRESS
- --------------------------------------------------------------------------------------------------
Number of Percentage of
Lease Aggregate Discounted Initial Aggregate
State Contracts Contract Balance Lease Principal Balance
--------------------------- ----------- ------------------- ----------------------------
<S> <C> <C> <C>
Alabama 2 $ 50,403.43 0.17
Arkansas 2 394,058.67 1.32
Arizona 11 726,423.21 2.44
California 113 12,296,581.47 41.23
Colorado 13 1,463,688.52 4.91
Connecticut 1 87,054.59 0.29
District of Columbia 1 273,062.52 0.92
Florida 10 418,362.27 1.40
Georgia 9 823,435.81 2.76
Iowa 1 31,039.19 0.10
Idaho 1 26,500.90 0.09
Illinois 6 291,685.03 0.98
Indiana 1 178,731.68 0.60
Kansas 7 276,002.53 0.93
Kentucky 1 57,192.17 0.19
Louisiana 1 88,498.48 0.30
Massachusetts 15 1,177,752.46 3.95
Maryland 2 87,289.47 0.29
Maine 5 374,986.02 1.26
Michigan 2 118,039.87 0.40
Minnesota 4 684,037.70 2.29
Missouri 3 159,199.20 0.53
Mississippi 1 36,252.27 0.12
North Carolina 5 182,739.72 0.61
North Dakota 1 38,903.02 0.13
New Jersey 12 1,184,273.33 3.97
New Mexico 2 182,807.06 0.61
Nevada 1 310,614.37 1.04
New York 4 202,660.89 0.68
Ohio 7 238,749.56 0.80
Oregon 4 662,637.93 2.22
Pennsylvania 7 272,790.43 0.91
South Carolina 2 117,610.18 0.39
Tennessee 12 651,454.88 2.18
Texas 32 2,233,341.55 7.49
Utah 1 241,818.06 0.81
Virginia 8 661,342.67 2.22
Washington 12 2,415,927.73 8.10
Wisconsin 2 69,438.94 0.23
West Virginia 1 39,565.21 0.13
- --------------------------------------------------------------------------------------------------
Total . . . . . . 325 $29,826,953.01 100.00%
==================================================================================================
</TABLE>
S-23
<PAGE> 24
DISTRIBUTION OF THE LEASES BY REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Number Aggregate Discounted Percentage of Initial Aggregate
Remaining Term in Years of Leases Contract Balance Lease Principal Balance
--------------------------------- ----------- ------------------ -------------------------------
<S> <C> <C> <C>
One to two years 1 $ 187,390.28 0.63
Two to three years 114 10,521,792.74 35.28
Three to four years 62 7,394,404.39 24.79
Four to five years 144 11,541,817.43 38.70
Five to six years 4 181,548.18 0.61
--------------------------------------------------------------------------------------------------------------
Total . . . . . . . 325 $29,826,953.01 100.00%
==============================================================================================================
</TABLE>
DISTRIBUTION OF THE LEASES BY ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Original Term to Number Aggregate Discounted Percentage of Initial Aggregate
Maturity (years) of Leases Contract Balance Lease Principal Balance
----------------------------- ----------- ------------------ ---------------------------------
<S> <C> <C> <C>
Two to three years 64 $ 3,358,803.49 11.26
Three to four years 94 12,039,112.90 40.36
Four to five years 149 12,126,134.46 40.65
Five to six years 18 2,302,902.16 7.72
- ---------------------------------------------------------------------------------------------------------------
Total . . . . . . . 325 $29,826,953.01 100.00%
===============================================================================================================
</TABLE>
(1) The Original Term to Maturity does not include any Final Lease
Payments.
S-24
<PAGE> 25
THE SERVICER
GENERAL
Phoenix Leasing Incorporated (the "Servicer") was founded in
1972 and is the principal operating subsidiary of Phoenix American
Incorporated. Phoenix American Incorporated went public in 1982 and was traded
on the NASDAQ National Market System until it was taken private in 1990. The
Servicer is a financial services company engaged in the organization and
management of public limited partnerships which specialize in the purchase and
lease of equipment and the origination and servicing of securitized lease
pools, as well as in the outsourcing of its asset management services to
third-party financial services organizations.
The Servicer has acquired and managed over $2 billion of
assets on behalf of 31 sponsored limited partnerships, 28 of which were
publicly offered and three of which were privately placed. The Servicer
currently services approximately 2700 customers through its leasing activities.
The Servicer has developed expertise in all aspects of asset
management, offering fully integrated lease management. The Servicer has
managed lease portfolios comprised of equipment ranging from data processing
equipment leased to Fortune 1000 companies and other large companies, to
necessary business equipment leased to growth industry companies financed by
venture capital or corporate sponsors, and to franchisees of nationally and
regionally known franchise chains.
Headquartered in San Rafael, California, the Servicer has
various office locations in California and in Colorado, Georgia, Minnesota, New
Jersey, New York, Nevada and Oregon. The Servicer currently employs over 145
persons. The Servicer's employees work directly with financing and managing
the Servicer's and third parties' portfolios of leased assets, working in
tandem with each other in performing origination, credit and collection, legal,
accounting, tax, data processing and other administrative services.
Affiliates performing vital services on behalf of the Servicer
include Phoenix Growth Capital Corp., Phoenix Service Incorporated and Phoenix
Systems Exchange, Inc. Phoenix Growth Capital Corp. works directly with the
Servicer in developing financing solutions for end-user customers and
facilitating the origination of contracts with such customers. Phoenix Service
Incorporated provides end-user customers with emergency and ongoing
maintenance, upgrade and installation services, and also refurbishes off-lease
equipment for remarketing. Remarketing services are performed by Phoenix
Systems Exchange, Inc.
The Servicer has assigned certain of its employees to the
following functional areas, with the number of employees in each area indicated
in parentheses: Origination (13), five of whom are affiliated with Phoenix
Growth Capital Corp.; Asset Management (25); Finance, Tax and Accounting (29);
Information Systems (14); Legal, Personnel and Other Support Staff (22); and
Remarketing (8). Phoenix Services Incorporated separately employs
approximately 35 persons.
DELINQUENCY AND DEFAULT EXPERIENCE
The tables set forth below present certain information
regarding the delinquency and loss experience of the Servicer's portfolio of
Growth Capital leases (as described below under "The Servicer's Growth Capital
Portfolio") for the periods indicated. There can be no assurance that the
levels of delinquency and loss experience reflected in such tables are
indicative of the performance of the Receivables.
S-25
<PAGE> 26
GROWTH CAPITAL LEASES
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
December 1991 December 1992 December 1993 December 1994 September 1995
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Remitted 1,680,995 85.30% 1,383,963 87.63% 1,617,849 85.06% 1,907,577 93.48% 2,450,748 94.13%
Delinquent Receivables
30-59 Days(2) 165,262 8.39% 150,110 9.50% 87,996 4.63% 95,497 4.68% 86,932 3.34%
60-89 Days(3) 131,944 6.70% 41,874 2.65% 171,043 8.99% 40,550 1.99% 47,726 1.83%
90-119 Days(4) (7,426) (0.38%) 3,341 0.21% 25,120 1.32% (3,025) (0.15%) 18,221 0.70%
Total Delinquent(5) 289,780 14.70% 195,325 12.37% 284,159 14.94% 133,022 6.52% 152,879 5.87%
Total Delinquent & Remitted 1,970,775 100.00% 1,579,288 100.00% 1,902,008 100.00% 2,040,599 100.00% 2,603,627 100.00%
</TABLE>
_______________________________________
(1) All rental amounts due in the month of the year shown and paid on or
prior to the last day of such month.
(2) All rental amounts due in the month previous to the month shown but
not paid as of the last day of the month shown.
(3) All rental amounts due in the month two months previous to the month
shown but not paid as of the last day of the month shown.
(4) All rental amounts due up to three months previous to the month shown
but not paid as of the last day of the month shown.
(5) All delinquent amounts are net of lessee overpayment.
S-26
<PAGE> 27
GROWTH CAPITAL LEASES
LOSS EXPERIENCE
<TABLE>
<CAPTION>
FOR SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
--------------------------------- --------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Receivables Balance
Outstanding(1): $22,509,962 $26,529,734 $32,897,217 $45,767,338 $51,239,619
Gross Losses: $ 932,863 $ 2,836,878 $ 1,256,144 $ 229,149 $ 0
Net Receivables Balance
Outstanding: $21,577,100 $23,692,856 $31,641,073 $45,538,189 $51,239,619
Gross Losses as a Percentage of
Net Receivables Balance
Outstanding: 4.32% 11.97% 3.97% 0.50% 0.00%
Recoveries(2): $ 454,111 $ 2,148,878 $ 703,301 $ 436,555 $ 778,959
Recoveries as a Percentage of
Gross Losses: 48.68% 75.75% 55.99% 190.51% N/A
Net Losses: $ 478,752 $ 688,000 $ 552,843 $ (207,406) $ (778,959)
Total Receivables Balance
Outstanding(3): $22,055,851 $24,380,856 $32,193,916 $45,330,783 $50,460,660
Net Losses as a Percentage of
Total Receivables Balance
Outstanding: 2.17% 2.82% 1.72% (0.46%) (1.54%)
</TABLE>
- --------------------
(1) Includes gross losses which occurred during the year shown.
(2) Recovery information is based on the annual recovery method, that is
recoveries are booked in the year received regardless of when the
related loss took place.
(3) The total of Net Receivables Balance Outstanding and Net Losses which
occurred during the year shown.
S-27
<PAGE> 28
The tables set forth below present certain information regarding the
delinquency and loss experience of the Servicer's portfolio of Franchise
Business Leases (as described below under "The Servicer's Franchise Business
Lease Portfolio") for the periods indicated. There can be no assurance that
the levels of delinquency and loss experience reflected in such tables are
indicative of the performance of the Receivables.
FRANCHISE BUSINESS LEASES
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
June 1994 December 1994 June 1995 September 1995
--------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Remitted 2,336,125 92.87% 1,651,785 87.28% 1,783,145 90.47% 1,918,608 89.52%
Delinquent Receivables
30-59 Days(2) 82,820 3.29% 161,601 8.54% 126,568 6.42% 153,029 7.14%
60-89 Days(3) 60,235 2.39% 55,420 2.93% 54,552 2.77% 50,571 2.36%
90-119 Days(4) 36,230 1.44% 23,718 1.25% 6,822 0.35% 21,064 0.98%
Total Delinquent(5) 179,285 7.13% 240,739 12.72% 187,942 9.53% 224,664 10.48%
Total Delinquent & Remitted 2,515,410 100.00% 1,892,524 100.00% 1,971,087 100.00% 2,143,272 100.00%
</TABLE>
_______________________________________
(1) All rental amounts due in the month of the year shown and paid on or
prior to the last day of such month.
(2) All rental amounts due in the month previous to the month shown but
not paid as of the last day of the month shown.
(3) All rental amounts due in the month two months previous to the month
shown but not paid as of the last day of the month shown.
(4) All rental amounts due up to three months previous to the month shown
but not paid as of the last day of the month shown.
(5) All delinquent amounts are net of lessee overpayment.
S-28
<PAGE> 29
FRANCHISE BUSINESS LEASES
LOSS EXPERIENCE
<TABLE>
<CAPTION>
FOR SIX
MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
------------------------------- ------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Receivables Balance
Outstanding(1): $20,336,986 $35,312,454 $65,152,776 $77,133,327 $76,759,762
Gross Losses: $ 485,012 $ 813,629 $ 1,511,213 $ 3,488,054 $ 3,598,232
Net Receivables Balance
Outstanding: $19,851,973 $34,498,825 $63,641,563 $73,645,273 $73,161,530
Gross Losses as a Percentage of
Net Receivables Balance
Outstanding: 2.44% 2.36% 2.37% 4.74% 4.92%
Recoveries(2): $ 17,824 $ 145,405 $ 286,471 $ 579,630 $ 459,192
Recoveries as a Percentage of
Gross Losses: 3.68% 17.87% 18.96% 16.62% 12.76%
Net Losses: $ 467,188 $ 668,224 $ 1,224,742 $ 2,908,424 $ 3,139,040
Total Receivables Balance
Outstanding(3): $20,319,161 $35,167,049 $64,866,304 $76,553,697 $76,300,570
Net Losses as a Percentage of
Total Receivables Balance
Outstanding: 2.30% 1.90% 1.89% 3.80% 4.11%
</TABLE>
- -----------------------
(1) Includes gross losses which occurred during the year shown.
(2) Recovery information is based on the annual recovery method, that is
recoveries are booked in the year received regardless of when the
related loss took place.
(3) The total of Net Receivables Balance Outstanding and Net Losses which
occurred during the year shown.
S-29
<PAGE> 30
THE SERVICER'S GROWTH CAPITAL PORTFOLIO
GENERAL
Certain of the Leases were originated as part of the Servicer's Growth
Capital portfolio. Growth Capital leases and loans are extended to companies
which vary in size and state of profitability, but are most often young
companies (one to three years in operation), whose financing has been provided
by venture capitalists or strategic corporate partners. Financing arrangements
with each company are negotiated on a case-by-case basis and take into account
various factors, including the type of equipment or other financed assets, the
creditworthiness of the company, the growth potential of the company and the
nature of any additional security provided by the company. Some companies may
be required to provide additional collateral in the form of cash deposits,
letters of credit, pledges of securities or other deposits or guarantee
arrangements, or to grant a security interest in certain additional inventory,
receivables, equipment or other assets of the lessee.
Outlined below are the procedures and policies that the Servicer
generally follows in its extension of credit, origination, servicing, and
collections of its Growth Capital Portfolio.
In some situations, credit approval may be granted without strict
adherence to the aforementioned requirements. Also, the credit criteria
described below may change over time in accordance with the Servicer's business
judgment and its assessment of general economic conditions.
UNDERWRITING
GENERAL POLICY. Leases are originated by the Servicer.
Origination sources usually include referrals provided by companies
that have entered into Leases with the Servicer, legal, accounting, consulting
and other professional advisors, and the investment banking and broker
community. Venture conference participation and direct solicitation through
reference sources and other publications also serve as origination sources.
Credit underwriting services are performed by the Servicer's credit
administration ("Credit Administration"), and generally conform with the
Servicer's credit policies and are based on the Servicer's and certain
Affiliates' then current level of resources and liquidity. The Servicer seeks
to originate financing transactions which, in the aggregate, will create a
reasonable diversity of exposure to any single industry or customer.
UNDERWRITING PROCEDURE. The authority to approve the extension of
credit is centralized within the Servicer, which is headquartered in San
Rafael, California. Underwriting procedures include preparation of a summary
sheet (the "Profile") for review and approval by Credit Administration. Such
summary sheet generally includes the requested financing amount, the proposed
terms and length of the contract, a description of the underlying equipment, an
overview of the prospective customer's business and a discussion of any
additional collateral requirements. The credit review process typically
examines business plans, financial statements and ratios, bank and venture
capital/corporate sponsor references and other pertinent financial and other
information.
BASIC CREDIT REQUIREMENTS. Each prospective customer is subject to a
due diligence review process and credit analysis. This analysis customarily
includes interviews with certain of its investors, as well as reference calls
to bankers of the company, an evaluation of the company's annual and interim
financial statements, and a review of its financial projections. The analysis
also generally includes an evaluation of the current development status of the
company, the product of the company, and the product's niche in the marketplace
or potential market. Additionally, equipment which is the subject of a
financing transaction, and any asset pledged as additional security under the
terms thereof, is usually
S-30
<PAGE> 31
evaluated to determine both initial and residual collateral value. Specific
steps and actions to be taken by the Servicer in its credit review of a
prospective customer are described in more detail below.
In order to satisfy the Servicer's credit criteria, a prospective
customer generally will have met a majority of the following benchmarks:
- Satisfactory bank references.
- A completed business plan and/or proof of product/service
viability (e.g., product prototype, patented process or positive lab
results).
- Two experienced and successful venture capital firm investors
or a substantial corporate sponsor, as well as management with prior
successful business experience.
- Successful completion of first round of financing, equal to
the greater of six months of cash flow requirements or $1,000,000.
- Stated intention of venture capital firms to satisfy
additional financing needs if required.
- Cash on hand or bank lines equal to at least three months of
burn rate as calculated by the Servicer.
- Ratio of investor equity to proposed lease line amount of
approximately 3:1.
- Satisfactory Dun & Bradstreet report.
Approval of a proposed transaction may also require a determination by
the Servicer that the financed equipment is necessary to the operation of the
business of the prospective customer. In addition, the Servicer's estimates of
the residual value of the financed equipment in 12 months time, together with
payments owing during the first 12 months of the lease and any additional
required collateral, must generally equal or exceed 80% of the original credit
line amount.
CREDIT APPROVAL PROCESS AND ADMINISTRATIVE SYSTEMS. The terms of a
proposed transaction satisfying the requirements of a preliminary review by a
senior officer are submitted to a prospective customer for acceptance, subject
to satisfactory completion of the credit review process. Such preliminary
review and approval is designed to ensure that the proposed transaction
satisfies the minimum profit expectation of the Servicer and that the risks
associated with any unusual aspects of the lease have been determined and
factored into the economic analysis. Following such preliminary review, the
Profile is submitted to Credit Administration for review and approval.
Transactions recommended for funding by Credit Administration are then
forwarded for review and approval by the Servicer's Credit Committee.
Generally, two signatures of members of the Credit Committee are required for
transactions of less than $1,000,000, and three signatures of members of the
Credit Committee are required for transactions of $1,000,000 or more. Five
senior officers currently serve on the Credit Committee.
Subject to the approval of the Credit Committee, a commitment letter
is sent to the prospective customer for approval and signature. Following the
approval, the documents are prepared, reviewed and negotiated by counsel to the
Servicer.
COLLECTION PROCEDURES. The payment status of each account is
maintained by the Servicer's Asset Management staff's Customer Information
Network (CIN), a proprietary account database developed by the Servicer's
information systems staff. To the extent the Servicer is able to obtain such
information,
S-31
<PAGE> 32
CIN allows the Servicer's personnel to review pertinent credit statistics:
payment history, receivables aging, transaction and equipment information,
broken and fulfilled lessee payment promises, attorney collections activity,
account guarantee information, and comprehensive collection call history.
Management reporting is also available to coordinate call back dates and to
direct collections activity to the most critical areas. CIN also interfaces
with the transaction database to provide up-to-date account information. CIN
allows each transaction to be assigned a Collection Code, which reflects the
current account status within CIN and the transaction database.
The Servicer's collection staff has guidelines for remedying
delinquent accounts. These guidelines may be modified on an account by account
basis by senior management depending on a number of factors unique to the
situation of a particular customer. The guidelines generally include the
following:
A. Non-Delinquent Accounts: CIN provides collections staff with up to
date payment remittance information, and compares the remittance
information to the payment schedule established at the start of the
transaction. Aging reports are generated for review on a continual
basis. Assuming that a customer has no prior history of collections
problems with the Servicer, no collections activity is initiated until
a payment is 15-30 days delinquent. An unpaid account is determined
to be one day delinquent on the first day following the day on which
an unpaid payment was due.
B. Delinquent Accounts - Initial Delinquency: Once an account has been
delinquent for 15-30 days, the Asset Manager in charge of the account
maintenance for that account initiates collection activity for that
transaction. The Asset Manager will provide the customer with any
documentation needed to expedite payment. Repeated phone calls are
made to the customer's accounts payable department by the Asset
Manager. A computer-generated automatic dunning letter is sent to the
customer, indicating that a balance is past due. If the account
remains unsettled past this point, the Asset Manager then refers the
account to the Servicer's in house collections staff.
C. Delinquent Accounts - Serious Delinquency: Once an account has been
transferred to the Servicer's Collections Department, a Collections
Representative is assigned to the account by the Collections
Supervisor. This Representative then manages the collections process.
Senior management is typically informed of the delinquent status of
this account after this point. After 45-75 days past due, depending
on the circumstances of the particular account, the customer receives
a CIN- generated Default Notice, informing the customer of the amount
required to cure the default and demanding payment within 10 days.
Copies of this letter are sent to guarantors of the transaction as
well.
After 90 days delinquent, typically the account is taken "off lease":
this means that the Asset Management and Accounting systems will not
continue to accrue rent or interest on that transaction. Any such
account will not be reinstated until the current collection difficulty
is resolved and the customer is paying again.
After 90-105 days past due, the customer receives a Final Notice,
stating that if the customer does not pay within 14 days that the
account will be sent to an outside attorney or collection agency for
further collection activity. Litigation typically will be done in the
venue of Marin County, California. Attorneys are compensated on an
hourly or a contingency basis. Collection agencies are compensated on
a contingency basis. Litigation is entered into with the object of
mitigating the Servicer's damages. In the absence of an agreement to
admit the Servicer to the lessee's premises to repossess the subject
assets, outside attorneys will demand that the account be brought
current and will accelerate all remaining payments under the
transaction. The attorneys will seek a writ of replevin requiring the
lessee to return the equipment to the Servicer. The Servicer will
then remarket the repossessed equipment.
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D. Write-offs -- for accounting purposes, the balance owed on the lease
is expensed only after all possible means of collection are exhausted.
THE SERVICER'S FRANCHISE BUSINESS LEASE PORTFOLIO
GENERAL
Certain of the Leases were originated as part of the Servicer's
Franchise Business Lease portfolio. Franchise's Business Leases include leases
and loans to franchisees of approved franchisors and other qualified small
businesses. Franchise Business Leases are approved based on a number of
factors typically including the type of equipment or other financed assets, the
creditworthiness of the company and various references. Certain Lessees are
required to provide additional collateral in the form of cash or a security
deposit.
Outlined below are the procedures and policies that the Servicer
generally follows in its extension of credit, approval of franchisor,
origination, servicing and collections of its Franchise Business Lease
Portfolio.
In some situations credit approval may be granted without strict
adherence to the aforementioned requirements. Also, the credit criteria
described below may change over time in accordance with the Servicer's business
judgment and its assessment of general economic conditions.
UNDERWRITING
GENERAL POLICY. Franchise Business Leases are originated by the
Servicer in general conformity with the Servicer's underwriting standards. The
Servicer has financed over $118 million of Franchise Business Lease
transactions to date.
Credit underwriting services are performed by the Credit
Administration, in general conformity with the Servicer's credit policies and
based on the Servicer's then current level of resources and liquidity.
UNDERWRITING PROCEDURE. Underwriting Procedures usually include
preparation of a Lease/Loan checklist indicating which requirements must be
satisfied by the related Lessee. A Credit Approval Form is also usually
completed including the requested financing amount, the proposed terms and
conditions of the Business Lease, information related to the business
experience of the Lessee and significant reasons supporting the credit
decision. Depending on the amount of the Franchise Business Lease and the type
of equipment or other asset, the credit review process may examine financial
statements, credit reports, various references and management background.
BASIC CREDIT REQUIREMENTS. Each prospective Lessee is typically
subject to a review process and credit analysis. Where the Franchise Business
Lease equipment is a reservation system for approved hotel franchises, the
analysis may include review of the application, bank and mortgage references
and available credit reports of Dun & Bradstreet and TRW (the "Credit Reports")
and confirmation that the franchisee is in good standing with the franchisor.
Personal guarantees are also required for most hotel franchises.
A review of the application, available Credit Reports, bank references
and confirmation of good standing from the franchisor is usually undertaken for
a Franchise Business Lease of any other equipment or other assets for approved
hotel franchises. The Lessee generally must have cash collateral and execute a
personal guarantee. Financial statements and tax returns are generally
required for such Franchise Business Leases over $150,000. Such Franchise
Business Leases over $500,000 and covering furniture, fixtures and equipment
require a second deed of trust on the property and an ALTA title insurance
policy.
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Franchise Business Leases involving all other approved franchises
typically require many of the following: proof of working capital, verifiable
liquidity, Credit Reports, a favorable TRW report on the principals of the
franchisee, bank and trade references, a review of management background
relating to similar business or franchise experience, financial statements and
tax returns, and personal guarantees.
Franchise Business Leases to non-franchised businesses typically
require many of the following: Credit Reports, bank and trade references,
financial statements and tax returns, and personal guarantees, and Lessees must
meet various requirements related to profitability, net worth and current
assets and current liabilities.
FRANCHISOR REQUIREMENTS. To become approved, a franchisor must
generally meet the following minimum requirements:
- Five years in business
- Steady or increasing revenue
- Fifty operating franchises
- $1 million total assets
- No past or present bankruptcies
- No litigation that is likely to have a material adverse effect
CREDIT APPROVAL PROCESS. Generally, the signature of a credit analyst
is required for transactions of less than or equal to $150,000; the signature
of a senior credit analyst is required for transactions of less than or equal
to $250,000; and the signature of a senior vice president is required for
transactions of more than $250,000.
COLLECTION PROCEDURES. The payment status of each account is
maintained by the Servicer's Asset Management Customer Information Network
(CIN), a proprietary account database developed by the Servicer's information
systems staff. CIN allows the Servicer's personnel to review pertinent credit
statistics: payment history, receivables aging, transaction and equipment
information, broken and fulfilled Lessee payment promises, attorney collections
activity, account guarantee information, and comprehensive collection call
history. Management reporting is also available to coordinate call back dates
and to direct collections activity to the most critical areas. CIN also
interfaces with the transaction database to provide instant updating of account
information. CIN assigns each transaction a Collection Code, which reflects
the current account status within CIN and the transaction database.
The Servicer's collection staff has Comprehensive Collections
Guidelines for remedying delinquent accounts. These Guidelines may be modified
on an account by account basis by senior management depending on a number of
factors unique to the situation of a particular customer. The Comprehensive
Collections Guidelines are as follows:
A. Non-Delinquent Accounts: CIN provides collections staff with up to
date payment remittance information, and compares the remittance
information to the payment schedule established at the start of the
transaction. Aging reports are generated for review on a continual
basis. Assuming that a customer has no prior history of collections
problems with the Servicer, no collections activity is initiated until
a payment is 15-30 days delinquent. An unpaid account is determined
to be one day delinquent on the first day following the day on which
an unpaid payment was due.
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B. Delinquent Accounts - Initial Delinquency: Once an account has been
delinquent for 15-30 days, the Asset Manager in charge of the account
maintenance for that account initiates collection activity for that
transaction. The Asset Manager will provide the customer with any
documentation needed to expedite payment. Repeated phone calls are
made to the customer's accounts payable department by the Asset
Manager. A computer-generated automatic dunning letter is sent to the
customer, indicating that a balance is past due. If the account
remains unsettled past this point, the Asset Manager then refers that
account to the Servicer's in house collections staff.
C. Delinquent Accounts - Serious Delinquency: Once an account has been
transferred to the Servicer's Collections Department, a Collections
Representative is assigned to the account by the Collections
Supervisor. This Representative then manages the collections process.
Senior management is typically informed of the delinquent status of
this account after this point. After 45-75 days past due, depending
on the circumstances of the particular account, the customer receives
a CIN- generated Default Notice, informing the customer of the amount
required to cure the default and demanding payment within 10 days.
Copies of this letter are sent to guarantors of the transaction as
well.
After 90 days delinquent, typically the account is taken "off lease":
this means that the Asset Management and Accounting systems will not
continue to accrue rent or interest on that transaction. Any such
account will not be reinstated until the current collection difficulty
is resolved and the customer is paying again.
After 90-105 days past due, the customer receives a Final Notice,
stating that if the customer does not pay within 14 days that the
account will be sent to an outside attorney or collection agency for
further collection activity. Litigation typically will be done in the
venue of Marin County, California. Attorneys are compensated on an
hourly or a contingency basis. Collection agencies are compensated on
a contingency basis. Litigation is entered into with the object of
mitigating the Servicer's damages. In the absence of an agreement to
admit the Servicer to the Lessee's premises to repossess the subject
assets, outside attorneys will demand that the account be brought
current and will accelerate all remaining payments under the
transaction. The attorneys will seek a writ of replevin requiring the
Lessee to return the equipment to the Servicer. The Servicer will
then remarket the repossessed equipment.
D. Write-offs - for account purposes, the balance owed on the lease is
expenses only after all possible means of collection are exhausted.
THE TRUSTEE
The Trustee, Bankers Trust Company, has an office at Four Albany
Street, New York, New York 10006.
The Trustee may resign, subject to the conditions set forth below, at
any time upon written notice to the Depositor and the Servicer, in which event
the Servicer will be obligated to appoint a successor Trustee. If no successor
Trustee shall have been so appointed and have accepted such appointment within
30 days after the giving of such notice of resignation, the resigning Trustee
may petition a court of competent jurisdiction for the appointment of a
successor Trustee. Any successor Trustee shall meet the financial and other
standards for qualifying as a successor Trustee under the Pooling and Servicing
Agreement. The Servicer, or Certificateholders of any Class evidencing more
than 25% of the Percentage Interests of such Class may also remove the Trustee
if the Trustee ceases to be eligible to continue as such under the Pooling and
Servicing Agreement and fails to resign after written request therefor, or is
legally unable to act, or if the Trustee is adjudicated to be insolvent. In
such circumstances, the Servicer or such Certificateholders will also be
obligated to appoint a successor Trustee. Any resignation or
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removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
THE TRUST
The Trust will be formed in accordance with the laws of the State of
New York, pursuant to the Pooling and Servicing Agreement, solely for the
purpose of effectuating the transactions described herein. Prior to formation,
the Trust will have had no assets or obligations and no operating history.
Upon formation, the Trust will not engage in any business activity other than
acquiring and holding the Receivables, issuing the Certificates and
distributing payments thereon. As described under "Description of the
Certificates - Servicing Compensation and Payment of Expenses," a portion of
the monthly collections with respect to the Leases will be paid to the Servicer
as servicing compensation. All other expenses of the Trust will be paid on
behalf of the Holder of the Trust Certificate by the Servicer or by PLI, as
provided in the Pooling and Servicing Agreement.
The Trust Fund will consist of the Equipment, the Leases and any
Scheduled Lease Payments, Final Lease Payments, Residual Receipts and Defaulted
Residual Receipts to be made by Lessees (but not including any payments due on
or prior to the Cut-Off Date or, with respect to a New Lease, the day prior to
the Payment Date on which the Trust acquires such New Lease); any guaranties of
a Lessee's obligations under a Lease; any documents in the Lease Files; the
insurance policies maintained by the Lessees with respect to the Equipment (the
"Insurance Policies") and the proceeds of such Insurance Policies; any rights
of the Depositor under the Receivables Transfer Agreement (including the right
to instruct PLI to exercise any unassignable rights of enforcement under the
Leases and any guaranties thereof); funds from time to time deposited in the
Collection Account, the Advance Payment Account and the New Transferred
Property Funding Account; and any and all income and proceeds of foregoing.
The Pooling and Servicing Agreement does not permit the Trust to acquire any
additional assets other than New Transferred Property. Because the Trust does
not have any operating history and will not engage in any business activity
other than owning the Trust Fund, issuing the Certificates and making
distributions thereon, there has not been included any historical or pro forma
ratio of earnings to fixed charges with respect to the Trust.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement to be entered into by the Servicer, the Depositor, and the Trustee.
The Trustee will provide a copy of the Pooling and Servicing Agreement to
subsequent Certificateholders without charge on written request addressed to
its Corporate Trust Department at Four Albany Street, New York, New York 10006.
The following summary describes certain terms of the Transfer
Agreements and the Pooling and Servicing Agreement, does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Transfer Agreements and the Pooling and Servicing Agreement. Wherever
provisions of the Transfer Agreements and the Pooling and Servicing Agreement
are referred to, such provisions are hereby incorporated herein by reference.
GENERAL
The obligations evidenced by the Certificates are recourse to the
assets of the Trust only and are not recourse to the Depositor, PLI, the
Subsidiaries, the Phoenix Finance Subsidiary, the Servicer, the Trustee, or any
other Person. The Trustee will agree in the Pooling and Servicing Agreement
and in the Class A Certificates to pay to the Class A Certificateholders (i) an
amount of principal equal to the Initial Class A Certificate Principal Amount
and (ii) Class A Certificate Interest, in each case at the times, from
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the sources and on the terms and conditions set forth in the Pooling and
Servicing Agreement and in the Class A Certificates.
The Class A Certificates will be issued in book-entry form only
through DTC. Payments on the Class A Certificates are required to be made by
the Trustee on each Payment Date.
The first Payment Date for distributions to the Class A
Certificateholders will be December 26, 1995. Payments are required to be made
by the Trustee, by check mailed or, if requested by the Certificateholder, by
wire transfer of immediately available funds, to Certificateholders entitled
thereto at the address appearing on the Certificate Register on the Record
Date, which, for so long as the Class A Certificates are in book-entry form
through DTC, will be Cede & Co.
The Trust will also issue two classes of subordinate certificates, the
Class B Certificates and the Trust Certificate (together, the "Subordinate
Certificates," and collectively with the Class A Certificates, the
"Certificates").
The Subordinate Certificates are not offered hereby, and will be
issued initially to the Depositor, which will deliver them to the Phoenix
Finance Subsidiary as partial consideration for the conveyance of the
Receivables to the Depositor. The Phoenix Finance Subsidiary expects that the
Class B Certificates will be privately placed with one or more qualified
institutional investors. The Phoenix Finance Subsidiary expects to retain the
Trust Certificate.
CONVEYANCE OF RECEIVABLES
On the Closing Date, the Trust will acquire all right, title and
interest in and to (a) the Initial Equipment, (b) the Initial Leases, (c) any
guaranties of a Lessee's obligations under a Lease, (d) any documents in the
Lease files, (e) Insurance Policies with respect to the Initial Equipment and
insurance proceeds thereof, (f) the rights of the Depositor under the
Receivables Transfer Agreement, (g) the security deposits relating to the
Initial Leases and (i) all income and proceeds of the foregoing, other than
certain warrants which may have been issued by a Lessee to PLI (collectively,
the "Receivables").
During the Interest-Only Period, and provided that no Required
Amortization Event has occurred, all Base Principal Amount, Residual Receipts
and Defaulted Residual Receipts deposited to the Collection Account with
respect to each Collection Period shall be disbursed on the next Payment Date
by the Trust in consideration of the conveyance of New Transferred Property.
The New Leases relating to such New Transferred Property shall have an
aggregate Lease Principal Balance as nearly as possible equal to Base Principal
Amount, Residual Receipts and Defaulted Residual Receipts deposited to the
Collection Account with respect to the prior Collection Period.
On and after the Initial Amortization Date, the Depositor will have
the option to transfer to the Trust New Transferred Property relating to and
including New Leases having an aggregate Lease Principal Balance not in excess
of the aggregate amount of Prepayments received by the Servicer during the
prior Collection Period. In consideration of the conveyance of such New
Transferred Property, the Trust shall disburse upon the order of the Depositor,
as stated in the Pooling and Servicing Agreement, an amount equal to the
aggregate Lease Principal Balances of such New Leases. This option of the
Depositor is limited to $5,000,000 aggregate Lease Principal Balance of such
New Leases.
If a Required Amortization Event occurs, then no further conveyances
of New Transferred Property shall occur, and all amounts that would otherwise
have been paid in consideration of such conveyances shall be retained in the
Collection Account and shall be distributed, in the case of amounts on deposit
in the Collection Account, on each Payment Date.
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The Servicer will retain possession of the Leases and the Lease files,
and the Servicer will retain copies of any other documents which relate to the
Receivables, any related evidence of insurance and payment, delinquency and
related reports maintained by the Servicer in the ordinary course of business
with respect to each Receivable. Prior to transfer of the Receivables to the
Trust, the Servicer will cause its electronic ledger to be marked to show that
such Receivables have been transferred to the Phoenix Finance Subsidiary, then
to the Depositor and then to the Trust, and the Depositor, PLI, the
Subsidiaries and the Phoenix Finance Subsidiary will file UCC financing
statements reflecting the transfer and assignment of the Receivables in certain
jurisdictions, as required by the Transfer Agreements and the Pooling and
Servicing Agreement. See "Certain Legal Aspects of the Receivables" in the
Prospectus.
REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS
PLI will make certain warranties in the Contribution Agreement (as of
the Closing Date with respect to the Initial Leases and as of the related
Transfer Date with respect to the New Leases unless otherwise indicated), the
benefits of which will be assigned to the Depositor and then to the Trustee,
including that: (i) as of the Cut-Off Date, no more than 10% of a payment on
any Lease was more than 60 days past due and (except for payments which are 60
days or less past due) there was no default, breach, violation or event
permitting acceleration under the terms of any Lease, (ii) no provision of any
Lease has been waived, altered or modified in any respect, except by
instruments or documents contained in the related Lease file (other than
payment delinquencies permitted under clause (i) above), (iii) each Lease
represents the legal, valid and binding payment obligation of the Lessee,
enforceable in accordance with its terms, subject to certain restrictions
imposed under bankruptcy laws and the availability of equitable relief, (iv)
the Leases generally are not and will not be subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury,
(v) all requirements of applicable federal, state and local laws, and
regulations thereunder, including, without limitation, usury laws, if any, in
respect of each Lease have been complied with in all material respects, (vi)
each Lease contains provisions requiring the Lessee to assume all risk of loss
or malfunction of the related Equipment, and making the Lessee absolutely and
unconditionally liable for all payments required to be made thereunder, without
any right of setoff for any reason whatsoever, (vii) except for certain
specified Leases with an aggregate Lease Principal Balance under $2,000,000,
each of which may be prepaid in an amount no less than the Prepayment Amount,
no Lease provides the Lessee with a right to terminate or prepay, (viii) no
Lease provides for the substitution, exchange or addition of any other items of
equipment pursuant to such Lease which would result in any reduction or
extension of payments due under each Lease, (ix) each Lease is assignable by
PLI and was assignable by the related Subsidiary, (x) all necessary action
shall have been taken by PLI and the Subsidiaries to transfer all their
respective right, title and interest in and to each Lease and the related
Equipment, (xi) neither the Lease nor the related Equipment has been sold,
transferred, assigned or pledged by PLI to any person other than the
Subsidiaries and the Phoenix Finance Subsidiary, and immediately prior to
assigning the Leases and the related Equipment to the Phoenix Finance
Subsidiary, PLI was the sole owner of each Lease and the related Equipment free
and clear of any liens and encumbrances, (xii) no Lease has been satisfied,
subordinated or rescinded, except for any Lease prepaid in full after the
Cut-Off Date but before the Closing Date and (xiii) no one Lessee (including
its Affiliates) has Leases with an aggregate Lease Principal Balance that
exceeds 2.75% of the initial aggregate Lease Principal Balance.
The Contributors will also represent that the Initial Transferred
Property have the following characteristics: (A) each Initial Lease has a
remaining term as of the Cut-Off Date of not less than 20 months and not more
than 65 months, (B) the weighted average remaining term of the Initial Leases
is 44.79 months, (C) each Initial Lease has a Lease Principal Balance as of the
Cut-Off Date of not less than $2,104.07 and not more than $668,060.17, (D) as
of the Cut-Off Date, no item of Equipment has been repossessed, (E) no more
than 41.24% of the aggregate Lease Principal Balance for all Initial Leases on
the Cut-Off Date is attributable to Leases with Lessees in any single state,
(F) no Initial Lease has a Scheduled Payment or Final Lease Payment due after
March, 2001, (G) approximately 46.45% of the aggregate Lease Principal Balance
for all Initial Leases on the Cut-Off Date is attributable to Franchise
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Business Leases and (H) approximately 53.55% of the aggregate Lease Principal
Balance for all Initial Leases on the Cut-Off Date is attributable to Growth
Capital Leases.
With respect to any New Leases transferred to the Trust, PLI will make
the following representations as of the date of the related transfer of such
New Leases: (A) each New Lease has a remaining term as of the related Cut-Off
Date of not less than 20 months and not more than 72 months, (B) the weighted
average remaining term of the Leases is not less than 26 months, (C) each New
Lease has a Lease Principal Balance as of the related Cut-Off Date of not less
than $2,000 and not more than $1,000,000, (D) as of the related Cut-Off Date,
no item of Equipment related to the New Leases has been repossessed, (E) no
more than 50% of the aggregate Lease Principal Balance for all Leases on the
related Cut-Off Date is attributable to Leases with Lessees in any single
state, (F) no New Lease has a Scheduled Payment or Final Lease Payment due
after January 1, 2003 and (G) no more than 47% of the aggregate Lease Principal
Balance for all Leases on the related Cut-Off Date is attributable to Franchise
Business Leases.
Such representations and warranties will survive the transfer of the
Transferred Property to the Trust.
Under the terms of the Transfer Agreements and the Pooling and
Servicing Agreement, PLI will be obligated to accept the reconveyance of any
item of Receivables and deposit the Reconveyance Amount on or before the end of
the calendar month following the month of its discovery or receipt of notice of
a breach of a representation or warranty that materially adversely affects such
item of Receivables, which breach has not been cured or waived in all material
respects. This obligation to accept the reconveyance of the Receivables and
remit the Reconveyance Amount will constitute the sole remedy against PLI
available to the Phoenix Finance Subsidiary, the Depositor, the Trust and the
Certificateholders for a breach of a representation or warranty made by PLI
with respect to the required characteristics of the Receivables.
INDEMNIFICATION
The Transfer Agreements and the Pooling and Servicing Agreement will
provide that PLI will defend and indemnify the Servicer, the Phoenix Finance
Subsidiary, the Depositor, the Trustee, the Trust and the Certificateholders
against any and all losses, claims, damages and liabilities to the extent, but
only to the extent, that the same have been suffered by any such party by
virtue of (i) a breach by PLI of its obligations (other than breach of PLI's
representations and warranties, with respect to which the sole remedy is
expressly limited to PLI's acceptance of the reconveyance of the affected
Receivables and the remittance of the Reconveyance Amount by PLI as discussed
above) under the Pooling and Servicing Agreement or (ii) in the case of the
Trustee, its performance of its duties hereunder, except to the extent that
such loss, claim, damage or liability resulted from the Trustee's negligence or
wilful misconduct.
The Pooling and Servicing Agreement will also provide that the
Servicer will defend and indemnify the Depositor, the Phoenix Finance
Subsidiary, PLI, the Trustee, the Trust and the Certificateholders against any
and all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, reasonably
incurred, arising out of or resulting from (i) the use, repossession or
operation by the Servicer or any affiliate thereof of any Equipment and (ii)
(A) the failure of the Servicer to perform its duties under the Pooling and
Servicing Agreement or (B) in the case of the Trustee, its performance of its
duties hereunder, except to the extent that such cost, expense, loss, damage,
claim or liability resulted from the Trustee's negligence or wilful misconduct.
The PLI's obligations, as Servicer, to indemnify the Trust and the
Certificateholders for acts or omissions of PLI as Servicer will survive the
removal of the Servicer but will not apply to any acts or omissions of a
successor Servicer. Such indemnification does not extend to indirect,
incidental, special or consequential damages.
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THE ACCOUNTS
The Servicer is required to establish and maintain in accordance with
the Pooling and Servicing Agreement three accounts, the "Collection Account,"
the "Advance Payment Account" and the "New Transferred Property Funding
Account," each to be held by the Trustee in the name of the Trust and for the
benefit of Certificateholders. Each such Account will be one or more
segregated trust accounts.
The Servicer is required to deposit to the Collection Account, within
two business days following the Servicer's determination that such amounts
relate to the Leases or the Equipment, Actual Payments; Servicer Advances are
required to be deposited therein not later than the Determination Date for the
related Collection Period; the Trustee will deposit in the Collection Account,
not later than the Determination Date, that portion of any Advance Payments
that constitute Scheduled Payments, Final Lease Payments or Purchase Option
Payments due during the immediately preceding Collection Period; PLI or the
Servicer will deposit in the Collection Account, not later than the
Determination Date, any Reconveyance Amount then due and payable by it.
The Servicer is required to deposit all Advance Payments and all
Security Deposits received by the Servicer to the Advance Payment Account.
"Advance Payments" are amounts paid by a Lessee during a Collection Period with
respect to amounts due from such Lessee in subsequent Collection Periods.
The New Transferred Property Funding Account will hold amounts
required to be disbursed upon the instruction of the Depositor, as stated in
the Pooling and Servicing Agreement, pending the transfer of New Transferred
Property to the Trust. The amount on deposit in the New Transferred Property
Funding Account may not exceed $2,000,000. The purpose of the New Transferred
Property Funding Account is to prevent a temporary shortfall in the supply of
New Transferred Property from becoming a Required Amortization Event.
The Pooling and Servicing Agreement permits the Servicer to direct the
investment of amounts in the Collection Account, the Advance Payment Account
and the New Transferred Property Funding Account in Eligible Investments that
mature not later than the business day prior to the next succeeding Payment
Date. Generally, the Holder of the Trust Certificate shall be entitled to any
income from such investments.
The Servicer may deduct from amounts otherwise payable to the
Collection Account with respect to a Collection Period an amount equal to
amounts previously deposited by the Servicer into the Collection Account but
(i) subsequently uncollectible as a result of dishonor of the instrument of
payment for or on behalf of the Lessee or (ii) later determined to have
resulted from mistaken deposits.
SERVICER ADVANCES
In the event that any Lessee fails to remit its full Scheduled Payment
by the Calculation Date, the Servicer is required to make an advance from its
own funds of an amount equal to such unpaid Scheduled Payment (a "Servicer
Advance") if the Servicer, in its sole discretion, determines that eventual
repayment of such Servicer Advance is likely from collections from or on behalf
of the related Lessee. The Pooling and Servicing Agreement provides for the
reimbursement of the Servicer for such Servicer Advances from funds available
for distribution in the Collection Account on each Payment Date before the
Required Payments to Certificateholders have been made as set forth below in
"Distributions on Certificates."
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FLOW OF FUNDS
On each Determination Date, the Servicer is required to deliver to the
Trustee and the Rating Agency a certificate (the "Servicer's Certificate")
setting forth the information needed to make payments on the upcoming Payment
Date.
See "Subordination Provisions" in the Summary of Terms to this
Prospectus Supplement for a description of the operation and effect of the
"Flow of Funds" mechanics with respect to the various classes of Certificates.
On each Payment Date prior to the Initial Amortization Date, the
Trustee will be required to make the following payments from the
Available Funds and the Residual Receipts then on deposit in the
Collection Account, in the following order of priority:
(i) from the Available Funds, to the Servicer, the
Servicer Fee then due, together with any unrecoverable Servicer
Advances and certain miscellaneous amounts;
(ii) from the Available Funds then remaining in the
Collection Account, to the Class A Certificateholders, the Class A
Certificate Interest and Class A Overdue Interest for the related
Collection Period;
(iii) from the Available Funds then remaining in the
Collection Account, to the Class B Certificateholders, the Class B
Certificate Interest and the Class B Overdue Interest for the related
Collection Period;
(iv) from the Available Funds and Residual Receipts then
remaining in the Collection Account, and from amounts then remaining
in the New Transferred Property Funding Account, an amount which would
be, in the absence of losses, equal to the sum of (A) the Base
Principal Amount with respect to such Payment Date and (B) the
Residual Receipts and the Defaulted Residual Receipts received by the
Servicer during the prior Collection Period to the Depositor up to an
amount equal to the aggregate Lease Principal Balances of the New
Leases available to be transferred to the Trust and the remainder to
the New Transferred Property Funding Account;
(v) from the amount then remaining in the Collection
Account, to the Servicer, certain miscellaneous amounts; and
(vi) to the Holder of the Trust Certificate, any remaining
amounts.
On any Payment Date prior to the Initial Amortization Date, PLI shall
have no obligation to make available to the Trust the amount by which
(i) an amount equal to the sum of (a) the Base Principal Amount with
respect to such Payment Date and (b) the Residual Receipts and the
Defaulted Residual Receipts received by the Servicer during the prior
Collection Period exceeds (ii) the actual amount of the sum of (a) the
Available Funds and Residual Receipts then remaining in the Collection
Account and (b) the amounts then remaining in the New Transferred
Property Funding Account.
On and after the Payment Date which is also the Initial Amortization
Date, the Trustee will be required to make the following payments from
the Available Funds and the Residual Receipts then on deposit in the
Collection Account, in the following order of priority:
(i) from the Available Funds, to the Servicer, the
Servicer Fee then due, together with any unrecoverable Servicer
Advances and certain miscellaneous amounts;
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(ii) from the Available Funds then remaining in the
Collection Account, to the Class A Certificateholders, the Class A
Certificate Interest and Class A Overdue Interest for the related
Collection Period;
(iii) until the Class A Certificate Principal Balance has
been reduced to zero, to the Class A Certificateholders, (a) from the
Available Funds then remaining in the Collection Account, the sum of
(1) the Class A Base Principal Distribution Amount for such Payment
Date, and (2) any Class A Overdue Principal and (b) one-half of the
Residual Receipts received by the Servicer during the prior Collection
Period;
(iv) from the Available Funds then remaining in the
Collection Account, to the Class B Certificateholders, the Class B
Certificate Interest and the Class B Overdue Interest for the related
Collection Period;
(v) until the Class B Certificate Principal Balance has
been reduced to zero, to the Class B Certificateholders, (a) from the
Available Funds then remaining in the Collection Account, the sum of
(1) the Class B Base Principal Distribution Amount for such Payment
Date, and (2) any Class B Overdue Principal and (b) one-half of the
Residual Receipts received by the Servicer during the prior Collection
Period;
(vi) from the Available Funds then remaining in the
Collection Account, to the Servicer, certain miscellaneous amounts;
and
(vii) to the Holder of the Trust Certificate, any remaining
amounts.
As used in this Prospectus Supplement, the following terms have the following
meanings:
Actual Payment: With respect to a Collection Period and a Lease, all
Scheduled Payments, Final Lease Payments, Prepayments, Residual Receipts and
Defaulted Residual Receipts received by the Servicer from or on behalf of a
Lessee with respect to such Lease during such Collection Period. Actual
Payments do not include Initial Unpaid Amounts, Reconveyance Amounts, Advance
Payments and Servicer Advances.
Available Funds: With respect to a Payment Date, shall mean all
amounts held in the Collection Account on the related Determination Date, other
than Residual Receipts and other than any such amounts which relate to amounts
due during the Collection Period in which such Payment Date occurs or any
subsequent Payment Date occurs.
Base Principal Amount : With respect to any Payment Date other than
the Payment Date which is also the Initial Amortization Date an amount equal to
the excess of (x) the aggregate Lease Principal Balances of the Leases as of
the close of business on the second preceding Calculation Date over (y) the
aggregate Lease Principal Balances of the Leases as of the close of business
on the immediately preceding Calculation Date. With respect to the Payment
Date which is also the Initial Amortization Date an amount equal to the excess
of (x) the aggregate Lease Principal Balances of the Leases as of the close of
business on the Closing Date over (y) the aggregate Lease Principal Balances of
the Leases as of the close of business on the immediately preceding
Calculation Date.
Calculation Date: The last day of a Collection Period. Amounts
calculated from Calculation Date balances shall be calculated from such
balances as of the close of business on the Calculation Date.
Class A Base Principal Distribution Amount: With respect to any
Payment Date, the product of (x) the Class A Percentage and (y) the Base
Principal Amount for such Payment Date.
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Class A Certificate Interest: With respect to any Payment Date, the
interest accrued during the related Interest Accrual Period, equal to the
product of (x) one-twelfth of the Class A Certificate Rate and (y) the
aggregate Class A Certificate Principal Balance outstanding immediately prior
to such Payment Date.
Class A Certificate Principal Balance : At any time, the Initial Class
A Certificate Principal Amount minus all payments theretofore received by the
Class A Certificateholders on account of principal.
Class A Certificate Rate :______ % per annum.
Class A Overdue Interest : With respect to any Payment Date, the sum of
(x) the excess, if any, equal to (a) the aggregate amount of Class A Certificate
Interest due on all prior Payment Dates over (b) the aggregate amount of Class A
Certificate Interest (from whatever source) actually distributed to Class A
Certificateholders on all prior Payment Dates and (ii) the amount, if any,
described in clause (y) hereof as of the immediately preceding Payment Date and
(y) the product of (a) one-twelfth of the Class A Certificate Rate and (b) the
amount described in clause (x) preceding as of such Payment Date.
Class A Overdue Principal: With respect to any Payment Date, the
difference, if any, equal to (a) the aggregate of the Class A Base Principal
Distribution Amounts due on all prior Payment Dates and (b) the aggregate
amount of the principal (from whatever source) actually distributed to Class A
Certificateholders on all prior Payment Dates.
Class B Base Principal Distribution Amount: With respect to any
Payment Date, the product of (x) the Class B Percentage and (y) the Base
Principal Amount for such Payment Date.
Class B Certificate Interest: With respect to any Payment Date, the
interest accrued during the related Interest Accrual Period, equal to the
product of (x) one-twelfth of the Class B Certificate Rate and (y) the
aggregate Class B Certificate Principal Balance outstanding immediately prior
to such Payment Date.
Class B Certificate Principal Balance : At any time, the Initial Class
B Certificate Principal Amount minus all payments theretofore received by the
Class B Certificateholders on account of principal.
Class B Certificate Rate :_______ % per annum.
Class B Overdue Interest : With respect to any Payment Date, the sum of
(x) the excess, if any, equal to (a) the aggregate amount of Class B Certificate
Interest due on all prior Payment Dates over (b) the aggregate amount of Class B
Certificate Interest (from whatever source) actually distributed to Class B
Certificateholders on all prior Payment Dates and (ii) the amount, if any,
described in clause (y) hereof as of the immediately preceding Payment Date and
(y) the product of (a) one-twelfth of the Class B Certificate Rate and (b) the
amount described in clause (x) preceding as of such Payment Date.
Class B Overdue Principal: With respect to any Payment Date, the
difference, if any, equal to (a) the aggregate of the Class B Base Principal
Distribution Amounts due on all prior Payment Dates and (b) the aggregate
amount of the principal (from whatever source) actually distributed to Class B
Certificateholders on all prior Payment Dates.
Class B Termination Date : The Payment Date on which the Class B
Certificate Principal Balance is reduced to zero.
Collection Period: With respect to any Payment Date, the immediately
preceding calendar month.
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Defaulted Residual Receipts: All proceeds of the sale of Equipment
related to Defaulted Leases and any amounts collected as judgments against a
Lessee or others related to the failure of such Lessee to pay any required
amounts under the related Lease or to return the Equipment, in each case as
reduced by (i) any unreimbursed Servicer Advances with respect to such Lease or
such Equipment and (ii) any reasonably incurred out-of-pocket expenses incurred
by the Servicer in enforcing such Lease or in liquidating such Equipment.
Determination Date: With respect to a Collection Period, a date which
is the fifteenth day of the calendar month in the month immediately succeeding
the month in which such Collection Period ends, or if such day is not a
business day, the immediately preceding business day; provided, however, that
in no event shall such Determination Date be later than three business days
prior to the Payment Date for such Collection Period.
Initial Class A Principal Balance : $___________.
Initial Class B Principal Balance : $____________.
Initial Unpaid Amount : With respect to a Lease, the excess of (x) the
aggregate amount of all Scheduled Payments due prior to the Cut-Off Date over
(y) the aggregate of all Scheduled Payments made prior to the Cut-Off Date with
respect to such Lease.
Interest Accrual Period : With respect to any Payment Date, the period
commencing on the prior Payment Date (or on November 25, 1995 with respect to
the initial Payment Date) and ending on the day immediately preceding such
Payment Date.
Interest-Only Period: The period from the Closing Date to, but
excluding, the Initial Amortization Date.
Lease Principal Balance : On any date of calculation with respect to a
Lease which is not a Defaulted Lease, the present value of the Scheduled
Payments and the Final Lease Payment, if any, to become due with respect to such
Lease on and after such date of calculation, discounted monthly to the
Calculation Date immediately following such date of calculation (or to such date
of calculation if such date of calculation is a Calculation Date) at one-twelfth
of the Discount Rate; with respect to any Lease which is a Defaulted Lease,
zero.
Prepayment: With respect to a Collection Period and a Lease (except a
Defaulted Lease), the amount received by the Servicer during such Collection
Period from or on behalf of a Lessee with respect to such Lease in excess of
the sum of (x) the Scheduled Payment and any Final Lease Payment due, or any
Purchase Option Payment made during such Collection Period, plus (y) the
aggregate of any overdue Scheduled Payments, Initial Unpaid Amounts and unpaid
Servicing Charges for such Lease, so long as such amount is designated by the
Lessee as a prepayment and the Servicer has consented to such prepayment.
Neither Residual Receipts nor Defaulted Residual Receipts are "Prepayments."
The term "Reconveyance Amount" and the provisions relating to payment of
Reconveyance Amounts shall govern the prepayment in full of any Lease during
the period from the Cut-Off Date to and excluding the Closing Date.
Prepayment Amount: With respect to a Payment Date and a Lease, an
amount, without duplication, equal to the sum of (i) the Lease Principal
Balance as of the immediately preceding Payment Date (without any deduction for
any Security Deposit paid by a Lessee, unless such Security Deposit has been
deposited in the Collection Account pursuant to the Pooling and Servicing
Agreement); (ii) the product of (x) such Lease's Lease Principal Balance as of
the immediately preceding Payment Date and (y) one-twelfth of the Discount
Rate; (iii) any Scheduled Payments theretofore due and not paid by a
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Lessee; and (iv) any Final Lease Payment or Purchase Option Payment due or to
become due under the Lease.
Reconveyance Amount: The sum, without duplication, of (i) the Lease
Principal Balance of such Lease (without any deduction for any Security Deposit
paid by a Lessee, unless such Security Deposit has been deposited in the
Collection Account pursuant to the Pooling and Servicing Agreement) as of the
date of reconveyance with respect to a Lease that is reconveyed by the Trust or
as of the Closing Date with respect to a Lease that shall have been prepaid in
full on or after the Cut-Off Date and prior to the Closing Date, (ii) the
product of (x) such Lease's Lease Principal Balance as of such date and (y)
one-twelfth of the Discount Rate and (iii) any Scheduled Payments or Final
Lease Payment theretofore due and not paid by a Lessee, together with any
unreimbursed Servicer Advances.
Required Amortization Event: The earliest to occur of any of the
following: (i) the occurrence of an "Event of Servicing Termination" under the
Pooling and Servicing Agreement, (ii) the amount on deposit in the New
Transferred Property Funding Account exceeds $2,000,000, (iii) the bankruptcy
of PLI, either Subsidiary, the Phoenix Finance Subsidiary or the Depositor,
(iv) as of any Determination Date, the three month average ratio of the
aggregate Lease Principal Balance of Delinquent Leases which are 61 days or
more delinquent to the aggregate Lease Principal Balance of all Leases, exceeds
7.5% or (v) the aggregate Lease Principal Balance of all Defaulted Leases which
became Defaulted Leases during the Interest-Only Period to the aggregate Lease
Principal Balances of all Leases, exceeds 6.5%.
Residual Receipts: All Purchase Option Payments, Excess Amounts and
proceeds of the sale of Equipment in the event the related Lessee does not
purchase the Equipment at the end of the related Lease.
Scheduled Payments: With respect to a Payment Date and a Lease, the
periodic payment (exclusive of any amounts in respect of insurance or taxes,
and reflecting any adjustment for partial Prepayments, and further reflecting
the effect of any permitted modification to such Lease) set forth in such Lease
due from the Lessee (including any Security Deposit applied with respect
thereto) in the related Collection Period.
Subordinated Amount: As of any Payment Date, the excess, if any, of
(x) the aggregate Lease Principal Balances as of the immediately preceding
Calculation Date over (y) the Class A Certificate Principal Balance as of such
Payment Date, and after taking into account all payments to be made on such
Payment Date.
Trust Certificate Principal Balance: As of any Payment Date, the
difference, if any, between (i) the sum of (x) the aggregate Lease Principal
Balances of all Leases as of the immediately preceding Calculation Date, (y)
the aggregate Lease Principal Balances as of the day prior to such Payment Date
of all New Leases to be conveyed to the Trust on such Payment Date and (z) the
amount on deposit in the New Conveyed Property Funding Account as of such
Payment Date (and after taking into account any deposits or withdrawals therein
on such Payment Date) and (ii) the sum of (x) the outstanding Class A
Certificate Principal Balance and (y) the outstanding Class B Certificate
Principal Balance as of such Payment Date, after taking into account any
distribution of the Base Principal Amount, Residual Receipts and Defaulted
Residual Receipts on such Payment Date.
WITHHOLDING
The Trustee is required to comply with all applicable federal income
tax withholding requirements respecting payments to Certificateholders of
interest with respect to the Certificates. The consent of Certificateholders
will not be required for such withholding. In the event the Certificateholder
is other than DTC then in the event that the Trustee does withhold or causes to
be withheld any amount from interest
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payments or advances thereof to any Certificateholders pursuant to federal
income tax withholding requirements, the Trustee shall indicate the amount
withheld annually to such Certificateholders.
REPORTS TO CERTIFICATEHOLDERS
On each Payment Date the Trustee will furnish or cause to be furnished
with each payment to Certificateholders, a statement prepared by the Servicer
setting forth the following information (per $1,000 of Initial Certificate
Principal Amount as to (a) and (b) below):
a. With respect to a statement to a Class A Certificateholder or
a Class B Certificateholder, the amount of such payment allocable to such
Certificateholder's Percentage Interest of the Base Principal Amount,
Residual Receipts, Defaulted Residual Receipts and Class A or Class B
Overdue Principal;
b. With respect to a statement to a Class A Certificateholder or
a Class B Certificateholder, the amount of such payment allocable to such
Certificateholder's Percentage Interest of Class A or Class B Certificate
Interest and Class A or Class B Overdue Interest;
c. The aggregate amount of fees and compensation received by the
Servicer pursuant to the Pooling and Servicing Agreement for the Collection
Period;
d. The aggregate Class A Certificate Principal Balance, the
aggregate Class B Certificate Principal Balance, the Class A Certificate
Factor, the Class B Certificate Factor, the Pool Factor and the aggregate
Lease Principal Balance, after taking into account all distributions made on
such Payment Date;
e. The total unreimbursed Servicer Advances with respect to the
related Collection Period;
f. The Subordinated Amount as of such Payment Date;
g. The amount of Residual Receipts and Defaulted Residual
Receipts for the related Collection Period and the aggregate Lease Principal
Balances for all Leases that became Defaulted Leases during the related
Collection Period, calculated immediately prior to the time such Leases
became Defaulted Leases; and
h. The total number of Leases and the aggregate Lease Principal
Balances thereof, together with the number and aggregate Lease Principal
Balances of all Leases as to which the Lessees, as of the related
Calculation Date, were one, two, three or four Scheduled Payments
delinquent, and Delinquent Leases reconveyed.
The "Class A Certificate Factor" is the seven digit decimal number
that the Servicer will compute or cause to be computed for each Collection
Period and will make available on the related Determination Date representing
the ratio of (x) the Class A Certificate Principal Balance which will be
outstanding on the next Payment Date (after taking into account all
distributions to be made on such Payment Date) to (y) the Initial Class A
Certificate Principal Amount.
The "Class B Certificate Factor" is the seven digit decimal number
that the Servicer will compute or cause to be computed for each Collection
Period and will make available on the related Determination Date representing
the ratio of (x) the Class B Certificate Principal Balance which will be
outstanding on the next Payment Date (after taking into account all
distributions to be made on such Payment Date) to (y) the Initial Class B
Certificate Principal Amount.
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The "Pool Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Collection Period and will make
available on the related Determination Date representing the ratio of (x) the
aggregate Lease Principal Balance as of the immediately preceding Calculation
Date to (y) the aggregate Lease Principal Balance as of the Cut-Off Date.
In addition, by January 31 of each calendar year following any year
during which the Certificates are outstanding, commencing January 31, 1996, the
Trustee will furnish to each Certificateholder of record at any time during
such preceding calendar year, information as to the aggregate of amounts
reported pursuant to items (a) and (b) above for such calendar year to enable
Certificateholders to prepare their federal income tax returns.
OPTIONAL REMOVAL
The Pooling and Servicing Agreement will provide that on any Payment
Date following the Record Date on which the aggregate (x) Class A Certificate
Principal Balance and the Class B Certificate Principal Balance is 10% or less
of the Initial Class A Certificate Principal Balance and the Initial Class B
Certificate Principal Balance, the Holder of the Trust Certificate will have
the option to receive all rights, title and interest in all, but not less than
all, Receivables held in the Trust, by paying into the Trust for retirement of
the Class A and Class B Certificates an amount equal to the sum of the
aggregate outstanding Class A and Class B Certificate Principal Balance and all
other amounts due to the Class A and Class B Certificateholders and all amounts
owing to the Trustee.
REMITTANCE AND OTHER SERVICING PROCEDURES
The Servicer has agreed to manage, administer and service the
Receivables and to enforce and make collections on the Receivables and any
Insurance Policies, exercising the degree of skill and care consistent with
that which the Servicer customarily exercises with respect to similar property
owned, managed or serviced by it.
The Servicer may grant to a Lessee any rebate, refund or adjustment
that the Servicer in good faith believes is required, because of Prepayment in
full of a Lease. The Servicer may deduct the amount of any such rebate, refund
or adjustment from the amount otherwise payable by the Servicer into the
Collection Account; provided, however, that the Servicer will not permit any
rescission or cancellation of any Lease which would materially impair the
rights of the Trust or the Certificateholders in the Leases or the proceeds
thereof, nor will the prepayment price after giving effect to any such rebate,
refund or adjustment (and without any adjustment for any Security Deposit
previously paid by the Lessee) be less than the Prepayment Amount. The
Servicer may waive, modify or vary any term of a Lease if the Servicer, in its
reasonable and prudent judgment, determines that it will not be materially
adverse to the Certificateholders. However, the Servicer will covenant in the
Pooling and Servicing Agreement that (i) it will not forgive any payment of
rent, principal or interest (except for certain offsets for Security Deposits
which offsets are only permitted after the Servicer has deposited in the
Collection Account an amount equal to such offset), (ii) unless a Lessee is in
default, it will not permit any modification with respect to a Lease which
would defer the payment of any principal or interest or any Scheduled Payment
or change the final maturity date on any Lease; provided, however, that no
change in the final maturity date of any Lease shall be permitted under any
circumstances if such new maturity date is later than the latest maturity date
of any other Lease then held by the Trust, and (iii) the Servicer may accept
Prepayment in part or in full; provided, however that (1) in the event of
Prepayment in full, the Servicer may consent to such Prepayment only in an
amount not less than the Prepayment Amount and (2) in the event of a partial
Prepayment, the Servicer may consent to such partial Prepayment only if (x)
following such partial Prepayment there are no delinquent amounts then due from
the Lessee and (y) such partial Prepayment will not reduce the Lease Principal
Balance by more than an amount equal to (I) the amount of such partial
Prepayment, minus (II) unpaid interest at the Discount Rate, accrued through
the Payment Date immediately following such partial Prepayment on the
outstanding Discounted Lease Balance prior to such
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partial Prepayment. In the case of a partial Prepayment, the Servicer is
required to accurately recalculate the Discounted Lease Balance, and the
allocation of Scheduled Payments to principal and interest.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For its servicing of the Leases, the Servicer will receive servicing
compensation including the monthly Servicer Fee for each Collection Period
(payable on the next succeeding Payment Date) and Servicing Charges.
The servicing compensation will compensate the Servicer for customary
equipment contract servicing activities to be performed by the Servicer for the
Trust, additional administrative services performed by the Servicer on behalf
of the Trust and expenses paid by the Servicer on behalf of the Trust.
The Servicer, as an independent contractor on behalf of the Trust and
for the benefit of the Certificateholders, will be responsible for the
managing, servicing and administering the Receivables and enforcing and making
collections on the Leases and any Insurance Policies and for the enforcing of
any security interest in any item of Equipment, all as set forth in the Pooling
and Servicing Agreement. The Servicer's responsibilities will include
collecting and posting of all payments, responding to inquiries of Lessees,
investigating delinquencies, accounting for collections, furnishing monthly and
annual statements to the Trustee with respect to distributions, making Servicer
Advances, providing appropriate federal income tax information for use in
providing information to Certificateholders, collecting and remitting sales and
property taxes on behalf of taxing authorities and maintaining the perfected
security interest of the Trust in the Equipment and the Leases.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement requires that the Servicer cause
an independent accountant (who may also render other services to the Servicer)
to prepare a statement to the Trustee and the Rating Agency dated as of
December 30, 1996, and annually as of the same month and day thereafter, to the
effect that the independent accountant has examined the servicing procedures,
manuals, guides and records of the Servicer and the accounts and records of the
Servicer relating to the Receivables and the Lease files (which procedures,
manuals, guides and records shall be described in one or more schedules to such
statement), that such firm has compared the information contained in the
Servicer's Certificates delivered in the relevant period with information
contained in the accounts and records for such period and that, on the basis of
such examination and comparison, nothing has come to the independent
accountant's attention to indicate that the Servicer has not, during the
relevant period, serviced the Receivables in compliance with such servicing
procedures, manuals and guides and in the same manner required by the
Servicer's standards and with the same degree of skill and care consistent with
that which the Servicer customarily exercises with respect to similar property
owned by it, that such accounts and records have not been maintained in
accordance with the Pooling and Servicing Agreement, that the information
contained in the Servicer's Certificates does not reconcile with the
information contained in the accounts and records or that such certificates,
accounts and records have not been properly prepared and maintained in all
material respects, except in each case for (a) such exceptions as the
independent accountant shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement. On or before March 31 of
each year, commencing on March 31, 1996, the Servicer shall deliver to the
Trustee and the Rating Agency a copy of such statement.
The Pooling and Servicing Agreement will also provide for annual
delivery of a report (the "Supplementary Report") by the Servicer to the
Trustee not later than 90 days after the end of each fiscal year, signed by a
Servicing Officer on behalf of the Servicer and dated as of the last day of
such fiscal year, stating that (a) a review of the activities of the Servicer
and the Servicer's performance under the Pooling and Servicing Agreement for
the previous 12-month period has been made under such Servicing Officer's
supervision and (b) nothing has come to such Servicing Officer's attention to
indicate that the
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Servicer could be terminated as such under the terms of the Pooling and
Servicing Agreement (an "Event of Servicing Termination"), or, if such Event of
Servicing Termination has so occurred and is continuing, specifying each such
event known to the officer, the nature and status thereof and the steps
necessary to remedy such event.
The Servicer is also required to furnish to the Trustee, and the
Trustee is required to furnish to the Certificateholders, copies of the
Servicer's annual audited and quarterly unaudited financial statements.
The Pooling and Servicing Agreement will provide that the Servicer,
upon request of the Trustee, will furnish to the Trustee such underlying data
necessary for administration of the Trust or enforcement actions as can be
generated by the Servicer's existing data processing system.
CERTAIN MATTERS RELATING TO THE SERVICER
The Pooling and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except upon
a determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
an Event of Servicing Termination as discussed below.
EVENTS OF SERVICING TERMINATION
An Event of Servicing Termination under the Pooling and Servicing
Agreement will occur (a) if the Servicer fails to make (i) any Servicing
Advance within two business days or (ii) any other payment or deposit required
under the Pooling and Servicing Agreement within three business days; (b) if
the Servicer fails to submit a Servicer's Certificate, within two business days
following notice of non-receipt; (c) (i) if the Servicer fails to observe or
perform in any material respect any covenant or agreement in the Pooling and
Servicing Agreement or the Certificates or (ii) if any representation or
warranty of the Servicer in the Pooling and Servicing Agreement is incorrect,
and such failure or breach materially and adversely affects the rights of the
Trustee or the Certificateholders and continues unremedied for 30 days after
the earlier to occur of (x) written notice to the Servicer by the Trustee or to
the Trustee or the Servicer by any Certificateholders or (y) the date on which
any Servicing Officer or authorized Trust Officer knows, or reasonably should
have known, of such failure or of such breach; (d) upon the filing of an
involuntary petition in bankruptcy or the decree or order of a court, agency or
supervisory authority having jurisdiction over the Servicer for the appointment
of a conservator, receiver, trustee in bankruptcy or liquidator in any
bankruptcy, insolvency or similar proceedings, and the continuance of any such
petition, decree or order undismissed or unstayed and in effect for a period of
90 consecutive days; (e) upon the voluntary filing of such petition or
assignment for the benefit of creditors, the consent by the Servicer to any
such appointment, the admission in writing by the Servicer of its inability to
pay its debts as they become due or the determination by a court that the
Services is generally not paying its debts as they come due; (f) in the event
that the Servicer assigns or attempts to assign its rights and duties under the
Pooling and Servicing Agreement except as specifically permitted therein.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
If an Event of Servicing Termination has occurred and is continuing,
either the Trustee or the Majority Holders may terminate all (but not less than
all) of the Servicer's rights and obligations under the Pooling and Servicing
Agreement. Upon such termination, the Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Pooling and
Servicing Agreement; provided, however, that the Trustee shall not (i) assume
any obligation to reacquire Receivables by reason of misrepresentations or
breaches of warranties, (ii) be required to make any Servicer Advance if such
Servicer Advance would be prohibited by applicable law or if the Trustee
determines that the Service Advance would not be reimbursed or (iii) be liable
for acts, omissions or breaches of representations or warranties by the
Servicer or PLI occurring prior to transfer of the servicing functions.
Notwithstanding such
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termination, the Servicer shall be entitled to payment of certain amounts
payable to it prior to such termination for services rendered prior to such
termination. The Trustee also may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor Servicer in accordance with
the procedures set forth in the Pooling and Servicing Agreement.
TERMINATION OF THE TRUST
The Trust and the Pooling and Servicing Agreement will terminate, (i)
at the option of the Holder of the Trust Certificate, at any time which is 123
days after the payment to Class A Certificateholders, Class B
Certificateholders of all amounts required to be paid to them pursuant to the
Pooling and Servicing Agreement, reducing the Class A Certificate Principal
Balance and the Class B Certificate Principal Balance to zero or (ii) after the
60th day following the Expected Final Payment Date, if on such 60th day, the
Class A Certificate Principal Balance and the Class B Certificate Principal
Balance have not been reduced to zero. Upon termination of the Trust and the
reduction of the Class A Certificate Principal Balance and the Class B
Certificate Principal Balance to zero, any remaining property then held by the
Trust shall be distributed to the Holder of the Trust Certificate.
The respective representations, warranties and indemnities of PLI, the
Servicer and the Depositor will survive any termination of the Trust and the
Pooling and Servicing Agreement.
AMENDMENT
The Pooling and Servicing Agreement may be amended by agreement of the
Trustee, the Depositor and the Servicer at any time, without consent of the
Certificateholders, to cure any ambiguity, upon receipt of an opinion of
counsel to the Servicer that such amendment will not adversely affect in any
respect the interests of any Certificateholder.
The Pooling and Servicing Agreement may also be amended from time to
time by the Trustee, the Depositor, the Servicer and the Majority Holders for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or of
modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (a) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
Receivables or distributions which are required to be made on any Certificate
without the consent of the holder of such Certificate or (b) reduce the
aforesaid percentage of Certificateholders required to consent to any
amendment, without unanimous consent of the Certificateholders.
The Trustee is required under the Pooling and Servicing Agreement to
furnish Certificateholders and the Rating Agencies with written notice of the
substance of any such amendment to the Pooling and Servicing Agreement promptly
upon execution of such amendment.
The "Majority Holders" are, for so long as the Class A Certificates
remain outstanding, Class A Certificateholders owning a majority in Percentage
Interest of all Class A Certificates.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of the Pooling and Servicing Agreement, the Certificates (other
than the authentication thereof) or of any Receivable or related document and
will not be accountable for the use or application by PLI or the Depositor of
any funds paid to the Depositor in consideration of the sale of any
Certificates. If no Event of Servicing Termination has occurred, then the
Trustee will be required to perform only those duties specifically required of
it under the Pooling and Servicing Agreement. However, upon receipt of the
various resolutions, certificates, statements, opinions, reports, documents,
orders or other instruments required
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to be furnished to it, the Trustee will be required to examine them to
determine whether they conform as to form to the requirements of the Pooling
and Servicing Agreement.
No recourse is available based on any provision of the Pooling and
Servicing Agreement, the Certificates or any Receivable or assignment thereof
against Bankers Trust Company, in its individual capacity, and Bankers Trust
Company shall not have any personal obligation, liability or duty whatsoever to
any Certificateholder or any other person with respect to any such claim and
such claim shall be asserted solely against the Trust Assets or any indemnitor,
except for such liability as is determined to have resulted from the Trustee's
own negligence or willful misconduct.
PLI, to the extent provided in the Contribution Agreement and the
Pooling and Servicing Agreement, will agree to pay to the Trustee (a)
reasonable compensation for its services, (b) reimbursement for its reasonable
expenses and (c) indemnification for loss, liability or expense incurred
without negligence or bad faith on its part, arising out of performance of its
duties thereunder.
PREPAYMENT AND YIELD CONSIDERATIONS
On each Payment Date prior to the Initial Amortization Date, an amount
equal to all Base Principal Amount, Residual Receipts and Defaulted Residual
Receipts will be disbursed by the Trust in consideration of the transfer of New
Transferred Property relating to Leases having an aggregate Lease Principal
Balance on such Payment Date equal as nearly as practicable to the amount of
such Base Principal Amount, Residual Receipts and Defaulted Residual Receipts.
Beginning with the Initial Amortization Date, to the extent of Available Funds,
an amount equal to Base Principal Amount and Residual Receipts shall be
distributed as principal to the holders of the Class A Certificates and the
Class B Certificates as described herein.
Following the Interest-Only Period, the rate of principal payments on
the Class A Certificates will be directly related to the rate of principal
payments on the underlying Leases. If purchased at a price at other than par,
the yield to maturity will also be affected by the rate of principal payments.
The principal payments on such Leases may be in the form of scheduled principal
payments or liquidations due to default, casualty and the like. Any such
payments will result in distributions to Class A Certificateholders 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 payment of
principal may also be affected by any removal of the Leases from the pool and
the deposit of the related Prepayment Amount or Reconveyance Amount into the
Collection Account.
The Leases generally do not provide for the right of the Lessee to
prepay. Under the Pooling and Servicing Agreement, the Servicer will be
permitted to allow such Prepayments in full or in part, provided that no
Prepayment of a Lease will be allowed in an amount less than the Prepayment
Amount.
The effective yield to Class A Certificateholders will depend upon,
among other things, the price at which the Class Certificates are purchased,
and the amount of and rate at which principal, including both scheduled and
nonscheduled payments thereof, is paid to the Class A Certificateholders. The
yield to Class A Certificateholders will be affected by lags between the time
interest accrues to Class A Certificate holders and the time the related
interest income is received by the Class A Certificateholders. See "Special
Considerations - Maturity and Prepayment Considerations" in the Prospectus.
Due to the subordination provisions applicable to the Certificates, it
is likely that the Class A Principal Balance will amortize more rapidly than
will the Initial Aggregate Lease Principal Balance. See "Summary of Terms --
Subordination Provisions" and "The Certificates -- Flow of Funds" in this
Prospectus Supplement.
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CERTAIN FEDERAL AND STATE INCOME TAX CONSIDERATIONS
The following is a general discussion of the material anticipated
Federal income tax consequences to holders of the Certificates. This
discussion does not purport to deal with all aspects of Federal income taxation
that may be relevant to holders of the Certificates in light of their personal
investment circumstances, nor to certain types of holders subject to special
treatment under the Federal income tax laws (for example, banks, life insurance
companies, dealers in securities, tax-exempt organizations and foreign
persons). In addition, this discussion is generally limited to investors who
will hold the Certificates as "capital assets" (generally, property held for
investment, within the meaning of Section 1221 of the Code). Prospective
investors are advised to consult their own tax advisors with regard to the
Federal income tax consequences of holding and disposing of the Certificates,
as well as the tax consequences arising under the laws of any state, foreign
country or other jurisdiction. This discussion is based upon the present
provisions of the Code, the regulations promulgated thereunder, and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. No ruling on any of the issues discussed below will be sought
from the Internal Revenue Service (the "IRS").
TREATMENT OF THE CERTIFICATES AS INDEBTEDNESS
Dewey Ballantine, special counsel to the Seller ("Special Counsel"),
is of the opinion that although no transaction closely comparable to that
contemplated herein has been the subject of any Treasury regulation, revenue
ruling or judicial decision, for Federal income tax purposes the Certificates
will be characterized as indebtedness that is secured by the Receivables, the
issuance of the Investor Certificates will not be treated as a sale of the
Receivables and the Trust will not be an entity subject to Federal income tax.
Such opinion is based, in part, upon (i) the agreement of the Seller and each
Certificateholder to treat the Certificates for Federal, state, local and
foreign and other tax purposes as indebtedness (and assumed compliance with
such agreement), and (ii) Special Counsel's conclusion that the Federal income
tax treatment of the Certificates will be determined based on the economic
substance of transactions resulting from the Pooling and Servicing Agreement,
the Prospectus Supplement, the Prospectus and the related documents.
Notwithstanding such opinion of Special Counsel, there can be no assurance that
the IRS will not take one or more possible contrary positions described below
nor that courts will not impose a higher burden of proof on taxpayers with
respect to transactions similar to the instant transaction.
Except where indicated to the contrary, the following discussion
assumes that the Certificates will be treated as indebtedness for Federal
income tax purposes.
FEDERAL INCOME TAX CONSEQUENCES
Interest Income to Certificateholders. Interest on the Certificates
will be taxable as ordinary income for Federal income tax purposes when
received by Certificateholders utilizing the cash method of accounting and when
accrued by Certificateholders utilizing the accrual method of accounting.
Interest received on the Certificates 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 Class A
Certificates 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
Class A Certificates. OID will be considered de minimis if it is less than
0.25% of the principal amount of Certificate multiplied by its expected
weighted average life.
Market Discount. A subsequent purchaser who buys Certificate 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
Certificate disposes of such Certificate (including certain nontaxable
dispositions such as a
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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 Certificate. 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 Certificates and
thereafter. Market discount generally will equal the excess, if any, of the
then-current unpaid principal balance of the Certificate over the purchaser's
basis in the Certificate immediately after such purchaser acquired the
Certificate. In general, market discount on Certificate will be treated as
accruing over the term of such Certificate 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 Certificate, 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 Certificate 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 Certificate 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 Certificate multiplied by its
expected weighted average remaining life. If OID or market discount is de
minimis, the actual amount of discount must be allocated to the remaining
principal distributions on the Certificates 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 Certificate for more
than its principal amount generally will be considered to have purchased the
Certificate at a premium. Such holder may amortize such premium, using a
constant yield method, over the remaining term of the Certificate 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
Certificate over the period from the purchase date to the date of maturity of
the Certificate. Legislative history to 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 his 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 Certificates. If Certificate is sold or
exchanged, the seller of the Certificate will recognize gain or loss equal to
the difference between the amount realized on the sale or exchange and the
adjusted basis of the Certificate. The adjusted basis of Certificate will
generally equal its cost, increased by any OID or market discount includible in
income with respect to the Certificate through the date of sale and reduced by
any principal payments previously received with respect to the Certificate, 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 Certificate was held as a capital
asset. Capital losses generally may be used only to offset capital gains.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States Federal income tax law, a 31% "backup"
withholding tax is applied to certain interest and principal payments
(including OID, if any) made to, and to the proceeds of sales before maturity
by, certain United States persons if such persons fail to supply taxpayer
identification numbers and other information. In addition, certain persons
making such payments, such as the Trustee,
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are required to submit information returns to the United States Treasury
Department with regard to those payments. Backup withholding and information
reporting, however, generally do not apply to any such payments made to certain
"exempt recipients" such as corporations. Each nonexempt Certificateholder
will be required to provide, under penalties of perjury, a certificate on
Internal Revenue Service From W-9 containing the Certificateholder's name,
address, correct Federal taxpayer identification number and a statement that
the Certificateholder's is not subject to backup withholding.
Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a refund or a credit against such holder's
United States Federal income tax liability, provided that the required
information is provided to the IRS.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS INTEREST IN A PARTNERSHIP OR
ASSOCIATION
Although, as described above, it is the opinion of Special Counsel
that the Investor Certificates will properly be characterized as debt for
Federal income tax purposes, such opinion is not binding on the IRS and courts
may impose a greater burden of proof on taxpayers in transactions similar to
the instant transaction. Thus no assurance can be given that such a
characterization will prevail. If the IRS were to contend successfully that
the Certificates were not debt obligations for Federal income tax purposes, the
arrangement between the Seller and the Certificateholders might be classified
as a partnership for Federal income tax purposes, as an association taxable as
a corporation or as a "publicly traded partnership" taxable as a corporation.
If the transaction were treated as creating a partnership, the
partnership itself would not be subject to federal income tax (unless
characterized as a "publicly traded partnership" taxable as a corporation);
rather, the Servicer, the Seller and each Certificateholder would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount, timing and
characterization of items of income and deductions for a Certificateholder
would differ if the Certificates were held to constitute partnership interests,
rather than indebtedness.
If it were determined that this transaction created an entity
classified as a corporation (including a "publicly traded partnership" taxable
as a corporation), the Trust would be subject to federal income tax at
corporate income tax rates on the income it derives from the Receivables, which
would reduce the amounts available for distribution to the Certificateholders.
Cash distributions to the Certificateholders treated as equity interests in
such corporation generally would be treated as dividends for tax purposes to
the extent of the corporation's earnings and profits. The Certificates treated
as equity might include all of the Certificates or only the Class B
Certificates and the Trust Certificate, with the Class A Certificates being
treated as indebtedness.
Generally, section 7704(b) of the Code provides that a partnership is
a "publicly traded partnership" if interests in the partnership are traded on
an established securities market, or are readily tradeable on a secondary
market or a substantial equivalent. Securities are readily tradeable on a
secondary market or the substantial equivalent of a secondary market if the
buyer or seller of such securities may buy, sell, or exchange them in a manner
economically comparable to trading on an established securities market (i.e.,
whenever interests are subject to firm-quote trading). Because there will be
no restrictions imposed on the free transferability of the Certificates, there
is a risk that if a partnership is deemed to be created, it will be classified
as a publicly traded partnership. On May 1, 1995, the IRS issued proposed
regulations under section 7704 that provide guidance regarding the
classification of a partnership as a publicly traded partnership (the "Proposed
Regulations"). The Proposed Regulations significantly narrow the circumstances
under which a partnership may be excepted from classification as a publicly
traded partnership. The regulations are proposed to be effective for existing
entities for taxable years beginning after the adoption of final regulations.
The Proposed Regulations are subject to change before being adopted in final
form. There can be no assurance, therefore, that any Certificate
recharacterized as equity by the IRS would qualify as nonpublicly traded or
would be otherwise excepted
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from such classification pursuant to any safe harbors provided by the Proposed
Regulations. Investors are urged to consult their own tax advisors with
respect to issues relating to publicly traded partnerships.
Since the Seller will treat the Certificates as indebtedness for
Federal income tax purposes, the Trustee will not attempt to satisfy the tax
reporting requirements that would apply under these alternative
characterizations of the Certificates.
STATE AND LOCAL TAX CONSEQUENCES
State tax consequences to each Certificateholder will depend upon the
provisions of the state tax laws to which the Certificateholder is subject.
Most states modify or adjust the taxpayer's Federal taxable income to arrive at
the amount of income potentially subject to state tax. Resident individuals
generally pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion
of state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules. Because each state's tax law varies, it is
impossible to predict the tax consequences to the Certificateholders in all the
state taxing jurisdictions in which they are already subject to tax.
Certificateholders are urged to consult their own tax advisors with respect to
state taxes.
ERISA CONSIDERATIONS
By acceptance of a Class A Certificate, each Class A Certificateholder
will be deemed to have represented and warranted that the Class A
Certificateholder is not acquiring (or considered to be acquiring) the Class A
Certificate with the assets of (a) an employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) subject to Title I of ERISA, (b) a plan described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended, or (c) any entity
whose underlying assets include plan assets by reason of a plan's investment in
such entity.
RATINGS
As a condition to the issuance of the Class A Certificates, the Class
A Certificates must be rated at least "A" by Duff & Phelps Credit Rating Co. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time. The rating assigned to the
Class A Certificates addresses the likelihood of the receipt by Class A
Certificateholders of all distributions to which such Class A
Certificateholders are entitled. The rating assigned to the Class A
Certificates does not represent any assessment of the likelihood that principal
prepayments might differ from those originally anticipated or address the
possibility that Class A Certificateholders might suffer a lower than
anticipated yield.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") for the sale of the Class A
Certificates dated November __, 1995, the Depositor has agreed to sell and
Prudential Securities Incorporated (the "Underwriter") has agreed to purchase,
the Class A Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions therein, to purchase all the Class A Certificates
offered hereby if any of such Class A Certificates are purchased.
The Underwriter has advised the Depositor that it proposes to offer
the Class A Certificates purchased by the Underwriter for sale from time to
time in one or more negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to such market prices or at
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negotiated prices. The Underwriter may effect such transactions by selling
such Class A Certificates to or through a dealer, and such dealer may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter or purchasers of the Class A Certificates for whom they
may act as agent. Any dealers that participate with the Underwriter in the
distribution of the Class A Certificates purchased by the Underwriter may be
deemed to be underwriters, and any discounts or commissions received by them or
the Underwriter, and any profit on the resale of Class A Certificates by them
or the Underwriter may be deemed to be underwriting discounts or commissions
under the Securities Act of 1933, as amended (the "Securities Act").
For further information regarding any offer or sale of the Class A
Certificates pursuant to this Prospectus Supplement and the Prospectus, see
"Methods of Distribution" in the Prospectus.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriter may be required
to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Contributors, the Phoenix Finance Subsidiary, PLI and the Servicer by
Thelen, Marrin, Johnson & Bridges, and for the Underwriter by Dewey Ballantine,
New York, New York. Certain Federal and state income tax matters will be
passed upon for the Issuer by Dewey Ballantine, New York, New York.
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INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Actual Payment . . . . . . . . . . . . . . . . . . . . . . 42
Advance Payment Account . . . . . . . . . . . . . . . . . . 40
Advance Payments . . . . . . . . . . . . . . . . . . . . . 40
Available Funds . . . . . . . . . . . . . . . . . . . . . . 10, 42
Base Principal Amount . . . . . . . . . . . . . . . . . . . 11, 12, 42
Calculation Date . . . . . . . . . . . . . . . . . . . . . 42
Capital Assets . . . . . . . . . . . . . . . . . . . . . . 52
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Certificates . . . . . . . . . . . . . . . . . . . . . . . 5, 37
Class A Base Principal Distribution Amount . . . . . . . . 11, 12
Class A Certificate Factor . . . . . . . . . . . . . . . . 46
Class A Certificate Interest . . . . . . . . . . . . . . . 43
Class A Certificate Principal Balance . . . . . . . . . . . 43
Class A Certificate Rate . . . . . . . . . . . . . . . . . 43
Class A Certificates . . . . . . . . . . . . . . . . . . . 1
Class A Overdue Interest . . . . . . . . . . . . . . . . . 43
Class A Overdue Principal . . . . . . . . . . . . . . . . . 12, 43
Class A Percentage . . . . . . . . . . . . . . . . . . . . 10, 11
Class B Base Principal Amount . . . . . . . . . . . . . . . 12
Class B Base Principal Distribution Amount . . . . . . . . 11, 43
Class B Certificate Factor . . . . . . . . . . . . . . . . 46
Class B Certificate Interest . . . . . . . . . . . . . . . 43
Class B Certificate Principal Balance . . . . . . . . . . . 43
Class B Certificate Rate . . . . . . . . . . . . . . . . . 43
Class B Overdue Interest . . . . . . . . . . . . . . . . . 43
Class B Overdue Principal . . . . . . . . . . . . . . . . . 12, 43
Class B Percentage . . . . . . . . . . . . . . . . . . . . 11
Class B Termination Date . . . . . . . . . . . . . . . . . 43
Collection Account . . . . . . . . . . . . . . . . . . . . 8, 40
Collection Period . . . . . . . . . . . . . . . . . . . . . 43
Commission . . . . . . . . . . . . . . . . . . . . . . . . 2
Contribution Agreement . . . . . . . . . . . . . . . . . . 3
Contributor . . . . . . . . . . . . . . . . . . . . . . . . 3
Contributors . . . . . . . . . . . . . . . . . . . . . . . 3
Credit Administration . . . . . . . . . . . . . . . . . . . 30
Credit Reports . . . . . . . . . . . . . . . . . . . . . . 33
Defaulted Lease . . . . . . . . . . . . . . . . . . . . . . 11, 19
Defaulted Residual Receipts . . . . . . . . . . . . . . . . 44
Delinquent Lease . . . . . . . . . . . . . . . . . . . . . 13
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . 1, 3
Determination Date . . . . . . . . . . . . . . . . . . . . 13, 44
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . 5
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 55
Event of Servicing Termination . . . . . . . . . . . . . . 45, 49
Excess Amount . . . . . . . . . . . . . . . . . . . . . . . 6, 18
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . 2
Final Lease Payment . . . . . . . . . . . . . . . . . . . . 6, 18
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
Page
----
<S> <C>
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Initial Aggregate Lease Principal Balance . . . . . . . . . 5
Initial Amortization Date . . . . . . . . . . . . . . . . . 1
Initial Class A Principal Balance . . . . . . . . . . . . . 44
Initial Class B Principal Balance . . . . . . . . . . . . . 44
Initial Equipment . . . . . . . . . . . . . . . . . . . . . 4
Initial Leases . . . . . . . . . . . . . . . . . . . . . . 4
Initial Transferred Property . . . . . . . . . . . . . . . 3
Initial Unpaid Amount . . . . . . . . . . . . . . . . . . . 44
Insurance Policies . . . . . . . . . . . . . . . . . . . . 36
Interest Accrual Period . . . . . . . . . . . . . . . . . . 44
Interest-Only Period . . . . . . . . . . . . . . . . . . . 1, 44
Investment income . . . . . . . . . . . . . . . . . . . . . 52
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Lease Principal Balance . . . . . . . . . . . . . . . . . . 44
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Majority Holders . . . . . . . . . . . . . . . . . . . . . 50
Net leases . . . . . . . . . . . . . . . . . . . . . . . . 7, 17
New Equipment . . . . . . . . . . . . . . . . . . . . . . . 1
New Leases . . . . . . . . . . . . . . . . . . . . . . . . 1
New Transferred Property . . . . . . . . . . . . . . . . . 1
New Transferred Property Funding Account . . . . . . . . . 40
Off lease . . . . . . . . . . . . . . . . . . . . . . . . . 32
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Phoenix Finance Subsidiary . . . . . . . . . . . . . . . . 1, 3
PLI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . 47
Pooling and Servicing Agreement . . . . . . . . . . . . . . 1
Predecessor Receivable . . . . . . . . . . . . . . . . . . 19
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . 44
Prepayment Amount . . . . . . . . . . . . . . . . . . . . . 7, 44
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 44
Profile . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Proposed Regulations . . . . . . . . . . . . . . . . . . . 54
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . 2
Publicly traded partnership . . . . . . . . . . . . . . . . 54
Purchase Option Leases . . . . . . . . . . . . . . . . . . 6, 18
Purchase Option Payments . . . . . . . . . . . . . . . . . 6, 18
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . 15
Receivables . . . . . . . . . . . . . . . . . . . . . . . . 1, 37
Receivables Transfer Agreement . . . . . . . . . . . . . . 4
Reconveyance Amount . . . . . . . . . . . . . . . . . . . . 7, 19, 44, 45
Required Amortization Event . . . . . . . . . . . . . . . . 45
Residual Receipts . . . . . . . . . . . . . . . . . . . . . 6, 10, 18, 45
Scheduled Payments . . . . . . . . . . . . . . . . . . . . 45
Securities Act . . . . . . . . . . . . . . . . . . . . . 56
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 1, 3, 25
Servicer Advance . . . . . . . . . . . . . . . . . . . . . 13, 40
Servicer Fee . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
S-58
<PAGE> 59
<TABLE>
<CAPTION>
Page
----
<S> <C>
Servicer's Certificate . . . . . . . . . . . . . . . . . . 41
Servicing Charges . . . . . . . . . . . . . . . . . . . . . 12
Subordinate Certificates . . . . . . . . . . . . . . . . . 5, 10, 37
Subordinated Amount . . . . . . . . . . . . . . . . . . . . 45
Substitute Receivable . . . . . . . . . . . . . . . . . . . 19
Supplementary Report . . . . . . . . . . . . . . . . . . . 48
Transfer Agreements . . . . . . . . . . . . . . . . . . . . 4
Transferred Property . . . . . . . . . . . . . . . . . . . 4
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 3
Trust's Certificate Principal Balance . . . . . . . . . . . 45
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 3
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . 2, 55
Underwriting Agreement . . . . . . . . . . . . . . . . . . 55
</TABLE>
S-59
<PAGE> 60
PROSPECTUS
- --------------------------------------------------------------------------------
EQUIPMENT LEASE BACKED SECURITIES ISSUABLE IN SERIES
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION,
Depositor
This Prospectus describes certain Equipment Lease Backed Notes (the "Notes")
and Equipment Lease Backed Certificates (the "Certificates" and, together with
the Notes, the "Securities") that may be sold from time to time in one or more
series, in amounts, at prices and on terms to be determined at the time of sale
and to be set forth in a supplement to this Prospectus (each, a "Prospectus
Supplement"). Each series of Securities may include one or more classes of Notes
and one or more classes of Certificates, which will be issued either by the
Depositor, a Transferor (as hereinafter defined), or by a trust to be formed by
the Depositor for the purpose of issuing one or more series of such Securities
(each, a "Trust"). The Depositor, a Transferor or a Trust, as appropriate,
issuing Securities as described in this Prospectus and the related Prospectus
Supplement shall be referred to herein as the "Issuer."
Each class of Securities of any series will evidence beneficial ownership in
a segregated pool of assets (each, a "Trust Fund") (such Securities,
"Certificates") or will represent indebtedness of the Issuer secured by the
Trust Fund (such Securities, "Notes"), as described herein and in the related
Prospectus Supplement. Each Trust Fund may consist of any combination of
operating leases, finance leases, installment sale contracts, loan contracts or
participation interests therein, together with all monies received relating
thereto (the "Contracts"). Each Trust Fund may also include the underlying
equipment and property relating thereto, together with the proceeds thereof (the
"Equipment" together with the Contracts, the "Receivables"). If and to the
extent specified in the related Prospectus Supplement, credit enhancement with
respect to a Trust Fund or any class of Securities may include any one or more
of the following: a financial guaranty insurance policy (a "Policy") issued by
an insurer specified in the related Prospectus Supplement, a reserve account,
letters of credit, credit or liquidity facilities, third party payments or other
support, cash deposits or other arrangements. In addition to or in lieu of the
foregoing, credit enhancement may be provided by means of subordination,
cross-support among the Receivables or over-collateralization. See "Description
of the Trust Agreement -- Credit and Cash Flow Enhancement." The Receivables in
the Trust Fund for a series will have been acquired by the Depositor from one or
more affiliates of the Depositor or from one or more entities which are
unaffiliated with the Depositor (any such affiliate or unaffiliated entity, an
"Originator"). Each Originator will be an entity, including Vendors, generally
in the business of originating or acquiring Receivables. The Depositor will
acquire the Receivables from the related Originator(s) on or prior to the date
of issuance of the related Securities, as described herein and in the related
Prospectus Supplement. The Receivables included in a Trust Fund will be serviced
by a servicer (the "Servicer") described in the related Prospectus Supplement.
Each series of Securities will include one or more classes (each, a "Class").
A series may include one or more Classes of Securities entitled to principal
distributions, with disproportionate, nominal or no interest distributions, or
to interest distributions, with disproportionate, nominal or no principal
distributions. The rights of one or more Classes of Securities of any series may
be senior or subordinate to the rights of one or more of the other Classes of
Securities. A series may include two or more Classes of Securities which differ
as to the timing, sequential order, priority of payment, interest rate or amount
of distributions of principal or interest or both. Information regarding each
Class of Securities of a series, together with certain characteristics of the
related Receivables, will be set forth in the related Prospectus Supplement. The
rate of payment in respect of principal of the Securities of any Class will
depend on the priority of payment of such a Class and the rate and timing of
payments (including prepayments, defaults, liquidations or repurchases of
Receivables) on the related Receivables. A rate of payment lower or higher than
that anticipated may affect the weighted average life of each Class of
Securities in the manner described herein and in the related Prospectus
Supplement. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "SPECIAL
CONSIDERATIONS" HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT INTERESTS OF THE DEPOSITOR, ANY SERVICER, ANY ORIGINATOR OR ANY OF
THEIR RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT
BENEFICIAL INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF THE DEPOSITOR, ANY TRANSFEROR, ANY SERVICER, ANY ORIGINATOR OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING
RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, ANY SERVICER, ANY ORIGINATOR, ANY TRUSTEE
OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED
PROSPECTUS SUPPLEMENT. SEE ALSO "SPECIAL CONSIDERATIONS."
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement. Prior
to issuance, there will have been no market for the Securities of any series,
and there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT
BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
- --------------------------------------------------------------------------------
The date of this Prospectus is December 2, 1994.
<PAGE> 61
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities to be offered
hereunder, among other things, will set forth with respect to such series of
Securities: (i) a description of the Class or Classes of such Securities, (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables and insurance polices, cash accounts, letters of
credit, financial guaranty insurance policies, third party guarantees or other
forms of credit enhancement, if any, relating to one or more pools of
Receivables or all or part of the related Securities; (iv) the specified
interest, if any, of each Class of Securities in, and manner and priority of,
the distributions from the Trust Fund; (v) information as to the nature and
extent of subordination with respect to such series of Securities, if any; (vi)
the payment date to Securityholders; (vii) information regarding the Servicer(s)
for the related Receivables; (viii) information regarding the Originator(s) for
the related Receivables and the underwriting guidelines employed by such
Originator(s) with respect to such Receivables, (ix) the circumstances, if any,
under which each Trust Fund may be subject to early termination; (x) information
regarding tax considerations; and (xi) additional information with respect to
the method of distribution of such Securities.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. 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., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Depositor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in the accompanying Prospectus Supplement) or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Security and the related Trust
Fund will be provided to the Securityholders. See "Description of the Securities
- -- Reports to Securityholders." If the Securities of a series are to be issued
in book-entry form, such reports will be provided to the Securityholder of
record and beneficial owners of such Securities will have to rely on the
procedures described herein under "Description of Securities - Book-Entry
Registration."
The Depositor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to: Prudential Securities
Secured Financing Corporation, 130 John Street, New York, New York 10038,
Attention: Timothy Mas.
2
<PAGE> 62
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer . . . . . . . . . . . . With respect to each series of Securities,
either the Depositor, a special-purpose
finance subsidiary of the Depositor which
may be organized and established by the
Depositor with respect to one or more
Trust Funds (each such special-purpose
finance subsidiary, a "Transferor") or a
trust (each, a "Trust") to be formed by
the Depositor. For purposes of this
Prospectus, the term "Depositor" includes
the term "Transferor". The Depositor, a
Transferor or a Trust issuing Securities
pursuant to this Prospectus and the
related Prospectus Supplement shall be
referred to herein as the "Issuer" with
respect to the related Securities. See
"The Issuer."
Depositor . . . . . . . . . . . Prudential Securities Secured Financing
Corporation, formerly known as P-B Secured
Financing Corporation (the "Depositor"), a
Delaware corporation, a wholly-owned
limited purpose finance subsidiary of
Prudential Securities Group Inc. The
Depositor's principal executive offices
are located at 130 John Street, New York,
New York 10038, and its telephone number
is (212) 214-7435. See "The Depositor."
Servicer . . . . . . . . . . . The Servicer for each Trust Fund will be
specified in the applicable Prospectus
Supplement. The Servicer will service the
Receivables comprising each Trust Fund and
administer each Trust Fund pursuant to the
related Servicing Agreement. The Servicer
may subcontract all or any portion of its
obligations as Servicer under each
Servicing Agreement to qualified
subservicers (each, a "Sub-Servicer") but
the Servicer will not be relieved thereby
of its liability with respect thereto.
See "Servicing of the Receivables."
Originator(s) . . . . . . . . . The Depositor will acquire the Receivables
from one or more affiliates of the
Depositor or from one or more entities
which are unaffiliated with the Depositor
(any such affiliate or unaffiliated
entity, an "Originator"). The Receivables
will be either (i) originated by the
related Originator, (ii) originated by
various manufacturers of Equipment
("Vendors") and acquired by the related
Originator or (iii) acquired by the
related Originator from other originators
or owners of Receivables. In addition, to
the extent that the Depositor acquires
Receivables directly from a Vendor, such
Vendor will be the Originator for purposes
of the related Receivables and this
Prospectus. See "The Originator and the
Servicer".
Trustee . . . . . . . . . . . . The Trustee for each series of Securities
will be specified in the related
Prospectus Supplement. In addition, a
Trust may separately enter into an
Indenture and may issue Notes pursuant to
such Indenture; in any such case the Trust
and the Indenture will be administered by
separate, independent trustees as required
by the rules and regulations under the
Trust Indenture Act of 1939 and the
Investment Company Act of 1940.
The Securities . . . . . . . . Each Class of Securities of any series
will evidence beneficial ownership in a
segregated pool of assets (each, a "Trust
Fund") (such Securities, "Certificates")
or will represent indebtedness of the
Issuer secured by the Trust Fund (such
Securities, "Notes"), as described
3
<PAGE> 63
herein and in the related Prospectus
Supplement. Each Trust Fund may consist of
any combination of operating leases,
finance leases, installment sale contracts,
loan contracts or participation interests
therein, together with all monies received
relating thereto (the "Contracts"). Each
Trust Fund also may include the underlying
equipment and property relating thereto,
together with the proceeds thereof (the
"Equipment" and together with the
Contracts, the "Receivables").
The Equipment underlying the Receivables
included in each Trust Fund will be limited
to personal property which is leased or
financed by the related Originator to the
Lessee pursuant to Contracts which either
are "chattel paper" (as defined in the
Uniform Commercial Code) or would be
"chattel paper" but for a technical
definitional matter, but in any event are
not treated materially differently from
"chattel paper" for purposes of title
transfer, security interests or remedies on
default. The Equipment will be further
limited to personal property which is
subject to Uniform Commercial Code
provisions relating to title transfer,
security interests and remedies on default
and further limited to Equipment leased to
the related Lessee for use by such Lessee
in the ordinary course of business or for
home use such as medical equipment,
restaurant equipment, film and video
production equipment, other industrial and
production equipment, data processing
equipment, telecommunications equipment,
office equipment and furniture.
No Trust Fund will include Receivables with
respect to which the related Contract or
the related Equipment is subject to federal
or state registration or titling
requirements which (x) differ materially
from, or supplant, standard Uniform
Commercial Code provisions governing the
manner in which title or security interests
in "chattel paper" (as defined in the
Uniform Commercial Code) or the related
equipment is determined or perfected or (y)
differ materially from, or supplant,
standard Uniform Commercial Code provisions
governing remedies on default. By way of
illustration of the foregoing, no Trust
Fund will include Receivables with respect
to which the underlying Contracts or
Equipment relate to motor vehicles,
aircraft, ships or boats, firearms or other
weapons, railroad rolling stock or
facilities such as factories, warehouses or
plants subject to state laws governing the
manner in which title or security interest
in real property is determined or
perfected. However, the Receivables may
generally include Contracts and Equipment
relating to individual, discrete components
of assets such as the foregoing; for
example a leased computer on the ship may
qualify as "Equipment" which may be
included in a Trust Fund, provided that
both the lease and the computer are
generally within the scope of the Uniform
Commercial Code.
If and to the extent specified in the
related Prospectus Supplement, credit
enhancement with respect to a Trust Fund or
any class of Securities may include any one
or more of the following: a financial
guaranty insurance policy (a "Policy")
issued by an insurer specified in the
related Prospectus Supplement, a reserve
account, letters of credit, credit or
liquidity facilities, third party payments
or other support, cash deposits or other
arrangements. In addition to or in lieu of
the foregoing, credit enhancement may be
provided by means of subordination,
cross-support among the Receivables or
over-collateralization. The Depositor will
acquire the Receivables from the related
Originator(s) on or prior to the date of
issuance of the related
4
<PAGE> 64
Securities, as described herein and in the
related Prospectus Supplement.
With respect to Securities issued by a
Trust, each Trust will be established
pursuant to an agreement (each, a "Pooling
Agreement") by and between the Depositor
and the Trustee named therein. Each Pooling
Agreement will describe the related pool of
Receivables held by the Trust.
With respect to Securities that represent
debt issued by the Issuer, the Issuer will
enter into an indenture (each, an
"Indenture") by and between the Issuer and
the trustee named on such Indenture (the
"Indenture Trustee"). Each Indenture will
describe the related pool of Receivables
comprising the Trust Fund and securing the
debt issued by the related Issuer.
The Receivables comprising each Trust Fund
will be serviced by the Servicer pursuant
to a servicing agreement (each, a
"Servicing Agreement") by and between the
Servicer and the related Issuer.
In the case of any individual Trust Fund,
the contractual arrangements relating to
the establishment of a Trust, if any, the
servicing of the related Receivables and
the issuance of the related Securities may
be contained in a single agreement, or in
several agreements which combine certain
aspects of the Pooling Agreement, the
Servicing Agreement and the Indenture
described above (for example, a pooling and
servicing agreement, or a servicing and
collateral management agreement). For
purposes of this Prospectus, the term
"Trust Agreement" as used with respect to a
Trust Fund means, collectively, and except
as otherwise described in the related
Prospectus Supplement, any and all
agreements relating to the establishment of
a Trust, if any, the servicing of the
related Receivables and the issuance of the
related Securities. The term "Trustee"
means any and all persons acting as a
trustee pursuant to a Trust Agreement.
Securities Will Be Non-Recourse.
The Securities will not be obligations,
either recourse or non-recourse (except for
certain non-recourse debt described under
"Certain Tax Considerations"), of the
Depositor, the related Servicer, the
related Originator(s) or any person other
than the related Issuer. The Notes of a
given series represent obligations of the
Issuer, and the Certificates of a given
series represent beneficial interests in
the related Trust only and do not represent
interests in or obligations of the
Depositor, the related Servicer, the
related Originator(s) or any of their
respective affiliates other than the
related Trust. In the case of Securities
that represent beneficial ownership
interest in the related Trust, such
Securities will represent the beneficial
ownership interests in such Trust and the
sole source of payment will be the assets
of such Trust. In the case of Securities
that represent debt issued by the related
Issuer, such Securities will be secured by
assets in the related Trust Fund.
Notwithstanding the foregoing, and as to be
described in the related Prospectus
Supplement, certain types of credit
enhancement, such as a letter of credit,
financial guaranty insurance policy or
reserve fund may constitute a full recourse
obligation of the issuer of such credit
enhancement.
5
<PAGE> 65
General Nature of the Securities as
Investments.
All of the Securities offered pursuant to
this Prospectus and the related Prospectus
Supplement will be rated in one of the four
highest rating categories by one or more
Rating Agencies (as defined herein).
Additionally, all of the Securities offered
pursuant to this Prospectus and the related
Prospectus Supplement will be of the
fixed-income type ("Fixed Income
Securities"). Fixed Income Securities will
generally be styled as debt instruments,
having a principal balance and a specified
interest rate ("Interest Rate"). Fixed
Income Securities may either represent
beneficial ownership interests in the
related Receivables held by the related
Trust or debt secured by certain assets of
the related Issuer.
Each series or Class of Fixed Income
Securities offered pursuant to this
Prospectus may have a different Interest
Rate, which may be a fixed or adjustable
Interest Rate. The related Prospectus
Supplement will specify the Interest Rate
for each series or Class of Fixed Income
Securities described therein, or the
initial Interest Rate and the method for
determining subsequent changes to the
Interest Rate.
A series may include one or more Classes of
Fixed Income Securities ("Strip
Securities") entitled (i) to principal
distributions, with disproportionate,
nominal or no interest distributions, or
(ii) to interest distributions, with
disproportionate, nominal or no principal
distributions. In addition, a series of
Securities may include two or more Classes
of Fixed Income Securities that differ as
to timing, sequential order, priority of
payment, Interest Rate or amount of
distribution of principal or interest or
both, or as to which distributions of
principal or interest or both on any Class
may be made upon the occurrence of
specified events, in accordance with a
schedule or formula, or on the basis of
collections from designated portions of the
related pool of Receivables. Any such
series may include one or more Classes of
Fixed Income Securities ("Accrual
Securities"), as to which certain accrued
interest will not be distributed but rather
will be added to the principal balance (or
nominal balance, in the case of Accrual
Securities which are also Strip Securities)
thereof on each Payment Date, as
hereinafter defined, or in the manner
described in the related Prospectus
Supplement.
If so provided in the related Prospectus
Supplement, a series may include one or
more other Classes of Fixed Income
Securities (collectively, the "Senior
Securities") that are senior to one or more
other Classes of Fixed Income Securities
(collectively, the "Subordinate
Securities") in respect of certain
distributions of principal and interest and
allocations of losses on Receivables.
In addition, certain Classes of Senior (or
Subordinate) Securities may be senior to
other Classes of Senior (or Subordinate)
Securities in respect of such distributions
or losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement
and as described in the related Prospectus
Supplement, the holders of the Securities
("Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Payment Date").
Payment Dates with respect to Fixed Income
Securities will occur monthly,
6
<PAGE> 66
quarterly or semi-annually, as described in
the related Prospectus Supplement.
The related Prospectus Supplement will
describe a date (the "Record Date")
preceding such Payment Date, as of which
the Trustee or its paying agent will fix
the identity of the Securityholders for the
purpose of receiving payments on the next
succeeding Payment Date. As described in
the related Prospectus Supplement, the
Payment Date will be a specified day of
each month, commonly the fifteenth or
twenty-fifth day of each month (or, in the
case of quarterly-pay Securities, the
fifteenth or twenty-fifth day of every
third month; and in the case of semi-annual
pay Securities, the fifteenth or
twenty-fifth day of every sixth month) and
the Record Date will be the close of
business as of the last day of the calendar
month that precedes the calendar month in
which such Payment Date occurs.
Each Trust Agreement will describe a period
(each, a "Remittance Period") preceding
each Payment Date (for example, in the case
of monthly-pay Securities, the calendar
month preceding the month in which a
Payment Date occurs). As more fully
described in the related Prospectus
Supplement, collections received on or with
respect to the related Receivables
constituting a Trust Fund during a
Remittance Period will be required to be
remitted by the Servicer to the related
Trustee prior to the related Payment Date
and will be used to fund payments to
Securityholders on such Payment Date. As
may be described in the related Prospectus
Supplement, the related Trust Agreement may
provide that all or a portion of the
payments collected on or with respect to
the related Receivables may be applied by
the related Trustee to the acquisition of
additional Receivables during a specified
period (rather than be used to fund
payments of principal to Securityholders
during such period), with the result that
the related Securities will possess an
interest-only period, also commonly
referred to as a revolving period, which
will be followed by an amortization period.
Any such interest only or revolving period
may, upon the occurrence of certain events
to be described in the related Prospectus
Supplement, terminate prior to the end of
the specified period and result in the
earlier than expected amortization of the
related Securities.
In addition, and as may be described in the
related Prospectus Supplement, the related
Trust Agreement may provide that all or a
portion of such collected payments may be
retained by the Trustee (and held in
certain temporary investments, including
Receivables) for a specified period prior
to being used to fund payments of principal
to Securityholders.
Such retention and temporary investment by
the Trustee of such collected payments may
be required by the related Trust Agreement
for the purpose of (a) slowing the
amortization rate of the related Securities
relative to the rent payment schedule of
the related Receivables, or (b) attempting
to match the amortization rate of the
related Securities to an amortization
schedule established at the time such
Securities are issued. Any such feature
applicable to any Securities may terminate
upon the occurrence of events to be
described in the related Prospectus
Supplement, resulting in distributions to
the specified Securityholders and an
acceleration of the amortization of such
Securities.
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As more fully specified in the related
Prospectus Supplement, neither the
Securities nor the underlying Receivables
will be guaranteed or insured by any
governmental agency or instrumentality or
the Depositor, the related Servicer, the
related Originator, any Trustee, or any of
their affiliates.
No Investment Companies . . . . Neither the Depositor nor any Trust will
register as an "investment company" under
the Investment Company Act of 1940, as
amended (the "Investment Company Act").
The Equity Interest . . . . . . With respect to each Trust, the "Equity
Interest" at any time represents the
rights to the related Trust Fund in excess
of the Securityholders' interest of all
series then outstanding that were issued
by such Trust. The Equity Interest in any
Trust Fund will fluctuate as the aggregate
Discounted Contract Balance of such Trust
Fund changes from time to time. In
addition, the Depositor may cause one or
more of the Trusts (such a Trust, a
"Master Trust") to issue additional series
of Securities from time to time and any
such issuance will have the effect of
decreasing the Equity Interest in the
related Master Trust to the extent of the
aggregate principal amount of the
Securities. See "Description of
Securities -- Master Trusts." A portion
of the Equity interest in any Trust may be
sold separately in one or more public or
private transactions.
Master Trusts; Issuance of
Additional Series . . . . . . As may be described in the related
Prospectus Supplement, a Trust Agreement
may authorize the Trustee to issue
certificates (the "Equity Certificates")
evidencing the Equity Interest in a Master
Trust, and may provide that, pursuant to
any one or more supplements to such Trust
Agreement, the Depositor may cause the
related Trustee to issue one or more new
series of Securities and accordingly cause
a reduction in the related Equity Interest
in such Master Trust represented by the
related Equity Certificate. Under each
such Trust Agreement (each, a "Master
Trust Agreement"), the Depositor may
determine the terms of any such new
series. See "Description of the
Securities -- Master Trusts."
The Depositor may cause the related Trustee
to offer any such new series to the public
or other investors, in transactions either
registered under the Securities Act or
exempt from registration thereunder,
directly or through one or more
underwriters or placement agents, in
fixed-price offerings or in negotiated
transactions or otherwise.
A new series to be issued by a Trust which
has a series outstanding may, unless
otherwise described in the related
Prospectus Supplement, only be issued upon
satisfaction of the conditions described
herein under "Description of the Securities
-- Master Trusts", including, among others,
that such issuance will not effect the
rating given to any existing series issued
by such Master Trust. Securities secured by
Receivables held by a Master Trust shall be
entitled to moneys received relating to
such Receivables on a pari passu basis with
other Securities issued pursuant to the
other Trust Agreements by such Master
Trust.
Cross-Collateralization . . . As described in the related Trust
Agreement and the related Prospectus
Supplement, the source of payment for
Securities of each series will be the
assets of the related Trust Fund only.
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However, as may be described in the related
Prospectus Supplement, a series or class of
Securities may include the right to receive
moneys from a common pool of credit
enhancement which may be available for more
than one series of Securities, such as a
master reserve account, master insurance
policy or a master collateral pool
consisting of similar Receivables.
Notwithstanding the foregoing, and as
described in the related Prospectus
Supplement, no payment received on any
Receivable held by any Trust may be applied
to the payment of Securities issued by any
other Trust (except to the limited extent
that certain collections in excess of the
amounts needed to pay the related
Securities may be deposited in a common
master reserve account or an
overcollateralization account that provides
credit enhancement for more than one series
of Securities issued pursuant to the
related Trust Agreement).
Trust Fund . . . . . . . . . . As specified in the related Prospectus
Supplement, each Trust Fund will consist
of the related Contracts, and may include
the related Equipment. If and to the
extent specified in the related Prospectus
Supplement, credit enhancement with
respect to a Trust Fund or any class of
Securities may include any one or more of
the following: a Policy issued by an
insurer specified in the related
Prospectus Supplement, a reserve account,
letters of credit, credit or liquidity
facilities, repurchase obligations, third
party payments or other support, cash
deposits or other arrangements. In
addition to or in lieu of the foregoing,
credit enhancement may be provided by
means of subordination, cross-support
among the Receivables or over-
collateralization. See "Description of
the Trust Agreement -- Credit and Cash
Flow Enhancement." The Contracts are
obligations for the lease (a "Lease") or
purchase of the Equipment, or evidence
borrowings used to acquire the Equipment,
entitling the obligor thereunder (the
"Lessor") to payments of rent and related
payments and to either the return of the
Equipment at the termination of the
related Contract or, with respect to
certain of the Contracts, the payment of a
purchase price for the Equipment at the
election of the obligee thereunder (the
"Lessee").
The Leases will be of two general types,
operating leases and finance leases.
"Operating Leases" usually have a term of
three years or less, whereas "Finance
Leases" usually have a term greater than
three years. In a Finance Lease, the Lessor
transfers substantially all benefits and
risks of ownership to the Lessee. In
accordance with Statement of Financial
Accounting Standards No. 13 ("FASB 13"), a
Lease is classified as a Finance Lease if
the collectibility of lease payments are
reasonably certain and it meets one of the
following criteria: (1) the Lease transfers
title and ownership of the Equipment to the
Lessee by the end of the Lease term; (2)
the Lease contains a bargain purchase
option; (3) the Lease term at inception is
at least 75% of the estimated life of the
Equipment; or (4) the present value of the
minimum Lease payments is at least 90% of
the fair market value of the Equipment at
inception of the Lease. All Leases which do
not meet the criteria of Finance Leases are
classified, in accordance with FASB 13, as
Operating Leases. Installment sale
contracts and loan contracts (the "Purchase
Contracts") secured by the related
Equipment provide for scheduled payments
which fully amortize the amount financed by
an obligor. The related Prospectus
Supplement will describe the type and
characteristics of the Contracts included
in each Trust Fund relating to the
Securities offered pursuant to this
Prospectus and the related Prospectus
Supplement.
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The Receivables comprising a Trust Fund
will be acquired by the Depositor from the
related Originator; such Receivables will
have theretofore been either (i) originated
by such Originator, (ii) originated by
Vendors and acquired by such Originator or
(iii) acquired by such Originator from
other originators or owners of Receivables.
With respect to the Receivables comprising
each Trust Fund, the Depositor and/or the
related Originator will acquire the related
Receivables from the Originator pursuant to
a Receivables Acquisition Agreement as
defined herein. The Depositor will either
transfer such Receivables to a Trust
pursuant to a Pooling Agreement or pledge
the Depositor's right, title and interest
in and to such Receivables to a Trustee on
behalf of Securityholders pursuant to an
Indenture. The Contracts transferred to a
Trust or pledged to a Trustee shall have a
Discounted Contract Balance (as defined
below) specified in the related Prospectus
Supplement. The rights and benefits of the
Depositor or Transferor under such
Receivables Acquisition Agreement will be
assigned to the Trustee on behalf of the
related Securityholders. The obligations of
the Depositor, the related Originator(s),
the related Servicer(s), the related
Trustee and the related Indenture Trustee,
if any, under the related Trust Agreement
include those specified below and in the
related Prospectus Supplement.
The "Discounted Contract Balance" of a
Contract as of any Cut-Off Date is the
present value of all of the remaining
payments scheduled to be made with respect
to such Contract, discounted at a rate
specified in the related Prospectus
Supplement and the Trust Agreement.
In addition, if so specified in the related
Prospectus Supplement, the Trust Fund will
include monies on deposit in a Pre-Funding
Account (the "Pre-Funding Account") to be
established with the Trustee, which will be
used to acquire Additional Receivables from
time to time during the "Pre-Funding
Period" specified in the related Prospectus
Supplement.
If and to the extent provided in the
related Prospectus Supplement, the
Depositor will be obligated (subject only
to the availability thereof) to acquire
from the related Originator(s) and to
either transfer to a Trust or pledge to a
Trustee on behalf of Securityholders,
additional Receivables (the "Additional
Receivables") from time to time during any
Pre-Funding Period specified in the related
Prospectus Supplement.
Registration of Securities . . Securities may be represented by global
securities registered in the name of Cede
& Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC"), or
another nominee. In such case,
Securityholders will not be entitled to
receive definitive securities representing
such Securityholders' interests, except in
certain circumstances described in the
related Prospectus Supplement. See
"Description of the Securities -- Book
Entry Registration" herein.
Credit and Cash Flow
Enhancement . . . . . . . . . If and to the extent specified in the
related Prospectus Supplement, credit
enhancement with respect to a Trust Fund
or any class of Securities may include any
one or more of the following: a Policy
issued by an insurer specified in the
related Prospectus Supplement (a "Security
Insurer"), a reserve account, letters of
credit, credit or
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liquidity facilities, third party payments
or other support, cash deposits or other
arrangements. Any form of credit
enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement. See "Description of
the Trust Agreement -- Credit and Cash Flow
Enhancement."
Receivables Acquisition
Agreement . . . . . . . . . . . As more fully described in the related
Prospectus Supplement, the Depositor
and/or the related Originator will be
obligated to acquire from the related
Trust Fund any Receivable transferred
pursuant to a Pooling Agreement or pledged
pursuant to an Indenture if the interest
of the Securityholders therein is
materially adversely affected by a breach
of any representation or warranty made by
the Depositor or the related Originator
with respect to such Receivable, which
breach has not been cured. To the extent
that the Depositor so acquires any
Receivables, the related Originator will
be obligated to acquire such Receivables
from the Depositor pursuant to the related
Receivables Acquisition Agreement
contemporaneously with the Depositor's
acquisition of such Receivables from the
applicable Trust Fund. The obligation of
the Depositor to acquire any such
Receivables with respect to which the
related Originator has breached a
representation or warranty is subject to
the related Originator's acquisition of
such Receivables from the Depositor. In
addition, if so specified in the related
Prospectus Supplement, the Depositor may
from time to time reacquire certain
Receivables or substitute other
Receivables for such Receivable held by a
Trust Fund, subject to specified
conditions set forth in the related Trust
Agreement and Receivables Acquisition
Agreement.
Servicer's Compensation . . . . The Servicer shall be entitled to receive
a fee for servicing the Contracts of each
Trust Fund equal to a specified percentage
of the value of the assets held in the
related Trust Fund, as set forth in the
related Prospectus Supplement. See
"Description of the Trust
Agreements--Servicing Compensation" herein
and in the related Prospectus Supplement.
Certain Legal Aspects
of the Contracts . . . . . . . With respect to the transfer of the
Contracts to the related Trust pursuant to
a Pooling Agreement or the pledge of the
related Issuer's right, title and interest
in and to such Contracts on behalf of
Securityholders pursuant to an Indenture,
the Depositor will warrant, in each case,
that such transfer is either a valid
transfer and assignment of the Contracts
to the Trust or the grant of a security
interest in the Contracts. Each
Prospectus Supplement will specify what
actions will be taken by which parties as
will be required to perfect either the
Issuer's or the Securityholders' security
interest in the Contracts. The Depositor
may also warrant that, if the transfer or
pledge by it to the Trust or to the
Securityholders is deemed to be a grant to
the Trust or to the Securityholders of a
security interest in the Contracts, then
the related Issuer or the Securityholders
will have a first priority perfected
security interest therein, except for
certain liens which have priority over
previously perfected security interests by
operation of law, and, with certain
exceptions, in the proceeds thereof.
Similar security interest and priority
representations and warranties, as
described in the related Prospectus
Supplement, may also be made by the
Depositor with respect to the Equipment.
Each Prospectus Supplement will specify if
the related Originator or the Depositor has
filed or will be required to file UCC (as
herein
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<PAGE> 71
defined) financing statements identifying
the Equipment as collateral pledged in
favor of the related Trust or Trustee on
behalf of the Securityholders. In the
absence of such filings any security
interest in the Equipment will not be
perfected in favor of the related Trust or
Trustee. See "Special Considerations --
Certain Legal Aspects" and "Interests in
the Conveyed Property -- UCC and Bankruptcy
Considerations."
Optional Termination . . . . . The related Servicer, the related
Originator, the Depositor, or, if
specified in the related Prospectus
Supplement, certain other entities may, at
their respective options, effect early
retirement of a series of Securities under
the circumstances and in the manner set
forth herein under "The Trust Agreement -
Termination; Retirement of Securities" and
in the related Prospectus Supplement.
Mandatory Termination . . . . . The Trustee, the related Servicer or
certain other entities specified in the
related Prospectus Supplement may be
required to effect early retirement of all
or any portion of a series of Securities
by soliciting competitive bids for the
purchase of the related Trust Fund or
otherwise, under other circumstances and
in the manner specified in "The Trust
Agreement - Termination; Retirement of
Securities" and in the related Prospectus
Supplement.
Tax Considerations . . . . . . Securities of each series offered hereby
will, for federal income tax purposes,
constitute either (i) interests in a Trust
treated as a grantor trust under
applicable provisions of the Code
("Grantor Trust Securities"), (ii) debt
issued by a Trust or by the Depositor
("Debt Securities") or (iii) interests in
a Trust which is treated as a partnership
("Partnership Interests").
The Prospectus Supplement for each series
of Securities will summarize, subject to
the limitations stated therein, federal
income tax considerations relevant to the
purchase, ownership and disposition of such
Securities.
Investors are advised to consult their tax
advisors and to review "Certain Federal and
State Income Tax Consequences" in the
related Prospectus Supplement.
ERISA Considerations . . . . . The Prospectus Supplement for each series
of Securities will summarize, subject to
the limitations discussed therein,
considerations under the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), relevant to the
purchase of such Securities by employee
benefit plans and individual retirement
accounts. See "ERISA Considerations" in
the related Prospectus Supplement.
Ratings . . . . . . . . . . . . Each Class of Securities offered pursuant
to this Prospectus and the related
Prospectus Supplement will be rated in one
of the four highest rating categories by
one or more "national statistical rating
organizations", as defined in the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and commonly
referred to as "Rating Agencies". Such
ratings will address, in the opinion of
such Rating Agencies, the likelihood that
the Issuer will be able to make timely
payment of all amounts due on the related
Securities in accordance with the terms
thereof. Such ratings will neither
address any prepayment or yield
considerations applicable to any
Securities nor constitute a recommendation
to buy, sell or hold any Securities.
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The ratings expected to be received with
respect to any Securities will be set forth
in the related Prospectus Supplement.
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<PAGE> 73
SPECIAL CONSIDERATIONS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
LIMITED LIQUIDITY. There can be no assurance that a secondary market
for the Securities of any series or Class will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of such Securities. The Prospectus Supplement for any
series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
OWNERSHIP OF CONTRACTS. In connection with the issuance of any series
of Securities, the related Originator(s) will transfer Contracts to the
Depositor. The related Originator(s) will warrant in a Receivables Acquisition
Agreement that the transfer of the Contracts by it to the Depositor is a valid
assignment, transfer and conveyance of such Contracts. The Depositor will
warrant in a Trust Agreement (a) if the Depositor or the related Originator(s)
retain title to the Contracts, that the Trustee for the benefit of
Securityholders has a valid security interest in such Contracts, or (b) if the
Depositor transfers such Contracts to a Trust, that the transfer of the
Contracts to such Trust is either a valid assignment, transfer and conveyance of
the Contracts to the Trust or the Trustee on behalf of the Securityholders has a
valid security interest in such Contracts. As to be described in the related
Prospectus Supplement, the related Trust Agreement will provide either that the
Trustee will be required to maintain possession of the original copies of all
Contracts that constitute chattel paper or that the Depositor, the related
Originator(s) or the related Servicer will retain possession of such Contracts;
provided that in case the Depositor or an Originator retains possession of the
related Contracts, the Servicer may take possession of such original copies as
necessary for the enforcement of any Contract. If any Contracts remain in the
possession of the Depositor or an Originator, the related Prospectus Supplement
may describe specific trigger events that will require delivery to the Trustee.
If the Depositor, the Servicer, the Trustee, an Originator or other third party,
while in possession of the Contracts, sells or pledges and delivers such
Contracts to another party, in violation of the Receivables Acquisition
Agreement or the Trust Agreement, there is a risk that such other party could
acquire an interest in such Contracts having a priority over the Issuer's
interest. Furthermore, if the Depositor, the Servicer, an Originator or a third
party, while in possession of the Contracts, is rendered insolvent, such event
of insolvency may result in competing claims to ownership or security interests
in the Contracts. Such an attempt, even if unsuccessful, could result in delays
in payments on the Securities. If successful, such attempt could result in
losses to the Securityholders or an acceleration of the repayment of the
Securities. The related Originator(s) and the Depositor will make certain
representations and warranties with respect to the ownership of the Contracts as
of the date of the transfer to the Depositor and the Trust, if any,
respectively. The related Originator will be obligated to acquire any Contract
from the related Trust Fund if there is a breach of such representations and
warranties that materially adversely affects the interests of the Depositor or
the Trust in such Contract and such breach has not been cured.
SECURITY INTEREST IN THE EQUIPMENT. Unless otherwise described in the
related Prospectus Supplement, the related Originator will also contribute all
of its right, title and interest in and to the related Equipment to the
Depositor. If title to the Equipment is transferred, the Receivables Acquisition
Agreement shall require the Originator to make certain representations and
warranties with respect to the transfer of title and perfection and priority of
a security interest, if any, in the Equipment. The Depositor may also transfer
the Equipment to a Trust or may pledge all of its right, title and interest in
and to such Equipment to the Trust. Pursuant to a Trust Agreement, the Depositor
may warrant (a) if the Depositor transfers such Equipment to a Trust, that such
transfer is either a valid assignment, transfer and conveyance of such Equipment
to the Trust or it has granted to the Trust a security interest in such
Equipment, or (b) if the Depositor retains title, that it has granted to the
Trustee for the benefit of Securityholders a valid security interest in such
Equipment.
As specified herein and related Prospectus Supplement, because of the
administrative burden and expense that would be entailed in so doing, neither
the Originators nor the Depositor will file, or necessarily will be required to
file, UCC financing statements identifying the Equipment as collateral pledged
in favor of the related Trust or Trustee on behalf of the Securityholders. In
the absence of such filings any security
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<PAGE> 74
interest in the Equipment will not be perfected in favor of the related Trust or
Trustee. As a result the Trust or Trustee could lose priority of its security
interest in such Equipment. Neither the Originators nor the Depositor will have
any obligation to reacquire Equipment as to which such aforementioned occurrence
results in the loss of lien priority after the date such Trust Fund receives an
interest in such Equipment unless otherwise obligated in the related Prospectus
Supplement.
RESTRICTIONS ON RECOVERIES. Unless specific limitations are described
on the related Prospectus Supplement with respect to specific Contracts, all
Contracts will provide that the obligations of the Lessees thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Lessee may have against the related Originator or any other person or
entity whatsoever. The Originators will warrant that no claims or defenses have
been asserted or threatened with respect to the Contracts and that all
requirements of applicable law with respect to the Contracts have been
satisfied.
In the event that the Depositor or the Trustee must rely on
repossession and disposition of Equipment to recover scheduled payments due on
Defaulted Contracts, the Issuer may not realize the full amount due on a
Contract (or may not realize the full amount on a timely basis). Other factors
that may affect the ability of the Issuer to realize the full amount due on a
Contract include whether financing statements to perfect the security interest
in the Equipment had been filed, 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 Securityholders may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
INSOLVENCY AND BANKRUPTCY MATTERS. The Depositor will take steps in
structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by the related
Originator or the Depositor (the Originators and the Depositors, collectively
for these purposes, "Debtors") under the United States Bankruptcy Code or
similar applicable state laws ("Insolvency Laws") will not result in the assets
of the related Trust Fund becoming property of the estate of a Debtor within the
meaning of such Insolvency Laws. Such steps will generally involve the creation
by the related Originator of a separate, limited-purpose subsidiary (each, a
"Finance Subsidiary") pursuant to articles of incorporation containing certain
limitations (including restrictions on the nature of such Finance Subsidiary's
business and a restriction on such Finance Subsidiary's ability to commence a
voluntary case or proceeding under any Insolvency Law without the prior
unanimous affirmative vote of all its directors). However, there can be no
assurance that the activities of any Finance Subsidiary would not result in a
court's concluding that the assets and liabilities of such Finance Subsidiary
should be consolidated with those of the related Originator in a proceeding
under any Insolvency Law.
Except to the extent otherwise described in the related Prospectus
Supplement, each Receivables Acquisition Agreement and each Trust Agreement will
generally require that the related Originator contribute the related Receivables
to a Finance Subsidiary, which will then transfer such Receivables to the
Depositor which in turn will transfer such Receivables to an Issuer. Except as
otherwise described in the related Prospectus Supplement, the Equity Interest in
a Trust Fund will be transferred to the related Finance Subsidiary.
With respect to each Trust Fund, the Trustee and all Securityholders
will covenant that they will not at any time institute against the Depositor or
the related Finance Subsidiary any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
For purposes of this Prospectus, the term "Originator" includes the
term "Finance Subsidiary." In addition, while an Originator is the Servicer,
cash collections held by such Originator may, subject to certain conditions, be
commingled and used for the benefit of such Originator prior to each Payment
Date and, in the event of the bankruptcy of such Originator, the Depositor, a
Trust or Trustee may not have a perfected interest in such collections.
The Depositor believes that the transfer of the Receivables by an
Originator or its Finance Subsidiary to the Depositor should be treated as a
valid assignment, transfer and conveyance of such Receivables. However, in the
event of an insolvency of such Originator, a court, among other remedies, could
attempt to recharacterize the transfer of the Receivables by such Originator to
the Depositor as a borrowing by the Originator from the Depositor or the related
Securityholders, secured by a pledge of such
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<PAGE> 75
Receivables. Such an attempt, even if unsuccessful, could result in delays in
payments on the Securities. If such an attempt were successful, a court, among
other remedies, could elect to accelerate payment of the Securities and
liquidate the Receivables, with the Securityholders entitled to the then
outstanding principal amount thereof and interest thereon at the applicable
Security Interest Rate to the date of payment. Thus, the Securityholders could
lose the right to future payments of interest and might incur reinvestment
losses. As more fully described in the related Prospectus Supplement, in the
event the related Issuer is rendered insolvent, the Trustee for a Trust, in
accordance with the Trust Agreement, will promptly sell, dispose of or otherwise
liquidate the related Receivables in a commercially reasonable manner on
commercially reasonable terms. The proceeds from any such sale, disposition or
liquidation of such Receivables will be treated as collections on such
Receivables. If the proceeds from the liquidation of the Receivables and any
amount available from any credit enhancement, if any, are not sufficient to pay
Securities of the related series in full, the amount of principal returned to
such Securityholders will be reduced and such Securityholders will incur a loss.
Lessees of the Equipment may be entitled to assert against the related
Originator, the Depositor, or the Trust, if any, claims and defenses which they
have against such Originator with respect to the Receivables. The Originator(s)
will warrant that no such claims or defenses have been asserted or threatened
with respect to the Receivables and that all requirements of applicable law with
respect to the Receivables have been satisfied.
EQUIPMENT OBSOLESCENCE. In the event a Contract becomes a Defaulted
Contract and the Lessee (and any guarantor) has insufficient assets available to
pay the Contract payments on the scheduled payment dates, the only other source
of moneys (other than the applicable credit enhancements, if any) for such
amounts will be the income and proceeds from the disposition of the related
Equipment. Because the market value of equipment generally declines with age and
may be subject to sudden, significant declines in value because of technological
advances, in the event of a repossession and sale of Equipment subject to a
Defaulted Contract, the Issuer may not recover the entire amount due on such
Contract. As a result, the Securityholders may be subject to delays in receiving
payments and suffer loss of their investment in the Securities.
DELINQUENCIES. There can be no assurance that the historical levels of
delinquencies and losses experienced by the related Originator on its equipment
lease portfolio will be indicative of the performance of the Contracts included
in any Trust Fund or that such levels will continue in the future. Delinquencies
and losses could increase significantly for various reasons, including changes
in the federal income tax laws, changes in the local, regional or national
economies or due to other events.
SUBORDINATION; LIMITED ASSETS. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Securities of a series may be subordinated in priority of payment to interest
and principal due on other Classes of Securities of a related series. Moreover,
each Trust Fund will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the related Receivables and,
to the extent provided in the related Prospectus Supplement, a Pre-Funding
Account, the related reserve account and any other credit enhancement. The
Securities represent obligations solely of the related Trust or debt secured by
the related Trust Fund, and will not represent a recourse obligation to other
assets of the related Originator(s) or of the Depositor. No Securities of any
series will be insured or guaranteed by any Originator, the Depositor, the
Servicer, or the applicable Trustee. Consequently, holders of the Securities of
any series must rely for repayment primarily upon payments on the Receivables
and, if and to the extent available, amounts on deposit in the Pre-Funding
Account, if any, the reserve account, if any, and any other credit enhancement,
all as specified in the related Prospectus Supplement.
MASTER TRUSTS. As may be described in the related Prospectus
Supplement, a Master Trust may issue from time to time more than one series.
While the terms of any additional series will be specified in a supplement to
the related Master Trust Agreement, the provisions of such supplement and,
therefore, the terms of any additional series, will not be subject to prior
review by, or consent of, holders of the Securities of any series previously
issued by such Master Trust. Such terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security or credit enhancements and any other provisions
which are made applicable only to such series. The obligation of the related
Trustee to issue any new series is subject to the condition,
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among others, that such issuance will not result in any Rating Agency reducing
or withdrawing its rating of the Securities of any outstanding series (any such
reduction or withdrawal is referred to herein as a "Ratings Effect"). There can
be no assurance, however, that the terms of any series might not have an impact
on the timing or amount of payments received by a Securityholder of another
series issued by the same Master Trust. See "Description of the
Securities--Master Trusts."
BOOK-ENTRY REGISTRATION. Issuance of the Securities in book-entry form
may reduce the liquidity of such Securities in the secondary trading market
since investors may be unwilling to purchase Securities for which they cannot
obtain definitive physical securities representing such Securityholders'
interests, except in certain circumstances described in the related Prospectus
Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct Participants" or "Indirect Participants") or certain banks, the
ability of a Securityholder to pledge a Security to persons or entities that do
not participate in the DTC system, or otherwise to take actions in respect to
such Securities, may be limited due to lack of a physical security representing
the Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities -- Book Entry
Registration."
SECURITY RATING. The rating of Securities credit enhanced by a letter
of credit, financial guaranty insurance policy, reserve fund, credit or
liquidity facilities, cash deposits or other forms of credit enhancement
(collectively "Credit Enhancement") will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer to honor its obligations pursuant to any
such Credit Enhancement below the rating initially given to the Securities would
likely result in a reduction in the rating of the Securities.
MATURITY AND PREPAYMENT CONSIDERATIONS. Because the rate of payment of
principal on the Securities will depend, among other things, on the rate of
payment on the related Contracts, the rate of payment of principal on the
Securities cannot be predicted. Payments on the Contracts will include scheduled
payments as well as partial and full prepayments (to the extent not replaced
with substitute Contracts), payments upon the liquidation of Defaulted
Contracts, payments upon acquisitions by the related Originator, the related
Servicer or the Depositor of Contracts from the related Trust Fund on account of
a breach of certain representations and warranties in the related Trust
Agreement, payments upon an optional acquisition by the related Originator, the
related Servicer or the Depositor of Contracts from the related Trust Fund (any
such voluntary or involuntary prepayment or other early payment of a Contract, a
"Prepayment"), and residual payments. The rate of early terminations of
Contracts due to Prepayments and defaults may be influenced by a variety of
economic and other factors, including, among others, obsolescence, then current
economic conditions and tax considerations. The risk of reinvesting
distributions of the principal of the Securities will be borne by the
Securityholders. The yield to maturity on Strip Securities or Securities
purchased at premiums or discounts to par will be extremely sensitive to the
rate of Prepayments on the related Receivables. In addition, the yield to
maturity on certain other types of classes of Securities, including Strip
Securities, Accrual Securities or certain other Classes in a series including
more than one Class of Securities, may be relatively more sensitive to the rate
of prepayment of the related Contracts than other Classes of Securities.
The Depositor does not have available to it any statistics as to
prepayment rates historically experienced in the equipment leasing industry. The
rate of Prepayments of Contracts cannot be predicted and is influenced by a wide
variety of economic, social, and other factors, including prevailing interest
rates, the availability of alternate financing and local and regional economic
conditions. Therefore, no assurance can be given as to the level of Prepayments
that a Trust Fund will experience.
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Securityholders should consider, in the case of Securities purchased at
a discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of Prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
CERTAIN UCC CONSIDERATIONS. Certain states have adopted a version of
Article 2A of the Uniform Commercial Code ("Article 2A"). Article 2A purports to
codify many provisions of existing common law. Although there is little
precedent regarding how Article 2A will be interpreted, it may, among other
things, limit enforceability of any "unconscionable" lease or "unconscionable"
provision in a lease, provide a lessee with remedies, including the right to
cancel the lease contract, for certain lessor breaches or defaults, and may add
to or modify the terms of "consumer leases" and leases where the lessee is a
"merchant lessee". Article 2A, moreover, recognizes typical commercial lease
"hell or high water" rental payment clauses and validates reasonable liquidated
damages provisions in the event of lessor or lessee defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context a wide degree of latitude to vary provisions of the law.
CONTRACTS RELATED TO SOFTWARE AND SERVICES. Certain Contracts, as
described in the related Prospectus Supplement, may relate to software and
services that are not owned by the related Originator and in which no related
interest will be transferred to the Issuer. Accordingly, if any such Contract
becomes a Defaulted Contract, the Issuer will not realize any proceeds from the
related software and services from which to satisfy any unpaid payments under
such Contracts.
THE TRUST FUNDS
The property of each Trust Fund will include, as specified in the
related Prospectus Supplement, (i) a pool of Receivables, (ii) all moneys
(including accrued interest) due thereunder on or after the applicable Cut-off
Date, (iii) such amounts as from time to time may be held in one or more
accounts established and maintained by the Servicer pursuant to the related
Trust Agreement, as described below and in the related Prospectus Supplement,
(iv) the security interests, if any, in the Equipment relating to such pool of
Receivables, (v) the right to proceeds from claims on physical damage policies,
if any, covering such Equipment or the related Lessees, as the case may be, (vi)
the proceeds of any repossessed Equipment related to such pool of Receivables,
(vii) the rights of the Depositor under the related Receivables Acquisition
Agreement and (viii) interest earned on certain short-term investments held by
such Trust Fund, unless the related Prospectus Supplement specifies that such
earnings may be paid to the related Servicer or Originator(s). The Trust Fund
will also include, if so specified in the related Prospectus Supplement, monies
on deposit in a Pre-Funding Account, which will be used by the Trustee to
acquire or receive a security interest in Additional Receivables from time to
time during the Pre-Funding Period specified in the related Prospectus
Supplement. In addition, to the extent specified in the related Prospectus
Supplement, some combination of Credit Enhancements may be issued to or held by
the Trustee on behalf of the related Trust Fund for the benefit of the holders
of one ore more classes of Securities.
The Receivables comprising a Trust Fund will, as specifically described
in the related Prospectus Supplement, be either (i) originated by the related
Originator, (ii) originated by various Vendors and acquired by the related
Originator or (iii) acquired by the related Originator from originators or other
lessors of Receivables.
The Equipment underlying the Receivables included in each Trust Fund
will be limited to personal property which is leased or financed by the related
Originator to the Lessee pursuant to Contracts which either are "chattel paper"
(as defined in the Uniform Commercial Code) or would be "chattel paper" but for
a technical definitional matter, but in any event are not treated materially
differently from "chattel paper" for purposes of title transfer, security
interests or remedies on default. The Equipment will be further limited to
personal property which is subject to Uniform Commercial Code provisions
relating to title transfer, security interests and remedies on default and
further limited to Equipment leased to the related Lessee for use by such Lessee
in the ordinary course of business or for home use such as medical
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equipment, restaurant equipment, film and video production equipment, other
industrial and production equipment, data processing equipment,
telecommunications equipment, office equipment and furniture.
No Trust Fund will include Receivables with respect to which the
related Contract or the related Equipment is subject to federal or state
registration or titling requirements which (x) differ materially from, or
supplant, standard Uniform Commercial Code provisions governing the manner in
which title or security interests in "chattel paper" (as defined in the Uniform
Commercial Code) or the related equipment is determined or perfected or (y)
differ materially from, or supplant, standard Uniform Commercial Code provisions
governing remedies on default. By way of illustration of the foregoing, no Trust
Fund will include Receivables with respect to which the underlying Contracts or
Equipment relate to motor vehicles, aircraft, ships or boats, firearms or other
weapons, railroad rolling stock or facilities such as factories, warehouses or
plants subject to state laws governing the manner in which title or security
interest in real property is determined or perfected. However, Receivables may
include Contracts and Equipment relating to individual, discrete components of
assets such as the foregoing; for example a leased computer on the ship may
qualify as "Equipment" which may be included in a Trust Fund, provided that both
the lease and the computer are generally within the scope of the Uniform
Commercial Code.
The Receivables will be acquired by the Depositor from the related
Originator pursuant to a Receivables Acquisition Agreement between the
Originator and the Depositor (each, a "Receivables Acquisition Agreement"). The
Receivables included in each Trust Fund will be selected from those Receivables
held by the Originators based on the criteria specified in the applicable Trust
Agreement and described herein or in the related Prospectus Supplement.
With respect to each series of Securities, on or prior to the Closing
Date on which the Securities are delivered to Securityholders, the Depositor
will form a Trust Fund by either (i) transferring the related Receivables into a
Trust pursuant to a Trust Agreement between the Depositor and the Trustee or
(ii) entering into an Indenture with an Indenture Trustee, relating to the
issuance of such Securities, secured by the related Receivables.
The Receivables comprising each Trust Fund will generally have been
originated by the related Originator(s) or acquired by such Originator(s) from
Vendors or from other lessors in accordance with such Originator's(s') specified
underwriting criteria. The underwriting criteria applicable to the Receivables
included in any Trust Fund will be described in all material respects in the
related Prospectus Supplement.
THE ISSUERS
With respect to each series of Securities, the Depositor will either
establish a separate Trust that will issue such Securities, or the Depositor
will issue such Securities, in each case pursuant to the related Trust
Agreement. For purposes of this Prospectus and the related Prospectus
Supplement, the Depositor, if the Depositor issues the related Securities, or
the related Trust, if a Trust issues the related Securities, shall be referred
to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given series, the proceeds
from such issuance will be used by the Depositor to acquire the related
Receivables from the related Originator. The related Servicer will service the
related Receivables pursuant to the applicable Servicing Agreement, and will be
compensated for acting as the Servicer. To facilitate servicing and to minimize
administrative burden and expense, the Servicers may be appointed custodians for
the related Receivables by each Trustee and the Depositor, as may be set forth
in the related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by
the subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on the
payments from the Lessees on the related Contracts, and the proceeds from the
sale of Equipment which secure or are leased under the Defaulted Contracts. In
such event, certain factors may affect such Issuer's ability to realize on the
collateral securing such Contracts, and thus may reduce the proceeds to be
distributed to the Securityholders of such series.
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THE RECEIVABLES
RECEIVABLES POOLS
Information with respect to the Receivables in each Trust Fund will be
set forth in the related Prospectus Supplement, including, the identity of the
related Originator(s), the related underwriting criteria and collection
policies, together with, to the extent appropriate, the composition of such
Receivables and the distribution of such Receivables by equipment type, payment
frequency and current principal balance as of the applicable Cut-off Date.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Certain information relating to the related Originator's delinquency,
repossession and net loss experience with respect to Contracts it has originated
or acquired will be set forth in each Prospectus Supplement. This information
may include, among other things, the experience with respect to all Contracts in
such Originator's portfolio during certain specified periods, including
Contracts which may not meet the criteria for selection as a Receivable for any
particular Trust Fund. There can be no assurance that the delinquency,
repossession and net loss experience on any Trust Fund will be comparable to the
related Originator's prior experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
As more fully described in the related Prospectus Supplement, if a
Contract permits a Prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of Prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
the Depositor or the related Originator will be obligated to acquire Receivables
from the related Trust Fund pursuant to the applicable Trust Agreement or
Receivables Acquisition Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from Prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment penalties.
ACQUISITION OF RECEIVABLES FROM ORIGINATORS
The Receivables underlying a Series of Securities will be acquired by
the Depositor, either directly or through affiliates (such as a Transferor),
from the related Originator pursuant to a Receivables Acquisition Agreement
between the Depositor or such affiliate and each such Originator.
The Depositor expects that, unless otherwise specified in the related
Prospectus Supplement, each Receivable so acquired will have been originated by
the Originator thereof in accordance with the underwriting criteria specified in
such Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, each Originator will be an institution experienced in
originating and servicing equipment leases in accordance with accepted industry
practices and prudent guidelines. Unless otherwise provided in the applicable
Prospectus Supplement, each Originator pursuant to the related Receivables
Acquisition Agreement will make certain representations and warranties to the
Depositor in respect of the related Receivables; the material terms of such
representations and warranties will be set forth in the related Prospectus
Supplement. Unless otherwise provided in the applicable Prospectus Supplement
with respect to each Series, the Depositor will assign all of its rights (except
certain rights of indemnification) and interest in the related Receivables
Acquisition Agreement to the related Trustee for the benefit of the
Securityholders of such Series, and the Originator shall thereupon be liable to
the
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Trustee for defective or missing documents or an uncured breach of such
Originator's representations or warranties, to the extent described in the
related Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement
with respect to each series of Securities, the related Securityholders of record
will receive reports on or about each Payment Date concerning the payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Pool Factor and various
other items of information. In addition, Securityholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law.
USE OF PROCEEDS
The proceeds from the sale of the Securities of a given series will be
applied by the Depositor to the acquisition of the related Receivables from the
related Originator. The Depositor expects that it will make additional sales of
securities similar to the Securities from time to time, but the timing and
amount of any such additional offering will be dependent upon a number of
factors, including the volume of Contracts acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
THE DEPOSITOR
Prudential Securities Secured Financing Corporation, formerly known as
P-B Secured Financing Corporation (the "Depositor"), was incorporated in the
State of Delaware on August 26, 1988 as a wholly-owned, limited purpose finance
subsidiary of Prudential Securities Group Inc. (a wholly-owned indirect
subsidiary of The Prudential Insurance Company of America). The Depositor's
principal executive offices are located at 130 John Street, New York, New York
10038. Its telephone number is (212) 214-7435.
As described herein under "The Trust Funds," the only obligations, if
any, of the Depositor with respect to a Series of Securities may be pursuant to
certain limited representations and warranties and limited undertakings to
repurchase or substitute Receivables under certain circumstances. Unless
otherwise specified in the applicable Prospectus Supplement, the Depositor will
have no servicing obligations or responsibilities with respect to any Trust
Fund. The Depositor does not have, nor is it expected in the future to have, any
significant assets.
As specified in the related Prospectus Supplement the Servicer with
respect to any Series of Securities may be an affiliate of the Depositor. As
described under "The Trust Fund," the Depositor may acquire Receivables through
or from an affiliate.
Neither the Depositor nor Prudential Securities Group Inc. nor any of
its affiliates, including The Prudential Insurance Company of America, will
insure or guarantee the Certificates of any Series.
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THE TRUSTEE
The Trustee for each series of Securities will be specified in the
related Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, no resignation or removal of
the Trustee and no appointment of a successor Trustee shall become effective
until the acceptance of appointment by the successor Trustee. The Trustee may
resign for cause at any time by giving written notice thereof to the Depositor
and by mailing notice of resignation by first-class mail, postage prepaid, to
the Securityholders of such series at their addresses appearing on the Security
Register. The Trustee may be removed at any time by written notice of the
holders of Securities evidencing more than 50% of the voting rights with respect
to such series, delivered to the Trustee and the Depositor, unless an alternate
method is described in the related Prospectus Supplement. If the Trustee shall
resign, be removed, or become incapable of acting, or if a vacancy shall occur
in the office of Trustee for any cause, the Depositor shall promptly appoint a
successor Trustee. If no successor Trustee shall have been so appointed by the
Depositor or the Securityholders, or if no successor Trustee shall have accepted
appointment within 30 days after any such resignation or removal, existence of
incapability, or occurrence of such vacancy, the Trustee or any Securityholder
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Securities (or,
in certain instances, two or more series of Securities) will be issued pursuant
to a Trust Agreement. The following summaries (together with additional
summaries under "The Trust Agreement" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Trust Agreement for
the related Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A series may include one or more Classes of Strip Securities entitled
(i) to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
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If so provided in the related Prospectus Supplement, a series may
include one or more other Classes of Senior Securities that are senior to one or
more other Classes of Subordinate Securities in respect of certain distributions
of principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As provided in the related Trust Agreement and as described in the
related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. As more fully described in the related
Prospectus Supplement, the Payment Date may be the fifteenth or twenty-fifth day
of each month (or, in the case of quarterly-pay Securities, the fifteenth or
twenty-fifth day of every third month; and in the case of semi-annual pay
Securities, the fifteenth or twenty-fifth day of every sixth month) and the
Record Date will be the close of business as of the last day of the calendar
month that precedes the calendar month in which such Payment Date occurs.
Each Trust Agreement will describe a Remittance Period preceding each
Payment Date (for example, in the case of monthly-pay Securities, the calendar
month preceding the month in which a Payment Date occurs). As more fully
provided in the related Prospectus Supplement, collections received on or with
respect to the related Receivables held by a Trust during a Remittance Period
will be required to be remitted by the related Servicer to the related Trustee
prior to the related Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Agreement may provide that all or a
portion of the payments collected on or with respect to the related Receivables
may be applied by the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreement may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders.
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Agreement for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the rent payment schedule of the related Receivables, or (b) attempting to
match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities.
Neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Depositor, the related Servicer, the related Originator, any Trustee or any of
their respective affiliates unless specifically set forth in the related
Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each series covered by a particular Trust Agreement will either evidence
specified beneficial ownership interest in a separate Trust
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Fund created pursuant to such Trust Agreement or represent debt secured by the
related Trust Fund. To the extent that any Trust Fund includes certificates of
interest or participations in Receivables, the related Prospectus Supplement
will describe the material terms and conditions of such certificates or
participations.
MASTER TRUSTS
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto, the
Depositor may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Equity Interest in the related Master Trust. Under each such
Master Trust Agreement, the Depositor may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula for
the determination thereof); (iv) the Payment Dates and the date or dates from
which interest shall accrue; (v) the method for allocating collections to
Securityholders of such series; (vi) any bank accounts to be used by such series
and the terms governing the operation of any such bank accounts; (vii) the
percentage used to calculate monthly servicing fees; (viii) the provider and
terms of any form of Credit Enhancement with respect thereto; (ix) the terms on
which the Securities of such series may be repurchased or remarketed to other
investors; (x) the number of Classes of Securities of such series, and if such
series consists of more than one Class, the rights and priorities of each such
Class; (xi) the extent to which the Securities of such series will be issuable
in book-entry form; (xii) the priority of such series with respect to any other
series; and (xiii) any other relevant terms. None of the Depositor, the related
Servicer, the related Trustee or any Master Trust is required or intends to
obtain the consent of any Securityholder of any outstanding series to issue any
additional series.
Each Master Trust Agreement provides that the Depositor may designate
terms such that each Master Trust New Issuance has an amortization period which
may have a different length and begin on a different date than such periods for
any series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by enhancement providers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by the
related Master Trust and then outstanding. Under each Master Trust Agreement,
the related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. The Depositor will
have the option under each Master Trust Agreement to vary among series the terms
upon which a series may be repurchased by the Issuer or remarketed to other
investors. As more fully described in a related Prospectus Supplement, there is
no limit to the number of Master Trust New Issuances that the Depositor may
cause under a Master Trust Agreement. Each Master Trust will terminate only as
provided in the related Master Trust Agreement. There can be no assurance that
the terms of any Master Trust New Issuance might not have an impact on the
timing and amount of payments received by Securityholders of another series
issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related supplement,
a Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. The obligation of the
related Trustee to authenticate the Securities of any such Master Trust New
Issuance and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on or
before the fifth business day immediately preceding the date upon which the
Master Trust New Issuance is to occur, the Depositor shall have given the
related Trustee, the related Servicer, the Rating Agency and certain related
providers of Credit Enhancement, if any, written notice of such Master Trust New
Issuance and the date upon which the Master Trust New Issuance is to occur; (b)
the Depositor shall have delivered to the related Trustee a supplement to the
related Master Trust Agreement, in form satisfactory to such Trustee, executed
by each party to the related Master Trust Agreement other than such Trustee; (c)
the Depositor shall have delivered to the related Trustee any related Credit
Enhancement agreement; (d) the related Trustee shall have received confirmation
from the Rating Agency that such Master Trust New Issuance will not result in
any Rating Agency reducing or withdrawing its rating with respect to any other
series or Class of such Trust (any such reduction or withdrawal is referred to
herein as a "Ratings Effect"); (e) the Depositor shall have delivered to the
related Trustee, the Rating Agency and certain providers of Credit Enhancement,
if any, an opinion
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of counsel acceptable to the related Trustee that for federal income tax
purposes (i) following such Master Trust New Issuance the related Master Trust
will not be deemed to be an association (or publicly traded partnership) taxable
as a corporation, (ii) such Master Trust New Issuance will not affect the tax
characterization as debt of Securities of any outstanding series or Class issued
by such Master Trust that were characterized as debt at the time of their
issuance and (iii) such Master Trust New Issuance will not cause or constitute
an event in which gain or loss would be recognized by any Securityholders or the
related Master Trust; and (f) any other conditions specified in any supplement.
Upon satisfaction of the above conditions, the related Trustee shall execute the
supplement to the related Master Trust Agreement and issue the Securities of
such new series.
BOOK-ENTRY REGISTRATION
As may be described in the related Prospectus Supplement,
Securityholders of a given series may hold their Securities through DTC (in the
United States) or CEDEL or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Securities in respect of
a given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
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 New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. 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 DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such 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 in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC 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.
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The Securityholders of a given series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. It is anticipated that the only "Securityholder" in
respect of any series will be Cede, as nominee of DTC. Securityholder of a given
series will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of the related series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
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 its 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. 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
the Euroclear System ("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 28 currencies,
including United States dollars. The Euroclear System 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 Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of
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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 the
Euroclear System 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 State 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 the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System 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 relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE NOTES
As may be described in the related Prospectus Supplement, the
Securities will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given series or their nominees, rather
than to DTC or its nominee, only if (i) the Trustee in respect of the related
series advises in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Trustee is unable to locate a qualified successor, (ii) such Trustee, at
its option, elects to terminate the book-entry-system through DTC or (iii) after
the occurrence of an "Event of Default" under the related Indenture or a default
by the Servicer under the related Trust Agreements, Securityholders representing
at least a majority of the outstanding principal amount of such Securities
advise the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given series of Securities will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
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REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on or prior to each Payment
Date for such series, the related Servicer or the related Trustee will forward
or cause to be forwarded to each holder of record of such class of Securities a
statement or statements with respect to the related Trust Fund setting forth the
information specifically described in the related Trust Agreement which
generally will include the following information:
(i) the amount of the distribution with respect to each
class of Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of
business on the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool
Factor for each Class of Securities after giving effect to all payments
reported under (ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to
the related Remittance Period;
(vii) the amount of the aggregate purchase amounts for
Receivables that have been reacquired, if any, for such Remittance
Period; and
(viii) the amount of coverage under any letter of credit,
financial guaranty insurance policy, reserve account or other form of
credit enhancement covering default risk as of the close of business on
the applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v)
with respect to the Securities of any series will be expressed as a dollar
amount per $1,000 of the initial principal balance of such Securities, as
applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which a Trust Fund will be created and the related Securities in
respect of such Trust Fund will be issued. For purposes of this Prospectus, the
term "Trust Agreement" as used with respect to a Trust means, collectively, and
except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Receivables and
the issuance of the related Securities, including without limitation the
Indenture, (i.e. pursuant to which any Notes shall be issued). Forms of the
Trust Agreement have been filed as exhibits to the Registration Statement of
which the Prospectus forms a part. The summary does not purport to be complete.
It is qualified in its entirety by reference to the provisions of the Trust
Agreements.
ACQUISITION OF THE RECEIVABLES PURSUANT TO A RECEIVABLES ACQUISITION AGREEMENT
On the Closing Date specified with respect to any given series of
Securities, the Depositor will acquire the related Receivables from the related
Originator pursuant to a Receivables Acquisition Agreement. The Depositor will
either transfer such Receivables to a Trust pursuant to a Pooling
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Agreement, or will pledge the Depositor's right, title and interests in and to
such Receivables to a Trustee on behalf of Securityholders pursuant to an
Indenture. The rights and benefits of the Depositor under such Receivables
Acquisition Agreement will be assigned to the Trustee on behalf of
Securityholders as collateral for the Securities of the related series issued by
a Trust or pursuant to an Indenture. The obligations of the Depositor and the
related Servicer under such Trust Agreements include those specified below and
in the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, the
Depositor and/or the related Originator will be obligated to acquire from the
related Trust Fund its interest in any Receivable transferred to a Trust or
pledged to a Trustee on behalf of Securityholders if the interest of the
Securityholders therein is materially adversely affected by a breach of any
representation or warranty made by the Depositor or the related Originator with
respect to such Receivable, which breach has not been cured following the
discovery by or notice to the Depositor of the breach. To the extent that the
Depositor so acquires any Receivables, the related Originator will be obligated
to acquire such Receivables from the Depositor pursuant to the related
Receivables Acquisition Agreement contemporaneously with the Depositor's
acquisition of its interest in such Receivables from the applicable Trust Fund.
The obligation of the Depositor to acquire any such Receivables with respect to
which an Originator has breached a representation or warranty is subject to such
Originator's acquisition of such Receivables from the Depositor. In addition, if
so specified in the related Prospectus Supplement, the Depositor may from time
to time reacquire certain Receivables or substitute other Receivables for such
Receivable held by a Trust Fund subject to specified conditions set forth in the
related Trust Agreement and Receivables Acquisition Agreement.
ACCOUNTS
With respect to each series of Securities issued by a Trust, the
related Servicer will establish and maintain with the applicable Trustee one or
more accounts, in the name of such Trustee on behalf of the related
Securityholders, into which all payments made on or with respect to the related
Receivables will be deposited (the "Collection Account"). The Servicer will also
establish and maintain with such Trustee separate accounts, in the name of such
Trustee on behalf of such Securityholders, in which amounts released from the
Collection Account and the reserve account or other Credit Enhancement, if any,
for distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
Any other accounts to be established with respect to a Trust, including
any reserve account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Securities. Subject
to certain conditions, Eligible Investments may include securities issued by the
Depositor, the related Originator, the related Servicer or their respective
affiliates or other trusts created by the Depositor or its affiliates. Except as
described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Payment Date. However, subject to certain
conditions, funds in the reserve account may be invested in securities that will
not mature prior to the date of the next distribution and will not be sold to
meet any shortfalls. Thus, the amount of cash in any reserve account at any time
may be less than the balance of such reserve account. If the amount required to
be withdrawn from any reserve account to cover shortfalls in collections on the
related Receivables exceeds the amount of cash in such reserve account a
temporary shortfall in the amounts distributed to the related Securityholders
could result, which could, in turn, increase the average life of the Securities
of such series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the applicable Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
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The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
To the extent that an Originator's or a Servicer's unsecured debt
ratings are acceptable to the Rating Agencies, amounts deposited to any Trust
Account may be commingled with Originator's or Servicer's general account
moneys. Any rights to so commingle moneys will be described in the related
Prospectus Supplement.
THE SERVICER
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be an affiliate of the
Depositor and may have other business relationships with the Depositor or the
Depositor's affiliates. The Servicer with respect to each Series will service
the Receivables contained in the Trust Fund for such Series. Any Servicer may
delegate its servicing responsibilities to one or more sub-servicers, but will
not be relieved of its liabilities with respect thereto.
Each Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Trust Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Securityholders will constitute a Servicer Default by such
Servicer under the related Trust Agreement.
SERVICING PROCEDURES
Each Trust Agreement will provide that the related Servicer will make
reasonable efforts to collect all payments due with respect to the Receivables
held in the related Trust Fund and, in a manner consistent with the related
Trust Agreement, will continue such collection procedures as such Servicer
follows with respect to the particular type of Receivable in the particular pool
it services for itself and others. Consistent with its normal procedures, the
Servicer may, in its discretion and on a case-by-case basis, arrange with the
Lessee on a Receivable to extend or modify the payment schedule. Some of such
arrangements (including, without limitation any extension of the payment
schedule beyond the final scheduled Payment Date for the related Securities may
result in the Servicer acquiring such Receivable if such Contract becomes a
Defaulted Contract. The Servicer may sell the Equipment securing the respective
Defaulted Contract, if any, at a public or private sale, or take any other
action permitted by applicable law. See "Certain Legal Aspects of the
Receivables".
The material aspects of any particular Servicer's collections
procedures will be set forth in the related Prospectus Supplement.
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PAYMENTS ON RECEIVABLES
With respect to each series of Securities, the related Servicer will
deposit all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected within two (2) business days of receipt
thereof in the related collection facility, such as a lock-box account or
collection account. Moneys deposited in such collection facility for a Trust
Fund may be commingled with funds from other sources. As specified in the
related Prospectus Supplement, the related Servicer will be required to deposit
payments on the related Receivables (from whatever source) collected during each
collection period (each, a "Collection Period") into the related Collection
Account on a specified day each month. Pending deposit into the related
Collection Account, collections in such collection facility may be invested by
the related Servicer at its own risk and for its own benefit, and will not be
segregated from funds of the related Servicer.
SERVICING COMPENSATION
As may be described in the related Prospectus Supplement with respect
to any series of securities issued by a Trust, the related Servicer will be
entitled to receive a servicing fee for each Collection Period (the "Servicing
Fee") in an amount equal to a specified percentage per annum (as set forth in
the related Prospectus Supplement, the "Servicing Fee Rate") of the value of the
assets held in the related Trust Fund, generally as of the first day of such
Collection Period. Each Prospectus Supplement and Servicing Agreement will
specify the priority of distributions with respect to the Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Payment Dates), such Servicing Fee may be paid prior to any distribution to the
related Securityholders.
Each Servicer will also collect and retain any late fees, the penalty
portion of interest paid on past due amounts and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from each Trust for certain liabilities.
Payments by or on behalf of Lessees will be allocated to scheduled payments and
late fees and other charges in accordance with such Servicer's normal practices
and procedures.
The Servicing Fee will compensate the related Servicer for performing
the functions of a third party servicer of similar types of receivables as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Lessees on the related Receivables, investigating
delinquencies, sending payment coupons to Lessees, reporting tax information to
Lessees, paying costs of collection and disposition of defaults, and policing
the collateral. The Servicing Fee also will compensate the related Servicer for
administering the related Receivables, accounting for collections and furnishing
statements to the applicable Trustee and the applicable Indenture Trustee, if
any, with respect to distributions. The Servicing Fee also will reimburse the
related Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Receivables.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of Noteholders and all
distributions to each class of Certificateholders of such series will be set
forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully
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described in the related Prospectus Supplement, and unless otherwise specified
therein, distributions in respect of principal of a Class of Securities of a
given series will be subordinate to distributions in respect of interest on such
Class, and distributions in respect of the Certificates of such series may be
subordinate to payments in respect of the Notes of such series.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of Credit Enhancement arrangements, if any, and
the provider thereof, if applicable, with respect to each class of Securities of
a given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same series, and Credit Enhancement for a series of Securities may cover one or
more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or
series of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
series of Securities, Securityholders of any such series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Prior to each Payment Date with respect to each series of Securities,
the related Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such series described under "Description
of the Securities--Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
related Servicer during the preceding twelve months (or, in the case of the
first such certificate, the period from the applicable Closing Date) with
certain standards relating to the servicing of the Receivables.
Each Trust Agreement will also provide for delivery to the related
Trust and/or the applicable Indenture Trustee of a certificate signed by an
officer of the related Servicer stating that such Servicer either has fulfilled
its obligations under such Trust Agreement in all material respects throughout
the preceding 12 months (or, in the case of the first such certificate, the
period from the applicable Closing Date) or, if there has been a default in the
fulfillment of any such obligation in any material respect, describing each such
default. Each Servicer also will agree to give each Indenture Trustee and each
Trustee notice of certain "Servicer Defaults" (as defined below) under the
related Trust Agreement.
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Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICERS
Each Trust Agreement will provide that the related Servicer may not
resign from its obligations and duties as Servicer thereunder, except upon
determination that the performance by such Servicer of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the related Trustee or a successor servicer has assumed such Servicer's
servicing obligations and duties under the Trust Agreement.
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will further provide that neither the related Servicer nor any
of its respective directors, officers, employees, or agents shall be under any
liability to the related Issuer or the related Securityholders for taking any
action or for refraining from taking any action pursuant to such Trust
Agreement, or for errors in judgment; provided, however, that neither such
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, such Trust Agreement will
provide that the related Servicer is under no obligation to appear in,
prosecute, or defend any legal action that is not incidental to its servicing
responsibilities under such Trust Agreement and that, in its opinion, may cause
it to incur any expense or liability.
Under the circumstances specified in any such Trust Agreement, any
entity into which the related Servicer may be merged or consolidated, or any
entity resulting from any merger or consolidation to which such Servicer is a
party, or any entity succeeding to the business of the Servicer or, with respect
to its obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of such Servicer, will be the successor
to such Servicer under such Trust Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under a Trust Agreement will include (i) any failure by the
related Servicer to deliver to the applicable Trustee for deposit in any of the
related Trust Accounts any required payment or to direct such Trustee to make
any required distributions therefrom, which failure continues unremedied for
greater than three (3) Business Days after written notice from such Trustee is
received by such Servicer or after discovery by such Servicer; (ii) any failure
by such Servicer or the related Originator, as the case may be, duly to observe
or perform in any material respect any other covenant or agreement in such Trust
Agreement, which failure materially and adversely affects the rights of the
related Securityholders and which continues unremedied for greater than ninety
(90) days after the giving of written notice of such failure (1) to such
Servicer or the related Originator, as the case may be, by the applicable
Trustee or (2) to the Servicer or the related Originator, as the case may be,
and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 25% of the voting rights of such
outstanding Securities; and (iii) any Insolvency Event. An "Insolvency Event"
shall mean financial insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Servicer or the related
Originator and certain actions by the Servicer or the related Originator
indicating its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
As more fully described in the related Prospectus Supplement, as long
as a Servicer Default under a Trust Agreement remains unremedied, the applicable
Trustee, Credit Enhancer or holders of Securities of the related series
evidencing not less than 25% of the voting rights of such then outstanding
Securities may terminate all the rights and obligations of the Servicer, if any,
under such Trust Agreement, whereupon a successor servicer appointed by such
Trustee or such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Trust Agreement and will be entitled to
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similar compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such bankruptcy trustee or official may have the
power to prevent the applicable Trustee or such Securityholders from effecting a
transfer of servicing. In the event that the Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust Fund, unless otherwise provided in the
related Prospectus Supplement and subject to the approval of any Credit
Enhancer, the holders of Notes evidencing at least a majority of the voting
rights of such then outstanding Securities may, on behalf of all Securityholders
of the related Securities, waive any default by the Servicer, or by the related
Originator, in the performance of its obligations under the related Trust
Agreement and its consequences, except a default in making any required deposits
to or payments from any of the Trust Accounts in accordance with such Trust
Agreement. No such waiver shall impair the Securityholders' rights with respect
to subsequent defaults.
AMENDMENT
As more fully described in the related Prospectus Supplement, each of
the Trust Agreements may be amended by the parties thereto, without the consent
of the related Securityholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreements or of modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and subject to the approval of any Credit Enhancer. As may
be describe in the related Prospectus Supplement, the Trust Agreements may also
be amended by the Depositor, the Servicer, and the applicable Trustee with the
consent of the holders of Securities evidencing at least a majority of the
voting rights of such then outstanding Securities for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Trust Agreements or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made for the benefit of such Securityholders or (ii) reduce the
aforesaid percentage of the Securities of such series which are required to
consent to any such amendment, without the consent of the Securityholders of
such series.
INSOLVENCY EVENT
As described in the related Prospectus Supplement, if an Insolvency
Event occurs with respect to a Debtor relating to the applicable Trust Fund, the
related Trust will terminate, and the Receivables held in the related Trust Fund
will be liquidated and each such Trust will be terminated 90 days after the date
of such Insolvency Event, unless, before the end of such 90-day period, the
Trustee of such Trust shall have received written instructions from each of the
related Securityholders (other than the Depositor) and/or Credit Enhancer to the
effect that such party disapproves of the liquidation of such Receivables.
Promptly after the occurrence of any Insolvency Event with respect to a Debtor,
notice thereof is required to be given to such Securityholders and/or Credit
Enhancer; provided, however, that any failure to give such required notice will
not prevent or delay termination of any Trust. Upon termination of any Trust,
the applicable Trustee shall direct that the assets of such Trust be promptly
sold (other than the related Trust Accounts) in a commercially reasonable manner
and on commercially reasonable terms. The proceeds from any such sale,
disposition or liquidation of such Receivables will be treated as collections on
such Receivables and deposited in the related Collection Account. If the
proceeds from the liquidation of such Receivables and any amounts on deposit in
the Reserve Account, if any, and the related Distribution
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Account are not sufficient to pay the Securities of the related series in full,
and no additional Credit Enhancement is available, the amount of principal
returned to Securityholders will be reduced and some or all of such
Securityholders will incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
any related Trust without the unanimous prior approval of all Certificateholders
(including the Depositor, if applicable) of such Trust and the delivery to such
Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
TERMINATION
With respect to each Trust, the obligations of the related Servicer,
the related Originator(s), the Depositor and the applicable Trustee pursuant to
the related Trust Agreement will terminate upon the earlier to occur of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables and
(ii) the payment to Securityholders of the related series of all amounts
required to be paid to them pursuant to such Trust Agreement. As more fully
described in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the related Servicer will be permitted in respect of the
applicable Trust Fund, unless otherwise specified in the related Prospectus
Supplement, at its option to purchase from such Trust Fund, as of the end of any
Collection Period immediately preceding a Payment Date, if the Discounted
Contract Balance of the related Contracts is less than a specified percentage
(set forth in the related Prospectus Supplement) of the initial Pool Balance in
respect of such Trust Fund, all such remaining Receivables at a price equal to
the aggregate of the Purchase Amounts thereof as of the end of such Collection
Period. The related Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust Fund, the applicable Trustee will, within ten days following
a Payment Date as of which the Pool Balance is equal to or less than the
percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Trust Fund
will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Contracts that comprise the Receivables will be "chattel paper" as
defined in the Uniform Commercial Code. Pursuant to the UCC for most purposes, a
sale of chattel paper is treated in a manner similar to a transaction creating a
security interest in chattel paper. The Depositor, the related Servicer and/or
the related Originator(s) will cause the filing of appropriate UCC-1 financing
statements to be made with the appropriate governmental authorities. Under the
Trust Agreement, the related Servicer will be obligated from time to time to
take such actions as are necessary to protect and perfect the Trust's or the
Trustee's interests in the Contracts and their proceeds.
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THE EQUIPMENT
The related Originator will convey such Originator's interest in the
related Equipment to the Depositor. UCC financing statements will not be filed
to perfect any security interest in the Equipment unless otherwise specified in
the related Prospectus Supplement. Moreover, in the event of the repossession
and resale of Equipment, it may be subject to a superior lien. In such case, the
senior lienholder may 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 of the related Servicer on behalf of the Trust.
In the event of a default by the Lessee, the related Servicer on behalf
of the related Trustee may take action to enforce such Defaulted Contract by
repossession and resale of the leased Equipment. Under the UCC in most states, a
creditor can, without prior notice to the debtor, repossess assets securing a
defaulted contract by the Lessee's voluntary surrender of such assets or by
"self-help" repossession that does not involve a breach of the peace and by
judicial process.
In the event of a default by the Lessee, some jurisdictions require
that the Lessee be notified of the default and be given a time period within
which it may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee with reasonable
notice of the date, time and place of any public sale and/or the date after
which any private sale of the collateral may be held and that any such sale be
conducted in a commercially reasonable manner. Each Trust Agreement may require
the related Servicer to sell promptly any repossessed item of Equipment,
reacquire such Equipment from the Trust Fund, re - lease such Equipment for the
benefit of the Securityholders or take such other action as specified in the
related Prospectus Supplement.
Under most state laws, a Lessee has the right to redeem collateral for
its obligations prior to actual sale by paying the secured party the unpaid
balance of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type
financed pursuant to the Receivables generally declines with age and because of
obsolescence, the net disposition proceeds of leased Equipment at any time
during the term of the lease may be less than the outstanding balance on the
Contract principal balance which it secures. Because of this, and because other
creditors may have rights in the related leased Equipment superior to those of
the related Trust Fund, the related Servicer may not be able to recover the
entire amount due on a Defaulted Contract in the event that such Servicer elects
to repossess and sell such leased Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a Lessee for any deficiency on
repossession and resale of the asset securing the unpaid balance of such
Lessee's contract. However, some states impose prohibitions or limitations on
deficiency judgments. In most jurisdictions the courts, in interpreting the UCC,
would impose upon a creditor an obligation to repossess the equipment in a
commercially reasonable manner and to "mitigate damages" in the event of a
Lessee's failure to cure a default. The creditor would be required to exercise
reasonable judgment and follow acceptable commercial practice in seizing and
disposing of the equipment and to offset the net proceeds of such disposition
against its claim. In addition, a Lessee may successfully invoke an election of
remedies defense to a deficiency claim in the event that the related Servicer's
repossession and sale of the leased Equipment is found to be a retention
discharging the Lessee from all further obligations under UCC Section 9-505(2).
If a deficiency judgment were granted, the judgment would be a personal judgment
against the Lessee for the shortfall, but a defaulting Lessee may have very
little capital or sources of income available following repossession. Therefore,
in many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
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Certain statutory provisions, including federal and state bankruptcy
and insolvency laws, may also limit the ability of the related Servicer to
repossess and resell collateral or obtain a deficiency judgment. In the event of
the bankruptcy or reorganization of a Lessee, various provisions of the
Bankruptcy Code of 1978 (the "Bankruptcy Code") and related laws may interfere
with or eliminate the ability of the Servicer or the Trustee to enforce its
rights under the Receivables. If bankruptcy proceedings were instituted in
respect of a Lessee, the Trustee could be prevented from continuing to collect
payments due from or on behalf of such Lessee or exercising any remedies
assigned to such Trustee without the approval of the bankruptcy court, and the
bankruptcy court could permit the Lessee to use or dispose of the leased
Equipment and provide the Trustee with a lien on substitute collateral, so long
as such substitute collateral constituted "adequate protection" as defined under
the Bankruptcy Code.
In addition, certain of the Receivables may be leased by the Originator
to governmental entities. Payment by governmental authorities of amounts due
under such Contracts may be contingent upon legislative approval. Accordingly,
payment delays and collection difficulties as described in the related
Prospectus Supplement may limit collections with respect to certain governmental
Contracts.
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment (equipment leased pursuant
to a Finance Lease or an Operating Lease), may limit the amount realized on the
sale of the collateral to less than the amount due on the related Receivable.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations stated therein, federal income tax considerations
relevant to the purchase, ownership and disposition of such Securities.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Depositor from such
sale.
The Depositor intends that Securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of Securities may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
2. By placements by the Depositor with institutional
investors through dealers;
3. By direct placements by the Depositor with institutional
investors; and
4. By competitive bid.
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In addition, if specified in the related Prospectus Supplement, a
series of Securities may be offered in whole or in part in exchange for the
Receivables (and other assets, if applicable) that would comprise the Trust Fund
in respect of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The Securities will be set forth
on the cover of the Prospectus Supplement relating to such series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Depositor or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Depositor and any profit on the resale of Securities by them may
be deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Depositor.
It is anticipated that the underwriting agreement pertaining to the
sale of any series of Securities will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of Securities of such series.
Purchasers of Securities, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act in connection with reoffers and sales by them
of Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dewey Ballantine, New York, New York, or other
counsel specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
A Trust Fund will be formed with respect to each Series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities, except
for serial issuances by a Master Trust. The Depositor's activities will be
limited solely to the activities of Trust Funds to be formed with respect to
each Series of Securities. Accordingly, no financial statements with respect to
any Trust Fund will be included in this Prospectus or in the related Prospectus
Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
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ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each
series of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
Accrual Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Additional Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,3
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Credit Enhancer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,21
Direct Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Discounted Contract Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Eligible Deposit Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Eligible Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Equity Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,12
FASB 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Finance Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Finance Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fixed Income Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Grantor Trust Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,25
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Insolvency Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,6
Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,3
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Master Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Master Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Master Trust New Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
40
<PAGE> 100
<TABLE>
<S> <C>
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Originator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,3
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Pooling Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pre-Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purchase Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Ratings Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,25
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Receivables Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,20
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Remittance Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Security Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Strip Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Subordinate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,3
Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Vendor(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
</TABLE>
41
<PAGE> 101
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No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus Supplement or the Prospectus in connection with the offer made by
this Prospectus Supplement and the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or the Underwriter(s). This Prospectus Supplement and the
Prospectus do 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 qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation. The delivery of this Prospectus
Supplement or the Prospectus at any time does not imply that information herein
or therein is correct as of any time subsequent to its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION> Prospectus Supplement Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . S-2
Reports to Certificateholders . . . . . . . . . . S-2
Summary of Terms . . . . . . . . . . . . . . . . S-3
Special Considerations . . . . . . . . . . . . S-16
The Receivables Pool . . . . . . . . . . . . . S-16
The Servicer . . . . . . . . . . . . . . . . . S-25
The Servicer's Growth Capital Portfolio . . . . S-30
The Servicer's Franchise Business Lease
Portfolio . . . . . . . . . . . . . . . . . . S-33
The Trustee . . . . . . . . . . . . . . . . . . S-35
The Trust . . . . . . . . . . . . . . . . . . . S-36
Description of the Certificates . . . . . . . . S-36
Prepayment and Yield Considerations . . . . . . S-51
Certain Federal and State Income Tax
Considerations . . . . . . . . . . . . . . . S-52
ERISA Considerations . . . . . . . . . . . . . S-55
Ratings . . . . . . . . . . . . . . . . . . . . S-55
Method of Distribution . . . . . . . . . . . . S-55
Legal Matters . . . . . . . . . . . . . . . . . S-56
Index of Principal Defined Terms . . . . . . . S-57
PROSPECTUS
Page
----
<S> <C>
Prospectus Supplement . . . . . . . . . . . . . . 2
Available Information . . . . . . . . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . . . . . . . 2
Reports to Securityholders . . . . . . . . . . . 2
Summary of Terms . . . . . . . . . . . . . . . . 3
Special Considerations . . . . . . . . . . . . 14
The Trust Funds . . . . . . . . . . . . . . . . 18
The Issuers . . . . . . . . . . . . . . . . . . 19
The Receivables . . . . . . . . . . . . . . . . 20
Pool Factors . . . . . . . . . . . . . . . . . 21
Use of Proceeds . . . . . . . . . . . . . . . . 21
The Depositor . . . . . . . . . . . . . . . . . 21
The Trustee . . . . . . . . . . . . . . . . . . 22
Description of the Securities . . . . . . . . . 22
Description of the Trust Agreements . . . . . . 28
Certain Legal Aspects of the Receivables . . . 35
Certain Tax Considerations . . . . . . . . . . 37
ERISA Considerations . . . . . . . . . . . . . 37
Methods of Distribution . . . . . . . . . . . . 37
Legal Opinions . . . . . . . . . . . . . . . . 38
Financial Information . . . . . . . . . . . . . 38
Additional Information . . . . . . . . . . . . 39
Index of Terms . . . . . . . . . . . . . . . . 40
</TABLE>
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PSSFC EQUIPMENT LEASE
TRUST 1995-1
$ Class A %
Lease Backed Certificates
-------------------------
PRELIMINARY
PROSPECTUS SUPPLEMENT
-------------------------
PRUDENTIAL SECURITIES
SECURED FINANCING
CORPORATION
PHOENIX LEASING
INCORPORATED
[LOGO]
Prudential Securities
Incorporated
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Class A Certificates, whether or not
participating in this distribution, may be required to deliver a Prospectus
Supplement and a Prospectus. This is in addition to the obligation of dealers
to deliver a Prospectus Supplement and a Prospectus whether acting as
underwriter(s) and with respect to their unsold allotments or subscriptions.
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