<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
$228,974,000
Copelco Capital Funding Corp. II, Issuer
Copelco Capital, Inc., Servicer
$214,847,000 6.34% Class A Lease-Backed Notes, Series 1996-A
$14,127,000 6.59% Class B Lease-Backed Notes, Series 1996-A
- --------------------------------------------------------------------------------
Each of the Class A Lease-Backed Notes, Series 1996-A (the "Class A
Notes") and the Class B Notes, Series 1996-A (the "Class B Notes"; and together
with the Class A Notes, the "Offered Notes") will represent debt obligations of
Copelco Capital Funding Corp. II (the "Issuer"), a special-purpose bankruptcy
remote subsidiary of Copelco Capital, Inc. ("Copelco Capital"). The assets of
the Issuer securing the Notes will include a pool of leases, consisting of
primarily copier equipment leases, and all of Copelco's interest in the
equipment underlying the leases. The leases and the related interests in the
equipment were originated or acquired by Copelco Capital as described herein
and sold or contributed by Copelco Capital to the Issuer under a sales and
servicing agreement (the "Sales and Servicing Agreement") by and between
Copelco Capital and the Issuer. Payments of principal and interest to the
holders of the Class A Notes (the "Class A Noteholders") will have the benefit
of limited credit support consisting of the subordination of the Class B Notes
and an additional class of subordinated notes (the "Class C Notes"; and
together with Offered Notes, the "Notes"), funds on deposit in the reserve
account, residual realizations and amounts on deposit in certain other
accounts, if any. The holders of the Class B Notes (the "Class B Noteholders")
will have the benefit of limited credit support in the form of the
subordination of the Class C Notes, funds on deposit in the reserve account,
residual realizations and amounts on deposit in certain other accounts, if any.
The Class C Notes are being offered in a private placement and therefore are
not being offered hereby. Capitalized terms used herein will have the meanings
ascribed to such terms herein. The pages on which terms are defined are set
forth on the Index of Terms contained herein.
Ironwood Capital Partners Ltd.
Co-Structuring Agent
(continued on next page)
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
An investment in the Offered Notes involves certain risks. See "Risk
Factors" commencing on page 16 for a discussion of certain factors that should
be considered in connection with an investment in the securities offered hereby.
THE OFFERED NOTES WILL NOT REPRESENT AN INTEREST IN OR AN OBLIGATION
OF COPELCO FINANCIAL SERVICES GROUP, INC., COPELCO CAPITAL, INC.
OR ANY OF THEIR AFFILIATES, OTHER THAN COPELCO CAPITAL
FUNDING CORP. II, NOR WILL THE OFFERED NOTES BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY. SEE "RISK FACTORS" HEREIN.
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price Discount Issuer
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Note.............. 99.93750% 0.35% 99.58750%
Per Class B Note.............. 99.96875% 0.35% 99.61875%
Total......................... $228,835,305.94 $801,409.00 $228,033,896.91
</TABLE>
(1) The Issuer has agreed to indemnify the Underwriter against certain
liabilities, including under the Securities Act of 1933.
(2) Before deducting expenses estimated to be $400,000.
Lehman Brothers
The date of this Prospectus is August 23, 1996.
<PAGE>
(cover page continued)
Interest on the Notes will be payable monthly in arrears on the
twentieth day of the month beginning on September 20, 1996 (each, a "Payment
Date") with respect to the period from and including the immediately preceding
Payment Date (or with respect to the initial Payment Date, the Issuance Date)
to the period to and excluding such Payment Date. Principal payments with
respect to the Offered Notes will be payable on each Payment Date beginning on
September 20, 1996. The stated maturity date with respect to the Notes is the
July 2004 Payment Date. However, if all payments on the leases are made as
scheduled, final payment with respect to the Notes would occur prior to stated
maturity. In addition, should an Event of Default, an Early Lease Termination
or a Casualty (each, as described herein) occur, repayment of principal on the
Offered Notes may be earlier than would otherwise be the case.
The Offered Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel, or modify any order without
notice. It is expected that delivery of the Offered Notes will be made in
book-entry form through the facilities of The Depository Trust Company, Cedel
Bank, S.A. or the Euroclear System on or about August 29, 1996.
The Offered Notes offered hereby are being offered pursuant to this
Prospectus. Sales of the Offered Notes may not be consummated unless the
purchaser has received this Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Offered Notes
offered pursuant to this Prospectus and described herein. For further
information, reference is made to the Registration Statement which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov pursuant to
Item 502(a) under Regulation S-K as recently amended in SEC Release No. 33-7289
(May 9, 1996). The Issuer will file with the Commission such periodic reports
with respect to the Trust as are required under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations of the
Commission thereunder.
2
<PAGE>
REPORTS TO NOTEHOLDERS
During such time as the Offered Notes remain in book-entry form, any
quarterly and annual reports, containing information concerning the
Issuer and the Offered Notes and required to be filed with the Commission will
be sent to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC"), the Euroclear System ("Euroclear") or Cedel Bank, S.A. ("CEDEL") as
registered holders of the Offered Notes pursuant to the Indenture. Such reports
will be made available by DTC, Euroclear or CEDEL and its participants to
holders of interests in the Offered Notes (the "Offered Noteholders") in
accordance with the rules, regulations and procedures creating and affecting
DTC, Euroclear and CEDEL, respectively. See "Description of the Notes-Book Entry
Registration Notes." Upon the issuance of fully registered, certificated Notes,
such reports will be sent to each Noteholder. Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles.
3
<PAGE>
OFFERED NOTES SUMMARY
The following table summarizes certain of the principal terms of the
Notes being offered hereby and is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Initial Principal Amount ...................... $214,847,000 $14,127,000
Expected Ratings
Moody's............................... Aaa A2
Standard & Poor's..................... AAA A
Duff & Phelps......................... AAA A
Interest Rate 6.34% 6.59%
Expected Average Life (0% CPR):
To Maturity........................... 1.86 years 2.02 years
To Optional Redemption................ 1.83 years 1.86 years
Expected Final Payment Date (0% CPR):
To Maturity........................... March 2001 June 2001
To Optional Redemption................ May 2000 May 2000
Stated Maturity................................ July 2004 Payment Date July 2004 Payment Date
</TABLE>
4
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. A listing
of pages on which some of such terms are defined can be found in the
"Index of Terms" herein.
Issuer.............................. Copelco Capital Funding Corp. II (the
"Issuer"), a Delaware corporation. The
Issuer's offices are located at East
Gate Center, 700 East Gate Drive, Mount
Laurel, New Jersey 08054-5400 and its
phone number is (609) 231-9600. The
Issuer has been established as a
bankruptcy remote entity, wholly-owned
by Copelco Capital, Inc. ("Copelco
Capital") and is intended to be a
limited-purpose corporation.
Accordingly, the Issuer's operations
have been restricted so that (a) it does
not engage in business with, or incur
liabilities to, any other entity which
may bring bankruptcy proceedings against
the Issuer; and (b) the risk that it
will be consolidated into the bankruptcy
proceedings of any other entity is
diminished. The Issuer will have no
significant assets other than the Trust
Fund (as described below) and the trust
funds securing other notes issued by the
Issuer in previously rated transactions.
Securities Offered.................. $214,847,000 aggregate principal amount
of the 6.34% Class A Lease-Backed Notes,
Series 1996-A (the "Class A Notes") and
$14,127,000 aggregate principal amount
of the 6.59% Class B Lease-Backed Notes,
Series 1996-A (the "Class B Notes";
together with the Class A Notes, the
"Offered Notes"). In addition, the
Issuer will be issuing, through a
private placement, $6,475,177
(approximate) aggregate principal amount
of the 6.86% Class C Lease-Backed Notes,
Series 1996-A (the "Class C Notes";
together with the Class A Notes and the
Class B Notes, the "Notes"). The Class
B Notes will be subordinated to the
Class A Notes to the extent provided in
the Indenture as described herein. The
Class C Notes will be subordinated to
the Offered Notes to the extent provided
in the Indenture as described herein.
The Class C Notes are not offered
hereby. The combined aggregate
principal amount of the Class A Notes,
the Class B Notes and the Class C Notes
will comprise the initial principal
amount (the "Initial Principal Amount")
of the Notes. The aggregate principal
amounts of the Class A Notes, the Class
B Notes and the Class C Notes set forth
herein are based upon the Discounted
Present Value of the Leases (as defined
herein) as of the close of business on
July 31, 1996 (the "Cut-Off Date")
calculated at the Statistical Discount
Rate (defined herein). The Initial
Principal Amount of the Notes will be
calculated using the actual Discount
Rate.
Denominations....................... The Notes will be issued in minimum
denominations of $100,000 and integral
multiples of $1,000 in excess thereof,
except that one Class A Note, Class B
Note and Class C Note may be issued in
another denomination.
5
<PAGE>
Interest Rate....................... 6.34% per annum on the Class A Notes
(the "Class A Interest Rate"), 6.59% per
annum on the Class B Notes (the "Class B
Interest Rate") and 6.86% per annum on
the Class C Notes (the "Class C Interest
Rate"), calculated on the basis of a
year of 360 days comprised of twelve
30-day months.
Initial Principal
Amount.............................. $214,847,000 for the Class A Notes
(the "Class A Initial Principal
Amount"), $14,127,000 for the Class B
Notes (the "Class B Initial Principal
Amount") and $6,475,177 for the Class C
Notes (the "Class C Initial Principal
Amount"). The Class A Initial Principal
Amount will be equal to 91.25% (the
"Class A Percentage") of the Discounted
Present Value of the Leases (as defined
herein) as of the Cut-Off Date, the
Class B Initial Principal Amount will be
equal to 6.00% (the "Class B
Percentage") of the Discounted Present
Value of the Leases as of the Cut-Off
Date and the Class C Initial Principal
Amount will be equal to 2.75% (the
"Class C Percentage") of the Discounted
Present Value of the Leases as of the
Cut-Off Date. See "Description of the
Notes."
Discounted Present
Value of the Leases................. The Discounted Present Value of the
Leases (the "Discounted Present Value of
the Leases"), at any given time, shall
equal the future remaining scheduled
payments (not including delinquent
amounts or Excess Copy Charges (defined
below)) from the Leases (including
Non-Performing Leases), discounted at a
rate equal to 7.12% (the "Discount
Rate"), which rate is equal to the sum
of (a) the weighted average Interest
Rate of the Class A Notes, the Class B
Notes and the Class C Notes on the
Issuance Date and (b) the Servicing Fee
Rate of 0.75% per annum. The "Discounted
Present Value of the Performing Leases"
equals the Discounted Present Value of
the Leases, reduced by all future
remaining scheduled payments on the
Non-Performing Leases (not including
delinquent amounts or Excess Copy
Charges), discounted at the Discount
Rate. See "Description of the
Notes--General." Each of the Indenture
and the Sales and Servicing Agreements
will provide that any calculation of
future remaining scheduled payments made
on a Determination Date or with respect
to a Payment Date will be calculated
after giving effect to any payments
received prior to such date of
calculation to the extent such payments
relate to scheduled payments due and
payable by the Lessees with respect to
the related Due Period (defined herein)
and all prior Due Periods. "Statistical
Discounted Present Value of
the Leases" means an amount equal to the
future remaining scheduled payments (not
including delinquent amounts or Excess
Copy Charges) from the Leases as of the
Cut-off Date, discounted at a rate equal
to 7.15% (the "Statistical Discount
Rate"). The Statistical Discounted
Present Value of the Leases as of the
Cut-Off Date is $235,327,208.56 and will
not vary materially from the Discounted
Present Value of the Leases as of the
Cut-Off Date. See "The Series Pool--The
Equipment." The aggregate Discounted
Present Value of the Leases as of the
Cut-Off Date, calculated at the Discount
Rate is $235,449,177.
6
<PAGE>
"Non-Performing Leases" are (a) Leases
that have become more than 123 days
delinquent or (b) Leases that have been
accelerated by the Servicer or Leases
that the Servicer has determined to be
uncollectible in accordance with its
customary practices. See "The Series
Pool--The Leases."
Stated Maturity..................... The July 2004 Payment Date. However, if
all payments on the Leases are made as
scheduled, final payment with respect to
the Notes would occur prior to stated
maturity.
The Notes........................... The Notes will represent obligations
solely of the Issuer and are secured by
the Trust Fund.
Seller and Servicer................. Copelco Capital, Inc., a Delaware
corporation ("Copelco Capital", the
"Seller," or in its capacity as
servicer, the "Servicer"). Copelco
Capital will enter into a sales and
servicing agreement (the "Sales and
Servicing Agreement") with the Issuer to
sell and service the Leases included in
the Series Pool and make Servicer
Advances (as defined herein).
Concurrently with the sale of the Leases
by Copelco Capital to the Issuer,
Copelco Capital's interest in the
Equipment (which is either an ownership
interest or a security interest) will be
transferred to the Issuer as a
contribution of capital.
Contemporaneously with the sale, the
Issuer will transfer its interests in
the Leases and Equipment to the Trustee
in accordance with the provisions of the
Indenture (as defined herein).
Trust Fund.......................... The Trust Fund will consist of a pool
(the "Series Pool") of equipment lease
contracts consisting of equipment lease
contracts of copiers, facsimile
machines, computers and other business
equipment (the "Lease Contracts"),
including all payments due thereunder
(the "Lease Receivables"; together with
the Lease Contracts, the "Leases") and
the interest in the related leased
equipment (the "Equipment") transferred
by Copelco Capital to the Issuer. In
addition, the Trust Fund will include
the funds on deposit in the Reserve
Account, if any, and to the limited
extent provided in the Indenture,
amounts on deposit in the Residual
Account, if any.
Trustee............................. Manufacturers and Traders Trust Company
(the "Trustee"). The Trustee's offices
are located at One M&T Plaza, 7th Floor,
Buffalo, New York 14203.
Determination Date.................. The fifth day prior to each Payment Date
(or the preceding business day, if such
day is not a business day). On such
date (each, a "Determination Date"), the
Servicer will determine the amount of
payments received on the Leases in
respect of the immediately preceding
calendar month (each such period, a
"Due Period") which will be available
for distribution on the Payment Date.
See "Description of the
Notes--Distributions on Notes."
7
<PAGE>
Payment Date........................ Payments on the Notes will be made on
the twentieth day of each month (or if
such day is not a business day, the next
succeeding business day), commencing on
September 20, 1996 (each, a "Payment
Date"), to holders of record on the last
day of the immediately preceding
calendar month (each, a "Record Date").
See "Description of the
Notes--Distributions on Notes."
Interest Payments................... On each Payment Date, the interest due
(the "Interest Payments") with respect
to the Class A Notes, the Class B Notes
and the Class C Notes since the last
Payment Date will be the interest that
has accrued on such Notes since the last
Payment Date, or in the case of the
first Payment Date, since August 29,
1996 (the "Issuance Date") at the
applicable Interest Rate applied to the
then unpaid principal amounts (the
"Outstanding Principal Amounts") of the
Class A Notes, the Class B Notes and the
Class C Notes, respectively (the
"Outstanding Class A Principal Amount",
the "Outstanding Class B Principal
Amount" and the "Outstanding Class C
Principal Amount", respectively), after
giving effect to payments of principal
to the Class A Noteholders, the Class B
Noteholders and the Class C Noteholders,
respectively, on the preceding Payment
Date. See "Description of the
Notes--General" and "Distributions on
Notes."
Principal Payments.................. For each Payment Date, each of the Class
A Noteholders, the Class B Noteholders
and the Class C Noteholders will be
entitled to receive payments of
principal ("Principal Payments"), to the
extent funds are available therefor, in
the priorities set forth in the
Indenture and described herein under
"-Application of Payments" and
"Description of the Notes-Distributions
on Notes." On each Payment Date, to the
extent funds are available therefor,
the Principal Payment payable to the
Noteholders is as follows: (a) to the
Class A Noteholders, the amount
necessary to reduce the Outstanding
Class A Principal Amount to the Class A
Target Investor Principal Amount (the
"Class A Principal Payment"), (b) to the
Class B Noteholders, the amount
necessary to reduce the Outstanding
Class B Principal Amount to the greater
of the Class B Target Investor Principal
Amount and the Class B Floor (the "Class
B Principal Payment"), (c) to the Class
C Noteholders, the amount necessary to
reduce the Outstanding Class C Principal
Amount to the greater of the Class C
Target Investor Principal Amount and the
Class C Floor (the "Class C Principal
Payment"), and (d) to the extent that
the Class B Floor exceeds the Class B
Target Investor Principal Amount and/or
the Class C Floor exceeds the Class C
Target Investor Principal Amount,
Additional Principal (defined below)
shall be distributed, sequentially, as a
principal payment on the Class A Notes,
the Class B Notes and the Class C Notes
until the Outstanding Principal Amount
of each has been reduced to zero.
"Additional Principal" with respect
to each Payment Date is an amount equal
to (a) the difference between (i) the
Discounted Present Value of the
Performing Leases as of the previous
8
<PAGE>
Determination Date and (ii) the
Discounted Present Value of the
Performing Leases as of the related
Determination Date, less (b) the Class A
Principal Payment, the Class B Principal
Payment and the Class C Principal
Payment (defined above) to be paid on
such Payment Date.
The "Class A Target Investor Principal
Amount" with respect to each Payment
Date is an amount equal to the product
of (a) the Class A Percentage and (b)
the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Class B Target Investor Principal
Amount" with respect to each Payment
Date is an amount equal to the product
of (a) the Class B Percentage and (b)
the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Class C Target Investor Principal
Amount" with respect to each Payment
Date is an amount equal to the product
of (a) the Class C Percentage and (b)
the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Class B Floor" with respect to each
Payment Date means (a) 2.50% of the
initial Discounted Present Value of the
Leases as of the Cut-Off Date, plus
(b) the Cumulative Loss Amount with
respect to such Payment Date, minus (c)
the sum, as of the related Determination
Date, of the Outstanding Principal
Amount of the Class C Notes and the
amount on deposit in the Reserve
Account after giving effect to
withdrawals to be made on such Payment
Date.
The "Class C Floor" with respect to each
Payment Date means (a) 1.00% of the
initial Discounted Present Value of the
Leases as of the Cut-Off Date, plus
(b) the Cumulative Loss Amount with
respect to such Payment Date, minus
(c) the amount on deposit in the Reserve
Account after giving effect to
withdrawals to be made on such Payment
Date; provided, however, that if the
Outstanding Class B Principal Amount is
equal to the Class B Floor, on such
Payment Date the Class C Floor will
equal the Outstanding Class C Principal
Amount utilized in the calculation of
the Class B Floor Amount for such
Payment Date.
The "Cumulative Loss Amount" with
respect to each Payment Date is an
amount equal to the excess, if any, of
(a) the total of (i) the Outstanding
Principal Amount of the Notes as of the
immediately preceding Payment Date after
giving effect to all payments made on
such Payment Date, minus (ii) the lesser
of (A) the Discounted Present Value of
the Performing Leases as of the
Determination Date relating to the
immediately preceding Payment Date minus
the Discounted Present Value of the
Performing Leases as of the related
Determination Date and (B) Available
Funds remaining after the payment of
amounts owing the Servicer and in
respect of interest on the Notes on such
Payment Date over (b) the Discounted
Present Value of Performing Leases as of
the related Determination Date.
The Series Pool..................... The Series Pool will consist of the
Leases as of the Cut-Off Date, plus any
Substitute Leases (as defined herein)
and any Additional Leases (as defined
herein) excluding any Leases which have
been replaced by one or more Additional
Leases or Substitute Leases and, the
interest of the Issuer in the related
Equipment. See "The Series Pool" and
"Certain Legal Matters Affecting a
Lessee's Rights and Obligations."
9
<PAGE>
Copelco Capital will represent and
warrant that, as of the Cut-Off Date,
all Leases were current or less than 63
days delinquent and that, as of the
Issuance Date, the Lessees have made at
least one lease payment.
Equipment........................... As of the Cut-Off Date, a majority of
the Statistical Discounted Present Value
of the Leases consisted of leases of
copier equipment. The remaining Leases
consisted of Leases of facsimile
machines, computers and other business
equipment.
Lessees............................. The Lessees consist of businesses and
business owners (each, a "Lessee"; and
collectively, the "Lessees"). As of the
Cut-Off Date, the Collateral included
22,256 separate Leases and 19,951
Lessees. As of the Cut-Off Date, Leases
relating to Lessees in any one state did
not account for more than 18.73% of the
Statistical Discounted Present Value of
the Leases. See "The Series Pool--The
Leases."
Certain Lease Terms................. The Leases are triple-net leases,
requiring the Lessee to pay all taxes,
maintenance and insurance associated
with the Equipment. The Leases are
non-cancelable by the Lessees. All
payments under the Leases are absolute,
unconditional obligations of the Lessees
without right of offset for any reason.
Each Lessee entered into its Lease for
specified Equipment designated in
schedules incorporated into the Lease.
The schedules, among other things,
establish the payments and the term of
the Lease with respect to such
Equipment. The Leases have remaining
terms to maturity, calculated as of the
Cut-Off Date, of between approximately 1
and 83 months and a weighted average
term to stated maturity of 43 months.
See "The Series Pool--The Leases."
Substitutions and Adjustments....... Although the Leases will be
non-cancelable by the Lessees, Copelco
Capital has, from time to time,
permitted early termination by Lessees
("Early Lease Termination") or other
modifications of the lease terms in
certain circumstances more fully
specified in the Sales and Servicing
Agreement, including, without
limitation, in connection with a full
or partial buy-out or equipment upgrade.
In the event of an Early Lease
Termination which has been prepaid in
full, the Issuer will have the option to
reinvest the proceeds of such Early
Termination Lease in one or more Leases
having similar characteristics for such
terminated Lease (each, an "Additional
Lease").
In addition, Copelco Capital will have
the option to substitute one or more
leases having similar characteristics
(each, a "Substitute Lease") for (a)
Non-Performing Leases, (b) Leases
subject to repurchase as a result of a
breach of representation and warranty
(each a "Warranty Lease") and (c) Leases
following a modification or adjustment
to the terms of such Lease (each, an
"Adjusted Lease"). The aggregate
Discounted Present Value of the
10
<PAGE>
Non-Performing Leases and Warranty
Leases for which Copelco Capital may
substitute Substitute Leases is limited
to an amount not in excess of 7% of the
aggregate Discounted Present Value of
the Leases as of the Cut-Off Date. The
aggregate Discounted Present Value of
Adjusted Leases for which Copelco
Capital may substitute Substitute Leases
is limited to an amount not in excess of
8% of the aggregate Discounted Present
Value of the Leases as of the Cut-Off
Date.
In no event will the aggregate scheduled
payments of the Leases, after the
inclusion of the Substitute Leases and
Additional Leases be materially less
than the aggregate scheduled payments of
the Leases prior to such substitution or
reinvestment. In addition, after giving
effect to such additions and
substitutions, the aggregate Booked
Residual Value of the Leases must not be
materially less than the aggregate
Booked Residual Value of the Leases
immediately prior to such substitutions
or additions. Additionally, either the
final payment on such Substitute Lease
or Additional Lease must be on or prior
to June 30, 2003 or, to the extent the
final payment on such Lease is due
subsequent to June 30, 2003, only
scheduled payments due on or prior to
such date may be included in the
Discounted Present Value of such Lease
for the purpose of making any
calculation under the Indenture.
In the event that an Early Lease
Termination is allowed by Copelco
Capital and an Additional Lease is not
provided, the amount prepaid will be
equal to at least the Discounted Present
Value of the terminated Lease, plus any
delinquent payments. See "The Series
Pool--The Leases."
11
<PAGE>
Payments on Leases.................. All payments on Leases will be made by
the Lessees to the order of the Issuer
to the address specified by Servicer.
The Servicer will deposit the proceeds
of such payments to the Collection
Account (as defined herein) within two
Business Days of the receipt thereof.
See "Description of the
Notes--Collection Account."
Advances by Servicer................ Prior to any Payment Date, the Servicer
may, but will not be required to,
advance (each, a "Servicer Advance") to
the Trustee, an amount sufficient to
cover delinquencies on Leases in the
Trust Fund with respect to the prior Due
Period. The Servicer will be reimbursed
for Servicer Advances not recovered from
late payments from Available Funds on
the Payment Date following the date on
which the Servicer determined such Lease
to be a Non-Performing Lease. See
"Description of the Notes--Advances by
Servicer."
Servicing Fee....................... A Servicing Fee (the "Servicing Fee"),
will be paid monthly to the Servicer on
each Payment Date from amounts in the
Collection Account and will be
calculated by multiplying one-twelfth of
0.75% times the Outstanding Principal
Amount of the Notes at the Determination
Date for such Payment Date before
application of payments with respect
thereto.
The Servicing Fee will be paid to the
Servicer for servicing the Series Pool
and to pay certain administrative
expenses in connection with the Notes,
including Trustee fees and expenses.
See "Copelco Capital's Underwriting and
Servicing Practices."
Use of Proceeds..................... The net proceeds from the sale of the
Offered Notes will be used to purchase
the Leases from Copelco Capital. In
addition, the net proceeds from the
private placement of the Class C Notes
will be used for the same purpose.
Copelco Capital will use such amounts to
repay bank indebtedness and for general
corporate purposes.
The Indenture....................... The Notes are to be issued pursuant to,
and are to be in such form, bear
interest and be payable on such terms as
are prescribed in an indenture (the
"Indenture") to be executed between the
Issuer and the Trustee.
Available Funds..................... On each Payment Date, the Trustee will
use such funds to make required payments
of principal and interest to
Noteholders.
Funds received on or prior to the
related Determination Date ("Available
Funds") will be available for
distribution by the Trustee on a Payment
Date and will include:
a) Lease Payments due during the
prior Due Period (net of any Excess Copy
Charges);
b) Residual Realizations up to the
Residual Amount Cap;
12
<PAGE>
c) recoveries from Non-Performing
Leases to the extent Copelco Capital has
not substituted a Substitute Lease for
such Non-Performing Leases (except to
the extent required to reimburse
unreimbursed Servicer Advances);
d) proceeds from repurchases by
Copelco Capital of Leases as a result of
breaches of representations and
warranties;
e) proceeds from investment of
funds in the Collection Account and the
Reserve Account;
f) Casualty Payments (as defined
herein);
g) Servicer Advances;
h) Termination Payments;
i) funds, if any, on deposit in the
Reserve Account; and
j) funds, if any, on deposit in
the Residual Account to the limited
extent provided in the Indenture.
Application of
Payments............................ Monthly distributions will be made by
the Trustee from Available Funds in the
following priority:
a) to pay the Servicing Fee;
b) to reimburse unreimbursed Servicer
Advances in respect of a prior Payment
Date;
c) to make Interest Payments owing on
the Class A Notes;
d) to make Interest Payments owing on
the Class B Notes;
e) to make Interest Payments owing on
the Class C Notes;
f) to make the Class A Principal
Payment;
g) to make the Class B Principal
Payment;
h) to make the Class C Principal
Payment;
i) to pay the Additional Principal,
if any, to the Class A Noteholders until
the Outstanding Class A Principal
13
<PAGE>
Amount has been reduced to zero, then
to the Class B Noteholders until the
Outstanding Class B Principal
Amount has been reduced to zero and
thereafter to the Class C Noteholders
until the Outstanding Class C Principal
Amount has been reduced to zero;
j) to the Reserve Account, an
amount equal to the excess of the
Required Reserve Amount over the
Available Reserve Amount;
k) following a Residual Event
(defined below), to the Residual Account
an amount equal to Residual Realizations
up to the Residual Amount Cap; and
l) to the Issuer, the balance, if
any.
See "Description of the
Notes-Distribution on Notes."
Redemption.......................... The Issuer will have the option, subject
to certain conditions, to redeem all,
but not less than all, of the Notes and
thereby cause early repayment of the
Notes as of any Payment Date on which
the Discounted Present Value of the
Performing Leases is less than or equal
to 10% of the Discounted Present Value
of the Leases as of the Cut-Off Date
(after giving effect to the payment of
principal on such Payment Date). See
"Description of the Notes--Redemption."
Residual Realizations............... Following the Issuance Date, aggregate
cash flows realized from the sale or
re-lease of the Equipment, other than
Equipment subject to Non-Performing
Leases (the "Residual Realizations"),
shall be deposited into the Collection
Account for distribution until the
aggregate Residual Realizations used
(without duplication) to cover amounts
owing the Noteholders and the Servicer,
deposited into the Reserve Account,
on deposit in the Residual Account,
or withdrawn from the Residual
Account as a result of an Available
Funds Shortfall, equals $16,481,442
which represents 7% of the Discounted
Present Value of the Leases as of the
Cut-Off Date (the "Residual Amount
Cap"), and will provide additional
credit support to the Notes. Actual
Residual Realizations may be more or
less than the residual value of the
Equipment recorded on the books of the
Issuer (the "Booked Residual Value").
Under certain limited circumstances more
fully described in the Indenture (a
"Residual Event"), the Residual
Realizations not distributed to
Noteholders, paid to the Servicer or
deposited into the Reserve Account will
be deposited in the Residual Account.
As provided in the Indenture, funds on
deposit in the Residual Account will be
available to cover shortfalls in the
amount available to pay the amounts
owing the Servicer and to make interest
and principal payments on the Notes.
Following the termination of a Residual
Event, amounts on deposit in the
Residual Account will be disbursed to
the Issuer.
The aggregate Booked Residual Values of
the Lease as of the Cut-Off Date equals
$32,226,023.
14
<PAGE>
Subordination....................... The Class A Notes will be senior in
right of payment to the Class B Notes
and the Class B Notes will be senior in
right to the Class C Notes to the extent
described herein. See "Description of
the Notes--Distributions on Notes."
Reserve Account..................... The Noteholders will have the benefit of
funds on deposit in an account (the
"Reserve Account") to the extent that
there is a shortfall in the amount
available to pay amounts owing the
Servicer and to make interest and
principal payments on the Notes, on any
Payment Date. The Reserve Account will
be funded by an initial deposit of 1.25%
of the Discounted Present Value of the
Leases as of the Cut-Off Date.
Thereafter, to the extent provided in
the Indenture, additional deposits will
be made to the Reserve Account to the
extent that the amount on deposit in the
Reserve Account (the "Available Reserve
Amount") is less than the Required
Reserve Amount. The "Required Reserve
Amount" equals the greater of (a) 1.25%
of the Discounted Present Value of the
Performing Leases as of the related
Payment Date and (b) 1.00% of the
Discounted Present Value of the Leases
as of the Cut-Off Date, but not more
than the Outstanding Principal Amount of
the Notes, (the "Required Reserve
Amount"). Amounts on deposit in the
Reserve Account in excess of the
Required Reserve Amount will be
disbursed to the Issuer in accordance
with the provisions of the Indenture.
Federal Income Tax
Considerations...................... It is intended that the Notes will be
characterized as indebtedness of the
Issuer for federal income tax purposes.
If characterized as indebtedness,
interest on the Notes will be taxable as
ordinary income when received by a
Noteholder on the cash method of
accounting and when accrued by
Noteholders on the accrual method of
accounting. See "Certain Federal Income
Tax Considerations."
ERISA
Considerations...................... The Employee Retirement Income Security
Act of 1974, as amended ("ERISA") places
certain restrictions on those pension
and other employee benefits plans to
which it applies. Pursuant to
regulations issued by the United States
Department of Labor defining "plan
assets", if the Notes are considered to
be indebtedness without substantial
equity features under local law, the
assets of the Issuer will not be
considered assets of any ERISA plan
holding the Notes, thereby generally
avoiding potential application of
ERISA's prohibited transaction rules.
However, in certain circumstances, the
prohibited transaction rules may be
applicable to the purchase of the Notes
even if the Notes are not deemed to have
substantial equity features. Certain
exemptions from the prohibited
transaction rules could be applicable,
however, with respect to the acquisition
and holding of the Notes. Accordingly,
the notes may be acquired by ERISA
plans, subject to certain restrictions.
Before purchasing any of the Notes,
fiduciaries
15
<PAGE>
of such plans should determine whether
an investment in the Notes is
appropriate under ERISA. See "ERISA
Considerations."
Rating.............................. It is a condition to the issuance of the
Offered Notes that the Class A Notes be
rated at least "AAA," "AAA" and "Aaa"
and that the Class B Notes be rated at
least "A," "A" and "A2" by Standard &
Poor's Ratings Group ("S&P"), Duff &
Phelps Credit Ratings Co. ("DCR") and
Moody's Investors Service, Inc.
("Moody's"), respectively. The ratings
assess the likelihood of timely payment
of interest and the ultimate payment of
principal to the Noteholders by the
Stated Maturity Date. There is no
assurance that any rating will not be
lowered or withdrawn if, in the
judgement of any Rating Agency,
circumstances in the future so warrant.
See "Rating of the Notes."
16
<PAGE>
RISK FACTORS
Limited Liquidity. There is currently no public market for the Offered
Notes and there is no assurance that one will develop. The Underwriter expects,
but is not obligated, to make a market in the Offered Notes. There is no
assurance that any such market will be created or, if so created, will
continue. If no public market develops, the Offered Noteholders may not be able
to liquidate their investment in the Offered Notes prior to maturity.
Prepayments. Because the rate of payment of principal on the Notes
will depend, among other things, on the rate of payment on the Leases, such rate
of payment of principal on the Notes cannot be predicted. Payments on the Leases
will include scheduled payments as well as prepayments permitted by Copelco
Capital as the Servicer (to the extent not replaced with Additional Leases),
payments as a result of Non-Performing Leases (to the extent not replaced by
Substitute Leases), Casualty Payments (as defined herein), and payments upon
repurchases by Copelco Capital on account of a breach of certain representations
and warranties in the related Sales and Servicing Agreement (any such voluntary
or involuntary prepayment, a "Prepayment"). The rate of early terminations of
Leases due to Prepayments and defaults may be influenced by a variety of
economic and other factors which cannot be specified at this time. The risk of
reinvesting distributions of the principal of the Notes will be borne by the
Noteholders. See "Prepayment and Yield Considerations."
Additional Leases and Substitute Leases. As described herein, pursuant
to the Sales and Servicing Agreement, Copelco Capital may have the option, but
not the obligation, to designate one or more leases in its portfolio to be an
Additional Lease as a replacement for any prepaid in full or upgraded lease, in
which event the scheduled payments from such Additional Lease will replace (in
whole or in part) the remaining scheduled payments on a prepaid in full Lease.
In the event (and only to the extent) that Copelco Capital makes such a
designation, the amount (or portion thereof) received by the Issuer with
respect to a Prepayment will be allocated directly to Copelco Capital and the
payments with respect to the related Notes will be dependent upon the scheduled
payments received on such Additional Leases and such Substitute Leases. In
addition, pursuant to the Sales and Servicing Agreement, Copelco Capital may
have the option, but not the obligation to substitute one or more leases as
Substitute Leases in exchange for Non-Performing Leases, Warranty Leases and
Adjusted Leases. Accordingly, payments of principal of and interest on the Notes
may be dependent, in part, upon payments received on such Additional Leases. In
addition, to the extent that Copelco Capital does not designate one or more
leases as Additional Leases in connection with the prepayment of a Lease or
Substitute Leases in the case of partial prepayments, Non-Performing Leases or
Warranty Leases, the Discounted Present Value of the Performing Leases will be
decreased. See "Prepayment and Yield Considerations."
Security Interests in the Equipment. The Leases will consist of either
finance Leases (where substantially all of the value of the Equipment is
financed by the lease payments) or operating leases (where substantially less
than all of the value of the Equipment is recovered through the lease
payments). See "The Leases" herein. Finance leases include Leases ("Nominal
Buy-Out Leases") which contain a nominal purchase option upon expiration or
other terms which may be deemed effectively to vest equitable ownership of the
Equipment in the Lessee. Prior to the Cut-Off Date, Copelco Capital will have
filed Uniform Commercial Code ("UCC") financing statements in its favor against
Lessees in respect of Equipment, including Equipment subject to Nominal-Buy-Out
Leases, with an original Equipment cost in excess of $25,000. No action will be
taken to perfect the interest of Copelco Capital in any Equipment to the extent
the original Equipment cost of the related Equipment is less than $25,000. In
addition, the Indenture and the Sale and Servicing Agreement will require UCC
financing statements identifying security interests in the Equipment as
transferred to, or obtained by, the Issuer or the Trustee and UCC financing
17
<PAGE>
statements identifying equipment owned by Copelco Capital, transferred to the
Issuer and pledged to the Trustee to be filed in favor of the Issuer or the
Trustee in states in which Equipment relating to not less than 75% of the
Discounted Present Value of the Leases as of the Cut-Off Date is located (the
"Filing Locations"). To the extent UCC financing statements evidencing Copelco
Capital's security interest in the Equipment have not been filed against the
Lessee and to the extent the Equipment is located in the states other than the
Filing Locations, any such security interests in the Equipment will not be
perfected in favor of the Issuer or the Trustee and another party (such as other
creditors of Copelco Capital) may acquire rights in Copelco Capital's interest
in the Equipment superior to those of the Issuer or the Trustee. See "Certain
Legal Matters Affecting a Lessee's Rights and Obligations."
Restrictions on Recoveries. State laws impose requirements and
restrictions relating to foreclosure sales and obtaining deficiency judgments
following such sales. In the event that the Issuer must rely on repossession
and disposition of Equipment to cover losses on Non-Performing Leases, the
Issuer may not realize the full amount due because of the application of those
requirements and restrictions. Other factors that may affect the ability of the
Issuer to realize the full amount due on a Lease include the failure to file
financing statements to perfect the Issuer's security interest in the Equipment
against a Lessee, depreciation, obsolescence, damage or loss of any item of
Equipment, and the application of federal and state bankruptcy and insolvency
laws. As a result, the Noteholders may be subject to delays in receiving
payments and losses. See "Certain Legal Matters Affecting a Lessee's Rights and
Obligations."
Insolvency of Copelco Capital. Copelco Capital believes that each
transfer of the Leases to the Issuer should be treated as an absolute and
unconditional sale or assignment. However, in the event of an insolvency of
Copelco Capital, a court could attempt to recharacterize the sale of the
related Leases by Copelco Capital to the Issuer as a loan by Copelco Capital
from the Issuer, secured by a pledge of such Leases or could allow the trustee
in bankruptcy to repudiate the Leases that are operating leases and all
obligations thereunder. Such an attempt, even if unsuccessful, could result in
delays in payments of the related Notes. If such an attempt were successful,
such Notes would be accelerated, and the Trustee's recovery on behalf of the
Noteholders could be limited to the then current value of the Leases or the
underlying Equipment. Thus, the Noteholders could lose the right to future
payments and might incur reinvestment losses on amounts recovered. See "Certain
Legal Matters Affecting a Lessee's Rights and Obligations."
Credit Enhancement. Credit enhancement with respect to the Offered
Notes will be provided by the subordination of Class C Notes and funds on
deposit in the Reserve Account and, to the limited extent provided in the
Indenture, the Residual Account. In addition, the Class A Notes have the benefit
of the subordination of the Class B Notes. However, on any Payment Date the
amount available to Noteholders is limited to the extent of funds on deposit in
the Collection Account, the Reserve Account and, to the limited extent provided
in the Indenture, the Residual Account. In addition, payment of principal and
interest on the Offered Notes will be supported by the Residual Realizations on
the Equipment up to the Residual Amount Cap. Therefore, if a Lease becomes a
non-performing lease at a time when total losses on the Leases is in excess of
the outstanding principal amount of any subordinated Class and, the amounts, if
any, available to be withdrawn from the Reserve Account and the Residual Account
are reduced to zero, the holders of Notes of any senior Class may be forced to
rely solely on the amount of Residual Realizations on the Equipment for ultimate
payment of principal and interest on such Class of Notes. The aggregate amount
of Residual Realizations available to Noteholders to pay (without duplication)
the amounts owing the Servicer, to be deposited in the Reserve Account, on
deposit in the Residual Account or withdrawn from the Residual Account as the
result of an Available Funds Shortfall after the Issuance Date will not exceed
the Residual Amount Cap.
Non-Recourse Obligations. The Notes represent debt obligations of the
Issuer secured by the Leases only and do not represent interests in or
recourse obligations of Copelco Capital or any of its affiliates other than the
Issuer. The Issuer is a special purpose corporation with limited assets.
Consequently, the Noteholders must rely solely upon the Leases, the Equipment
and funds in the Reserve Account and the Residual Account, if any, for payment
of principal of and interest on the Notes. If no
18
<PAGE>
funds are on deposit in the Reserve Account or the Residual Account and the
payments made on the Leases and the disposition proceeds of the Equipment are
insufficient to make payments on the Notes, no other assets will be available
for the payment of the deficiency.
Book-Entry Registration. The Notes offered hereby initially will be
represented by one or more Notes registered in the name of Cede & Co. and will
not be registered in the names of the beneficial owners or their nominees. As a
result of this, unless and until Definitive Notes are issued, beneficial owners
will not be recognized by the Issuer or the Trustee as Noteholders, as that
term is used in each Indenture. Hence, until such time, beneficial owners will
only be able to exercise the rights of Noteholders indirectly, through DTC,
Euroclear or CEDEL and their respective participating organizations, and will
receive reports and other information provided for under the Indenture only if,
when and to the extent provided by DTC, Euroclear or CEDEL, as the case may be,
and its participating organizations. See "Description of the Notes--Book-Entry
Registration."
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to purchase
the Leases from Copelco Capital. Copelco Capital will utilize the proceeds from
the sale of the Leases to repay bank debt and for general corporate purposes.
THE SERIES POOL
The Leases. As of the close of business on July 31, 1996 (the "Cut-Off
Date"), the Notes will be secured by 22,256 Leases with 19,951 Lessees. The
Lessees are businesses and business owners throughout the United States. The
Leases were originated by the Document Image Division, the Computer Division
and the Major Accounts Division (or their predecessors) (the "Origination
Divisions"). See "Risk Factors," "Security for the Notes" and "Certain Legal
Matters Affecting a Lessee's Rights and Obligations." The statistical
information included herein was computed using the Statistical Discounted
Present Value of the Leases as of the Cut-Off Date. The Statistical Discounted
Present Value of the Leases will not vary materially from the Discounted
Present Value of the Leases as of the Cut-Off Date.
The Leases are triple-net leases which impose no affirmative
obligations on the Lessor, and are non-cancelable by the Lessees. Under certain
conditions, however, Copelco Capital may consent to prepayment of the Leases.
Generally, Copelco Capital will consent to a prepayment of a Lease where the
Lessee is upgrading the Equipment. All payments under the Leases are absolute,
unconditional obligations of the Lessees without right of offset for any
reason. Such payments will be made by the Lessees to the Servicer for the
account of the Issuer.
Each Lessee entered into its Lease for specified Equipment which may
be designated in schedules incorporated into the Lease. To the extent not set
forth in the Lease Contract, the schedules, among other things, establish the
monthly payments and the term of the Lease with respect to such Equipment. The
Leases follow one of several different forms of lease agreement, with
occasional modifications which do not materially affect the basic terms of the
Leases. The weighted average remaining term of the Series Pool is 43 months.
Copelco Capital will represent and warrant that, as of Cut-Off Date, all Leases
will be current or less than 63 days delinquent and, as of the Issuance Date,
all Lessees will have made at least one payment.
Lessees covenant to maintain the Equipment and install it at a place
of business agreed upon with Copelco Capital. Delivery, transportation, repairs
and maintenance are the obligation of the Lessees, and all Lessees are required
to carry, at their respective expense, liability and replacement cost insurance
under terms acceptable to Copelco Capital. Such insurance proceeds will
constitute Casualty Payments (as defined herein). Subject to certain
exceptions, if the Lessee does not provide evidence of insurance coverage
within 90 days of the commencement of the Lease, Copelco Capital obtains such
19
<PAGE>
insurance and invoices the Lessee for the cost thereof. Any defaults under a
Lease (as such, a "Non-Performing Lease," as defined herein) permit a
declaration as immediately due and payable all remaining Lease payments under
the Lease and the immediate return of the Equipment. Generally, any payments
received six days after the scheduled payment date are subject to late charges.
"Non-Performing Leases" are (a) Leases that have become more than 123
days delinquent or (b) Leases that have been accelerated by the Servicer or
Leases that the Servicer has determined to be uncollectible in accordance with
its customary practices.
At the end of the Lease term, the Lessee must return the Equipment
with certification from the manufacturer that the Equipment is in good working
order, normal wear and tear excepted, unless the Lease is renewed or the
Equipment is purchased by the Lessee.
Historically, most of the Equipment leased by the Origination
Divisions is purchased or relet by the original lessee at the expiration of the
lease term. "Nominal Buy-Out" Leases comprise 12.93% of the Leases. Pursuant to
the terms of the Leases, the Lessee is required to advise Copelco Capital at
least 90 to 120 days prior to the Lease termination of its intent to return the
Equipment at the expiration of the Lease. In most cases, the failure by a
Lessee to so advise Copelco Capital results in an automatic renewal of the
Lease for a period ranging from four months to one year. For Equipment which is
returned to Copelco Capital by the lessees, Copelco Capital participates in an
active secondary market for the sale of used equipment.
The Equipment. The Equipment subject to the Leases is purchased by
Copelco Capital under direct specifications and instructions from the Lessees.
As of the Cut-Off Date, a majority of the Statistical Discounted Present Value
of the Leases consisted of Leases of copier equipment. The remaining Leases
consist of Leases of facsimile machines, computers and other business
equipment.
Certain Information with Respect to the Leases and the Lessees. The
following tables summarize certain information with respect to the Leases and
the Lessees as of the Cut-Off Date.
DISTRIBUTION OF LEASES BY STATE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate
Number Percentage Number Percentage Discounted Discounted Original Percentage of
of of Number of of Number Present Value Present Value Equipment Original
State Leases of Leases Lessees(1) of Lessees of the Leases of the Leases Cost Equipment Cost
----- ------ --------- ---------- ---------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama 36 0.16% 35 0.17% $374,664.29 0.16% $374,926.19 0.15%
Alaska 6 0.03 6 0.03 127,080.53 0.05 133,549.60 0.05
Arizona 167 0.75 154 0.76 2,237,376.99 0.95 2,313,070.11 0.90
California 4,349 19.54 3,997 19.63 44,087,582.04 18.73 47,495,608.74 18.41
Colorado 513 2.30 485 2.38 4,244,384.80 1.80 4,702,613.28 1.82
Connecticut 459 2.06 408 2.00 4,879,155.04 2.07 5,378,868.63 2.08
Delaware 28 0.13 28 0.14 277,292.93 0.12 289,199.48 0.11
District of
Columbia 276 1.24 257 1.26 3,298,540.59 1.40 3,561,133.40 138
Florida 1,214 5.45 1,089 5.35 11,458,876.07 4.87 12,227,516.10 4.74
Georgia 498 2.24 460 2.26 6,543,966.99 2.78 7,084,445.05 2.75
Hawaii 10 0.04 10 0.05 130,219.00 0.06 129,773.10 0.05
Idaho 50 0.22 47 0.23 471,783.25 0.20 502,047.28 0.19
Illinois 1,066 4.79 975 4.79 12,104,332.62 5.14 13,320,266.07 5.16
Indiana 121 0.54 99 0.49 1,318,624.99 0.56 1,371,245.71 0.53
Iowa 16 0.07 15 0.07 285,984.21 0.12 292,372.28 0.11
Kansas 59 0.27 58 0.28 601,601.83 0.26 627,386.45 0.24
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate
Number Percentage Number Percentage Discounted Discounted Original Percentage of
of of Number of of Number Present Value Present Value Equipment Original
State Leases of Leases Lessees(1) of Lessees of the Leases of the Leases Cost Equipment Cost
----- ------ --------- ---------- ---------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kentucky 144 0.65% 135 0.66% $1,955,797.64 0.83% $2,139,588.82 0.83%
Maine 292 1.31 262 1.29 2,653,525.89 1.13 2,881,619.91 1.12
Maryland 360 1.62 326 1.60 4,456,820.79 1.89 4,804,593.50 1.86
Massachusetts 820 3.68 751 3.69 8,305,056.21 3.53 9,215,540.20 3.57
Michigan 96 0.43 93 0.46 1,262,816.25 0.54 1,398,777.54 0.54
Minnesota 76 0.34 75 0.37 1,018,475.82 0.43 1,068,970.30 0.41
Mississippi 28 0.13 28 0.14 324,434.85 0.14 340,143.90 0.13
Missouri 193 0.87 173 0.85 1,421,394.81 0.60 1,492,334.10 0.58
Montana 29 0.13 25 0.12 313,352.98 0.13 327,616.27 0.13
Nebraska 6 0.03 6 0.03 38,772.78 0.02 40,082.58 0.02
Nevada 217 0.98 189 0.93 1,944,399.04 0.83 2,093,706.46 0.81
New Hampshire 57 0.26 55 0.27 431,017.38 0.18 471,695.78 0.18
New Jersey 1,376 6.18 1,270 6.24 15,151,090.76 6.44 16,893,472.62 6.55
New Mexico 61 0.27 59 0.29 606,730.71 0.26 626,767.05 0.24
New York 3,685 16.56 3,282 16.12 42,079,290.81 17.88 48,548,873.15 18.82
North Carolina 308 1.38 285 1.40 3,988,286.30 1.69 4,270,038.35 1.65
North Dakota 3 0.01 3 0.01 15,452.36 0.01 16,467.42 0.01
Ohio 837 3.76 770 3.78 8,634,179.96 3.67 9,238,468.98 3.58
Oklahoma 138 0.62 132 0.65 1,355,616.53 0.58 1,398,672.78 0.54
Oregon 268 1.20 252 1.24 2,878,202.32 1.22 3,242,702.49 1.26
Pennsylvania 902 4.05 841 4.13 8,404,940.22 3.57 9,059,794.03 3.51
Rhode Island 148 0.66 144 0.71 1,178,437.15 0.50 1,244,413.12 0.48
South Carolina 128 0.58 111 0.55 1,148,414.66 0.49 1,250,251.69 0.48
South Dakota 12 0.05 12 0.06 145,254.12 0.06 140,573.81 0.05
Tennessee 238 1.07 211 1.04 2,178,231.15 0.93 2,288,505.60 0.89
Texas 1,557 7.00 1,430 7.02 14,895,682.99 6.33 16,250,294.66 6.30
Utah 120 0.54 116 0.57 1,109,365.44 0.47 1,204,369.18 0.47
Vermont 33 0.15 30 0.15 290,087.30 0.12 293,764.22 0.11
Virginia 539 2.42 510 2.50 6,015,888.50 2.56 6,658,252.92 2.58
Washington 623 2.80 587 2.88 7,250,601.65 3.08 7,809,666.24 3.03
West Virginia 40 0.18 38 0.19 697,082.14 0.30 733,604.98 0.28
Wisconsin 49 0.22 33 0.16 576,239.16 0.24 588,058.46 0.23
Wyoming 5 0.02 4 0.02 160,803.72 0.07 196,965.58 0.08
- ----------------------------------------------------------------------------------------------------------------------------------
Total.......... 22,256 100.0% 20,361 100.00% $235,327,208.56 100.00% $258,032,668.16 100.00%
==================================================================================================================================
</TABLE>
(1) Total number of Lessees is greater than the total number of Lessees
appearing in the Distribution of Lessees by Lease Balance Table because
several Lessees have Leases in more than one state.
21
<PAGE>
DISTRIBUTION OF LEASES BY LEASE BALANCE
<TABLE>
<CAPTION>
Percentage
of
Statistical Percentage
Statistical Discounted Aggregate of
Statistical Discounted Percentage Discounted Present Value Original Original
Present Value of the Number of Number Present Value of of Equipment Equipment
Leases of Leases of Leases Leases Leases Cost Cost
- ----------------------- --------- ---------- ---------------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
$0 - 5,000 8,903 40.00% $26,877,397.98 11.42% $31,252,003.61 12.11%
5,001 - 10,000 6,443 28.95 46,167,599.01 19.62 51,730,250.10 20.05
10,001 - 15,000 2,773 12.46 33,975,821.47 14.44 37,094,059.47 14.38
15,001 - 20,000 1,557 7.00 26,960,913.69 11.46 29,134,497.08 11.29
20,001 - 25,000 785 3.53 17,497,315.06 7.44 18,831,195.33 7.30
25,001 - 30,000 541 2.43 14,756,690.10 6.27 15,820,383.13 6.13
30,001 - 35,000 327 1.47 10,594,089.08 4.50 11,154,457.22 4.32
35,001 - 40,000 208 0.93 7,766,924.31 3.30 8,405,638.24 3.26
40,001 - 45,000 157 0.71 6,659,721.72 2.83 7,017,073.25 2.72
45,001 - 50,000 116 0.52 5,489,299.13 2.33 5,860,438.07 2.27
50,001 - 55,000 68 0.31 3,558,248.89 1.51 3,825,618.39 1.48
55,001 - 60,000 60 0.27 3,437,728.45 1.46 3,655,742.65 1.42
60,001 - 65,000 46 0.21 2,872,912.85 1.22 3,104,038.20 1.20
65,001 - 70,000 51 0.23 3,436,190.97 1.46 3,626,554.44 1.41
70,001 - 75,000 35 0.16 2,530,816.27 1.08 2,647,850.02 1.03
75,001 - 80,000 28 0.13 2,168,810.50 0.92 2,352,430.55 0.91
80,001 - 85,000 17 0.08 1,400,872.24 0.60 1,463,395.54 0.57
85,001 - 90,000 19 0.09 1,658,110.17 0.70 1,759,238.04 0.68
90,001 - 95,000 16 0.07 1,475,788.32 0.63 1,522,543.62 0.59
95,001 - 100,000 9 0.04 873,238.44 0.37 891,924.09 0.35
greater than $100,000 97 0.44 15,168,719.94 6.45 16,883,337.12 6.54
- -----------------------------------------------------------------------------------------------------------------------------------
Total................... 22,256 100% $235,327,208.56 100% $258,032,668.16 100%
===================================================================================================================================
</TABLE>
22
<PAGE>
DISTRIBUTION OF LESSEES BY LEASE BALANCE
<TABLE>
<CAPTION>
Percentage of
Aggregate Percentage
Statistical Statistical Aggregate of
Statistical Percentage Discounted Discounted Original Original
Discounted Present Number of Number Present Value Present Value Equipment Equipment
Value of the Leases of Lessees of Lessees of Leases of Leases Cost Cost
-------------------- ---------- ---------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$0 - 5,000 7,587 38.03% $23,178,887.84 9.85% $26,827,517.41 10.40%
5,001 - 10,000 5,627 28.20 40,355,498.41 17.15 45,188,763.01 17.51
10,001 - 15,000 2,544 12.75 31,118,019.69 13.22 33,964,786.37 13.16
15,001 - 20,000 1,456 7.30 25,193,109.44 10.71 27,273,564.10 10.57
20,001 - 25,000 747 3.74 16,646,058.10 7.07 17,918,626.83 6.94
25,001 - 30,000 549 2.75 15,014,036.81 6.38 16,198,904.13 6.28
30,001 - 35,000 353 1.77 11,483,288.61 4.88 12,249,424.81 4.75
35,001 - 40,000 239 1.20 8,902,076.51 3.78 9,544,609.29 3.70
40,001 - 45,000 168 0.84 7,127,827.97 3.03 7,643,870.17 2.96
45,001 - 50,000 136 0.68 6,433,264.42 2.73 6,960,306.89 2.70
50,001 - 55,000 82 0.41 4,287,607.97 1.82 4,689,148.23 1.82
55,001 - 60,000 77 0.39 4,406,360.09 1.87 4,751,342.15 1.84
60,001 - 65,000 55 0.28 3,438,024.49 1.46 3,727,845.61 1.44
65,001 - 70,000 47 0.24 3,165,570.66 1.35 3,309,944.97 1.28
70,001 - 75,000 46 0.23 3,321,136.41 1.41 3,614,966.26 1.40
75,001 - 80,000 31 0.16 2,409,358.28 1.02 2,688,040.06 1.04
80,001 - 85,000 20 0.10 1,649,797.24 0.70 1,789,809.25 0.69
85,001 - 90,000 27 0.14 2,372,271.16 1.01 2,579,836.89 1.00
90,001 - 95,000 19 0.10 1,763,024.52 0.75 1,788,655.40 0.69
95,001 - 100,000 12 0.06 1,168,773.39 0.50 1,217,032.13 0.47
100,001 - 125,000 52 0.26 5,803,944.02 2.47 6,430,077.06 2.49
125,001 - 150,000 24 0.12 3,298,010.97 1.40 3,639,035.82 1.41
150,001 - 200,000 32 0.16 5,479,174.39 2.33 5,983,355.60 2.32
200,001 - 300,000 10 0.05 2,467,540.91 1.05 2,842,700.64 1.10
greater than $300,000 11 0.06 4,844,546.26 2.06 5,210,505.08 2.02
- ----------------------------------------------------------------------------------------------------------------------------------
Total.................. 19,951 100.00% $235,327,208.56 100.00% $258,032,668.16 100.00%
==================================================================================================================================
</TABLE>
23
<PAGE>
DISTRIBUTION OF LEASES BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage Percentage
of Aggregate of
Number Percentage Statistical Discounted Statistical Original Original
Remaining of of Number Present Discounted Equipment Equipment
Term Leases of Leases Value of Leases Present Value Cost Cost
- ---- ------ --------- --------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 - 12 251 1.13% $ 707,395.84 0.30% $ 1,564,745.73 0.61%
13 - 24 669 3.01 3,972,225.61 1.69 5,113,096.96 1.98
25 - 36 12,200 54.82 91,674,897.96 38.96 106,763,532.34 41.38
37 - 48 3,919 17.61 47,547,134.38 20.20 51,309,077.15 19.88
49 - 60 5,056 22.72 87,624,579.40 37.24 89,670,314.99 34.75
61 - 72 155 0.70 3,497,052.94 1.49 3,344,046.90 1.30
73 - 84 6 0.03 303,922.42 0.13 267,854.09 0.10
- ----------------------------------------------------------------------------------------------------------------------------------
Total.......... 22,256 100.00% $235,327,208.56 100.00% $258,032,668.16 100.00%
==================================================================================================================================
</TABLE>
DISTRIBUTION OF LEASES BY CLASSIFICATION TYPE
<TABLE>
<CAPTION>
Statistical Percentage of
Percentage of Discounted Present Statistical Percentage of
Number Number Value of Discounted Aggregate Original Original
Lease Type of Leases of Leases Leases Present Value Equipment Cost Equipment Cost
---------- --------- --------- ------------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Finance Lease 22,217 99.82% $234,833,986.48 99.79% $257,423,860.73 99.76%
Operating Lease 39 0.18 493,222.08 0.21 608,807.43 0.24
- ---------------------------------------------------------------------------------------------------------------------------
Total................. 22,256 100.00% $235,327,208.56 100.00% $258,032,668.16 100.00%
===========================================================================================================================
</TABLE>
DISTRIBUTION OF FINANCE LEASES BY PURCHASE OPTION
<TABLE>
<CAPTION>
Percentage
Percentage Percentage of Percentage
of of Statistical Statistical Aggregate of
Number Number Number Number Discounted Discounted Original Original
of of of of Present Present Equipment Equipment
Lease Type Leases Leases Lessees(1) Lessees Value Value Cost Cost
---------- ------ ------ ---------- ------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair Market Value 17,695 79.65% 15,950 79.22% $179,206,581.20 76.31% $200,146,061.49 77.75%
Fixed Purchase Option 1,644 7.40 1,493 7.41 23,054,351.65 9.82 24,516,511.16 9.52
Nominal Buyout 2,878 12.95 2,692 13.37 32,573,053.63 13.87 32,761,288.08 12.73
- -----------------------------------------------------------------------------------------------------------------------------------
Total.................. 22,217 100.00% 20,135 100.00% $234,833,986.48 100.00% $257,423,860.73 100.00%
===================================================================================================================================
</TABLE>
(1) Total number of Lessees is greater than the total number of Lessees
appearing in the Distribution of Lessees by Lease Balance Table because
several Lessees have numerous Leases, only a portion of which are Nominal
Buyout Leases.
24
<PAGE>
DISTRIBUTION OF LEASES BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Percentage
Discounted Discounted Aggregate of
Number Percentage Present Present Original Original
of of Number Value of Value of Equipment Equipment
Equipment Type Leases of Leases Leases Leases Cost Cost
-------------- ------ --------- ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Copiers 19,295 86.70% $200,494,550.62 85.20% $221,895,113.28 85.99%
Telephones 16 0.07 293,686.87 0.12 294,693.05 0.11
Telex machines 2 0.01 5,607.11 0.00 5,743.20 0.00
Facsimiles 1,151 5.17 3,724,865.88 1.58 4,251,638.36 1.65
Computers 1,454 6.53 25,624,404.40 10.89 26,064,366.65 10.10
Office Furniture 12 0.05 164,013.56 0.07 166,607.99 0.06
Mailing Equipment 148 0.66 1,473,376.68 0.63 1,592,955.62 0.62
Miscellaneous Equip 178 0.80 3,546,703.43 1.51 3,761,550.01 1.46
- -----------------------------------------------------------------------------------------------------------------------------------
Total....................... 22,256 100.00% $235,327,208.56 100.00% $258,032,668.16 100.00%
===================================================================================================================================
</TABLE>
Historical Delinquency Information. Problem accounts are reviewed by
senior management when an account becomes 45 days past due. Lease
receivables in the Origination Divisions are evaluated for write-down when
they become over 92 days delinquent. General delinquency information for
equipment leases in the Origination Divisions that are owned or serviced
by Copelco Capital is set forth below. Total receivables and delinquency
balances as of December 31, 1995 and June 30, 1996 exclude a portfolio
of leases in an amount equal to approximately $30 million which was sold
on December 28, 1995.
HISTORICAL DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
No. of
Delinquent Days June 30, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
- --------------- ------------- ------------- ------------- ------------- ------------- -------------
$ % $ % $ % $ % $ % $ %
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total
Receivables 749,744,071 669,800,056 543,197,213 385,838,619 257,038,244 171,673,575
Balance
- ---------------------------------------------------------------------------------------------------------------------------------
30-59 Days 17,500,501 2.33 18,298,831 2.73 8,636,836 1.59 5,401,741 1.40 4,138,316 1.61 2,576,974 1.50
60-89 Days 4,448,911 0.59 3,492,842 0.52 2,281,428 0.42 1,234,684 0.32 925,338 0.36 867,842 0.51
90 Days + 4,547,373 0.61 4,867,483 0.73 3,096,224 0.57 2,315,032 0.60 1,645,045 0.64 1,625,572 0.95
- ---------------------------------------------------------------------------------------------------------------------------------
Total
Delinquency 26,496,785 3.53 26,659,156 3.98 14,014,488 2.58 8,951,457 2.32 6,708,699 2.61 5,070,388 2.95
</TABLE>
- -----------------
(1) The Total Receivables Balance is equal to the aggregate future rent owing
on the leases.
25
<PAGE>
Historical Default Experience. All accounts assessed over 92 days past due
automatically become non-accruing accounts. Any subsequent recoveries offset
net losses. General charge-off information for leases in the Origination
Divisions that are owned and serviced by Copelco Capital for the period January
1, 1991 to December 31, 1995 and for the six months ended June 30, 1996 is set
forth below. The period end balances with respect to the year ended December
31, 1995 and the six months ended June 30, 1996 utilized in the calculation of
Average Receivables Outstanding exclude a portfolio of leases in an amount
equal to approximately $30 million which was sold on December 28, 1995. Net
Losses for the year ended December 31, 1995 includes losses associated with
such portfolio.
HISTORICAL CHARGE-OFF EXPERIENCE
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, -----------------------------------------------------------------------
1996(2) 1995 1994 1993 1992 1991
------- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)................ $709,772,064 $606,498,635 $464,517,916 $321,438,432 $214,355,910 $155,408,751
Net Losses...................... $5,562,474 $9,969,495 $7,424,486 $5,307,182 $5,303,069 $4,474,038
Net Losses as a Percentage of
Average Receivables........... 1.57% 1.64% 1.60% 1.65% 2.47% 2.88%
</TABLE>
- -----------------
(1) Equals the arithmetic average of the beginning of the period Receivable
Balance and the end of the period Receivable Balance. The Receivables
Balance is equal to the aggregate future rent owing on the leases.
(2) Annualized.
There can be no assurance that the levels of delinquency and loss
reflected in the above tables are or will be indicative of the performance of
the Leases in the future.
26
<PAGE>
COPELCO CAPITAL'S UNDERWRITING AND SERVICING PRACTICES
General. Copelco Capital, Inc., a Delaware corporation, was
incorporated in October 1986. Copelco Capital is a wholly-owned subsidiary of
Copelco Financial Services Group, Inc. ("Copelco Financial"). Copelco Capital's
primary business consists of originating and servicing leases to healthcare
providers, commercial and industrial companies, business owners and
individuals. Copelco Capital's address is East Gate Center, 700 East Gate
Drive, Mount Laurel, New Jersey 08054-5400 and its phone number is (609)
231-9600.
In May 1993, Copelco Financial (which was incorporated in July 1982)
reorganized its two primary operating subsidiaries, Copelco Credit Corporation
("Copelco Credit") and Copelco Leasing Corporation ("Copelco Leasing"), into
six strategic business units (each, an "SBU"). Then, effective July 1, 1994,
Copelco Leasing was merged into Copelco Credit with Copelco Credit as the
surviving legal entity; Copelco Credit then changed its name to Copelco
Capital, Inc. merging all of the Copelco Leasing and Copelco Capital leasing
operations. Copelco Capital currently consists of seven operating divisions
(each, a "Division"): the Document Image Division; the Ambulatory Care
Division; the Healthcare Vendor Division; the Manufacturing Technology
Division; the Computer Division; the Major Accounts Division and the Canadian
Division.
As of December 31, 1995, Copelco Capital had total assets of
$1,399,101,000 compared with $1,102,770,000 as of December 31, 1994, total
liabilities of $1,295,269,000 compared with $1,016,059,000 as of December 31,
1994, shareholder's equity of $103,832,000 compared with $86,711,000 as of
December 31, 1994 and total revenues and net income of $155,034,000 and
$17,304,000, respectively, for the year ended December 31, 1995, compared with
$119,646,000 and $14,558,000, respectively, for the year ended December 31,
1994.
Since 1986, Copelco Capital and its predecessors have participated in
28 equipment lease securitization transactions involving the issuance of in
excess of $2 billion in securities. Copelco Capital and its predecessors
performed all servicing functions in each of these prior transactions, 15 of
which remain outstanding.
The Document Image Division. The Document Image Division of Copelco
Capital obtains substantially all of its leases through a marketing program
which is directed primarily at major manufacturers and various distributors of
copier equipment (each, a "Vendor"). The remainder is obtained through new
leases with existing lessees and referrals. The Document Image Division
establishes both formal and informal relationships with Vendors, some of which
provide Copelco Capital with a right of first refusal on all equipment leases
with the Vendor's customers. This arrangement provides the Document Image
Division with a steady flow of lease referrals from Vendors which frequently
use lease financing as a marketing tool. The Document Image Division provides
some Vendors with private label programs under which billing and collections
are performed by Copelco Capital in the name of the Vendor.
The Document Image Division also offers a private label cost per copy
program ("Cost per Copy"), introduced in late 1990, pursuant to which lessees
pay a fixed monthly payment (the "Fixed Payment") for which they are allowed a
certain minimum monthly copy usage. The monthly Fixed Payment represents
equipment financing (the "Equipment Financing Portion") and a monthly
maintenance charge (the "Maintenance Charge"). Copelco Capital funds the Vendor
on the basis of the Equipment Financing Portion of the Fixed Payment and remits
the Maintenance Charge to the Vendor as it is collected every month. Copelco
Capital calculates usage periodically using copier meter readings. To the
extent that the usage has exceeded the monthly copy allowance, Copelco Capital
bills the lessee incremental charges for the excess copy usage (the "Excess
Copy Charge"). This excess copy charge is remitted to the Vendor upon
collection by Copelco Capital. Only the Equipment Financing Portion of the
Fixed Payments is included in the Discounted Present Value of the Leases.
Vendors may choose to use a Copelco Capital lease form or they may use
their own lease agreement. Lease documents for the leasing programs are either
identical to Copelco Capital's standard lease documents or are reviewed by
Copelco Capital to ensure substantial compliance with its standard terms. In
either case, credit approvals are made by Copelco Capital. Terms of Copelco
Capital's lease documents are standard for
27
<PAGE>
virtually all leases, as is documentation for virtually all private label
programs. Typically, individual transactions range from $5,000 to $100,000 with
an average lease size of approximately $11,000.
The Computer Division. Copelco Capital established the Computer
Division as an outgrowth of the Document Image Division in early 1994 to focus
more directly on the personal computer segment of the industry. The operations
of the Computer Division have been developed to be virtually identical to those
of the Document Image Division. Copelco Capital initiates business through
distributors, direct sellers, mail order sellers and resellers. Vendor
relationships are established subject to established computer vendor approval
criteria. Until the recent establishment of the Computer Division, computers
were leased through Copelco Capital in what is now the Document Image Division.
Typically, individual transactions range from $5,000 to $500,000 with an
average lease size of approximately $20,000.
The Major Accounts Division. The Major Accounts Division initiates
business through a few major vendors. The operations of the Major Accounts
Division have been developed to be virtually identical to those of the Document
Image Division. Typically, individual transactions range from $5,000 to
$500,000 with an average lease size of approximately $15,000.
Credit Review. Prior to a lease approval by the Origination Divisions
of Copelco Capital, the Vendor's sales personnel are required to obtain from
the prospect historical financial data and/or bank and trade references. New
and repeat applicants must either complete a comprehensive credit application
or provide bank and trade references.
Credit data is submitted for credit review in Park Ridge, New Jersey
and Moberly, Missouri for the Document Image Division and Park Ridge, New
Jersey and Jacksonville, Florida for the Major Accounts Division and the
Computer Division. Credit review is performed and lease approvals are given at
these locations utilizing an interactive computer system designed to handle
applications which are telephoned or telecopied from Vendors.
Lessee evaluation includes an analysis of credit payment history,
business structure (partnership, sole proprietorship or corporation), banking
history and relationships, and economic conditions as they relate to the
prospective lessee. In the case of a credit request for equipment having a cost
greater than $25,000, the information collected includes the prospect's most
recent financial statements. If individual guarantors are involved, a consumer
credit bureau report is generally obtained for the guarantors.
The Origination Divisions have implemented an automated credit scoring
system. The system, designed by Dun & Bradstreet specifically for the Document
Image Division, was in development over a two year period and was formally
implemented on January 4, 1994. The system utilizes various filters which
enable the Origination Divisions to adapt "approve" and "decline" threshold
scores based upon criteria such as credit exposure, payment history, industry
(by SIC code), vendor and state. The model is consistent with the Origination
Divisions' traditional credit decision-making criteria (i.e., Dun & Bradstreet
data, consumer credit bureau information, and bank and trade references).
All credit requests not approved via automated credit scoring must be
underwritten by a credit officer. Each credit officer has a specific assigned
lending limit based upon experience and seniority. Transactions up to $50,000
may be approved individually by any SBU general manager. Transactions ranging
from $50,000 to $150,000 require the individual approval of a credit officer.
Transactions ranging from $150,000 to $250,000 require the approval of an
assistant credit manager. Transactions ranging from $250,000 to $500,000
require the approval of one of the group credit officers. Transactions ranging
from $500,000 to $800,000 require the approval of the president of Copelco
Capital. Transactions ranging from $800,000 to $1,500,000 require the approval
of the chief credit officer of Copelco Capital. Any single transaction or
transactions where the total original equipment cost of equipment leased by a
particular lessee exceeds $1,500,000 must be approved by the senior management
of Copelco Financial.
28
<PAGE>
All Lessees are required by the terms of the Leases to maintain the
equipment and install it at a place of business approved by Copelco Capital.
Delivery, transportation, repairs and maintenance are obligations of lessees,
and lessees are required to carry, at their own expense, liability and
replacement cost insurance under terms acceptable to Copelco Capital. Any lease
payment defaults permit Copelco Capital to declare immediately due and payable
all remaining lease payments. At the end of a lease term, Lessees must return
the leased equipment to Copelco Capital in good working order unless the lease
is renewed or the leased equipment is purchased by the lessee.
Residual Values. The Origination Divisions have realized residual
values which, on average, exceeded the booked residual values in respect of
such leases. For Leases in which there is a pre-determined buy-out price, the
buy-out price is the residual value recorded on Copelco Capital's books.
Typically, for accounting purposes, the booked residual values are recorded at
no more than 15% of the original equipment cost.
To recover residuals on the equipment which is returned, the
Origination Divisions utilize the services of its Vendors and also participates
in an active secondary market for the sale of used equipment.
Collections. A late charge is assessed to lessees 6 days after payment
due date. Telephone contact is normally initiated when an account is 15 days
past due, but may be initiated more quickly. All collection activity is entered
into the computerized collection system. Activity notes are input directly into
the collection system in order to facilitate routine collection activity.
Collectors have available at their computer terminals the latest status and
collection history on each account.
On the day on which a Lease becomes 10 days delinquent, the
Origination Divisions' credit and collection review system automatically
generates a computerized late notice which is sent directly to the lessee. When
an account becomes 30 days past due, a default letter is sent out to the lessee
and to anyone providing personal guarantees on the Leases. An acceleration
letter is sent to all lessees and guarantors when a Lease becomes 45 days past
due. Telephone contact will be continued throughout the delinquency period.
Accounts which become over 90 days past due are subject to repossession of
Equipment and action by collection agencies and attorneys. Prior to being
written down, each lease is evaluated on the merits of the individual
situation, with equipment value being considered as well as the current
financial strength of the lessee.
Sales and Servicing Agreement. Copelco Capital will enter into an
agreement (the "Sales and Servicing Agreement") with the Issuer, pursuant to
which Copelco Capital will, among other things, sell and service the Leases,
make Servicer Advances and forward Excess Copy Charges to Vendors. In the Sales
and Servicing Agreement, Copelco Capital will make certain representations and
warranties regarding the Leases and the Equipment. In the event that (a) any of
such representations and warranties made by Copelco Capital proves at any time
to have been inaccurate in any material respect as of the Issuance Date or (b)
any Lease shall be terminated in whole or in part by a Lessee, or any amounts
due with respect to any Lease shall be reduced or impaired, as a result of any
action or inaction by Copelco Capital (other than any such action or inaction
of Copelco Capital, when acting as Servicer, in connection with the enforcement
of any Lease (other than an Early Lease Termination) in a manner consistent
with the provisions of the Sales and Servicing Agreement) or any claim by any
Lessee against Copelco Capital and, in any such case, the event or condition
causing such inaccuracy, termination, reduction, impairment or claim shall not
have been cured or corrected within 30 days after the earlier of the date on
which Copelco Capital is given notice thereof by the Issuer or the Trustee or
the date on which Copelco Capital otherwise first has notice thereof, Copelco
Capital will repurchase such Lease (a "Warranty Lease") and the Equipment
subject thereto by paying to the Trustee for deposit into the Collection
Account, not later than the Determination Date next following the expiration of
such 30-day period, an amount equal to the Discounted Present Value of such
Lease plus any amounts previously due and unpaid thereon. In addition, subject
to the satisfaction of certain requirements set forth in the Sales and
Servicing Agreement, Copelco Capital will have the option to substitute one or
more Substitute Leases for such Warranty Lease. Any inaccuracy in any
representation or warranty with respect to (i) the priority of the lien of the
Indenture with respect to any Lease or (ii) the amount (if less than
represented) of the Lease Payments, Casualty Payments or Termination Payments
under any Lease shall be deemed to be material.
29
<PAGE>
Servicing Fee. The Servicing Fee will be paid monthly on the Payment
Date from amounts in the Collection Account and will be calculated by
multiplying one-twelfth of 0.75% times the then Outstanding Principal Amount of
the Notes at such Payment Date before application of payments with respect
thereto.
The Servicing Fee will be paid to the Servicer for servicing the
Series Pool and for certain administrative expenses in connection with the
Notes, including Trustee Fees.
THE ISSUER
The Issuer is a wholly-owned bankruptcy-remote subsidiary of Copelco
Capital, formed solely for the purpose of acquiring from Copelco Capital Leases
and Equipment from time to time and issuing notes from time to time as provided
herein. As a bankruptcy-remote entity, the Issuer's operations will be
restricted so that (a) it does not engage in business with, or incur
liabilities to, any other entity (other than the Trustee on behalf of the
Noteholders and the trustee on behalf of the noteholders under indentures
similar to the Indenture) which may bring bankruptcy proceedings against the
Issuer and (b) the risk that it will be consolidated into the bankruptcy
proceedings of any other entity is diminished. The Issuer will have no other
assets available to pay amounts owing under the Indenture except the Trust
Fund, including the Leases and the interests in the Equipment, the proceeds
thereof, and the amounts on deposit in the Collection Account, the Reserve
Account and the Residual Account. The Issuer's address is East Gate Center, 700
East Gate Drive, Mount Laurel, New Jersey 08054-5400 and its phone number is
(609) 231-9600.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture (the "Indenture")
between the Issuer and Manufacturers and Traders Trust Company, as trustee (the
"Trustee"). The following statements with respect to the Notes are subject to
the detailed provisions of the Indenture, the form of which is filed as an
exhibit to the registration statement of which this Prospectus forms a part.
Whenever any particular section of the Indenture or any term used therein is
referred to, the statement in connection with which such reference is made is
qualified in its entirety by such reference.
General. The Offered Notes represent secured debt obligations of the
Issuer secured by the Trust Fund and the privately placed Class C Notes
represent subordinated debt obligations of the Issuer only secured by the
related Trust Fund as provided in the related Indenture; and neither represents
an interest in or recourse obligation of Copelco Capital or any of its other
affiliates other than the Issuer. The Issuer is a special purpose corporation
with limited assets. Consequently, Noteholders must rely solely upon the
Leases, the interests in the Equipment, funds on deposit in the Collection
Account, the Reserve Account and the Residual Account for payment of principal
of and interest on the Notes.
The Initial Principal Amount of the Notes shall be equal to the
Discounted Present Value of the Leases as of the Cut-Off Date. Such Discounted
Present Value of the Leases, at any given time, shall equal the future
remaining scheduled payments from the related Leases (including Non-Performing
Leases), discounted at the Discount Rate, as set forth in the Indenture.
Each Class A Note, Class B Note and Class C Note will bear interest
from the Issuance Date at the Class A Interest Rate, Class B Interest Rate and
the Class C Interest Rate, respectively, calculated on the basis of a year of
360 days comprised of twelve 30-day months, payable on the twentieth day of
each month (or if such day is not a business day the next succeeding business
day), to the person in whose name the Note was registered at the close of
business on the preceding Record Date. Principal will be payable as set forth
under "Distributions on Notes." Notes may be presented to the corporate trust
office of the Trustee for registration of transfer or exchange. (Section 2.03).
Notes may be exchanged without a service charge, but the Issuer may require
payment to cover taxes or other governmental charges. (Section 2.03).
30
<PAGE>
Book-Entry Registration. Class A Noteholders and Class B Noteholders
may hold their Notes through DTC (in the United States) or Cedel or Euroclear
(in Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Class A Note or Notes
and the global Class B Note or Notes. Cedel and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
Depositaries (as defined herein) which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Citibank will act as depositary for Cedel and Morgan Guaranty Trust will act as
depositary for Euroclear (in such capacities, the "Depositaries").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of notes. Participants include the
Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected through DTC in
accordance with DTC rules on behalf of the relevant European international
clearing systems by its Depositary. Cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
or a Euroclear Participant to a Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Offered Notes, see "Certain Federal Income Tax Considerations."
Offered Noteholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Offered Notes may do so only through Participants and Indirect
Participants. In addition, Offered Noteholders will receive all distributions
of principal and interest on the Offered Notes from the Trustee through DTC and
its Participants. Under a book-entry format, Offered Noteholders will receive
payments after the related Distribution Date, as the case may be, because,
while payments are required to be forwarded to Cede, as nominee for DTC, on
each such date, DTC will forward such payments to its Participants which
thereafter will be required to forward them to Indirect Participants or holders
of beneficial interests in the Offered Notes. It is anticipated that the only
"Class A Noteholder" and "Class B Noteholder" will
31
<PAGE>
be Cede, as nominee of DTC, and that holders of beneficial interests in the
Class A Noteholders or Class B Noteholders, respectively, under the Indenture
will only be permitted to exercise the rights of Class A Noteholders or Class B
Noteholders, respectively, under the Indenture indirectly through DTC and its
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Offered Notes and is
required to receive and transmit distributions of principal of and interest on
the Offered Notes. Participants and Indirect Participants with which holders of
beneficial interests in the Offered Notes have accounts similarly are required
to make book-entry transfers and receive and transmit such payments on behalf
of these respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Offered Notes to pledge Offered Notes to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such Offered Notes, may be limited due to the lack of a
Definitive Note for such Offered Notes.
DTC has advised the Issuer that it will take any action permitted to
be taken by a Class A Noteholder or Class B Noteholder under the Indenture only
at the direction of one or more Participants to whose account with DTC the
Class A Notes or Class B Notes are credited. Additionally, DTC has advised the
Issuer that it may take actions with respect to the Class A Interest or the
Class B Interest that conflict with other of its actions with respect thereto.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes
in accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to Cedel is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York Banking Department, as well as the Belgian Banking
Commission.
32
<PAGE>
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions with respect to Offered Notes held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Certain Federal Income Tax Considerations." Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by an Offered Noteholder under the Indenture on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depositary's ability to effect such actions
on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered Notes among participants
of DTC, Cedel and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Definitive Notes. The Offered Notes will be issued in fully
registered, authenticated form to Beneficial Owners or their nominees (the
"Definitive Notes"), rather than to DTC or its nominee, only if (a) the Issuer
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to such
Notes, and the Trustee or the Issuer is unable to locate a qualified successor
or (b) the Issuer at its option elects to terminate the book-entry system
through DTC. (Section 2.06).
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee is required to notify all Beneficial Owners
through DTC of the availability of Definitive Notes for such Class. Upon
surrender by DTC of the Definitive Note representing the Notes and instructions
for reregistration, the Trustee will issue such Definitive Notes, and
thereafter the Trustee will recognize the holders of such Definitive Notes as
Noteholders under the related Indenture (the "Holders"). (Section 2.07). The
Trustee will also notify the Holders of any adjustment to the Record Date with
respect to the Notes necessary to enable the Trustee to make distributions to
Holders of the Definitive Notes for such Class of record as of each Payment
Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Offered Notes will be made by
the Trustee directly to Holders in accordance with the procedures set forth
herein and in the Indenture. Distributions will be made by check, mailed to the
address of such Holder as it appears on the Note register. Upon at least 10
days' notice to Noteholders for such Class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentation and surrender of such Note at the office or agency specified in
the notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and exchangeable
at the offices of the Trustee or its agent in New York, New York, which the
Trustee shall designate on or prior to the issuance of any Definitive Notes
with respect to such Class. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith. (Section 2.03(e)).
Collection Account. The Trustee will establish and maintain an
Eligible Account (the "Collection Account") into which the Servicer will
deposit all Lease Payments, Casualty Payments, Termination Payments, Residual
Realizations, and recoveries from Non-Performing Leases to the extent Copelco
Capital has not substituted a Substitute Lease for such Non-Performing Lease
(except to the extent required to reimburse unreimbursed Servicer Advances)
(each as defined herein) on or in respect of each Lease included in the Series
Pool within two Business Days of
33
<PAGE>
receipt thereof. All Lease Payments, Casualty Payments, Termination Payments
and other payments relating to a Lease received and so deposited in the
Collection Account shall constitute property of the Issuer, securing payments
on the related Notes. (Section 3.02(a)).
An "Eligible Account" means either (a) an account maintained with a
depository institution or trust company acceptable to S&P, Moody's and DCR, or
(b) a trust account or similar account maintained with a federal or state
chartered depository institution, which may be an account maintained with the
Trustee.
A "Casualty Payment" is any payment pursuant to a Lease on account of
the loss, theft, condemnation, governmental taking, destruction, or damage
beyond repair of any item of Equipment subject thereto which results, in
accordance with the terms of the Lease, in a reduction in the number or amount
of any future Lease Payments due thereunder or in the termination of the
Lessee's obligation to make future Lease Payments thereunder.
A "Lease Payment" is each periodic installment of rent payable by a
Lessee under a Lease. Casualty Payments, Termination Payments, prepayments of
rent required pursuant to the terms of a Lease at or before the commencement of
the Lease, payments becoming due before the applicable Cut-Off Date and
supplemental or additional payments required by the terms of a Lease with
respect to taxes, insurance, maintenance (including, without limitation any
Maintenance Charges), or other specific charges, (including, without
limitation, any Excess Copy Charges), shall not be Lease Payments hereunder.
A "Termination Payment" is a payment payable by a Lessee under a Lease
upon the early termination of such lease (but not on account of a casualty or a
Lease default) which may be agreed upon by the Servicer, acting in the name of
the Issuer, and the Lessee.
The Trustee shall deposit the following funds into the Collection
Account (Section 3.03(a)), which funds were received on or prior to the related
Determination Date with respect to the related Due Period, including any funds
deposited into the Collection Account from the Reserve Account and the Residual
Account, shall be available for distribution ("Available Funds"), pursuant to
the Indenture, on the next succeeding Payment Date:
a) Lease Payments (net of any Excess Copy Charges) due during the
prior Due Period;
b) Residual Realizations up to the Residual Amount Cap;
c) recoveries from Non-Performing Leases to the extent Copelco
Capital has not substituted Substitute Leases for such
Non-Performing Leases (except to the extent required to
reimburse unreimbursed Servicer Advances);
d) late charges received on delinquent Lease payments not advanced
by the Servicer;
e) proceeds from repurchases by Copelco Capital of Leases as a
result of breaches of representations and warranties;
f) proceeds from investment of funds in the Collection Account, the
Reserve Account and the Residual Account;
g) Casualty Payments;
h) Termination Payments; and
i) Servicer Advances.
Reserve Account. The Trustee will establish and maintain an Eligible
Account (the "Reserve Account"). On the Closing Date, the Issuer will make an
initial deposit in an amount equal to 1.25% of the Discounted Present Value of
the Leases as of the Cut-Off Date into the
34
<PAGE>
Reserve Account. In the event that Available Funds (exclusive of amounts on
deposit in the Reserve Account and the Residual Account) are insufficient to pay
the amounts owing the Servicer, Interest Payments on the Notes and the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal
Payment (such payments, the "Required Payments" and such Shortfall, an
"Available Funds Shortfall"), the Trustee will withdraw from the Reserve Account
an amount equal to the lesser of the funds on deposit in the Reserve Account
(the "Available Reserve Amount") and such deficiency. In addition, on each
Payment Date, Available Funds remaining after the payment of amounts owing the
Servicer and the Required Payments will be deposited into the Reserve Account to
the extent that the Required Reserve Amount exceeds the Available Reserve
Amount. The "Required Reserve Amount" equals the greater of (a) 1.25% of the
Discounted Present Value of the Performing Leases as of the related Payment Date
and (b) 1.00% of the Discounted Present Value of the Leases as of the Cut-Off
Date, but not more than the Outstanding Principal Amount of the Notes (the
"Required Reserve Amount"). Any amounts on deposit in the Reserve Account in
excess of the Required Reserve Amount will be released to the Issuer. (Section
3.04(c)).
Residual Account. The Trustee will establish and maintain an Eligible
Account (the "Residual Account"). Under certain limited circumstances more
fully described in the Indenture (a "Residual Event"), after the Issuance Date,
Residual Realizations included in Available Funds and not previously disbursed
to the Servicer or the Noteholders, or deposited in the Reserve Account will be
deposited in the Residual Account up to the Residual Amount Cap. Following the
termination of a Residual Event, amounts on deposit in the Residual Account
will be disbursed to the Issuer and will no longer be available to Noteholders.
To the limited extent provided in the Indenture, funds on deposit in the
Residual Account will be available to cover shortfalls in the amount available
to pay amounts owing the Servicer and to make interest and principal payments on
the Notes to the extent that funds on deposit in the Reserve Account are
insufficient to cover an Available Funds Shortfall. (Section 3.04(c)).
Distributions on Notes. Payments on the Notes will commence on
September 20, 1996. On or before the fifth day prior to each Payment Date (or
the preceding business day, if such day is not a business day) (each, a
"Determination Date"), the Servicer will determine the Available Funds and the
Required Payments.
For each Payment Date, the interest due with respect to the Class A
Notes, the Class B Notes and the Class C Notes will be the interest that has
accrued on such Notes since the last Payment Date, or, in the case of the first
Payment Date, since the Issuance Date, at the Interest Rates applied to the
Outstanding Principal Amount of such Class A Notes, Class B Notes and Class C
Notes, respectively, after giving effect to payments of principal to
Noteholders on the preceding Payment Date, plus all previously accrued and
unpaid interest on the Class A Notes, the Class B Notes and the Class C Notes
(the "Interest Payments"). (Section 2.01(c)). Funds in the Collection Account,
together with reinvestment earnings thereon, will be used by the Trustee to
make required payments of principal and interest on the related Notes. (Section
3.03(b)).
For each Payment Date, Principal Payments due with respect to the
Class A Notes, the Class B Notes and the Class C Notes will be the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal
Payment, respectively. In addition, to the extent that the Class B Floor
exceeds the Class B Target Investor Principal Amount and/or the Class C Floor
exceeds the Class C Target Investor Principal Amount, Additional Principal
shall be distributed, sequentially, as an additional principal payment on the
Class A Notes, the Class B Notes and the Class C Notes until the Outstanding
Principal Amount of each has been reduced to zero (Section 3.03 (b)).
"Additional Principal" with respect to each Payment Date is an
amount equal to (a) the difference between (i) the Discounted Present Value of
the Performing Leases as of the previous Determination Date and (ii) the
Discounted Present Value of the Performing Leases as of the related
Determination Date, less (b) the Class A Principal Payment, the Class B
Principal Payment and the Class C Principal Payment to be paid on such Payment
Date (Section 1.01).
The "Class A Percentage" equals 91.25% (Section 1.01).
35
<PAGE>
The "Class A Principal Payment" payable on each Payment Date will be
an amount equal to the lesser of (a) the amount necessary to reduce the
Outstanding Class A Principal Amount to the Class A Target Investor Principal
Amount and (b) funds available therefor (Section 1.01).
The "Class A Target Investor Principal Amount" with respect to each
Payment Date will be an amount equal to the product of (a) the Class A
Percentage and (b) the Discounted Present Value of the Performing Leases as of
the related Determination Date.
The "Class B Floor" with respect to each Payment Date means (a) 2.50%
of the initial Discounted Present Value of the Leases as of the Cut-Off Date,
plus (b) the Cumulative Loss Amount with respect to such Payment Date, minus (c)
the sum, as of the related Determination Date, of the Outstanding Principal
Amount of the Class C Notes and the amount on deposit in the Reserve Account
after giving effect to any withdrawals to be made on such Payment Date (Section
1.01).
The "Class B Percentage" equals 6.00% (Section 1.01).
The "Class B Principal Payment" payable on each Payment Date will be
an amount equal to the amount necessary to reduce the Outstanding Class B
Principal Amount to the greater of Class B Target Investor Principal Amount and
the Class B Floor and (b) funds available therefor (Section 1.01).
The "Class B Target Investor Principal Amount" with respect to each
Payment Date will be an amount equal to the product of (a) the Class B
Percentage and (b) the Discounted Present Value of the Performing Leases as of
the related Determination Date (Section 1.01).
The "Class C Floor" with respect to each Payment Date means (a) 1.00%
of the initial Discounted Present Value of the Leases as of the Cut-Off Date,
plus (b) the Cumulative Loss Amount with respect to such Payment Date, minus
(c) the amount on deposit in the Reserve Account after giving effect to
withdrawals to be made on such Payment Date; provided, however, that if the
Outstanding Class B Principal Amount is equal to the Class B Floor on such
Payment Date, the Class C Floor will equal the Outstanding Class C Principal
Amount utilized in the calculation of the Class B Floor Amount for such
Payment Date (Section 1.01).
The "Class C Percentage" equals 2.75% (Section 1.01).
The "Class C Principal Payment Amount" payable on each Payment Date
will be an amount equal to the lesser of (a) the amount necessary to reduce the
Outstanding Class C Principal Amount to the greater of the Class C Target
Investor Principal Amount and the Class C Floor and (b) funds available
therefor (Section 1.01).
The "Class C Target Investor Principal Amount" with respect to each
Payment Date will be an amount equal to the product of (a) the Class C
Percentage and (b) the Discounted Present Value of the Performing Leases as of
the related Determination Date (Section 1.01).
The "Cumulative Loss Amount" with respect to each Payment Date is an
amount equal to the excess, if any, of (a) the total of (i) the Outstanding
Principal Amount of the Notes as of the immediately preceding Payment Date after
giving effect to all payments made on such Payment Date, minus (ii) the lesser
of (A) the Discounted Present Value of the Performing Leases as of the
Determination Date relating to the immediately preceding Payment Date minus the
Discounted Present Value of the Performing Leases as of the related
Determination Date and (B) Available Funds remaining after the payment of
amounts owing the Servicer and in respect of the interest on the Notes on
such Payment Date over (b) the Discounted Present Value of Performing Leases as
of the related Determination Date (Section 1.01).
The "Discounted Present Value of the Leases", with respect to the
Trust Fund at any given time, shall equal the future remaining scheduled
payments (not including delinquent amounts) from the related Leases (including
Non-Performing Leases (as defined herein)), discounted at the Discount Rate.
The Discount Rate will be equal to the sum of (a) the weighted average Interest
Rate of the Class A Notes, the Class B Notes and the Class C Notes on the
Issuance Date and (b) the Servicing Fee Rate (Section 1.01).
The "Discounted Present Value of the Performing Leases", with respect
to the Trust Fund at any given time equals the Discounted Present Value of the
Leases, including any Substitute Leases, reduced by all future
36
<PAGE>
remaining scheduled payments on the related Non-Performing Leases (not
including delinquent amounts), discounted at the Discount Rate. See
"Description of the Notes--General" (Section 1.01).
"Non-Performing Leases" are (a) Leases that are more than 123 days
delinquent or (b) Leases that have been accelerated by the Servicer. See "The
Series Pool--The Leases" (Section 1.01).
The "Residual Amount Cap" is $16,481,442 which represents 7% of the
Discounted Present Value of the Leases as of the Cut-off Date (Section 1.01).
A "Residual Event" has the meaning specified in the Indenture
(Section 1.01).
Unless an Event of Default and acceleration of the Notes has occurred,
on or before each Payment Date, the Servicer will instruct the Trustee to apply
or cause to be applied the Available Funds to make the following payments in
the following priority (Section 3.03(b)):
(a) to pay the Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances in respect of a prior
Payment Date;
(c) to make Interest Payments on the Class A Notes;
(d) to make Interest Payments on the Class B Notes;
(e) to make Interest Payments on the Class C Notes;
(f) to pay the Class A Principal Payment to the Class A Noteholders;
(g) to pay the Class B Principal Payment to the Class B Noteholders;
(h) to pay the Class C Principal Payment to the Class C Noteholders;
(i) to pay the Additional Principal, if any, as an additional
reduction of principal, first to the Class A Noteholders until
the Outstanding Class A Principal Amount has been reduced to
zero, thereafter to the Class B Noteholders as an additional
reduction of principal until the Outstanding Class B Principal
Amount has been reduced to zero and, thereafter to the Class C
Noteholders until the Outstanding Class C Principal Amount has
been reduced to zero;
(j) to make a deposit to the Reserve Account in an amount equal to
the excess of the Required Reserve Amount over the Available
Reserve Amount;
(k) during such time as a Residual Event has occurred and is
continuing, to make a deposit to the Residual Account in an
amount equal to the balance of the remaining Residual
Realizations on deposit in the Collection Account and included in
Available Funds after giving effect to the allocations in clauses
(a) through (j) above on such Payment Date; and
(l) to the Issuer, the balance, if any.
Amounts will be considered due and payable to the Noteholders only to
the extent funds are available therefor as described above.
37
<PAGE>
Advances by the Servicer. Prior to any Payment Date, the Servicer may,
but will not be required to, advance (each, a "Servicer Advance") to the
Trustee an amount sufficient to cover delinquencies on all Leases with respect
to the prior Due Period. The Servicer will be reimbursed for Servicer Advances
from Available Funds on the second following Payment Date. See "Distribution on
Notes" above.
Redemption. The Issuer may, at its option, redeem the Notes, as a
whole, at their principal amount, without premium, together with interest
accrued to the date fixed for redemption if on any payment date the Discounted
Present Value of the Performing Leases is less than or equal to 10% of the
Discounted Present Value of the Leases as of the Cut-Off Date. (Sections 2.01
and 1.06.)
Events of Default and Notice Thereof. The following events will be
defined in the Indenture as "Events of Default":
(a) default in making Principal Payments or Interest Payments when
such become due and payable;
(b) default in the performance, or breach, by the Issuer of certain
negative covenants limiting its actions;
(c) default in the performance, or breach, of any other covenant of
the Issuer in the Indenture or the Sales and Servicing Agreement, and
continuance of such default or breach for a period of 30 days after the
earliest of (i) any officer of the Issuer first acquiring the knowledge
thereof, (ii) the Trustee's giving written notice thereof to the Issuer or
(iii) the holders of a majority of the then Outstanding Principal Amount
of the Notes giving written notice thereof to the Issuer and the Trustee;
(d) if any representation or warranty of the Issuer or Copelco Capital
made in the Indenture or the Sales and Servicing Agreement or any other
writing provided to the holders of the Notes proves to be incorrect in any
material respect as of the time when the same has been made; provided,
however, that the breach of any representation or warranty made by Copelco
Capital in the Sales and Servicing Agreement will be deemed to be
"material" only if it negatively affects the Noteholders, the
enforceability of the Indenture or of the Notes and provided, further,
that a material breach of any representation or warranty made by Copelco
Capital in the Sales and Servicing Agreement with respect to any of the
Leases or the Equipment subject thereto will not constitute an Event of
Default if Copelco Capital repurchases or substitutes for such Lease and
Equipment in accordance with the Sales and Servicing Agreement; or
(e) insolvency or bankruptcy events relating to the Issuer. (Section
6.01)
The Indenture will provide that the Trustee shall give the Noteholders
notice of all uncured defaults known to it (the term "default" to include the
events specified above without grace periods). (Sections 6.03 and 7.02).
If an Event of Default under an Indenture of the kind specified in
clause (e) above occurs, the unpaid principal amount of the related Notes shall
automatically become due and payable together with all accrued and unpaid
interest thereon. If any other Event of Default occurs and is continuing, then
the Trustee will, if so directed by the holders of 66 2/3% (33 1/3% in the case
of a payment default) of the then Outstanding Principal Amount of the Class A
Notes (or if the Class A Notes are no longer outstanding, the Class B Notes or
if the Class B Notes are no longer outstanding the Class C Notes), or the
holders of such percentages of the then Outstanding Principal Amount of such
Notes may declare the unpaid principal amount of all the Notes to be due and
payable immediately, together with all accrued and unpaid interest thereon.
(Section 6.02). The Trustee may, however, if the Event of Default involves
other than non-payment of principal or interest on the Notes, not sell the
related Leases and Equipment unless such sale is for an amount greater than or
equal to the Outstanding Principal Amount of the Notes unless directed to do so
by the holders of 66 2/3% (33 1/3% in the case of a payment default) of the
then Outstanding Principal Amount of the Class A Notes (or if the Class A Notes
are no longer outstanding, the Class B Notes or if the Class B Notes are no
longer outstanding the Class C Notes). (Section 6.03).
38
<PAGE>
Subsequent to an Event of Default and following any acceleration of
the Notes pursuant to the Indenture, any moneys that may then be held or
thereafter received by the Trustee shall be applied in the following order of
priority, at the date or dates fixed by the Trustee and, in case of the
distribution of the entire amount due on account of principal or interest, upon
presentation of the Notes and surrender thereof:
First to the payment of all costs and expenses of collection incurred
by the Trustee and the Noteholders (including the reasonable fees and
expenses of any counsel to the Trustee and the Noteholders);
Second if the person then acting as Servicer under the Sales and
Servicing Agreement is not Copelco Capital or an Affiliate of Copelco
Capital, to the payment of all Servicer's Fees then due to such person;
Third first to the payment of all accrued and unpaid interest on the
Outstanding Principal Amount of the Class A Notes to the date of payment
thereof, including (to the extent permitted by applicable law) interest on
any overdue installment of interest and principal from the maturity of
such installment to the date of payment thereof at the rate per annum
equal to the Class A Interest Rate, and to the payment of the Outstanding
Principal Amount of the Class A Notes to the date of payment thereof, and
then to the payment of all accrued and unpaid interest on the Outstanding
Principal Amount of the Class B Notes to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue installment of interest and principal from the maturity of such
installment to the date of payment thereof at the rate per annum equal to
the Class B Interest Rate, and to the payment of the Outstanding Principal
Amount of the Class B Notes and then to the payment of all accrued and
unpaid interest on the Outstanding Principal Amount of the Class C Notes
to the date of payment thereof, including (to the extent permitted by
applicable law) interest on any overdue installment of interest and
principal from the maturity of such installment to the date of payment
thereof at the rate per annum equal to the Class C Interest Rate, and to
the payment of the Outstanding Principal Amount of the Class C Notes;
provided, that the Noteholders may allocate such payments for interest,
principal and premium at their own discretion, except that no such
allocation shall affect the allocation of such amounts or future payments
received by any other Noteholder;
Fourth to the payment of amounts then due the Trustee under the
Indenture; and
Fifth to the payment of the remainder, if any, to the Issuer or any
other Person legally entitled thereto. (Section 6.06).
The Issuer will be required to furnish annually to the Trustee, a
statement of certain officers of the Issuer to the effect that to the best of
their knowledge the Issuer is not in default in the performance and observance
of the terms of the Indenture or, if the Issuer is in default, specifying such
default. (Section 8.09).
The Indenture will provide that the holders of 66 2/3% in aggregate
principal amount of all Notes then outstanding under such Indenture will have
the right to waive certain defaults and, subject to certain limitations, to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. (Sections 6.12 and 6.13). The Indenture will provide that in case an
Event of Default shall occur (which shall not have been cured or waived), the
Trustee will be required to exercise such of its rights and powers under such
Indenture and to use the degree of care and skill in their exercise that a
prudent man would exercise or use in the conduct of his own affairs. (Section
7.01(b)). Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under such Indenture at the request of
any of the Noteholders unless they shall have offered to the Trustee reasonable
security or indemnity. (Section 6.12).
Modification of the Indenture. With certain exceptions, under the
Indenture, the rights and obligations of the Issuer and the rights of the
Noteholders may be modified by the Issuer with the consent of the
39
<PAGE>
holders of not less than 66 2/3% in aggregate principal amount of the Notes
then outstanding under the Indenture; but no such modification may be made
which would (a) extend the fixed maturity of any Note, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of principal
or interest thereon, without the consent of the holder of each Note so affected
or (b) reduce the above-stated percentage of Notes, without the consent of the
holders of all Notes then outstanding under such Indenture. (Section 9.02).
Servicer Events of Default. The following events and conditions shall
be defined in the Sales and Servicing Agreement as "Servicer Events of
Default":
(a) failure on the part of the Servicer to remit to the Trustee within
three Business Days following the receipt thereof any monies received by
the Servicer required to be remitted to the Trustee under the Sales and
Servicing Agreement;
(b) so long as Copelco Capital is the Servicer, failure on the part of
Copelco Capital to pay to the Trustee on the date when due, any payment
required to be made by Copelco Capital pursuant to the Sales and Servicing
Agreement;
(c) default on the part of either the Servicer or (so long as Copelco
Capital is the Servicer) Copelco Capital in its observance or performance
in any material respect of certain covenants or agreements in the Sales
and Servicing Agreement;
(d) if any representation or warranty of Copelco Capital made in the
Sales and Servicing Agreement shall prove to be incorrect in any material
respect as of the time made; provided, however, that the breach of any
representation or warranty made by Copelco Capital in such Sales and
Servicing Agreement will be deemed to be "material" only if it affects the
Noteholders, the enforceability of the Indenture or of the Notes and
provided, further, that such material breach of any representation or
warranty made by Copelco Capital in such Sales and Servicing Agreement
with respect to any of the Leases or the Equipment subject thereto will
not constitute a Servicer Event of Default if Copelco Capital repurchases
such Lease and Equipment in accordance with the Sales and Servicing
Agreement to the extent provided therein;
(e) certain insolvency or bankruptcy events relating to the Servicer;
(f) the failure of the Servicer to make one or more payments due with
respect to aggregate recourse debt or other obligations exceeding
$1,000,000, or the occurrence of any event or the existence of any
condition, the effect of which event or condition is to cause (or permit
one or more persons to cause) more than $1,000,000 of aggregate recourse
debt or other obligations of the Servicer to become due before its (or
their) stated maturity or before its (or their) regularly scheduled dates
of payment so long as such failure, event or condition shall be continuing
and shall not have been waived by the Person or Persons entitled to
performance;
(g) a final judgment or judgments (or decrees or orders) for the
payment of money aggregating in excess of $1,000,000 and any one of such
judgments (or decrees or orders) has remained unsatisfied and in effect
for any period of 60 consecutive days without a stay of execution.
Servicer Termination. So long as a Servicer Event of Default under the
Sales and Servicing Agreement is continuing, the Trustee shall, upon the
instructions of the holders of 66 2/3% in principal amount of the Notes, by
notice in writing to the Servicer terminate all of the rights and obligations
of the Servicer (but not Copelco Capital's obligations which shall survive any
such termination) under Sales and Servicing Agreement (Section 5.01). On the
receipt by the Servicer of such written notice, all authority and power of the
Servicer under the Sales and Servicing Agreement to take any action with
respect to any Lease or Equipment will cease and the same will pass to and be
vested in the Trustee pursuant to and under the Sales and Servicing Agreement
and the Indenture.
40
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on such Notes and the yield to maturity of such Notes are
directly related to the rate of payments on the underlying Leases. The payments
on such Leases may be in the form of scheduled payments, Prepayments or
liquidations due to default, casualty and other events, which cannot be
specified at present. Any such payments may result in distributions to
Noteholders of amounts which would otherwise have been distributed over the
remaining term of the Leases. In general, the rate of such payments may be
influenced by a number of other factors, including general economic conditions.
The rate of Principal Payments with respect to any Class may also be affected
by any repurchase of the underlying Leases by Copelco Capital pursuant to the
Sales and Servicing Agreement. In such event, the repurchase price will
decrease the Discounted Present Value of the Performing Leases, causing the
corresponding weighted average life of the Notes to decrease. See "Risk
Factors--Prepayments."
In the event a Lease becomes a Non-Performing Lease, a Warranty Lease
or an Adjusted Lease, Copelco Capital will have the option to substitute for
the terminated lease another of similar characteristics (a "Substitute Lease")
in an aggregate amount not to exceed 7% of the Discounted Present Value of the
Leases as of the Cut-Off Date with respect to Non-Performing Leases and
Warranty Leases and in an aggregate amount not to exceed 8% of the Discounted
Present Value of the Leases as of the Cut-Off Date with respect to Adjusted
Leases. In addition, in the event of an Early Lease Termination which has been
prepaid in full, Copelco Capital will have the option to transfer an additional
lease of similar characteristics (an "Additional Lease"). The Substitute Leases
and Additional Leases will have a Discounted Present Value of the Leases equal
to or greater than that of the Leases being modified and replaced and the
monthly payments on the Substitute Leases or Additional Leases will be at least
equal to those of the terminated Leases through the term of such terminated
Leases. In the event that an Early Lease Termination is allowed by Copelco
Capital and a Substitute Lease is not provided, the amount prepaid will be
equal to at least the Discounted Present Value of the terminated Lease, plus
any delinquent payments. In addition, following the transfer of any Lease to
the Series Pool, there may be adjustments to such Lease which modify one or
more terms of such Lease, such as payment amount or payment date. Such
administrative adjustments may result in a re-booking of such Lease, but will
not be considered to be a substitution or prepayment of such Lease. The
Modified Leases and the Replacement Leases will have a Discounted Present Value
of the Leases equal to or greater than that of the Leases subject to such
modification or adjustment and the monthly payments on the Substitute Leases or
Additional Leases will be at least equal to those of the terminated Leases
through the term of such terminated Leases. See "Risk Factors--Additional
Leases."
The effective yield to holders of the Notes will depend upon, among
other things, the amount of and rate at which principal is paid to such
Noteholders. The after-tax yield to Noteholders may be affected by lags between
the time interest income accrues to Noteholders and the time the related
interest income is received by the Noteholders.
The following chart sets forth the percentage of the Initial Principal
Amount of the Class A and Class B Notes which would be outstanding on the
Payment Dates set forth below assuming a CPR of 0% and 12%, respectively and
were calculated using the Statistical Discount Rate. Such information is
hypothetical and is set forth for illustrative purposes only. The CPR
("Conditional Payment Rate") assumes that a fraction of the outstanding Series
Pool is prepaid on each Distribution Date, which implies that each Lease in the
Series Pool is equally likely to prepay. This fraction, expressed as a
percentage, is annualized to arrive at the Conditional Payment Rate for the
Contract Pool. The CPR measures prepayments based on the outstanding Discounted
Present Value of the Leases, after the payment of all Scheduled Payments on the
Leases during such Due Period. The CPR further assumes that all Leases are the
same size and amortize at the same rate and that each Lease will be either paid
as scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of scheduled monthly Lease payments as of the Cut-Off Date,
assumes that the Issuer does not exercise its option to redeem the Notes and
assumes the Issuance Date is August 28, 1996.
41
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A PRINCIPAL AMOUNT
AND THE INITIAL CLASS B PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
========================================================================================================================
0% CPR 12% CPR
----------------------------------------------------------------------------
Date Class A Class B Class A Class B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance Date 100% 100% 100% 100%
9/20/96 98 98 97 97
10/20/96 95 95 93 93
11/20/96 93 93 90 90
12/20/96 91 91 87 87
1/20/97 88 88 84 84
2/20/97 86 86 81 81
3/20/97 84 84 78 78
4/20/97 81 81 75 75
5/20/97 79 79 72 72
6/20/97 77 77 69 69
7/20/97 74 74 66 66
8/20/97 72 72 63 63
9/20/97 69 69 60 60
10/20/97 67 67 58 58
11/20/97 64 64 55 55
12/20/97 62 62 52 52
1/20/98 60 60 50 50
2/20/98 57 57 47 47
3/20/98 55 55 45 45
4/20/98 52 52 42 42
5/20/98 50 50 40 40
6/20/98 47 47 37 37
7/20/98 45 45 35 35
8/20/98 42 42 33 33
9/20/98 39 39 30 30
10/20/98 37 37 28 28
11/20/98 35 35 26 26
12/20/98 32 32 24 24
1/20/99 30 30 22 22
2/20/99 28 28 20 20
3/20/99 26 26 19 19
4/20/99 24 24 17 17
5/20/99 23 23 16 17
6/20/99 21 21 14 17
7/20/99 20 20 13 17
8/20/99 18 18 12 17
9/20/99 17 17 11 17
10/20/99 16 17 10 17
11/20/99 14 17 9 17
12/20/99 13 17 8 17
1/20/00 12 17 7 17
2/20/00 11 17 6 17
3/20/00 10 17 6 17
4/20/00 9 17 5 17
5/20/00 8 17 4 17
6/20/00 7 17 3 17
7/20/00 6 17 3 17
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
0% CPR 12% CPR
----------------------------------------------------------------------------
Date Class A Class B Class A Class B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8/20/00 5 17 2 17
9/20/00 4 17 2 17
10/20/00 3 17 1 17
11/20/00 2 17 1 17
12/20/00 2 17 * 17
1/20/01 1 17 0 14
2/20/01 * 17 0 9
3/20/01 0 14 0 4
4/20/01 0 9 0 1
5/20/01 0 3 0 0
6/20/01 0 0 0 0
7/20/01 0 0 0 0
WEIGHTED AVERAGE LIFE(1)(YEARS) 1.86 2.02 1.58 1.78
</TABLE>
* equals less than 0.5%.
(1) The weighted average life of a Class A Note or a Class B Note is
determined by (a) multiplying the amount of cash distributions in
reduction of the Outstanding Class A Principal Amount or the Outstanding
Class B Principal Amount, as the case may be, by the number of years from
the Issuance Date to such Payment Date, (b) adding the results, and
(c) dividing the sum by the Initial Class A Principal Amount or the
Initial Class B Principal Amount, as the case may be.
If the Issuer exercises its option to redeem the Notes, the average
life of the Class A Notes would be 1.83 years and 1.54 years, and the average
life of the Class B Notes would be 1.86 years and 1.57 years for the 0% CPR and
12% CPR scenarios, respectively.
SECURITY FOR THE NOTES
General. Repayment of the Notes will be secured by (a) a first
priority security interest in the underlying Leases perfected both by filing
UCC financing statements against the Issuer and Copelco Capital and by taking
possession of the respective Lease documents, (b) an unperfected security
interest in the related Equipment owned by the Issuer and an assignment of the
Issuer's security interest in such Equipment subject to Nominal Buy-Out Leases,
which security interest was originally perfected by Copelco Capital (for
Equipment with an original cost in excess of $25,000 which assignment will be
recorded in the manner described below) and (c) all funds in the Collection
Account, the Reserve Account and Residual Account.
Copelco Capital has filed UCC financing statements in its favor
against Lessees in respect of all Equipment in the Series Pool (for Equipment
with an original cost in excess of $25,000) and will record assignments of such
UCC filings in favor of the Issuer or the Trustee, in the Filing Locations. See
"Certain Legal Matters Affecting a Lessee's Rights and Obligations."
Residual Realizations. Upon receipt of the final Lease Payment on a
performing Lease, the Equipment subject to that Lease shall be sold or re-let
by the Servicer, with any proceeds from such sale or lease constituting
Residual Values for deposit into the Collection Account for the benefit of the
Noteholders up to the Residual Amount Cap. Actual Residual Realizations may be
more or less than the Booked Residual Value of the related Equipment.
43
<PAGE>
THE TRUSTEE
Manufacturers & Traders will be the Trustee under the Indenture.
Copelco Capital, as Seller or Servicer, and its affiliates may from time to
time enter into normal banking and trustee relationships with the Trustee and
its affiliates. The Trustee, the Servicer and any of their respective
affiliates may hold Notes in their own names. In addition, for purposes of
meeting the legal requirements of certain local jurisdictions, the Trustee
shall have the power to appoint a co-trustee or a separate trustee under each
Indenture. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Indenture will be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee, who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event Copelco Capital
will be obligated to appoint a successor Trustee. Copelco Capital may also
remove each Trustee if such Trustee ceases to be eligible to continue as such
under the Indenture, fails to perform in any material respect its obligations
under such Indenture, or becomes insolvent. In such circumstances, Copelco
Capital will be obligated to appoint a successor Trustee. Any resignation or
removal of a Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
CERTAIN LEGAL MATTERS AFFECTING A LESSEE'S
RIGHTS AND OBLIGATIONS
General. The Leases are triple-net leases, requiring the Lessees to
pay all taxes, maintenance and insurance associated with the Equipment, and are
primarily non-cancelable by the Lessees.
The Leases are "hell or high water" leases, under which the
obligations of the Lessee are absolute and unconditional, regardless of any
defense, setoff or abatement which the Lessee may have against Copelco Capital,
as Seller or Servicer, the Issuer, or any other person or entity whatsoever.
Events of default under the Leases are generally the result of failure
to pay amounts when due, failure to observe other covenants in the Lease,
misrepresentations by, or the insolvency, bankruptcy or appointment of a
trustee or receiver for the Lessee under a Lease. The remedies of the Lessor
(and the Issuer as assignee) following a notice and cure period are generally
to seek to enforce the performance by the Lessee of the terms and covenants of
the Lease (including the Lessee's obligation to make scheduled payments) or
recover damages for the breach thereof, to accelerate the balance of the
remaining scheduled payments paid to terminate the rights of the Lessee under
such Lease. Although the Leases permit the Lessor to repossess and dispose of
the related Equipment in the event of a lease default, and to credit such
proceeds against the Lessee's liabilities thereunder, such remedies may be
limited where the Lessee thereunder is subject to bankruptcy, or other
insolvency proceedings.
UCC and Bankruptcy Considerations. Pursuant to the Sales and Servicing
Agreement, Copelco Capital will sell the Leases to the Issuer, make a capital
contribution to the Issuer of Equipment owned by Copelco Capital and subject to
the Leases, and assign its security interests in the Equipment subject to
Nominal Buy-Out Leases. Copelco Capital will warrant that the sale of the
Leases to the Issuer is a true sale, that the contributions of its rights in
the Equipment is a valid transfer of Copelco Capital's title to the Equipment
and that Copelco Capital is either the owner of the Equipment or has a valid
perfected first priority security interest in the Equipment (for Leases with
leased Equipment having an original equipment cost in excess of $25,000),
including Equipment, subject to Nominal Buy-Out Leases, and accordingly,
Copelco Capital has filed UCC financing statements in its favor against Lessees
in respect of all Equipment in the Series Pool with an original Equipment cost
in excess of $25,000. No action will be taken to perfect the interest of
Copelco Capital in any Equipment in the Series Pool with an original Equipment
cost of less than $25,000. In addition, UCC financing statements identifying
security interests in the Equipment as transferred to, or obtained by, the
Issuer or the Trustee and UCC Financing Statements identifying equipment owned
by Copelco Capital, transferred to the Issuer and pledged to the Trustee will
be filed in favor of the Issuer or the Trustee in the Filing Locations. In the
event of the repossession and resale of Equipment subject
44
<PAGE>
to a superior lien, the senior lienholder would be entitled to be paid the full
amount of the indebtedness owed to it out of the sale proceeds before such
proceeds could be applied to the payment of claims by the Servicer on behalf of
the Issuer. Certain statutory provisions, including federal and state
bankruptcy and insolvency laws, may limit the ability of the Servicer to
repossess and resell collateral or obtain a deficiency judgment in the event of
a Lessee default. In the event of the bankruptcy or reorganization of a Lessee,
or Copelco Capital, as Seller or Servicer, various provisions of the Bankruptcy
Code of 1978, 11 U.S.C. Sections 101-1330 (the "Bankruptcy Code"), and related
laws may interfere with, delay or eliminate the ability of Copelco Capital or
the Issuer to enforce its rights under the Leases.
In the case of operating leases, the Bankruptcy Code grants to the
bankruptcy trustee or the debtor-in-possession a right to elect to assume or
reject any executory contract or unexpired lease. Any rejection of such a lease
or contract constitutes a breach of such lease or contract, entitling the
nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into
the Collection Account and allocated to the Noteholders as more fully described
herein. Upon the bankruptcy of a Lessee, if the bankruptcy trustee or
debtor-in-possession elected to reject a Lease, the flow of scheduled payments
to Noteholders would cease. In the event that, as a result of the bankruptcy of
a Lessee, the Servicer is prevented from collecting scheduled payments with
respect to Leases and such Leases become Non-Performing Leases, no recourse
would be available against Copelco Capital (except for misrepresentation or
breach of warranty) and the Noteholders could suffer a loss with respect to the
Notes. Similarly, upon the bankruptcy of the Issuer, if the bankruptcy trustee
or debtor-in-possession elected to reject a Lease, the flow of Lease payments
to the Issuer and the Noteholders would cease. As noted above, however, the
Issuer has been structured so that the filing of a bankruptcy petition with
respect to it is unlikely. See "The Issuer."
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment, may limit the amount
realized on the sale of Equipment to less than the amount due on the related
Lease.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain federal income tax
consequences to the original purchasers of the Notes of the purchase, ownership
and disposition of the Notes. It does not purport to discuss all federal income
tax consequences that may be applicable to investment in the Notes or to
particular categories of investors, some of which may be subject to special
rules. In particular, this discussion applies only to institutional investors
that purchase Notes directly from the Issuer and hold the Notes as capital
assets.
The discussion that follows, and the opinion set forth below of Dewey
Ballantine, special tax counsel to the Issuer ("Tax Counsel"), are based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and
treasury regulations promulgated thereunder as in effect on the date hereof and
on existing judicial and administrative interpretations thereof. These
authorities are subject to change and to differing interpretations, which could
apply retroactively. The opinion of Tax Counsel is not binding on the courts or
the Internal Revenue Service (the "IRS"). Potential investors should consult
their own tax advisors in determining the federal, state, local, foreign and
any other tax consequences to them of the purchase, ownership and disposition
of the Notes.
Characterization of the Notes as Indebtedness. In the opinion of Tax
Counsel, although no transaction closely comparable to that contemplated herein
has been the subject of any treasury regulation, revenue ruling or judicial
decision, based on the application of existing law to the facts as set forth in
the applicable agreements, the Notes will be treated as indebtedness for
federal income tax purposes.
Although it is the opinion of Tax Counsel that the Notes will be
characterized as indebtedness for federal income tax purposes, no assurance can
be given that such characterization of the Notes will prevail. If the Notes
were treated as an ownership interest in the Leases, all income on such Leases
would be income to the holders of the Notes, and related fees and expenses
would generally be deductible (subject to certain limitations on the
45
<PAGE>
deductibility of miscellaneous itemized deductions by individuals) and certain
market discount and premium provisions of the Code might apply to a purchase of
the Notes.
If, alternatively, the Notes were treated as an equity interest in the
Issuer, distributions on the Notes probably would not be deductible in
computing the taxable income of the Issuer and all or a part of distributions
to the holders of the Notes probably would be treated as dividend income to
those holders. Such an Issuer-level tax could result in a reduced amount of
cash available for distributions to the holders of the Notes.
Taxation of Interest Income of Noteholders. If characterized as
indebtedness, interest on the Notes will be taxable as ordinary income for
federal income tax purposes when received by Noteholders using the cash method
of accounting and when accrued by Noteholders using the accrual method of
accounting. Interest received on the Notes also may constitute "investment
income" for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense.
Original Issue Discount. It is not anticipated that the Notes will
have any original issue discount ("OID") other than possibly OID within a de
minimis exception and that accordingly the provisions of sections 1271 through
1273 and 1275 of the Code generally will not apply to the Notes. OID will be
considered de minimis if it is less than 0.25% of the principal amount of Note
multiplied by its expected weighted average life.
Market Discount. A subsequent purchaser who buys a Note for less than
its principal amount may be subject to the "market discount" rules of Sections
1276 through 1278 of the Code. If a subsequent purchaser of a Note disposes of
such Note (including certain nontaxable dispositions such as a gift), or
receives a principal payment, any gain upon such sale or other disposition will
be recognized, or the amount of such principal payment will be treated, as
ordinary income to the extent of any "market discount" accrued for the period
that such purchaser holds the Note. Such holder may instead elect to include
market discount in income as it accrues with respect to all debt instruments
acquired in the year of acquisition of the Notes and thereafter. Market
discount generally will equal the excess, if any, of the then-current unpaid
principal balance of the Note over the purchaser's basis in the Note
immediately after such purchaser acquired the Note. In general, market discount
on a Note will be treated as accruing over the term of such Note in the ratio
of interest for the current period over the sum of such current interest and
the expected amount of all remaining interest payments, or at the election of
the holder, under a constant yield method. At the request of a holder of a
Note, information will be made available that will allow the holder to compute
the accrual of market discount under the first method described in the
preceding sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire a Note at a market discount may be required
to defer the deduction of all or a portion of the interest on such indebtedness
until the corresponding amount of market discount is included in income.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is 0.25% of
the remaining principal balance of the Note multiplied by its expected weighted
average remaining life. If OID or market discount is de minimis, the actual
amount of discount must be allocated to the remaining principal distributions
on the Note and, when each such distribution is received, capital gain equal to
the discount allocated to such distribution will be recognized.
Market Premium. A subsequent purchaser who buys a Note for more than
its principal amount generally will be considered to have purchased the Note at
a premium. Such holder may amortize such premium, using a constant yield
method, over the remaining term of the Note and, except as future regulations
may otherwise provide, may apply such amortized amounts to reduce the amount of
interest income reportable with respect to such Note over the period from the
purchase date to the date of maturity of the Note. Legislative history 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 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
46
<PAGE>
amortize premium should be entitled to a deduction for any remaining
unamortized premium in the taxable year of redemption.
Sale or Exchange of Notes. If a Note is sold or exchanged, the seller
of the Note will recognize gain or loss equal to the difference between the
amount realized on the sale or exchange and the adjusted basis of the Note. The
adjusted basis of a Note will generally equal its cost, increased by any OID or
market discount includible in income with respect to the Note through the date
of sale and reduced by any principal payments previously received with respect
to the Note, any payments allocable to previously accrued OID or market
discount and any amortized market premium. Subject to the market discount
rules, gain or loss will generally be capital gain or loss if the Note was held
as a capital asset. Capital losses generally may be used only to offset capital
gains.
Backup Withholding with Respect to Notes. Payments of interest and
principal, together with payments of proceeds from the sale of Notes, may be
subject to the "backup withholding tax" under Section 3406 of the Code at a
rate of 31% if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a payment to a recipient would be allowed as a credit against such recipient's
federal income tax. Furthermore, certain penalties may be imposed by the IRS on
a recipient of payments that is required to supply information but that does
not do so in the proper manner.
Foreign Investors in Notes Certain U.S. Federal Income Tax
Documentation Requirements. A beneficial owner of Notes holding securities
through CEDEL of Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons (as defined below), unless (i) each
clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (ii) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Notes
that are Non-U.S. Persons (as defined below) can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Note or,
in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting
the appropriate form to the person through whom it holds (the clearing agency,
in the case of persons holding directly on the books of the clearing agency).
Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
47
<PAGE>
On April 22, 1996 the IRS issued proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations
are proposed to be effective for payments made after December 31, 1997 but
provide that certificates issued on or before the date that is 60 days after
the proposed regulations are made final will continue to be valid until they
expire. Proposed regulations, however, are subject to change prior to their
adoption in final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Notes. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Notes.
State, Local and Other Taxes. Investors should consult their own tax
advisors regarding whether the purchase of the Notes, either alone or in
conjunction with an investor's other activities, may subject an investor to any
state or local taxes based on an assertion that the investor is either "doing
business" in, or deriving income from a source located in, any state or local
jurisdiction. Additionally, potential investors should consider the state,
local and other tax consequences of purchasing, owning or disposing of a Note.
State and local tax laws may differ substantially from the corresponding
federal tax law, and the foregoing discussion does not purport to describe any
aspect of the tax laws of any state or other jurisdiction. Accordingly,
potential investors should consult their own tax advisors with regard to such
matters.
THE FEDERAL AND STATE INCOME TAX DISCUSSIONS SET FORTH ABOVE ARE
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON
A NOTEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS OR IN THE INTERPRETATIONS
THEREOF.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements and restrictions on those pension and
other employee benefits plans to which it applies and on those persons who are
fiduciaries with respect to such plans. In accordance with ERISA's fiduciary
standards, before purchasing the Notes, a fiduciary should determine whether
such an investment is permitted under the documents and instruments governing
the plan and is appropriate for the plan in view of its overall investment
policy and the composition of its portfolio.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of certain plans subject thereto (each
"Benefit Plan") and persons who are "parties in interest", within the meaning
of ERISA, or "disqualified persons", within the meaning of the Code. Certain
transactions involving the purchase, holding or transfer of the Notes might be
deemed to constitute prohibited transactions under ERISA and the Code if assets
of the Issuer were deemed to be assets of a Benefit Plan. Under regulations
issued by the United States Department of Labor set forth in 29 C.F.R. Section
2510.3101 (the "Plan Asset Regulations"), the assets of the Issuer would be
treated as plan assets of a Benefit Plan for the purposes of ERISA and the Code
only if the Benefit Plan acquires an "Equity Interest" in the Issuer and none
of the exceptions contained in the Plan Asset Regulations is applicable. An
Equity Interest is defined under the Plan Asset Regulations as an interest
other than an instrument which is treated as indebtedness under applicable
local law and which has no substantial equity features. It is anticipated that
the Notes should be treated as indebtedness without substantial equity features
for purposes of the Plan Asset Regulations. However, even if the Notes are
treated as indebtedness for such purposes, the acquisition
48
<PAGE>
or holding of Notes by or on behalf of a Benefit Plan could be considered to
give rise to a prohibited transaction if the Issuer, the Trustee, the
Underwriter or any of their respective affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In this
event, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38 regarding investments by bank
collective investment funds; PTCE 84-14, regarding transactions effected by
"qualified professional asset managers"; PTCE 95-60, regarding investments by
insurance company general accounts and PTCE 96-23 regarding transactions
effected by In-House Asset Managers. Each investor using assets of a Benefit
Plan which acquires the Notes, or to whom the Notes are transferred, will be
deemed to have represented that the acquisition and continued holding of the
Notes will be covered by one of the exemptions listed above or another
Department of Labor class exemption.
Insurance companies considering the purchase of the Notes should also
consult their own counsel as to the application of the recent decision by the
United States Supreme Court in John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank (114 S. Ct. 517 (1993)) to such a purchase. Under that
decision, assets held in an insurance company's general account may be deemed
assets of ERISA plans under certain circumstances.
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is particularly important that
a fiduciary investing assets of an ERISA plan consult with counsel regarding
the consequences under ERISA of the acquisition and holding of Notes, including
the availability of any administrative exemptions from the prohibited
transaction rules.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
underwriting agreement (the "Underwriting Agreement") for the sale of the
Offered Notes, the Issuer has agreed to sell and Lehman Brothers (the
"Underwriter") has agreed to purchase the entire principal amount of the
Offered Notes.
In the Underwriting Agreement, the Underwriter has agreed to purchase
the Offered Notes, subject to the terms and conditions set forth therein.
The Issuer has been advised that the Underwriter proposes to initially
offer the Offered Notes directly to the public at the price set forth on the
cover page hereof. After the initial public offering, the public offering price
may be changed.
The Underwriter will represent and agree that:
(a) it has not offered or sold, and, prior to the expiry of six months
from the Closing Date, will not offer or sell, any Offered Notes to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(as principal or agent) for purposes of their business, or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers
of Securities Regulations 1995;
(b) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the Offered Notes in, from or otherwise involving the United
Kingdom; and
(c) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the
issue of the Offered Notes to a person who is of a kind
49
<PAGE>
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or persons to whom
such document may otherwise lawfully be issued, distributed or passed on.
The Issuer has agreed to indemnity the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Issuer has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Notes, as permitted by
applicable laws and regulations. The Underwriter is not obligated, however, to
make a market in the Offered Notes and any such market making may be
discontinued at any time at the sole discretion of the Underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Offered Notes.
The Underwriter and Ironwood Capital Partners Ltd. are serving as the
placement agents for the Class C Notes.
RATING OF THE NOTES
It is a condition to the issuance of the Offered Notes that the Class
A Notes be rated at least "AAA," "AAA" and "Aaa" and that the Class B Notes be
rated at least "A," "A" and "A2" by S&P, DCR and Moody's respectively.
Such rating will reflect only the views of the Rating Agency and will
be based primarily on the amount of subordination, the availability of funds on
deposit in the Reserve Account and the value of the Leases and Equipment. The
ratings are not a recommendation to purchase, hold or sell the related Offered
Notes, inasmuch as such ratings do not comment as to market price or
suitability for a particular investor. There is no assurance that any such
rating will continue for any period of time or that it will not be lowered or
withdrawn entirely by the Rating Agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse affect on
the market price of the Offered Notes. The rating of the Offered Notes
addresses the likelihood of the timely payment of interest and the ultimate
payment of principal on the Offered Notes by the Stated Maturity date. The
rating does not address the rate of Prepayments that may be experienced on the
Leases and, therefore, does not address the effect of the rate of Lease
Prepayments on the return of principal to the Offered Noteholders.
50
<PAGE>
INDEX OF TERMS
Term(s) Page(s)
- ------ -------
Additional Lease ...................................................... 10, 41
Additional Principal................................................... 8, 35
Adjusted Lease ........................................................ 10
Adjusted Leases ....................................................... 17
Available Funds ....................................................... 12, 34
Available Funds Shortfall ............................................. 34
Available Reserve Amount .............................................. 15, 35
Bankruptcy Code ....................................................... 45
Benefit Plan .......................................................... 48
Booked Residual Value ................................................. 14
Casualty Payment ...................................................... 34
Cede .................................................................. 3
CEDEL ................................................................. 3
Cedel Participants .................................................... 32
Class A Initial Principal Amount ...................................... 6
Class A Interest Rate ................................................. 6
Class A Noteholder .................................................... 31
Class A Noteholders.................................................... 1
Class A Notes ......................................................... 1, 5
Class A Percentage..................................................... 6, 35
Class A Principal Payment ............................................. 8, 36
Class A Target Principal Amount ....................................... 9, 36
Class B Floor ......................................................... 9, 36
Class B Initial Principal Amount....................................... 6
Class B Interest Rate.................................................. 6
Class B Noteholder..................................................... 31
Class B Noteholders.................................................... 1
Class B Notes ......................................................... 1, 5
Class B Percentage..................................................... 6, 36
Class B Principal Payment.............................................. 8, 36
Class B Target Principal Amount........................................ 9, 36
Class C Floor ......................................................... 9, 36
Class C Initial Principal Amount....................................... 6
Class C Interest Rate.................................................. 6
Class C Notes ......................................................... 1
Class C Percentage..................................................... 6, 36
Class C Principal Payment.............................................. 8
Class C Principal Payment Amount....................................... 36
Class C Target Principal Amount........................................ 9, 36
Code .................................................................. 45
Collection Account..................................................... 33
Commission ............................................................ 2
Conditional Payment Rate............................................... 41
Cooperative ........................................................... 32
Copelco Capital .......................................................1, 5, 7
Copelco Credit ........................................................ 27
Copelco Financial ..................................................... 27
Copelco Leasing ....................................................... 27
Cost per Copy ......................................................... 27
51
<PAGE>
Term(s) Page(s)
- ------- -------
Cumulative Loss Amount............................................... 9,35
Cut-Off Date ........................................................ 5
DCR ................................................................. 16
Default ............................................................. 38
Definitive Notes .................................................... 33
Depositaries ........................................................ 31
Determination Date .................................................. 7, 35
Discount Rate ....................................................... 6
Discounted Present Value of the Leases............................... 6, 36
Discounted Present Value of the Performing Leases.................... 6, 36
Division ............................................................ 27
DTC ................................................................. 3
Due Period .......................................................... 7
Early Lease Termination.............................................. 10
Eligible Account .................................................... 34
Equipment ........................................................... 7
Equipment Financing Portion.......................................... 27
Equity Interest ..................................................... 48
ERISA ............................................................... 15, 48
Euroclear ........................................................... 3
Euroclear Operator................................................... 32
Euroclear Participants............................................... 32
Events of Default ................................................... 38
Excess Copy Charge................................................... 27
Exchange Act ........................................................ 2
Filing Locations ................................................... 18
Fixed Payment ....................................................... 27
Holders ............................................................. 33
Indenture .......................................................... 12, 30
Indirect Participants................................................ 31
Initial Principal Amount............................................. 5
Interest Payments ................................................... 8, 35
investment income ................................................... 46
IRS ................................................................. 45
Issuance Date ....................................................... 8
Issuer .............................................................. 1, 5
Lease Contracts ..................................................... 7
Lease Payment ....................................................... 34
Lease Receivables ................................................... 7
Leases .............................................................. 7
Lessee .............................................................. 10
Lessees ............................................................. 10
Maintenance Charge................................................... 27
Moody's ............................................................. 16
Nominal Buy-Out ..................................................... 20
Nominal Buy-Out Leases .............................................. 17
Non-Performing Lease ................................................ 20
Non-Performing Leases ...............................................7, 20, 37
Non-U.S. Person ..................................................... 48
Notes ............................................................... 1, 5
Offered Noteholders.................................................. 3
52
<PAGE>
Term(s) Page(s)
- ------- -------
Offered Notes ....................................................... 1, 5
OID ................................................................ 46
Outstanding Class A Principal Amount ............................... 8
Outstanding Class B Principal Amount ............................... 8
Outstanding Class C Principal Amount ............................... 8
Outstanding Principal Amounts ...................................... 8
Participants ....................................................... 31
Payment Date ....................................................... 2, 8
Plan Asset Regulations ............................................. 48
Prepayment ......................................................... 17
Principal Payments.................................................. 8
PTCE ............................................................... 49
Record Date ........................................................ 8
Registration Statement.............................................. 2
Required Payments .................................................. 35
Required Reserve Amount............................................. 15, 35
Reserve Account .................................................... 15, 34
Residual Account ................................................... 35
Residual Amount Cap................................................. 14, 37
Residual Event .....................................................14, 35, 37
Residual Realizations............................................... 14
S&P ................................................................ 15
Sales and Servicing Agreement....................................... 1, 7, 29
SBU ................................................................ 27
Securities Act ..................................................... 2
Seller ............................................................. 7
Series Cut-Off Date................................................. 19
Series Pool ........................................................ 7
Series Pool Divisions............................................... 19
Servicer ........................................................... 7
Servicer Advance ................................................... 12, 37
Servicer Events of Default.......................................... 40
Servicing Fee ...................................................... 12
Statistical Discount Rate........................................... 6
Statistical Discounted Present Value of the Leases.................. 6
Substitute Lease ................................................... 10, 41
Tax Counsel ........................................................ 45
Termination Payment................................................. 34
Terms and Conditions................................................ 33
Trustee ............................................................ 7, 30
U.S. Person ........................................................ 48
UCC ................................................................ 17, 43
Underwriter ........................................................ 49
Underwriting Agreement.............................................. 49
Vendor ............................................................. 27
Warranty Lease ..................................................... 10, 29
Warranty Leases .................................................... 17
53
<PAGE>
==============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon. Neither
the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the
affairs of the Seller or the Issuer or any affiliate thereof or the Leases
since the date hereof. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation 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 to
anyone to whom it is unlawful to make such offer or solicitation.
----------------------
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................... 2
REPORTS TO NOTEHOLDERS..................................................... 3
OFFERED NOTES SUMMARY...................................................... 4
PROSPECTUS SUMMARY......................................................... 5
RISK FACTORS............................................................... 17
USE OF PROCEEDS............................................................ 19
THE SERIES POOL............................................................ 19
COPELCO CAPITAL'S UNDERWRITING AND
SERVICING PRACTICES..................................................... 27
THE ISSUER................................................................. 30
DESCRIPTION OF THE NOTES................................................... 30
PREPAYMENT AND YIELD CONSIDERATIONS........................................ 41
SECURITY FOR THE NOTES..................................................... 43
THE TRUSTEE................................................................ 44
CERTAIN LEGAL MATTERS AFFECTING A
LESSEE'S RIGHTS AND OBLIGATIONS......................................... 44
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.......................................................... 45
ERISA CONSIDERATIONS....................................................... 48
UNDERWRITING............................................................... 49
RATING OF THE NOTES........................................................ 50
INDEX OF TERMS............................................................. 51
Until November 22, 1996 (90 days after the date of this Prospectus), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
==============================================================================
==============================================================================
$228,974,000
Copelco Capital
Funding Corp. II
$214,847,000 6.34% Class A
Lease-Backed Notes, Series 1996-A
$14,127,000 6.59% Class B
Lease-Backed Notes, Series 1996-A
---------------------
P R O S P E C T U S
Dated August 23, 1996
---------------------
LEHMAN BROTHERS
==============================================================================
55
