<PAGE> 1
P R O S P E C T U S
$360,000,000
ADVANTA BUSINESS SERVICES CORP.
ORIGINATOR AND SERVICER
ADVANTA LEASING RECEIVABLES CORP. IV
ADVANTA LEASING RECEIVABLES CORP. V
ISSUERS
EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES 1998-1
$72,000,000 5.77% CLASS A-1 NOTES
$190,000,000 5.82% CLASS A-2 NOTES
$23,300,000 5.93% CLASS A-3 NOTES
$45,900,000 5.98% CLASS A-4 NOTES
$18,938,000 6.10% CLASS B NOTES
$9,862,000 6.49% CLASS C NOTES
------------------
The Advanta Equipment Receivables Asset-Backed Notes, Series 1998-1 will
consist of the following classes (each, a "Class"): (i) the Class A-1 Notes (the
"Class A-1 Notes"), the Class A-2 Notes (the "Class A-2 Notes"), the Class A-3
Notes (the "Class A-3 Notes") and the Class A-4 Notes (the "Class A-4 Notes",
together with the Class A-1 Notes, Class A-2 Notes and the Class A-3 Notes, the
"Class A Notes"), (ii) the Class B Notes (the "Class B Notes"), (iii) the Class
C Notes (the "Class C Notes") and (iv) the Class D Notes (the "Class D Notes"
together with the Class A Notes, the Class B Notes, and the Class C Notes, the
"Notes"). The Class B Notes, the Class C Notes and the Class D Notes are
subordinate to the Class A Notes; the Class C Notes and the Class D Notes are
subordinate to the Class B Notes and the Class D Notes are subordinate to the
Class C Notes. The Class A Notes, the Class B Notes and the Class C Notes are
sometimes referred to collectively as the "Offered Notes". The Class D Notes are
not being offered hereby.
The Notes will represent asset-backed debt obligations of Advanta Leasing
Receivables Corp. IV ("ALRC IV") and Advanta Leasing Receivables Corp. V ("ALRC
V"), as joint and several obligors (the "Issuers"). The Contracts were
originated or acquired by Advanta Business Services Corp. or one of its
affiliates. The Issuers will establish a trust estate with respect to the Notes
(the "Trust Estate") with The Chase Manhattan Bank, as trustee (the "Trustee").
The Trust Estate will consist primarily of (x) a combination of leases
(including, but not limited to, finance leases, true leases and full payout
leases), loans, contracts and
------------------ (cover continued on next page)
AN INVESTMENT IN THE NOTES INVOLVES CERTAIN RISKS. SEE "MATERIAL RISKS"
COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 PROCEEDS TO
OFFERING PRICE DISCOUNT(1) ISSUERS(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Equipment Receivables Asset-Backed
Note 99.9959498% 0.225% 99.77095%
- ---------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Equipment Receivables Asset-Backed
Note 99.9944702% 0.300% 99.69447%
- ---------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Equipment Receivables Asset-Backed
Note 99.9768073% 0.385% 99.59181%
- ---------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Equipment Receivables Asset-Backed
Note 99.9838355% 0.390% 99.59384%
- ---------------------------------------------------------------------------------------------------------------------------
Per Class B Equipment Receivables Asset-Backed Note 99.9895304% 0.400% 99.58953%
- ---------------------------------------------------------------------------------------------------------------------------
Per Class C Equipment Receivables Asset-Backed Note 99.9959753% 0.500% 99.49598%
- ---------------------------------------------------------------------------------------------------------------------------
Total $359,971,374 $1,125,777 $358,845,597
===========================================================================================================================
</TABLE>
(1) The Originator has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses estimated to be $490,000.
------------------
The Offered Notes are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel, or modify any order without notice.
It is expected that delivery of the Offered Notes will be made in book-entry
form through the facilities of The Depository Trust Company, Cedel Bank, S.A. or
the Euroclear System on or about April 14, 1998.
------------------
Underwriters of the Class A Notes
SALOMON SMITH BARNEY
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
BARCLAYS CAPITAL INC.
Underwriter of the Class B and the Class C Notes
SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS IS APRIL 8, 1998.
<PAGE> 2
(cover page continued)
promissory notes (collectively, the "Contracts") financing the purchase or lease
of "small-ticket" equipment items for businesses, including, without limitation,
computers, office machines (such as copy machines, facsimile machines and
telephones), alarm systems and similar items, certain monies relating thereto
received after the Cut-Off Date, 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") and (y) a Reserve Account. Residual Receipts will be
included in the Trust Estate subject to a maximum level described herein.
Payments of principal and interest to the holders of the Class A Notes (the
"Class A Noteholders") will have the benefit of limited credit support
consisting of the subordination of the Class B Notes, the subordination of the
Class C Notes, the subordination of the Class D 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 B Notes (the "Class B Noteholders")
will have the benefit of limited credit support consisting of the subordination
of the Class C Notes, the subordination of the Class D 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 C Notes (the "Class C
Noteholders" together with the Class A Noteholders and the Class B Noteholders,
the "Noteholders") will have the benefit of limited credit support in the form
of the subordination of the Class D Notes, 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 15th
day (or the next succeeding Business Day if such 15th day is not a Business Day)
of each month (each, a "Payment Date"), commencing, with respect to interest, on
May 15, 1998, and commencing, with respect to principal, on the Amortization
Date (as defined herein).
Pursuant to the terms of the Contribution Agreement the Originator 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 in the related Equipment to the Trust Estate, during the
period (the "Interest-Only Period") from and including the Closing Date to and
including the January 1999 Payment Date (the first Payment Date on which
principal is scheduled to be paid, the February 1999 Payment Date, hereinafter
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").
The stated maturity date with respect to the Notes is the December 2006
Payment Date (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. It is expected that the Notes will
mature prior to the Stated Maturity Date.
The Issuers will have the option, subject to certain conditions, to redeem
all, but not less than all of the Notes of all Classes and thereby cause early
repayment of the Notes on any Payment Date on which the Aggregate Contract
Principal Balance is less than or equal to 10% of the Original Aggregate
Contract Principal Balance (as defined herein). In addition, the Issuers will
have the option, subject to certain conditions, to redeem the Class A-3 Notes on
any Payment Date (a "Class A-3 Special Redemption"). The Issuers will give
notice of any 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 called for redemption and all accrued and unpaid interest thereon, and, in
the event of a Class A-3 Special Redemption only, the Class A-3 Special
Redemption Premium. See "Description of the Notes -- Redemption."
ii
<PAGE> 3
The Offered Notes are being offered pursuant to this Prospectus. Sales of
the Offered Notes may not be consummated unless the purchaser has received this
Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE OFFERED NOTES, INCLUDING PURCHASES OF OFFERED NOTES TO STABILIZE THE MARKET
PRICE AND THE IMPOSITION OF BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING" HEREIN.
AVAILABLE INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Offered Notes. For
further information, reference is made to the Registration Statement which may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov pursuant to
Item 502(a) under Regulation S-K as recently amended in SEC Release No. 33-7289
(May 9, 1996). The Issuers 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 Offered Notes remain in book-entry form, any
quarterly and annual reports containing information concerning the Offered Notes
and required to be filed with the Commission will be sent to Cede & Co.
("Cede"), as nominee of The Depository-Trust Company ("DTC"), the Euroclear
System ("Euroclear") or Cedel Bank, S.A. ("CEDEL") as registered holders of the
Offered Notes pursuant to the Indenture. Such reports will be made available by
DTC, Euroclear or CEDEL and its participants to holders of interests in the
Offered Notes in accordance with the rules, regulations and procedures creating
and affecting DTC, Euroclear and CEDEL, respectively. See "Appendix
A -- Book-Entry Registration." However, such reports will not be sent directly
to each beneficial owner while the Offered Notes are in book-entry form. Upon
the issuance of fully registered, certificated Offered Notes, such reports will
be sent directly to each Offered Noteholder. Such reports will be prepared in
accordance with generally accepted accounting principles.
iii
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein. Certain capitalized terms used
herein are defined elsewhere in this Prospectus on the pages indicated in the
"Index of Terms" on pages 54, 55, 56 and 57.
Issuers....................... Advanta Leasing Receivables Corp. IV ("ALRC
IV") and Advanta Leasing Receivables Corp. V
("ALRC V") will be joint and several obligors
with respect to the Notes.
Originator.................... Advanta Business Services Corp.(in such
capacity, and together with one or more
affiliates thereof, collectively, the
"Originator").
Servicer...................... Advanta Business Services Corp. (in such
capacity, the "Servicer").
Trustee....................... The Chase Manhattan Bank (the "Trustee"). The
Trustee's offices are located at 450 West 33rd
Street, New York, New York 10001.
Securities Offered............ $72,000,000 aggregate principal amount of 5.77%
Class A-1 Equipment Receivables Asset-Backed
Notes, Series 1998-1, (the "Class A-1 Notes"),
$190,000,000 aggregate principal amount of
5.82% Class A-2 Equipment Receivables
Asset-Backed Notes, Series 1998-1 (the "Class
A-2 Notes"), $23,300,000 aggregate principal
amount of 5.93% Class A-3 Equipment Receivables
Asset-Backed Notes, Series 1998-1 (the "Class
A-3 Notes"); $45,900,000 aggregate principal
amount of 5.98% Class A-4 Equipment Receivables
Asset-Backed Notes, Series 1998-1 (the "Class
A-4 Notes" together with the Class A-1 Notes,
Class A-2 Notes and the Class A-3 Notes, the
"Class A Notes"); $18,938,000 aggregate
principal amount of 6.10% Class B Equipment
Receivables Asset-Backed Notes, Series 1998-1
(the "Class B Notes") and $9,862,000 aggregate
principal amount of 6.49% Class C Equipment
Receivables Asset-Backed Notes, Series 1998-1
(the "Class C Notes"; together with the Class A
Notes and the Class B Notes, the "Offered
Notes"). In addition to the Offered Notes,
there will be issued $15,000,304 aggregate
principal amount of Class D Equipment
Receivables Assets-Backed Notes, Series 1998-1
(the "Class D Notes", and together with the
Offered Notes, the "Notes"). The Class D Notes
are not being offered hereby.
The combined initial principal amount of the
Offered Notes will represent 96.00% of the
Original Aggregate Contract Principal Balance.
The initial principal balance of the Class D
Notes will represent 4.00% of the Original
Aggregate Contract Principal Balance.
Material Risks................ Certain material risks may be present in an
investment in the Offered Notes. See "Material
Risks."
Senior-Subordinate Nature of
the Notes..................... The Notes are being issued in accordance with a
"senior-subordinate" structure, such that the
Class B Notes, Class C Notes and Class D Notes
are subordinate in payment priority to the
Class A Notes, the Class C Notes and Class D
Notes are subordinate in priority to the Class
A Notes and the Class B Notes, and the Class D
Notes are subordinate in payment priority to
the Class A Notes, the Class B Notes and the
Class C Notes. Losses
1
<PAGE> 5
and delinquencies experienced by the
Receivables will impact first, the Class D
Noteholders; second, the Class C Noteholders;
third, the Class B Noteholders; and fourth, the
Class A Noteholders.
In addition to the subordination provisions of
the Notes, the Reserve Account and the Residual
Account will provide additional protection for
the Offered Notes, as described herein, and the
Residual Interest is subordinate to all classes
of Notes.
The Indenture provides that if the Outstanding
Principal Balance of the Notes ever exceeds the
Aggregate Contract Principal Balance (i.e., if
the Notes are "undercollateralized"), the
Outstanding Principal Balances of the Notes
will be "written down" in inverse order of
seniority such that parity is achieved. See
"Description of the Notes" herein.
Closing Date.................. On or about April 14, 1998 (the "Closing
Date").
Cut-Off Date.................. The opening of business on April 1, 1998 (the
"Cut-Off Date").
Denominations................. The Offered Notes will be issued in minimum
denominations of $1,000 and integral multiples
of $1,000 in excess thereof, except that one
Note of each Class may be issued in another
denomination.
Interest Rates................ 5.77% per annum on the Class A-1 Notes (the
"Class A-1 Interest Rate"), 5.82% per annum on
the Class A-2 Notes (the "Class A-2 Interest
Rate"), 5.93% per annum on the Class A-3 Notes
(the "Class A-3 Interest Rate"), 5.98% per
annum on the Class A-4 Notes (the "Class A-4
Interest Rate"), 6.10% per annum on the Class B
Notes (the "Class B Interest Rate"), 6.49% per
annum on the Class C Notes (the "Class C
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. The Class D Notes are a
subordinated "principal-only" Class of Notes
which do not bear interest.
Initial Principal Balances.... $72,000,000 for the Class A-1 Notes (the "Class
A-1 Initial Principal Balance"), $190,000,000
for the Class A-2 Notes (the "Class A-2 Initial
Principal Balance"), $23,300,000 for the Class
A-3 Notes (the "Class A-3 Initial Principal
Balance"), $45,900,000 for the Class A-4 Notes,
(the "Class A-4 Initial Principal Balance",
together with the Class A-1 Initial Principal
Balance, the Class A-2 Initial Principal
Balance and the Class A-3 Initial Principal
Balance, the "Class A Initial Principal
Balance"), $18,938,000 for the Class B Notes
(the "Class B Initial Principal Balance"),
$9,862,000 for the Class C Notes (the "Class C
Initial Principal Balance"), and $15,000,304
for the Class D Principal Balance (the "Class D
Initial Principal Balance"). See "Description
of the Notes."
The Indenture................. The Notes will be issued pursuant to, and will
be in such form, bear interest and be payable
on such terms as are prescribed in the Master
Business Receivables Asset-Backed Financing
Facility Agreement, dated as of May 1, 1997, by
and among the Servicer, Advanta Leasing
Receivables Corp. III as the Obligor's Agent
and
2
<PAGE> 6
the Trustee, and a supplement thereto dated as
of the Closing Date (the "Indenture").
Expected Maturity Dates....... The expected maturity dates with respect to the
Class A-1 Notes, Class A-2 Notes, Class A-3
Notes, the Class A-4 Notes, Class B Notes and
the Class C Notes are the Payment Dates in
August 1999, May 2001, September 2001, June
2002, May 2001 and September 2000 respectively.
Limited Obligations;
Asset-Backed Debt............. The Notes will represent non-recourse
asset-backed debt 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. The general credit of
the Issuers has not been pledged to secure the
Notes.
Trust Assets.................. The assets pledged to the Trustee to secure the
Notes will consist of, initially, (i) all
Scheduled Payments due on or after the Cut-Off
Date with respect to a pool consisting of a
combination of leases (including, but not
limited to, finance leases, true leases and
full payout leases), loans, contracts and
promissory notes (collectively, the "Initial
Contracts"), financing the purchase or lease of
"small-ticket" equipment items for businesses,
including, without limitation, computers,
office machines (such as copy machines,
facsimile machines and telephones), alarm
systems and similar items, together with such
Initial Contracts and 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 Reserve Account
and certain other accounts held by the Trustee
and (iv) the rights of the Originator under any
applicable agreements (such as broker, vendor
or purchase agreements) pursuant to which the
Originator acquired the Contracts. Thereafter,
during the Interest-Only Period of the Notes,
additional Contracts may be pledged to the
Trustee for the purpose of maintaining the
Aggregate Contract Principal Balance as its
initial level (such Contracts, the "Additional
Contracts"). 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."
On each Payment Date during the Interest-Only
Period, to the extent necessary, (i) all
amounts remaining on deposit in the Collection
Account after making certain payments as
described herein and (ii) all amounts on
deposit in the Additional Property Funding
Account, if any, will be disbursed by the
Trustee to the Issuers, to the extent described
in "Flow of Funds" herein, in consideration of
the Issuers' pledge to the Trustee of
Additional Property relating to Additional
Contracts having an aggregate Contract
Principal Balance on the related Cut-Off Date
equal, as nearly as practicable, to such
amounts. On each Payment Date
3
<PAGE> 7
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
Principal Balance over (y) the Outstanding
Principal Balances of all Classes of the Notes.
The Issuers will acquire their rights in the
Contracts and the Equipment either from the
Originator directly, pursuant to the Master
Contribution Agreement, dated as of May 1,
1997, together with various supplements thereto
(together, the "Contribution Agreement") or
pursuant to one or more Sale Agreements, in
each case between an Issuer and one or more
affiliates of the Originator (such Sale
Agreements and the Contribution Agreement,
together, the "Receivables Transfer
Agreement"). The Originator, as an originator,
will make certain representations and
warranties with respect to, among other things,
the Equipment and the Contracts, which
representations and warranties will be assigned
to the Trustee under the Indenture. See "The
Trust Assets" herein.
Statistical Information;
Discount Rates................ The statistical information presented in this
Prospectus concerning the Initial Contracts
reflects the pool of Initial Contracts as of
the opening of business on March 1, 1998 (the
"Statistic Calculation Date"), and has been
calculated using an assumed discount rate of
7.00% per annum (the "Statistical Discount
Rate"). The Aggregate Contract Principal
Balance of the Initial Contracts as of the
Statistic Calculation Date is $372,530,585.57
using the Statistical Discount Rate (the
"Original Statistical Aggregate Contract
Principal Balance"). The Aggregate Contract
Principal Balance of the Initial Contracts as
of the Cut-Off Date is $375,000,304.00 using
the Actual Discount Rate (the "Original
Aggregate Contract Principal Balance"). The
"Actual Discount Rate" is 7.0003%, which is
equal to the sum of (i) the weighted average
(as of the Closing Date) of the Class A-4
Interest Rate (assuming that the Class A-4
Interest Rate applies to the entire Class A
Initial Principal Balance), the Class B
Interest Rate and the Class C Interest Rate and
(ii) the Servicer Fee Percentage.
The statistical distribution of the
characteristics of the Initial Contracts as of
the Cut-Off Date using the Actual Discount Rate
may vary somewhat from the statistical
distribution of the characteristics of the
Initial Contracts as of the Statistic
Calculation Date using the Statistical Discount
Rate as presented in this Prospectus, due to
the fact that certain Initial Contracts
reflected in the statistical information
presented herein may have had payments made in
respect thereof or may be determined not to
meet the eligibility requirements for the final
pool and also due to the fact that, during the
period from the Statistic Calculation Date to
the Cut-Off Date, certain Contracts may have
been added to the Initial Contracts. The
variance in such characteristics with respect
to the
4
<PAGE> 8
final pool will not be greater than 5% (plus or
minus) compared to such characteristics that
are described in this Prospectus, based upon
the Original Statistical Aggregate Contract
Principal Balance. The statistical
characterization of the final pool will be
filed with the Commission on the current report
on Form 8-K.
Unless otherwise noted, all statistical
percentages in this Prospectus are measured by
the Original Statistical Aggregate Contract
Principal Balance.
Payment Dates................. Payments on the Notes will be made on the 15th
day of each month (or if such day is not a
Business Day, the next succeeding Business
Day), commencing on May 15, 1998 (each, a
"Payment Date"), to holders of record on the
last day of the immediately preceding calendar
month (each a "Record Date"). See "Description
of the Notes -- Payment Date."
Interest Payments............. On each Payment Date, the interest due (the
"Interest Payments") with respect to each Class
of Notes will be the interest that has accrued
on such Notes since the last Payment Date, or,
in the case of the May 15, 1998 Payment Date,
since the Closing Date, (each such period, an
"Interest Accrual Period") at the applicable
Interest Rate applied to the Outstanding
Principal Balance of the Notes of each Class
immediately prior to such Payment Date, but
disregarding, for the purposes of the
calculation of interest only, any Allocated
Loss Amount previously allocated to such Class
(such amount for the Class A Notes, the "Class
A Note Interest," for the Class B Notes, the
"Class B Note Interest", and for the Class C
Notes, the "Class C Note Interest"). In
addition, on each Payment Date, any Interest
Payment shortfalls plus interest thereon for
any prior Payment Date shall accrue and be due
to the related Noteholders (such Interest
Payment shortfalls on the Class A Notes, the
"Class A Overdue Interest," the Class B Notes,
the "Class B Overdue Interest" and the Class C
Notes, "Class C Overdue Interest"). See
"Description of the Notes -- General" and
"-- Distributions on Notes."
Interest-Only Period.......... During the Interest-Only Period, the Issuers
may pledge Additional Contracts to the Trustee
from time to time for the purpose of
maintaining the Original Aggregate Contract
Principal Balance such that no amortization of
the Notes will occur. The Indenture provides
that until the Amortization 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 Contracts, with the
result that the Noteholders will receive
payments of interest only, and no payments of
principal, on each Payment Date beginning with
the May 1998 Payment Date through and including
the January 1999 Payment Date (such period, the
"Interest-Only Period"). See also "Prepayment
and Yield Considerations" herein.
Principal Payments............ Unless a Required Amortization Event occurs
earlier, the Noteholders will receive no
principal payments until the February 1999
Payment Date. For each Payment Date during the
Amortization Period, the Notes of each Class
will be entitled to receive payments
5
<PAGE> 9
of principal ("Principal Payments"), to the
extent funds are available therefor, in the
priorities set forth in the Indenture and
described herein under "Description of the
Notes -- Principal Payments."
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) to
the Class A Noteholders (in "sequential-pay"
fashion to the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4
Notes, in that order), until the Outstanding
Principal Balance of the Class A Notes has been
reduced to zero, the Class A Principal Payment,
(b) to the Class B Noteholders, until the
Outstanding Principal Balance of the Class B
Notes has been reduced to zero, the Class B
Principal Payment, (c) to the Class C
Noteholders until the Outstanding Principal
Balance of the Class C Notes has been reduced
to zero, the Class C Principal Payment, and (d)
following the funding of the Reserve Account to
its required level, to the Class D Noteholders,
until the Outstanding Principal Balance of the
Class D Notes has been reduced to zero, the
Class D Principal Payment.
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, or such later
date as permitted by the Rating Agencies,
following the Servicer's determination that
such amounts relate to the Contracts or the
Equipment.
On each Payment Date prior to the Amortization
Date, the Trustee will be required to make
payments from the Available Funds as more fully
described in "Description of the Notes -- Flow
of Funds."
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 and/or the Residual 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;
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(iv) 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;
(v) from the Available Funds then remaining
in the Collection Account, to the Class C
Noteholders, the Class C Note Interest and the
Class C 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, the
Class A Principal Payment and the Class A
Overdue Principal;
(vii) 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;
(viii) until the Class C Principal Balance
has been reduced to zero, to the Class C
Noteholders, from the Available Funds then
remaining in the Collection Account, the Class
C Principal Payment and the Class C Overdue
Principal;
(ix) from Available Funds then remaining in
the Collection Account, (x) from the Closing
Date until the Reserve Account Funding Date, to
the Reserve Account, an amount equal to the
Servicing Fee otherwise payable to ABS and (y)
after the Reserve Account Funding Date, 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, the amount needed to increase the
amount on deposit in the Reserve Account to the
Required Reserve Amount for such Payment Date;
(xi) upon the occurrence and continuance of a
Residual Event (as defined in the Indenture),
to the Residual Account, the lesser of (A) the
Available Funds then remaining on deposit in
the Collection Account and (B) the aggregate
amount of Residual Receipts originally included
in Available Funds for such Payment Date;
(xii) from the Available Funds then remaining
in the Collection Account, to the Class D
Noteholders, the Class D Principal Payment and
the Class D Overdue Principal;
(xiii) from the Available Funds then
remaining in the Collection Account to ABS, the
amount of any Servicing Fee previously due to
it but deposited to the Reserve Account; and
(xiv) to the Issuers, as the holder of the
Residual Interest, any remaining Available
Funds on deposit in the Collection Account.
Residual Receipts will be included in
"Available Funds" only through the Payment Date
on which Residual Receipts on deposit
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<PAGE> 11
in the Residual Account, or withdrawn from the
Residual Account as a result of a shortfall and
used (without duplication) to cover amounts
owing the Offered Noteholders and the Servicer,
equals $28,125,022.80 (the "Residual Cap
Amount"). Once the Residual Cap Amount has been
reached, Residual Receipts will no longer be
required to be remitted to the Trustee as
"Available Funds," and will be released to the
Issuers free and clear and the lien of the
Indenture (whether or not a Residual Event is
then in effect, or occurs thereafter).
See "Description of Notes -- Flow of Funds."
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
or Originator pursuant to the terms of the
Indenture.
A Defaulted Contract has, by definition, a
Contract Principal Balance of zero; given the
cashflow mechanics of the Indenture, the effect
of assigning such a zero balance is to require
that the Noteholders receive on the next
Payment Date an amount of principal equal to
such Defaulted Contract's Contract Principal
Balance, calculated immediately prior to such
Contract becoming a Defaulted Contract.
Application of Residual
Receipts...................... On each Payment Date, Residual Receipts shall
be deposited into the Collection Account and
included as Available Funds until the
aggregate, cumulative amount of Residual
Receipts used (without duplication) since the
Closing Date to cover amounts owing to the
Offered Noteholders and to the Servicer, equals
the Residual Cap Amount, and will provide
additional credit support to the Notes. Actual
Residual Receipts may be more or less than the
residual value of the Equipment, as recorded on
the records of the Servicer (the "Booked
Residual Value"). Under certain limited
circumstances more fully described in the
Indenture (a "Residual Event"), the Residual
Receipts not distributed to Offered
Noteholders, or paid to the Servicer with
respect to the Servicing Fee, will be deposited
in the Residual Account. As provided in the
Indenture, funds on deposit in the Residual
Account will be available to cover shortfalls
in the amount available to pay the Servicing
Fee owing the Servicer and to make interest and
principal payments on the Offered Notes. If, on
any Payment Date, such shortfall(s) exist and
both the Residual Account and the Reserve
Account have amounts on deposit therein, the
Indenture provides that such shortfall shall
first be funded from Residual Account moneys.
Following the termination of a Residual Event,
amounts
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<PAGE> 12
on deposit in the Residual Account will be
deposited into the Reserve Account to the
extent that the amount on deposit in the
Reserve Account is less than the Required
Reserve Amount and the remainder of such amount
will be released to the Issuers.
Reserve Account............... The Offered 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 available to pay the
Servicing Fee owing the Servicer or to make
interest and principal payments on the Offered
Notes. The Reserve Account will be funded by an
initial deposit of 2.30% of the Initial
Principal Balance of all Offered Notes (such
amount the "Reserve Account Initial Deposit").
Thereafter, to the extent provided in the
Indenture, additional deposits will be made to
the Reserve Account 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" as of any
Payment Date equals 3.25% of the then aggregate
Outstanding Principal Balances of the Offered
Notes (after taking into account all payments
of principal on such Payment Date, but prior to
any allocation of the Senior Allocated Loss
Amount), subject to a floor amount (the
"Reserve Account Floor") equal to the lesser of
(a) 1.00% of the Initial Principal Balance of
the Offered Notes and (b) the aggregate
Outstanding Principal Balance of the Offered
Notes. Amounts on deposit in the Reserve
Account in excess of the Required Reserve
Amount will be released to the Issuers in
accordance with the provisions of the
Indenture.
"Clean-Up Call" Redemption.... The Issuers will have the option, subject to
certain conditions, to redeem all, but not less
than all, of the Notes of all Classes as of any
Payment Date on which the Aggregate Contract
Principal Balance as of the related Calculation
Date is less than or equal to 10% of the
Original Aggregate Contract Principal Balance.
The Issuers will give notice of such redemption
to the Trustee at least 30 days prior to the
Payment Date for such redemption. Upon the
deposit of funds necessary to effect such
redemption, the Trustee shall pay the
Outstanding Principal Balances of the Notes so
called for redemption and all accrued and
unpaid interest as of the Payment Date fixed
for redemption. See "Description of the
Notes -- Redemption."
Class A-3 Special
Redemption.................... The Class A-3 Notes may be redeemed (a "Class
A-3 Special Redemption") on any Payment Date,
at a price equal to the sum of (i) the then
Class A-3 Principal Balance plus accrued and
unpaid interest thereon, and (ii) the Class A-3
Special Redemption Premium. The Class A-3
Special Redemption Premium is payable only in
the event that the Issuers exercise the Class
A-3 Special Redemption and not in the event of
a "clean-up call" redemption.
Advances...................... Subject to the limitations described herein, on
or prior to each Payment Date, the Servicer
may, but is not required, to make advances
(each, a "Servicer Advance") for delinquent
Scheduled Payments. See "Description of the
Notes -- Advances" herein.
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<PAGE> 13
Federal Income Tax
Consequences.................. It is intended that the Offered Notes will be
characterized as indebtedness of the Issuers
for federal income tax purposes, and in the
opinion of Dewey Ballantine LLP, special tax
counsel to the Issuers, the Offered Notes will
be so characterized as indebtedness for federal
income tax purposes. If characterized as
indebtedness, interest on such Offered 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 Consequences."
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 Offered Notes are considered to
be indebtedness without substantial equity
features under local law, the assets comprising
the Trust Estate will not be considered assets
of any ERISA plan holding the Offered 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 Offered Notes even if
the Offered 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 Offered Notes.
Accordingly, the Offered Notes may be acquired
by ERISA plans, subject to certain
restrictions. Before purchasing any of the
Offered Notes, fiduciaries of such plans should
determine whether an investment in the Offered
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 "AAA,"
the Class B Notes be rated at least "A" and
that the Class C Notes be rated at least "BBB"
by Standard & Poor's Ratings Group ("S&P");
that the Class A Notes be rated at least "Aaa,"
the Class B Notes be rated at least "A2" and
the Class C Notes be rated at least "Baa2" by
Moody's Investors Service, Inc. ("Moody's") and
the Class A Notes be rated at least "AAA," the
Class B Notes be rated at least "A" and the
Class C Notes be rated at least "BBB" by Fitch
IBCA, Inc. ("Fitch"), respectively (each a
"Rating Agency"). 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
"Ratings of the Offered Notes."
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MATERIAL RISKS
Prospective Noteholders should consider the following additional risk
factors in connection with the purchase of the Offered Notes.
LIMITED LIQUIDITY MAY RESULT IN A NOTEHOLDER BEING UNABLE TO LIQUIDATE ITS
INVESTMENT. There is currently no public market for the Offered Notes and there
is no assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Offered Notes. There is no assurance that any
such market will be created or, if so created, will continue. If no public
market develops, the Offered Noteholders may not be able to liquidate their
investment in the Offered Notes prior to maturity.
THE SERVICER RATHER THAN THE TRUSTEE WILL GENERALLY HAVE POSSESSION OF THE
CONTRACTS, EXPOSING NOTEHOLDERS TO THE RISK THAT THEY MAY LOSE THEIR INTERESTS
IN THE CONTRACTS. The Originator will warrant that the transfer of the
Contracts to the Issuers is a valid assignment, transfer and conveyance of the
Contracts to the Issuers, and that the Trustee on behalf of the Noteholders will
have a valid security interest in the Contracts. The Servicer will retain
possession of the Contracts. If the Originator, the Servicer, the Trustee or
other third party, while in possession of the Contracts, sells or pledges and
delivers such Contracts to another party, in violation of the Receivables
Transfer Agreement or the Indenture, there is a risk that such other party could
acquire an interest in such Contracts and have a priority interest over that of
the Noteholders. Furthermore, if the Originator, the Servicer or a third party,
while in possession of the Contracts, is rendered insolvent, such event of
insolvency may result in competing claims to ownership or security interests in
the Contracts. Such claims, even if unsuccessful, could result in delays in
payments on the Notes. If successful, such claims could result in losses to the
Noteholders or an acceleration of the repayment of the Notes. The Originator
will make certain representations and warranties with respect to the ownership
of the Contracts. The Originator will be obligated to acquire (by repurchase or
substitution) any Contract from the Trust Estate if there is a breach of such
representations and warranties that materially adversely affects the interests
of the Trustee on behalf of the Noteholders to such Contract and such breach has
not been cured.
RECOVERIES ON RECEIVABLES MAY BE LIMITED, WHICH MAY RESULT IN THE ISSUERS
RECEIVING SUBSTANTIALLY LESS THAN THE FACE AMOUNT OF THE RELATED
CONTRACT. State laws impose requirements and restrictions relating to
foreclosure sales and obtaining deficiency judgments following such sales. In
the event that the Issuers must rely on repossession and disposition of
Equipment to cover losses on Defaulted Contracts, the Issuers may not realize
the full amount due because of the application of those requirements and
restrictions. Other factors that may affect the ability of the Issuers to
realize the full amount due on the Contracts include the failure to file
financing statements to perfect the Issuers' security interest in the Equipment
against a lessee, depreciation, obsolescence, damage or loss of any item of
Equipment, and the application of federal and state bankruptcy and insolvency
laws. As a result, the Noteholders may be subject to delays in receiving
payments and losses.
INSOLVENCY OF THE ORIGINATOR. The Originator believes that the transfer of
the Contracts to the Issuers should be treated as an absolute and unconditional
sale or assignment. However, in the event of an insolvency of the Originator, a
court could attempt to recharacterize the sale of the Contracts by the
Originator to the Issuers as a loan to the Originator from the Issuers, secured
by a pledge of such Contracts or could allow the trustee in bankruptcy to
repudiate the Contracts that are operating leases and all obligations
thereunder. Moreover, in the event of an insolvency of the Originator, a court
could attempt to consolidate the assets of the Issuers with those of the
Originator since the Originator will own, directly or indirectly, all of the
equity of the Issuers. Either attempt, even if unsuccessful, could result in
delays in payments of the Notes. If such attempts were successful, the Notes
would be accelerated, and the Trustee's recovery on behalf of the Noteholders
could be limited to the then current value of the Trust Estate. Thus, the
Noteholders could lose the right to future payments and might incur reinvestment
losses on amounts recovered. See "Certain Legal Matters Affecting the
Receivables."
BOOK-ENTRY REGISTRATION MAY FURTHER REDUCE LIQUIDITY, AND MAY LEAD TO
PAYMENT DELAYS. The Offered Notes initially will be represented by one or more
notes registered in the name of Cede & Co. and will not be registered in the
names of the beneficial owners or their nominees. As a result of this, unless
and until Definitive Notes are issued, beneficial owners will not be recognized
by the Issuers or the Trustee as Noteholders, as that term is used in each
Indenture. Hence, until such time, beneficial owners will only be
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<PAGE> 15
able to exercise the rights of Noteholders indirectly, through DTC, Euroclear or
CEDEL and their respective participating organizations, and will receive reports
and other information provided for under the Indenture only if, when and to the
extent provided by DTC, Euroclear or CEDEL, as the case may be, and its
participating organizations. See "Appendix A -- Book-Entry Registration."
CERTAIN PROVISIONS OF THE UCC MAY FURTHER DIMINISH RECOVERIES. Certain
states have adopted a version of Article 2A of the Uniform Commercial Code
("Article 2A"). Article 2A purports to codify many provisions of existing common
law. Although there is little precedent regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" lease or "unconscionable" provision in a lease, provide a
lessee with remedies, including the right to cancel the lease contract, for
certain lessor breaches or defaults, and may add to or modify the terms of
"consumer lease" and leases where the lessee is a "merchant lessee." Article 2A,
moreover, recognizes typical commercial leases "hell or high water" rental
payment clauses and validates reasonable liquidated damages provisions in the
event of lessor or lessee defaults. Article 2A also recognizes the concept of
freedom of contract and permits the parties in a commercial context a wide
degree of latitude to vary provisions of the law.
THE ISSUERS HAVE THE RIGHT TO REMOVE CONTRACTS IN CERTAIN CASES IN EXCHANGE
FOR THE DELIVERY OF 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 Originator is not required to designate one
or more contracts as a Substitute Contract. Accordingly, Noteholders should not
expect that Substitute Contracts will be available.
THE RATE OF PRINCIPAL PREPAYMENT ON THE NOTES MAY BE INFLUENCED BY
SUBSTITUTIONS AND REPURCHASES. 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 Originator 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."
INTERESTS IN THE EQUIPMENT; CERTAIN SECURITY INTERESTS NOT PERFECTED, WHICH
MAY RESULT IN DIMINISHED RECOVERY VALUES. The Contracts generally consist of
"chattel paper" which creates a security interest in the related item of
Equipment 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. The Originator has filed UCC financing statements in its
favor against Users in respect of Equipment, with an original Equipment cost in
excess of $25,000. Financing statements in favor of the Originator with respect
to approximately 31.10% of the Original Statistical Aggregate Contract Principal
Balance will have been so filed. Generally, no action will be taken to perfect
the interest of the Originator 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 Originator generally 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 68.90% of the Original Statistical Aggregate
Contract Principal Balance. To the extent UCC financing statements evidencing
the Originator'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 equal to or less than $25,000) no such security interests in the
Equipment will be perfected in favor of the Originator, the Issuers or the
Trustee. Consequently another party (such as a creditor of the User) may acquire
rights in the Equipment superior to those of the Issuers or the Trustee. See
"Certain Legal Matters Affecting The
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<PAGE> 16
Receivables". 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 Originator 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 Originator 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 Originator to either the Issuers or the Trustee. However, general, "blanket"
UCC financing statements will be filed naming (i) the Originator, as debtor, and
the Issuers as secured party in (New Jersey), and (ii) the Issuers, as debtors,
and the Trustee as secured party (in most states). Furthermore, certain
provisions of the Bankruptcy Code provide that the retention of bare legal 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 Originator 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.
EQUIPMENT OBSOLESCENCE MAY DIMINISH RECOVERY VALUES. In the event a
Contract becomes a Defaulted Contract and the User (and any guarantor) has
insufficient assets available to pay the Scheduled Payments on the scheduled
payment dates, the only other source of moneys (other than the credit
enhancement provided by the subordination and by the Reserve Account and the
Residual 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.
THE ORIGINATOR'S ABILITY TO ORIGINATE ADDITIONAL CONTRACTS MAY DETERMINE
WHETHER THE INTEREST-ONLY PERIOD CAN BE MAINTAINED, AND WHEN THE AMORTIZATION
PERIOD MAY COMMENCE. It is expected that during the Interest-Only Period no
principal will be paid to the Noteholders. If, however, during the Interest-
Only Period, a sufficient amount of Additional Contracts are not available for
pledge to the Trustee, the Interest-Only Period shall terminate, and the
Amortization Period will commence. The occurrence of such an event would result,
generally, from a shortage in availability of qualifying Additional Contracts
during the Interest-Only Period. The Originator 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
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 Originator is unable to
originate Additional Contracts as expected, there is a risk that the Noteholders
may receive payments of principal earlier than expected.
SOCIAL, ECONOMIC AND OTHER FACTORS MAY ALSO DETERMINE WHETHER THE
INTEREST-ONLY PERIOD CAN BE MAINTAINED, AND WHEN THE AMORTIZATION PERIOD MAY
COMMENCE. 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 Originator 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.
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CREDIT ENHANCEMENT IS LIMITED, AND, IF EXHAUSTED; LOSSES MAY
RESULT. Credit enhancement with respect to the Offered Notes will be provided
by the subordination of the Class D Notes, the Residual Interest and funds on
deposit in the Reserve Account and the Residual Account. In addition, the Class
A Notes have the benefit of the subordination of the Class B Notes and the Class
C Notes; and the Class B Notes have the benefit of the subordination of the
Class C Notes. However, on any Payment Date the amount available to Noteholders
is limited to the extent of funds on deposit in the Collection Amount, the
Reserve Account and the Residual Account. Therefore, if a Contract becomes a
Defaulted Contract at a time when total losses on the Contracts are in excess of
the amount available to be withdrawn from the Residual Account, the Reserve
Account, the Outstanding Principal Balance of the Class D Notes and Outstanding
Principal Balance of any subordinated Class, the holders of Notes of any senior
Class may experience losses.
THE INITIAL CONTRACT POOL MAY HAVE GEOGRAPHIC CONCENTRATION. As of the
Statistic Calculation Date, approximately 14.98%, 9.07%, 8.39%, 7.96%, 7.84% and
5.15% of the Initial Contracts (based on the Original Statistical Aggregate
Contract Principal Balance) were located in California, New York, Texas,
Florida, New Jersey and Pennsylvania, respectively. No other state accounts for
more than 3.65% of the Original Statistical Aggregate Contract Principal
Balance. See "The Trust Assets." Accordingly, adverse economic conditions or
other factors particularly affecting any of these regions could adversely affect
the performance of the Initial Contracts.
THE SERVICER WILL BE PERMITTED TO COMMINGLE COLLECTIONS TO A LIMITED
EXTENT, WHICH MAY LEAD TO DELAYS IN THE EVENT OF A SERVICER BANKRUPTCY. Under
the Indenture, the Servicer is required to deposit all collections on the
Contracts received after the Cut-Off Date into the Collection Account within two
Business Days, or such later date as permitted by the Rating Agencies, 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 Leasing Receivables Corp. IV ("ALRC IV") and
Advanta Leasing Receivables Corp. V ("ALRC V"). The Issuers will be jointly and
severally liable on the Notes. Each Issuer is a Nevada corporation which was
formed in February of 1998; 100% of the common equity of each Issuer is owned by
Advanta Business Services Corp. The principal office of each Issuer is located
at 1325 Airmotive Way, Reno, Nevada 89502.
LEGAL PROCEEDINGS
As of the date of this Prospectus, ABS is involved in various lawsuits
arising in the ordinary course of its business. In the opinion of management of
ABS, the outcome of these matters will not have a material adverse effect on the
financial condition or results of operations of ABS. As of the date of this
Prospectus, neither ALRC IV or ALRC V is involved in any legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
As of the date of this Prospectus, neither of the Issuers have had an
operating history. The net proceeds of the sale of the Offered Notes will be
employed to purchase the Contracts. See "Use of Proceeds." The Issuers are
prohibited by their respective certificates of incorporation from engaging in
business other than (i) the purchase of equipment leases and lease receivables
(including equipment) from ABS and its affiliates, (ii) the issuance of notes
collateralized by its assets and (iii) engaging in acts incidental, necessary or
convenient to the foregoing and permitted under Nevada law. The Issuers' ability
to incur, assume or guaranty indebtedness for borrowed money are also restricted
by their respective certificates of incorporation.
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<PAGE> 18
DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUERS
The following table sets forth the executive officers and directors of the
Issuers and their ages and positions as of February 17, 1998. Because the
Issuers are organized as special purpose companies and will be largely passive,
it is expected that the officers and directors of each Issuer in such capacity
will participate in the management of each Issuer to a limited extent. Most of
the actions related to maintaining and servicing the assets will be performed by
the Servicer.
ADVANTA LEASING RECEIVABLES CORP. IV
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ----- --------
<S> <C> <C>
Charles H. Podowski.................... 51 Director
Francis B. Jacobs, II.................. 56 Director
Edward E. Millman...................... 46 President and Director
Susan A. McVeigh....................... 35 Treasurer and Director
Janice C. George....................... 51 Vice President and Director
Cole Silver............................ 41 Secretary
ADVANTA LEASING RECEIVABLES CORP. V
Charles H. Podowski.................... 51 Director
Francis B. Jacobs, II.................. 56 Director
Edward E. Millman...................... 46 President and Director
Susan A. McVeigh....................... 35 Treasurer and Director
Janice C. George....................... 51 Vice President and Director
Cole Silver............................ 41 Secretary
</TABLE>
Charles H. Podowski has served as Director since being elected on February
17, 1998. Mr. Podowski joined Advanta Corp. in 1995 and is currently President
of Advanta Insurance Companies and Chairman of Advanta Business Services Corp.
Prior to joining Advanta, Mr. Podowski had a seventeen year career with CIGNA
Corporation, where he held various positions, the most recent being Senior Vice
President of their International Division with responsibility for life insurance
subsidiaries in Asia and Australia and emerging worldwide markets.
Edward E. Millman has served as President and Director since being elected
on February 17, 1998. Mr. Millman is currently the Senior Vice President and
Chief Financial Officer of Advanta Business Services Corp. Since joining Advanta
Corp. in 1989, Mr. Millman has held the positions of Senior Vice President of
International Operations, Chief Financial Officer of the consumer credit card
business and before that as Vice President in Advanta Corp.'s Treasury Group.
Cole Silver has served as Secretary since being elected on February 17,
1998. Mr. Silver joined Advanta Business Services Corp. in 1992 and is currently
the Senior Vice President and General Counsel.
Susan A. McVeigh has served as Treasurer and Director since being elected
on February 17, 1998. Ms. McVeigh joined Advanta Corp. in 1994 as a transaction
manager in the consumer credit card business and has worked in several positions
within the asset securitization area. Ms. McVeigh is currently the Manager of
Treasury and Securitization for Advanta Business Services Corp.
Janice C. George has served as Vice President and Director being elected on
February 17, 1998. For the last five years Ms. George has been employed by
Griffin Corporate Services.
Francis B. Jacobs, II has served as Director since being elected on
February 17, 1998. For the last five years Mr. Jacobs has been employed by
Delaware Trust Capital Management.
None of the above-listed directors and officers of the Issuers will be
compensated directly by the Issuers with any funds or assets of the Issuers nor
will any such directors and officers receive compensation in the capacities in
which they act for the Issuers.
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<PAGE> 19
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Issuers
pursuant to the foregoing provisions, or otherwise, each of the Issuers has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, thereof, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Issuers of expenses incurred or paid by a director,
officer or controlling person of the Issuers 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 Issuers 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 whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
USE OF PROCEEDS
The Issuers will apply the net proceeds from the sale of the Notes as
follows: (i) to make the initial deposit to the Reserve Account, in the amount
of the Reserve Account Initial Deposit; (ii) to acquire certain of the Initial
Contracts from certain affiliates of the Originator and (iii) to acquire the
remaining Initial Contracts from the Originator.
THE TRUSTEE
The Chase Manhattan Bank will be the Trustee under the Indenture. Advanta
Business Services Corp., as Originator or Servicer, and its affiliates may from
time to time enter into normal banking and trustee relationships with the
Trustee and its affiliates. The Trustee, the Servicer and any of their
respective affiliates may hold Notes in their own names. In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee shall have the power to appoint a co-trustee or a separate trustee under
each Indenture. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Indenture will be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee, who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Issuers will be
obligated to appoint a successor Trustee. The Issuers may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Indenture, fails to perform in any material respect its obligations under the
Indenture, or becomes insolvent. In such circumstances, the Issuers will be
obligated to appoint a successor Trustee.
THE TRUST ASSETS
GENERAL. The assets pledged to the Trustee to secure the Notes
(collectively, the "Trust Estate") will consist of, initially, (i) all Scheduled
Payments due on or after the Cut-Off Date with respect to a pool consisting of a
combination of leases (including, but not limited to, finance leases, true
leases and full payout leases), loans, contracts and promissory notes
(collectively, the "Initial Contracts"), financing the purchase or lease of a
variety of "small-ticket" equipment items for businesses, including, without
limitation, computers, office machines (such as copy machines, facsimile
machines and telephones), alarm systems and similar items, together with such
Initial Contracts and 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 Reserve Account, the Residual Account and certain
other accounts held by the Trustee and (iv) the rights of the Originator under
any applicable agreements (such as broker, vendor or purchase agreements)
pursuant to which the Originator acquired the Contracts. Thereafter, during the
Interest-Only Period of the Notes, additional Contracts may be pledged to the
Trustee for the purpose of maintaining the Aggregate Contract Principal Balance
at its initial level ("Additional Contracts"). 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
16
<PAGE> 20
"Equipment." The Initial 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
mean, with respect to each Contract, the following documents: (i) the executed
original counterparts of the Contract that constitute "chattel paper" for
purposes of Sections 9-105(1)(b) and 9-305 of the Uniform Commercial Code (the
"UCC"); (ii) copies of all documents, if any, that the Originator or the
Servicer keeps on file in accordance with the Originator's or Servicer's
customary procedures; and (iii) copies (together with all amendments,
assignments and continuations thereof) of all UCC financing statements, if any,
filed with respect to the Contracts, identifying the User as debtor and the
Originator as secured party.
THE CONTRACTS. The Initial Contracts consist or, in the case of the
Additional Contracts, will consist, of (i) transactions originated by the
Originator, agents of the Originator, vendors or brokers in the name of the
Originator and (ii) transactions acquired by the Originator from third parties
and underwritten by the Originator in the same manner as Contracts originated by
the Originator. 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 only allow prepayment by a User with respect
to a Contract of an amount not less than the Prepayment Amount related thereto.
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
Trust Estate, but only upon payment of an amount equal to the Prepayment Amount.
The "Prepayment Amount" means, with respect to a Contract, as of any date, the
sum of (a) the Contract Principal 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 Principal Balance pursuant to the Servicer's
credit and collection policy and deposited into the Collection Account) plus (b)
the product of the Contract Principal Balance and one-twelfth of the Actual
Discount Rate, plus (c) provided that the Residual Cap Amount has not yet been
reached, the Booked Residual Value, if any, of the related Equipment. Prepayment
Amounts will be deposited in the Collection Account as Available Funds.
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. 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
Originator, the Servicer, or the Issuers, either or any assignee of any of them
under such Contract, damage to or destruction of the related Equipment or any
other event.
Users under the 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.
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 Trust Estate.
Certain of the 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. The amount payable at the end of the Contract term 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 Contracts
that take the form of leases do not contain a
17
<PAGE> 21
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.
Generally, the Contracts in the form of a lease 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 a lease 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
Originator'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.
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 (but in any event prior to December 2006), together
with all Scheduled Payments previously due and unpaid which were not the subject
of a Servicer Advance on or prior to such date, 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 Principal Balance" of such
Contract, except that a Defaulted Contract has a Contract Principal Balance of
$0.
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"), together with any Final Contract Payment applicable thereto.
"Aggregate Contract Principal Balance" means, with respect to any Payment
Date, the aggregate Contract Principal Balance of all Contracts in the Trust
Estate as of the related Calculation Date.
References herein to percentages of Contracts refer in each case to the
percentage of the Original Statistical Aggregate Contract Principal Balance of
the Initial Contracts.
Approximately 60.48% of the Initial Contracts, measured by Original
Statistical Aggregate Contract Principal 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 39.52% of the Initial Contracts,
measured by Original Statistical Aggregate Contract Principal Balance, take the
form of finance contracts, installment sale contracts and leases, loans and
other contracts consisting of notes and accompanying security agreements.
As of the Statistic Calculation Date, the Initial Contracts had remaining
terms to maturity of 2 to 76 months. The final Scheduled Payment or Final
Contract Payment on the Initial Contract with the latest maturity is due in May,
2004. As of the Statistic Calculation Date, the Contract Principal Balances of
the Initial Contracts range from $18.97 to $421,670.56. No more than 0.11% of
the Original Statistical Aggregate Contract Principal Balance is attributable to
any one User (including affiliates of such User), and the average Contract
Principal Balance is $6,407.03.
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<PAGE> 22
ADVANTA BUSINESS SERVICES CORP. UNDERWRITING, ORIGINATING AND
SERVICING PRACTICES
GENERAL. Advanta Business Services Corp. ("ABS") is a wholly-owned
subsidiary of Advanta Leasing Holding Corp., a Delaware corporation ("ALHC").
ALHC is a wholly-owned subsidiary of Advanta Corp. (a publicly-traded company
based in Spring House, PA and is listed on the NASDAQ as ADVNA and ADVNB). ABS
has two primary lines of business, (i) convenience lending which consists of
originating, acquiring and servicing primarily commercial leases and loans (the
"Contracts") to businesses and business owners in the United States and its
territories and possessions and (ii) a Mastercard credit card product geared
towards small businesses. Advanta Business Services Corp. is headquartered at
1020 Laurel Oak Road, Voorhees, NJ 08043-7228 and its phone number is (609)
782-7300.
ABS leases and finances a wide variety of small-ticket equipment,
including, but not limited to, office equipment, telecommunications equipment,
automotive repair equipment, surveillance equipment, and furniture, to
businesses and business owners throughout the United States. ABS underwrites and
services its equipment leasing and financing business from its headquarters in
Voorhees, New Jersey.
CONTRACT ORIGINATION. ABS originates contracts primarily through its sales
and marketing programs at its Voorhees, New Jersey headquarters. Transactions
are originated as a result of ABS's relationships with various brokers and
vendors. From time to time, vendors who are familiar with ABS's leasing and
financing services as a result of previous transactions recommend prospective
customers make a credit application to ABS for financing. Other transactions may
be submitted to ABS as a result of a more formal program between ABS and a
vendor where the vendor's marketing representatives may offer prospective
customers financing at pre-arranged rates, based upon the vendor's equipment,
and certain terms and conditions approved by ABS.
In a majority of these vendor programs, ABS owns the equipment subject to
each contract and bills and collects payments directly with the obligor. For
some select vendor programs, ABS will bill and collect payments using a
non-descriptive name, so that the obligor does not recognize ABS as a party to
the transaction. Under this program, once a contract becomes 60-90 days past
due, ABS is then immediately identified to the obligor. Vendors may choose to
originate the contracts on ABS's standard contract documentation or they may use
their own internally generated contract documentation which is reviewed and
approved by ABS's legal staff. In instances where ABS does not own the
equipment, they will, under certain circumstances, obtain a perfected security
interest in the equipment.
On occasion, ABS will purchase contracts or other financing transactions
which were originated by unaffiliated lessors/lenders; provided, however, that
the creditworthiness and origination procedures of such originator meet the
approval of ABS; and provided, further, that ABS approves the creditworthiness
of the obligor and all of the related documentation in such transaction.
Another program through which ABS originates contracts is through the use
of brokers. In a typical broker transaction, ABS originates contracts referred
to it by a given broker and pays the broker a referral fee. Contracts originated
under this program are reviewed in a manner consistent with ABS's then existing
credit polices and procedures. ABS may also purchase contracts on a bulk or
portfolio basis; these contracts may be originated by a variety of originators
under several different underwriting guidelines. When reviewing potential bulk
or portfolio acquisitions, the existing originator's contracts will be reviewed
and approved by the ABS credit staff, using pre-determined guidelines. For each
potential bulk or portfolio purchase, ABS has the ability to accept or reject
individual contracts.
RESIDUAL VALUES. ABS has realized residual values which, on average,
exceeded the booked residual values in respect of such contracts. For contracts
in which there is a pre-determined buy-out price, the buy-out price is the
residual value recorded on ABS's books. In the event the equipment is returned,
ABS utilizes the services of its vendors and brokers and also participates in an
active secondary market for the sale of this returned, used equipment.
ABS'S CREDIT REVIEW. ABS performs a thorough credit review of all
prospective obligors. Typically, the credit review process begins when the
prospective obligor completes a credit application. The completed credit
application is entered into the company's computerized application processing
system. A customized credit
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<PAGE> 23
scoring model is employed and the credit decision based on several criteria
which may include verification of a credit bureau report for the principal(s) of
the prospective obligor, verification of a Dun & Bradstreet listing for the
company, and a review of the total dollar amount of exposure for all contracts
the obligor has outstanding with ABS, which may not exceed a certain dollar
limit. Credit applications can be automatically approved and/or rejected based
on the dollar amount of the application and a score falling within a certain
range in the model. For those credit applications not falling within a specified
dollar amount and/or credit score, the decision is based on an analysis by the
credit staff utilizing criteria developed by ABS. Authority to make credit
decisions is based on seniority and the lending experience of the credit
personnel. In general, transactions in excess of $500,000 must be approved by
the senior management of ABS.
ABS's senior credit committee provides a forum for making credit decisions
on transactions which exceed the authority of individual or paired credit
approvers either in size or complexity. The senior credit committee also
identifies strategic credit issues and establishes the credit polices and
procedures throughout the company.
In addition, the credit department has staff dedicated to perform reviews
of potential new vendors and brokers to ensure compliance with the company's
overall credit policies and procedures. In reviewing new relationships with
vendors and brokers, ABS considers, among other things, length of time in
business, bank, credit and trade references, Dunn & Bradstreet reports, and
credit bureau reports on all of the officers of the vendor being reviewed.
COLLECTION/SERVICING. Collection activities with respect to delinquent
contracts are performed by ABS's servicing staff in Voorhees, New Jersey. Each
contract has a provision for assessing late charges in the event that an obligor
fails to make a payment on the contract on the related due date. Telephone
contact is normally initiated when an account is one to fifteen days past due.
All collection activity is entered into ABS's computerized collection system.
Collectors input activity notes (i.e. notes summarizing recent collection
activities) directly into the collection system, which enables company personnel
to monitor the status of the account and take any necessary actions. Collectors
have the latest status and collection history on each account available on their
computer terminals.
If a payment has not been received by the 11th day after the due date, the
system automatically generates a computerized late notice which is sent directly
to the obligor (except for the select vendor programs where the obligor does not
recognize ABS as a party to the transaction, in such situations the vendor is
notified). If a payment has not been received by the 31st day after the due
date, a default letter is sent out to the obligor (except for the select vendor
programs where the obligor does not recognize ABS as a party to the transaction,
in such situations, the vendor is notified). If a payment has not been received
by the 61st day after the due date, a demand letter is sent out directly to the
obligor. Telephone contact is continued throughout the delinquency period. If
the transaction continues to be delinquent, ABS may exercise any remedies
available to it under the terms of the contract, including termination,
acceleration and/or repossession. Each contract is evaluated on the merits of
the individual situation, with the equipment value and the current financial
strength of the obligor. If collection activities do not rectify the account,
ABS typically charges off the account at 121 days past due.
At the time of charge-off, the account is turned over to ABS's in-house
litigation department. In general, a decision is made to either pursue the
obligor and/or personal guarantor through litigation or send the file to a
third-party collection agency to enforce the original terms of the contract.
Prior to litigation, the legal recovery department will attempt to obtain
resolution of the account. The litigation decision is dependent on a review of
the account including credit bureau reports, obligor payment history, and/or
Dunn & Bradstreet reports. In cases where the obligor has filed for bankruptcy,
the ABS legal recovery department follows up with the debtor to determine
whether it intends to assume or reject the contract. In addition, the department
pursues the non-bankrupt debtors while reviewing the fair market value of the
equipment, the remaining balance of the contract, and the credit of the
non-bankrupt obligors. If the bankruptcy department cannot settle with the non-
bankrupt obligors, the file may be passed to the litigators for suit. In many
cases, although the obligor has filed for bankruptcy protection from its
creditors, it continues to make regular payments on its contract to ABS.
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<PAGE> 24
SUBSTITUTIONS AND MODIFICATIONS
Pursuant to the Indenture, the Originator 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 Principal Balance(s) of such Substitute
Contract or Contracts is at least equal to the aggregate Contract Principal
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.
New Contracts may be substituted for Defaulted Contracts to a maximum
dollar amount equal to 10% of the Original Aggregate Contract Principal Balance.
There is no maximum of the Contracts which may be substituted for Contract which
breach representations or warranties.
The Indenture requires that the delivery of Substitute Contracts cannot
result in a material reduction in the aggregate Booked Residual Value of all
equipment as of the time of such substitution.
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 Principal Balance not lower than the Contract Principal 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.
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 concerning the
Initial Contracts reflects the pool of Initial Contracts as of the opening of
business on March 1, 1998 (the "Statistic Calculation Date"), and has been
calculated using an assumed discount rate of 7.00% per annum (the "Statistical
Discount Rate"). The Aggregate Contract Principal Balance of the Initial
Contracts as of the Statistic Calculation Date is $372,530,585.57 using the
Statistical Discount Rate (the "Original Statistical Aggregate Contract
Principal Balance"). The Aggregate Contract Principal Balance of the Initial
Contracts as of the Cut-Off Date is $375,000,304.00 using the Actual Discount
Rate (the "Original Aggregate Contract Principal Balance"). The "Actual Discount
Rate" is 7.0003%, which is the sum of (i) the weighted average (as of the
Closing Date) of the Class A-4 Interest Rate (assuming that the Class A-4
Interest Rate applies to the entire Class A Initial Principal Balance), the
Class B Interest Rate and the Class C Interest Rate and (ii) the Servicing Fee
Percentage.
The statistical distribution of the characteristics of the Initial
Contracts as of the Cut-Off Date using the Actual Discount Rate may vary
somewhat from the statistical distribution of the characteristics of the Initial
Contracts as of the Statistic Calculation Date using the Statistical Discount
Rate as presented in this Prospectus, due to the fact that certain Initial
Contracts reflected in the statistical information presented herein may have had
payments made in respect thereof or may be determined not to meet the
eligibility requirements for the final pool and also due to the fact that,
during the period from the Statistic Calculation
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<PAGE> 25
Date to the Cut-Off Date, certain Contracts may have been added to the Initial
Contracts. The variance in such characteristics with respect to the final pool
will not be greater than 5% (plus or minus) compared to such characteristics
that are described in this Prospectus, based upon the Original Statistical
Aggregate Contract Principal Balance. The statistical characterization of the
final pool will be filed with the Commission on a current report on Form 8-K.
Unless otherwise noted, all calculations of Contract Principal Balances
with respect to the Initial Contracts and all statistical percentages in this
Prospectus are measured by the Original Statistical Aggregate Contract Principal
Balance. Furthermore, in all instances in this Prospectus where the Statistical
Discount Rate is used to calculate the Contract Principal Balances, such
calculation is performed by discounts related to Scheduled Payments at the same
frequency as the payment interval of the related Contract.
Following is certain statistical information relating to the Initial
Contracts, calculated as of the Statistic Calculation Date. As used in the
tables below, the "Original Statistical Aggregate Contract Principal Balance" is
the aggregate of the Contract Principal Balances of the related Contracts,
calculated as of the Statistical Calculation Date using the Statistical Discount
Rate.
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DISTRIBUTION OF CONTRACTS BY STATE
<TABLE>
<CAPTION>
ORIGINAL PERCENTAGE OF
PERCENTAGE OF STATISTICAL ORIGINAL STATISTICAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT
STATE CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- --------- ------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Alabama...................................... 685 1.18% $ 4,273,120.19 1.15%
Alaska....................................... 78 0.13% 534,094.31 0.14%
Arizona...................................... 988 1.70% 6,214,750.81 1.67%
Arkansas..................................... 296 0.51% 1,973,686.32 0.53%
California................................... 8,170 14.05% 55,804,340.64 14.98%
Colorado..................................... 1,038 1.79% 6,559,726.20 1.76%
Connecticut.................................. 1,240 2.13% 7,409,536.18 1.99%
Delaware..................................... 388 0.67% 2,069,700.07 0.56%
District of Columbia......................... 334 0.57% 2,924,169.03 0.78%
Florida...................................... 4,978 8.56% 29,640,814.34 7.96%
Georgia...................................... 1,977 3.40% 13,580,479.36 3.65%
Hawaii....................................... 119 0.20% 705,505.91 0.19%
Idaho........................................ 218 0.37% 1,656,600.47 0.44%
Illinois..................................... 1,529 2.63% 10,978,743.44 2.95%
Indiana...................................... 593 1.02% 3,419,517.75 0.92%
Iowa......................................... 171 0.29% 930,436.10 0.25%
Kansas....................................... 253 0.44% 1,458,456.58 0.39%
Kentucky..................................... 525 0.90% 3,061,222.52 0.82%
Louisiana.................................... 236 0.41% 1,328,442.87 0.36%
Maine........................................ 309 0.53% 1,563,379.75 0.42%
Maryland..................................... 1,453 2.50% 8,825,464.08 2.37%
Massachusetts................................ 1,915 3.29% 12,187,380.52 3.27%
Michigan..................................... 804 1.38% 5,101,666.82 1.37%
Minnesota.................................... 469 0.81% 3,138,085.08 0.84%
Mississippi.................................. 242 0.42% 1,729,906.76 0.46%
Missouri..................................... 666 1.15% 4,683,070.40 1.26%
Montana...................................... 103 0.18% 522,026.68 0.14%
Nebraska..................................... 82 0.14% 507,814.06 0.14%
Nevada....................................... 344 0.59% 2,271,988.43 0.61%
New Hampshire................................ 378 0.65% 2,241,648.94 0.60%
New Jersey................................... 4,551 7.83% 29,198,612.33 7.84%
New Mexico................................... 279 0.48% 1,683,563.15 0.45%
New York..................................... 5,221 8.98% 33,787,203.71 9.07%
North Carolina............................... 1,585 2.73% 9,217,672.72 2.47%
North Dakota................................. 56 0.10% 229,390.15 0.06%
Ohio......................................... 1,894 3.26% 11,114,337.20 2.98%
Oklahoma..................................... 475 0.82% 2,935,234.15 0.79%
Oregon....................................... 597 1.03% 4,205,383.71 1.13%
Pennsylvania................................. 3,256 5.60% 19,173,672.20 5.15%
Rhode Island................................. 387 0.67% 2,411,823.07 0.65%
South Carolina............................... 679 1.17% 3,928,099.62 1.05%
South Dakota................................. 52 0.09% 289,182.92 0.08%
Tennessee.................................... 725 1.25% 4,794,620.63 1.29%
Texas........................................ 4,675 8.04% 31,243,679.74 8.39%
Utah......................................... 219 0.38% 1,924,743.70 0.52%
Vermont...................................... 142 0.24% 705,844.78 0.19%
Virgin Islands............................... 112 0.19% 228,037.99 0.06%
Virginia..................................... 1,362 2.34% 9,260,038.37 2.49%
Washington................................... 665 1.14% 4,811,694.22 1.29%
West Virginia................................ 151 0.26% 921,205.91 0.25%
Wisconsin.................................... 418 0.72% 2,806,850.68 0.75%
Wyoming...................................... 62 0.11% 363,920.01 0.10%
------ ------ --------------- ------
Total.................................... 58,144 100.00% $372,530,585.57 100.00%
====== ====== =============== ======
</TABLE>
23
<PAGE> 27
DISTRIBUTION OF CONTRACTS BY CONTRACT PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL ORIGINAL STATISTICAL
PERCENTAGE OF STATISTICAL AGGREGATE
NUMBER OF NUMBER OF AGGREGATE CONTRACT CONTRACT
CONTRACT PRINCIPAL BALANCE CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------------- --------- ------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 - 5,000.00 35,956 61.84% $ 74,918,352.77 20.11%
5,000.01 - 10,000.00 11,548 19.86% 81,304,312.26 21.82%
10,000.01 - 15,000.00 4,840 8.32% 59,189,839.28 15.89%
15,000.01 - 20,000.00 2,331 4.01% 40,020,223.29 10.74%
20,000.01 - 25,000.00 1,259 2.17% 28,101,649.09 7.54%
25,000.01 - 30,000.00 762 1.31% 20,843,411.96 5.60%
30,000.01 - 35,000.00 463 0.80% 14,936,845.27 4.01%
35,000.01 - 40,000.00 296 0.51% 11,040,545.90 2.96%
40,000.01 - 45,000.00 193 0.33% 8,159,942.01 2.19%
45,000.01 - 50,000.00 144 0.25% 6,852,618.34 1.84%
50,000.01 - 60,000.00 145 0.25% 7,876,305.97 2.11%
60,000.01 - 70,000.00 64 0.11% 4,145,322.56 1.11%
70,000.01 - 80,000.00 38 0.07% 2,824,728.92 0.76%
80,000.01 - 90,000.00 26 0.04% 2,201,673.31 0.59%
90,000.01 - 100,000.00 23 0.04% 2,189,949.06 0.59%
100,000.01 - 125,000.00 26 0.04% 2,888,635.80 0.78%
125,000.01 - 150,000.00 16 0.03% 2,156,648.98 0.58%
150,000.01 - 175,000.00 7 0.01% 1,152,930.25 0.31%
175,000.01 - 200,000.00 3 0.01% 542,039.76 0.15%
greater than $200,000.01 4 0.01% 1,184,610.79 0.32%
------ ------ --------------- ------
Total.................. 58,144 100.00% $372,530,585.57 100.00%
====== ====== =============== ======
</TABLE>
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL ORIGINAL STATISTICAL
REMAINING PERCENTAGE OF STATISTICAL AGGREGATE
TERM NUMBER OF NUMBER OF AGGREGATE CONTRACT CONTRACT
(MONTHS) CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------- --------- ------------- ------------------ --------------------
<S> <C> <C> <C> <C>
0-12 12,600 21.67% $ 19,158,048.10 5.14%
13-24 17,579 30.23% 75,794,882.16 20.35%
25-36 14,956 25.72% 108,429,169.72 29.11%
37-48 6,939 11.93% 78,528,176.70 21.08%
49-60 5,562 9.57% 82,593,427.28 22.17%
61-72 505 0.87% 7,911,590.94 2.12%
73-84 3 0.01% 115,290.67 0.03%
------ ------ --------------- ------
Total 58,144 100.00% $372,530,585.57 100.00%
====== ====== =============== ======
</TABLE>
24
<PAGE> 28
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
ORIGINAL PERCENTAGE OF
PERCENTAGE OF STATISTICAL ORIGINAL STATISTICAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT
EQUIPMENT DESCRIPTION CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- --------- ------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Agriculture Equipment................. 31 0.05% $ 356,402.42 0.10%
Amusement............................. 49 0.08% 431,552.50 0.12%
Audio/Video Equipment................. 1,178 2.03% 6,729,104.43 1.81%
Automotive Equipment.................. 1,666 2.87% 14,793,256.84 3.97%
Cleaning/Laundry Equipment............ 961 1.65% 7,687,407.02 2.06%
Communications........................ 30 0.05% 248,377.96 0.07%
Computers/Software.................... 13,530 23.27% 100,833,241.63 27.07%
Construction/Industrial Equipment..... 2,391 4.11% 18,509,283.23 4.97%
Furniture............................. 748 1.29% 7,022,014.47 1.88%
Health/Fitness........................ 181 0.31% 1,559,605.24 0.42%
Landscaping Equipment................. 278 0.48% 1,976,626.68 0.53%
Mailing Machines & Equipment.......... 1,837 3.16% 8,013,391.05 2.15%
Measuring Equipment................... 42 0.07% 306,769.04 0.08%
Medical Equipment..................... 1,435 2.47% 18,063,112.11 4.85%
Mobile Communications................. 234 0.40% 1,205,228.70 0.32%
Office Machines....................... 14,786 25.43% 92,155,776.42 24.74%
Packaging Equipment................... 33 0.06% 462,162.07 0.12%
Photography Equipment................. 492 0.85% 3,495,962.10 0.94%
Printing Press/Type Setter............ 184 0.32% 1,849,308.46 0.50%
Refrigerators/Restaurants............. 1,843 3.17% 10,270,320.61 2.76%
Retail Business Equipment............. 4,796 8.25% 11,211,486.69 3.01%
Security/Alarm System................. 3,363 5.78% 14,932,829.27 4.01%
Security Equipment.................... 3,911 6.73% 22,034,432.18 5.91%
Sewing and Embroidery................. 89 0.15% 1,446,978.68 0.39%
Stenograph/Court Reporters............ 806 1.39% 2,620,563.03 0.70%
Vending Equipment..................... 335 0.58% 2,696,838.91 0.72%
Water Coolers......................... 665 1.14% 895,343.43 0.24%
Woodworking Equipment................. 45 0.08% 641,568.39 0.17%
Other................................. 2,205 3.79% 20,081,642.01 5.39%
------ ------ --------------- ------
Total............................ 58,144 100.00% $372,530,585.57 100.00%
====== ====== =============== ======
</TABLE>
25
<PAGE> 29
HISTORICAL DELINQUENCY INFORMATION. Delinquency information for equipment
leases in the Servicer's servicing portfolio is set forth below.
HISTORICAL DELINQUENCY EXPERIENCE -- SERVICING PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
$ % $ % $ % $ % $ %
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Receivables Balance(1)........... $674,570 $614,828 $460,224 $317,295 $202,963
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
No. of Delinquent Days
31-60 Days............................. 31,226 4.63 34,521 5.61 24,481 5.32 13,370 4.21 11,590 5.71
61-90 Days............................. 11,920 1.77 9,705 1.58 5,890 1.28 4,928 1.55 3,126 1.54
91 Days +.............................. 9,189 1.36 6,702 1.09 4,828 1.05 2,674 0.84 1,619 0.80
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total Delinquency...................... $ 52,335 7.76 50,928 8.28 35,199 7.65 20,972 6.61 16,335 8.05
</TABLE>
- ---------------
(1) The Total Receivables Balance is equal to the aggregate future rent owing on
the leases in the Servicer's servicing portfolio.
HISTORICAL DEFAULT EXPERIENCE. Loss information for the Servicer's
servicing portfolio is set forth below.
HISTORICAL LOSS EXPERIENCE -- SERVICING PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding(1)......................... $652,607 $551,645 $394,910 $259,500 $146,920
Net Losses................................................. $ 15,293 $ 10,356 $ 6,320 $ 3,426 $ 3,178
Net Losses as a Percentage of Average Receivables.......... 2.34% 1.88% 1.60% 1.32% 2.16%
</TABLE>
- ---------------
(1) Equals the arithmetic average of each month's Receivable Balance within the
period specified. The Receivable Balance is equal to the aggregate future
rent owing on the leases in the Servicer's servicing portfolio.
26
<PAGE> 30
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 "Appendix A -- Book-Entry
Registration."
PAYMENT DATES, BUSINESS DAYS AND STATED MATURITY DATE. Payments on the
Notes will be made on the 15th day of each month (or if such day is not a
Business Day, the next succeeding Business Day), commencing on May 15, 1998
(each, a "Payment Date"), to holders of record on the last day of the
immediately preceding calendar month (each, a "Record Date"). The Indenture
defines a "Business Day" to be any day other than a Saturday or a Sunday, or
other day on which banks in the State of New Jersey, City of New York or
Delaware are required, or authorized by law, to close (each such day, a
"Business Day"). The stated maturity date with respect to the Notes will be the
Payment Date in December 2006 (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 and it is expected that
the Notes will mature prior to the Stated Maturity Date.
DETERMINATION DATE AND COLLECTION PERIODS. On the third Business Day
prior to each Payment 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.
INTEREST PAYMENTS. On each Payment Date, the interest due (the "Interest
Payments") with respect to each Class of Notes will be the interest that has
accrued on such Notes since the last Payment Date, or in the case of the May 15,
1998 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, but disregarding, for the purposes of the calculation of interest only,
any Allocated Loss Amount previously allocated to such Class (such amount for
the Class A Notes, the "Class A Note Interest," for the Class B Notes, the
"Class B Note Interest", and for the Class C Notes, the "Class C 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 B Notes, the "Class B Overdue Interest" and the Class C Notes, "Class C
Overdue Interest").
INTEREST-ONLY PERIOD. From time to time during the Interest-Only Period,
the Issuers may pledge Additional Property to the Trustee for the purpose of
maintaining the Aggregate Contract Principal Balance at its initial level, such
that no amortization of the Notes will occur. The Indenture provides that,
unless a Required Amortization Event occurs prior to the Stated Amortization
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 Contracts, 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 January
1999 Payment Date (such period, the "Interest-Only Period").
PRINCIPAL PAYMENTS. Unless a Required Amortization Event occurs earlier,
the Noteholders will receive no principal payments until the February 1999
Payment Date.
For each Payment Date during the Amortization Period, the Notes of each
Class 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) to the Class A Noteholders (in "sequential-pay" fashion
to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes, in that order), until the Outstanding Principal Balance on the Class
A Notes has been reduced to zero, the Class A Principal Payment, (b) to the
Class B Noteholders, until the Outstanding Principal Balance on the Class B
Notes has been reduced to zero, the Class B Principal Payment, (c) to the Class
C Noteholders until the Outstanding Principal Balance of the Class C Notes has
been reduced to zero, the Class C Principal
27
<PAGE> 31
Payment and (d) following the funding of the Reserve Account to its required
level, to zero, the Class D Noteholders, until the Outstanding Principal Balance
on the Class D Notes has been reduced to zero, the Class D Principal Payment.
The Indenture provides that if the Class A-3 Notes are redeemed separately
pursuant to a Class A-3 Special Redemption, the Class A-3 Notes will be deemed
to have been repurchased by the Issuers. In such event, the Issuers will be
entitled to receive payments of principal and interest on the Class A-3 Notes,
and the Class A-3 Outstanding Principal Balance will thereafter continue to
amortize in the "sequential-pay" structure described herein. As a result of such
provision, if the Class A-3 Notes had previously been redeemed, the Class A-4
Notes will begin receiving Principal Payments on the same Payment Date as they
would have had the Class A-3 Notes not previously been redeemed.
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 A-4 Notes, the "Class
A-4 Overdue Principal", the Class B Notes, the "Class B Overdue Principal", the
Class C Notes, the "Class C Overdue Principal" and the Class D Notes, the "Class
D Overdue Principal") on subsequent Payment Dates.
"The "Class A Principal Payment" is, with respect to any Payment Date, the
excess of (x) the aggregate Outstanding Principal Balance of the Class A Notes
immediately prior to such Payment Date over (y) the lesser of (A) the Class A
Target Investor Principal Amount and (B) the excess of (1) the Aggregate
Contract Principal Balance as of the related Calculation Date over (2) the Class
D Floor.
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 Principal Balance as of the related Calculation Date.
The "Class B Principal Payment" is, with respect to any Payment Date, the
excess of (x) the sum of (A) aggregate Outstanding Principal Balance of the
Class A Notes (after giving effect to payments on the Class A Notes such Payment
Date), plus (B) the aggregate Outstanding Principal Balance on the Class B Notes
immediately prior to such Payment Date over (y) the lesser of (A) the Class B
Target Investor Principal Amount and (B) the excess of (1) the Aggregate
Contract Principal Balance as of the related Calculation Date over (2) the Class
D Floor.
The "Class B Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the sum of (x) the Class A
Percentage and (y) the Class B Percentage and (b) the Aggregate Contract
Principal Balance as of the related Calculation Date.
The "Class C Principal Payment" is, with respect to any Payment Date, the
excess of (x) the sum of (A) the aggregate Outstanding Principal Balance of the
Class A Notes (after giving effect to payments on the Class A Notes on such
Payment Date), plus (B) the aggregate Outstanding Principal Balance of the Class
B Notes (after giving effect to payments on the Class B Notes on such Payment
Date), plus (C) the aggregate Outstanding Principal Balance of the Class C Notes
immediate preceding such Payment Date over (y) the lesser of (A) the Class C
Target Investor Principal Amount and (B) the excess of (1) the Aggregate
Contract Principal Balance as of the related Calculation Date over (2) the Class
D Floor.
The "Class C Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the sum of (x) the Class A
Percentage, (y) the Class B Percentage and (z) the Class C Percentage and (b)
the Aggregate Contract Principal Balance as of the related Calculation Date.
The "Class D Floor" with respect to each Payment Date means (a) 3.50% of
the Original Aggregate Contract Principal Balance, plus (b) the Cumulative Loss
Amount as of the immediately preceding Payment Date, minus (c) the lesser of (1)
the Reserve Account Floor and (2) the amount on deposit in the Reserve Account
at the opening of business on such Payment Date.
The "Class D Principal Payment" is the amount necessary to reduce the
Outstanding Principal Balance of the Class D Notes to the greater of the Class D
Target Investor Principal Amount and the Class D Floor;
28
<PAGE> 32
provided, however, that upon the payment of the aggregate Outstanding Principal
Balance of the Offered Notes (together with any Class A Overdue Principal, any
Class B Overdue Principal and any Class C Overdue Principal) to zero, the Class
D Principal Payment shall equal to excess of (x) the Aggregate Contract
Principal Balance as of the second preceding Calculation Date over (y) the sum
of (A) the Aggregate Contract Principal Balance as of the preceding Calculation
Date, plus, (B) if such Payment Date is the Payment Date on which the aggregate
Outstanding Principal Balances of the Offered Notes plus such Overdue Principal
is paid to zero, the sum of the Class A Principal Payment, the Class B Principal
Payment and the Class C Principal Payment on such Payment Date.
The "Class D Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class D Percentage and (b) the
Aggregate Contract Principal Balance as of the related Calculation Date.
The "Class A Percentage" means a fraction, expressed as a percentage, of
the Class A Initial Principal Balance divided by the Original Aggregate Contract
Principal Balance.
The "Class B Percentage" means a fraction, expressed as a percentage, of
the Class B Initial Principal Balance divided by the Original Aggregate Contract
Principal Balance.
The "Class C Percentage" means a fraction, expressed as a percentage, of
the Class C Initial Principal Balance divided by the Original Aggregate Contract
Principal Balance.
The "Class D Percentage" means a fraction, expressed as a percentage, of
the Class D Initial Principal Balance divided by the Original Aggregate Contract
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 Class A Principal
Payments previously made on the Class A-1 Notes, and less any previously
allocated Class A-1 Allocated Loss Amount (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 Class A Principal
Payments previously made on the Class A-2 Notes previously allocated, and less
any Class A-2 Allocated Loss Amount (the "Class A-2 Principal Balance"); the
outstanding Class A-3 Notes principal balance for any Payment Date shall be
equal to the Class A-3 Initial Principal Balance less any Class A Principal
Payments previously made on the Class A-3 Notes, and less any previously
allocated Class A-3 Allocated Loss Amount (the "Class A-3 Principal Balance");
the outstanding Class A-4 Principal Balance for any Payment Date shall be equal
to the Class A-4 Initial Principal Balance less any Class A Principal Payments
previously made on the Class A-4 Notes, and less any previously allocated Class
A-4 Allocated Loss Amount (the "Class A-4 Principal Balance"), together with the
Class A-1 Principal Balance, the Class A-2 Principal Balance and the Class A-3
Principal Balance as of such date, the "Class A Principal Balance" as of such
date); the outstanding Class B Note principal balance for any Payment Date shall
be equal to the Class B Initial Principal Balance less any Class B Principal
Payments previously made on the Class B Notes, and less any previously allocated
Class B Allocated Loss Amount (the "Class B Principal Balance"); the outstanding
Class C Note principal balance for any Payment Date shall be equal to the Class
C Initial Principal Balance less any Class C Principal Payments previously made
on the Class C Notes, and less any previously allocated Class C Allocated Loss
Amount (the "Class C Principal Balance"); the outstanding Class D Note principal
balance for any Payment Date shall be equal to the Class D Initial Principal
Balance less any Class D Principal Payments previously made on the Class D
Notes, and less any previously allocated Class D Allocated Loss Amount (the
"Class D Principal Balance").
The "Cumulative Loss Amount" means, with respect to each Payment Date, an
amount equal to the excess, if any, of (a) the Outstanding Principal Balance of
the Offered Notes after giving effect to all payments on such Payment Date, over
(b) the Aggregate Contract Principal Balance as of the related Calculation Date.
The "Calculation Date" with respect to a Collection Period is the close of
business on the last day of such Collection Period. Contract Principal Balances
with respect to a Payment Date shall be calculated as of the related Calculation
Date.
29
<PAGE> 33
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.
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 and, 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 B Noteholders, the Class B Note Interest and the Class B Overdue
Interest for the related Interest Accrual Period;
(v) from the Available Funds then remaining in the Collection Account, to
the Class C Noteholders, the Class C Note Interest and the Class C 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:
(1) the Available Additional Property Funding Amount;
(2) the sum of (a) the excess of (x) the Aggregate Contract
Principal Balance as of the second preceding Calculation Date over the
Aggregate Contract Principal Balance as of the preceding Calculation
Date plus (b) the amount on deposit in the Additional Property Funding
Account at the opening of business on such Payment Date (such sum, the
"Additional Property Funding Requirement" for such Payment Date); and
(3) the Aggregate Contract Principal Balances of all Additional
Contracts actually pledged to the Trustee on such Payment Date; and
(B) to the Additional Property Funding Account, the lesser of:
(1) the excess, if any, (x) the Additional Property Funding
Requirement for such Payment Date over (y) the amount described in
clause (A)(3) above; and
(2) the remaining Available Additional Property Funding Amount;
(vii) from the Available Funds then remaining in the Collection Account (x)
from the Closing Date until the Reserve Account Funding Date, to the Reserve
Account, an amount equal to the Servicing Fee otherwise payable to ABS and (y)
after the Reserve Account Funding Date, 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, the amount needed to increase the amount on deposit in the
Reserve Account to the Required Reserve Amount for such Payment Date;
30
<PAGE> 34
(ix) upon the occurrence and continuance of a Residual Event (as defined in
the Indenture), the lesser of (A) the remaining Available Funds and (B) the
aggregate amount of Residual Receipts originally included in the Available Funds
for such Payment Date will be deposited to the Residual Account;
(x) from the Available Funds then remaining in the Collection Account, to
ABS, the amount of any Servicing Fee previously due to it but deposited to the
Reserve Account; and
(xi) 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, 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 B Noteholders, the Class B Note Interest and the Class B Overdue
Interest for the related Interest Accrual Period;
(v) from the Available Funds then remaining in the Collection Account, to
the Class C Noteholders, the Class C Note Interest and the Class C 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, the Class A Principal
Payment and the Class A Overdue Principal, such amounts to be paid in
"sequential-pay" fashion to the Class A-1 Notes, the Class A-2 Note, the Class
A-3 Notes and the Class A-4 Notes, in that order;
(vii) 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;
(viii) until the Class C Principal Balance has been reduced to zero, to the
Class C Noteholders, from the Available Funds then remaining in the Collection
Account, the Class C Principal Payment and the Class C Overdue Principal;
(ix) from the Available Funds then remaining in the Collection Account (x)
from the Closing Date until the Reserve Funding Date, to the Reserve Account, an
amount equal to the Servicing Fee otherwise payable to ABS and (y) after the
Reserve Account Funding Date, 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, the amount needed to increase the amount on deposit in the
Reserve Account to the Required Reserve Amount for such Payment Date;
(xi) upon the occurrence and continuance of a Residual Event (as defined in
the Indenture), the lesser of (A) the remaining Available Funds and (B) the
aggregate amount of Residual Receipts originally included in Available Funds for
such Payment Date will be deposited to the Residual Account;
(xii) from the Available Funds then remaining in the Collection Account, to
the Class D Noteholders, the Class D Principal Payment and the Class D Overdue
Principal,
(xiii) from the Available Funds then remaining in the Collection Account,
to ABS, the amount of any Servicing Fee previously due to it but deposited to
the Reserve Account; and
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(xiv) to the Issuers, as the holder of the Residual Interest, any remaining
Available Funds on deposit in the Collection Account.
Residual Receipts will be included in "Available Funds" only through the
Payment Date on which Residual Receipts on deposit in the Residual Account, or
withdrawn from the Residual Account as a result of a shortfall and used (without
duplication) since the Closing Date to cover amounts owing to the Offered
Noteholders and to the Servicer equals the Residual Cap Amount. Once the
Residual Cap Amount has been reached, Residual Receipts will no longer be
required to be remitted to the Trustee as "Available Funds," and will be
released to the Issuers free and clear and the lien of the Indenture (whether or
not a Residual Event is then in effect, or occurs thereafter). See "Application
of Residual Receipts".
The Indenture additionally provides that on the Payment Date which is also
the Amortization Date, all amounts then on deposit in the Additional Property
Funding Account will be applied as Available Funds, and the Additional Property
Funding Account will be closed.
REQUIRED AMORTIZATION EVENTS. The earliest to occur of any of the
following: (i) the occurrence of an Events of Servicer Termination or an Event
of Default, (ii) the amount on deposit in the Additional Property Funding
Account exceeds $3,000,000, (iii) the bankruptcy of the Servicer or either of
the Issuers, (iv) as of any Calculation Date, the ratio of the aggregate
Contract Balance of Contracts which are 31 days or more delinquent to the
Aggregate Contract Balance, exceeds 11.50%, (v) as of any Calculation Date, the
3 month average ratio of (x) the excess of (A) the aggregate Contract Principal
Balance of all Contracts which become Defaulted Contracts over (B) the aggregate
related Defaulted Residual Receipts to (y) the Aggregate Contract Principal
Balance, exceeds 3.75%, (vi) the amount on deposit in the Reserve Account falls
below the level of the Reserve Account Initial Deposit or (vii) the percentage
equivalent of a fraction, the numerator of which is the Outstanding Principal
Balance of the Offered Notes (after taking into account all payments to be made
on such payment Date, but prior to taking into account any allocation of the
Senior Allocated Loss Amount, if any, for such Payment Date) and the denominator
of which is the sum of the Aggregate Contract Principal Balance as of the
related Calculation Date, plus the amount on deposit in the Reserve Account and
in the Additional Property Funding Account at the end of such Payment Date
exceeds 96.00% or (viii) the sum of (a) the aggregate Booked Residual Value as
of the related Calculation Date plus (b) amounts on deposit in the Reserve
Account as of the end of such Payment in excess of the Reserve Account Initial
Deposit is less than the aggregate Booked Residual Value as of the Closing Date.
As used in clause (iv) above, and elsewhere herein, the term "Contract Balance"
means, with respect to a Contract, as of any date, the aggregate, undiscounted
amount of all remaining Scheduled Payments. The "Aggregate Contract Balance" is,
as of any date, the sum of the Contract Balances as of the prior Calculation
Date.
AFFIRMATIVE COVENANTS. The Originator will covenant and agree in the
Contribution Agreement, among other things, that during the Interest-Only
Period, (i) the Originator 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
Originator 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 and (b) amounts on deposit in the Additional Property Funding Account and
(iii) the Originator 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 Originator's ability to perform
its obligations under the Contribution Agreement, to make available Additional
Contracts for pledge by the Issuers to the Trustee.
"CLEAN-UP CALL" REDEMPTION. The Issuers will have the option, subject to
certain conditions, to redeem all, but not less than all, of the Notes of all
Classes as on Payment Date on which the Aggregate Contract Principal Balance as
of the related Calculation Date is less than or equal to 10% of the Original
Aggregate Contract Principal Balance. The Issuers will give notice of such
redemption to the Trustee at least 30 days prior to the Payment Date fixed for
such prepayment. Upon deposit of funds necessary to effect such redemption, the
Trustee shall pay the Outstanding Principal Balances of the Notes so called for
redemption and all accrued and unpaid interest as of the Payment Date fixed for
redemption.
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CLASS A-3 SPECIAL REDEMPTION. The Class A-3 Notes may be redeemed (a
"Class A-3 Special Redemption") on any Payment Date, at a price equal to the sum
of (i) the then Class A-3 Principal Balance, accrued and unpaid interest thereon
and (ii) the Class A-3 Special Redemption Premium. The Class A-3 Special
Redemption Premium is payable only in the event that the Issuers exercise the
Class A-3 Special Redemption and not in the event of a "clean-up call"
redemption.
The "Class A-3 Special Redemption Premium" shall equal the excess, if any,
discounted as described below, of (a) the amount of interest that would accrue
on the aggregate Outstanding Principal Balance of the Class A-3 Notes at the
Class A-3 Interest Rate during the period commencing on and including the
Payment Date on which such Class A-3 Special Redemption Premium is required to
be paid to the Class A-3 Noteholders to but excluding September 15, 2001, over
(b) the amount of interest that would have accrued on the aggregate Outstanding
Principal Balance of the Class A-3 Notes over the same period at a per annum
rate of interest equal to the bond equivalent yield to maturity on the
Determination Date preceding such Payment Date on the 6.625% U.S. Treasury Note
due June 30, 2001. Such excess shall be discounted to the present value to such
Payment Date at the applicable yield described in clause (b) above.
The Indenture provides that if the Class A-3 Notes are redeemed pursuant to
a Class A-3 special redemption, the Class A-3 Notes will be deemed to have been
repurchased by the Issuers. In such an event, the Issuers will be entitled to
receive payments of principal and interest on the Class A-3 Notes, and the Class
A-3 Outstanding Principal Balance will thereafter continue to amortize in the
"sequential-pay" structure described herein. As a result of such provisions, the
Holders of the Class A-4 Notes will begin receiving Principal Payments on the
same Payment Date as they would have had the Class A-3 Notes not previously been
redeemed. As a result of the provisions, the holders of the Class A-4 Notes will
begin receiving Principal Payments on the same Payment Date as they would have
had the Class A-3 Notes not previously been redeemed.
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 B Notes, the Class C Notes, the Class D Notes and the Residual
Interest. A portion of the credit enhancement available for the benefit of the
Class B Noteholders is provided by the subordination of the Class C Notes, the
Class D Notes and the Residual Interest. A portion of the credit enhancement
available for the benefit of the Class C Noteholders is provided by the
subordination of the Class D Notes and 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 (but only up
to the Residual Cap Amount), Prepayment Amounts, and investment earnings on each
of the Accounts plus (ii) amounts transferred from the Reserve Account and/or
the Residual 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 Offered 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 B Noteholders; and, third, interest (together
with any overdue interest and interest thereon) to the Class C Noteholders.
On and after the Payment Date which is also the Amortization Date, with
respect to amounts due to the Offered 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 B Noteholders; third, interest
(together with any overdue interest and interest thereon) to the Class C
Noteholders; fourth, principal to the Class A Noteholders (to be paid in
"sequential-pay" fashion); fifth, principal to the Class B Noteholders; and
sixth, principal to the Class C Noteholders, as further described herein.
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ALLOCATION OF LOSSES. The Indenture provides that if the Outstanding
Principal Balance of the Notes at the end of any Payment Date exceeds the
Aggregate Contract Principal Balance as of the Related Calculation Date (i.e.,
the Notes are "undercollateralized"), the Outstanding Principal Balances of the
Notes will be "written down" to the extent of such amount (the "Allocated Loss
Amount" for such Payment Date) in inverse order of seniority such that parity is
achieved.
Specifically, as of any Payment Date, the "Class D Allocated Loss Amount"
is the lesser of (i) the Outstanding Principal Balance of the Class D Notes and
(ii) the amount, if any, by which (x) the Outstanding Principal Balance of the
Notes (after taking into account all payments of principal made on such Payment
Date) exceeds (y) the Aggregate Contract Principal Balance as of the related
Calculation Date; and the "Senior Allocated Loss Amount" is the amount, if any,
by which (x) the Outstanding Principal Balance of the Offered Notes (after
taking into account all payments of principal made on such Payment Date) exceeds
(y) the sum of the Aggregate Contract Principal Balance as of the related
Calculation Date, plus the amounts then on deposit in the Reserve Account and
the Residual Account at the end of such Payment Date.
As of any Payment Date, and after taking into account all payments of
principal on such Payment Date:
The "Class C Allocated Loss Amount" is the lesser of (x) the Outstanding
Principal Balance of the Class C Notes and (y) the Senior Allocated Loss Amount
for such Payment Date.
The "Class B Allocated Loss Amount" is the lesser of (x) the Outstanding
Principal Balance of the Class B Notes and (y) the excess of (A) the Senior
Allocated Loss Amount for such Payment Date over (B) the Class C Allocated Loss
Amount for such Payment Date.
The "Class A Allocated Loss Amount" is the lesser of (x) the Outstanding
Principal Balance of the Class A Notes and (y) the excess of (A) the Senior
Allocated Loss Amount for such Payment Date over (B) the Class C Allocated Loss
Amount and the Class B Allocated Loss Amount for such Payment Date.
The "Class A-1 Allocated Loss Amount," the "Class A-2 Allocated Loss
Amount," the "Class A-3 Allocated Loss Amount" and the "Class A-4 Allocated Loss
Amount" for a Payment Date are each such Class's pro rata portion of any Class A
Allocated Loss Amount for such Payment Date.
Through the operation of the "Class A Overdue Principal," "Class B Overdue
Principal," "Class C Overdue Principal" and "Class D Overdue Principal"
provisions, the Class A Noteholders, the Class B Noteholders, the Class C
Noteholders and the Class D Noteholders are entitled to receive any aggregate,
cumulative shortfalls of Class A Principal Amounts, Class B Principal Amounts,
Class C Principal Amounts or Class D Principal Amounts not paid on prior Payment
Dates.
DEFAULTED CONTRACTS. A "Defaulted Contract" means 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.
A Defaulted Contract has, by definition, a Contract Principal Balance of
zero; given the cashflow mechanics of the Indenture, the effect of assigning
such a zero balance is to require that the Noteholders receive on the next
Payment Date an amount of principal equal to such Defaulted Contract's Contract
Principal Balance, calculated immediately prior to such Contract becoming a
Defaulted Contract.
APPLICATION OF RESIDUAL RECEIPTS. The Trustee will establish and maintain
an Eligible Account (the "Residual Account"). On each Payment Date, Residual
Receipts shall be deposited into the Collection Account and applied as Available
Funds until the aggregate, cumulative amount of Residual Receipts so applied
since the Closing Date (without duplication), equals $28,125,022.80 (the
"Residual Cap Amount"), and will provide additional credit support to the
Offered Notes. Actual Residual Receipts may be more or less than the residual
value of the Equipment recorded on the books of the Issuers (the "Booked
Residual
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Value"). Under certain limited circumstances more fully described in the
Indenture (a "Residual Event"), the Residual Receipts not distributed to Offered
Noteholders, or paid to the Servicer with respect to the Servicing Fee, will be
deposited in an Eligible Account that has been established and will be
maintained by the Trustee (the "Residual Account"). As provided in the
Indenture, funds on deposit in the Residual Account will be available to cover
shortfalls in the amount available to pay the Servicing Fee owing the Servicer
and to make interest and principal payments on the Offered Notes. If, on any
Payment Date, such shortfall(s) exist and both the Residual Account and the
Reserve Account have amounts on deposit therein, the Indenture provides that
such shortfall shall first be funded from Residual Account moneys. Following the
termination of a Residual Event, amounts on deposit in the Residual Account will
be deposited into the Reserve Account to the extent that the amount on deposit
in the Reserve Account is less than the Required Reserve Amount and thereafter
will be released to the Issuers.
RESERVE ACCOUNT. The Offered 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 available to
pay the Servicing Fee owing the Servicer or to make interest and principal
payments on the Offered Notes. The Reserve Account will be funded by an initial
deposit of 2.30% of the Initial Principal Balance of all Offered Notes (such
amount the "Reserve Account Initial Deposit"). Thereafter, to the extent
provided in the Indenture, additional deposits will be made to the Reserve
Account 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" as of any Payment Date equals
3.25% of the then aggregate Outstanding Principal Balances of the Offered Notes,
subject to a floor amount (the "Reserve Account Floor") equal to the lesser of
(a) 1.00% of the Initial Principal Balance of the Offered Notes and (b) the
aggregate Outstanding Principal Balance of the Offered Notes. 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 but after
taking into account any transfer to the Collection Account from the Residual
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 (including during the
Interest-Only Period, the funding of the Additional Property Funding Requirement
to the extent permitted by the Indenture).
Prior to the first date on which the Reserve Account is funded to the
Required Reserve Amount (such date, the "Reserve Account Funding Date"), if ABS
is then the Servicer, the Servicing Fee otherwise payable to ABS as Servicer
will be deposited into the Reserve Account.
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR. The Originator will make
certain warranties in the Contribution Agreement (as of the Closing Date with
respect to the Initial Contracts and as of the related date of any 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 other than in compliance with the Servicer's Credit and
Collection Policy, 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) no
Contract provides for the substitution, exchange or addition of any other items
of equipment pursuant
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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, (viii) each Contract was
assignable by the Originator and is assignable by the Issuers, (ix) all
necessary action shall have been taken by the Originator to transfer to the
Issuers all of the Originator's right, title and interest in and to each
Contract and the related Equipment, (x) neither the Contract nor the related
Equipment have been sold, transferred, assigned or pledged by the Originator to
any person other than the Issuers, and immediately prior to assigning or
pledging the Contracts and the related Equipment to the Issuers, the Originator
was the sole owner of each Contract and the related Equipment free and clear of
any liens and encumbrances, (xi) 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 (xii) no one User (including its affiliates) has
Contracts with an Aggregate Contract Principal Balance that exceeds 1.5% of the
Original Aggregate Contract Principal Balance.
The Originator 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 2 months and not more
than 76 months, (B) the weighted average remaining term of the Initial Contracts
is approximately 36 months, (C) none of the Initial Contracts have a Contract
Principal Balance, as of the Cut-Off Date, of more than $1,000,000, (D) as of
the Cut-Off Date, no item of Equipment has been repossessed, (E) no more than
14.98% of the Original Aggregate Contract Principal 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 May 20, 2004. In addition,
any Additional Contracts pledged to the Trustee after the Closing Date must meet
the requirements applicable thereto as set forth in the Indenture.
Such representations and warranties will survive the pledge of the
Contracts to the Trustee, for the benefit of the Noteholders.
Under the terms of the Contribution Agreement and the Indenture, the
Originator 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 Originator 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 Originator available to the Issuers, the Trustee and the Noteholders for a
breach of a representation or warranty made by the Originator with respect to
the required characteristics of the Contracts.
INDEMNIFICATION. The Contribution Agreement will provide that the
Originator 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 Originator of its respective obligations
(other than breach of the Originator's representations and warranties, with
respect to which the sole remedy is expressly limited to the Originator'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 Contribution 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 Originator, 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 Servicer will survive the
removal of the Servicer but will not apply to any acts or
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omissions of a successor Servicer. Such indemnification does not extend to
indirect, incidental, special or consequential damages.
THE ACCOUNTS. The Trustee is required to establish and maintain in
accordance with the Indenture five accounts (each, an "Account"), the
"Collection Account," the "Advance Payment Account," the "Additional Property
Funding Account," the "Residual Account" and the "Reserve 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 in the Collection Account all
collections received by it with respect to the Contracts within two Business
Days, or such later date as permitted by the Rating Agencies following the
Servicer's determination that such amounts related 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 Originator 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 within two Business Days, or such later date as
permitted by the Rating Agencies following the Servicer's determination that
such amounts relate to the Contracts or the Equipment, 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 not later than the Determination Date (i) the portion of
any Advance Payment that constitutes Scheduled Payments 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 Issuers, as stated in the Indenture,
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 $3,000,000. The purpose of the Additional Property Funding
Account is to prevent a Required Amortization Event due to a temporary shortfall
in the supply of Additional Property. 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 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 deemed 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 on any Delinquent Contract by the Calculation
Date, the Servicer may, but is not 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").
A "Delinquent Contract" will mean, as of any date, a Contract as to which
Scheduled Payment, or part thereof, remains unpaid for more than 60 days from
the original due date therefor. With respect to any Delinquent Contract,
whenever the Servicer shall have determined that it will be unable to recover a
proposed 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 provides that, in the event that the Servicer determines
that any Servicer Advances previously made are nonrecoverable ("Nonrecoverable
Advances") or any Delinquent Contracts for
37
<PAGE> 41
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 to the Servicer before the payment to Noteholders has
been made as set forth above under "-- 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 B Principal
Payment, the Class C Principal Payment or the Class D Principal Payment, as
applicable, and Class A Overdue Principal, the Class B Overdue Principal,
Class C Overdue Principal or Class D Overdue Principal, as applicable;
(b) The amount of such payment allocable to such Noteholder's portion
of Class A Note Interest, Class B Note Interest or Class C Note Interest,
as applicable, and Class A Overdue Interest, Class B Overdue Interest or
Class C 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 Class A Note Principal Balance, the Class B Note Principal
Balance, Class C Note Principal Balance and Class D Note Principal Balance,
the Class A-1 Note Factor, the Class A-2 Note Factor, the Class A-3 Note
Factor, the Class A-4 Note Factor, the Class B Note Factor, the Class C
Note Factor, Class D Note Factor, the Aggregate Contract Principal Balance
and the Collateral Factor, after taking into account all distributions made
on such Payment Date;
(e) The total unreimbursed Servicer Advances with respect to the
related Collection Period;
(f) The Aggregate Contract Principal Balance for all Contracts that
became Defaulted Contracts during the related Collection Period, calculated
immediately prior to the time such Contracts became Defaulted Contracts;
and
(g) The Aggregate Contract Principal Balance (calculated as of the
related Cut-Off Date) of the Additional Contracts pledged on such Payment
Date, if any; and
(h) The amount on deposit in the Additional Property Funding Account,
the Reserve Account and the Residual 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
38
<PAGE> 42
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 A-4 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-4 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-4 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 and loss allocations to be
made on such Payment Date) to (y) the Class B Initial Principal Balance.
The "Class C 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 C Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions and loss allocations to be
made on such Payment Date) to (y) the Class C Initial Principal Balance.
The "Class D 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 D Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions and loss allocations to be
made on such Payment Date) to (y) the Class D 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 Principal Balance as of the immediately preceding Calculation
Date to (y) the Original Aggregate Contract Principal Balance.
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 the preceding calendar year to enable Noteholders to prepare
their federal income tax returns.
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 Principal Balance of the
Contract; provided, however, that no change in the final maturity date of any
Contract shall be permitted
39
<PAGE> 43
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
Principal 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 Principal Balance prior to such partial prepayment. In the
case of a partial prepayment, the Servicer is required to accurately recalculate
the Contract Principal Balance, and the allocation of Scheduled Payments to
principal and interest.
The Servicer will be required to pursue, in its reasonable business
judgment, all of its rights and remedies to require each User to pay all
Scheduled Payments due on each Contract, as well as to maximize other recoveries
with respect thereto in the form of Residual Receipts and Defaulted Residual
Receipts.
As used herein:
"Scheduled Payments" means, with respect to any Contract, the stated
periodic rental payments (exclusive of any amounts in respect of insurance
or taxes) set forth in such Contract, together with any applicable Final
Contract Payment, in each case due from the related User.
"Final Contract Payment" means a payment required to be made by a User
at the time of such Contract's maturity in the nature of a "balloon"
payment, which payment 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.
"Residual Receipts" means, generally, (x) the proceeds of a User's
optional purchase or re-lease of Equipment and (y) proceeds of the sale or
re-lease of Equipment, in each case to the extent such proceeds exceed any
Scheduled Payments and Final Contract Payments remaining unpaid.
"Defaulted Residual Receipts" means all proceeds related to the sale,
re-lease or other disposition 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. Defaulted Residual Receipts are not
"Residual Receipts".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES. For its servicing of the
Contracts, 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 Principal Balance of all Contracts
as of the beginning of the previous Collection Period, payable out of the
Collection Account, (b) late payment fees and (c) certain other fees paid by the
Users ("Servicing Charges"). For so long as ABS is the Servicer, the payment of
the Servicing Fee will be subordinate to payments on the Offered Notes, and from
the Closing Date to the Payment Date that the Reserve Account initially equals
the Required Reserve Amount, to the funding requirements of the Reserve Account.
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,
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<PAGE> 44
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 providing information to Noteholders, collecting and remitting sales
and property taxes on behalf of taxing authorities and 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 each 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 (i) 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), (ii) 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 fiscal year
ending in 1998, the Servicer shall deliver to the Trustee and each Rating Agency
a copy of such statement.
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 audited 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 Events of Servicer 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 Interest Payments when such become due and
payable;
(b) the Outstanding Principal Balance of any Class of Offered Notes is
not reduced to zero by such Class's Stated Maturity Date;
(c) default in the performance, or breach, by either Issuer of certain
negative covenants limiting its actions;
(d) 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;
(e) if any representation or warranty of either Issuer made in the
Indenture 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
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<PAGE> 45
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
(f) 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
(f) above occurs, the unpaid principal amount of all outstanding 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 Offered
Notes, or the holders of such percentages of the then Outstanding Principal
Balance of the Offered Notes (exclusive, in each case, of any Notes held by ABS
or any affiliate of ABS) declare the unpaid principal amount of all the Notes to
be due and payable immediately, together with all accrued and unpaid interest
thereon. However, if the Event of Default involves other than non-payment of
principal or interest on the Notes, the Trustee may not sell the Trust Estate
unless such sale is for an amount greater than or equal to the Outstanding
Principal Balance of the Offered 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 Offered 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,
Class A-3 Notes and Class A-4 Notes pro-rata to the date of payment
thereof, including (to the extent permitted by applicable law) interest on
any overdue interest and principal to the date of payment thereof at the
rate per annum equal to the Class A-1 Interest Rate, Class A-2 Interest
Rate, Class A-3 Interest Rate and Class A-4 Interest Rate, respectively,
second to the payment of all accrued and unpaid interest on the Outstanding
Principal Balance of the Class B Notes to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue interest and principal to the date of payment thereof at the rate
per annum equal to the Class B Interest Rate, third, to the payment of all
accrued and unpaid interest on the Outstanding Principal Balance of the
Class C Notes to the date of payment thereof, including (to the extent
permitted by applicable law) interest on any overdue interest and principal
to the date of payment thereof at the rate per annum equal to the Class C
Interest Rate, fourth, to the payment of the Outstanding Principal Balance
of the Class A Notes, pro-rata with respect to such Class A Notes, to the
date of payment when the balance is reduced to zero, fifth, to the payment
to zero of the Outstanding Principal Balance of the Class B Notes to the
date of payment when the balance is reduced to zero, and sixth, to the
payment of the Outstanding Principal Balance of the Class C Notes to the
date of payment when the balance is reduced to zero; provided, that the
Noteholders may allocate such payments for interest and principal at their
own discretion, except that no such allocation shall affect the allocation
of such amounts or future payments received by any other Noteholder;
Fourth to the payment of amounts then due to the Trustee under the
Indenture and not paid pursuant to clause First above; and
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<PAGE> 46
Fifth to the payment of the remainder, if any, to the Class D
Noteholders, 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 Issuers are not in default in the performance and observance
of the terms of the Indenture or, if the Issuers are in default, specifying such
default.
The Indenture will provide that the holders of 66-2/3% in Outstanding
Principal Balance of the Offered Notes (excluding any Notes held by ABS or any
affiliate of ABS) 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 for 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 its rights and powers under such Indenture and to
use the degree of care and skill in their exercise of such rights 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 without the consent of the holders of
not less than 66 2/3% in Outstanding Principal Balance of the Offered Notes
(excluding any Notes held by ABS or any affiliate of ABS); 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 Offered
Notes, without the consent of the holders of all Notes then outstanding under
such Indenture.
EVENTS OF SERVICER TERMINATION. The following events and conditions are
defined in the Indenture as "Events of Servicer Termination":
(a) failure on the part of the Servicer to remit to the Trustee within
five calendar days following the receipt thereof any monies received by the
Servicer required to be remitted to the Trustee under the Indenture;
(b) failure on the part of the Servicer to perform or observe any
other term, covenant or agreement in the Indenture or in any related
agreement with the result that the interests of the Noteholders or of the
Trustee have been materially and adversely affected, and such failure has
been unremedied for 30 calendar days after receipt by the Servicer of a
written notice of such failure from the Trustee;
(c) if any representation or warranty of the Servicer made in the
Indenture or any related 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 the Servicer 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; and
(e) certain insolvency or bankruptcy events relating to the Servicer.
SERVICER TERMINATION. So long as an Event of Servicer Termination under
the Indenture is continuing, the Trustee shall, upon the instructions of the
holders of 66-2/3% in Outstanding Principal Balance of the Offered Notes
(excluding any Notes held by ABS or any affiliate of ABS), 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. Upon 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
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<PAGE> 47
will cease and the same will pass to and be vested in the Trustee (or other
successor Servicer) 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 to the Issuers in consideration for the pledge of
Additional Contracts having an Aggregate Contract Principal 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 B Principal Payment, the Class C Principal
Payment and the Class D Principal Payment shall be due as principal to the
holders of the Class A Notes, the Class B Notes, the Class C Notes and the Class
D Notes, respectively, 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 "Material Risks -- Maturity and
Prepayment Considerations" herein.
The following chart sets forth the percentage of the Initial Principal
Balance of the Class A-1, Class A-2, Class A-3, Class A-4, Class B and Class C
Notes (assuming Initial Principal Balances equal to $69,900,000, $189,900,000,
$23,100,000, $46,150,000, $18,815,000 and $9,799,000, respectively) which would
be outstanding on the Payment Dates set forth below assuming a CPR of 0.00% and
12.00%, 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 Principal 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 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 Statistic
Calculation Date, assumes that the Issuers do not exercise their options to
redeem the Notes and assumes the Closing Date is April 15, 1998, the first
Payment Date is May 15, 1998, and no Required Amortization Event occurs.
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<PAGE> 48
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3, A-4, CLASS B AND CLASS C
OUTSTANDING AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
PAYMENT DATE 0% CPR 12% CPR
- ------------------------------ --------------------------------------------- ---------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A-1 A-2 A-3 A-4 B C A-1 A-2 A-3 A-4 B C
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100 100 100 100 100 100 100 100
May, 1998..................... 100 100 100 100 100 100 100 100 100 100 100 100
June, 1998.................... 100 100 100 100 100 100 100 100 100 100 100 100
July, 1998.................... 100 100 100 100 100 100 100 100 100 100 100 100
August, 1998.................. 100 100 100 100 100 100 100 100 100 100 100 100
September, 1998............... 100 100 100 100 100 100 100 100 100 100 100 100
October, 1998................. 100 100 100 100 100 100 100 100 100 100 100 100
November, 1998................ 100 100 100 100 100 100 100 100 100 100 100 100
December, 1998................ 100 100 100 100 100 100 100 100 100 100 100 100
January, 1999................. 100 100 100 100 100 100 100 100 100 100 100 100
February, 1999................ 82 100 100 100 96 96 77 100 100 100 95 95
March, 1999................... 63 100 100 100 92 92 56 100 100 100 91 91
April, 1999................... 45 100 100 100 88 88 34 100 100 100 86 86
May, 1999..................... 28 100 100 100 85 85 14 100 100 100 82 82
June, 1999.................... 11 100 100 100 81 81 0 98 100 100 78 78
July, 1999.................... 0 98 100 100 78 78 0 91 100 100 74 74
August, 1999.................. 0 92 100 100 74 74 0 84 100 100 70 70
September, 1999............... 0 86 100 100 71 71 0 78 100 100 66 66
October, 1999................. 0 81 100 100 68 68 0 72 100 100 62 61
November, 1999................ 0 75 100 100 65 65 0 66 100 100 59 52
December, 1999................ 0 70 100 100 61 58 0 60 100 100 56 44
January, 2000................. 0 65 100 100 59 51 0 55 100 100 53 36
February, 2000................ 0 60 100 100 56 44 0 49 100 100 50 28
March, 2000................... 0 55 100 100 53 36 0 44 100 100 47 21
April, 2000................... 0 50 100 100 50 29 0 39 100 100 44 14
May, 2000..................... 0 46 100 100 47 23 0 35 100 100 41 7
June, 2000.................... 0 41 100 100 45 16 0 30 100 100 38 0
July, 2000.................... 0 37 100 100 42 10 0 26 100 100 33 0
August, 2000.................. 0 32 100 100 40 3 0 22 100 100 27 0
September, 2000............... 0 28 100 100 36 0 0 18 100 100 22 0
October, 2000................. 0 24 100 100 30 0 0 14 100 100 17 0
November, 2000................ 0 20 100 100 25 0 0 10 100 100 12 0
December, 2000................ 0 16 100 100 20 0 0 7 100 100 7 0
January, 2001................. 0 13 100 100 15 0 0 3 100 100 3 0
February, 2001................ 0 9 100 100 11 0 0 0 100 100 0 0
March, 2001................... 0 6 100 100 6 0 0 0 74 100 0 0
April, 2001................... 0 3 100 100 2 0 0 0 47 100 0 0
May, 2001..................... 0 0 96 100 0 0 0 0 22 100 0 0
June, 2001.................... 0 0 68 100 0 0 0 0 0 99 0 0
July, 2001.................... 0 0 41 100 0 0 0 0 0 87 0 0
August, 2001.................. 0 0 15 100 0 0 0 0 0 76 0 0
September, 2001............... 0 0 0 94 0 0 0 0 0 65 0 0
October, 2001................. 0 0 0 82 0 0 0 0 0 55 0 0
November, 2001................ 0 0 0 70 0 0 0 0 0 45 0 0
December, 2001................ 0 0 0 58 0 0 0 0 0 36 0 0
January, 2002................. 0 0 0 46 0 0 0 0 0 26 0 0
February, 2002................ 0 0 0 35 0 0 0 0 0 17 0 0
March, 2002................... 0 0 0 23 0 0 0 0 0 9 0 0
April, 2002................... 0 0 0 12 0 0 0 0 0 0 0 0
May, 2002..................... 0 0 0 1 0 0 0 0 0 0 0 0
June, 2002.................... 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
45
<PAGE> 49
<TABLE>
<CAPTION>
PAYMENT DATE 0% CPR 12% CPR
- ------------------------------ --------------------------------------------- ---------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A-1 A-2 A-3 A-4 B C A-1 A-2 A-3 A-4 B C
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July, 2002.................... 0 0 0 0 0 0 0 0 0 0 0 0
August, 2002.................. 0 0 0 0 0 0 0 0 0 0 0 0
September, 2002............... 0 0 0 0 0 0 0 0 0 0 0 0
October, 2002................. 0 0 0 0 0 0 0 0 0 0 0 0
November, 2002................ 0 0 0 0 0 0 0 0 0 0 0 0
December, 2002................ 0 0 0 0 0 0 0 0 0 0 0 0
January, 2003................. 0 0 0 0 0 0 0 0 0 0 0 0
February, 2003................ 0 0 0 0 0 0 0 0 0 0 0 0
March, 2003................... 0 0 0 0 0 0 0 0 0 0 0 0
April, 2003................... 0 0 0 0 0 0 0 0 0 0 0 0
May, 2003..................... 0 0 0 0 0 0 0 0 0 0 0 0
June, 2003.................... 0 0 0 0 0 0 0 0 0 0 0 0
July, 2003.................... 0 0 0 0 0 0 0 0 0 0 0 0
August, 2003.................. 0 0 0 0 0 0 0 0 0 0 0 0
September, 2003............... 0 0 0 0 0 0 0 0 0 0 0 0
October, 2003................. 0 0 0 0 0 0 0 0 0 0 0 0
November, 2003................ 0 0 0 0 0 0 0 0 0 0 0 0
December, 2003................ 0 0 0 0 0 0 0 0 0 0 0 0
January, 2004................. 0 0 0 0 0 0 0 0 0 0 0 0
February, 2004................ 0 0 0 0 0 0 0 0 0 0 0 0
March, 2004................... 0 0 0 0 0 0 0 0 0 0 0 0
April, 2004................... 0 0 0 0 0 0 0 0 0 0 0 0
May, 2004..................... 0 0 0 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE LIFE(1)
(YEARS)..................... 1.02 2.09 3.27 3.77 2.00 1.72 0.98 1.92 3.04 3.60 1.84 1.59
</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 Issuers exercise their option
to redeem the Notes pursuant to a "clean-up call," the average life of the Class
A-1 Notes; Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class B Notes and
Class C Notes would be 1.02 years and 0.98 years; 2.09 years and 1.92 years;
3.27 years and 3.04 years; 3.62 years and 3.44 years; 2.00 years and 1.84 years
and 1.72 years and 1.59 years, respectively.
46
<PAGE> 50
CERTAIN LEGAL MATTERS AFFECTING THE RECEIVABLES
GENERAL. The Contracts are triple-net leases, requiring the Users to pay
all taxes, maintenance and insurance associated with the Equipment, and are
primarily non-cancelable by the Users.
The Contracts are "hell or high water" leases, under which the obligations
of the User are absolute and unconditional, regardless of any defense, setoff or
abatement which the User may have against ABS, the Servicer, the Issuers, or any
other person or entity whatsoever.
Events of default under the Contracts are generally the result of failure
to pay amounts when due, failure to observe other covenants in the Contract,
misrepresentations by, or the insolvency, bankruptcy or appointment of a trustee
or receiver for the User under a Contract. The remedies of the lessor (and the
Issuers as assignee) following a notice and cure period are generally to seek to
enforce the performance by the User of the terms and covenants of the Contract
(including the User's obligation to make scheduled payments) or recover damages
for the breach thereof, to accelerate the balance of the remaining scheduled
payments paid to terminate the rights of the User under such Contract. Although
the Contracts permit the lessor to repossess and dispose of the related
Equipment in the event of a lease default, and to credit such proceeds against
the User's liabilities thereunder, such remedies may be limited where the User
thereunder is subject to bankruptcy, or other insolvency proceedings.
UCC AND BANKRUPTCY CONSIDERATIONS. The Contracts generally consist of
"chattel paper" which creates a security interest in the related item of
Equipment 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. The Originator has filed UCC financing statements in its
favor against Users in respect of Equipment, with an original Equipment cost in
excess of $25,000. Financing statements in favor of the Originator with respect
to approximately 31.10% of the Original Statistical Aggregate Contract Principal
Balance will have been so filed. Generally, no action will be taken to perfect
the interest of the Originator 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 Originator generally 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 68.90% of the Original Statistical Aggregate
Contract Principal Balance. To the extent UCC financing statements evidencing
the Originator'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 Originator, the Issuers or the Trustee.
Consequently, another party (such as a creditor of the User) may acquire rights
in the Originator's interest in the Equipment superior to those of the Issuer or
the Trustee. 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 Originator 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 Originator 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 Originator to either the Issuers or the Trustee. However, general, "blanket"
UCC financing statements naming (i) the Originator, as debtor, and the Issuers
as secured party (in New Jersey), and (ii) the Issuers, as debtors, and the
Trustee as secured party (in most states). Furthermore, certain provisions of
the Bankruptcy Code provide that the retention of bare legal 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 Originator 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.
47
<PAGE> 51
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of material federal income tax
consequences to the original purchasers of the Offered Notes of the purchase,
ownership and disposition of the Offered Notes. It does not purport to discuss
all federal income tax consequences that may be applicable to investment in the
Offered 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 Offered Notes directly from the Issuers
and hold the Offered Notes as capital assets.
The discussion that follows, and the opinion set forth below of Dewey
Ballantine LLP, special tax counsel to the Issuers ("Federal Tax Counsel"), are
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and treasury regulations promulgated thereunder as in effect on the date
hereof and on existing judicial and administrative interpretations thereof.
These authorities are subject to change and to differing interpretations, which
could apply retroactively. The opinion of Federal Tax Counsel is not binding on
the courts or the Internal Revenue Service (the "IRS"). Potential investors are
urged to 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.
Federal Tax Counsel has prepared the following discussion and is of the
opinion that such discussion is correct in all material respects.
CHARACTERIZATION OF THE OFFERED NOTES AS INDEBTEDNESS. In the opinion of
Federal Tax Counsel, although no transaction closely comparable to that
contemplated herein has been the subject of any treasury regulation, revenue
ruling or judicial decision, based on the application of existing law to the
facts as set forth in the applicable agreements, the proper treatment of the
Offered Notes is as indebtedness for federal income tax purposes.
Although it is the opinion of Federal Tax Counsel that the Offered Notes
are properly characterized as indebtedness for federal income tax purposes, no
assurance can be given that such characterization of the Offered Notes will
prevail. If the Offered Notes were treated as an ownership interest in the Trust
Estate, all income on such Trust Estate would be income to the holders of the
Offered Notes, and related fees and expenses would generally be deductible
(subject to certain limitations on the deductibility of miscellaneous itemized
deductions by individuals) and certain market discount and premium provisions of
the Code might apply to a purchase of the Offered Notes.
If, alternatively, the Offered Notes were treated as an equity interest in
the Trust Estate, distributions on the Offered Notes probably would not be
deductible in computing the taxable income of the Issuers, and all or a part of
distributions to the holders of the Offered Notes probably would be treated as
dividend income to those holders. Such a characterization could result in a
reduced amount of cash available for distributions to the holders of the Offered
Notes.
TAXATION OF INTEREST INCOME OF OFFERED NOTEHOLDERS. If characterized as
indebtedness, interest on the Offered Notes will be taxable as ordinary income
for federal income tax purposes when received by Offered Noteholders using the
cash method of accounting and when accrued by Offered Noteholders using the
accrual method of accounting. Interest received on the Offered Notes also may
constitute "investment income" for purposes of certain limitations of the Code
concerning the deductibility of investment interest expense.
Original Issue Discount. It is not anticipated that the Offered Notes
will have any original issue discount ("OID") other than possibly OID within a
de minimis exception and that accordingly the provisions of sections 1271
through 1273 and 1275 of the Code generally will not apply to the Offered Notes.
OID will be considered de minimis if it is less than 0.25% of the principal
amount of Offered Note multiplied by its expected weighted average life.
Market Discount. A subsequent purchaser who buys an Offered 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 an Offered
Note disposes of such Offered 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
48
<PAGE> 52
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 Offered Note. Such holder may instead elect to include market discount in
income as it accrues with respect to all debt instruments acquired in the year
of acquisition of the Offered Notes and thereafter. Market discount generally
will equal the excess, if any, of the then-current unpaid principal balance of
the Offered Note over the purchaser's basis in the Offered Note immediately
after such purchaser acquired the Offered Note. In general, market discount on
an Offered Note will be treated as accruing over the term of such Offered 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 an Offered 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 an Offered 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 an Offered 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 Offered Note multiplied by its expected
weighted average remaining life. If OID or market discount is de minimis, the
actual amount of discount must be allocated to the remaining principal
distributions on the Offered 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 an Offered Note for more
than its principal amount generally will be considered to have purchased the
Offered Note at a premium. Such holder may amortize such premium, using a
constant yield method, over the remaining term of the Offered 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 Offered
Note over the period from the purchase date to the date of maturity of the
Offered 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 OFFERED NOTES. If an Offered Note is sold or
exchanged, the seller of the Offered 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 Offered Note. The adjusted basis of an Offered Note will
generally equal its cost, increased by any OID or market discount includable in
income with respect to the Offered Note through the date of sale and reduced by
any principal payments previously received with respect to the Offered 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 Offered Note was held as a capital
asset. Capital losses generally may be used only to offset capital gains.
BACKUP WITHHOLDING WITH RESPECT TO OFFERED NOTES. Payments of interest
and principal, together with payments of proceeds from the sale of Offered
Notes, may be subject to the "backup withholding tax" under Section 3406 of the
Code at a rate of 31% if recipients of such payments fail to furnish to the
payor certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from such tax. Any amounts deducted and
withheld from a payment to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner.
FOREIGN INVESTORS IN OFFERED NOTES. Certain U.S. Federal Income Tax
Documentation Requirements. A beneficial owner of Offered Notes holding
securities through CEDEL of Euroclear (or through DTC if the
49
<PAGE> 53
holder has an address outside the U.S.) will be subject to the 30% U.S.
withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. Persons (as defined
below), unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Offered
Notes that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with
the United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If 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 a beneficial Owner of Offered Notes or its agent. Exemption
for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from
the withholding tax by filing Form W-9 (Payer's Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The owner of an Offered Note
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations are
proposed to be effective for payments made after December 31, 1997 but provide
that certificates issued on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
Proposed regulations, however, are subject to change prior to their adoption in
final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income. The term "Non-U.S. Person" means any person who is not a U.S. Person
or (iv) a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States fiduciary has
the authority to control all substantial decisions of the trust. This summary
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Offered Notes. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of the Offered Notes.
STATE, LOCAL AND OTHER TAXES. Investors are urged to consult their own
tax advisors regarding whether the purchase of the Offered Notes, either alone
or in conjunction with an investor's other activities, may subject an investor
to any state or local taxes based on an assertion that the investor is either
"doing business" in, or deriving income from a source located in, any state or
local jurisdiction. Additionally, potential investors should consider the state,
local and other tax consequences of purchasing, owning or disposing of an
Offered Note. State and local tax laws may differ substantially from the
corresponding federal tax law, and the
50
<PAGE> 54
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 ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE OFFERED NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS OR IN THE INTERPRETATIONS
THEREOF.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements and restrictions on those pension and other
employee benefits plans to which it applies and on those persons who are
fiduciaries with respect to such plans. In accordance with ERISA's fiduciary
standards, before purchasing the Offered Notes, a fiduciary should determine
whether such an investment is permitted under the documents and instruments
governing the plan and is appropriate for the plan in view of its overall
investment policy and the composition of its portfolio.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of certain plans subject thereto (each, a
"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 Trust Estate 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 Trust
Estate 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
Trust Estate and none of the exceptions contained in the Plan Asset Regulations
is applicable. An Equity Interest is defined under the Plan Asset Regulations as
an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. It is
anticipated that the Offered Notes should be treated as indebtedness without
substantial equity features without substantial equity features for purposes of
the Plan Asset Regulations. However, even if the Offered Notes are treated as
indebtedness for such purposes, the acquisition or holding of Offered Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuers or any of its 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 an Offered Note. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38 regarding investments by
bank collective investment funds; PTCE 84-14, regarding transactions effected by
"qualified professional asset managers," PTCE 95-60, regarding investments by
insurance company general accounts and PTCE 96-23 regarding transactions
effected by In-House Asset Managers. Each investor using assets of a Benefit
Plan which acquires the Offered Notes, or to whom the Notes are transferred,
will be deemed to have represented that the acquisition and continued holding of
the Offered Notes will be covered by one of the exemptions listed above or
another Department of Labor class exemption.
Insurance companies considering the purchase of the Offered Notes should
also consult their own counsel as to the application of the recent decision by
the United States Supreme Court in John Hancock Mutual Life Insurance Co. v.
Harris Trust and Savings Bank (114 S. Ct. 517 (1993)) to such a purchase. Under
that decision, assets held in an insurance company's general account may be
deemed assets of ERISA plans under certain circumstances.
51
<PAGE> 55
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that a
fiduciary investing assets of an ERISA plan consult with counsel regarding the
consequences under ERISA of the acquisition and holding of Notes, including the
availability of any administrative exemptions from the prohibited transaction
rules.
UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement (the "Underwriting Agreement") for the sale of the Offered Notes, the
Originator and the Issuers have agreed to sell and the underwriters named below
(the "Underwriters") have agreed to purchase the Offered Notes as set forth
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF THE CLASS A NOTES OF CLASS A-1 NOTES OF CLASS A-2 NOTES OF CLASS A-3 NOTES OF CLASS A-4 NOTES
--------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Salomon Brothers Inc ......................... 36,000,000 90,000,000 23,300,000 22,950,000
Lehman Brothers Inc. ......................... -- 90,000,000 -- --
Prudential Securities......................... 36,000,000 -- -- 22,950,000
Barclays Capital Inc. ........................ -- 10,000,000 -- --
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER OF PRINCIPAL AMOUNT
THE CLASS B NOTES OF CLASS B NOTES
- ----------------- ------------------
<S> <C> <C> <C> <C>
Salomon Brothers Inc ......................... 18,938,000
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER OF PRINCIPAL AMOUNT
THE CLASS C NOTES OF CLASS C NOTES
- ----------------- ------------------
<S> <C> <C> <C> <C>
Salomon Brothers Inc ......................... 9,862,000
</TABLE>
The Issuers have been advised by Salomon Brothers Inc, as representative of
the Underwriters, that the Underwriters propose initially to offer the Offered
Notes to the public at the respective public offering prices set forth on the
cover page of this Prospectus, and to certain dealers at such price, less a
concession not in excess of 0.135% per Class A-1 Note, 0.180% per Class A-2
Note, 0.230% per Class A-3 Note, 0.235% per Class A-4 Note, 0.240% per Class B
Note and 0.300% per Class C Note. The Underwriters may allow and such dealers
may reallow to other dealers a discount not in excess of 0.80% per Class A-1
Note, 0.11% per Class A-2 Note, 0.14% per Class A-3 Note, 0.14% per Class A-4
Note, 0.15% per Class B Note and 0.18% per Class C Note.
Each Underwriter will represent and agree that:
(a) it has not offered or sold, and, prior to the expiry of six months
from the Closing Date, will not offer or sell, any Offered Notes to persons
in the United Kingdom, except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as
principal or agent) for purposes of their business, or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(b) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the Offered Notes in, from or otherwise involving the United
Kingdom; and
(c) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the issue
of the Offered Notes to a person who is of a kind 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 Originator has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Issuers have been advised by Salomon Brothers Inc, as representative of
the Underwriters, that the Underwriters presently intend to make a market in the
Offered Notes, as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in the Offered Notes and any such
market making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Notes.
In connection with the offering of the Offered Notes, the Underwriters 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 Offered Notes for the purpose of stabilizing its market price.
52
<PAGE> 56
RATINGS OF THE OFFERED NOTES
It is a condition to the issuance of the Notes that the Class A Notes be
rated at least "AAA," that the Class B Notes be rated at least "A" and that the
Class C Notes be rated at least "BBB" by Standard & Poor's Ratings Group
("S&P"), the Class A Notes be rated at least "Aaa," the Class B Notes be rated
at least "A2" and the Class C Notes be rated at least "Baa2" by Moody's
Investors Service, Inc. ("Moody's") and the Class A Notes be rated at least
"AAA," the Class B Notes be rated at least "A" and the Class C Notes be rated at
least "BBB" by Fitch IBCA, Inc. ("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 related Rating Agency if, in its judgment, circumstances so warrant. A
revision or withdrawal of such rating may have an adverse affect on the market
price of the Offered Notes. The rating of the Offered Notes addresses the
likelihood of the timely payment of interest and the ultimate payment of
principal on the Offered Notes by the Stated Maturity Date. The rating does not
address the rate of prepayments that may be experienced on the Contracts and,
therefore, does not address the effect of the rate of prepayments on the return
of principal to the Noteholders.
EXPERTS
The balance sheets of Advanta Leasing Receivables Corp. IV and Advanta
Leasing Receivables Corp. V as of February 18, 1998, have been appended hereto
in reliance on the report of Arthur Andersen LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the Notes
will be passed upon for the Issuers and the Underwriter by Dewey Ballantine LLP,
New York, New York.
53
<PAGE> 57
INDEX OF TERMS
<TABLE>
<CAPTION>
TERM(S) PAGE(S)
------- ------------
<S> <C>
ABS......................................................... 19
Account..................................................... 37
Actual Discount Rate........................................ 4, 21
Additional Contracts........................................ 3, 16
Additional Property Funding Account......................... 37
Additional Property Funding Requirement..................... 30
Advance Payment Account..................................... 37
Advance Payments............................................ 37
Aggregate Contract Balance.................................. 32
Aggregate Contract Principal Balance........................ 18
ALHC........................................................ 19
ALRC IV..................................................... i, 14
ALRC V...................................................... i, 14
Allocated Loss Amount....................................... 34
Amortization Date........................................... ii
Amortization Period......................................... 6
Article 2A.................................................. 12
Available Funds............................................. 32, 33
Available Reserve Amount.................................... 9, 35
Benefit Plan................................................ 51
Booked Residual Value....................................... 8, 34
Business Day................................................ 27
Calculation Date............................................ 29
Cede........................................................ iii
CEDEL....................................................... iii
Class....................................................... i
Class A Allocated Loss Amount............................... 34
Class A Initial Principal Balance........................... 2
Class A Note Interest....................................... 5, 27
Class A Noteholders......................................... ii
Class A Notes............................................... i,1
Class A Overdue Interest.................................... 5, 27
Class A Overdue Principal................................... 34
Class A Percentage.......................................... 29
Class A Principal Balance................................... 29
Class A Principal Payment................................... 28
Class A Target Investor Principal Amount.................... 28
Class A-1 Allocated Loss Amount............................. 34
Class A-1 Initial Principal Balance......................... 2
Class A-1 Interest Rate..................................... 2
Class A-1 Note Factor....................................... 38
Class A-1 Notes............................................. i, 1
Class A-1 Overdue Principal................................. 28
Class A-1 Principal Balance................................. 29
Class A-2 Allocated Loss Amount............................. 34
Class A-2 Initial Principal Balance......................... 2
Class A-2 Interest Rate..................................... 2
Class A-2 Note Factor....................................... 38
Class A-2 Notes............................................. i, 1
Class A-2 Overdue Principal................................. 28
</TABLE>
54
<PAGE> 58
<TABLE>
<CAPTION>
TERM(S) PAGE(S)
------- ------------
<S> <C>
Class A-2 Principal Balance................................. 29
Class A-3 Allocated Loss Amount............................. 34
Class A-3 Interest Rate..................................... 2
Class A-3 Initial Principal Balance......................... 2
Class A-3 Note Factor....................................... 38
Class A-3 Notes............................................. i, 1
Class A-3 Overdue Principal................................. 28
Class A-3 Principal Balance................................. 29
Class A-3 Special Redemption................................ ii, 9, 33
Class A-3 Special Redemption Premium........................ 33
Class A-4 Allocated Loss Amount............................. 34
Class A-4 Initial Principal Balance......................... 2
Class A-4 Interest Rate..................................... 2
Class A-4 Note Factor....................................... 39
Class A-4 Notes............................................. i, 1
Class A-4 Overdue Principal................................. 28
Class A-4 Principal Balance................................. 29
Class B Allocated Loss Amount............................... 34
Class B Initial Principal Balance........................... 2
Class B Interest Rate....................................... 2
Class B Note Factor......................................... 39
Class B Note Interest....................................... 5, 27
Class B Noteholders......................................... ii
Class B Notes............................................... i, 1
Class B Overdue Interest.................................... 5, 27
Class B Overdue Principal................................... 28, 34
Class B Percentage.......................................... 29
Class B Principal Balance................................... 29
Class B Principal Payment................................... 28
Class B Target Investor Principal Amount.................... 28
Class C Allocated Loss Amount............................... 34
Class C Initial Principal Balance........................... 2
Class C Interest Rate....................................... 2
Class C Note Factor......................................... 39
Class C Note Interest....................................... 5, 27
Class C Noteholders......................................... ii
Class C Notes............................................... i, 1
Class C Overdue Interest.................................... 5, 27
Class C Overdue Principal................................... 28, 34
Class C Percentage.......................................... 29
Class C Principal Balance................................... 29
Class C Principal Payment................................... 28
Class C Target Investor Principal Amount.................... 28
Class D Allocated Loss Amount............................... 34
Class D Floor............................................... 28
Class D Initial Principal Balance........................... 2
Class D Note Factor......................................... 39
Class D Notes............................................... i, 1
Class D Overdue Principal................................... 28, 34
Class D Percentage.......................................... 29
Class D Principal Balance................................... 29
</TABLE>
55
<PAGE> 59
<TABLE>
<CAPTION>
TERM(S) PAGE(S)
------- ------------
<S> <C>
Class D Principal Payment................................... 28
Class D Target Investor Principal Amount.................... 29
Closing Date................................................ 2
Code........................................................ 48
Collateral Factor........................................... 39
Collection Account.......................................... 6, 30, 37
Collection Period........................................... 27
Commission.................................................. iii
Conditional Payment Rate.................................... 44
Contract Balance............................................ 32
Contract Files.............................................. 17
Contract Principal Balance.................................. 18
Contracts................................................... ii, 17, 19
Contribution Agreement...................................... 4
Cumulative Loss Amount...................................... 29
Cut-Off Date................................................ 2
Defaulted Contract.......................................... 21, 34
Defaulted Residual Receipts................................. 40
Delinquent Contract......................................... 37
Determination Date.......................................... 27
DTC......................................................... iii
Eligible Investments........................................ 37
Equipment................................................... ii, 17
ERISA....................................................... 10, 51
Euroclear................................................... iii
Events of Default........................................... 41
Events of Servicer Termination.............................. 43
Excess Amount............................................... 17
Exchange Act................................................ iii
Federal Tax Counsel......................................... 48
Final Contract Payment...................................... 17, 40
Fitch....................................................... 10, 53
Indenture................................................... 3
Initial Contracts........................................... 3, 16
Initial Property............................................ 3, 16
Interest Accrual Period..................................... 5, 27
Interest Payments........................................... 5, 27
Interest Rate............................................... 2
Interest-Only Period........................................ ii, 5, 27
IRS......................................................... 48
Issuers..................................................... i
Moody's..................................................... 10, 53
Net Residual Value.......................................... 21
Nonrecoverable Advances..................................... 37
Non-U.S. Person............................................. 50
Noteholders................................................. ii
Notes....................................................... 1
Offered Notes............................................... i, 1
OID......................................................... 48
Original Aggregate Contract Principal Balance............... 4, 21
Original Statistical Aggregate Contract Principal Balance... 4, 21
</TABLE>
56
<PAGE> 60
<TABLE>
<CAPTION>
TERM(S) PAGE(S)
------- ------------
<S> <C>
Originator.................................................. 1
Outstanding Principal Balance............................... 27
Payment Date................................................ ii, 5, 27
Plan Asset Regulations...................................... 51
Predecessor Contract........................................ 21
Prepayment Amount........................................... 17
Principal Balance........................................... 4
Principal Payments.......................................... 6, 27
PTCE........................................................ 51
Purchase Option Contracts................................... 18
Purchase Option Equipment................................... 18
Purchase Option Payments.................................... 18
Rating Agency............................................... 10, 53
Receivables................................................. ii, 17
Receivables Transfer Agreement.............................. 3, 4
Record Date................................................. 5, 27
Registration Statement...................................... iii
Release Event............................................... 7, 34
Required Reserve Amount..................................... 8, 35
Reserve Account............................................. 9, 35, 37
Reserve Account Floor....................................... 9, 35
Reserve Account Funding Date................................ 35, 55
Reserve Account Initial Deposit............................. 9, 35
Residual Account............................................ 35
Residual Cap Amount......................................... 8, 34
Residual Event.............................................. 8, 35
Residual Receipts........................................... 40
S&P......................................................... 10, 53
Scheduled Payments.......................................... 18, 40
Securities Act.............................................. iii
Security Deposit............................................ 8, 34
Senior Allocated Loss Amount................................ 34
Servicer.................................................... 1
Servicer Advance............................................ 10, 37
Servicer Fee................................................ 40
Servicer Fee Percentage..................................... 40
Servicing Charges........................................... 40
Stated Amortization Date.................................... ii
Stated Maturity Date........................................ ii, 27
Statistic Calculation Date.................................. 4, 21
Statistical Aggregate Contract Principal Balance............ 22
Statistical Discount Rate................................... 4, 21
Substitute Contract......................................... 21
Trust Estate................................................ i, 16
Trustee..................................................... i, 1
U.S. Person................................................. 50
UCC......................................................... 17
Underwriters................................................ 52
Underwriting Agreement...................................... 52
User........................................................ 18
</TABLE>
57
<PAGE> 61
APPENDICES
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Book-Entry Registration..................................... A-1
Independent Auditors' Report of ALRC IV..................... B-1
Financial Statements of ALRC IV............................. C-1
Notes to ALRC IV Financial Statements....................... D-1
Independent Auditors' Report of ALRC V...................... E-1
Financial Statements of ALRC V.............................. F-1
Notes to ALRC V Financial Statements........................ G-1
</TABLE>
<PAGE> 62
APPENDIX A
BOOK-ENTRY REGISTRATION
Offered Noteholders may hold their Notes through DTC (in the United States)
or Cedel or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Offered Notes of each Class.
Cedel and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective Depositaries (as defined herein) which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC. Citibank will act as depositary for Cedel and Morgan
Guaranty Trust will act as depositary for Euroclear (in such capacities, the
"Depositaries").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of notes. Participants include the
Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding or indirectly through DTC,
on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected through DTC in accordance
with DTC rules on behalf of the relevant European international clearing systems
by its Depositary. Cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or a Euroclear
Participant to a Participant will be received with value on the DTC settlement
date but will be available in the relevant Cedel or Euroclear cash account only
as of the business day following settlement in DTC. For information with respect
to tax documentation procedures relating to the Offered Notes, see "Material
Federal Income Tax Consequences."
Offered Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Offered Notes may do so only through Participants and Indirect Participants.
In addition, Offered Noteholders will receive all distributions of principal and
interest on the Offered Notes from the Trustee through DTC and its Participants.
Under a book-entry format, Offered Noteholders will receive payments after the
related Distribution Date, as the case may be, because, while
A-1
<PAGE> 63
payments are required to be forwarded to Cede, as nominee for DTC, on each such
date, DTC will forward such payments to its Participants which thereafter will
be required to forward them to Indirect Participants or holders of beneficial
interests in the Offered Notes. It is anticipated that the only Offered
Noteholder will be Cede, as nominee of DTC, and that holders of beneficial
interests in the Offered Noteholders, under the Indenture will only be permitted
to exercise the rights of Offered Noteholders, under the Indenture indirectly
through DTC and its Participants who in turn will exercise their rights through
DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make bookentry transfers among Participants
on whose behalf it acts with respect to the Offered Notes and is required to
receive and transmit distributions of principal of and interest on the Offered
Notes. Participants and Indirect Participants with which holders of beneficial
interests in the Offered Notes have accounts similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of these
respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Offered Notes to pledge Offered Notes to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Offered Notes, may be limited due to the lack of a Definitive
Note for such Offered Notes.
DTC has advised the Issuers that it will take any action permitted to be
taken by an Offered Noteholder under the Indenture only at the direction of one
or more Participants to whose account with DTC the Offered Notes are credited.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic bookentry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York Banking Department, as well as the Belgian Banking Commission.
A-2
<PAGE> 64
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Offered Notes held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Material Federal Income Tax Consequences." Cedel or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by an
Offered Noteholder under the Indenture on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered Notes among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES. The Offered Notes will be issued in fully registered,
authenticated form to Beneficial Owners or their nominees (the "Definitive
Notes"), rather than to DTC or its nominee, only if (a) the Issuers advise the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Depository with respect to such Notes, and the Trustee
or the Issuers is unable to locate a qualified successor or (b) the Issuers at
their option elect to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee is required to notify all Beneficial Owners
through DTC of the availability of Definitive Notes for such Class. Upon
surrender by DTC of the Definitive Note representing the Notes and instructions
for reregistration, the Trustee will issue such Definitive Notes, and thereafter
the Trustee will recognize the holders of such Definitive Notes as Noteholders
under the related Indenture (the "Holders"). The Trustee will also notify the
Holders of any adjustment to the Record Date with respect to the Notes necessary
to enable the Trustee to make distributions to Holders of the Definitive Notes
for such Class of record as of each Payment Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Offered Notes will be made by
the Trustee directly to Holders in accordance with the procedures set forth
herein and in the Indenture. Distributions will be made by check, mailed to the
address of such Holder as it appears on the Note register. Upon at least 10
days' notice to Noteholders for such Class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentation and surrender of such Note at the office or agency specified in the
notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and exchangeable at the
offices of the Trustee or its agent in New York, New York, which the Trustee
shall designate on or prior to the issuance of any Definitive Notes with respect
to such Class. No service charge will be imposed for any registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
A-3
<PAGE> 65
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Advanta Leasing Receivables Corp. IV:
We have audited the accompanying balance sheet of Advanta Leasing
Receivables Corp. IV (a wholly owned subsidiary of Advanta Business Services
Corp.), as of February 18, 1998. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Advanta Leasing Receivables Corp.
IV as of February 18, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 20, 1998
B-1
<PAGE> 66
ADVANTA LEASING RECEIVABLES CORP. IV
BALANCE SHEET -- FEBRUARY 18, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSET
Cash........................................................ $1,000
======
STOCKHOLDER'S EQUITY
SHAREHOLDER'S EQUITY:
Common stock (authorized 1,000 shares, $.01 par value,
issued and outstanding 1,000 shares)................... 10
Additional paid-in capital................................ 990
------
Total liabilities and shareholder's equity........ $1,000
======
</TABLE>
The accompanying notes are an integral part of this statement.
C-1
<PAGE> 67
ADVANTA LEASING RECEIVABLES CORP. IV
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 18, 1998
1. NATURE OF OPERATIONS:
Advanta Leasing Receivables Corp. IV (the Company), a wholly owned
subsidiary of Advanta Business Services Corp. (ABSC), was incorporated in the
State of Nevada on February 18, 1998. The Company has been inactive since that
date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire equipment described in certain equipment
leases and to purchase equipment leases and lease receivables (collectively
lease receivables) from ABSC and any of its affiliates; to issue and sell notes
collateralized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in any lawful act or
activity and to exercise any power that is incidental and is necessary or
convenient to the foregoing and permitted under Nevada law.
2. CAPITAL CONTRIBUTION:
ABSC purchased 1,000 shares of the common stock of the Company for $1,000
on February 18, 1998.
D-1
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Advanta Leasing Receivables Corp. V:
We have audited the accompanying balance sheet of Advanta Leasing
Receivables Corp. V (a wholly owned subsidiary of Advanta Business Services
Corp.), as of February 18, 1998. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Advanta Leasing Receivables Corp. V
as of February 18, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 20, 1998
E-1
<PAGE> 69
ADVANTA LEASING RECEIVABLES CORP. V
BALANCE SHEET -- FEBRUARY 18, 1998
<TABLE>
<S> <C>
ASSET
Cash........................................................ $1,000
======
STOCKHOLDER'S EQUITY
SHAREHOLDER'S EQUITY:
Common stock (authorized 1,000 shares, $.01 par value,
issued and outstanding 1,000 shares)................... 10
Additional paid-in capital................................ 990
------
Total liabilities and shareholder's equity........ $1,000
======
</TABLE>
The accompanying notes are an integral part of this statement.
F-1
<PAGE> 70
ADVANTA LEASING RECEIVABLES CORP. V
NOTES TO FINANCIAL STATEMENTS:
February 18, 1998
1. NATURE OF OPERATIONS:
Advanta Leasing Receivables Corp. V (the "Company"), a wholly owned
subsidiary of Advanta Business Services Corp. ("ABSC"), was incorporated in the
State of Nevada on February 18, 1998. The Company has been inactive since that
date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire equipment described in certain equipment
leases and to purchase equipment leases and lease receivables (collectively
lease receivables) from ABSC and any of its affiliates; to issue and sell notes
collateralized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in any lawful act or
activity and to exercise any power that is incidental and is necessary or
convenient to the foregoing and permitted under Nevada law.
2. CAPITAL CONTRIBUTION:
ABSC purchased 1,000 shares of the common stock of the Company for $1,000
on February 18, 1998.
G-1
<PAGE> 71
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE ORIGINATOR, THE SERVICER OR THE ISSUERS OR ANY AFFILIATE THEREOF OR THE
TRUST ESTATE SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 1
Material Risks......................... 11
The Issuers............................ 14
Legal Proceedings...................... 14
Management's Discussion and Analysis of
Financial Condition.................. 14
Directors and Executive Officers of the
Issuers.............................. 15
Use of Proceeds........................ 16
The Trustee............................ 16
The Trust Assets....................... 16
Advanta Business Services Corp.
Underwriting, Originating and
Servicing Practices.................. 19
Substitutions and Modifications........ 21
Statistical Information................ 21
Description Of The Notes............... 27
Prepayment and Yield Considerations.... 44
Certain Legal Matters Affecting The
Receivables.......................... 47
Material Federal Income Tax
Consequences......................... 48
Erisa Considerations................... 51
Underwriting........................... 52
Ratings Of The Offered Notes........... 53
Experts................................ 53
Certain Legal Matters.................. 53
Book-Entry Registration................ A-1
Independent Auditor's Report of ALRC
IV................................... B-1
Financial Statements of ALRC IV........ C-1
Notes to ALRC IV Financial
Statements........................... D-1
Independent Auditor's Report of ALRC
V.................................... E-1
Financial Statements of ALRC V......... F-1
Notes to ALRC V Financial Statements... G-1
</TABLE>
Until the date which is 90 days after the date of this Prospectus, all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
$360,000,000
ADVANTA BUSINESS
SERVICES CORP.
ORIGINATOR AND SERVICER
EQUIPMENT RECEIVABLES
ASSET-BACKED NOTES,
SERIES 1998-1
$ 72,000,000 5.77% CLASS A-1 NOTES
$190,000,000 5.82% CLASS A-2 NOTES
$ 23,300,000 5.93% CLASS A-3 NOTES
$ 45,900,000 5.98% CLASS A-4 NOTES
$ 18,938,000 6.10% CLASS B NOTES
$ 9,862,000 6.49% CLASS C NOTES
------------
PROSPECTUS
APRIL 8, 1998
------------
Underwriters of the Class A Notes
SALOMON SMITH BARNEY
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES
INCORPORATED
BARCLAYS CAPITAL INC.
Underwriter of the Class B and Class C Notes
SALOMON SMITH BARNEY
======================================================
