<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION STATEMENT NO. 333-38575
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADVANTA BUSINESS SERVICES CORP.
(SPONSOR OF THE SECURTIES DESCRIBED HEREIN)
DELAWARE 1020 LAUREL OAK ROAD 23-2333786
(JURISDICTION) VOORHEES, NEW JERSEY 08043 (I.R.S. EMPLOYER
IDENTIFICATION NO.)
COPY TO:
COLE B. SILVER, ESQ.
ADVANTA BUSINESS SERVICES CORP.
1020 LAUREL OAK ROAD
VOORHEES, NEW JERSEY 08043
609-782-7300
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
CHRIS DIANGELO, ESQ.
DEWEY BALLANTINE, LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.[x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.[ ]
If this Form is filed as a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
PROPOSED MAXIMUM PROPOSED
AMOUNT AGGREGATE PRICE MAXIMUM AMOUNT OF
TO BE PER UNIT(1) AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advanta Equipment Receivables
Asset-Backed Securities $1,000,000 100% $1,000,000 $303.03
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
CROSS REFERENCE SHEET
TO FORM S-3
<TABLE>
<CAPTION>
CAPTION OR LOCATION
ITEM AND CAPTION IN FORM S-3 IN PROSPECTUS
---------------------------- -------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . Forepart of Registration Statement;
Outside Front Cover Page**
2. Inside Front and Outside Back Cover Page of
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover Page**; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . . . . . . . . . . . . . . Summary of Prospectus**; Special
Considerations
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . . . . *
6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
7. Selling Security Holders . . . . . . . . . . . . . . . . . . . . *
8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . Methods of Distribution**
9. Description of Securities to be Registered . . . . . . . . . . . Outside Front Cover Page**;
Summary of Prospectus**;
Description of the Securities**;
Certain Federal Income Tax
Consequences**
10. Interests of Named Experts and Counsel . . . . . . . . . . . . . *
11. Material Changes . . . . . . . . . . . . . . . . . . . . . . . . *
12. Incorporation of Certain Information by Reference . . . . . . . Inside Front Cover Page**;
Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . . . . . See page II-3
- ------------------------
</TABLE>
* Not applicable or answer is negative.
** To be completed from time to time by Prospectus Supplement.
<PAGE> 3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in
connection with the issuance and distribution of the Offered Certificates.
<TABLE>
<S> <C>
SEC Filing Fee ...................................................... $ 303
Trustee's Fees and Expenses* ........................................ *
Legal Fees and Expenses* ............................................ 212,500
Accounting Fees and Expenses* ....................................... 30,000
Printing and Engraving Expenses* .................................... 35,000
Blue Sky Qualification and Legal
Investment Fees and Expenses* ..................................... 10,000
Rating Agency Fees* ................................................. 40,000
Miscellaneous* ...................................................... 200,000
--------
TOTAL.......................................................... $ *
========
</TABLE>
____________
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification. Under the laws which govern the organization
of the registrant, the registrant has the power and in some instances may be
required to provide an agent, including an officer or director, who was or is a
party or is threatened to be made a party to certain proceedings, with
indemnification against certain expenses, judgments, fines, settlements and
other amounts under certain circumstances.
Article VII of the By-laws of Advanta Business Services Corp.
provides that all officers and directors of the corporation shall be
indemnified by the corporation from and against all expenses, liabilities or
other matters arising out of their status as an officer or director for their
acts, omissions or services rendered in such capacities.
The forms of the Underwriting Agreement, filed as Exhibits 1.1
and 1.2 to this Registration Statement, provide that Advanta Business Services
Corp. will indemnify and reimburse the underwriter(s) and each controlling
person of the underwriter(s) with respect to certain expenses and liabilities,
including liabilities under the Securities Act of 1933 or other federal or state
regulations or under the common law, which arise out of or are based on certain
material misstatements or omissions in the Registration Statement. In
addition, the Underwriting Agreements provide that the underwriter(s) will
similarly indemnify and reimburse Advanta Business Services Corp. with respect
to certain material misstatements or omissions in the Registration Statement
which are based on certain written information furnished by the underwriter(s)
for use in connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the
organization of the registrant, the registrant's By-laws permit the board of
directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not such registrant would have the power to indemnify them against
such liability under applicable law.
<PAGE> 4
ITEM 16. EXHIBITS.
1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of Advanta Business Services
Corp.
3.2 -- By-Laws of Advanta Business Services Corp.
4.1 -- Master Business Receivables Asset-Backed Financing
Facility Agreement.
4.2 -- Form of Supplement to Master Facility Agreement.
4.3 -- Master Contribution Agreement.
4.4 -- Form of Supplement to Master Contribution Agreement.
5.1 -- Opinion of Dewey Ballantine with respect to validity.
8.1 -- Opinion of Dewey Ballantine with respect to tax matters.
23.1 -- Consents of Dewey Ballantine are included in its opinions
filed as Exhibits 5.1 and 8.1 hereto.
99.1* -- Form of Prospectus Supplement.
* Filed herewith.
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described above in Item
15, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by them
is against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or
events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the Registration Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change of such information in
the Registration Statement; provided, however, that paragraphs (i) and
(ii) do not apply if the information required to be included in the
post-effective amendment is contained in periodic reports filed by the
Issuer pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
II-2
<PAGE> 5
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in Reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Voorhees, State of New
Jersey, on November 14, 1997.
Advanta Business Services Corp.
as Registrant
By: /s/ Charles H. Podowski
-------------------------------------
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Charles H. Podowski, Michael
Rehling, Cole Silver, Michael Coco and Edward E. Millman, and each of them, his
true and lawful attorney-in-fact and agent, with full power and substitution
and resubstitution, for and in his name, place and stead, in any and all
capacities to sign any or all amendments (including posteffective amendments)
to this Registration Statement and any or all other documents in connection
therewith, and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in peson, hereby ratifying and
confirming all said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on November 14, 1997 below
by the following persons in the capacities and on the dates indicated.
Signature Title
/s/ Dennis Alter Director
----------------------------
Dennis Alter
/s/ Alex W. Hart Director
----------------------------
Alex W. Hart
/s/ David D. Wesselink Director
----------------------------
David D. Wesselink
/s/ Charles H. Podowski Director and Chairman
---------------------------- of the Board
Charles H. Podowski
/s/ Edward E. Millman Senior Vice President and
---------------------------- Chief Financial Officer
Edward E. Millman
II-4
<PAGE> 7
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit Description of Documents
- --------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement.
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Advanta Business Services Corp.
- --------------------------------------------------------------------------------
3.2 By-Laws of Advanta Business Services Corp.
- --------------------------------------------------------------------------------
4.1 Master Business Receivables Asset-Backed Financing Facility
Agreement.
- --------------------------------------------------------------------------------
4.2 Form of Supplement to Master Facility Agreement.
- --------------------------------------------------------------------------------
4.3 Master Contribution Agreement.
- --------------------------------------------------------------------------------
4.4 Form of Supplement to Master Contribution Agreement.
- --------------------------------------------------------------------------------
5.1 Opinion of Dewey Ballantine with respect to validity.
- --------------------------------------------------------------------------------
8.1 Opinion of Dewey Ballantine with respect to tax matters.
- --------------------------------------------------------------------------------
23.1 Consents of Dewey Ballantine are included in its opinions filed as
Exhibits 5.1 and 8.1 hereto.
- --------------------------------------------------------------------------------
*99.1 Form of Prospectus Supplement.
- --------------------------------------------------------------------------------
* Filed herewith.
II-5
<PAGE> 1
PROSPECTUS SUPPLEMENT EXHIBIT 99.1
(TO PROSPECTUS DATED (FORM OF PROSPECTUS SUPPLEMENT)
- --------------------------------------------------------------------------------
$______________
ADVANTA BUSINESS SERVICES CORP.,
SPONSOR AND SERVICER
$_________ ___% CLASS A-1 EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES _____
$_________ ___% CLASS A-2 EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES _____
$_________ ___% CLASS A-3 EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES _____
$_________ ___% CLASS M EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES _____
$_________ ___% CLASS B EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES _____
The Advanta Equipment Receivables Asset-Backed Notes, Series
_____ will consist of the following classes (each, a "Class"): (i) the Class A-1
Notes (the "Class A-1 Notes"), the Class A-2 Notes (the "Class A-2 Notes") and
the Class A-3 Notes (the "Class A-3 Notes"; together with the Class A-1 Notes
and Class A-2 Notes, the "Class A Notes"), (ii) the Class M Notes (the "Class M
Notes") and (iii) the Class B Notes (the "Class B Notes"; together with the
Class A Notes and the Class M Notes, the "Notes").
The Notes will represent asset-backed debt obligations of
Advanta Business Receivables LLC ("ABR LLC") and Advanta Leasing Receivables
Corp. III ("ALRC III"), as joint and several obligors (the "Issuers"). The
Contracts were originated or acquired by Advanta Business Services Corp. ("ABS"
or the "Sponsor"). The Issuers will establish a trust estate with respect to the
Notes (the "Trust Estate") with ________, as trustee (the "Trustee"). The Trust
Estate will consist initially primarily of (x) a combination of leases
(including, but not limited to, finance leases, true leases and full payout
leases), loans contracts and promissory notes financing the purchase or lease of
a variety of commercial assets, commercial products or personal property used
exclusively for commercial purposes, certain monies relating thereto received
after the Cut-Off Date (the "Contracts"), certain interests in the underlying
equipment, items, intangibles or property relating to the Contracts (the
"Equipment," and together with the Contracts, and including certain other
property appurtenant thereto, the "Receivables"), (y) $__________ (the "Initial
Pre-Funded Amount") deposited in an account (the "Pre-Funding Account") on the
Closing Date from the proceeds of the sale of the Notes and (z) a Reserve
Account. (cover continued on next page)
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE (THE "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 NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
COMMENCING ON PAGE __ FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THE NOTES WILL NOT REPRESENT AN INTEREST IN OR AN OBLIGATION OF
ADVANTA BUSINESS SERVICES CORP., ADVANTA CORP. OR ANY OF THEIR AFFILIATES,
OTHER THAN THE ISSUERS, NOR WILL THE NOTES BE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR BY ANY OTHER PERSON.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Public Underwriting(1) Proceeds to
Offering Price Issuers(2)
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
<S> <C> <C> <C>
Per Class A-1 Equipment Receivables Asset-Backed Note
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
Per Class A-2 Equipment Receivables Asset-Backed Note
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
Per Class A-3 Equipment Receivables Asset-Backed Note
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
Per Class M Equipment Receivables Asset-Backed Note
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
Per Class B Equipment Receivables Asset-Backed Note
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
Total
- ---------------------------------------------------------- ----------------- ------------------ ---------------------
</TABLE>
(1) The Sponsor has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses estimated to be $ .
The 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 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 , .
SALOMON BROTHERS INC
The date of this Prospectus Supplement is ,
(cover page continued)
<PAGE> 2
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 M Notes, subordination of
the Class B Notes, the Residual Interest, funds on deposit in the Reserve
Account, and amounts on deposit in certain other accounts, if any. The holders
of the Class M Notes (the "Class M Noteholders") will have the benefit of
limited credit support consisting of the subordination of the Class B Notes and
the Residual Interest, funds on deposit in the Reserve Account, and amounts on
deposit in certain other accounts, if any. The holders of the Class B Notes (the
"Class B Noteholders," together with the Class A Noteholders and the Class M
Noteholders, the "Noteholders") will have the benefit of limited credit support
in the form of the subordination of the Residual Interest, funds on deposit in
the Reserve Account, and amounts on deposit in certain other accounts, if any.
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.
Principal and interest will be paid to the Noteholders monthly
on the __ day (or the next succeeding Business Day if such __ day is not a
Business Day) of each month (each, a "Payment Date"), commencing, with respect
to interest, on __________, _____, and commencing, with respect to principal, on
the Amortization Date (as defined herein), as further described herein.
Pursuant to the terms of the Receivables Transfer Agreement
the Sponsor will agree to use its best efforts to transfer to the Issuers
additional qualifying Contracts and the related Equipment, and the Issuers will
agree to add such Contracts and interests certain in the related Equipment to
the Trust Estate, during the period from and including the Closing Date to and
including the _____________ Payment Date (the "Stated Amortization Date"), or,
if a Required Amortization Event (as defined herein) occurs with respect to a
Payment Date prior to the Stated Amortization Date, such earlier Payment Date
(the earlier to occur of the Stated Amortization Date or such earlier date, the
"Amortization Date") (such period being the "Interest-Only Period").
The Indenture will provide that, to the extent such additional
qualifying Contracts (the "Additional Contracts") and related Equipment (the
"Additional Equipment") (the Additional Contracts, Additional Equipment, and
other property appurtenant thereto is the "Additional Property") are available
from the Sponsor during the Pre-Funding Period (as defined herein) and the
Interest-Only Period, as applicable, the Trustee will, on each Payment Date
during such periods, disburse to the Issuers, in consideration of the pledge to
the Trustee of such Additional Property (x) first, from amounts remaining on
deposit in the Collection Account after the disbursement of certain payments
described herein, an amount equal to the lesser of (i) such remaining amount in
the Collection Account or (ii) the Aggregate Contract Balances with respect to
such Additional Property, (y) second, to the extent of the funds available
therein, if any, from the Additional Property Funding Account, an amount equal
to the lesser of (i) the funds available in the Additional Property Funding
Account and (ii) the Aggregate Contract Balances of the remaining Additional
Property, and (z) third, during the Pre-Funding Period only, to the extent the
amount on deposit in the Additional Property Funding Account is equal to zero as
of such date, from amounts on deposit in the Pre-Funding Account, an amount
equal to __% of the Aggregate Contract Balances of the remaining Additional
Property. Beginning with the Amortization Date, to the extent of Available Funds
available for such purpose, principal shall be due and payable to the
Noteholders as described herein.
The stated maturity date with respect to the Notes is the
Payment Date in ____________ (the "Stated Maturity Date"). However, if all
payments on the Contracts are made as scheduled, final payment with respect to
the Notes would occur prior to the Stated Maturity and it is expected that the
Notes will mature prior to the Stated Maturity. See "Summary of Terms--Expected
Maturity; Stated Maturity" herein.
The Issuers 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 Aggregate
Contract Balance is less than or equal to 10% of the Maximum Collateral Amount
(as defined herein). The Issuers will give notice of such redemption to the
Trustee at least 30 days before the Payment Date fixed for such redemption. Upon
deposit of funds necessary to effect such redemption, the Trustee shall pay the
remaining unpaid principal amount on the Notes and all accrued and unpaid
interest as of the Payment Date fixed for redemption. See "Description of the
Notes--Redemption."
The Notes offered hereby are being offered pursuant to this
prospectus supplement (the "Prospectus Supplement") and the accompanying
prospectus dated __________ (the "Prospectus"). Sales of the Notes may not be
consummated unless the purchaser has received this Prospectus Supplement and the
accompanying Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE
IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE NOTES OFFERED HEREBY, INCLUDING PURCHASES OF NOTES TO STABILIZE THE MARKET
PRICE AND THE IMPOSITION OF BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING" HEREIN.
AVAILABLE INFORMATION
The Sponsor 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
series of securities offered pursuant to the 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
2
<PAGE> 3
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 Sponsor will file with the Commission such periodic reports with
respect to the Notes as are required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations of the Commission
thereunder.
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, any
quarterly and annual reports containing information concerning the 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 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 Notes 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" in the Prospectus. However, such reports will not be sent directly to
each beneficial owner while the Notes are in book-entry form. Upon the issuance
of fully registered, certificated Notes, such reports will be sent directly to
each Noteholder. Such reports will be prepared in accordance with generally
accepted accounting principles.
3
<PAGE> 4
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE PROSPECTUS. CERTAIN
CAPITALIZED TERMS USED HEREIN ARE DEFINED ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT ON THE PAGES INDICATED IN THE "INDEX OF TERMS" OR, TO THE EXTENT NOT
DEFINED HEREIN, HAVE THE MEANINGS ASSIGNED TO SUCH TERMS IN THE PROSPECTUS.
- --------------------------------------------------------------------------------
Issuers ...................... Advanta Business Receivables LLC ("ABR LLC")
and Advanta Leasing Receivables Corp III
("ALRC III") will be joint and several
obligors with respect to the Notes.
Securities Offered ........... $_____________ aggregate principal amount of
_____% Class A-1 Equipment Receivables
Asset-Backed Notes, Series _____, (the "Class
A-1 Notes"), $_____________ aggregate
principal amount of _____% Class A-2 Equipment
Receivables Asset-Backed Notes, Series _____
(the "Class A-2 Notes"), $_____________
aggregate principal amount of _____% Class A-3
Equipment Receivables Asset-Backed Notes,
Series _____ (the "Class A-3 Notes"; together
with the Class A-1 Notes and Class A-2 Notes,
the "Class A Notes"); $_____________ aggregate
principal amount of _____% Class M Equipment
Receivables Asset-Backed Notes, Series _____
(the "Class M Notes") and $_____________
aggregate principal amount of _____% Class B
Equipment Receivables Asset-Backed Notes,
Series _____ (the "Class B Notes"; together
with the Class A Notes and the Class M Notes,
the "Notes") The Class M Notes will be
subordinated to the Class A Notes, and the
Class B Notes will be subordinated to both the
Class A Notes and the Class M Notes, each to
the extent provided in the Indenture as
described herein.
The combined aggregate principal amount of the
Class A Notes, the Class M Notes and the Class
B Notes will comprise ___% of the sum of (x)
the Original Aggregate Contract Balance and
(y) the Initial Pre-Funded Amount The
aggregate principal amounts of the Notes set
forth herein are based upon the Original
Aggregate Contract Balance calculated at the
Statistical Discount Rate (defined herein)
[The aggregate of the Class A-1, Class A-2,
Class A-3, Class M and Class B Initial
Principal Balances will be calculated using
the Actual Discount Rate].
Closing Date ................. On or about __________, _____ (the "Closing
Date").
Cut-Off Date ................. With respect to the Initial Contracts,
__________, _____ and, with respect to any
Additional Contracts, the date specified as
the Cut-Off Date applicable thereto (each such
date, a "Cut-Off Date").
Calculation Date ............. With respect to any Collection Period, the
close of business on the last day of
such Collection Period is the "Calculation
Date Contract Balances with respect to a
Payment Date shall be calculated on the
Calculation Date.
Business Day ................. Any day other than a Saturday or a Sunday, or
other day on which banks in the City of New
York or Delaware are required, or authorized
by law, to close (each such day, a "Business
Day").
Denominations ................ The Notes will be issued in minimum
denominations of $1,000 and
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integral multiples of $1,000 in excess
thereof, except that one Note of each Class
may be issued in another denomination.
Interest Rates ............... _____% per annum on the Class A-1 Notes (the
"Class A-1 Interest Rate"), _____% per annum
on the Class A-2 Notes (the "Class A-2
Interest Rate"), _____% per annum on the Class
A-3 Notes (the "Class A-3 Interest Rate"),
____% per annum on the Class M Notes (the
"Class M Interest Rate") and ____% per annum
on the Class B Notes (the "Class B Interest
Rate") calculated in each case on the basis of
a year of 360 days comprised of twelve 30-day
months With respect to any particular Class,
the "Interest Rate" refers to the applicable
rate indicated in the immediately preceding
sentence.
Initial Principal
Balances ..................... $_____________ for the Class A-1 Balances
Notes (the "Class A-1 Initial Principal
Balance"), $_____________ for the Class A-2
Notes (the "Class A-2 Initial Principal
Balance"), $_____________ for the Class A-3
Notes (the "Class A-3 Initial Principal
Balance", together with the Class A-1 Initial
Principal Balance and the Class A-2 Initial
Principal Balance, the "Class A Initial
Principal Balance"), $_____________ for the
Class M Notes (the "Class M Initial Principal
Balance") and $______________ for the Class B
Notes (the "Class B Initial Principal
Balance") The outstanding Class A-1 Note
principal balance for any Payment Date shall
be equal to the Class A-1 Initial Principal
Balance less any Principal Payments previously
made on the Class A-1 Notes (the "Class A-1
Principal Balance"); the outstanding Class A-2
Note principal balance for any Payment Date
shall be equal to the Class A-2 Initial
Principal Balance less any Principal Payments
previously made on the Class A-2 Notes (the
"Class A-2 Principal Balance"); the
outstanding Class A-3 Note principal balance
for any Payment Date shall be equal to the
Class A-3 Initial Principal Balance less any
Principal Payments previously made on the
Class A-3 Notes (the "Class A-3 Principal
Balance," together with the Class A-1
Principal Balance and the Class A-2 Principal
Balance as of such date, the "Class A
Principal Balance" as of such date); the
outstanding Class M Note principal balance for
any Payment Date shall be equal to the Class M
Initial Principal Balance less any Principal
Payments previously made on the Class M Notes
(the "Class M Principal Balance"); the
outstanding Class B Note principal balance for
any Payment Date shall be equal to the Class B
Initial Principal Balance less any Principal
Payments previously made on the Class B Notes
(the "Class B Principal Balance") See
"Description of the Notes."
Discounted Present
Value of the Contracts ....... On any date of calculation with respect to a
Contract, the present value of the Scheduled
Payments to become due with respect to such
Contract on and after such date of
calculation, discounted monthly to the
Calculation Date immediately prior to such
date of calculation (or to such date of
calculation if such date of calculation is a
Calculation Date) at one-twelfth of the Actual
Discount Rate is the "Contract Balance" of
such Contract, except that a Defaulted
Contract has a Contract Balance of $0.
The "Actual Discount Rate" is the sum of (i)
the weighted average of the Class A-1 Interest
Rate, the Class A-2 Interest Rate, the Class
A-3 Interest Rate, the Class M Interest Rate
and the Class B Interest Rate,
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(ii) the Servicer Fee Percentage (as defined
herein) and (iii) __%.
The "Scheduled Payments" with respect to any
Contract are the stated periodic rental
payments (exclusive of any amounts in respect
of insurance or taxes) set forth in such
Contract due from the related obligor (such
obligor, a "User").
"Aggregate Contract Balance" means, with
respect to any Payment Date, the aggregate
Contract Balance of all Contracts (other than
Defaulted Contracts) in the Trust Estate as of
the related Calculation Date.
Expected Maturity;
Stated Maturity .............. The expected maturity dates with respect to
the Class A-1 Notes, Class A-2 Notes, Class
A-3 Notes, Class M Notes and the Class B Notes
are the Payment Dates in _______, _______,
______, ______ and _____ respectively The
stated maturity date with respect to the Notes
will be the Payment Date in ___________ (the
"Stated Maturity Date") However, if all
payments on the Contracts are made as
scheduled, final payment with respect to the
Notes would occur prior to the Stated Maturity
Date.
Limited Obligations;
Asset-Backed Debt ............ The Notes will represent obligations solely of
the Issuers and are secured solely by the
Trust Estate To the extent that the Issuers
own other property, neither such other
property nor any proceeds thereof will be
available to fund payments on the Notes
Sponsor and Servicer ......... Advanta Business Services Corp ("ABS" or the
"Sponsor," or in its capacity as servicer, the
"Servicer"), a Delaware corporation
Trust Estate ................. The assets pledged to the Trustee to secure
the Notes will consist of, initially, (i) a
combination of leases (including, but not
limited to, finance leases, true leases and
full payout leases), loans contracts and
promissory notes financing the purchase or
lease of a variety of commercial assets,
commercial products or personal property used
exclusively for commercial purposes
(collectively, the "Initial Contracts") and
certain payments which become due thereunder
subsequent to the Cut-Off Date with respect to
the Initial Contracts, together with certain
other property appurtenant thereto, (ii)
certain interests in the Equipment (and
certain proceeds (including net insurance
proceeds) thereof) relating to the Initial
Contracts (the "Initial Property"), (iii)
funds on deposit in the Pre-Funding Account
and the Capitalized Interest Account and
certain other accounts held by the Trustee and
(iv) the rights of the Sponsor under any
applicable agreements (such as broker, vendor
or purchase agreements) pursuant to which the
Sponsor acquired the Contracts. Thereafter,
Additional Property may be pledged to the
Trustee to secure the Notes. The Initial
Contracts, together with any Additional
Contracts are referred to as the "Contracts"
and the Initial Equipment, together with any
Additional Equipment is referred to as the
"Equipment." The Contracts, together with
certain interests in the related Equipment and
other property appurtenant thereto, are
collectively referred to as the "Receivables."
To facilitate servicing, the Servicer will
retain possession of the Contracts and the
related Contract Files and will hold such
Contract Files in accordance with the
provisions of the Indenture, subject to the
interests of the Trustee and the Noteholders.
"Contract Files" shall
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<PAGE> 7
mean, with respect to each Contract, the
following documents: (i) the executed original
counterparts of the Contract that constitutes
"chattel paper" for purposes of Sections
9-105(1)(b) and 9-305 of the Uniform
Commercial Code (the "UCC"); (ii) a copy of
all documents, if any, that the Sponsor or the
Servicer keeps on file in accordance with the
Sponsor's or Servicer's customary procedures;
and (iii) copies (together with all
amendments, assignments and continuations
thereof) of all UCC financing statements filed
with respect to the Contracts, identifying the
User as debtor and the Sponsor as secured
party, if any.
On each Payment Date prior to the Amortization
Date, to the extent necessary, (i) all amounts
remaining on deposit in the Collection Account
after making certain payments as described
herein, (ii) all amounts on deposit in the
Additional Property Funding Account, if any,
and (iii) during the Pre-Funding Period only,
to the extent that the amount on deposit in
the Additional Property Funding Account is
equal to zero, all amounts on deposit in the
Pre-Funding Account, will be disbursed by the
Trustee to the Issuers, in the preceding order
of priority, in consideration of the Issuers'
pledge to the Trustee of Additional Property
relating to Additional Contracts having an
Aggregate Contract Balance on the related
Cut-Off Date equal as nearly as practicable to
such amounts; provided, that, with respect to
amounts to be released on any such Payment
Date from the Pre-Funding Account, only __% of
the remaining Aggregate Contract Balance of
such Additional Contracts (after the
application of the amounts on deposit in the
Collection Account and the Additional Property
Funding Account on such Payment Date with
respect to such Additional Contracts) will be
released from the Pre-Funding Account to the
Issuers. On each Payment Date commencing with
the Amortization Date, principal is required
to be paid to the Noteholders, as described
herein.
The Issuers' reversionary rights to the Trust
Estate, to the extent that the proceeds
thereof are not required to be applied to the
payment of the Notes, is the "Residual
Interest." As of any date of determination,
the "Principal Balance" of the Residual
Interest is equal to the excess of (x) the
Aggregate Contract Balance plus the amount
then on deposit in the Pre-Funding Account
over (y) the Outstanding Principal Balances of
all Classes of the Notes.
Pursuant to the Master Contribution Agreement,
dated as of May 1, 1997, between the Sponsor
and ALRC III, together with a supplement
thereto dated as of __________ (together, the
"Receivables Transfer Agreement"), the
Sponsor, as an originator, will make certain
representations and warranties to the Issuers
with respect to, among other things, the
Equipment and the Contracts, which
representations and warranties will be
assigned to the Trustee under the Indenture.
The Pre-Funding Account....... On the Closing Date, the Trustee will be
required to deposit $____________ (the
"Initial Pre-Funded Amount") from the proceeds
of the sale of the Notes in an account (the
"Pre-Funding Account") in the name of the
Trustee for the benefit of the Noteholders.
During the period (the "Pre-Funding Period")
from the Closing Date until the earliest of
(i) the date on which the amount on deposit in
the Pre-Funding Account is less than $100,000,
(ii) the date on which a
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<PAGE> 8
Required Amortization Event has occurred and
is continuing or (iii) the close of business
on _________ (such earliest date, the "Funding
Termination Date"), the Issuers may deliver
the Additional Property to the Trustee in
consideration of a corresponding disbursement
of amounts on deposit in the Pre-Funding
Account in an amount equal to __% of the
Contract Balances (as of the related Cut-Off
Date) of such Additional Property (the
Aggregate Contract Balance of Additional
Contracts which can be pledged based on the
Initial Pre-Funded Amount, the "Pre-Funding
Contract Balance"); provided, that no amounts
shall be disbursed from the Pre-Funding
Account on any date unless the balances of the
Additional Property Funding Account and the
Collection Account are equal to zero on such
date. Any amount remaining on deposit in the
Pre-Funding Account on the Funding Termination
Date will be used on the Payment Date
immediately following the Funding Termination
Date to prepay the Notes, the Class A Notes
receiving _____% (the "Class A Pre-Funding
Percentage"), the Class B Notes receiving ___%
(the "Class M Pre-Funding Percentage") and the
Class B Notes receiving ______% (the "Class B
Pre-Funding Percentage") of such remaining
amount; provided, that if such remaining
amount is less than $100,000, and, as of such
Payment Date, the Interest-Only Period has not
ended, such remaining amount will be deposited
in the Additional Property Funding Account.
[Any amount so applied as a payment to the
Class A Notes will be applied pro rata to the
Class A-1, the Class A-2 and Class A-3 Notes
in accordance with their respective,
then-outstanding Principal Balances.]
The Capitalized
Interest Account ............. On the Closing Date, the Trustee will be
required to deposit a portion of the proceeds
of the sale of the Notes in an account (the
"Capitalized Interest Account") in the name of
the Trustee for the benefit of the
Noteholders. The amount on deposit in the
Capitalized Interest Account will be used, as
necessary, by the Trustee, on each Payment
Date occurring during the Pre-Funding Period
only, to fund the aggregate amount of interest
accruing at the weighted average of the Class
A-1 Interest Rate, the Class A-2 Interest
Rate, the Class A-3 Interest Rate, the Class M
Interest Rate and the Class B Interest Rate on
the amount on deposit in the Pre-Funding
Account, less projected investment earnings on
the Pre-Funding Account, as of the related
Payment Date. Any amounts on deposit in the
Capitalized Interest Account on the Payment
Date immediately following the Funding
Termination Date (after taking into account
any transfers from the Capitalized Interest
Account to the Collection Account on such
Payment Date) will be released from the Trust
Estate and paid to the Issuers.
Required Amortization Event.... The earliest to occur of any of the following:
(i) the occurrence of an Event of Servicing
Termination" or an Event of Default (as
defined herein), (ii) the amount on deposit in
the Additional Property Funding Account
exceeds $_______, (iii) the bankruptcy of the
Servicer or either of the Issuers, (iv) as of
any Determination Date, the three-month
average ratio of the Aggregate Contract
Balance of Delinquent Contracts which are 61
days or more delinquent to the Aggregate
Contract Balance, exceeds _____%, (v) as of
any Determination Date, the 3 month average
ratio of the Aggregate Contract Balance of all
Contracts which become and continue to be
Defaulted Contracts during
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<PAGE> 9
the Initial Period to the Aggregate Contract
Balances, exceeds _____% (a "Required
Amortization Event").
Trustee....................... ___________ (the "Trustee"). The Trustee's
offices are located at _____________.
Determination Date............ The ___ Business Day prior to each Payment
Date. On such date (each, a "Determination
Date"), the Servicer will determine the amount
of payments received on the Contracts in
respect of the immediately preceding calendar
month (each such period, a "Collection
Period") which will be available for
distribution on the Payment Date. See
"Description of the Notes--Distributions on
Notes."
Payment Dates................. Payments on the Notes will be made on the
_________day of each month (or if such day is
not a Business Day, the next succeeding
Business Day), commencing on __________, _____
(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 each
Class of Notes since the last Payment Date
will be the interest that has accrued on such
Notes since the last Payment Date, or in the
case of the first Payment Date, since the
Closing Date (each such period, an "Interest
Accrual Period") at the applicable Interest
Rate applied to the then unpaid principal
amounts (the "Outstanding Principal Balance")
of the Notes of each Class, after giving
effect to payments of principal, on the
preceding Payment Date (such amount for the
Class A Notes, the "Class A Note Interest,"
for the Class M Notes, the "Class M Note
Interest" and for the Class B Notes, the
"Class B Note Interest"). In addition, on each
Payment Date, any Interest Payment shortfalls
for any prior Payment Date shall accrue and be
due to Noteholders (such Interest Payment
shortfalls on the Class A Notes, the "Class A
Overdue Interest," the Class M Notes, the
"Class M Overdue Interest" and the Class B
Notes, "Class B Overdue Interest"). See
"Description of the Notes--General" and
"Distributions on Notes."
Interest-Only Period.......... As described above under "The Trust Estate"
and "The Pre-Funding Account" and as described
below under "Flow of Funds," from time to time
the Issuers may pledge Additional Property to
the Trustee. The Indenture provides that,
unless a Required Amortization Event occurs
prior to the _________ 1998 Payment Date,
amounts which would otherwise be paid as
principal to the holders of the Notes will be
released to the Issuers in consideration of
the Issuers pledge to the Trustee, for the
benefit of the Noteholders, of Additional
Property, with the result that the Noteholders
will receive payments of interest only, and no
payments of principal, on each Payment Date
prior to and including the _______ Payment
Date (other than any amounts disbursed to the
Noteholders from the Pre-Funding Account
following the end of the Pre-Funding Period as
a prepayment of principal on the Notes). See
"Description of the Notes" and "Prepayment and
Yield Considerations" herein.
Principal Payments............ Unless a Required Amortization Event occurs
earlier, the Noteholders will receive no
principal payments until the __________
Payment Date (other than any amounts disbursed
to the Noteholders from the Pre-
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<PAGE> 10
Funding Account following the end of the
Pre-Funding Period as a prepayment of
principal on the Notes).
For each Payment Date during the Amortization
Period, each of the Class A Noteholders, the
Class M Noteholders and the Class B
Noteholders will be entitled to receive
payments of principal ("Principal Payments"),
to the extent funds are available therefor, in
the priorities set forth in the Indenture and
described herein below and under "--Flow of
Funds."
On each Payment Date during the Amortization
Period, to the extent funds are available
therefor, the principal will be paid to the
Noteholders in the following priority: (a)(i)
to the Class A-1 Noteholders only, until the
Outstanding Principal Balance on the Class A-1
Notes has been reduced to zero, the Class A
Principal Payment, then (ii) to the Class A-2
Noteholders only, until the Outstanding
Principal Balance on the Class A-2 Notes has
been reduced to zero, the Class A Principal
Payment, then (iii) to the Class A-3
Noteholders only, until the Outstanding
Principal Balance on the Class A-3 Notes has
been reduced to zero, the Class A Principal
Payment, (b) to the Class M Noteholders, until
the Outstanding Principal Balance on the Class
M Notes has been reduced to zero, the Class M
Principal Payment and (c) to the Class B
Noteholders, the Class B Principal Payment.
In addition, on each Payment Date, any
Principal Payment shortfalls for any prior
Payment Date shall accrue and be due to the
related Noteholders (such Principal Payment
shortfalls on the Class A-1 Notes, the "Class
A-1 Overdue Principal," the Class A-2 Notes,
the "Class A-2 Overdue Principal," the Class
A-3 Notes, (the "Class A-3 Overdue Principal,"
the Class M Notes, the "Class M Overdue
Principal" and the Class B Notes, the "Class B
Overdue Principal") on subsequent Payment
Dates.
The "Class A Principal Payment" is the amount
necessary to reduce the aggregate Outstanding
Principal Balance of the Class A Notes to the
Class A Target Investor Principal Amount.
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 Aggregate Contract
Balance as of the related Calculation Date.
The "Class M Principal Payment" is the amount
necessary to reduce the Outstanding Principal
Balance of the Class M Notes to the greater of
the Class M Target Investor Principal Amount
and the Class B Floor.
The "Class B Principal Payment" is the amount
necessary to reduce the Outstanding Principal
Balance the Class B Notes to the greater of
the Class B Target Investor Principal Amount
and the Class B Floor.
The "Class M Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class M
Percentage and (b) the Aggregate Contract
Balance as of the related Calculation Date.
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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 Aggregate Contract
Balance as of the related Calculation Date.
The "Class B Floor" with respect to each
Payment Date means (a) _____% of the Original
Aggregate Contract Balance, 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 Balance of the Residual Interest and
the amount on deposit in the Reserve Account
after giving effect to withdrawals to be made
on such Payment Date.
The "Class A Percentage" is _________%; the
"Class M Percentage" is _________% and the
"Class B Percentage" is _______%.
The "Cumulative Loss Amount" with respect to
each Payment Date is an amount equal to the
excess, if any, of (a) the Contract Balance of
all Contracts which have become Defaulted
Contracts since the Closing Date over (b) the
sum of (i) the Contract Balances of all
Defaulted Contracts which became Reinstated
Contracts (as described below under "Defaulted
Contracts") and (ii) Defaulted Residual
Receipts.
The Contracts and
the Equipment................. The statistical information presented in
this Prospectus Supplement concerning the
Initial Contracts as of the Cut-Off Date has
been calculated using an assumed discount rate
of ______% per annum (the "Statistical
Discount Rate"). The Aggregate Contract
Balance of the Initial Contracts as of the
Cut-Off Date is $___________ using the
Statistical Discount Rate (the "Original
Aggregate Contract Balance"). The Aggregate
Contract Balance of the Initial Contracts as
of the Cut-Off Date is $___________ using the
Actual Discount Rate. The statistical
distribution of such characteristics of the
Initial Contract as of the Cut-Off Date using
the Actual Discount Rate will vary somewhat
from the statistical distribution of such
characteristics of the Initial Contracts as of
the Cut-Off Date using the Statistical
Discount Rate as presented in this Prospectus
Supplement, although such variance will not be
material. [In addition, certain Initial
Contracts included in the statistical
information included herein were determined
not to meet the eligibility requirements for
the final pool.] As a result, the statistical
distribution of characteristics as of the
Closing Date for the final Contract pool will
vary somewhat from the statistical
distribution of such characteristics as
presented in this Prospectus Supplement,
although such variance will not be material.
Unless otherwise noted, all statistical
percentages in this Prospectus Supplement are
measured by the Aggregate Contract Balance of
the Initial Contracts as of the Cut-Off Date
using the Statistical Discount Rate.
The Initial Contracts consist or, in the case
of the Additional Contracts, will consist, of
(i) transactions originated by the Sponsor,
agents of the Sponsor, vendors or brokers in
the name of the Sponsor and (ii) transactions
acquired by the Sponsor from third parties and
underwritten by the Sponsor in the same manner
as Contracts originated by the Sponsor.
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<PAGE> 12
Certain of the Initial Contracts may contain
provisions requiring that the related User
purchase the related Equipment at the end of
the related Contract term for an amount which
may in certain cases be the fair market value
of the related Equipment at Contract maturity.
Such amount may be (i) a specified amount or
(ii) a minimum specified amount plus an
unspecified excess amount which together with
the minimum specified amount is the lesser of
(a) the fair market value of the related
Equipment at Contract maturity or (b) a
maximum specified amount. Any payment of such
a specified amount or minimum specified amount
received from a User in connection with a
required purchase by such User at maturity of
the related Contract is a "Final Contract
Payment." Any such excess amount received from
a User is an "Excess Amount."
Certain Initial Contracts do not contain a
provision requiring the User to purchase the
related Equipment, but rather contain an
end-of-term purchase option (such Initial
Contracts and Equipment, the "Purchase Option
Contracts" and the "Purchase Option
Equipment," respectively). Such purchase
options are exercisable at varying amounts,
and are referred to as "Purchase Option
Payments." In the event that a User under a
Purchase Option Contract does not exercise its
purchase option, such User is required to
either re-lease the Equipment or return the
related Purchase Option Equipment to the
Servicer. The Servicer may, but has no
obligation to, purchase any such returned
Purchase Option Equipment. The amounts of (x)
any Purchase Option Payments, (y) other
proceeds of the sale of Purchase Option
Equipment to the extent such proceeds exceed
any Scheduled Payments and Final Contract
Payments remaining unpaid, and (z) Excess
Amounts are collectively referred to as
"Residual Receipts". Final Contract Payments
are not Residual Receipts. Residual Receipts
will be deposited in the Collection Account
and will be included in Available Funds, with
the result that such amounts will be available
to fund shortfalls in amounts due to the
Noteholders on each Payment Date, as well as
to fund the Reserve Account.
All proceeds of the sale of Equipment related
to Defaulted Contracts and any amounts
collected related to the failure of such User
to pay any required amounts under the related
Contract or to return the Equipment, in each
case as reduced by (i) any unreimbursed
Servicer Advances with respect to such
Contract or such Equipment and (ii) any
reasonably incurred out-of-pocket expenses
incurred by the Servicer in enforcing such
Contract or in liquidating such Equipment are
referred to as "Defaulted Residual Receipts".
Defaulted Residual Receipts will be deposited
in the Collection Account as Available Funds
on each Payment Date. Defaulted Residual
Receipts are not Residual Receipts.
Generally, a User does not have the right to
prepay its obligations under its Contract if
such Contract is a lease in form; Contracts
which are loans in form generally are
prepayable. However, pursuant to the terms of
the Indenture, the Servicer may allow
prepayment by a User with respect to a
Contract of an amount not less than the
Prepayment Amount related thereto. The
"Prepayment Amount" is defined to mean, with
respect to a Contract, as of any date, the sum
of (a) the Contract Balance of such Contract
(without deduction for any security deposit
paid by the related User, unless such security
deposit has been applied to the Contract
Balance pursuant to the Servicer's credit and
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<PAGE> 13
collection policy and deposited into the
Collection Account) plus (b) the product of
the Contract Balance and one-twelfth of the
Actual Discount Rate and (c) the residual
value, if any, of the related Equipment, as
reflected on the Servicer's servicing system.
Prepayment Amounts will be deposited in the
Collection Account as Available Funds.
Generally, the Contracts that are in the form
of leases are on a "net" basis (i.e., the User
assumes all responsibility with respect to the
related Equipment, including the obligation to
pay all costs relating to its operation,
maintenance, repair and insurance). Generally,
the Contracts that are in the form of leases
also contain provisions which unconditionally
obligate the User to make all Scheduled
Payments and any Final Contract Payment
thereunder.
The Initial Contracts and related Equipment
have been selected from the Sponsor's
portfolio of leases, loans and other contracts
based on the criteria specified in the
Receivables Transfer Agreement and any
Additional Equipment and Additional Contracts
must conform to such criteria at the time of
the pledge of such Additional Equipment and
Additional Contracts to the Trustee, for the
benefit of the Noteholders.
Affirmative
Covenants..................... The Sponsor will covenant and agree
in the Receivables Transfer Agreement, among
other things, that during the Interest-Only
Period, (i) the Sponsor will remain in the
business of originating and purchasing
equipment and related leases, loans, and other
contracts substantially similar to the Initial
Equipment and Initial Contracts, (ii) the
Sponsor will use its best efforts to originate
and purchase such equipment and related
leases, loans and other contracts in a
quantity no less than the cumulative amount
during the Interest-Only Period of (a) amounts
remaining on deposit in the Collection Account
after making certain payments as described
herein, (b) amounts on deposit in the
Additional Property Funding Account and (c)
during the Pre-Funding Period only, amounts on
deposit in the Pre-Funding Account, (iii) the
Sponsor will not sell, or enter into
agreements to sell, such equipment or related
leases, loans and other contracts to others in
a manner which would materially and adversely
affect the Sponsor's ability to perform its
obligations under the Receivables Transfer
Agreement, to make available Additional
Contracts for pledge to the Trustee.
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
the Master Business Receivables Asset-Backed
Financing Facility, dated as of May 1, 1997,
by and among the Servicer, ALRC III and the
Trustee, and a Supplement thereto dated as of
_________ (the "Indenture").
Redemption.................... The Issuers 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 Aggregate Contract Balance
(after giving effect to the payment of
principal on such Payment Date) is less than
or equal to 10% of the Maximum Collateral
Amount. The "Maximum Collateral Amount" is
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the sum of (x) the Original Aggregate Contract
Balance plus (y) the Contract Balance of each
Additional Contract included in the Trust
Estate as a result of the Pre-Funding feature.
The Issuers will give notice of such
redemption to the Trustee at least 30 days
before the Payment Date fixed for such
prepayment. Upon deposit of funds necessary to
effect such redemption, the Trustee shall pay
the remaining unpaid principal amount of the
Notes and all accrued and unpaid interest as
of the Payment Date fixed for redemption. See
"Description of the Notes--Redemption."
Flow of Funds................. The Indenture will require that the
Trustee establish an account (the "Collection
Account") and that the Servicer deposit to the
Collection Account (or the Advance Payment
Account, as described herein), all collections
or receipts received by the Servicer on the
Contracts no later than two Business Days
following the Servicer's determination that
such amounts relate to the Contracts or the
Equipment.
The following discussion makes use of a number
of terms defined below under "Description of
the Notes--Flow of Funds."
On each Payment Date prior to the Amortization
Date, the Trustee will be required to make the
following payments from the Available Funds
(including amounts transferred from the
Reserve Account on such Payment Date) then on
deposit in the Collection Account or, with
respect to paragraph (vi), from amounts on
deposit in the Additional Property Funding
Account, in the following order of priority:
(i) from the Available Funds, to the
Servicer, any unrecoverable Servicer Advances;
(ii) from the Available Funds then
remaining in the Collection Account, to the
Servicer, if ABS is not then the Servicer, the
Servicing Fee then due, together with certain
miscellaneous amounts;
(iii) from the Available Funds then
remaining in the Collection Account, to the
Class A Noteholders, the Class A Note Interest
and Class A Overdue Interest for the related
Interest Accrual Period; pari passu with
respect to each Class of Class A Notes;
(iv) from the Available Funds then
remaining in the Collection Account, to the
Class M Noteholders, the Class M Note Interest
and the Class M Overdue Interest for the
related Interest Period;
(v) from the Available Funds then
remaining in the Collection Account, to the
Class B Noteholders, the Class B Note Interest
and the Class B Overdue Interest for the
related Interest Accrual Period;
(vi) from the sum of (x) the Available
Funds then remaining in the Collection
Account, and (y) the amount then on deposit in
the Additional Property Funding Account (such
sum, the "Available Additional Property
Funding Amount"), as follows:
(A) to the Issuers, an amount equal
to the least of:
(i) the Available Additional
Property Funding
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Amount,
(ii) the Aggregate Net Cumulative
Contract Balance Decline Amount; and
(iii) the Aggregate Contract
Balances of all Additional Contracts
(calculated as of the related Cut-Off
Date) actually pledged to the Trustee
on such Payment Date (exclusive of
any Additional Contracts pledged to the
Trustee on such Payment Date with
respect to the Pre-Funding feature);
and
(B) to the Additional Property
Funding Account, the lesser of
(i) the excess, if any, (x) the
Aggregate Net Cumulative Contract
Balance Decline over (y) the amount
described in clause (A)(iii) above;
and
(ii) the remaining Available
Additional Property Funding Amount;
(vii) from the Available Funds then
remaining in the Collection Account, to the
Servicer, if ABS is the Servicer, the
Servicing Fee then due, together with certain
miscellaneous amounts;
(viii) from the Available Funds then
remaining in the Collection Account to the
Reserve Account, to the extent necessary to
increase the amount on deposit in the Reserve
Account to the Required Reserve Amount for
such Payment Date; and
(ix) to the Issuers, as the holders of
the Residual Interest, any remaining Available
Funds on deposit in the Collection Account.
On the Payment Date which is also the
Amortization Date and on each Payment Date
thereafter (such period being the
"Amortization Period") , the Trustee will be
required to make the following payments from
the Available Funds (including amounts
transferred from the Reserve Account on such
Payment Date) then on deposit in the
Collection Account, in the following order of
priority:
(i) from the Available Funds, to the
Servicer, any unrecoverable Servicer Advances;
(ii) from the Available Funds then
remaining in the Collection Account, to the
servicer, if ABS is not then the Servicer, the
Servicing Fee then due, together with certain
miscellaneous amounts;
(iii) from the Available Funds then
remaining in the Collection Account, to the
Class A Noteholders, the Class A Note Interest
and Class A Overdue Interest for the related
Interest Accrual Period, pari passu with
respect to each Class of Class A Notes;
(iv) from the Available Funds then
remaining in the Collection Account, to the
Class M Noteholders, the Class M Note Interest
and the Class M Overdue Interest for the
related Interest Period;
(v) from the Available Funds then
remaining in the
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Collection Account, to the Class B
Noteholders, the Class B Note Interest and the
Class B Overdue Interest for the related
Interest Accrual Period;
(vi) until the Class A Principal Amount
has been reduced to zero, from the Available
Funds then remaining in the Collection
Account, (such an amount to be paid on
"sequential-pay" fashion with respect to the
Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes, in that order) the Class A
Principal Payment and the Class A Overdue
Principal;
(vii) until the Class M Principal Balance
has been reduced to zero, to the Class M
Noteholders, from the Available Funds then
remaining in the Collection Account, the Class
M Principal Payment and the Class M Overdue
Principal;
(viii) until the Class B Principal
Balance has been reduced to zero, to the Class
B Noteholders, from the Available Funds then
remaining in the Collection Account, the Class
B Principal Payment and the Class B Overdue
Principal;
(ix) from the Available Funds then
remaining in the Collection Account, to the
Servicer, if ABS is then the Servicer, the
Servicing Fee then due, together with certain
miscellaneous amounts;
(x) from the Available Funds then
remaining in the Collection Account, to the
Reserve Account, to the extent necessary to
increase the amount on deposit in the Reserve
Account to the Required Reserve Amount for
such Payment Date;
(xi) to the Issuers, as the holder of the
Residual Interest, any remaining Available
Funds on deposit in the Collection Account.
In addition to the distributions from the
Collection Account on each Payment Date, on
the Payment Date immediately following the
Funding Termination Date, any amounts
remaining on deposit in the Pre-Funding
Account on such Payment Date will be
distributed as a prepayment of principal on
the Notes, with the Class A Notes, the Class M
Notes and the Class B Notes receiving the
Class A Pre-Funding Percentage, the Class M
Pre-Funding Percentage and the Class B
Pre-Funding Percentage, respectively, of such
remaining amounts; provided, that if such
remaining amount is less than $100,000 and, as
of such Payment Date, the Interest-Only Period
has not ended, such remaining amount will be
deposited in the Additional Property Funding
Account.
See "Description of the Notes--Flow of Funds."
Subordination Provisions...... A portion of the credit enhancement available
for the benefit of the Class A Noteholders is
provided by the subordination of the Class M
Notes, of the Class B Notes and of the
Residual Interest. A portion of the credit
enhancement available for the benefit of the
Class M Notes is provided by the subordination
of the Class B Notes and of the Residual
Interest. A portion of the credit enhancement
available for the benefit of the Class B
Noteholders is provided by the Residual
Interest.
The cash flow and subordination provisions of
the Indenture provide
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that Available Funds on each Payment Date will
be used to fund payments to the Noteholders
(and to pay the fees and expenses of the
Servicer). "Available Funds" with respect to a
Payment Date generally include (i) amounts
collected during the immediately preceding
Collection Period with respect to the
Contracts and the Equipment, including,
without limitation, Scheduled Payments, Final
Contract Payments, Defaulted Residual
Receipts, Residual Receipts, Prepayment
Amounts, investment earnings on each of the
Accounts and any amounts required to be
transferred to the Collection Account from the
Capitalized Interest Account with respect to
such Payment Date plus (ii) amounts
transferred from the Reserve Account with
respect to such Payment Date and deposited in
the Collection Account.
Defaulted Contracts........... A "Defaulted Contract" will mean any Contract
(a)(i) that is a Delinquent Contract with
respect to which a User is contractually
delinquent for 121 days or more (without
regard to any Servicer Advances or the
application of any security deposit provided
by the User (a "Security Deposit") or (ii) as
to which the Servicer has determined in
accordance with its customary servicing
practices that eventual payment of the
remaining Scheduled Payments thereunder is
unlikely or (iii) that has been rejected by or
on behalf of the User in a bankruptcy
proceeding and (b) as to which a Release Event
has not occurred. With respect to any
Contract, a "Release Event" is a payment in
full of such Contract or a removal of such
Contract from the Trust Estate by the Servicer
pursuant to the terms of the Indenture.
However, during the period from the Closing
Date to the end of the Collection Period
relating to the Payment Date immediately
preceding the Amortization Date (the "Initial
Period"), a Contract remains a "Defaulted
Contract" only for so long as it continues to
meet the requirements for being a "Defaulted
Contract." If, at any time during the Initial
Period, a Contract no longer meets the
requirements for being a "Defaulted Contract,"
such Contract is no longer a "Defaulted
Contract." In addition, the Indenture requires
that during the Initial Period a Defaulted
Contract be assigned a Contract Balance of
zero at the time such Contract becomes a
Defaulted Contract. However, if at any time
during the Initial Period, a Defaulted
Contract no longer meets the requirements for
being a Defaulted Contract and therefore is no
longer considered a Defaulted Contract, the
Contract Balance of such Contract shall no
longer be zero, but rather shall be
recalculated to reflect the Contract Balance
of a Contract which is not a Defaulted
Contract.
One effect of the ability of a "Defaulted
Contract" to restore itself to non-defaulted
status during the Initial Period is that the
Contract Balances of any Contracts that became
Defaulted Contracts during the Initial Period,
but that no longer meet the requirements for
being "Defaulted Contracts" at the end of the
Initial Period (i.e., have returned to
performing status subsequent to their
default), are not paid to the Noteholders as
an accelerated payment of principal unless
they become Defaulted Contracts again after
the Initial Period.
Another effect is that the percentage of
Defaulted Contracts during the Initial Period
will reflect only those Contracts currently in
default and will not reflect Contracts that
were in default but which have returned to
performing status.
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Since the Available Funds on any Payment Date
commencing with the Amortization Date are
applied in the order of priority described
above under "Flow of Funds" until such
Available Funds are exhausted, the effect of
including in the required "Class A Principal
Payment," in the "Class B Principal Payment"
and in the "Class M Principal Payment" the
amount of or, deemed loss (i.e., the Contract
Balance of any Defaulted Contract) and
prioritizing the payment of the Class A
Principal Payment, the Class M Principal
Payment and the Class B Principal Payment (in
that order) is to allocate losses first, to
the holder of the Residual Interest, second,
to the Class B Noteholders, third, to the
Class M Noteholders and fourth, to the Class A
Noteholders.
Through the operation of the "Class A Overdue
Principal," "Class M Overdue Principal" and
"Class B Overdue Principal" provisions, the
Class A Noteholders and the Class B
Noteholders are entitled to receive any
aggregate, cumulative shortfalls of Class A
Principal Amounts, Class M Principal Balances
or Class B Principal Balances not paid on
prior Payment Dates.
Reserve Account............... The Noteholders will have the benefit of funds
on deposit in an account (the "Reserve
Account") to the extent that, on any Payment
Date, there is a shortfall in the amount
available to pay amounts owing the Servicer
and to make interest and principal payments on
the Notes. The Reserve Account will be funded
by an initial deposit of ____% of the Original
Aggregate Contract Balance. Thereafter, to the
extent provided in the Indenture, additional
deposits will be made to the Reserve Account
(x) in connection with each addition of
Additional Contracts to the Trust Estate as a
result of the operation of the Pre-Funding
feature (in amounts equal to ___% of the
Contract Balance of each such Additional
Contract as of the related Cut-Off Date and
(y) on each Payment Date, 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" generally equals the lesser of
(a) ____% of the Maximum Collateral Amount and
(b) the Outstanding Principal Balance of the
Notes, subject to certain floors and triggers
set forth in the Indenture. Amounts on deposit
in the Reserve Account in excess of the
Required Reserve Amount will be disbursed to
the Issuers in accordance with the provisions
of the Indenture.
Amounts on deposit in the Reserve Account on
any Payment Date shall be withdrawn therefrom
and transferred to the Collection Account if
the Available Funds (exclusive of such amounts
transferred from the Reserve Account) with
respect to such Payment Date are insufficient
to fund in full the items described above
under "Flow of Funds," if such items are of a
higher priority than the funding of the
Reserve Account.
Servicing..................... The Servicer will be responsible for
servicing, managing and administering the
Trust Estate and enforcing and making
collections on the Contracts. The Servicer
will be required to exercise the degree of
skill and care in performing these functions
that it customarily exercises with respect to
similar property owned or serviced by the
Servicer. The Servicer will be entitled to
receive (a) a monthly fee (the "Servicer Fee")
of the product of (i) one-twelfth of 1.00%
(the "Servicer Fee Percentage") and (ii) the
Aggregate Contract Balance of all Contracts as
of the beginning of the previous Collection
Period,
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payable out of the Collection Account, (b)
late payment fees and (c) certain other fees
paid by the Users ("Servicing Charges"), as
compensation for acting as Servicer.
Under certain limited circumstances, the
Servicer may resign or be removed, in which
event either the Trustee or a third party
meeting the requirements set forth in the
Receivables Transfer Agreement will be
appointed as successor Servicer. See
"Description of the Notes--Events of Servicing
Termination."
The Servicer will be required to cause amounts
collected on the Contracts to be deposited to
the Collection Account or the Advance Payment
Account, as applicable, maintained by the
Trustee no later than two Business Days
following the Servicer's determination that
such amounts relate to the Contracts or the
Equipment. See "Description of the Notes--The
Accounts."
Substitution and
Modifications................. The Indenture permits the Servicer, subject to
certain requirements, to make substitutions in
replacement of Defaulted Contracts or modify
Contracts; provided, that (x) the substitute
Contract, or the Contract as modified, has a
Contract Balance not lower than the Contract
Balance of the substituted Contract
(calculated immediately prior to each Contract
becoming a Defaulted Contract), or the
Contract prior to such modification, as the
case may be, and (y) the aggregate, cumulative
Contract Balance of such substituted or
modified Contracts may not exceed 10% of the
Maximum Collateral Amount (exclusive of the
Contract Balance of Contracts substituted for
other contracts which were determined to have
breached a representation or warranty).
In addition, the Sponsor may deliver
qualifying, Substitute Contracts as
replacements for Contracts which are
determined to have breached representations or
warranties, the Contract Balances such
Substitute Contracts will not be applied
against the 10% limit described above.
Advances...................... Subject to the limitations described herein,
on or prior to each Payment Date, the Servicer
will be required to make advances (each, a
"Servicer Advance") for delinquent Scheduled
Payments and Final Contract Payments, but only
to the extent it determines in its sole
discretion that such advances will be
recoverable in future periods.
A "Delinquent Contract" will mean, as of any
date, any Contract (a) as to which less than
90% of any Scheduled Payment was received by
the Servicer when due as of the close of
business on the Calculation Date immediately
preceding such date and (b) which is not a
Defaulted Contract. With respect to any
Delinquent Contract, whenever the Servicer
shall have determined that it will be unable
to recover a Servicer Advance or a portion
thereof on such Delinquent Contract, the
Servicer will not be required to make such
Servicer Advance or portion thereof, but will
be required to enforce its remedies (including
acceleration) under such Contract. The
Indenture shall provide that, in the event
that the Servicer determines that any Servicer
Advances previously made are nonrecoverable
("Nonrecoverable Advances") or any Delinquent
Contracts for which the Servicer has made a
Servicer Advance in respect thereof become
Defaulted Contracts, the Trustee shall draw on
the Collection Account to repay such Servicer
Advances
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to the Servicer.
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
such Notes will be taxable as ordinary income
when received by a Noteholder on the cash
method of accounting and when accrued by
Noteholders on the accrual method of
accounting. See "Material Federal Income Tax
Considerations."
ERISA
Considerations................ The Employee Retirement Income Security Act of
1974, as amended ("ERISA") places certain
restrictions on those pension and other
employee benefits plans to which it applies.
Pursuant to regulations issued by the United
States Department of Labor defining "plan
assets," if the Notes are considered to be
indebtedness without substantial equity
features under local law, the assets of the
Issuer will not be considered assets of any
ERISA plan holding the Notes, thereby
generally avoiding potential application of
ERISA's prohibited transaction rules. However,
in certain circumstances, the prohibited
transaction rules may be applicable to the
purchase of the Notes even if the Notes are
not deemed to have substantial equity
features. Certain exemptions from the
prohibited transaction rules could be
applicable, however, with respect to the
acquisition and holding of the Notes.
Accordingly, the Notes may be acquired by
ERISA plans, subject to certain restrictions.
Before purchasing any of the Notes,
fiduciaries of such plans should determine
whether an investment in the Notes is
appropriate under ERISA. See "ERISA
Considerations."
Rating........................ It is a condition to the issuance of the Notes
that the Class A Notes be rated at least
"___," the Class M Notes be rated at least
"___" and that the Class B Notes be rated at
least "___" by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc.
("Moody's") and Fitch Investors Service, L.P.
("Fitch"), respectively (each a "Rating
Agency"). The ratings assess the likelihood of
timely payment of interest and the ultimate
payment of principal to the Noteholders by the
Stated Maturity Date. There is no assurance
that any rating will not be lowered or
withdrawn if, in the judgement of any Rating
Agency, circumstances in the future so
warrant. See "Rating of the Notes."
Material Risks................ Certain material risks may be present in an
investment in the Notes. See "Risk Factors."
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RISK FACTORS
LIMITED LIQUIDITY. There is currently no public market for the
Notes and there is no assurance that one will develop. The Underwriter expects,
but is not obligated, to make a market in the Notes. There is no assurance that
any such market will be created or, if so created, will continue. If no public
market develops, the Noteholders may not be able to liquidate their investment
in the Notes prior to maturity.
PREPAYMENTS AND RELATED REINVESTMENT RISK. Because the rate of
payment of principal on the Notes during the Amortization Period will depend,
among other things, on the rate of payment on the Contracts, such rate of
payments of principal on the Notes cannot be predicted. Payments on the
Contracts will include scheduled payments as well as Prepayments permitted by
the Servicer, payments as a result of Defaulted Contracts (to the extent not
replaced by Substitute Contracts), and payments upon repurchases by the Sponsor
on account of a breach of certain representations and warranties in the
Receivables Transfer Agreement (to the extent not replaced by Substitute
Contracts). The rate of early terminations of Contracts due to Prepayments and
defaults may be influenced by a variety of economic and other factors. For
example, adverse economic conditions and certain natural disasters such as
floods, hurricanes, earthquakes and tornadoes may affect Prepayments. The risk
of reinvesting unscheduled distributions resulting from Prepayments of the Notes
will be borne by the Noteholders. See "Prepayment and Yield Considerations."
SUBSTITUTE CONTRACTS. As described herein, pursuant to the
Indenture, the Issuers have the option, but not the obligation, to designate one
or more contracts to be a Substitute Contract as a replacement for any Contract
which, due to a breach of a representation or warranty, must be removed from the
Trust Estate or, to a limited extent, if such Contract becomes a Defaulted
Contract, in which event the scheduled payments from such Substitute Contract
will replace (in whole or in part) the remaining scheduled payments on the
removed or Defaulted Contract.
The Sponsor is not required to designate one or more contracts as
a Substitute Contract. Accordingly, Noteholders should not expect that
Substitute Contracts will be available.
INTERESTS IN THE EQUIPMENT; CERTAIN SECURITY INTERESTS NOT
PERFECTED. The Contracts generally consist of "chattel paper" which creates a
security interest in the related item of Equipment which constitutes the
Underlying Collateral with respect to such Contract. A security interest in
personal property is generally not a perfected security interest unless a UCC
financing statement has been filed in the appropriate filing office with respect
to such security interest. Prior to the Cut-Off Date, the Sponsor will have
filed UCC financing statements in its favor against Users only in respect of
Equipment, with an original Equipment cost in excess of $25,000. Financing
statements in favor of the Sponsor with respect to approximately ____% of the
Original Aggregate Contract Balance will have been so filed. Generally, no
action will be taken to perfect the interest of the Sponsor in any Equipment to
the extent the original Equipment cost of the related Equipment is less than or
equal to $25,000. As a result, the Sponsor does not have a perfected security
interest in Equipment with an original Equipment cost of less than or equal to
$25,000, which represents approximately ____% of the Original Aggregate Contract
Balance. To the extent UCC financing statements evidencing the Sponsor's
security interest in the Equipment have not been filed against the User (i.e.,
with respect to those Users relating to Equipment with an original cost of less
than $25,000) no such security interests in the Equipment will be perfected in
favor of the Sponsor, the Issuers or the Trustee and another party (such as a
creditor of the Sponsor) may acquire rights in the Sponsor's interest in the
Equipment superior to those of the Issuer or the Trustee. See "Certain Legal
Matters" in the Prospectus. The lack of a perfected security interest in certain
Equipment will result in claims against such Users being unsecured and may
adversely affect the ability of the Servicer to realize on such Equipment.
With respect to Contracts relating to items of Equipment with
original Equipment costs in excess of $25,000, the Sponsor will represent and
warrant that a UCC financing statement in its favor has been filed in the
appropriate filing office, with the result that the Sponsor has obtained a
perfected security interest in such Equipment. Because of the administrative
burden and expense involved, no UCC financing statements will be individually
assigned by the Sponsor to either the Issuers or the Trustee. However, general,
"blanket" UCC financing statements naming (i) the Sponsor, as debtor, and the
Issuers as secured party, and (ii) the Issuers, as debtors, and the Trustee as
secured party, will be filed in the states in which the principal executive
offices of such parties are located. Furthermore, certain provisions of the
Bankruptcy Code provide that the retention of bare legal
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title to a property interest, such as a lien on personal property, for servicing
purposes, does not, in and of itself, vest beneficial ownership of such a
property interest in the legal title holder. The likely legal result of the
foregoing, in light of the transfer of the Contracts and the Equipment to the
Issuers, is to transfer to the Issuers the benefits of all perfected security
interests in those items of Equipment in which the Sponsor itself had a
perfected security interest (i.e., with respect to items of Equipment with an
original Equipment cost in excess of $25,000). Pursuant to the Indenture, the
Issuers will pledge all of their respective right, title and interest in and to
the Trust Estate (including security interests in the Equipment) to the Trustee
for the benefit of the Noteholders.
INTERESTS IN THE CONTRACTS. The Contracts here heretofore been
originated by the Sponsor, agents of the Sponsor or brokers in the name of the
Sponsor or acquired by the Sponsor from third parties and underwritten by the
Sponsor in the same manner as Contracts originated by the Sponsor, and, in each
case, transferred and assigned by the Sponsor one of the Issuers. The Issuers
will pledge the Contracts to the Trustee for the benefit of the Noteholders. The
Issuers will warrant in the Indenture that the pledge of the Contracts to the
Trustee is a grant of a first priority perfected security interest in the
Contracts and, with certain exceptions, in the proceeds thereof. If the Sponsor,
the Issuers, the Servicer or the Trustee, while in possession of a Contract,
sells or pledges and delivers such Contract to another party, in violation of
either the Receivables Transfer Agreement or the Indenture, there is a risk that
such other party could acquire an interest in such Contract having priority over
the Trustee's interest. The Indenture provides that the Servicer will maintain
possession of the Contract Files. The Sponsor will make certain representations
and warranties with respect to the ownership of the Contracts prior to the date
of transfer to the Issuers. The Issuers will make certain representations and
warranties with respect to their ownership of the Contracts as of the date of
the pledge to the Trustee. The Sponsor will be obligated either to accept the
reconveyance of any Contract from the Trustee, or deliver a qualifying,
Substitute Contract with respect to a Contract, if, with respect to such
Contract, there is a breach of the Sponsor's representations and warranties that
materially adversely affects the interests of the Trustee in such Contract and
such breach has not been cured.
EQUIPMENT OBSOLESCENCE. In the event a Contract becomes a
Defaulted Contract and the User (and any guarantor) has insufficient assets
available to pay the Contract payments on the scheduled payment dates, the only
other source of moneys (other than the credit enhancement provided by the
subordination and the Reserve Account) for such amounts will be the income and
proceeds from the disposition of the related Equipment. Because the market value
of equipment generally declines with age and may be subject to sudden,
significant declines in value because of technological advances, in the event of
a repossession and sale of Equipment subject to a Defaulted Contract, the
Trustee may not recover the entire amount due on such Contract. As a result, the
Noteholders may be subject to delays in receiving payments and suffer loss of
their investment in the Notes.
SPONSOR'S ABILITY TO ORIGINATE ADDITIONAL CONTRACTS. It is
expected that during the Interest-Only Period, no principal will be paid to the
Noteholders. If, however, during the Interest-Only Period, (i) the Pre-Funding
Account monies are not utilized to a certain extent or (ii) a sufficient amount
of Additional Contracts are not available for pledge to the Trustee, the
Noteholders may receive payments of principal during the Interest-Only Period.
See "The Pre-Funding Account" in the Summary. The occurrence of either of the
two events described above would result, generally, from a shortage in
availability of qualifying Additional Contracts during the Interest-Only Period.
Therefore, whether the Interest-Only Period is an "interest-only period" as
expected, depends in large part on the Sponsor's ability to originate Additional
Contracts. See "Social, Economic and Other Factors" below. The Sponsor does not,
as of the date of this offering, expect that any shortage in availability will
in fact arise during the Interest-Only Period, and has agreed to originate, and
subsequently transfer to one of the Issuers, who will subsequently pledge to the
Trustee, for the benefit of the Noteholders, a sufficient amount of Additional
Contracts such that neither of the events described above will occur. However,
if the Sponsor is unable to originate Additional Contracts as expected, there is
a risk that the Noteholders may receive payments of principal during the
Interest-Only Period.
SOCIAL, ECONOMIC AND OTHER FACTORS. The ability of the Issuers to
pledge Additional Contracts to the Trustee is dependent in part upon whether the
Users thereunder perform their payment and other obligations required by such
Additional Contracts in order that such Additional Contracts meet the specified
requirements for transfer on the related Cut-Off Date during the Interest-Only
Period. The performance by such Users may be affected as a result of a variety
of social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumers' general perception of
economic conditions. However, the Sponsor is unable to determine and has no
basis to predict whether or to what extent economic or social factors will
affect the performance by such Users and the availability of Additional
Contracts.
22
<PAGE> 23
CREDIT ENHANCEMENT. Credit enhancement with respect to the Notes
will be provided by the subordination of the Residual Interest and funds on
deposit in the Reserve Account. In addition, the Class A Notes have the benefit
of the subordination of the Class M and Class B Notes, and the Class M 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 Amount and the Reserve Account. Therefore, if
a Contract becomes a Defaulted Contract at a time when total losses on the
Contracts are in excess of the Outstanding Principal Balance of any subordinated
Class and, the amounts, if any, available to be withdrawn from the Reserve
Account are reduced to zero, the holders of Notes of any senior Class may
experience losses.
GEOGRAPHIC CONCENTRATION OF INITIAL CONTRACTS. As of the Cut-Off
Date, approximately ____%, ____%, ____%, ____%, ____% and ____% of the Initial
Contracts (based on the Original Aggregate Contract Balance) were located in
____________, respectively. No other state accounts for more than ____% of the
Initial Contracts. See "The Trust Estate." Accordingly, adverse economic
conditions or other factors particularly affecting any of these regions could
adversely affect the performance on the Initial Contracts.
COMMINGLING OF FUNDS. Under the Indenture, the Servicer is
required to deposit all collections on the Contracts received after the Cut-Off
Date to the Collection Account within two Business Days of receipt thereof. If
bankruptcy or reorganization proceedings were commenced with respect to the
Servicer, those funds held by the Servicer may be subject to an automatic stay
resulting in a delay in the transfer of such funds to the Trustee.
THE ISSUERS
The Issuers are Advanta Business Receivables LLC ("ABR LLC") and
Advanta Leasing Receivables Corp. III ("ALRC III"). The Issuers will be jointly
and severally liable on the Notes. Each Issuer is a special-purpose finance
subsidiary of the Sponsor. See "The Issuers" in the Prospectus.
USE OF PROCEEDS
The Issuers will apply the net proceeds from the sale of the Notes
as follows: (i) to make the deposit of the Initial Pre-Funding Amount to the
Pre-Funding Account; (ii) to make the deposit to the Capitalized Interest
Account, in the amount specified in the Indenture; (iii) to make the initial
deposit to the Reserve Account, in the amount specified in the Indenture; (iv)
to repay certain asset-backed warehouse indebtedness relating to certain of the
Initial Contracts and (v) to pay the Sponsor, in consideration of the transfer
to the Issuers of certain of the Initial Contracts.
THE TRUSTEE
________________ will be the Trustee under the Indenture. Advanta
Business Services Corp., as Sponsor 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.
23
<PAGE> 24
THE TRUST ESTATE
GENERAL
The Trust Estate primarily consists of the Contracts and the
related security interests in the Equipment.
Approximately _____% of the Initial Contracts, measured by
Original Aggregate Contract Balance, consist of an agreement, including, as
applicable, schedules, supplements and amendments to a master lease, pursuant to
which specified Equipment is leased to a lessee at a specified monthly rental.
Approximately _____% of the Initial Contracts, measured by Original Aggregate
Contract Balance, take the form of finance contracts, installment sale contracts
and leases, loans and other contracts consisting of notes and accompanying
security agreements. Each Additional Contract will be in the form of a lease or
a loan.
Generally, the Initial Contracts that take the form of leases are
"net leases" (i.e., the User assumes all responsibility with respect to the
related Equipment, including the obligation to pay all costs relating to its
operation, maintenance, repair). In addition, all Initial Contracts that take
the form of leases contain "hell or high water" clauses unconditionally
obligating the User to make periodic payments, without setoff, at the time and
on the dates specified in such Contract, notwithstanding default by the Sponsor,
the Servicer, or Issuers, either or any assignee of any of them under such
Contract, damage to or destruction of the related Equipment or any other event.
The Contracts will take the form of leases, loans or other
contracts. Leases may be "true" leases or leases intended as security; loans may
include installment sale contracts. Leases, loans or other contracts typically
require a "residual" payment at the end of the term in the form of either a
purchase option or required balloon payment.
Users under the Initial Contracts that take the form of leases
may, upon prior written notice to the Servicer, assign or sublease the related
Equipment, provided that the Servicer consents to the assignee or sublessee in
accordance with the terms of the related Contract. The right to receive such
prior written notice and grant or deny such consent shall be exercised by the
Servicer pursuant to the authority delegated to it in the related Contract.
Notwithstanding any such assignment or sublease, each User will remain liable
for the lessee obligations under the related Contract and such Contract will
remain part of the assets pledged to the Trustee.
The Notes are secured by (i) Initial Contracts with an Original
Aggregate Contract Balance of $____________ (calculated using the Statistical
Discount Rate), (ii) a Pre-Funding Account with an Initial Pre-Funded Amount
equal to $____________, (iii) the Reserve Account and (iv) certain other
miscellaneous accounts.
The Initial Contracts consist of (i) transactions originated by
the Sponsor, agents of the Sponsor or brokers in the name of the Sponsor and
(ii) transactions acquired by the Sponsor from third-parties and underwritten by
the Sponsor in the same manner as Contracts originated by the Sponsor.
Certain of the Initial Contracts that take the form of leases
contain provisions requiring that the related User purchase the related
Equipment at the end of the related Contract term for an amount, which may in
certain cases be the fair market value of the related Equipment at Contract
maturity. Such amount may be (i) a specified amount or (ii) a minimum specified
amount plus an unspecified excess amount which together with the minimum
specified amount is the lesser of (a) the fair market value of the related
Equipment at Contract maturity or (b) a maximum specified amount. Any payment of
such a specified amount or minimum specified amount received from a User in
connection with a required purchase by such User at maturity of the related
Contract is a "Final Contract Payment." Any such excess amount received from a
User is an "Excess Amount."
Certain Initial Contracts that take the form of leases do not
contain a provision requiring the related User to purchase the related
Equipment, but rather contain an end-of-term purchase option (such Contracts and
Equipment, the "Purchase Option Contracts" and "Purchase Option Equipment,"
respectively). Such purchase options are exercisable at varying amounts, and are
referred to as "Purchase Option Payments." In the event that a User under a
Purchase Option Contract does not exercise its purchase option, such User is
required to either re-lease the Equipment or return the related Purchase Option
Equipment to the Servicer. The Servicer may, but has no obligation to, purchase
any such returned Purchase Option Equipment. The amounts of (x) any Purchase
Option
24
<PAGE> 25
Payments, (y) other proceeds of the sale of Purchase Option Equipment to the
extent such proceeds exceed any Scheduled Payments and Final Contract Payments
remaining unpaid, and (z) Excess Amounts are collectively referred to as
"Residual Receipts." Final Contract Payments are not "Residual Receipts."
All proceeds of the sale of Equipment related to Defaulted
Contracts and any amounts collected related to the failure of such User to pay
any required amounts under the related Contract or to return the Equipment, in
each case as reduced by (i) any unreimbursed Servicer Advances with respect to
such Contract or such Equipment and (ii) any reasonably incurred out-of-pocket
expenses incurred by the Servicer in enforcing such Contract or in liquidating
such Equipment are referred to as "Defaulted Residual Receipts."
Generally, the Initial Contracts that take the form of leases are
on a "net" basis, that is, the User is responsible for all operating expenses,
including taxes and insurance premiums. The Users under the Initial Contracts
generally are obligated to: (1) remit all Contract Payments due; (2) operate the
related Equipment in compliance with the manufacturers' instructions; (3)
maintain and service the related Equipment; and (4) insure the related Equipment
against casualty losses, public liability for bodily injury and against property
damage.
References herein to percentages of Contracts refer in each case
to the percentage of the Aggregate Contract Balance (calculated using the
Statistical Discount Rate) of the Initial Contracts as of the Cut-Off Date.
As of the Cut-Off Date, the Initial Contracts had remaining terms
to maturity of ___ to ___ months. The final Scheduled Payment or Final Contract
Payment on the Initial Contract with the latest maturity is due in ____, 200__.
As of the Cut-Off Date, the Contract Balances of the Initial Contracts range
from $________. No more than ___% of the Original Aggregate Contract Balance is
attributable to any one User (including affiliates of such User), and the
average Contract Balance is $_________.
The Initial Contracts which are leases in form generally do not
provide for a right of the User to prepay. However, under the Indenture, the
Servicer is permitted to allow prepayment in an amount not less than the
Prepayment Amount. In addition, in the event that a User requests an upgrade or
trade-in of Equipment, the Servicer may remove such Equipment and related
Contract from the Contracts, but only upon payment of an amount equal to the sum
of (1) the Contract Balance as of the first day of the Collection Period
preceding such removal, (2) one month's interest thereon at the Actual Discount
Rate, and (3) any Scheduled Payments due and outstanding under such Contract
that have not been paid by the User (collectively the "Prepayment Amount").
SUBSTITUTIONS AND MODIFICATIONS
Pursuant to the Indenture, the Servicer will have the right (but
not the obligation) at any time to substitute one or more Contracts (each a
"Substitute Contract") for a Contract ("Predecessor Contract") if:
(i) the Predecessor Contract then meets the requirements for
being a "Defaulted Contract," and
(ii) the Aggregate Contract Balance(s) of such Substitute
Contract or Contracts is at least equal to the Aggregate Contract
Balance(s) of such Predecessor Contract or Contracts, each as of the
Calculation Date immediately following the date of such substitution
and calculated, with respect to the Predecessor Contract, as if such
Predecessor Contract were not a Defaulted Contract.
In addition, the Servicer has the right to modify the payment terms of
the Contracts under certain circumstances, provided the Contract, as modified,
(i) has a Contract Balance not lower than the Contract Balance of the Contract
prior to the modification and (ii) does not have a maturity date later than the
maturity date of the Contract then pledged to the Trustee that has the latest
maturity date of all the Contracts then included in the Trust Estate. See
"Description of the Notes--Remittance and Other Servicing Procedures" for a
description of additional provisions regarding modifications.
25
<PAGE> 26
The Indenture further provides that the Aggregate Contract Balance of
all Contracts substituted or modified may not exceed 10% of the Maximum
Collateral Account (exclusive of the Contract Balance of Contracts substituted
for other Contracts which were determined to have breached a representation or
warranty).
Upon repossession and disposition of any Equipment subject to a
Defaulted Contract, any deficiency remaining will be pursued to the extent
deemed practicable by the Servicer. The Servicer on behalf of the holder of the
Residual Interest is directed to maximize the residual value of the Equipment
relating to any Defaulted Contract (the "Net Residual Value"), and, in such
regard, the Servicer may sell such Equipment at the best available price,
refurbish such Equipment and re-lease or sell such Equipment to third parties,
or take any other commercially reasonable steps to maximize such Equipment's Net
Residual Value. Defaulted Residual Receipts with respect to any such Defaulted
Contract, including any future payments received with respect to such Defaulted
Contracts, shall be paid to the Collection Account as Available Funds. If the
Servicer reasonably believes that the Net Residual Value of any Equipment is
zero or de minimis, it will dispose of such Equipment in accordance with its
standard procedures.
STATISTICAL INFORMATION
The statistical information presented in this Prospectus
Supplement concerning the pool of Contracts as of the Cut-Off Date is based on
the number and the Aggregate Contract Balance of the Initial Contracts as of the
Cut-Off Date (the "Original Aggregate Contract Balance"). The Aggregate Contract
Balance of the Initial Contracts as of the Cut-Off Date is $___________ using
the Statistical Discount Rate. The Aggregate Contract Balance of the Initial
Contracts as of the Cut-Off Date is $__________using the Actual Discount Rate.
The statistical distribution of such characteristics of the Initial Contracts as
of the Cut-Off Date using the Actual Discount Rate will vary somewhat from the
statistical distribution of such characteristics of the Initial Contracts as of
the Cut-Off Date using the Statistical Discount Rate as presented in this
Prospectus Supplement, although such variance will not be material. In addition,
certain Initial Contracts included in the statistical information included
herein were determined not to meet the eligibility requirements for the final
pool. As a result, the statistical distribution of characteristics as of the
Closing Date for the final Contract pool will vary somewhat from the statistical
distribution of such characteristics as presented in this Prospectus Supplement,
although such variance will not be material.
Unless otherwise noted, all statistical percentages in this
Prospectus Supplement are measured by the Original Aggregate Contract Balance
(calculated using the Statistical Discount Rate).
Following is certain statistical information relating to the
Initial Contracts, calculated as of the Cut-Off Date. Certain columns may not
add to 100% due to rounding.
CERTAIN INFORMATION WITH RESPECT TO THE CONTRACTS AND THE USERS..
The following tables summarize certain information with respect to the Contracts
and the Users as of the Cut-Off Date.
26
<PAGE> 27
DISTRIBUTION OF CONTRACTS BY STATE
<TABLE>
<CAPTION>
Percentage of Percentage of Aggregate
State Number of Contracts Number of Contracts Aggregate Contract Balance Contract Balance
- ------------------------- ------------------- ------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C>
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
- ------------------------------------------------------------------------------------------------------------------------------
Total...................
==============================================================================================================================
</TABLE>
27
<PAGE> 28
DISTRIBUTION OF CONTRACTS BY CONTRACT BALANCE
<TABLE>
<CAPTION>
Percentage of Number Aggregate Contract Percentage of Aggregate
Contract Balance Number of Contracts of Contracts Balance Contract Balance
- ----------------------------- ------------------- -------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
$0.01 - 5,000.00
5,000.01 - 10,000.00
10,000.01 - 15,000.00
15,000.01 - 20,000.00
20,000.01 - 25,000.00
25,000.01 - 30,000.00
30,000.01 - 35,000.00
35,000.01 - 40,000.00
40,000.01 - 45,000.00
45,000.01 - 50,000.00
50,000.01 - 60,000.00
60,000.01 - 70,000.00
70,000.01 - 80,000.00
80,000.01 - 90,000.00
90,000.01 - 100,000.00
100,000.01 - 125,000.00
125,000.01 - 150,000.00
150,000.01 - 175,000.00
175,000.01 - 200,000.00
greater than $200,000.00
- --------------------------------------------------------------------------------------------------------------------------
Total.......................
==========================================================================================================================
</TABLE>
28
<PAGE> 29
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of Number of Aggregate Contract Percentage of Aggregate
Remaining Term Number of Contracts Contracts Balance Contract Balance
- ------------------ ------------------- ----------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
- ------------------------------------------------------------------------------------------------------------------
Total......
==================================================================================================================
</TABLE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of Number of Aggregate Contract Percentage of Aggregate
Equipment Type Number of Contracts Contracts Balance Contract Balance
- ---------------------------- ------------------- ----------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
Computer
Copiers
Facsimiles
Security and Alarm Systems
Telephones
Miscellaneous
- ---------------------------------------------------------------------------------------------------------------------------
Total......................
===========================================================================================================================
</TABLE>
HISTORICAL DELINQUENCY INFORMATION. Delinquency information for
equipment leases in the Servicer's servicing portfolio.
HISTORICAL DELINQUENCY EXPERIENCE
SERVICING PORTFOLIO
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------------ ----------------- ------------- ------------- ------------- -------------
$ % $ % $ % $ % $ % $ %
------- ------- ------- ------ ----- ------ ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Receivables
Balance(1)
No. of
Delinquent Days
30-59 Days
60-89 Days
90 Days +
- ---------------------------------------------------------------------------------------------------------------------------------
Total
Delinquency
</TABLE>
- ---------------------
(1) The Total Receivables Balance is equal to the aggregate future rent owing
on the leases in the Servicer's servicing portfolio.
29
<PAGE> 30
HISTORICAL DEFAULT EXPERIENCE. Loss information for the Servicer's servicing
portfolio is set forth below.
HISTORICAL LOSS EXPERIENCE
SERVICING PORTFOLIO
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended ---------------------------------------------------
September 30,
1997 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding)1)....................
Net Losses...........................
Net Losses as a Percentage of Average
Receivables.......................
</TABLE>
- -------------------------
(1) Equals the arithmetic average of the beginning of the period Receivable
balance and the end of the period Receivable Balance. The Receivables
Balance is equal to the aggregate future rent owing on the leases in the
Servicer's servicing portfolio.
(2) Annualized.
30
<PAGE> 31
DESCRIPTION OF THE NOTES
GENERAL. The Notes will be issued pursuant to the Indenture. The
Notes will be available only in book-entry form; see "Description of the
Securities--Book-Entry Registration" in the Prospectus.
PAYMENT DATES. Payments on the Notes will be made on the ___ day
of each month (or if such day is not a Business Day, the next succeeding
Business Day), commencing on __________, _____ (each, a "Payment Date"), to
holders of record on the last day of the immediately preceding calendar month
(each, a "Record Date").
INTEREST PAYMENTS. On each Payment Date, the interest due (the
"Interest Payments") with respect to each Class of Notes since the last Payment
Date will be the interest that has accrued on such Notes since the last Payment
Date, or in the case of the first Payment Date, since the Closing Date (each
such period, an "Interest Accrual Period") at the applicable Interest Rate
applied to the then unpaid principal amounts (the "Outstanding Principal
Balance") of the Notes of each Class, after giving effect to payments of
principal, on the preceding Payment Date.
INTEREST-ONLY PERIOD. From time to time the Issuers may pledge
Additional Property to the Trustee. The Indenture provides that, unless a
Required Amortization Event occurs prior to the _________ 1998 Payment Date,
amounts which would otherwise be paid as principal to the holders of the Notes
will be released to the Issuers in consideration of the Issuers pledge to the
Trustee, for the benefit of the Noteholders, of Additional Property, with the
result that the Noteholders will receive payments of interest only, and no
payments of principal, on each Payment Date prior to and including the _______
Payment Date (other than any amounts disbursed to the Noteholders from the
Pre-Funding Account following the end of the Pre-Funding Period as a prepayment
of principal on the Notes).
PRINCIPAL PAYMENTS. Unless a Required Amortization Event occurs
earlier, the Noteholders will receive no principal payments until the __________
Payment Date (other than any amounts disbursed to the Noteholders from the
Pre-Funding Account following the end of the Pre-Funding Period as a prepayment
of principal on the Notes).
For each Payment Date during the Amortization Period, each of the
Class A Noteholders, the Class M Noteholders and the Class B Noteholders will be
entitled to receive payments of principal ("Principal Payments"), to the extent
funds are available therefor, in the priorities set forth in the Indenture and
described herein below and under "--Flow of Funds."
On each Payment Date during the Amortization Period, to the extent
funds are available therefor, the principal will be paid to the Noteholders in
the following priority: (a)(i) to the Class A-1 Noteholders only, until the
Outstanding Principal Balance on the Class A-1 Notes has been reduced to zero,
the Class A Principal Payment, then (ii) to the Class A-2 Noteholders only,
until the Outstanding Principal Balance on the Class A-2 Notes has been reduced
to zero, the Class A Principal Payment, then (iii) to the Class A-3 Noteholders
only, until the Outstanding Principal Balance on the Class A-3 Notes has been
reduced to zero, the Class A Principal Payment, (b) to the Class M Noteholders,
until the Outstanding Principal Balance on the Class M Notes has been reduced to
zero, the Class M Principal Payment and (c) to the Class B Noteholders, the
Class B Principal Payment.
The "Class A Principal Payment" is the amount necessary to reduce
the aggregate Outstanding Principal Balance of the Class A Notes to the Class A
Target Investor Principal Amount.
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 Aggregate Contract Balance as of the related Calculation
Date.
The "Class M Principal Payment" is the amount necessary to reduce
the Outstanding Principal Balance of the Class M Notes to the Class M Target
Investor Principal Amount.
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<PAGE> 32
The "Class B Principal Payment" is the amount necessary to reduce
the Outstanding Principal Balance of the Class B Notes to the greater of the
Class B Target Investor Principal Amount and the Class B Floor.
The "Class M Target Investor Principal Amount" with respect to
each Payment Date is an amount equal to the product of (a) the Class M
Percentage and (b) the Calculation 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 Aggregate Contract Balance as of the related Calculation
Date.
The "Class B Floor" with respect to each Payment Date means (a)
_____% of the Original Aggregate Contract Balance, 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 Balance of the Residual
Interest and the amount on deposit in the Reserve Account after giving effect to
withdrawals to be made on such Payment Date.
The "Class A Percentage" is _________%; the "Class M Percentage"
is _________% and the "Class B Percentage" is _______%.
The "Cumulative Loss Amount" with respect to each Payment Date is
an amount equal to the excess, if any, of (a) the Contract Balance of all
Contracts which have become Defaulted Contracts since the Closing Date over (b)
the sum of (i) the Contract Balances of all Defaulted Contracts which became
Reinstated Contracts (as described below under "Defaulted Contracts") and (ii)
Defaulted Residual Receipts.
FLOW OF FUNDS. The Indenture will require that the Trustee
establish an account (the "Collection Account") and that the Servicer deposit to
the Collection Account (or the Advance Payment Account, as described herein),
all collections or receipts received by the Servicer on the Contracts no later
than two Business Days following the Servicer's determination that such amounts
relate to the Contracts or the Equipment.
A. On each Payment Date prior to the Amortization Date, the
Trustee will be required to make the following payments from the Available Funds
(including amounts transferred from the Reserve Account on such Payment Date)
then on deposit in the Collection Account or, with respect to paragraph (vi),
from amounts on deposit in the Additional Property Funding Account, in the
following order of priority:
(i) from the Available Funds, to the Servicer, any
unrecoverable Servicer Advances;
(ii) from the Available Funds then remaining in the
Collection Account, to the servicer, if ABS is not then the Servicer,
the Servicing Fee then due, together with certain miscellaneous
amounts;
(iii) from the Available Funds then remaining in the
Collection Account, to the Class A Noteholders, the Class A Note
Interest and Class A Overdue Interest for the related Interest Accrual
Period; pari passu with respect to each Class of Class A Notes;
(iv) from the Available Funds then remaining in the
Collection Account, to the Class M Noteholders, the Class M Note
Interest and the Class M Overdue Interest for the related Interest
Period;
(v) from the Available Funds then remaining in the
Collection Account, to the Class B Noteholders, the Class B Note
Interest and the Class B Overdue Interest for the related Interest
Accrual Period;
(vi) from the sum of the Available Funds then remaining in
the Collection Account, and (y) the amount then on deposit in the
Additional Property Funding Account, to (such sum, the "Available
Additional Property Funding Amount"), as follows:
(A) to the Issuers, an amount equal to the least of:
(i) the Available Additional Property Funding Amount,
(ii) the Aggregate Net Cumulative Contract Balance
Decline Amount; and
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<PAGE> 33
(iii) the Aggregate Contract Balances of all Additional
Contracts (calculated as of the related Cut-Off
Date) actually pledged to the Trustee on such
Payment Date (exclusive of any Additional
Contracts pledged to the Trustee on such Payment
Date with respect to the Pre-Funding feature);
and
(B) to the Additional Property Funding Account, the
lesser of
(i) the excess, if any, (x) the Aggregate Net
Cumulative Contract Balance Decline over (y) the
amount described in Clause (A)(iii) above; and
(ii) the remaining Available Additional Property
Funding Amount;
(vii) from the Available Funds then remaining in the
Collection Account, to the Servicer, if ABS is the Servicer, the
Servicing Fee then due, together with certain miscellaneous amounts;
(viii) from the Available Funds then remaining in the
Collection Account to the Reserve Account, to the extent necessary to
increase the amount on deposit in the Reserve Account to the Required
Reserve Amount for such Payment Date; and
(ix) to the Issuers, as the holders of the Residual
Interest, any remaining Available Funds on deposit in the Collection
Account.
B. On the Payment Date which is also the Amortization Date and on
each Payment Date thereafter, the Trustee will be required to make the following
payments from the Available Funds (including amounts transferred from the
Reserve Account on such Payment Date) then on deposit in the Collection Account,
in the following order of priority:
(i) from the Available Funds, to the Servicer, any
unrecoverable Servicer Advances;
(ii) from the Available Funds then remaining in the
Collection Account, to the servicer, if ABS is not then the Servicer,
the Servicing Fee then due, together with certain miscellaneous
amounts;
(iii) from the Available Funds then remaining in the
Collection Account, to the Class A Noteholders, the Class A Note
Interest and Class A Overdue Interest for the related Interest Accrual
Period, pari passu with respect to each Class of Class A Notes;
(iv) from the Available Funds then remaining in the
Collection Account, to the Class M Noteholders, the Class M Note
Interest and the Class M Overdue Interest for the related Interest
Period;
(v) from the Available Funds then remaining in the
Collection Account, to the Class B Noteholders, the Class B Note
Interest and the Class B Overdue Interest for the related Interest
Accrual Period;
(vi) until the Class A Principal Amount has been reduced to
zero, from the Available Funds then remaining in the Collection
Account, (such an amount to be paid on "sequential-pay" fashion with
respect to the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes, in that order) the Class A Principal Payment and the Class A
Overdue Principal;
(vii) until the Class M Principal Balance has been reduced
to zero, to the Class M Noteholders, from the Available Funds then
remaining in the Collection Account, the Class M Principal Payment and
the Class M Overdue Principal;
(viii) until the Class B Principal Balance has been reduced
to zero, to the Class B Noteholders, from the Available Funds then
remaining in the Collection Account, the Class B Principal Payment and
the Class B Overdue Principal;
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(ix) from the Available Funds then remaining in the
Collection Account, to the Servicer, if ABS is then the Servicer, the
Servicing Fee then due, together with certain miscellaneous amounts;
(x) from the Available Funds then remaining in the
Collection Account, to the Reserve Account, to the extent necessary to
increase the amount on deposit in the Reserve Account to the Required
Reserve Amount for such Payment Date;
(xi) to the Issuers, as the holder of the Residual
Interest, any remaining Available Funds on deposit in the Collection
Account.
In addition to the distributions from the Collection Account on
each Payment Date, on the Payment Date immediately following the Funding
Termination Date, any amounts remaining on deposit in the Pre-Funding Account on
such Payment Date will be distributed as a prepayment of principal on the Notes,
with the Class A Notes, the Class M Notes and the Class B Notes receiving the
Class A Pre-Funding Percentage, the Class M Pre-Funding Percentage and the Class
B Pre-Funding Percentage, respectively, of such remaining amounts; provided,
that if such remaining amount is less than $100,000 and, as of such Payment
Date, the Interest-Only Period has not ended, such remaining amount will be
deposited in the Additional Property Funding Account.
The "Aggregate Net Cumulative Contract Balance Decline Amount"
with respect to any Payment Date prior to the Amortization Date, is an amount
equal to the excess of (I) the sum, for each prior Collection Period (and
cumulative for all such prior Collection Periods) of (x) all Contract Principal
either received or advanced by the Servicer with respect to such Collection
Period and (y) the Contract Balances of each Contract which became a Defaulted
Contract during such Collection Period and as to which the Issuers did not
replace with a qualifying Substitute Contract over (II) the Aggregate Contract
Balances of all Additional Contracts actually pledged to the Trustee by the
Issuers in exchange for all amounts released to the Issuers pursuant to clause
(A)(iii) under "Flow of Funds" above on all prior Payment Dates. As used above,
"Contract Principal" means, with respect to any Contract and Collection Period,
an amount equal to the excess of (I) the Scheduled Payment due on such Contract
during such Collection Period over (ii) the product of (x) the Contract Balance
thereof, as of the opening of business on the first day of such Collection
Period and (y) one-twelfth of the Actual Discount Rate.
REQUIRED AMORTIZATION EVENT. The earliest to occur of any of the
following: (i) the occurrence of an Event of Servicing Termination or an Event
of Default, (ii) the amount on deposit in the Additional Property Funding
Account exceeds $_______, (iii) the bankruptcy of the Servicer or either of the
Issuers, (iv) as of any Determination Date, the three-month average ratio of the
Aggregate Contract Balance of Delinquent Contracts which are 61 days or more
delinquent to the Aggregate Contract Balance, exceeds _____%, (v) as of any
Determination Date, the 3 month average ratio of the Aggregate Contract Balance
of all Contracts which become and continue to be Defaulted Contracts during the
Initial Period to the Aggregate Contract Balances, exceeds _____%.
AFFIRMATIVE COVENANTS. The Sponsor will covenant and agree in the
Receivables Transfer Agreement, among other things, that during the
Interest-Only Period, (i) the Sponsor will remain in the business of originating
and purchasing equipment and related leases, loans, and other contracts
substantially similar to the Initial Equipment and Initial Contracts, (ii) the
Sponsor will use its best efforts to originate and purchase such equipment and
related leases, loans and other contracts in a quantity no less than the
cumulative amount during the Interest-Only Period of (a) amounts remaining on
deposit in the Collection Account after making certain payments as described
herein, (b) amounts on deposit in the Additional Property Funding Account and
(c) during the Pre-Funding Period only, amounts on deposit in the Pre-Funding
Account, (iii) the Sponsor will not sell, or enter into agreements to sell, such
equipment or related leases, loans and other contracts to others in a manner
which would materially and adversely affect the Sponsor's ability to perform its
obligations under the Receivables Transfer Agreement, to make available
Additional Contracts for pledge to the Trustee.
REDEMPTION. The Issuers 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 Aggregate
Contract Balance (after giving effect to the payment of principal on such
Payment Date) is less than or equal to 10% of the Maximum Collateral Amount. The
"Maximum Collateral Amount" is the sum of (x) the Original Aggregate Contract
Balance plus (y) the Contract Balance of each Additional Contract included in
the Trust Estate as a result of the Pre-Funding feature. The Issuers will give
notice of such redemption to each
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Noteholder and the Trustee at least 30 days before the Payment Date fixed for
such prepayment. Upon deposit of funds necessary to effect such redemption, the
Trustee shall pay the remaining unpaid principal amount of the Notes and all
accrued and unpaid interest as of the Payment Date fixed for redemption. See
"Description of the Notes--Redemption."
SUBORDINATION PROVISIONS. A portion of the credit enhancement
available for the benefit of the Class A Noteholders is provided by the
subordination of the Class M Notes, of the Class B Notes and of the Residual
Interest. A portion of the credit enhancement available for the benefit of the
Class M Notes is provided by the subordination of the Class B Notes and of the
Residual Interest. A portion of the credit enhancement available for the benefit
of the Class B Noteholders is provided by the Residual Interest.
The cash flow and subordination provisions of the Indenture
provide that Available Funds on each Payment Date will be used to fund payments
to the Noteholders (and to pay the fees and expenses of the Servicer).
"Available Funds" with respect to a Payment Date generally include (i) amounts
collected during the immediately preceding Collection Period with respect to the
Contracts and the Equipment, including, without limitation, Scheduled Payments,
Final Contract Payments, Defaulted Residual Receipts, Residual Receipts,
Prepayment Amounts, Prepayment Amounts, investment earnings on each of the
Accounts and any amounts required to be transferred to the Collection Account
from the Capitalized Interest Account with respect to such Payment Date plus
(ii) amounts transferred from the Reserve Account with respect to such payment
Date and deposited in the Collection Account.
On each Payment Date prior to the Amortization Date, with respect
to amounts due to the Noteholders, the Indenture requires that there be paid,
first, interest (together with any overdue interest and interest thereon) to the
Class A Noteholders; second, interest (together with any overdue interest and
interest thereon) to the Class M Noteholders; and, third, interest (together
with any overdue interest and interest thereon) to the Class B Noteholders.
On and after the Payment Date which is also the Amortization Date,
with respect to amounts due to the Noteholders, the Indenture requires that
there be paid, first, interest (together with any overdue interest and interest
thereon) to the Class A Noteholders; second, interest (together with any overdue
interest and interest thereon) to the Class M Noteholders; third, interest
(together with any overdue interest and interest thereon) to the Class B
Noteholders; fourth, principal to the Class A Noteholders (to be paid in
"sequential-pay" fashion); fifth, principal to the Class M Noteholders; and
sixth, principal to the Class B Noteholders, as further described herein.
DEFAULTED CONTRACTS. A "Defaulted Contract" will mean any Contract
(a)(i) that is a Delinquent Contract with respect to which a User is
contractually delinquent for 121 days or more (without regard to any Servicer
Advances or the application of any security deposit provided by the User (a
"Security Deposit") or (ii) as to which the Servicer has determined in
accordance with its customary servicing practices that eventual payment of the
remaining Scheduled Payments thereunder is unlikely or (iii) that has been
rejected by or on behalf of the User in a bankruptcy proceeding and (b) as to
which a Release Event has not occurred. With respect to any Contract, a "Release
Event" is a payment in full of such Contract or a removal of such Contract by
the Servicer pursuant to the terms of the Indenture. However, during the period
from the Closing Date to the end of the Collection Period relating to the
Payment Date immediately preceding the Amortization Date (the "Initial Period"),
a Contract remains a "Defaulted Contract" only for so long as it continues to
meet the requirements for being a "Defaulted Contract." If, at any time during
the Initial Period, a Contract no longer meets the requirements for being a
"Defaulted Contract," such Contract is no longer a "Defaulted Contract" (such
Contract, a "Reinstated Contract") In addition, the Indenture requires that
during the Initial Period a Defaulted Contract be assigned a Contract Balance of
zero at the time such Contract becomes a Defaulted Contract. However, if at any
time during the Initial Period, a Defaulted Contract no longer meets the
requirements for being a Defaulted Contract and therefore is no longer
considered a Defaulted Contract, the Contract Balance of such Contract shall no
longer be zero, but rather shall be recalculated to reflect the Contract Balance
of a Contract which is not a Defaulted Contract.
One effect of the ability of a "Defaulted Contract" to restore
itself to non-defaulted status during the Initial Period is that the Contract
Balances of any Contracts that became Defaulted Contracts during the Initial
Period, but that no longer meet the requirements for being "Defaulted Contracts"
at the end of the Initial Period (i.e., have returned to performing status
subsequent to their default), are not paid to the Noteholders as an accelerated
payment of principal unless they become Defaulted Contracts again after the
Initial Period.
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Another effect is that the percentage of Defaulted Contracts
during the Initial Period will reflect only those Contracts currently in default
and will not reflect Contracts that were in default but which have returned to
performing status.
Since the Available Funds on any Payment Date commencing with the
Amortization Date are applied in the order of priority described above under
"Flow of Funds" until such Available Funds are exhausted, the effect of
including in the required "Class A Principal Payment," in the "Class B Principal
Payment" and in the "Class M Principal Payment" the amount of or, deemed loss
(i.e., the Contract Balance of any Defaulted Contract) and prioritizing the
payment of the Class A Principal Payment, the Class M Principal Payment and the
Class B Principal Payment (in that order) is to allocate losses first, to the
holder of the Residual Interest, second, to the Class B Noteholders, third, to
the Class M Noteholders and fourth, to the Class A Noteholders.
Through the operation of the "Class A Overdue Principal," "Class M
Overdue Principal" and "Class B Overdue Principal" provisions, the Class A
Noteholders and the Class B Noteholders are entitled to receive any aggregate,
cumulative shortfalls of Class A Principal Amounts, Class M Principal Balances
or Class B Principal Balances not paid on prior Payment Dates.
RESERVE ACCOUNT. The Noteholders will have the benefit of funds on
deposit in an account (the "Reserve Account") to the extent that, on any Payment
Date, there is a shortfall in the amount available to pay amounts owing the
Servicer and to make interest and principal payments on the Notes. The Reserve
Account will be funded by an initial deposit of ____% of the Original Aggregate
Contract Balance. Thereafter, to the extent provided in the Indenture,
additional deposits will be made to the Reserve Account (x) in connection with
each addition of Additional Contracts to the Trust Estate as a result of the
operation of the Pre-Funding feature (in amounts equal to ___% of the Contract
Balance of each such Additional Contract as of the related Cut-Off Date and (y)
on each Payment Date, 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" generally equals the lesser of (a) ____%
of the Maximum Collateral Amount and (b) the Outstanding Principal Balance of
the Notes, subject to certain floors and triggers set forth in the Indenture.
Amounts on deposit in the Reserve Account in excess of the Required Reserve
Amount will be disbursed to the Issuers in accordance with the provisions of the
Indenture.
REPRESENTATIONS AND WARRANTIES OF THE SPONSOR
The Sponsor will make certain warranties in the Receivables
Transfer Agreement (as of the Closing Date with respect to the Initial Contracts
and as of the related date of pledge with respect to the Additional Contracts,
unless otherwise indicated), the benefits of which will be assigned to the
Trustee, including that: (i) as of the Cut-Off Date, no more than 10% of a
payment on any Contract was more than 60 days past due and (except for payments
which are 60 days or less past due) there was no default, breach, violation or
event permitting acceleration under the terms of any Contract, (ii) no provision
of any Contract has been waived, altered or modified in any respect, except by
instruments or documents contained in the related Contract File (other than
payment delinquencies permitted under clause (i) above), (iii) each Contract
represents the legal, valid and binding payment obligation of the User,
enforceable in accordance with its terms, subject to certain restrictions
imposed under bankruptcy laws and the availability of equitable relief, (iv) the
Contracts generally are not and will not be subject to any right of rescission,
setoff, counterclaim or defense, including the defense of usury, (v) all
requirements of applicable federal, state and local laws, and regulations
thereunder, including, without limitation, usury laws, if any, in respect of
each Contract have been complied with in all material respects, (vi) each
Contract contains provisions requiring the User to assume all risk of loss or
malfunction of the related Equipment, and making the User absolutely and
unconditionally liable for all payments required to be made thereunder, without
any right of setoff for any reason whatsoever, (vii) except for certain
specified Contracts with an Aggregate Contract Balance under $_______________,
each of which may be prepaid in an amount no less than the Prepayment Amount, no
Contract provides the User with a right to terminate or prepay, (viii) no
Contract provides for the substitution, exchange or addition of any other items
of equipment pursuant to such Contract which would result in any reduction of
the total Scheduled Payments thereon or extension of payments due under each
Contract except for such extensions which would not extend beyond the term of
the Initial Contract with the longest remaining term as of the Closing Date,
(ix) each Contract was assignable by the Sponsor and is assignable by the
related Issuer, (x) all necessary action shall have been taken by the Sponsor to
transfer to the related Issuer all of the Sponsor's right, title and interest in
and to each Contract and the related Equipment, (xi) neither the Contract nor
the related Equipment has been sold,
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transferred, assigned or pledged by the Sponsor to any person other than the
related Issuer, and immediately prior to assigning or pledging the Contracts and
the related Equipment to the Issuers, the Sponsor was the sole owner of each
Contract and the related Equipment free and clear of any liens and encumbrances,
(xii) no Contract has been satisfied, subordinated or rescinded, except for any
Contract prepaid in full after the Cut-Off Date but before the Closing Date and
(xiii) no one User (including its affiliates) has Contracts with an Aggregate
Contract Balance that exceeds ___% of the Original Aggregate Contract Balance.
The Sponsor will also represent that, as of the Closing Date, the
Initial Contracts have the following characteristics assuming a discount rate
equal to the Statistical Discount Rate: (A) each Initial Contract has a
remaining term as of the Closing Date of not less than __ months and not more
than ______ months, (B) the weighted average remaining term of the Initial
Contracts is approximately ___ months, (C) each Initial Contract has a Contract
Balance as of the Cut-Off Date of not more than $1,000,000, (D) as of the
Cut-Off Date, no item of Equipment has been repossessed, (E) no more than _____%
of the Original Aggregate Contract Balance is attributable to Contracts with
Users in any single state, and (F) no Initial Contract has a Scheduled Payment
or Final Contract Payment due after _____, 200_.
With respect to any Additional Contracts pledged to the Trustee,
for the benefit of the Noteholders, the Sponsor will make the following
representations as of the date of the related pledge of such Additional
Contracts assuming a discount rate equal to the Actual Discount Rate: (A) each
Additional Contract has a remaining term as of the related Cut-Off Date of not
less than __ months and not more than ___ months, (B) the weighted average
remaining term of the Contracts is not less than ___ months, (C) each Additional
Contract has a Contract Balance as of the related Cut-Off Date of not more than
$1,000,000, (D) as of the related Cut-Off Date, no item of Equipment related to
the Additional Contracts has been repossessed, (E) no more than ___% of the
Aggregate Contract Balance for all Contracts on the related Cut-Off Date is
attributable to Contracts with Users in any single state and (F) no Additional
Contract has a Scheduled Payment or Final Contract Payment due after ______,
200_,.
Such representations and warranties will survive the pledge of the
Trust Estate to the Trustee, for the benefit of the Noteholders.
Under the terms of the Receivables Transfer Agreement and the
Indenture, the Sponsor will be obligated (x) to accept the reconveyance of any
Contract and deposit the related Prepayment Amount with the Trustee, or (y)
deliver a qualifying Substitute Contract, in either case on or before the end of
the calendar month following the month of its discovery or receipt of notice of
a breach of a representation or warranty made by the Sponsor or the Servicer,
respectively, that materially adversely affects such Contract, which breach has
not been cured or waived in all material respects. This obligation either to
accept the reconveyance of such Contract and remit the Prepayment Amount or
deliver a qualifying Substitute Contract will constitute the sole remedy against
the Sponsor available to the Issuers, the Trustee and the Noteholders for a
breach of a representation or warranty made by the Sponsor, with respect to the
required characteristics of the Contracts.
INDEMNIFICATION
The Receivables Transfer Agreement will provide that the Sponsor
will defend and indemnify the Issuers, the Trustee and the Noteholders against
any and all losses, claims, damages and liabilities to the extent, but only to
the extent, that the same have been suffered by any such party by virtue of (i)
a breach by the Sponsor of its respective obligations (other than breach of the
Sponsor's representations and warranties, with respect to which the sole remedy
is expressly limited to the Sponsor's acceptance of the reconveyance of the
affected Contracts and the remittance of the Prepayment Amount, or delivery of
replacement Contracts, as discussed above) under the Receivables Transfer
Agreement or (ii) in the case of the Trustee, its performance of its duties
hereunder, except to the extent that such loss, claim, damage or liability
resulted from the Trustee's negligence or willful misconduct.
The Indenture will also provide that the Servicer will defend and
indemnify the Issuers, the Sponsor, the Trustee and the Noteholders against any
and all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, reasonably
incurred, arising out of or resulting from (i) the use, repossession or
operation by the Servicer or any affiliate thereof of any Equipment and (ii) the
failure of the Servicer to perform its duties under the Indenture. Advanta
Business Services Corp.'s obligations, as Servicer, to indemnify the Noteholders
for acts or omissions of Advanta Business Services Corp. as
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Servicer will survive the removal of the Servicer but will not apply to any acts
or omissions of a successor Servicer. Such indemnification does not extend to
indirect, incidental, special or consequential damages.
THE ACCOUNTS
The Servicer is required to establish and maintain in accordance
with the Indenture six accounts (each, an "Account"), the "Collection Account,"
the "Advance Payment Account," the "Additional Property Funding Account," the
"Pre-Funding Account," the "Reserve Account" and the "Capitalized Interest
Account," each to be held by the Trustee for the benefit of the Noteholders.
Each such Account will be one or more segregated trust accounts.
The Servicer is required to deposit to the Collection Account all
collections received by it with respect to the Contracts, within two Business
Days following the Servicer's determination that such amounts relate to the
Contracts or the Equipment, Servicer Advances are required to be deposited
therein not later than the Determination Date for the related Collection Period;
the Trustee will deposit in the Collection Account from the Advance Payment
Account, not later than the Determination Date, that portion of any Advance
Payments that constitute Scheduled Payments due during the immediately preceding
Collection Period; the Sponsor or the Servicer will deposit in the Collection
Account, not later than the Determination Date, any Prepayment Amount then due
and payable by it.
The Servicer is required to deposit all Advance Payments and all
Security Deposits received by the Servicer in the Advance Payment Account.
"Advance Payments" are amounts paid by a User during a Collection Period with
respect to amounts due from such User in subsequent Collection Periods but do
not include Prepayment Amounts. The Servicer is required to instruct the Trustee
to transfer from the Advance Payment Account to the Collection Account (i) the
portion of any Advance Payment due and owing for a Collection Period and (ii)
the portion of any Security Deposit being applied to a Scheduled Payment or
Final Contract Payment in accordance with the Indenture, in each case, no later
than the related Determination Date.
The Additional Property Funding Account will hold amounts required
to be disbursed upon the instruction of the Issuer, as stated in the Receivables
Transfer Agreement, pending the pledge of Additional Property to the Trustee,
for the benefit of the Noteholders. The amount on deposit in the Additional
Property Funding Account may not exceed [$2,000,000]. The purpose of the
Additional Property Funding Account is to prevent a temporary shortfall in the
supply of Additional Property from becoming a Required Amortization Event. If a
Required Amortization Event occurs, then no further pledges of Additional
Property shall occur, and all amounts that would otherwise have been paid in
consideration of such pledges will be transferred to the Collection Account and
distributed in accordance with the Indenture on the immediately following
Payment Date.
The Pre-Funding Account will hold $_________ to be used by the
Trustee to purchase from the Sponsor Additional Contracts and Additional
Equipment which have Aggregate Contract Balances (as of the related Cut-Off
Date) equal to the Pre-Funding Contract Balance. During the period from the
Closing Date until the earliest of (i) the date on which the amount on deposit
in the Pre-Funding Account is less than $100,000, (ii) the date on which a
Required Amortization Event has occurred and is continuing or (iii) the close of
business on _________________ (such earliest date, the "Funding Termination
Date"), the Issuers may deliver the Additional Property to the Trustee in
exchange for a corresponding release of money from the Pre-Funding Account in an
amount equal to __% of the Contract Balances (as of the related Cut-Off Date) of
such Additional Property (the Aggregate Contract Balance of the Contracts which
can be purchased based on the Initial Pre-Funded Amount, the "Pre-Funding
Contract Balance"); provided, that no amounts shall be released from the
Pre-Funding Account on any date unless the balance of the Additional Property
Account is equal to zero on such date. Any amount remaining on deposit in the
Pre-Funding Account on the Funding Termination Date will be used on the Payment
Date immediately following the Funding Termination Date to prepay the Notes, the
Class A Notes receiving ____% (the "Class A Pre-Funding Percentage"), the Class
M Notes receiving ___% (the "Class M Pre-Funding Percentage") and the Class B
Notes receiving ____ (the "Class B Pre-Funding Percentage") of such remaining
amount; provided, that if such remaining amount is less than $100,000 and, as of
such Payment Date, the Interest-Only Period has not ended such remaining amount
will be deposited in the Additional Property Funding Account.
The Capitalized Interest Account will hold amounts to be used, as
necessary, by the Trustee, on each Payment Date occurring during the Pre-Funding
Period only, to fund the aggregate amount of interest accruing
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at the weighted average of the Class A-1 Interest Rate, the Class A-2 Interest
Rate, the Class A-3 Interest Rate, the Class M Interest Rate and the Class B
Interest Rate on the amount on deposit in the Pre-Funding Account, less
projected investment earnings on the Pre-Funding Account, as of the related
Payment Date. Any amounts on deposit in the Capitalized Interest Account on the
Payment Date immediately following the Funding Termination Date (after taking
into account any transfers from the Capitalized Interest Account to the
Collection Account on such Payment Date) will be released from the Trust Estate
and paid to the Issuer.
The Indenture permits the Servicer to direct the investment of
amounts in the Accounts in "Eligible Investments" as defined in the Indenture
that mature not later than the Business Day prior to the next succeeding Payment
Date. Any income from such investments will be included in Available Funds.
The Servicer may deduct from amounts otherwise payable to the
Collection Account with respect to a Collection Period an amount equal to
amounts previously deposited by the Servicer into the Collection Account but (i)
subsequently uncollectible as a result of dishonor of the instrument of payment
for or on behalf of the User or (ii) later determined to have resulted from
mistaken deposits.
ADVANCES
In the event that any User fails to remit its full Scheduled
Payment or Final Contract Payment by the Calculation Date, the Servicer is
required to make an advance, no later than the related Determination Date, from
its own funds of an amount equal to such unpaid Scheduled Payment (a "Servicer
Advance") if the Servicer, in its sole discretion, determines that eventual
repayment of such Servicer Advance is likely from collections from or on behalf
of the related User. The Indenture provides for the reimbursement of the
Servicer for such Servicer Advances from funds available for distribution in the
Collection Account on each Payment Date before the payments to Noteholders have
been made as set forth below in "Flow of Funds."
WITHHOLDING
The Trustee is required to comply with all applicable federal
income tax withholding requirements respecting payments of interest with respect
to the Notes. The consent of Noteholders will not be required for such
withholding. In the event that the Trustee does withhold or causes to be
withheld any amount from interest payments or advances thereof to any
Noteholders pursuant to federal income tax withholding requirements, the Trustee
shall indicate the amount withheld annually to such Noteholders.
REPORTS TO NOTEHOLDERS
On each Payment Date, the Trustee will forward with each payment
to the Noteholders, a statement prepared by the Servicer setting forth the
following information (per $1,000 of Initial Note Principal Amount as to (a) and
(b) below):
(a) The amount of such payment allocable to such Noteholder's
Percentage Interest of the Class A Principal Payment, the Class M
Principal Payment or the Class B Principal Payment, as applicable, and
Class A Overdue Principal, the Class M Overdue Principal or Class B
Overdue Principal, as applicable, and the amount of principal paid to
each Class as a result to utilize fully the Pre-Funding Account;
(b) The amount of such payment allocable to such Noteholder's
Percentage Interest of Class A Note Interest, Class M Note Interest or
Class B Note Interest, Class A Overdue Interest, Class M Overdue
Interest or Class B Overdue Interest, as applicable;
(c) The aggregate amount of fees and compensation received by the
Servicer pursuant to the Indenture for the Collection Period;
(d) The aggregate Class A Note Principal Balance, the aggregate
Class B Note Principal Balance, the Class A Note Factor, the Class B
Note Factor, the Class M Note Factor, the Aggregate Contract Balance
and the Collateral Factor, after taking into account all distributions
made on such Payment Date;
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(e) The total unreimbursed Servicer Advances with respect to the
related Collection Period;
(f) The Aggregate Contract Balance for all Contracts that became
Defaulted Contracts during the related Collection Period, and, in the
case of the Initial Period, continue to be Defaulted Contracts,
calculated immediately prior to the time such Contracts became
Defaulted Contracts; and
(g) The Aggregate Contract Balance (calculated as of the related
Cut-Off Date) of the Additional Property, if any; and
(h) The amount on deposit in the Pre-Funding Account.
The "Class A-1 Note Factor" is the seven digit decimal number that
the Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-1 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-1 Initial Principal Balance.
The "Class A-2 Note Factor" is the seven digit decimal number that
the Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-2 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-2 Initial Principal Balance.
The "Class A-3 Note Factor" is the seven digit decimal number that
the Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-3 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-3 Initial Principal Balance.
The "Class M Note Factor" is the seven digit decimal number that
the Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class M Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions to be made on such Payment
Date) to (y) the Class M Initial Principal Balance.
The "Class B Note Factor" is the seven digit decimal number that
the Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class B Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions to be made on such Payment
Date) to (y) the Class B Note Initial Principal Balance.
The "Collateral Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Aggregate Contract Balance as of the immediately preceding Calculation
Date to (y) the Maximum Collateral Amount.
In addition, by January 31 of each calendar year following any
year during which the Notes are outstanding, commencing January 31, 1999, the
Trustee will furnish to each Noteholder of record at any time during such
preceding calendar year, information as to the aggregate of amounts reported
pursuant to items (a) and (b) above for such calendar year to enable Noteholders
to prepare their federal income tax returns.
OPTIONAL REDEMPTION
The Indenture will provide that on any Payment Date following the
Record Date on which the Aggregate Contract Balance is 10% or less of the
Maximum Collateral Amount, the Issuers will have the option to receive all
rights, title and interest in all, but not less than all, of the Trust Estate,
by paying to the Trustee for redemption of the Notes an amount equal to the sum
of the aggregate outstanding Class A, Class M and Class B Note Principal
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Balance and all other amounts due to the Class A, Class M and Class B
Noteholders and all amounts owing to the Trustee.
REMITTANCE AND OTHER SERVICING PROCEDURES
The Servicer has agreed to manage, administer and service the
Receivables and to enforce and make collections on the Receivables and any
insurance policies, exercising the degree of skill and care consistent with that
which the Servicer customarily exercises with respect to similar property owned,
managed or serviced by it.
The Servicer may grant to a User any rebate, refund or adjustment
that the Servicer in good faith believes is required, because of Prepayment in
full of a Contract. The Servicer may deduct the amount of any such rebate,
refund or adjustment from the amount otherwise payable by the Servicer into the
Collection Account; provided, however, that the Servicer will not permit any
rescission or cancellation of any Contract which would materially impair the
rights of the Trustee or the Noteholders in the Contracts or the proceeds
thereof, nor will the prepayment price after giving effect to any such rebate,
refund or adjustment (and without any adjustment for any Security Deposit
previously paid by the User) be less than the Prepayment Amount. The Servicer
may waive, modify or vary any term of a Contract if the Servicer, in its
reasonable and prudent judgment, determines that it will not be materially
adverse to the Noteholders. However, the Servicer will covenant in the Indenture
that (i) it will not forgive any payment of rent, principal or interest (except
for certain offsets for Security Deposits which offsets are only permitted after
the Servicer has deposited in the Collection Account an amount equal to such
offset), (ii) unless a User is in default, it will not permit any modification
with respect to a Contract which would reduce or increase the Contract Balance
of the Contract; provided, however, that no change in the final maturity date of
any Contract shall be permitted under any circumstances if such new maturity
date is later than the latest maturity date of any other Contract then pledged
to the Trustee, and (iii) the Servicer may accept Prepayment in part or in full;
provided, however that (1) in the event of Prepayment in full, the Servicer may
consent to such Prepayment only in an amount not less than the Prepayment Amount
and (2) in the event of a partial Prepayment, the Servicer may consent to such
partial Prepayment only if (x) following such partial Prepayment there are no
delinquent amounts then due from the User and (y) such partial Prepayment will
not reduce the Contract Balance by more than an amount equal to (I) the amount
of such partial Prepayment, minus (II) unpaid interest at the Actual Discount
Rate, accrued through the Payment Date immediately following such partial
Prepayment on the outstanding Contract Balance prior to such partial Prepayment.
In the case of a partial Prepayment, the Servicer is required to accurately
recalculate the Contract Balance, and the allocation of Scheduled Payments to
principal and interest.
Notwithstanding the foregoing, the Indenture permits the Servicer,
subject to certain requirements, to make substitutions in replacement of
Defaulted Contracts or modify Contracts; provided, that (x) the Substitute
Contract, or the Contract as modified, has a Contract Balance not lower than the
Contract Balance of the substituted Contract, or the Contract prior to such
modification, as the case may be, and (y) the aggregate, cumulative Contract
Balance of such substituted or modified Contracts may not exceed 10% of the
Maximum Collateral Amount.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For its servicing of the Contracts, the Servicer will receive
servicing compensation equal to the monthly Servicer Fee for each Collection
Period (payable on the next succeeding Payment Date). For so long as ABS is the
Servicer, the payment of the Servicing Fee will be subordinate to payments on
the Notes.
The servicing compensation will compensate the Servicer for
customary equipment contract servicing activities to be performed by the
Servicer for the Trustee for the benefit of the Noteholders, additional
administrative services performed by the Servicer on behalf of the Trustee for
the benefit of the Noteholders and expenses paid by the Servicer on behalf of
the Trustee for the benefit of the Noteholders.
The Servicer, on behalf of the Trustee for the benefit of the
Noteholders, will be responsible for the managing, servicing and administering
the Receivables and enforcing and making collections on the Contracts and any
insurance policies and for the enforcing of any security interest in any item of
Equipment, all as set forth in the Indenture. The Servicer's responsibilities
will include collecting and posting of all payments, responding to inquiries of
Users, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the Trustee with respect to distributions,
providing appropriate federal income tax information for use in
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<PAGE> 42
providing information to Noteholders, collecting and remitting sales and
property taxes on behalf of taxing authorities, maintaining the perfected
security interest of the Trustee in the Equipment and the Contracts.
EVIDENCE AS TO COMPLIANCE
The Indenture requires that the Servicer cause an independent
accountant (who may also render other services to the Servicer) to prepare a
statement to the Trustee and the Rating Agency with respect to the fiscal year
ending in 1998, and annually as of the same month and day thereafter, to the
effect that the independent accountant has examined the servicing procedures,
manuals, guides and records of the Servicer and the accounts and records of the
Servicer relating to the Receivables and the Contract Files (which procedures,
manuals, guides and records shall be described in one or more schedules to such
statement), that such firm has compared the information contained in the
Servicer's Reports delivered in the relevant period with information contained
in the accounts and records for such period and that, on the basis of such
examination and comparison, nothing has come to the independent accountant's
attention to indicate that the Servicer has not, during the relevant period,
serviced the Receivables in compliance with such servicing procedures, manuals
and guides and in the same manner required by the Servicer's standards and with
the same degree of skill and care consistent with that which the Servicer
customarily exercises with respect to similar property owned by it, that such
accounts and records have not been maintained in accordance with the Indenture,
that the information contained in the Servicer's Reports does not reconcile with
the information contained in the accounts and records or that such certificates,
accounts and records have not been properly prepared and maintained in all
material respects, except in each case for (a) such exceptions as the
independent accountant shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement. On or before 90 days
following the end of each fiscal year, commencing 90 days from the end of the
fiscal year ending in 1998, the Servicer shall deliver to the Trustee and each
Rating Agency a copy of such statement.
The Indenture will also provide for annual delivery of a report
(the "Supplementary Report") by the Servicer to the Trustee not later than 90
days after the end of each fiscal year, signed by a Servicing Officer on behalf
of the Servicer and dated as of the last day of such fiscal year, stating that
(a) a review of the activities of the Servicer and the Servicer's performance
under the Indenture for the previous 12-month period has been made under such
Servicing Officer's supervision and (b) nothing has come to such Servicing
Officer's attention to indicate that the Servicer could be terminated as such
under the terms of the Receivables Transfer Agreement or, if such Event of
Servicing Termination has so occurred and is continuing, specifying each such
event known to the officer, the nature and status thereof and the steps
necessary to remedy such event.
The Servicer is also required to furnish to the Trustee, and the
Trustee is required to furnish to the Noteholders, copies of the Servicer's
annual audited and quarterly unaudited financial statements.
The Indenture will provide that the Servicer, upon request of the
Trustee, will furnish to the Trustee such underlying data necessary for
performing the Trustee's duties under the Indenture or for enforcement actions
as can be generated by the Servicer's existing data processing system.
SERVICER NOT TO RESIGN
The Indenture will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon a determination
that the Servicer's performance of such duties is no longer permissible under
applicable law. The Servicer can only be removed pursuant to an Event of
Servicing Termination as discussed below.
EVENTS OF 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 either Issuer of
certain negative covenants limiting its actions;
42
<PAGE> 43
(c) default in the performance, or breach, of any other covenant
of either Issuer in the Indenture, 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 Balance of the Notes giving
written notice thereof to the Issuers and the Trustee;
(d) if any representation or warranty of either Issuer made in the
Indenture or the Receivables Transfer 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
either Issuer will be deemed to be "material" only if it negatively
affects the Noteholders, the enforceability of the Indenture or of the
Notes; or
(e) insolvency or bankruptcy events relating to either Issuer.
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).
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 Balance of the Notes, or
the holders of such percentages of the then Outstanding Principal Balance 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.
The Trustee may, however, if the Event of Default involves other than
non-payment of principal or interest on the Notes, not sell the Trust Estate
unless such sale is for an amount greater than or equal to the Outstanding
Principal Balance 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 Balance of the Notes.
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 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 Balance of the Class A-1 Notes, Class A-2
Notes, and Class A-3 Notes pro-rata to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue installment of interest and principal from the maturity of such
installment to the date of payment thereof at the rate per annum equal
to the Class A-1 Interest Rate, Class A-2 Interest Rate and Class A-3
Interest Rate, respectively, second to the payment of all accrued and
unpaid interest on the Outstanding Principal Balance of the Class M
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 M
Interest Rate, third, to the payment of all accrued and unpaid interest
on the Outstanding Principal Balance 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, fourth, to the
payment of the Outstanding Principal Balance of the Class A Notes,
pro-rata, to the date of payment thereof, fifth, to the payment of the
Outstanding Principal Balance of the Class M Notes to the date of
payment thereof, and sixth, to the payment of the Outstanding Principal
Balance of the Class B 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;
43
<PAGE> 44
Fourth to the payment of amounts then due to the Trustee under the
Indenture and not paid pursuant to clause First above; and
Fifth to the payment of the remainder, if any, to the Issuers or
any other Person legally entitled thereto.
The Issuers will be required to furnish annually to the Trustee, a
statement of certain officers of the Issuers 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.
The Indenture will provide that the holders of 66-2/3 % in
aggregate principal amount of the Notes 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. 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. 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.
MODIFICATION OF THE INDENTURE. With certain exceptions, under the
Indenture, the rights and obligations of the Issuer and the rights of the
Noteholders may be modified by the Issuer with the consent of the holders of not
less than 66 2/3% in Outstanding Principal Balance of the Notes; 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.
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 _____ Business Days following the receipt thereof any monies
received by the Servicer required to be remitted to the Trustee under
the Indenture;
(b) so long as Advanta Business Services Corp. is the Servicer,
failure on the part of Advanta Business Services Corp. to pay to the
Trustee on the date when due, any payment required to be made by
Advanta Business Services Corp. pursuant to the Indenture or the
Receivables Transfer Agreement;
(c) default on the part of either the Servicer or (so long as
Advanta Business Services Corp. is the Servicer) Advanta Business
Services Corp. in its observance or performance in any material respect
of certain covenants or agreements in the Receivables Transfer
Agreement or in the Indenture;
(d) if any representation or warranty of Advanta Business Services
Corp. made in the Receivables Transfer 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
Advanta Business Services Corp. in such Receivables Transfer 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
Advanta Business Services Corp. in the Receivables Transfer Agreement
with respect to any of the Contracts or the Equipment subject thereto
will not constitute a Servicer Event of Default if Advanta Business
Services Corp. repurchases such Contract and Equipment in accordance
with the Receivables Transfer 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
44
<PAGE> 45
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 Outstanding Principal Balance of the
Notes, by notice in writing to the Servicer terminate all of the rights and
obligations of the Servicer (but the Servicer's obligations which shall survive
any such termination) under Indenture. On the receipt by the Servicer of such
written notice, all authority and power of the Servicer under the Indenture to
take any action with respect to any Contract or Equipment will cease and the
same will pass to and be vested in the Trustee pursuant to and under the
Indenture.
PREPAYMENT AND YIELD CONSIDERATIONS
On each Payment Date prior to the Amortization Date, all amounts
remaining on deposit in the Collection Account after making certain payments as
described herein and amounts on deposit in the Additional Property Funding
Account will be disbursed by the Trustee in consideration of the pledge of
Additional Property relating to Contracts having an Aggregate Contract Balance
on such Payment Date equal as nearly as practicable to such amounts. Beginning
with the Amortization Date, to the extent of Available Funds, an amount equal to
Class A Principal Payment, the Class M Principal Payment and the Class B
Principal Payment shall be due as principal to the holders of the Class A Notes,
the Class M Notes and the Class B Notes as described herein.
Following the Interest-Only Period, the rate of principal payments
on the Notes will be directly related to the rate of principal payments on the
underlying Contracts. If purchased at a price other than par, the yield to
maturity will also be affected by the rate of principal payments. The principal
payments on such Contracts may be in the form of scheduled principal payments or
liquidations due to default, casualty and the like. Any such payments will
result in distributions to Noteholders of amounts which would otherwise have
been distributed over the remaining term of the Contracts. In general, the rate
of such payments may be influenced by a number of other factors, including
general economic conditions. The rate of payment of principal may also be
affected by any removal of the Contracts from the pool and the deposit of the
related Prepayment Amount into the Collection Account.
The Contracts which are leases in form generally do not provide
for the right of the User to prepay. Under the Indenture, the Servicer will be
permitted to allow such Prepayments in full or in part, provided that no
Prepayment of a Contract will be allowed in an amount less than the Prepayment
Amount.
The effective yield to Noteholders will depend upon, among other
things, the price at which the Notes are purchased, and the amount of and rate
at which principal, including both scheduled and nonscheduled payments thereof,
is paid to the Noteholders. The yield to Noteholders will be affected by lags
between the time interest accrues to Noteholders and the time the related
interest income is received by the Noteholders. See "Risk Factors - Maturity and
Prepayment Considerations" herein.
The following chart sets forth the percentage of the Initial
Principal Balance of the Class A, Class M and Class B Notes which would be
outstanding on the Payment Dates set forth below assuming a CPR of __% and __%,
respectively and were calculated using the Statistical Discount Rate. Such
information is hypothetical and is set forth for illustrative purposes only. The
CPR ("Conditional Payment Rate") assumes that a fraction of the Aggregate
Contract Balance is prepaid on each Calculation Date, which implies that each
Contract 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 Contracts, after the payment of all Scheduled Payments on the Contracts
during such Collection Period. The
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<PAGE> 46
CPR further assumes that all Contracts are the same size and amortize at the
same rate and that each Contract will be either paid as scheduled or prepaid in
full. The amounts set forth below are based upon the timely receipt of Scheduled
Payments as of the Cut-Off Date, assumes that the Issuers do not exercise its
option to redeem the Notes and assumes the Closing Date is _____________, the
first Payment Date is ______________, all Pre-Funding Account moneys are used
and no Required Amortization Event occurs.
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<PAGE> 47
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3, CLASS M AND CLASS B
OUTSTANDING AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
===============================================================================================================================
Payment 0% CPR 12% CPR
Date
------------------------------------------------------------------------------------------------------------
Class A-1 Class A-2 Class A-3 Class M Class B Class A-1 Class A-2 Class A-3 Class M Class B
------------------------------------------------------------------------------------------------------------
% % % % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Closing Date
- -------------------------------------------------------------------------------------------------------------------------------
January, 1998
- -------------------------------------------------------------------------------------------------------------------------------
February, 1998
- -------------------------------------------------------------------------------------------------------------------------------
March, 1998
- -------------------------------------------------------------------------------------------------------------------------------
April, 1998
- -------------------------------------------------------------------------------------------------------------------------------
May, 1998
- -------------------------------------------------------------------------------------------------------------------------------
June, 1998
- -------------------------------------------------------------------------------------------------------------------------------
July, 1998
- -------------------------------------------------------------------------------------------------------------------------------
August, 1998
- -------------------------------------------------------------------------------------------------------------------------------
September, 1998
- -------------------------------------------------------------------------------------------------------------------------------
October, 1998
- -------------------------------------------------------------------------------------------------------------------------------
November, 1998
- -------------------------------------------------------------------------------------------------------------------------------
December, 1998
- -------------------------------------------------------------------------------------------------------------------------------
January, 1999
- -------------------------------------------------------------------------------------------------------------------------------
February, 1999
- -------------------------------------------------------------------------------------------------------------------------------
March, 1999
- -------------------------------------------------------------------------------------------------------------------------------
April, 1999
- -------------------------------------------------------------------------------------------------------------------------------
May, 1999
- -------------------------------------------------------------------------------------------------------------------------------
June, 1999
- -------------------------------------------------------------------------------------------------------------------------------
July, 1999
- -------------------------------------------------------------------------------------------------------------------------------
August, 1999
- -------------------------------------------------------------------------------------------------------------------------------
September, 1999
- -------------------------------------------------------------------------------------------------------------------------------
October, 1999
- -------------------------------------------------------------------------------------------------------------------------------
November, 1999
- -------------------------------------------------------------------------------------------------------------------------------
December, 1999
- -------------------------------------------------------------------------------------------------------------------------------
January, 2000
- -------------------------------------------------------------------------------------------------------------------------------
February, 2000
- -------------------------------------------------------------------------------------------------------------------------------
March, 2000
- -------------------------------------------------------------------------------------------------------------------------------
April, 2000
- -------------------------------------------------------------------------------------------------------------------------------
May, 2000
- -------------------------------------------------------------------------------------------------------------------------------
June, 2000
- -------------------------------------------------------------------------------------------------------------------------------
July, 2000
- -------------------------------------------------------------------------------------------------------------------------------
August, 2000
- -------------------------------------------------------------------------------------------------------------------------------
September, 2000
- -------------------------------------------------------------------------------------------------------------------------------
October, 2000
- -------------------------------------------------------------------------------------------------------------------------------
November, 2000
- -------------------------------------------------------------------------------------------------------------------------------
December, 2000
- -------------------------------------------------------------------------------------------------------------------------------
January, 2001
- -------------------------------------------------------------------------------------------------------------------------------
February, 2001
- -------------------------------------------------------------------------------------------------------------------------------
March, 2001
- -------------------------------------------------------------------------------------------------------------------------------
April, 2001
- -------------------------------------------------------------------------------------------------------------------------------
May, 2001
- -------------------------------------------------------------------------------------------------------------------------------
June, 2001
- -------------------------------------------------------------------------------------------------------------------------------
July, 2001
- -------------------------------------------------------------------------------------------------------------------------------
August, 2001
- -------------------------------------------------------------------------------------------------------------------------------
September, 2001
- -------------------------------------------------------------------------------------------------------------------------------
October, 2001
- -------------------------------------------------------------------------------------------------------------------------------
November, 2001
- -------------------------------------------------------------------------------------------------------------------------------
December, 2001
- -------------------------------------------------------------------------------------------------------------------------------
January, 2002
- -------------------------------------------------------------------------------------------------------------------------------
February, 2002
- -------------------------------------------------------------------------------------------------------------------------------
March, 2002
- -------------------------------------------------------------------------------------------------------------------------------
April, 2002
- -------------------------------------------------------------------------------------------------------------------------------
May, 2002
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 48
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3, CLASS M AND CLASS B
OUTSTANDING AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
===============================================================================================================================
Payment 0% CPR 12% CPR
Date
------------------------------------------------------------------------------------------------------------
Class A-1 Class A-2 Class A-3 Class M Class B Class A-1 Class A-2 Class A-3 Class M Class B
------------------------------------------------------------------------------------------------------------
% % % % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
June, 2002
- -------------------------------------------------------------------------------------------------------------------------------
July, 2002
- -------------------------------------------------------------------------------------------------------------------------------
August, 2002
- -------------------------------------------------------------------------------------------------------------------------------
September, 2002
- -------------------------------------------------------------------------------------------------------------------------------
October, 2002
- -------------------------------------------------------------------------------------------------------------------------------
November, 2002
- -------------------------------------------------------------------------------------------------------------------------------
December, 2002
- -------------------------------------------------------------------------------------------------------------------------------
January, 2003
- -------------------------------------------------------------------------------------------------------------------------------
February, 2003
- -------------------------------------------------------------------------------------------------------------------------------
March, 2003
- -------------------------------------------------------------------------------------------------------------------------------
April, 2003
- -------------------------------------------------------------------------------------------------------------------------------
May, 2003
- -------------------------------------------------------------------------------------------------------------------------------
June, 2003
- -------------------------------------------------------------------------------------------------------------------------------
July, 2003
- -------------------------------------------------------------------------------------------------------------------------------
August, 2003
- -------------------------------------------------------------------------------------------------------------------------------
September, 2003
- -------------------------------------------------------------------------------------------------------------------------------
October, 2003
- -------------------------------------------------------------------------------------------------------------------------------
November, 2003
- -------------------------------------------------------------------------------------------------------------------------------
December, 2003
- -------------------------------------------------------------------------------------------------------------------------------
January, 2004
- -------------------------------------------------------------------------------------------------------------------------------
February, 2004
- -------------------------------------------------------------------------------------------------------------------------------
March, 2004
- -------------------------------------------------------------------------------------------------------------------------------
April, 2004
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
LIFE(1)(YEARS)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------
(1) The weighted average life of a Note is determined by (a) multiplying the
amount of cash distributions in reduction of the Outstanding Principal
Balance of the respective Note by the number of years from the Closing Date
to such Payment Date, (b) adding the results, and (c) dividing the sum by
the respective Initial Principal Balance.
For the 0% CPR and 12% CPR scenarios, if the Issuer exercises its
option to redeem the Notes, the average life of the Class A-1 Notes; Class A-2
Notes; Class A-3 Notes; Class M Notes and Class B Notes would be ___ years and
___ years; ___ years and ___ years; ___ years and ___ years; ___ years and ___
years and ___ years and ___ years, respectively.
The Trustee may resign at any time, in which event the Issuer will
be obligated to appoint a successor Trustee. The Issuers may also remove each
Trustee if such Trustee ceases to be eligible to continue as such under the
Indenture, fails to perform in any material respect its obligations under such
Indenture, or becomes insolvent. In such circumstances, the Issuers will be
obligated to appoint a successor Trustee.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material federal income
tax consequences to the original purchasers of the Notes of the purchase,
ownership and disposition of the Notes. It does not purport to discuss all
federal income tax consequences that may be applicable to investment in the
Notes or to particular categories of investors, some of which may be subject to
special rules. In particular, this discussion applies only to institutional
investors that purchase Notes directly from the Issuer and hold the Notes as
capital assets.
The discussion that follows, and the opinion set forth below of
Dewey Ballantine LLP, special tax counsel to the Issuer ("Tax Counsel"), are
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and treasury regulations promulgated thereunder as in effect on the date
hereof and on existing judicial and administrative interpretations thereof.
These authorities are subject to change and to differing
48
<PAGE> 49
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.
Tax Counsel has prepared the following discussion and is of the
opinion that such discussion is correct in all material respects.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS. In the opinion of
Tax Counsel, although no transaction closely comparable to that contemplated
herein has been the subject of any treasury regulation, revenue ruling or
judicial decision, based on the application of existing law to the facts as set
forth in the applicable agreements, the proper treatment of the Notes is as
indebtedness for federal income tax purposes.
Although it is the opinion of Tax Counsel that the Notes are
properly 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
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
49
<PAGE> 50
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 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.
50
<PAGE> 51
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The owner of a Note
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations are
proposed to be effective for payments made after December 31, 1997 but provide
that certificates issued on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
Proposed regulations, however, are subject to change prior to their adoption in
final form.
The term "U.S. Person" means (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof, (iii)
an estate that is subject to U.S. federal income tax regardless of the source of
its income. The term "Non-U.S. Person" means any person who is not a U.S. Person
or (iv) a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States fiduciary has
the authority to control all substantial decisions of the trust. This summary
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the 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
51
<PAGE> 52
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 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 Notes,
the Sponsor and the Issuers have agreed to sell and Salomon Brothers Inc (the
"Underwriter") has agreed to purchase the Notes.
The Issuers have been advised by the Underwriter, that the
Underwriter proposes initially to offer the Notes to the public at the
respective public offering prices set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such price, less a concession not in
excess of ___% per Class A-1 Note, ___% per Class A-2 Note, ___% per Class A-3
Note, ___% per Class M Note and ___% per Class B Note. The Underwriter may allow
and such dealers may reallow to other dealers a discount not in excess of ____%
per Class A-1 Note, ___% per Class A-2 Note, ___% per Class A-3 Note, ___% per
Class M Note and ___% per Class B Note. 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 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 Notes in, from or otherwise involving the United
Kingdom; and
52
<PAGE> 53
(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 Notes to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or persons to whom such
document may otherwise lawfully be issued, distributed or passed on.
The Sponsor has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Issuers have been advised by the Underwriter that the
Underwriter presently intends to make a market in the Notes, as permitted by
applicable laws and regulations. The Underwriter is not obligated, however, to
make a market in the 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 Notes.
In connection with the offering of the Notes, the Underwriter and
selling group members and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such person may bid for or purchase
the Notes for the purpose of stabilizing its market price.
RATINGS OF THE NOTES
It is a condition to the issuance of the Notes that the Class A
Notes be rated at least "___," that the Class M Notes be rated at least "____"
and that the Class B Notes be rated at least "___" by Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Investors
Service, L.P. ("Fitch"), respectively (each a "Rating Agency").
Each such rating, will reflect only the views of the related
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
Trust Estate. The ratings are not a recommendation to purchase, hold or sell the
related 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 Notes. The rating of the Notes addresses the likelihood
of the timely payment of interest and the ultimate payment of principal on the
Notes by the Stated Maturity Date. The rating does not address the rate of
Prepayments that may be experienced on the Contracts and, therefore, does not
address the effect of the rate of Contract Prepayments on the return of
principal to the Noteholders.
53
<PAGE> 54
INDEX OF TERMS
TERM(S) PAGE(S)
- ------- -------
"Class A-1 Initial Principal Balance 5
ABR LLC 1,4
ABS 1,6
Account 38
Actual Discount Rate 5
Additional Contracts 2
Additional Equipment 2
Additional Property 2
Additional Property Funding Account 38
Advance Payment Account 38
Advance Payments 38
Aggregate Contract Balance 5
Aggregate Net Cumulative Contract Balance Decline Amount 34
ALRC III 1,4
Amortization Date 2
Amortization Period 14
Available Additional Property Funding Amount 14
Available Funds 16,35
Available Reserve Amount 18,36
Benefit Plan 51
Business Day 4
Calculation Date 4
Capitalized Interest Account 8,38
Cede 3
CEDEL 3
Class 1
Class A Initial Principal Balance 5
Class A Note Interest 9
Class A Noteholders 2
Class A Notes 1,4
Class A Overdue Interest 9
Class A Percentage 9,32
Class A Pre-Funding Percentage 7,38
Class A Principal Balance 5
Class A Principal Payment 9,31
Class A Target Investor Principal Amount 9,31
Class A-1 Interest Rate 5
Class A-1 Note Factor 40
Class A-1 Notes 1,4
Class A-1 Overdue Principal 9
Class A-1 Principal Balance 5
Class A-2 Initial Principal Balance 5
Class A-2 Interest Rate 5
Class A-2 Note Factor 40
Class A-2 Notes 1,4
Class A-2 Overdue Principal 9
Class A-3 Initial Principal Balance 5
Class A-3 Interest Rate 5
Class A-3 Note Factor 40
i
<PAGE> 55
Class A-3 Notes 1,4
Class A-3 Overdue Principal 9
Class A-3 Principal Balance 5
Class B Floor 9,32
Class B Initial Principal Balance 5
Class B Interest Rate 5
Class B Note Factor 40
Class B Note Interest 9
Class B Noteholders 2
Class B Notes 1,4
Class B Overdue Interest 9
Class B Overdue Principal 9
Class B Percentage 9,32
Class B Pre-Funding Percentage 7,38
Class B Principal Balance 5
Class B Principal Payment 9,32
Class B Target Investor Principal Amount 9,32
Class M Initial Principal Balance 5
Class M Interest Rate 5
Class M Note Factor 40
Class M Note Interest 9
Class M Noteholders 2
Class M Notes 1,4
Class M Overdue Interest 9
Class M Overdue Principal 9
Class M Percentage 9,32
Class M Pre-Funding Percentage 38
Class M Principal Balance 5
Class M Principal Payment 9,31
Class M Target Investor Principal Amount 9,32
Closing Date 4
Code 48
Collateral Factor 40
Collection Account 14,32,38
Collection Period 9
Commission 1,2
Conditional Payment Rate 45
Contract Balance 5
Contract Files 6
Contract Principal 34
Contracts 1
Cumulative Loss Amount 9,32
Cut-Off Date 4
Defaulted Contract 17,35
Defaulted Residual Receipts 11,25
Delinquent Contract 19
Determination Date 9
DTC 3
Equipment 1
ERISA 20,51
Euroclear 3
Event of Default 8
Event of Servicing Termination 8
Excess Amount 11,24
Exchange Act 3
Final Contract Payment 11,24
ii
<PAGE> 56
Fitch 20,53
Funding Termination Date 7,38
Indenture 13
Initial Contracts 6
Initial Period 17,35
Initial Pre-Funded Amount 1,7
Initial Property 6
Interest Accrual Period 9,31
Interest Payments 9,31
Interest Rate 5
Interest-Only Period 2
IRS 49
Issuers 1
Maximum Collateral Amount 13
Moody's 20,53
Net Residual Value 26
Nonrecoverable Advances 19
Noteholders 2
Notes 1,4
OID 49
Original Aggregate Contract Balance 11,26
Outstanding Principal Balance 9,31
Payment Date 2,9,31
Plan Asset Regulations 51
Predecessor Contract 25
Pre-Funding Account 1,7,38
Pre-Funding Contract Balance 38
Pre-Funding Period 7
Prepayment Amount 25
Principal Payments 9,31
Prospectus 2
Prospectus Supplement 2
PTCE 52
Purchase Option Contracts 11,24
Purchase Option Equipment 11,24
Purchase Option Payments 11
Rating Agency 20,53
Receivables 1
Receivables Transfer Agreement 6
Record Date 9,31
Registration Statement 2
Reinstated Contract 35
Release Event 17,35
Required Amortization Event 8
Required Reserve Amount 18
Reserve Account 18,36,38
Residual Interest 6
Residual Receipts 25
S&P 20,53
Scheduled Payments 5
Securities Act 2
Security Deposit 17,35
Servicer 6
Servicer Advance 19
Servicer Fee 18
Servicer Fee Percentage 18
iii
<PAGE> 57
Servicing Charges 18
Sponsor 1,6
Stated Amortization Date 2
Stated Maturity Date 2,6
Statistical Discount Rate 11
Substitute Contract 25
Supplementary Report 42
Tax Counsel 48
the "Class A-2 Principal Balance 5
Trust Estate 1
Trustee 1,9
UCC 6
Underwriter 52
Underwriting Agreement 52
User 5
iv
<PAGE> 58
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 SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SPONSOR OR THE ISSUERS OR ANY AFFILIATE
THEREOF OR THE TRUST ESTATE SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO TO ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
AVAILABLE INFORMATION.................................................. 2
REPORTS TO NOTEHOLDERS................................................. 3
SUMMARY OF TERMS....................................................... 4
RISK FACTORS........................................................... 21
THE ISSUERS............................................................ 23
USE OF PROCEEDS........................................................ 23
THE TRUSTEE............................................................ 23
THE TRUST ESTATE....................................................... 24
DESCRIPTION OF THE NOTES............................................... 31
PREPAYMENT AND YIELD CONSIDERATIONS.................................... 45
MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS....................................................... 48
ERISA CONSIDERATIONS................................................... 51
UNDERWRITING........................................................... 52
RATINGS OF THE NOTES................................................... 53
INDEX OF TERMS......................................................... i
PROSPECTUS
_____________
_____________
_____________
Until _____, _____ (90 days after the date of this Prospectus Supplement), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus Supplement. This is
in addition to the obligation of dealers to deliver a Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
$____________________
Advanta Business
Services Corp.
Sponsor
$____________________% Class A-1
Equipment Receivables Asset-Backed Notes, Series
_____
$____________________% Class A-2
Equipment Receivables Asset-Backed Notes, Series
_____
$____________________% Class A-3
Equipment Receivables Asset-Backed Notes, Series
_____
$____________________% Class M
Equipment Receivables Asset-Backed Notes, Series
_____
$____________________% Class B
Equipment Receivables Asset-Backed Notes, Series
_____
PROSPECTUS
SUPPLEMENT
SALOMON BROTHERS INC
Dated __________, _____
