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FILED PURSUANT TO RULE 424B4
REGISTRATION NO. 333-79773
PROSPECTUS
ADVANTA LEASING RECEIVABLES CORP. VIII
ADVANTA LEASING RECEIVABLES CORP. IX
ISSUERS
ADVANTA BUSINESS SERVICES CORP.
ORIGINATOR AND SERVICER
EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES 1999-1
$50,929,490 CLASS A-1 NOTES
$38,500,927 CLASS A-2 NOTES
$ 9,445,708 CLASS A-3 NOTES
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 6
IN THIS PROSPECTUS.
A note is not a deposit and
neither the notes nor the
underlying contracts or
receivables are insured or
guaranteed by any
governmental agency.
The notes offered in this
prospectus are obligations
of the issuers only. They
are payable only from a
limited pool of assets. The
notes are not obligations
of Advanta Business
Services Corp., Advanta
Corp. or any of their
affiliates.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS
INTEREST PUBLIC DISCOUNT TO ISSUER
CLASS RATE PER NOTE PER NOTE PER NOTE
----- -------- -------- ------------ ---------
<S> <C> <C> <C> <C>
A-1.................. 5.76664% 100% 0.225% 99.77500%
A-2.................. 6.64% 99.99555% 0.375% 99.62055%
A-3.................. 6.90% 99.98439% 0.397% 99.58739%
</TABLE>
The total price to public is $98,872,937, the total
amount of the underwriting discount is $296,469, and
the total amount of proceeds before deduction of
expenses is $98,576,468.
CREDIT ENHANCEMENT
The issuers also are issuing $11,599,991 of 7.27%
Class B asset-backed notes. The Class B notes are
subordinated to, and provide credit enhancement for,
the Class A notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FIRST UNION CAPITAL MARKETS CORP. BARCLAYS CAPITAL
August 20, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 1
Issuers............................. 1
Limited Obligations................. 1
Originator and Servicer............. 1
Trustee............................. 1
The Pledged Assets.................. 1
The Contracts....................... 2
The Notes........................... 2
Payment Date........................ 2
Issuance Date....................... 3
Interest Payments................... 3
Principal Payments.................. 3
Stated Maturity..................... 3
Subordination....................... 3
Residual Receipts................... 4
Residual Account.................... 4
Reserve Account..................... 4
Collections by the Servicer......... 4
Flow of Funds....................... 4
Optional Redemption................. 5
Class B Special Redemption.......... 5
Limited Ability to Remove Defaulted
Contracts........................ 5
Federal Income Tax Status........... 5
ERISA Considerations................ 5
Ratings............................. 5
Risk Factors.......................... 6
You May Not Be Able to Sell Your
Notes............................ 6
Prepayments on the Contracts May
Cause Early Payment of Notes and
You May Not Be Able to Reinvest
at a Comparable Rate............. 6
Servicer's Possession of the
Contracts May Result in Delayed
Payments, Losses or Accelerated
Payments......................... 6
State Laws and Other Factors May
Restrict or Delay Recovery
Efforts and Adversely Affect the
Recovery of the Full Amount Due
on the Contracts................. 7
Security Interests in Most Equipment
Are Not Perfected and Other
Creditors May Have Rights to the
Equipment........................ 7
If the Promissory Notes Are Not
Delivered to the Trustee, the
Security Interests in the Loans
Are Not Perfected................ 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Residual Receipts Are Uncertain and
May Not Be Available or
Sufficient to Prevent Defaults on
the Notes........................ 9
Article 2A of the UCC May Diminish
Recoveries....................... 9
Recharacterization of the Transfer
of Contracts or Interests Therein
as a Secured Borrowing Could
Reduce or Delay Your Payments.... 9
Substantive Consolidation of Advanta
Business Services and the Issuers
May Result in Losses on Your
Investment....................... 10
Commingling of Trust Assets by
Advanta Business Services May
Result in Reduced or Delayed
Payments to You.................. 10
Insolvency of Advanta Business
Services May Result in an
Inability to Repurchase
Contracts........................ 10
Insolvency of the Issuers Could
Reduce or Delay Your Payments.... 11
Default or Insolvency of Users May
Reduce Payments to You........... 11
If the Pledged Assets Are Not
Sufficient, Defaults Will
Occur............................ 11
Technological Obsolescence of the
Equipment May Reduce the Value of
the Collateral................... 11
Geographic Concentration of the
Contract Portfolio Causes
Increased Risk From Local
Economic Conditions and Natural
Disasters........................ 11
Book-Entry Registration Will Result
in Your Inability to Exercise
Directly Your Rights as a
Noteholder....................... 11
Limited Nature of Credit Ratings
Assigned to the Notes............ 11
Risks Associated with Year 2000
Compliance....................... 12
Introduction.......................... 13
The Issuers........................... 13
Management's Discussion and Analysis
of Financial Condition.............. 13
Directors and Executive Officers of
the Issuers......................... 14
Use of Proceeds....................... 15
The Trustee........................... 16
The Pledged Assets.................... 16
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Advanta Business Services's
Underwriting, Origination and
Servicing Practices................. 19
Removal and Modifications of
Contracts, Sale and Re-Leasing of
Assets.............................. 24
Statistical Information............... 25
Servicing Portfolio Delinquency and
Default Information................. 31
Description of the Notes.............. 32
Prepayment and Yield Considerations... 51
Legal Matters Affecting the
Contracts........................... 57
Federal Income Tax Consequences....... 59
State Tax Consequences................ 62
Legal Investment...................... 62
ERISA Considerations.................. 62
Underwriting.......................... 64
Ratings of the Notes.................. 65
Experts............................... 65
Legal Matters......................... 66
Reports to Noteholders................ 66
Where You Can Find More Information... 66
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Index of Terms........................ 67
Appendix A: Global Clearance,
Settlement and Tax Documentation
Procedures.......................... A-1
Appendix B: Report of Independent
Accountants for Advanta Leasing
Receivables Corp. VIII.............. B-1
Appendix C: Financial Statements of
Advanta Leasing Receivables Corp.
VIII................................ C-1
Appendix D: Notes to Advanta Leasing
Receivables Corp. VIII Financial
Statements.......................... D-1
Appendix E: Report of Independent
Accountants for Advanta Leasing
Receivables Corp. IX................ E-1
Appendix F: Financial Statements of
Advanta Leasing Receivables Corp.
IX.................................. F-1
Appendix G: Notes to Advanta Leasing
Receivables Corp. IX Financial
Statements.......................... G-1
</TABLE>
The Underwriters may engage in transactions that stabilize, maintain, or in
some way affect the price of the notes. These types of transactions may include
stabilizing, the purchase of notes to cover syndicate short positions and the
imposition of penalty bids. For a description of these activities, please read
the section entitled "Underwriting."
If you have received a copy of this prospectus in an electronic format, and
if the legal prospectus delivery period has not expired, you may obtain a paper
copy of this prospectus from Advanta Business Services Corp. or an underwriter
by asking for it.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU NEED TO MAKE YOUR INVESTMENT DECISION. IT PROVIDES GENERAL,
SIMPLIFIED DESCRIPTIONS OF CALCULATIONS, CASH FLOWS AND OTHER MATTERS THAT, IN
SOME CASES, ARE HIGHLY TECHNICAL AND COMPLEX. MORE DETAIL IS PROVIDED IN OTHER
SECTIONS OF THIS PROSPECTUS.
TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE NOTES, CAREFULLY READ THIS
ENTIRE DOCUMENT.
ISSUERS
Advanta Leasing Receivables Corp. VIII and Advanta Leasing Receivables Corp. IX
will issue the notes and will be joint and several obligors on the notes.
Advanta Leasing Receivables Corp. VIII is a Nevada corporation. Its principal
place of business is 639 Isbell Road, Suite 390-A, Reno, Nevada 89509. Its
telephone number is (775) 823-3080.
Advanta Leasing Receivables Corp. IX is a Nevada corporation. Its principal
place of business is 639 Isbell Road, Suite 390-B, Reno, Nevada 89509. Its
telephone number is (775) 823-3016.
Each of the issuers is a newly created special purpose corporation.
LIMITED OBLIGATIONS
Our obligation to pay the notes is limited to a specific source of funds. We
will pay the notes only from payments received on the contracts and collateral
provided for the contracts. The contracts will be equipment leases and loan
agreements. We will identify all of the contracts at the time we issue the
notes.
ORIGINATOR AND SERVICER
Advanta Business Services Corp. originated or acquired the contracts or
interests therein. Advanta Business Services will transfer its interest in the
scheduled payments arising under the contracts and certain related property to
Advanta Leasing Receivables Corp. IX. Advanta Business Services will transfer
its interest in any residual payments coming due under the contracts and certain
related property to Advanta Leasing Receivables Corp. VIII.
Advanta Business Services or its successor will service the contracts for the
issuers. The servicer will collect payments on the contracts and enforce
defaulted contracts when necessary. The servicer may, but is not required to,
make advances to cover delinquent contract payments in certain circumstances.
Advanta Business Services is a Delaware corporation. Its principal place of
business is 1020 Laurel Oak Road, Voorhees, New Jersey 08043. Its telephone
number is (609) 782-7300.
The indenture will permit Advanta Business Services to assign its rights and
obligations as servicer to any affiliate of Advanta Corp. if the rating agency
condition is satisfied.
TRUSTEE
The trustee is Bankers Trust Company. The trustee's address is 4 Albany Street,
New York, New York 10006.
THE PLEDGED ASSETS
We will pledge our interest in the contracts, amounts due and to become due
under the contracts and our interests in the equipment to secure payments on the
notes. More specifically, the pledged assets will include:
- the contracts or interests therein owned by us;
- amounts which we are entitled to receive on the contracts;
- collections and collateral associated with the contracts to the extent we
are entitled to such amounts and collateral;
- amounts held by the trustee in the collection account, the reserve
account and other Series 1999-1 accounts;
- our interest in the sale and contribution agreement;
- our rights, if any, in the equipment; and
- any other proceeds of the Series 1999-1 contracts.
In approximately 16% of the contracts, based on the statistical aggregate
contract principal balance, we have acquired Advanta Business Services's
interest in certain periodic payments and the collateral securing such payments,
but if the user makes the required scheduled payments, at the end
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of the term of the lease, we will have no right to the equipment or the residual
interests in the equipment.
THE CONTRACTS
We will use the proceeds from the sale of the notes (i) to buy from Advanta
Business Services, a portfolio of contracts and interests therein and the
interest, if any, in the related equipment which secures such contracts, (ii) to
make the initial deposit to the reserve account and (iii) to pay certain costs
and expenses incurred in issuing the notes.
The contracts include leases for a wide variety of small-ticket equipment. The
equipment includes, but is not limited to, office equipment, telecommuni-
cations equipment, automotive repair equipment, surveillance equipment and
furniture. The lessees or borrowers are referred to in this prospectus
collectively as the users. The users are businesses and business owners
throughout the United States.
The leases are triple-net leases. This means that the lessee is required to pay
all taxes, maintenance and insurance associated with the equipment.
The leases cannot be cancelled by the lessees. Payments due under the leases are
unconditional obligations of the lessee without right of offset. The servicer
may, however, allow prepayments.
In addition to leases, approximately 1.19% of the contracts, based on the
statistical aggregate contract principal balance, are in the form of loan
agreements. The terms of the loan agreements differ from the leases as described
in this prospectus.
We will calculate the principal value of the contracts at any time by
discounting the contracts' remaining scheduled payments at the applicable
discount rate which is 7.645%.
The statistical characteristics of the contracts shown in this prospectus,
however, are calculated as of July 1, 1999, using a statistical discount rate of
7.18%.
The contracts had the following characteristics at July 1, 1999:
- statistical aggregate contract principal balance: $111,628,166
- statistical average contract principal balance: $5,631
- number of contracts: 19,823
We expect some variance between this information and the portfolio on the day we
issue the notes. The material characteristics of the portfolio on the date of
issuance will not vary by more than 5% from the information presented in this
document, based on the aggregate contract principal balance.
We will make payments on the notes from collections on the contracts or
collateral securing the contracts and certain other pledged assets.
THE NOTES
In this document, we are offering three classes of notes:
- 5.76664% Class A-1 notes with an initial principal balance of
$50,929,490;
- 6.64% Class A-2 notes with an initial principal balance of $38,500,927;
and
- 6.90% Class A-3 notes with an initial principal balance of $9,445,708.
We also will issue $11,599,991 of 7.27% Class B notes at the same time as the
offered notes.
We are not offering the Class B notes by this document.
The notes represent non-recourse asset-backed debt obligations of the issuers.
The notes are secured by and payable only from the pledged assets.
We will issue the notes under the Advanta Business Receivables Master Facility
Agreement, dated as of the date the notes are issued. The terms of the notes
will be contained in the Series 1999-1 supplement to the master agreement. In
this prospectus, we refer to the master agreement, together with the supplement,
as the indenture.
The indenture allows for the issuance of series of notes in addition to Series
1999-1. If an additional series were issued, it would be payable from a separate
portfolio of contracts and related assets. We do not, however, currently
contemplate the issuance of any additional series under the indenture. Under the
indenture, we cannot issue any additional series of notes unless the issuance
satisfies the rating agency condition.
PAYMENT DATE
We will pay interest and principal on the offered notes on the 15th day of each
month if the fifteenth
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is a business day. If the fifteenth is not a business day, then the payment will
be on the next business day. September 15, 1999 will be the first payment date.
ISSUANCE DATE
We will issue the notes on or about August 26, 1999.
INTEREST PAYMENTS
Interest on the notes will accrue from one payment date to and including the day
before the next payment date. For the first payment, interest will begin to
accrue on the day we issue the notes.
The interest rate for each class of offered notes is specified in this
prospectus summary under "Description of the Notes."
Interest on the Class A-1 notes will be computed on the basis of actual days
elapsed and a 360-day year. Interest on the Class A-2 notes, Class A-3 notes and
Class B notes will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
PRINCIPAL PAYMENTS
We will pay monthly principal on the notes from available funds only after
servicer advances are repaid and after servicing fees and interest on both the
Class A notes and the Class B notes are paid. Principal payments will be made
from remaining amounts.
Monthly principal payments due will be an amount equal to the excess of the
outstanding principal balance over the aggregate contract principal balance as
of the related calculation date.
We will pay principal monthly as follows:
- first to Class A-1, until it is paid in full, the entire monthly
principal amount to pay Class A-1;
- after Class A-1 is paid in full, a portion of the monthly principal
amount equal to the Class A principal payment amount to pay Class A-2
until it is paid in full; and then to pay Class A-3 until it is paid in
full;
- after Class A-1 is paid in full, a portion of the monthly principal
amount equal to the Class B principal payment amount to Class B until
Class B is paid in full (subject to the maintenance of certain credit
enhancement levels for the Class A notes);
- if the Class B floor exceeds the Class B target investor principal
amount, the difference between the monthly principal amount and the sum
of the Class A principal payment amount and Class B principal payment
amount will be paid sequentially to Class A-2, Class A-3 and Class B
notes.
We refer you to "Description of the Notes -- Flow of Funds" in this prospectus
for more detail on the payment of principal and interest.
STATED MATURITY
If the notes have not already been paid in full, we will be obligated to pay the
outstanding principal amount of the Class A-1 notes, Class A-2 notes, Class A-3
notes and Class B notes in full on their respective stated maturity dates. The
stated maturity dates are:
<TABLE>
<CAPTION>
STATED
CLASS MATURITY DATE
- ----- ------------------
<S> <C>
A-1.................. September 15, 2000
A-2.................. September 16, 2002
A-3.................. November 17, 2003
B.................... April 15, 2005
</TABLE>
We expect that payment on the notes of each class will be made before the
payment date set forth in the table above.
SUBORDINATION
The Class B notes will be subordinated to the Class A notes.
- on each payment date, the trustee will use available funds to pay
interest on the Class A notes and then interest on the Class B notes; and
- on each payment date, the trustee will use the available funds to pay
principal due on the Class A notes and then principal due on the Class B
notes.
We refer you to "Description of the Notes -- Subordination Provisions" in this
prospectus for a more complete description of the subordination of the Class B
notes.
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RESIDUAL RECEIPTS
Proceeds may be realized from the sale of the issuers' interest in the equipment
following the termination of a contract or from periodic payments made for the
continued use of the equipment after the termination date of a contract. These
proceeds, known as residual receipts, will be deposited into the collection
account and included as available funds.
If a residual event occurs and is continuing, the residual receipts not paid to
the servicer or distributed to you or used to fund the reserve account will be
deposited into the residual account.
RESIDUAL ACCOUNT
On the closing day, the trustee will establish the residual account. Deposits to
the residual account will not be made unless a residual event has occurred and
is continuing. If a residual event occurs and is continuing, deposits to the
residual account will be made only after payments with a higher priority in the
flow of funds are made.
During the continuation of a residual event, amounts that otherwise would be
released to Advanta Leasing Receivables Corp. VIII will be retained in the
residual account for application on future payment dates.
Once the residual event ends, amounts on deposit in the residual account will be
deposited into the collection account. If those amounts are not used on that
payment date, they will be released to Advanta Leasing Receivables Corp. VIII.
RESERVE ACCOUNT
The trustee will establish a reserve account. On the closing date, the issuers
will deposit to the reserve account an amount equal to 1% of the initial
aggregate contract principal balance. Additional deposits will be made from the
flow of funds until the required reserve amount is on deposit. The trustee will
use the amounts in the reserve account to pay the following amounts if
collections on the contracts are insufficient:
- amounts owed to the servicer;
- interest due on the notes; and
- principal due on the notes.
The required reserve amount is the greater of 1% of the initial aggregate
contract principal balance and 5% of the outstanding principal balance of the
notes. The required reserve amount will not, however, exceed the outstanding
amount of the notes.
COLLECTIONS BY THE SERVICER
Advanta Business Services or its successor will service the contracts under the
indenture. Advanta Business Services or any successor may be removed as servicer
if an event of servicer default occurs.
The servicer manages and administers the contracts. It also enforces and makes
collections on the contracts and any insurance policies and, if needed, realizes
on the issuers' interest. In exchange for its services, the servicer receives a
monthly servicer fee.
FLOW OF FUNDS
On each payment date, the trustee will make the following payments from the
available funds in the collection account. The available funds in the collection
account will include any amounts transferred from the residual account or the
reserve account. The trustee will make payments in the following order of
priority:
- first, to the servicer to pay for any unrecoverable servicer advances;
- then, to the servicer to pay the servicer fee along with miscellaneous
amounts;
- then, to the Class A noteholders to pay the Class A note interest,
ratably with respect to each class of Class A notes;
- then, to the Class B noteholders to pay the Class B note interest;
- then, until the Class A-1 notes are paid in full, the entire monthly
principal amount to pay principal of the Class A-1 notes;
- when the Class A-1 notes have been paid in full, a portion of the monthly
principal amount equal to the Class A principal payment amount to pay
principal of the Class A-2 notes until paid in full then to pay principal
of the Class A-3 notes until paid in full;
- when the Class A-1 notes have been paid in full, a portion of the monthly
principal amount equal to the Class B principal payment amount to pay
principal of the Class B notes;
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- then if the Class B floor is greater than the Class B target investor
principal amount, the difference between the monthly principal amount and
the sum of the Class A principal payment amount and the Class B principal
payment amount to pay principal sequentially to Class A-2, Class A-3 and
Class B;
- then, to the reserve account in the amount needed to increase the amount
in the reserve account to the required reserve amount;
- then, if a residual event has occurred and is continuing, to the residual
account the lesser of (i) the available funds remaining on deposit in the
collection account and (ii) the aggregate amount of residual receipts
originally included in available funds for that payment date; and
- finally, to the issuers, any remaining available funds in the collection
account.
OPTIONAL REDEMPTION
The servicer has the option to direct the redemption of all remaining notes when
the aggregate contract principal balance is 10% or less of the initial aggregate
contract principal balance.
If a redemption occurs, you will receive a final distribution equaling the
entire unpaid balance of your notes plus any accrued and unpaid interest. You
will not receive a redemption premium.
CLASS B SPECIAL REDEMPTION
The Class B notes may be redeemed on any payment date, at a price equal to the
Class B principal balance on that payment date, including any accrued and unpaid
interest, plus the Class B special redemption premium. The Class B special
redemption premium is payable only to the holders of the Class B notes if the
issuers exercise the Class B special redemption; it is not payable in the event
of an optional redemption as described in the immediately preceding paragraph.
If the Class B special redemption occurs, it will be treated as a purchase of
the Class B notes by the issuers and payments thereon will be made to the
issuers.
LIMITED ABILITY TO REMOVE DEFAULTED CONTRACTS
The issuers may, but have no obligation to, remove defaulted contracts from the
Series 1999-1 trust estate. The issuers may remove contracts with a contract
principal balance, calculated as if the contracts were not defaulted, in the
aggregate amount up to 5% of the initial aggregate contract principal balance.
Upon removal of a contract, the issuers must deposit the prepayment amount for
such contract into the collection account.
FEDERAL INCOME TAX STATUS
In the opinion of Orrick, Herrington & Sutcliffe LLP, special tax counsel to the
issuers, under existing law, the Class A-1 notes, Class A-2 notes, Class A-3
notes and Class B notes will be characterized as debt for federal income tax
purposes. By your acceptance of a note, you will agree to treat your note as
debt for federal, state and local income and franchise tax purposes. We refer
you to "Federal Income Tax Consequences" in this prospectus for additional
information about the application of federal income tax laws.
ERISA CONSIDERATIONS
Subject to important considerations described under "ERISA Considerations" in
this prospectus, the Class A-1 notes, the Class A-2 notes, the Class A-3 notes
and Class B notes are eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts. A fiduciary or other
person contemplating purchasing the notes on behalf of or with plan assets of
any plan should consult with its counsel regarding whether the purchase or
holding of the notes could give rise to a transaction prohibited or not
otherwise permissible under ERISA or section 4975 of the Internal Revenue Code.
RATINGS
We will not issue the notes unless the rating agencies have assigned the
following ratings (or higher) to each class of notes:
<TABLE>
<CAPTION>
CLASS MOODY'S FITCH
- ----- ------- -------
<S> <C> <C>
A-1..................... P-1 F1+/AAA
A-2..................... Aaa AAA
A-3..................... Aaa AAA
B....................... A1 A+
</TABLE>
The ratings may be lowered, qualified or withdrawn by the rating agencies in
their discretion. The ratings are not recommendations to buy, sell or hold the
notes. They do not address any risk of prepayment or that payment will be made
at any time before the stated maturity.
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RISK FACTORS
You should carefully consider the following risk factors before deciding to
invest in the notes offered by this prospectus.
YOU MAY NOT BE ABLE TO SELL
YOUR
NOTES
If no public market develops, you, as a
noteholder, may not be able to liquidate your
investment in the notes prior to maturity.
There currently is no public market for the
notes, and we offer no assurance that one will
develop. The underwriters expect, but are not
obligated, to make a market in the notes. There
is no assurance, however, that any market will
be created or, if created, will continue.
PREPAYMENTS ON THE CONTRACTS
MAY
CAUSE EARLY PAYMENT OF NOTES
AND
YOU MAY NOT BE ABLE TO
REINVEST AT
A COMPARABLE RATE
The rate of principal payments on the notes is
unpredictable because it depends on, among
other things, the rate of payment on the
contracts. In addition to the normally
scheduled payments on the contracts, payments
may come earlier as a result of a number of
different events, including:
- prepayments permitted by the servicer;
- prepayments permitted under contracts that
are in the form of loans;
- payments resulting from contracts that are
defaulted;
- payments resulting from contracts accelerated
by the servicer;
- payments due to loss, theft, destruction or
other casualty; and
- payments upon repurchases by Advanta Business
Services because of a breach of
representations and warranties.
Furthermore, 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 natural disasters such as
floods, hurricanes, earthquakes and tornadoes
may increase prepayments and defaults.
In addition, the servicer may direct the
redemption of all remaining notes on any
payment date when the aggregate contract
principal balance is 10% or less of the initial
aggregate contract principal balance. A
redemption may result in an early return of
your investment. You will not receive a premium
if your notes are redeemed.
There can be no assurance that you will be able
to reinvest any early payments at a rate of
return equal to or greater than that on your
offered notes.
Be aware that you bear the risk of reinvesting
distributions resulting from payment of the
notes earlier than expected.
SERVICER'S POSSESSION OF THE
CONTRACTS
MAY RESULT IN DELAYED
PAYMENTS,
LOSSES OR ACCELERATED PAYMENTS The servicer will retain possession of the
contracts, which will not be physically
segregated from other similar documents that
are in the servicer's possession or otherwise
stamped or marked to reflect the transfer to
the issuers or the trustee. If the servicer,
while in possession of the contracts, sells or
pledges and delivers them to another party, in
violation of its agreements, the other party
could
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acquire an interest in the contracts and take
priority over you. However, UCC financing
statements will be filed reflecting the sale
and assignment of the pledged assets by Advanta
Business Services to the issuers and by the
issuers to the trustee, and the servicer's
accounting records and computer files will be
marked to reflect such sales and assignments.
Because the contracts will remain in the
servicer's possession and will not be stamped
or otherwise marked to reflect the assignment
to the trustee, if a subsequent purchaser were
able to take physical possession of the
contracts without knowledge of such assignment,
such trustee's interest in the pledged assets
could be defeated. In such event, you may
experience delays in payments and losses on
your investments. Also, if the servicer becomes
insolvent while in possession of the contracts,
competing claims to ownership or security
interests in the contracts may result. Even if
unsuccessful, these claims could delay payments
to you. If successful, these claims could
result in losses to you or accelerate the
prepayment of the notes.
STATE LAWS AND OTHER FACTORS
MAY RESTRICT OR DELAY RECOVERY
EFFORTS AND ADVERSELY AFFECT
THE RECOVERY OF THE FULL AMOUNT
DUE ON THE CONTRACTS State laws may limit or delay recoveries on the
contracts. State laws impose requirements and
restrictions relating to foreclosure sales and
obtaining deficiency judgments. If we must rely
on repossession and disposition of equipment to
cover losses, we may not be able to realize the
full amount due.
Other factors that may affect our ability to
realize the full amount due on the contracts
include:
- for contracts for equipment that originally
cost $25,000 or less no financing statements
will be filed to perfect Advanta Business
Services's security interest or the issuers'
interest or the trustee's interest in the
equipment against a lessee;
- for some contracts, the issuers have only a
contractual right to scheduled payments
thereunder, but unless the user defaults on
the scheduled payments, the issuers have no
right, at the end of the term, to the
equipment or residual receipts; if the entity
that owns the right to the equipment and
residual receipts were to go into bankruptcy,
the timing or amount of payments to the
issuers could be adversely affected;
- depreciation of the equipment;
- obsolescence of the equipment; and
- damage to or loss of any piece of equipment.
As a result, you may experience delays in
payments and losses on your investments.
SECURITY INTERESTS IN MOST
EQUIPMENT ARE NOT PERFECTED
AND OTHER CREDITORS MAY HAVE
RIGHTS TO THE EQUIPMENT The users' obligation to make payment on the
contracts are secured by a security interest in
the related equipment. The security interests
are not perfected unless a UCC financing
statement has been filed in the appropriate
filing office. Advanta Business Services has
not filed and does not expect to file UCC
financing statements to perfect its security
interest in equipment that originally cost
$25,000 or less. Financing statements have, in
7
<PAGE> 11
most cases, been filed for equipment that
originally cost more than $25,000. Financing
statements in favor of Advanta Business
Services have, therefore, been filed for
equipment that represents approximately 36.45%
of the statistical aggregate contract principal
balance. As a result, the security interest in
equipment that represents approximately 63.55%
of the statistical aggregate contract principal
balance has not and will not be perfected in
favor of Advanta Business Services, the issuers
or the trustee. Advanta Business Services,
however, has not filed and does not expect to
file UCC-3 financing statements assigning its
security interest in such equipment against the
users in favor of the issuers or the trustee.
To the extent Advanta Business Services has
filed appropriate UCC-1 financing statements
against the users, the issuers and the trustee
will nevertheless have a perfected security
interest in the equipment against the users.
Another party (such as a creditor of the user)
may acquire rights in some of the equipment
superior to those of Advanta Business Services,
the issuers and the trustee. The lack of a
perfected security interest in the equipment
may result in claims against the users being
unsecured and may adversely affect the ability
of the servicer to realize on the equipment,
which may cause you to experience delays in
payments and losses on your investment.
To the extent any of the leases are determined
to be true leases for commercial law purposes,
as opposed to financing leases, title to the
equipment will be held by Advanta Business
Services. Advanta Business Services will
transfer all of its residual interests in the
equipment (including the residual receipts
thereon) to Advanta Leasing Receivables VIII,
and will represent in the contribution
agreement that such transfer is an absolute
sale. Advanta Leasing Receivables VIII will
pledge its interest in any such equipment to
the trustee to secure the notes. In the event
the transfer from Advanta Business Services to
Advanta Leasing Receivables VIII is
recharacterized as a pledge rather than an
absolute sale, the bankruptcy of Advanta
Business Services may result in delays in
realization of residuals and in payments to
you. To perfect the security interest of
Advanta Leasing Receivables VIII and the
trustee in any such equipment, the servicer
will, on or prior to the closing date, file UCC
financing statements in selected states and
local jurisdictions naming Advanta Business
Services as debtor and Advanta Leasing
Receivables VIII as secured party and Advanta
Leasing Receivables VIII as debtor and the
trustee as secured party. Financing statements
will not be filed in all jurisdictions and,
therefore, to the extent Advanta Business
Services's or Advanta Leasing Receivables
VIII's interest in equipment is not covered by
one of such statements other creditors may gain
a superior interest therein. The failure to
perfect in these circumstances could cause you
to experience delays in payments and losses on
your investment.
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<PAGE> 12
IF THE PROMISSORY NOTES ARE
NOT DELIVERED TO THE TRUSTEE,
THE SECURITY INTERESTS IN
THE LOAN ARE NOT PERFECTED In the case of loans evidenced by promissory
notes, which loans represent 1.19% of the
contracts, the servicer does not expect to
deliver the promissory notes to the trustee. As
a result, the issuers' and the trustee's
interest in such loans will not be perfected,
which may cause you to experience delays in
payments and losses on your investment.
RESIDUAL RECEIPTS ARE
UNCERTAIN AND MAY NOT BE
AVAILABLE OR SUFFICIENT TO
PREVENT DEFAULTS ON THE NOTES The availability of residual receipts and the
amount thereof will depend on many factors.
Therefore, residual receipts may not exist or
may not be sufficient if needed to make
payments on the notes. The amount of residual
receipts will depend upon, among other factors,
the ability of the servicer to sell or re-lease
equipment upon the termination of a contract
whether that termination occurs as a result of
early termination or upon scheduled expiration
of the contract if the user determines to
return the equipment. The market value of the
equipment generally declines with use, age and
technological advances. Other factors which may
affect the amount of residual receipts will
include whether the equipment is returned to
the servicer upon termination or expiration of
the contract and whether there is damage to or
loss of the equipment. Also, the expected
residual value of the equipment subject to the
contracts which are financing leases is
commonly zero or insignificant.
In addition, residual receipts collected in any
month and not used on the next payment date to
pay interest or principal on the notes or
deposited into the reserve account or residual
account will be released to Advanta Leasing
Receivables Corp. VIII and will no longer be
available to make payments on the notes.
ARTICLE 2A OF THE UCC MAY
DIMINISH RECOVERIES Most states have adopted a version of Article
2A of the UCC. 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
limit the enforceability of any
"unconscionable" lease or "unconscionable"
provisions in a lease.
Article 2A also may provide a lessee with
remedies, including the right to cancel the
lease contract for lessor breaches or defaults.
Article 2A may add to or modify the terms of
consumer leases and leases where the lessee is
a merchant lessee. Moreover, it recognizes
typical consumer lease "hell or high water"
rental payment clauses and validates reasonable
liquidated damages provisions in the event of
lessor or lessee defaults. Article 2A also
recognizes the freedom of contract and permits
the parties in a commercial context a wide
degree of latitude to vary provisions of the
law.
RECHARACTERIZATION OF THE
TRANSFER OF CONTRACTS OR
INTERESTS THEREIN AS A
SECURED BORROWING COULD
REDUCE OR DELAY YOUR
PAYMENTS If Advanta Business Services were to become a
debtor under the federal bankruptcy code or
similar applicable federal or state laws, a
creditor or trustee in bankruptcy (including
Advanta Business Services as
debtor-in-possession) might argue that the
transfer of Advanta Business Services's
interest in the contracts and the equipment to
the issuers was (or should be recharacterized
as) a pledge to secure a borrowing rather than
an absolute sale. If a court accepted this
position, then the issuers and the trustee
could
9
<PAGE> 13
experience a delay in or reduction of
collections on the contracts and the equipment.
Consequently, you could incur a loss on your
investment. If the transactions contemplated in
this prospectus are treated as a sale, the
contracts would not be part of Advanta Business
Services's bankruptcy estate and would not be
available to the creditors of Advanta Business
Services.
A case decided by the United States Court of
Appeals for the Tenth Circuit contains language
to the effect that accounts sold by an entity
that subsequently became bankrupt remained
property of the debtor's bankruptcy estate
because the sale of accounts is treated as a
"security interest" that must be perfected
under the UCC. Although the contracts
constitute chattel paper or general intangibles
rather than accounts under the UCC, sales of
chattel paper, like sales of accounts, must be
perfected under Article 9 of the UCC. If
Advanta Business Services were to become a
debtor in bankruptcy and a court were to follow
the reasoning of the Tenth Circuit Court of
Appeals and apply the same reasoning to chattel
paper, the issuers (and thus the trustee) could
experience a delay in or reduction of
collections on the contracts. You could incur a
loss on your investment as a result.
SUBSTANTIVE CONSOLIDATION OF
ADVANTA BUSINESS SERVICES
AND THE ISSUERS MAY RESULT
IN LOSSES ON YOUR INVESTMENT The issuers have taken and will take steps to
ensure that a voluntary or involuntary petition
for relief by or against Advanta Business
Services under the federal bankruptcy code will
not result in the substantive consolidation of
the assets and liabilities of the issuers with
those of Advanta Business Services.
Nevertheless, it is possible that, in the event
of a bankruptcy of Advanta Business Services, a
court would order the issuers' assets and
liabilities to be substantively consolidated
with those of Advanta Business Services. An
order to substantively consolidate could
adversely affect the issuers' ability to
receive payments on the contracts, and you
could therefore incur a loss on your
investment.
COMMINGLING OF TRUST ASSETS BY
ADVANTA BUSINESS SERVICES MAY
RESULT IN REDUCED OR DELAYED
PAYMENTS TO YOU While Advanta Business Services is the
servicer, cash collections held by Advanta
Business Services will be commingled and used
for its benefit until those collections are
required to be deposited into the collection
account. If the servicer were unable to remit
collections, or if the servicer became
insolvent, the issuers may not have a perfected
ownership or security interest in those
collections. As a result, you could incur a
loss on your investment.
INSOLVENCY OF ADVANTA BUSINESS
SERVICES MAY RESULT IN AN
INABILITY TO REPURCHASE
CONTRACTS Advanta Business Services will make
representations and warranties regarding the
contracts and the equipment. In the event that
a representation or warranty concerning a
specific contract is breached, if the breach is
not cured within a specified time period and
the value of the contract is materially and
adversely affected by the breach, Advanta
Business Services will be required to purchase
the contract from the issuers. In the event of
a bankruptcy or insolvency of Advanta Business
Services, the trustee may be unable to compel
Advanta Business Services to repurchase
contracts, and you could incur a loss on your
investment.
10
<PAGE> 14
INSOLVENCY OF THE ISSUERS
COULD REDUCE OR DELAY YOUR
PAYMENTS If one or both of the issuers were to become
bankrupt or insolvent under any bankruptcy or
insolvency law, delays in distributions to you
would be likely and you could incur a loss on
your investment. Each issuer has taken steps to
minimize the likelihood that it will become
bankrupt or otherwise insolvent.
DEFAULT OR INSOLVENCY OF USERS
MAY REDUCE PAYMENTS TO YOU To the extent users default on the contracts,
including through insolvency, contract payments
will decrease. Accordingly, funds available to
you, as a noteholder, will be reduced.
IF THE PLEDGED ASSETS ARE NOT
SUFFICIENT, DEFAULTS WILL
OCCUR The notes are debt of the issuers secured by
and payable only from the pledged assets. If
the contract payments and other assets pledged
to secure the notes are insufficient to pay the
notes in full, you have no rights to obtain
payment from Advanta Business Services or any
of its affiliates or from any other source.
TECHNOLOGICAL OBSOLESCENCE OF
THE EQUIPMENT MAY REDUCE THE
VALUE OF THE COLLATERAL If the user does not pay the amount due on a
contract, the only other source of monies to
pay amounts due will be the income and proceeds
from the disposition of the related equipment
or other security, if any, provided by the
user. If the servicer or the trustee must
repossess and sell equipment, it may not
recover the entire amount due on a contract
because the market value of equipment usually
declines with age and may be subject to sudden,
significant declines in value because of
technological advances. As a result, you may
experience delays in receiving payments and
suffer losses on your investment in the notes.
GEOGRAPHIC CONCENTRATION OF
THE CONTRACT PORTFOLIO CAUSES
INCREASED RISK FROM LOCAL
ECONOMIC CONDITIONS AND NATURAL
DISASTERS As of the statistical calculation date,
approximately 15.39%, 11.04%, 8.92%, 8.12% and
8.04% of the contracts (based on the
statistical aggregate contract principal
balance) were located in California, Florida,
New York, Texas and New Jersey, respectively.
No other state accounts for more than 5.00% of
the statistical aggregate contract principal
balance. Accordingly, adverse economic
conditions, natural disasters or other factors
particularly affecting any of these states
could have a disproportionate affect on the
performance of the portfolio.
BOOK-ENTRY REGISTRATION WILL
RESULT IN YOUR INABILITY TO
EXERCISE DIRECTLY YOUR RIGHTS
AS A NOTEHOLDER The notes will be registered in the name of
Cede & Co., as nominee of The Depository Trust
Company. As a result, unless and until
definitive notes are issued, you will not be
recognized by the issuers or the trustee as a
noteholder. You will only be able to exercise
the rights of noteholders indirectly, through
The Depository Trust Company, Euroclear or
Cedelbank and their respective participating
organizations. You will receive reports and
other information provided for in the indenture
only to the extent provided by The Depository
Trust Company, Euroclear or Cedelbank. If you
are a beneficial owner of book-entry notes,
your ability to pledge your notes, and the
liquidity of your notes in general, may be
limited by the fact that you will not have a
physical certificate. In addition, you may
experience delays in receiving payments on your
notes.
LIMITED NATURE OF CREDIT
RATINGS ASSIGNED TO THE NOTES Each credit rating assigned to your notes
reflects the rating agency's assessment only of
the likelihood that interest will be
11
<PAGE> 15
paid to you on each payment date and principal
will be paid to you on or before the stated
maturity date of your notes, not that it will
be paid when expected or scheduled. These
ratings are based on the rating agencies'
determination of the value of the contracts,
the reliability of the payments on the
contracts in the portfolio and the
subordination provisions.
The ratings do not address the following:
- the likelihood that the principal on your
notes will be prepaid, paid on a scheduled
date or paid on any particular date before
the stated maturity date for your class;
- the possibility that your notes will be paid
early or the possibility of the imposition of
United States withholding tax for non-U.S.
noteholders;
- the marketability of the notes, or any market
price; or
- that an investment in the notes is a suitable
investment for you.
A rating is not a recommendation to purchase,
hold or sell notes.
RISKS ASSOCIATED WITH YEAR
2000 COMPLIANCE Advanta Business Services is faced with the
task of completing its Year 2000 compliance
goals. The Year 2000 issue results from the
two-digit format programmed into nearly all
computers. Without adjustment, computers will
recognize "00" as 1900 instead of 2000, and
will begin to generate incomplete or inaccurate
information. Advanta Business Services
reasonably believes that its servicing system
will be Year 2000 compliant before the Year
2000.
Nevertheless, it presently is engaged in
various procedures to determine if its computer
systems and software will be Year 2000
compliant. Advanta Business Services also is
determining if the computer systems and
software of its material suppliers, customers,
brokers and agents will be Year 2000 compliant.
In the event that Advanta Business Services, or
any of its suppliers, customers, brokers or
agents do not successfully and timely achieve
Year 2000 compliance, the performance of
Advanta Business Services's obligations as
servicer could be adversely affected. Failure
to achieve Year 2000 compliance could result in
delays in processing payments on the contracts
or a shut down of operations for a period of
time which could have a material adverse effect
on our ability to pay the notes.
12
<PAGE> 16
INTRODUCTION
On or about August 26, 1999 (the "CLOSING DATE"), Advanta Leasing
Receivables Corp. VIII ("ADVANTA LEASING RECEIVABLES VIII,") and Advanta Leasing
Receivables Corp. IX ("ADVANTA LEASING RECEIVABLES IX") will issue $110,476,116
of their Equipment Receivables Asset-Backed Notes, Series 1999-1 in three
classes of Class A Notes, Class A-1, Class A-2 and Class A-3 (the "CLASS A-1
NOTES," "CLASS A-2 NOTES" and "CLASS A-3 NOTES," respectively) and one class of
Class B Notes (the "CLASS B NOTES") (each a "CLASS"). Only the Class A-1, Class
A-2 and Class A-3 Notes (the "CLASS A NOTES" or "OFFERED NOTES") are offered by
this prospectus (this "PROSPECTUS"). The Class B Notes will be placed privately
by the Issuers. The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class B Notes are collectively the "NOTES." Capitalized terms used in
this Prospectus are defined on the pages indicated in the table entitled "Index
of Terms" at the back of this Prospectus.
The Notes will be issued under the terms of the Advanta Business
Receivables Master Facility Agreement, dated as of the date of issuance of the
Notes (the "MASTER AGREEMENT"), among Advanta Leasing Receivables VIII, Advanta
Leasing Receivables IX, together as the Issuers, Advanta Business Services Corp.
("ADVANTA BUSINESS SERVICES"), as servicer, and Bankers Trust Company, as
Trustee (the "TRUSTEE"). The specific terms of the Notes will be set forth in
the Series 1999-1 Supplement, dated the date of issuance of the Notes, to the
Master Agreement (the "SERIES SUPPLEMENT" and, together with the Master
Agreement, the "INDENTURE") also among the Issuers, Advanta Business Services
and the Trustee.
The Indenture will allow the Issuers to issue additional series of notes
subsequent to the issuance of Series 1999-1. Any additional series would be
issued under a separate series supplement and would be payable from a separate
pool of assets. The Issuers do not currently expect to issue any additional
series of notes under the Indenture. The Indenture will require that the Rating
Agency Condition be satisfied before any additional series could be issued.
The Issuers will enter into a Master Sale and Contribution Agreement dated
the date of issuance of the Notes and a Series 1999-1 Supplement thereto
(collectively, the "CONTRIBUTION AGREEMENT"), with Advanta Business Services.
Pursuant to the Contribution Agreement, Advanta Leasing Receivables IX will
acquire Advanta Business Services's right to receive certain scheduled payments
arising under the Contracts and Advanta Leasing Receivables VIII will acquire
any monies due or to become due under the Contracts upon termination (whether
under the Contract, upon acceleration or otherwise) (the "RESIDUAL INTEREST").
Advanta Business Services, as originator of the Contracts, including
origination by acquisition from other entities, is referred to herein as the
"ORIGINATOR."
THE ISSUERS
The Issuers are Advanta Leasing Receivables VIII and Advanta Leasing
Receivables IX. Each of Advanta Leasing Receivables VIII and Advanta Leasing
Receivables IX is referred to in this Prospectus individually as an "ISSUER,"
and collectively they are referred to as the "ISSUERS." The Issuers will be
jointly and severally liable on the Notes.
Each Issuer is a Nevada corporation formed May 5, 1999. Each Issuer is a
wholly-owned subsidiary of Advanta Business Services. The principal office of
Advanta Leasing Receivables VIII is located at 639 Isbell Road, Suite 390-A,
Reno, Nevada 89509 and the principal office of Advanta Leasing Receivables IX is
located at 639 Isbell Road, Suite 390-B, Reno, Nevada 89509.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
As of the date of this Prospectus, neither of the Issuers has an operating
history. The net proceeds of the sale of the Notes will be used by the Issuers
to acquire the Contracts or Advanta Business Services's rights therein and the
Residual Interest, to pay costs and expenses and to make the initial deposit to
the Reserve Account. See "Use of Proceeds." The Issuers are prohibited by their
respective articles of incorporation from
13
<PAGE> 17
engaging in business other than (i) the purchase of equipment leases and lease
receivables (including equipment), loan agreements and other financing
agreements from Advanta Business Services 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' abilities to incur, assume or guaranty indebtedness for borrowed money
are also restricted by their respective articles of incorporation.
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 August 20, 1999. 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
Advanta Business Services or any successor thereto, as servicer (with any
successors, the "SERVICER").
ADVANTA LEASING RECEIVABLES CORP. VIII
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George Deehan............................. 56 Director
John Paris................................ 41 President and Director
Michael Coco.............................. 34 Chief Financial Officer and Director
Cole Silver............................... 42 Secretary and Director
Janice C. George.......................... 52 Assistant Secretary and Director
Francis B. Jacobs, II..................... 57 Director
Mark D. Shapiro........................... 37 Treasurer
</TABLE>
ADVANTA LEASING RECEIVABLES CORP. IX
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George Deehan............................. 56 Director
John Paris................................ 41 President and Director
Michael Coco.............................. 34 Chief Financial Officer and Director
Cole Silver............................... 42 Secretary and Director
Janice C. George.......................... 52 Assistant Secretary and Director
Francis B. Jacobs, II..................... 57 Director
Mark D. Shapiro........................... 37 Treasurer
</TABLE>
George Deehan has served as Director of the Issuers since being elected on
May 6, 1999. Mr. Deehan was appointed president and chief executive officer of
Advanta Leasing Services, the business equipment leasing unit of Advanta
Business Services, in August 1998. In this position, Mr. Deehan is responsible
for overseeing strategic planning, systems integration and national marketing
and sales initiatives for the leasing products. Prior to joining Advanta
Business Services, Mr. Deehan served as president and chief operating officer of
Information Technology Services for AT&T Capital. As chief operating officer, he
helped AT&T to launch a worldwide outsourcing business which managed clients
computer network systems.
John Paris has served as President and Director of the Issuers since being
elected on May 6, 1999. Mr. Paris joined Advanta Business Services in December
1993 and has served in a variety of assignments, including responsibility for
the planning, finance and accounting functions of Advanta Business Services,
supporting both the leasing and business credit card divisions. In November 1998
Mr. Paris was promoted to Senior Vice President and chief financial officer of
Advanta Leasing Services and currently focuses exclusively on lease products.
Prior to joining Advanta Business Services, Mr. Paris was a financial consultant
14
<PAGE> 18
with BISYS, Inc., controller, asset-liability manager and vice president of
finance with First Peoples Financial Corp. and a senior auditor with CoreStates
Corp.
Michael Coco has served as Chief Financial Officer and Director of the
Issuers since being elected on May 6, 1999. Mr. Coco is Director of Structured
Finance for Advanta Corp. He has held this position since November 1998. In this
role, he is responsible for all securitization and securitization-like
structuring activities. His responsibility covers Advanta Corp.'s securitization
program, which includes closed-end mortgages, open-end mortgages, leases and
business credit cards.
Cole Silver has served as Secretary and Director of the Issuers since being
elected on May 6, 1999. Mr. Silver is General Counsel of Advanta Business
Services, Advanta Insurance Company and Advanta Bank Corp. Prior to coming to
Advanta Business Services, Mr. Silver was the sole litigator in Pennsylvania for
one of the "big three" automobile finance companies and one of the largest
mortgage companies in the United States. Mr. Silver had his own law practice
from 1988 until 1992 when he joined Advanta Business Services.
Janice C. George has served as Assistant Secretary and Director of the
Issuers since being elected on May 6, 1999. For the last six years, Ms. George
has been employed by Griffin Corporate Services.
Francis B. Jacobs, II has served as Director of the Issuers since being
elected on May 6, 1999. For the last six years, Mr. Jacobs has been employed by
Delaware Trust Capital Management.
Mark D. Shapiro has served as Treasurer of the Issuers since being elected
on May 6, 1999. Mr. Shapiro joined Advanta Business Services in 1996, and is
currently the Director of Commercial Structured Finance. Prior to joining
Advanta Business Services, Mr. Shapiro was the structured finance manager for
DVI, Inc., a medical equipment finance company. Mr. Shapiro is currently
responsible for the execution, management and maintenance of all leasing and
business credit card securitizations. He also assists in all aspects of
relationship management to Advanta Business Services's securitization programs.
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 the directors and officers receive compensation in the capacities in which
they act for the Issuers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (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 Securities and Exchange Commission (the "SEC"), the
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against 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 a 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 the indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of the 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 $1,104,761 (equal to 1% of the Initial Aggregate Contract Principal Balance)
(the "RESERVE ACCOUNT INITIAL DEPOSIT"); (ii) to acquire the portfolio of
Contracts (or interests therein) and the Residual Interest from Advanta Business
Services and (iii) to pay costs and expenses. To the extent that the value of
the Contracts and other rights and interests including the Residual Interest
acquired from Advanta Business Services exceeds the amount of proceeds to
purchase such assets, Advanta Business Services will contribute the balance of
such assets to the capital of the Issuers.
Advanta Business Services has, in a series of transactions, previously
transferred contracts to affiliates and the affiliates have transferred the
contracts to commercial paper conduits in return for cash or have
15
<PAGE> 19
pledged the contracts as security for or a source of payment for notes issued by
the affiliates. The Issuers will use proceeds from the sale of the Notes to
acquire contracts from Advanta Business Services, and Advanta Business Services
will use proceeds from the sale of the Contracts in part to acquire the
Contracts from the current owners. The balance of the Contracts (or interests
therein) to be included in the portfolio are contracts originated or acquired by
Advanta Business Services and currently held by Advanta Business Services.
THE TRUSTEE
Bankers Trust Company will be the Trustee under the Indenture. Advanta
Business Services, 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 Originator, 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 some local jurisdictions, the
Trustee shall have the power to appoint a co-trustee or a separate trustee under
the Indenture. If a separate trustee or co-trustee is appointed, all rights,
powers, duties and obligations of the Trustee will be exercised jointly by the
Trustee and the separate trustee or co-trustee, except in any jurisdiction in
which the Trustee is incompetent or unqualified to act. In those jurisdictions
in which the Trustee cannot act, the separate trustee or co-trustee shall
exercise and perform its rights, powers, duties and obligations alone 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 Trustee under the
Indenture, fails to perform in any material respect its obligations under the
Indenture, or becomes insolvent. The Issuers will be obligated to appoint a
successor Trustee.
THE PLEDGED ASSETS
GENERAL
The assets pledged by the Issuers to the Trustee to secure the Notes
(collectively, the "PLEDGED ASSETS") will consist of the Issuers' right, title
and interest in:
- leases and loans included on a list delivered to the Trustee on the
Closing Date (collectively, the "CONTRACTS"); the Contracts provide
financing for the purchase or lease of a variety of "small-ticket"
equipment items for businesses, including, without limitation, office
equipment (such as computers, copy machines, facsimile machines, printers
and telephones), telecommunications equipment, automotive repair
equipment, surveillance equipment and furniture (the "EQUIPMENT");
- all monies due or to become due on the Contracts after the opening of
business on August 1, 1999 (the "CUT-OFF DATE") and all related security;
- all amounts in the Collection Account, the Reserve Account and the
Residual Account;
- all of the Issuers' rights in the Contribution Agreement;
- proceeds of each of the foregoing, but excluding any insurance premiums,
taxes, late charge fees for those Contracts for which a Servicer Advance
has been made, any initial unpaid amounts; and
- interests, if any, of the Issuers in the Equipment (and proceeds,
including net insurance proceeds thereof) and the Residual Receipts
related thereto.
To facilitate servicing, the Servicer will retain possession of the
Contracts and the related Contract Files and will hold the Contract Files in
accordance with the provisions of the Indenture, subject to the interests of the
Trustee and the Holders of the Notes.
The "CONTRACT FILES" means, with respect to each Contract, the following
documents:
- the executed original counterparts of the Contract;
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- a copy of the related agreement, if any, between the Originator and a
broker pursuant to which the Originator acquired Contracts;
- copies of all documents (which may be in microfiche form or on the
Servicer's computerized information system), if any, that the Originator
or the Servicer keeps on file for the benefit of the Originator in
accordance with the Originator's or Servicer's customary procedures; and
- copies (together with all amendments, assignments and continuations
thereof and including evidence of filings with the appropriate office) of
all Uniform Commercial Code ("UCC") financing statements filed with
respect to the Contracts, identifying the User as debtor and the
Originator as secured party, if applicable.
TRUST ESTATE
Under the Series Supplement, the Issuers will pledge all of the Pledged
Assets to the Trustee to secure the payment of the Notes. The Trustee will hold
the interests in the Pledged Assets as the "TRUST ESTATE."
THE CONTRACTS
The Contracts are in the form of leases or loans. Loans may include
installment sale contracts.
Of the Contracts, 98.81%, measured by the Statistical Aggregate Contract
Principal Balance, are leases and the remaining 1.19% are loan agreements.
The Servicer has represented that, for accounting purposes, all of the
leases included as Contracts are financing leases rather than "true" leases or
operating leases.
With respect to Contracts representing approximately 16% of the Statistical
Aggregate Contract Principal Balance, Advanta Business Services has acquired
from vendors or other lease financing entities (and transferred to Advanta
Leasing Receivables Corp. IX) only a right to receive certain periodic lease
payments made by the Users. With respect to such Contracts, unless the User is
in default, at the end of the term of such lease Advanta Business Services is
required to reassign the Equipment or Residual Interest to the vendor or other
lease financing entity.
Statistical information concerning the Contracts is included in this
Prospectus under the caption "Statistical Information."
References to the "USER" means any obligor, under any Contract, whose
obligations thereunder constitute the sources of payments under the Contract,
including any guarantor of the obligation.
The Contracts typically require a "residual" payment at the end of the term
most of which payments are in the form of a purchase option. These purchase
options are exercisable at varying amounts, and are referred to as "PURCHASE
OPTION PAYMENTS." If a User under a Contract with such a purchase option does
not exercise its purchase option, the User is required to either continue the
lease of the Equipment on a month-to-month basis or return the Equipment to the
Servicer.
The Purchase Option Payments are either (i) an option to purchase the
equipment for $1.00, (ii) an option to purchase the equipment for fair market
value or (iii) an option to purchase the equipment for a stated amount. See the
table captioned "Distribution of Contracts by Purchase Option" under the caption
"Statistical Information" in this Prospectus. Those leases described above in
which the vendor or other lease financing entity is entitled to the Equipment or
the Residual Interest at the end of the term of the lease and the loans are
listed in the table as "Other." For such leases the Purchase Option Payments,
however determined, are not available to the Issuers or the Trust Estate.
Contracts that take the form of leases contain "hell or high water" clauses
unconditionally obligating the User to make periodic payments at the time and on
the dates specified in the Contract. The language of the leases varies, but all
state that the lease cannot be canceled for any reason. The leases specifically
state that the obligation to make payments is unconditional notwithstanding
equipment failure, damage, loss or any other problem. The leases also state that
the lessor is not responsible for any representations or acts of the
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equipment vendor, or otherwise state that the lessor has no obligation with
respect to the equipment and any problems therewith are the responsibility of
the User.
Some of the Contracts that are loans may be prepaid at the option of the
User.
Pursuant to the terms of the Indenture, however, the Servicer may allow
prepayment of a Contract, whether in the form of a lease or a loan, in an amount
not less than the Prepayment Amount of the Contract. To the extent the Servicer
receives an amount in excess of the Prepayment Amount of a prepaid contract,
such excess amount will also be deposited in the Collection Account for the
benefit of the Noteholders. Such excess amount will be considered a part of
Residual Receipts (such amount, an "EXCESS AMOUNT").
Upon the prepayment of a Contract which is a loan, the Issuers will pay to
the Servicer and the Servicer will deposit to the Collection Account, the excess
of the Prepayment Amount over the amount prepaid by the User.
In addition, in the event that a User requests an upgrade or trade-in of
Equipment, the Servicer may permit a prepayment of the lease, remove the
Equipment and related Contract from the Trust Estate, and deposit the Prepayment
Amount received from the User into the Collection Account.
The "PREPAYMENT AMOUNT" means, for a Contract, as of any date, the sum of
(a) the Contract Principal Balance of the Contract (without deduction for any
security deposit paid by the User, unless the 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 Applicable
Discount Rate, plus (c) the Booked Residual Value for the Contract.
Under some of the Contracts, the User 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 prior written notice and grant or deny
consent shall be exercised by the Servicer. Notwithstanding any assignment or
sublease, each User will remain liable for the lessee obligations under the
related Contract and the Contract will remain part of the Trust Estate.
The leases are "triple-net" leases (i.e., the User assumes all
responsibility with respect to the related Equipment, including the obligation
to pay all costs relating to its operation, maintenance, repair and insurance).
The leases also contain provisions that unconditionally obligate the User
to make all Scheduled Payments thereunder.
On any date of calculation with respect to a Contract, the present value of
the Scheduled Payments to become due with respect to the Contract on and after
the date of calculation (but in any event on or prior to March 31, 2005)
(excluding Scheduled Payments previously due and unpaid), discounted monthly at
one-twelfth of the Applicable Discount Rate is the "CONTRACT PRINCIPAL BALANCE"
of the Contract, except that a Defaulted Contract has a Contract Principal
Balance of $0. Likewise, any Contract that has been prepaid or otherwise
terminated prior to its termination date or which has been repurchased as a
result of a breach of the representations and warranties made by the Originator
or the Issuers with respect to such Contract, will have a Contract Principal
Balance of $0.
The "SCHEDULED PAYMENTS" with respect to any Contract are the stated
periodic rental or loan payments (exclusive of any amounts in respect of
insurance or taxes) set forth in the Contract and due from the User.
"AGGREGATE CONTRACT PRINCIPAL BALANCE" means, for any Calculation Date, the
aggregate of the Contract Principal Balances of all Contracts in the Trust
Estate as of such date.
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ADVANTA BUSINESS SERVICES'S
UNDERWRITING, ORIGINATION AND SERVICING PRACTICES
GENERAL
Advanta Business Services is a wholly-owned subsidiary of Advanta Leasing
Holding Corp., a Delaware corporation. Advanta Leasing Holding Corp. is a
wholly-owned subsidiary of Advanta Corp. (a publicly-traded company based in
Spring House, Pennsylvania and listed on the NASDAQ as ADVNA, ADVNB and ADVNZ).
Advanta Business Services is headquartered at 1020 Laurel Oak Road, Voorhees,
New Jersey 08043-7228 and its phone number is (609) 782-7300.
As of October 1, 1998, Advanta Business Services ceased originating
contracts related to equipment financing. Since October 1, 1998, Advanta Bank
Corp., a Utah industrial loan corporation based in Draper, Utah and an affiliate
of Advanta Corp., the ultimate parent of Advanta Business Services, has assumed
the origination of the equipment financings. Advanta Business Services currently
services equipment financing arrangements originated by Advanta Bank Corp. and
Advanta Business Services continues to service contracts which it originated or
acquired prior to October 1, 1998.
CONTRACT ORIGINATION
Prior to October 1, 1998, Advanta Business Services originated contracts
primarily through its sales and marketing programs at its Voorhees, New Jersey
headquarters. Advanta Business Services no longer originates and funds leases or
other equipment financing arrangements; however, it provides origination
services to Advanta Bank Corp. in connection with Advanta Bank Corp.'s equipment
financing program. The Contracts which will be included in the Pledged Assets
are Contracts which were originated or acquired or an interest in which was
acquired by Advanta Business Services prior to October 1, 1998. Most of the
Contracts were, after origination or acquisition by Advanta Business Services,
sold, contributed or pledged in various securitization programs. Most of the
Contracts included in the Pledged Assets will be acquired by Advanta Business
Services from the current owners under the securitization programs and sold or
contributed to the Issuers in connection with the issuance of the Notes.
The Contracts were originally either (i) originated in the name of Advanta
Business Services directly or through a vendor or broker; (ii) originated with
funding by Advanta Business Services through a vendor or broker which vendor or
broker assigned the Contract to Advanta Business Services but did not reveal the
name of the originator to the User or (iii) originated by another funding source
and purchased by Advanta Business Services. With respect to approximately 16% of
the Statistical Aggregate Contract Principal Balance of the Contracts, Advanta
Business Services has acquired only the rights to the scheduled payments and has
agreed that, unless the User is in default, at the end of the term of the lease,
all remaining rights in the Equipment will be returned to the vendor or other
lease financing entity; and the interest conveyed to the Issuers will be only
such right to scheduled payments (and a security interest in the equipment which
can be exercised if the User defaults).
The following describes Advanta Business Services's origination practices
with respect to equipment financing arrangements, originated or acquired by
Advanta Business Services prior to October 1, 1998, including the Contracts.
Advanta Business Services continues to use these practices in connection with
the origination services performed for Advanta Bank Corp.
Advanta Business Services originates leases through marketing programs,
vendors, brokers and bulk or portfolio purchases. Advanta Business Services
establishes both formal and informal relationships with equipment vendors. As a
result of previous transactions with Advanta Business Services, vendors may
recommend that prospective customers make a credit application to Advanta
Business Services for financing. A more formal program between Advanta Business
Services and a vendor may offer prospective customers financing at pre-arranged
rates, based upon the vendor's equipment, and terms and conditions approved by
Advanta Business Services.
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Advanta Business Services also originates contracts through the use of
brokers. In a typical broker transaction, the broker refers potential customers
to Advanta Business Services and the broker is paid a referral fee. Contracts
originated under the broker program are reviewed in a manner consistent with
Advanta Business Services's then-existing policies and procedures.
In a majority of these programs, the Equipment is leased by Advanta
Business Services and it bills the User and collects payments in its own name.
For some select vendor and broker programs, Advanta Business Services bills
and collects payments in the vendor's name or the broker's name so that the User
is not aware that Advanta Business Services is a party to the transaction. Under
this program, once a contract becomes 61 days past due, Advanta Business
Services is then immediately identified to the User.
Vendors or brokers may choose to use Advanta Business Services's standard
contract or they may use their own contract. In either case, the credit approval
remains with Advanta Business Services. Contract documents for all programs are
either identical to Advanta Business Services's standard lease documents or are
reviewed by the legal staff of Advanta Business Services to insure substantial
compliance with its standard terms.
In instances where Advanta Business Services originated a Contract or
acquired a Contract but does not own the equipment, it has, in cases where the
initial value of the equipment exceeded $25,000, obtained a perfected security
interest in the Equipment.
Advanta Business Services also arranges purchases of 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 are reviewed and
approved by the Advanta Business Services credit staff, using pre-determined
guidelines. For each potential bulk or portfolio purchase, Advanta Business
Services is able to accept or reject individual contracts.
CREDIT REVIEW
In connection with the origination or acquisition of contracts prior to
October 1, 1998 and in connection with the origination services currently
performed for Advanta Bank Corp., Advanta Business Services performed and
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 called ACE. Applications can be
entered into ACE either internally or externally. A customized credit 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 Dunn & Bradstreet listing for the
company, and a review of the total dollar amount of exposure for all contracts
the obligor has outstanding with Advanta Business Services, which may not exceed
a specified 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 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 Advanta Business
Services. 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. The overall credit due
diligence process is supported by a comprehensive set of policies and procedures
that outline Advanta Business Services's credit processes and philosophies.
Advanta Business Services'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, Advanta Business Services considers, among other things,
length of
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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
Advanta Business Services'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 twenty days past due. All
collection activity is entered into Advanta Business Services'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 contract is delinquent the following action is taken:
-- If a payment has not been received by the third day after the due
date, the system automatically generates a computerized late notice which
is sent directly to the User (except for the select vendor programs where
the User does not recognize Advanta Business Services as a party to the
transaction, in those situations the vendor is notified).
-- If a payment has not been received by the 15th day after the due
date, a past due letter is sent out to the User (except for the select
vendor programs where the User does not recognize Advanta Business Services
as a party to the transaction, in those 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 User (except for the select
vendor programs where the obligor does not recognize Advanta Business
Services as a party to the transaction, in those 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 User.
Telephone contact is continued throughout the delinquency period. If the
transaction continues to be delinquent, Advanta Business Services 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 User.
If collection activities do not rectify the account, Advanta Business
Services typically charges off the account at 121 days past due. An account may
be charged off prior to 121 days by Advanta Business Services if it is
determined that there will be no further payments made.
At the time of charge-off, the account is turned over to Advanta Business
Services's in-house litigation department for suit purposes. In general, a
decision is made whether to pursue the obligor and/or personal guarantor through
litigation. All third party collection agency assignments are made via the
collection department in order to enforce the original terms of the contract
should an account not be suit worthy. 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 User filed for bankruptcy, the Advanta Business
Services's bankruptcy department follows up with the User to determine whether
the User intends to assume or reject the contract. In addition, the department
pursues the non-bankrupt obligors 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 litigation department for
suit. In many cases, although the User has filed for bankruptcy protection from
its creditors, it continues to make regular payments on its contract to Advanta
Business Services.
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RESIDUAL VALUES
Advanta Business Services has for every year since 1991 realized residual
values which, on average, exceeded the booked residual values for the contracts.
For contracts in which there is a pre-determined buy-out price, the buy-out
price is the residual value recorded on Advanta Business Services's books. In
the event the equipment is returned, Advanta Business Services utilizes the
services of its vendors and brokers and also participates in an active secondary
market for the sale of this returned, used equipment.
YEAR 2000
The "YEAR 2000 ISSUE" affects computer and information technology ("IT")
systems, as well as non-IT systems which include embedded technology such as
micro-processors and micro-controllers that have date sensitive programs that
may not properly recognize the Year 2000 or beyond. If the systems and products
used by Advanta Corp. and its subsidiaries, including Advanta Business Services
(collectively, "ADVANTA"), are not properly equipped to identify and recognize
the Year 2000, its systems could fail or create erroneous results.
In connection with the Year 2000 Issue, Advanta has organized a separate
Year 2000 Project Office (the "PROJECT OFFICE"), led by a senior information
technology manager to assess whether the computer systems and applications used
are Year 2000 compliant and to implement appropriate corrective action for those
that are not compliant.
The Project Office has developed standards for its work based on work of
leading authorities in the field. In addition, Advanta's internal audit
department has assigned a senior information technology auditor to monitor all
Year 2000 issues and developments for the Audit Committee of its Board of
Directors. Independent consultants have assisted in the verification and
validation processes to assure the reliability of Advanta's risk and cost
estimates.
Advanta has implemented a Year 2000 compliance program in accordance with
applicable guidelines and regulations of the Federal Financial Institutions
Examination Council ("FFIEC") as adopted by the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, and has evaluated
whether Advanta's systems are Year 2000 compliant. This evaluation includes
identifying and prioritizing "mission-critical" systems, whose failure would
have a severe impact on Advanta's financial condition and ability to perform its
business functions.
As of June 30, 1999, Advanta has completed the Awareness, Assessment and
Validation phases, and has substantially completed the Renovation, Contingency
Planning and Implementation phases of its Year 2000 compliance program with
respect to its internal and external mission-critical systems. As stated before,
Advanta is following guidelines set by the FFIEC, which required that all
mission-critical systems be substantially implemented by June 30, 1999.
In addition, Advanta has contacted significant business partners, including
vendors, customers and asset management and funding counterparties to assess the
potential impact on operations if those third parties or their products fail to
become Year 2000 compliant in a timely manner. The internet websites of these
significant business partners are also reviewed regularly to monitor and assess
their level of Year 2000 compliance. Non-compliant products have been evaluated
for correction, replacement or retirement. To date, Advanta is not aware of any
material third party business relationship, product or system with a Year 2000
problem that management believes would have a material adverse effect on
Advanta. Advanta's contingency plans have been developed in the event that
remediation or replacement plans are not successfully implemented. The plans are
reviewed and validated quarterly. The contingency plans are designed to protect
its business and operations from business interruptions related to the Year 2000
Issue and, for example, may include back-up procedures or the identification of
alternative suppliers, where practical. Many of the functions performed by the
products and systems used, which operate automatically, can be performed
manually. Consequently, in the event these products or systems experience
isolated failures as a result of the Year 2000 Issue, management believes that
disruption caused by such isolated failures should not have a material adverse
effect on Advanta.
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Although there can be no assurances, Advanta believes that the Year 2000
Issue will not pose significant operational problems for it and will not have a
material adverse effect on its future financial condition, liquidity or results
of operations during 1999 and in future periods.
Notwithstanding the foregoing, there are many uncertainties associated with
the Year 2000 Issue and there can be no assurance that the Year 2000 Issue will
not have a material adverse effect on the operations of the Originator and
Servicer, including a shut down of operations for a period of time, which may,
in turn, have a material adverse effect on the Notes.
MATTERS RELATED TO ADVANTA CORP.
On January 22, 1999, Fleet Financial Group, Inc. and some of its affiliates
("FLEET") filed a lawsuit (the "COMPLAINT") against Advanta Corp. and some of
its subsidiaries relating to the transaction with Fleet which closed on February
20, 1998 in which Advanta Corp. contributed substantially all of its consumer
credit card business to a limited liability company owned by Fleet (the "FLEET
TRANSACTION"). The Complaint centers around post-closing adjustments and other
matters relating to the Fleet Transaction. Fleet seeks damages of approximately
$141 million.
On February 16, 1999, Advanta Corp. filed an answer to the Complaint
denying the material allegations of the Complaint. Advanta Corp. also has filed
counterclaims against Fleet seeking damages from Fleet. Although the outcome of
the litigation between Fleet and Advanta Corp. cannot be determined, Advanta
Corp. does not expect this litigation to have a material adverse effect on the
financial position or future operating results of Advanta Corp. or Advanta
Business Services.
This Prospectus contains forward-looking statements that are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. Additional risks that may affect Advanta Corp.'s
performance are detailed in Advanta Corp.'s filings with the SEC, including its
most recent Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.
The ability of Advanta Corp.'s subsidiaries, including Advanta Business
Services, to honor their financial and other obligations is to some extent
influenced by the financial condition of Advanta Corp. Those obligations,
insofar as they relate to the Trust Estate and the Notes, primarily consist of
Advanta Business Services's obligation to repurchase Contracts which are
inconsistent with representations and warranties set forth in the Contribution
Agreement as well as the obligations of the Servicer pursuant to the Indenture.
To the extent that the Servicer's ability to perform its functions and
obligations is adversely affected, the Contracts may experience an increased
level of delinquencies and losses.
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REMOVAL AND MODIFICATIONS OF CONTRACTS, SALE AND RE-LEASING OF ASSETS
Under the terms of the Indenture, upon discovery by an Issuer, the Trustee
or the Servicer of a breach of any of the representations or warranties of the
Originator set forth in the Contribution Agreement, including, primarily, that
the Contracts, as of the Closing Date are Eligible Contracts, the party
discovering such breach shall give prompt written notice to the other parties.
As of the last day of the calendar month in which such breach was discovered or,
if later, the last day of the calendar month in which the Servicer received the
notice thereof (or, at the Servicer's and such Issuer's election, any earlier
date), unless such breach has been waived or cured prior to such time, the
Issuers shall remove such Contract from the Trust Estate. In consideration for
the removal of such Contract, the Issuers will be obligated to deposit the
Prepayment Amount for such Contract into the Collection Account no later than
the Determination Date prior to the next Payment Date. Under the Contribution
Agreement, the Originator will be obligated to repurchase such Contracts from
the Issuers.
In addition, the Issuers may, at their option, remove Defaulted Contracts
from the Trust Estate. The aggregate amount of Defaulted Contracts which the
Issuers may remove from the Trust Estate shall not, however, exceed 5% of the
Initial Aggregate Contract Principal Balance of the Contracts. The Issuers shall
have no obligation to remove any Defaulted Contract. In determining the amount
of a Defaulted Contract which is removed, the amount of such Contract shall be
equal to the Contract Principal Balance of such Contract calculated immediately
prior to classification as a Defaulted Contract. Upon removal of a Defaulted
Contract from the Trust Estate, the Issuers shall pay the Prepayment Amount to
the Servicer for deposit into the Collection Account.
In the event that a User requests an upgrade or trade-in of Equipment, the
Issuers may remove the Equipment and the related Contract from the Trust Estate
during any Collection Period by remitting to the Trustee the applicable
Prepayment Amount received from the User for deposit in the Collection Account
on or prior to the Determination Date relating to such Collection Period.
The Servicer has the right to modify the payment terms of the Contracts in
accordance with its credit and collection policies, 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, (ii) does not have
a maturity date later than March 31, 2005 and (iii) has a Booked Residual Value
not lower than the Booked Residual Value of the Contract prior to the
modification. See "Description of the Notes -- Rebates, Refunds, Modifications,
Payment from Third Parties" for a description of additional provisions regarding
modifications.
With respect to Contracts that are Defaulted Contracts, at the request of
the Issuers, the Trustee will release the lien of the Indenture with respect to
the Defaulted Contracts and the Issuers may sell the Contracts provided that any
proceeds of the sale of any Defaulted Contract shall be treated as Recoveries
and deposited into the Collection Account as Available Funds.
Upon repossession and disposition of any Equipment subject to a Defaulted
Contract, the Servicer is directed to maximize the Recoveries, and, to do so,
the Servicer may sell the Equipment at the best available price, refurbish the
Equipment and re-lease or sell the Equipment to third parties, or take any other
commercially reasonable steps to maximize the proceeds from the Equipment.
Recoveries, including any future payments received for Defaulted Contracts,
shall be paid to the Collection Account as Available Funds. If the Servicer
reasonably believes that the value of any Equipment is zero or de minimis, it
will dispose of the Equipment in accordance with its standard procedures.
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STATISTICAL INFORMATION
The statistical information presented in this Prospectus concerning the
Contracts reflects those cashflows from August 1, 1999 and onward related to the
portfolio of Contracts as of the opening of business on July 1, 1999 (the
"STATISTICAL CALCULATION DATE"), and has been calculated using an assumed
discount rate of 7.18% per year (the "STATISTICAL DISCOUNT RATE"). The Aggregate
Contract Principal Balance of the Contracts as of the Statistical Calculation
Date is $111,628,166 using the Statistical Discount Rate. The Aggregate Contract
Principal Balance of the Contracts as of August 1, 1999 (the "CUT-OFF DATE") is
$110,476,118 using the Applicable Discount Rate (the "INITIAL AGGREGATE CONTRACT
PRINCIPAL BALANCE"). The "APPLICABLE DISCOUNT RATE" is 7.645%, which is equal to
the sum of (a) the weighted average interest rate of the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes, and the Class B Notes, each weighted by
(i) the initial principal balance of each Class of Notes, as applicable, and
(ii) the weighted average life to call of each Class of Notes under a 6.0%
conditional prepayment rate ("CPR") prepayment and no loss scenario, as
applicable, and (b) the Servicing Fee of 1.0% per annum. As of the Cut-Off Date,
the total number of Contracts in the final pool was 19,598.
The statistical distribution of the characteristics of the Contracts as of
the Cut-Off Date using the Applicable Discount Rate may vary somewhat from the
statistical distribution of the characteristics of the Contracts as of the
Statistical Calculation Date using the Statistical Discount Rate as presented in
this Prospectus, due to the fact that some 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 Statistical
Calculation Date to the Cut-Off Date, some contracts may have been added to the
Contracts. The variance in the material characteristics of the final pool will
not be greater than 5% (plus or minus) compared to the characteristics that are
described in this Prospectus, based upon the Aggregate Contract Principal
Balance. The statistical characterization of the final pool will be filed with
the SEC on a current report on Form 8-K.
As used in the tables below, the "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. Unless otherwise noted, all calculations of Contract
Principal Balances with respect to the Contracts and all statistical percentages
in this Prospectus are measured by the 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, the
calculation is performed by discounts related to Scheduled Payments at the same
frequency as the payment interval of the related Contract.
The percentages and balances set forth in each of the following tables may
not total due to rounding.
25
<PAGE> 29
The following is statistical information relating to the Contracts
calculated as of the Statistical Calculation Date.
SUMMARY INFORMATION CONCERNING CONTRACTS
(As of July 1, 1999)
<TABLE>
<S> <C>
Number of Contracts......................................... 19,823
Statistical Aggregate Contract Principal Balance............ $111,628,166
Statistical Average Contract Principal Balance.............. $ 5,631
Statistical Minimum Contract Principal Balance.............. $ 13
Statistical Maximum Contract Principal Balance.............. $ 173,318
Aggregate Original Equipment Cost........................... $227,325,593
Average Original Equipment Cost............................. $ 11,468
Minimum Original Equipment Cost............................. $ 250
Maximum Original Equipment Cost............................. $ 246,600
Weighted Average Original Term in Months.................... 52.3
Minimum Original Term in Months............................. 8
Maximum Original Term in Months............................. 72
Weighted Average Remaining Term in Months................... 28.5
Minimum Remaining Term in Months............................ 1
Maximum Remaining Term in Months............................ 68
Weighted Average Seasoning in Months........................ 23.8
Largest User................................................ 0.17%
Loan Contracts.............................................. 1.19%
</TABLE>
26
<PAGE> 30
DISTRIBUTION OF CONTRACTS BY STATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
STATE CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- ----- --------- ------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama.............. 206 1.04% $ 1,080,960 0.97% $ 2,145,885 0.94%
Alaska............... 25 0.13 155,078 0.14 375,930 0.17
Arizona.............. 306 1.54 1,652,494 1.48 3,545,872 1.56
Arkansas............. 99 0.50 571,846 0.51 1,256,181 0.55
California........... 2,853 14.39 17,174,788 15.39 34,280,363 15.08
Colorado............. 291 1.47 1,354,895 1.21 3,256,680 1.43
Connecticut.......... 425 2.14 2,049,466 1.84 4,344,031 1.91
Delaware............. 66 0.33 330,607 0.30 748,044 0.33
District of
Columbia........... 109 0.55 756,359 0.68 1,405,918 0.62
Florida.............. 2,108 10.63 12,321,897 11.04 23,421,460 10.30
Georgia.............. 710 3.58 4,192,743 3.76 8,307,505 3.65
Hawaii............... 43 0.22 355,502 0.32 657,441 0.29
Idaho................ 53 0.27 278,310 0.25 424,691 0.19
Illinois............. 445 2.24 2,590,007 2.32 5,600,668 2.46
Indiana.............. 164 0.83 763,675 0.68 1,641,424 0.72
Iowa................. 43 0.22 301,298 0.27 598,452 0.26
Kansas............... 56 0.28 330,998 0.30 682,655 0.30
Kentucky............. 144 0.73 687,207 0.62 1,430,267 0.63
Louisiana............ 75 0.38 385,001 0.34 724,017 0.32
Maine................ 91 0.46 438,346 0.39 828,910 0.36
Maryland............. 452 2.28 2,673,038 2.39 4,963,366 2.18
Massachusetts........ 688 3.47 3,578,602 3.21 7,667,400 3.37
Michigan............. 289 1.46 1,510,269 1.35 2,838,945 1.25
Minnesota............ 190 0.96 1,017,321 0.91 2,212,081 0.97
Mississippi.......... 87 0.44 561,356 0.50 943,185 0.41
Missouri............. 218 1.10 1,272,266 1.14 2,518,594 1.11
Montana.............. 34 0.17 195,082 0.17 390,898 0.17
Nebraska............. 30 0.15 157,574 0.14 427,280 0.19
Nevada............... 110 0.55 642,090 0.58 1,174,363 0.52
New Hampshire........ 124 0.63 734,825 0.66 1,393,315 0.61
New Jersey........... 1,523 7.68 8,974,709 8.04 18,560,737 8.16
New Mexico........... 108 0.54 433,794 0.39 901,891 0.40
New York............. 1,779 8.97 9,960,951 8.92 21,774,533 9.58
North Carolina....... 607 3.06 2,526,967 2.26 5,628,257 2.48
North Dakota......... 7 0.04 10,481 0.01 36,086 0.02
Ohio................. 631 3.18 3,343,248 2.99 6,499,946 2.86
Oklahoma............. 140 0.71 834,646 0.75 1,510,374 0.66
Oregon............... 214 1.08 1,075,306 0.96 2,056,020 0.90
Pennsylvania......... 1,032 5.21 5,190,552 4.65 10,877,365 4.78
Puerto Rico.......... 2 0.01 4,229 0.00 10,647 0.00
Rhode Island......... 153 0.77 830,241 0.74 1,605,578 0.71
South Carolina....... 261 1.32 1,841,117 1.65 3,564,182 1.57
South Dakota......... 15 0.08 106,334 0.10 145,828 0.06
Tennessee............ 191 0.96 1,005,596 0.90 2,169,011 0.95
Texas................ 1,517 7.65 9,061,134 8.12 18,848,112 8.29
Utah................. 80 0.40 541,614 0.49 1,084,466 0.48
Vermont.............. 58 0.29 213,326 0.19 459,667 0.20
Virgin Islands....... 8 0.04 22,949 0.02 56,430 0.02
Virginia............. 506 2.55 2,733,929 2.45 5,513,541 2.43
Washington........... 256 1.29 1,638,745 1.47 3,261,069 1.43
West Virginia........ 39 0.20 173,926 0.16 381,086 0.17
Wisconsin............ 141 0.71 864,843 0.77 1,878,097 0.83
Wyoming.............. 21 0.11 125,631 0.11 296,850 0.13
------ ------ ------------ ------ ------------ ------
Total............ 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
27
<PAGE> 31
DISTRIBUTION OF CONTRACTS BY CONTRACT PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
CONTRACT PRINCIPAL BALANCE CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- -------------------------- --------- ------------- ------------------ -------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0.00 -- $ 100.00... 94 0.47% $ 6,686 0.01% $ 210,064 0.09%
$ 100.01 -- $ 500.00.... 1,474 7.44 455,970 0.41 5,302,537 2.33
$ 500.01 -- $ 1,000.00... 1,951 9.84 1,455,902 1.30 8,403,760 3.70
$ 1,000.01 -- $ 2,500.00... 5,042 25.44 8,501,295 7.62 27,948,750 12.29
$ 2,500.01 -- $ 5,000.00... 4,530 22.85 16,345,346 14.64 40,476,091 17.81
$ 5,000.01 -- $ 10,000.00... 3,712 18.73 26,185,769 23.46 52,315,557 23.01
$ 10,000.01 -- $ 25,000.00... 2,424 12.23 35,835,540 32.10 60,220,758 26.49
$ 25,000.01 -- $ 50,000.00... 507 2.56 16,496,891 14.78 23,241,970 10.22
$ 50,000.01 -- $100,000.00... 78 0.39 4,961,404 4.44 7,376,153 3.24
$100,000.01 -- $150,000.00... 9 0.05 1,060,039 0.95 1,401,424 0.62
Greater than $150,000.00.... 2 0.01 323,324 0.29 428,529 0.19
------ ------ ------------ ------ ------------ ------
Total................... 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
DISTRIBUTION OF CONTRACTS BY ORIGINAL EQUIPMENT COST
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
ORIGINAL EQUIPMENT COST CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- ----------------------- --------- ------------- ------------------ -------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$ 100.01 -- $ 500.00.... 13 0.07% $ 2,352 0.00% $ 5,128 0.00%
$ 500.01 -- $ 1,000.00... 121 0.61 46,711 0.04 107,023 0.05
$ 1,000.01 -- $ 2,500.00... 2,173 10.96 1,965,262 1.76 4,106,298 1.81
$ 2,500.01 -- $ 5,000.00... 4,315 21.77 7,513,993 6.73 15,944,381 7.01
$ 5,000.01 -- $ 10,000.00... 5,816 29.34 19,800,953 17.74 41,740,069 18.36
$ 10,000.01 -- $ 25,000.00... 5,421 27.35 41,612,325 37.28 84,154,686 37.02
$ 25,000.01 -- $ 50,000.00... 1,640 8.27 28,183,646 25.25 55,925,543 24.60
$ 50,000.01 -- $100,000.00... 268 1.35 8,568,354 7.68 17,244,573 7.59
$100,000.01 -- $150,000.00... 37 0.19 2,256,902 2.02 4,490,315 1.98
Greater than $150,000.00.... 19 0.10 1,677,668 1.50 3,607,577 1.59
------ ------ ------------ ------ ------------ ------
Total................... 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
REMAINING TERM (MONTHS) CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- ----------------------- --------- ------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
0 -- 12.............. 7,062 35.63% $ 13,566,449 12.15% $ 67,832,975 29.84%
13 -- 24.............. 6,843 34.52 36,403,048 32.61 77,964,173 34.30
25 -- 36.............. 3,280 16.55 28,262,350 25.32 43,268,642 19.03
37 -- 48.............. 2,040 10.29 24,568,903 22.01 28,823,670 12.68
49 -- 60.............. 591 2.98 8,717,763 7.81 9,329,056 4.10
61 -- 72.............. 7 0.04 109,654 0.10 107,077 0.05
------ ------ ------------ ------ ------------ ------
Total............. 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
28
<PAGE> 32
DISTRIBUTION OF CONTRACTS BY
ORIGINAL CONTRACT TERM
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
ORIGINAL TERM CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
(MONTHS)----- --------- ------------- ------------------ ------------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
0 -- 12............. 85 0.43% $ 67,178 0.06% $ 430,184 0.19%
13 -- 24............. 923 4.66 2,161,158 1.94 5,033,383 2.21
25 -- 36............. 7,836 39.53 26,579,418 23.81 61,346,256 26.99
37 -- 48............. 2,184 11.02 12,030,168 10.78 27,020,067 11.89
49 -- 60............. 7,851 39.61 62,080,774 55.61 120,798,181 53.14
61 -- 72............. 944 4.76 8,709,470 7.80 12,697,522 5.59
------ ------ ------------ ------ ------------ ------
Total............ 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
DISTRIBUTION OF CONTRACTS BY PAYMENT FREQUENCY
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
PAYMENT TYPE CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- ------------ --------- ------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Monthly.............. 19,024 95.97% $106,985,349 95.84% $218,924,684 96.30%
Non-monthly.......... 799 4.03 4,642,817 4.16 8,400,909 3.70
------ ------ ------------ ------ ------------ ------
Total............ 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
DISTRIBUTION OF CONTRACTS BY PURCHASE OPTION
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
PURCHASE OPTION CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- --------------- --------- ------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Nominal Buyout....... 6,713 33.86% $ 38,511,375 34.50% $ 75,664,257 33.28%
Fair Market Value.... 6,820 34.40 37,437,870 33.54 78,653,512 34.60
Stated Residual...... 3,475 17.53 16,890,302 15.13 36,716,667 16.15
Other(1)............. 2,815 14.20 18,788,619 16.83 36,291,157 15.96
------ ------ ------------ ------ ------------ ------
Total............ 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
- ---------------
(1) "Other" includes loans and Contracts in which the Issuers will obtain only
the right to Scheduled Payments and will not have the right to any Residual
Interests.
29
<PAGE> 33
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF STATISTICAL STATISTICAL AGGREGATE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT EQUIPMENT EQUIPMENT
EQUIPMENT DESCRIPTION CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE COST COST
- --------------------- --------- ------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Microcomputers and
Printers................. 3,771 19.02% $ 21,674,775 19.42% $ 48,705,812 21.43%
Copiers.................... 4,323 21.81 19,867,050 17.80 41,174,351 18.11
Surveillance System........ 2,110 10.64 12,123,613 10.86 19,505,175 8.58
Telephones................. 1,398 7.05 6,803,144 6.09 14,775,053 6.50
Automotive Equipment....... 790 3.99 6,198,214 5.55 11,720,471 5.16
Medical Equipment.......... 409 2.06 3,916,940 3.51 8,798,741 3.87
Security/Alarm System...... 761 3.84 2,992,520 2.68 6,098,110 2.68
Restaurant Equipment....... 482 2.43 2,420,570 2.17 4,242,901 1.87
Point of Sale Items........ 338 1.71 2,416,293 2.16 4,952,160 2.18
Mailing Machines........... 441 2.22 2,041,385 1.83 4,600,019 2.02
A/V Equipment.............. 528 2.66 2,036,986 1.82 3,657,809 1.61
Software................... 223 1.12 1,926,514 1.73 4,022,814 1.77
Computer Peripherals....... 227 1.15 1,682,625 1.51 2,954,703 1.30
Heavy Machinery............ 194 0.98 1,638,090 1.47 4,335,233 1.91
Furniture.................. 200 1.01 1,433,552 1.28 3,122,923 1.37
Construction Equipment..... 100 0.50 1,221,940 1.09 1,978,690 0.87
Vending Equipment.......... 148 0.75 1,137,252 1.02 1,812,758 0.80
Forklifts.................. 148 0.75 984,820 0.88 2,164,824 0.95
Laundry Equipment.......... 94 0.47 866,618 0.78 1,847,774 0.81
Welding Equipment.......... 170 0.86 820,436 0.73 1,850,051 0.81
Commercial/Industrial
Cleaning................. 168 0.85 791,412 0.71 1,456,617 0.64
Printing Press............. 91 0.46 721,384 0.65 2,030,626 0.89
Stenograph................. 275 1.39 695,992 0.62 1,651,654 0.73
Photography Equipment...... 129 0.65 662,916 0.59 1,455,342 0.64
Landscaping Equipment...... 84 0.42 547,372 0.49 979,564 0.43
Cash Registers............. 97 0.49 471,392 0.42 1,311,193 0.58
Sewing and Embroidery...... 52 0.26 437,690 0.39 1,198,148 0.53
Freezer/Refrigerator/
Restaurant............... 76 0.38 351,507 0.31 801,511 0.35
Fax Machines............... 196 0.99 312,803 0.28 714,150 0.31
Ice Machine................ 95 0.48 257,984 0.23 415,680 0.18
Mobile Communications...... 80 0.40 248,523 0.22 509,753 0.22
Woodworking Equipment...... 16 0.08 184,633 0.17 298,549 0.13
Air Compressors............ 27 0.14 153,250 0.14 366,932 0.16
Pressure Washers........... 50 0.25 151,449 0.14 281,835 0.12
Scales..................... 19 0.10 142,903 0.13 252,408 0.11
Signs/Display.............. 16 0.08 126,189 0.11 205,061 0.09
Commercial Fitness
Equipment................ 24 0.12 92,945 0.08 280,180 0.12
Water Coolers.............. 53 0.27 92,921 0.08 251,471 0.11
Theft Security............. 26 0.13 71,651 0.06 217,490 0.10
Safes...................... 13 0.07 58,451 0.05 142,937 0.06
Other...................... 1,381 6.97 10,851,461 9.72 20,184,119 8.88
------ ------ ------------ ------ ------------ ------
Total.................. 19,823 100.00% $111,628,166 100.00% $227,325,593 100.00%
====== ====== ============ ====== ============ ======
</TABLE>
30
<PAGE> 34
SERVICING PORTFOLIO DELINQUENCY AND DEFAULT INFORMATION
The following delinquency and default information relates to all equipment
financing contracts serviced by Advanta Business Services for the periods shown.
The information subsequent to October 1, 1998 includes equipment financing
contracts originated by Advanta Bank Corp. and serviced by Advanta Business
Services.
HISTORICAL DELINQUENCY INFORMATION
Delinquency information for all equipment financing contracts in the
Servicer's servicing portfolio is set forth below.
HISTORICAL DELINQUENCY EXPERIENCE -- SERVICING PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
--------------- ---------------------------------------------------------------------
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Receivables
Balance(1)......... $800,396 $718,418 $674,570 $614,828 $460,224
No. of Delinquent
Days
31-60 Days........... $ 30,180 3.77% $ 36,522 5.08% $ 31,226 4.63% $ 34,521 5.61% $ 24,481 5.32%
61-90 Days........... 12,529 1.57 14,172 1.97 11,920 1.77 9,705 1.58 5,890 1.28
91 Days or more...... 11,859 1.48 9,462 1.32 9,189 1.36 6,702 1.09 4,828 1.05
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total Delinquency.... $ 54,568 6.82% $ 60,156 8.37% $ 52,335 7.76% $ 50,928 8.28% $ 35,199 7.65%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- ---------------
(1) The "Total Receivables Balance" is equal to the aggregate future payments
owing on all equipment financing contracts in the Servicer's servicing
portfolio.
HISTORICAL DEFAULT EXPERIENCE
Loss information for all equipment financing contracts in the Servicer's
servicing portfolio is set forth below.
HISTORICAL LOSS EXPERIENCE -- SERVICING PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
---------- ---------------------------------------------------------
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)............... $763,873 $676,817 $652,607 $551,645 $394,910
Net Losses..................... $ 10,526 $ 16,217 $ 15,293 $ 10,356 $ 6,320
Net Losses as a Percentage of
Average Receivables.......... 2.76%(2) 2.40% 2.34% 1.88% 1.60%
</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
payments owing on all equipment financing contracts in the Servicer's
servicing portfolio.
(2) Annualized.
31
<PAGE> 35
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture and the Series
Supplement. The Notes will be available only in book-entry form. See
"Description of the Notes -- Book-Entry Registration." The holders of the Notes
(the "HOLDERS" or "NOTEHOLDERS") are those entities registered as the owner of a
Note or Notes on the registration books maintained by the Trustee. Unless and
until Definitive Notes are issued under the limited circumstances described
herein, all references to actions taken by Noteholders or Holders shall, in the
case of the book-entry Notes, refer to actions taken by DTC upon instructions
from its Participants, and all references herein to distributions, notices,
reports and statements to Noteholders or Holders shall, in the case of the
book-entry Notes, refer to distributions, notices, reports and statements to DTC
or Cede & Co., as the registered holder of the book-entry Notes, as the case may
be, for distribution to the ultimate owners of interests in the Notes (the
"BENEFICIAL OWNERS") in accordance with DTC procedures.
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.
PAYMENT DATES, BUSINESS DAYS AND STATED MATURITY DATE
Payments of principal and interest on the Notes will be made on the 15th
day of each month (or if the 15th day is not a Business Day, the next succeeding
Business Day), beginning on September 15, 1999 (each, a "PAYMENT DATE"), to
holders of record on the calendar day immediately preceding each Payment Date
(each, a "RECORD DATE"); provided, however, that for any Definitive Note, the
Record Date is the last day of the immediately preceding calendar month. The
Indenture defines a "BUSINESS DAY" to be any day other than a Saturday, a Sunday
or a day on which banks in New York, New York, Philadelphia, Pennsylvania,
Voorhees, New Jersey or Reno, Nevada are authorized or obligated by law,
executive order or governmental decree to be closed.
The stated maturity date for the Class A-1 Notes will be the Payment Date
in September 2000 (the "CLASS A-1 STATED MATURITY DATE"). The stated maturity
date for the Class A-2 Notes will be the Payment Date in September 2002 (the
"CLASS A-2 STATED MATURITY DATE"). The stated maturity date for the Class A-3
Notes will be the Payment Date in November 2003 (the "CLASS A-3 STATED MATURITY
DATE" and, together with the Class A-1 Stated Maturity Date and the Class A-2
Stated Maturity Date, the "CLASS A STATED MATURITY DATE"). The stated maturity
date for the Class B Notes will be the Payment Date in April 2005 (the "CLASS B
STATED MATURITY DATE"). However, if all payments on the Contracts are made as
scheduled, final payment with respect to each Class of the Notes would occur
prior to its respective Stated Maturity Date (each of the Class A-1 Stated
Maturity Date, the Class A-2 Stated Maturity Date, the Class A-3 Stated Maturity
Date and the Class B Stated Maturity Date is a "STATED MATURITY DATE"). The
Issuers expect that the Notes of each Class will be paid prior to the respective
Stated Maturity Date for such Class.
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 calendar month, 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") on the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and the Class B Notes will be
the interest that has accrued since the last Payment Date, or in the case of the
September 1999 Payment Date, since the Closing Date (each, an "INTEREST ACCRUAL
PERIOD") at the applicable interest rate applied to the then unpaid principal
amounts after giving
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effect to payments of principal on the preceding Payment Date (the amount for
the Class A-1 Notes, the "CLASS A-1 NOTE INTEREST," for the Class A-2 Notes, the
"CLASS A-2 NOTE INTEREST," for the Class A-3 Notes, the "CLASS A-3 NOTE
INTEREST," and for the Class B Notes, the "CLASS B NOTE INTEREST"). In each
case, the Class A-1 Note Interest, the Class A-2 Note Interest, the Class A-3
Note Interest and the Class B Note Interest shall include any interest due on
such Class on any preceding Payment Date and not paid plus interest on such
overdue amount.
The interest rates applicable to the four Classes of Notes are as follows:
The Class A-1 Notes shall bear interest at 5.76664% per annum (the "CLASS
A-1 INTEREST RATE").
The Class A-2 Notes shall bear interest at 6.64% per annum (the "CLASS A-2
INTEREST RATE").
The Class A-3 Notes shall bear interest at 6.90% per annum (the "CLASS A-3
INTEREST RATE").
The Class B Notes shall bear interest at 7.27% per annum (the "CLASS B
INTEREST RATE").
Interest on the Class A-1 Notes will be calculated on the basis of actual
days and a 360-day year. Interest on the Class A-2 Notes, Class A-3 Notes and
Class B Notes will be calculated on the basis of a year of 360 days and twelve
30-day months.
PRINCIPAL PAYMENTS
For any Payment Date the "MONTHLY PRINCIPAL AMOUNT" will be the excess of
(a) the Outstanding Principal Balance of all Notes as of the immediately
preceding Payment Date and after taking into account payments made on such
preceding Payment Date over (b) the Aggregate Contract Principal Balance as of
the related Calculation Date.
On each Payment Date until all Class A-1 Notes are paid, the entire amount
of the Monthly Principal Amount will be applied to pay the Class A-1 Notes.
Thereafter, on each Payment Date, the remaining Class A Notes and the Class B
Notes will be entitled to receive payments of principal, to the extent funds are
available therefor, in the priorities set forth in the Indenture and described
below and under "Description of the Notes -- Flow of Funds."
On each Payment Date, to the extent funds are available therefor, the
principal will be paid to the Noteholders in the following priority:
(a) The Class A Principal Payment Amount (which, until the Class A-1 Notes
have been paid in full will be equal to the full amount of the Monthly Principal
Amount) will be paid to the Class A-1 Notes, the Class A-2 Notes and the Class
A-3 Notes sequentially until the Class A Principal Balance has been reduced to
zero, so that no principal will be paid on the Class A-2 Notes or the Class A-3
Notes until the full amount of the Class A-1 Notes has been paid and so that no
principal will be paid to the Class A-3 Notes until the full amount of the Class
A-1 Notes and the Class A-2 Notes has been paid.
(b) When the full amount of the Class A-1 Notes have been paid, then that
portion of the Monthly Principal Amount equal to the Class B Principal Payment
Amount will be paid to the Class B Notes on each Payment Date until the Class B
Principal Balance has been reduced to zero.
(c) If for any Payment Date, the Class B Floor exceeds the Class B Target
Investor Principal Amount, the Additional Principal for such Payment Date, to
the extent of amounts remaining in Available Funds, will be used first to pay
the Class A-2 Notes until they are paid in full, then to pay the Class A-3 Notes
until they are paid in full and finally to pay Class B Notes until they are paid
in full.
The "CLASS A PRINCIPAL PAYMENT AMOUNT" is (a) for any Payment Date on which
all or a portion of the Class A-1 Notes remain outstanding after giving effect
to payments on such day, the Monthly Principal Amount; (b) for any Payment Date
on which the outstanding principal of Class A-1 Notes is reduced to $0, the sum
of (1) the amount necessary to reduce the Class A-1 Notes to $0 and (2) the
amount necessary to reduce the sum of the outstanding principal amount of the
Class A-2 Notes and Class A-3 Notes to the Class A Target Investor Principal
Amount; or (c) on any subsequent Payment Date, the amount necessary to reduce
the sum of the outstanding principal amount of the Class A-2 Notes and Class A-3
Notes to the Class A Target Investor Principal Amount.
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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 AMOUNT" is (a) for any Payment Date on which
all or a portion of the Class A-1 Notes remain outstanding after giving effect
to payments on such day, $0 and (b) on any subsequent Payment Date, the amount
necessary to reduce the aggregate outstanding principal amount of the Class B
Notes to the greater of the Class B Target Investor Principal Amount and the
Class B Floor.
The "CLASS B TARGET INVESTOR PRINCIPAL AMOUNT" with respect to each Payment
Date is an amount equal to the product of (a) the Class B Percentage and (b) the
Aggregate Contract Principal Balance as of the related Calculation Date.
The "CLASS B FLOOR" with respect to each Payment Date means (a) 2.875% of
the Initial Aggregate Contract Principal Balance, plus (b) the Cumulative Loss
Amount as of such Payment Date, minus (c) the sum of the amounts on deposit in
the Reserve Account and the Residual Account after giving effect to payments and
withdrawals on such Payment Date.
The "CLASS A PERCENTAGE" means a fraction, expressed as a percentage, of
(i) the sum of the initial principal amount of the Class A-2 and Class A-3 Notes
divided by (ii) the Initial Aggregate Contract Principal Balance minus the
initial principal amount of the Class A-1 Notes, and being approximately
80.5195%.
The "CLASS B PERCENTAGE" means a fraction, expressed as a percentage, of
(i) the initial principal balance of the Class B Notes divided by (ii) the
Initial Aggregate Contract Principal Balance minus the initial principal amount
of the Class A-1 Notes, and being approximately 19.4805%.
The outstanding Class A-1 Note principal balance for any Payment Date shall
be equal to the Class A-1 Initial Principal Balance less any principal payments
previously made on the Class A-1 Notes (the "CLASS A-1 PRINCIPAL BALANCE"); the
outstanding Class A-2 Note principal balance for any Payment Date shall be equal
to the Class A-2 Initial Principal Balance less any principal payments
previously made on the Class A-2 Notes (the "CLASS A-2 PRINCIPAL BALANCE"); the
outstanding Class A-3 Note principal balance for any Payment Date shall be equal
to the Class A-3 Initial Principal Balance less any principal payments
previously made on the Class A-3 Notes (the "CLASS A-3 PRINCIPAL BALANCE" and,
together with the Class A-1 Principal Balance and the Class A-2 Principal
Balance, the "CLASS A PRINCIPAL BALANCE"); and the outstanding Class B Note
principal balance for any Payment Date shall be equal to the Class B Initial
Principal Balance less any principal payments previously made on the Class B
Notes (the "CLASS B PRINCIPAL BALANCE"). The "OUTSTANDING PRINCIPAL BALANCE" for
any date is the sum of the Class A Principal Balance and the Class B Principal
Balance as of the same date.
The "CLASS A-1 INITIAL PRINCIPAL BALANCE" is $50,929,490. The "CLASS A-2
INITIAL PRINCIPAL BALANCE" is $38,500,927. The "CLASS A-3 INITIAL PRINCIPAL
BALANCE" is $9,445,708. The "CLASS B INITIAL PRINCIPAL BALANCE" is $11,599,991.
The "ADDITIONAL PRINCIPAL" means, with respect to each Payment Date, an
amount equal to the Monthly Payment Amount less the Class A Principal Payment
Amount and the Class B Principal Payment Amount.
The "CUMULATIVE LOSS AMOUNT" means, with respect to each Payment Date, an
amount equal to the excess, if any, of (a) the remainder of (i) the Outstanding
Principal Balance minus (ii) the lesser of (A) Monthly Principal Amount and (B)
Available Funds after providing for reimbursement of Servicer Advances and the
Servicer Fee payments to the Servicer and payments of interest on the Notes on
such Payment Date over (b) the Aggregate Contract Principal Balance as of the
related Calculation Date.
The "CALCULATION DATE" for a Collection Period is the close of business on
the last day of that Collection Period.
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DEFINITIVE NOTES
The 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 The
Depository Trust Company ("DTC") is no longer willing or able to discharge
properly its responsibilities as Depository, and the Trustee or the Issuers are
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 an event described in (a) or (b) of the immediately
preceding paragraph, the Trustee is required to notify all Beneficial Owners
through DTC of the availability of Definitive Notes. Upon surrender by DTC of
the certificate representing the Notes and instructions for re-registration, the
Trustee will issue the Definitive Notes, and thereafter the Trustee will
recognize the holders of the Definitive Notes as Holders under the Indenture.
The Trustee will also notify the Holders of any adjustment to the Record Date
necessary to enable the Trustee to make distributions to Holders of the
Definitive Notes.
Additionally, upon the occurrence of any event described above,
distribution of principal of and interest on the Notes will be made by the
Trustee directly to the 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 Holders of the Class, however, the final payment on any Note (whether
the Definitive Notes or the Note for the Class registered in the name of Cede &
Co. ("CEDE"), as nominee for DTC, representing the Notes of the Class) will be
made only upon presentation and surrender of the Note at the office or agency
specified in the notice of final distribution to the Holders.
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. 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.
BOOK-ENTRY REGISTRATION
The Beneficial Owners of the Class A-1, Class A-2, Class A-3 and Class B
Notes may hold their interests through DTC (in the United States) or Cedelbank
or Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations that are participants in the systems.
Cede, as nominee for DTC, will be the registered holder of each Class of
the Notes. Cedelbank and Euroclear will hold omnibus positions on behalf of
Cedelbank Customers and Euroclear Participants, respectively, through customers'
securities accounts in Cedelbank's and Euroclear's names on the books of their
respective Depositaries (the "DEPOSITARIES"), which in turn will hold the
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("PARTICIPANTS") and facilitate the
clearance and 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
securities brokers and dealers (who may include the underwriters of any Series),
banks, trust companies and clearing corporations and may include 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").
DTC management is aware that some computer applications and systems used
for processing data were written using two digits rather than four to define the
applicable year, and therefore may not recognize a date using "00" as the Year
2000. This could result in the inability of these systems to properly process
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transactions with dates in the Year 2000 and thereafter. DTC has developed and
is implementing a program to address this problem so that its applications and
systems relating to the payment of distributions (including principal and income
payments) to securityholders, book-entry deliveries and settlement of trades
within DTC continue to function properly. This program includes a technical
assessment and a remediation plan, each of which is complete. DTC plans to
implement a testing phase of this program which is expected to be completed
within appropriate time frames.
In addition, DTC is contacting (and will continue to contact) third party
vendors that provide services to DTC to determine the extent of their Year 2000
compliance, and DTC will develop contingency plans as it deems appropriate to
address failures in Year 2000 compliance on the part of third party vendors.
However, there can be no assurance that the systems of third party vendors will
be timely converted and will not adversely affect the proper functioning of
DTC's services.
THE INFORMATION SET FORTH IN THE PRECEDING TWO PARAGRAPHS HAS BEEN PROVIDED
BY DTC FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED TO SERVE AS A
REPRESENTATION, WARRANTY OR CONTRACT MODIFICATION OF ANY KIND. THE ISSUERS MAKE
NO REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF THAT INFORMATION.
Transfers between Participants will occur in the ordinary way in accordance
with DTC rules. Transfers between Cedelbank Customers (as defined herein) and
Euroclear Participants (as defined herein) will occur in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
Customers 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 the 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. Cedelbank Customers and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in
Cedelbank 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. The credits or any transactions in the
securities settled during processing will be reported to the relevant Euroclear
Participants or Cedelbank Customers on that business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank Customer or a Euroclear Participant to a Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedelbank or Euroclear cash account only as of the business day following
settlement in DTC. For information on tax documentation procedures relating to
the Notes, see "Federal Income Tax Consequences."
Beneficial Owners of the Notes that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Notes may do so only through Participants and Indirect
Participants. In addition, Beneficial Owners will receive all distributions of
principal of and interest on the Notes from the paying agent or the Trustee
through DTC and its Participants. Under a book-entry format, Beneficial Owners
may experience some delay in their receipt of payments, since the payments will
be forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward the
payments to its Participants which thereafter will forward them to Indirect
Participants or holders of beneficial interests in the Notes. It is anticipated
that the only Holder will be Cede, as nominee of DTC, and that holders of
beneficial interests in the Notes, under the Indenture will only be permitted to
exercise the rights of Holders, under the Indenture indirectly through DTC and
its Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Notes
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and is required to receive and transmit distributions of principal of and
interest on the Notes. Participants and Indirect Participants with which holders
of beneficial interests in the Notes have accounts similarly are required to
make book-entry transfers and receive and transmit the payments on behalf of
these respective holders. Accordingly, although Beneficial Owners will not
possess Notes, Beneficial Owners will receive payments and will be able to
transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and some banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of the
Notes, may be limited due to the lack of a Definitive Note for the Notes.
DTC has advised the Issuers that it will take any action permitted to be
taken by a Holder under the Indenture only at the direction of one or more
Participants to whose account with DTC the Notes are credited. Additionally, DTC
has advised the Issuers that it will take actions with respect to specified
percentages of the Holders' only at the direction of and on behalf of
Participants whose holdings include undivided interests that satisfy the
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that actions are taken on behalf of
Participants whose holdings included the undivided interest.
Cedelbank, societe anonyme ("CEDELBANK"), is incorporated under the laws of
Luxembourg as a professional depository. Cedelbank holds securities for its
participating organizations ("CEDELBANK CUSTOMERS") and facilitates the
clearance and settlement of securities transactions between Cedelbank Customers
through electronic book-entry changes in accounts of Cedelbank Customers,
thereby eliminating the need for physical movement of certificates. Transactions
may be settled in Cedelbank in any of 38 currencies, including United States
dollars. Cedelbank provides to Cedelbank Customers, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedelbank interfaces
with domestic markets in several countries. As a registered bank in Luxembourg,
Cedelbank is subject to regulation by the Luxembourg Commission for the
Supervision of the Financial Sector. Cedelbank Customers are world-wide
financial institutions, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and other organizations and may
include the underwriters of any Series of Notes. Indirect access to Cedelbank is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedelbank
Customer, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("EUROCLEAR PARTICIPANTS") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 35 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System (the "EUROCLEAR SYSTEM") is operated
by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York
(the "EUROCLEAR OPERATOR" or "EUROCLEAR"), under contract with Euroclear
Clearance System 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
the Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include any underwriters,
agents or dealers with respect to the Notes. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. It is,
therefore, regulated and examined by the Board of Governors of
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the Federal Reserve System and the New York State Banking Department, as well as
the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through Cedelbank or Euroclear
will be credited to the cash accounts of Cedelbank Customers or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. The distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences." Cedelbank or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a Holder,
under the Indenture on behalf of a Cedelbank Customer or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect the actions on its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Cedelbank and Euroclear, they are under no obligation to perform or continue to
perform those procedures and the procedures may be discontinued at any time.
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,
all collections or receipts received by the Servicer on the Contracts no later
than two Business Days following the Servicer's receipt of such amounts.
Under the terms of the Indenture, "AVAILABLE FUNDS" for a Payment Date
means (i) amounts collected during the immediately preceding Collection Period
for the Contracts and the Equipment, including, without limitation, Scheduled
Payments, Servicer Advances, Residual Receipts, Prepayment Amounts including
deposits made to the Collection Account as a result of the release of Defaulted
Contracts or Contracts released as a result of a breach of representation and
warranties, amounts of Security Deposits deposited into the Collection Account
to cover User defaults on the related Contract, and investment earnings on each
of the Accounts, plus (ii) amounts transferred from the Reserve Account and/or
the Residual Account for that Payment Date and deposited in the Collection
Account.
On each Payment Date, the Trustee will be required to make the following
payments from the Available Funds for that Payment Date, in the following order
of priority:
(i) to the Servicer, any Servicer Advances which the Servicer has
determined it will not be able to recover;
(ii) to the Servicer, the Servicer Fee then due, together with
miscellaneous amounts which revert to the Servicer in consideration of the
servicing function performed by the Servicer such as late fees (if a
Servicer Advance was made for such late payment) and insufficient funds
charges;
(iii) to the Holders of the Class A Notes (the "CLASS A NOTEHOLDERS"),
accrued and unpaid Class A Note Interest for the related Interest Accrual
Period, pro rata based on interest due with respect to each Class of Class
A Notes;
(iv) to the Holders of the Class B Notes (the "CLASS B NOTEHOLDERS"),
accrued and unpaid Class B Note Interest for the related Interest Accrual
Period;
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(v) from the Available Funds then remaining in the Collection Account,
until the Class A-1 Principal Balance has been reduced to zero, to the
Class A-1 Noteholders, the Class A Principal Payment Amount; after the
Class A-1 Principal Balance has been reduced to zero, then until the Class
A-2 Principal Balance has been reduced to zero, to the Class A-2
Noteholders, the Class A Principal Payment Amount; after the Class A-1
Principal Balance and the Class A-2 Principal Balance have been reduced to
zero, then until the Class A-3 Principal Balance has been reduced to zero,
the Class A-3 Noteholders, the Class A Principal Payment Amount;
(vi) until the Class B Principal Balance has been reduced to zero, to
the Class B Noteholders, the Class B Principal Payment Amount;
(vii) if on such Payment Date, the Class B Floor is greater than the
Class B Target Investor Principal Amount, an amount equal to the Additional
Principal to be paid sequentially to the Class A-2 Noteholders, Class A-3
Noteholders and Class B Noteholders;
(viii) to the Reserve Account, the amount needed to increase the
amount in the Reserve Account to the Required Reserve Amount for that
Payment Date;
(ix) upon the occurrence and continuance of a Residual Event, the
lesser of (A) the remaining Available Funds and (B) the aggregate amount of
Residual Receipts originally included in Available Funds for that Payment
Date, will be deposited to the Residual Account; and
(x) to the Issuers, as owner of the Pledged Assets, any remaining
Available Funds on deposit in the Collection Account (the "ISSUERS'
INTEREST").
OPTIONAL REDEMPTION
The Servicer will have the option to direct the redemption of all, but not
less than all, of the Notes of all Classes on 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 Initial Aggregate Contract Principal Balance. The
Servicer shall give notice of the redemption to the Trustee at least 30 days
before the Payment Date fixed for the prepayment. Upon deposit of funds
necessary to effect the redemption, the Trustee shall pay the Outstanding
Principal Balances of the Notes that were called for redemption and all accrued
and unpaid interest as of the Payment Date fixed for redemption.
CLASS B SPECIAL REDEMPTION
Under the terms of the Indenture, the Class B Notes may be redeemed (the
"CLASS B SPECIAL REDEMPTION") on any Payment Date, at the option of the Issuers
at a price equal to the sum of (i) the then Class B Principal Balance and
accrued and unpaid interest thereon and (ii) the Class B Special Redemption
Premium described in the next paragraph.
The Class B Special Redemption Premium will equal the excess, if any,
discounted as described below, of (i) the amount of interest that would accrue
on the aggregate outstanding principal balance of the Class B Notes at the Class
B Interest Rate during the period beginning on and including the Payment Date on
which the premium is required to be paid to but excluding the Class B Stated
Maturity Date, over (ii) the amount of interest that would have accrued on the
aggregate outstanding Class B Principal Balance 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 of a United States Treasury
security, which is trading in the public securities market, maturing on a date
closest to the date equal to the remaining average life of the Class B Notes
minus 0.5%. Such excess shall be discounted to the present value to such Payment
Date at the applicable yield described in clause (ii) of the preceding sentence.
For such purposes only, (i) the Class B Principal Balance upon which interest
will be deemed to accrue, and (ii) the average weighted life of the Class B
Notes, shall be determined based upon the amortization of the Aggregate Contract
Principal Balance remaining at such Payment Date at a rate of 6.0% CPR and no
losses.
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If the Class B Notes are redeemed pursuant to a Class B Special Redemption,
the Class B Notes will be deemed to have been purchased by the Issuers. In such
an event, the Issuers will be entitled to receive payments of principal and
interest on the Class B Notes, and the Class B Principal Balance will thereafter
continue to amortize as described in this Prospectus.
SUBORDINATION PROVISIONS
Credit enhancement for Class A Noteholders is provided by the subordination
of the Class B Notes and by the Reserve Account and the Residual Receipts.
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 repay Servicer Advances and to pay the fees and expenses of
the Servicer) with (i) interest on the Class B Notes being paid only after
interest on the Class A Notes, (ii) principal on the Class B Notes commencing
only after the Class A-1 Notes are paid in full and (iii) when the Class A-1
Notes have been paid in full, the Class B Principal Payment Amount being paid in
each month only after the Class A Principal Payment Amount.
DEFAULTED CONTRACTS
A "DEFAULTED CONTRACT" means any Contract (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) 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.
A Defaulted Contract has, by definition, a Contract Principal Balance of
zero; given the cashflow mechanics of the Indenture, the effect of assigning a
zero balance is to require that the Noteholders receive on the next Payment Date
an amount of principal equal to the Defaulted Contract's Contract Principal
Balance, calculated immediately prior to the Contract becoming a Defaulted
Contract. The Issuers may direct the Trustee to release the lien of the
Indenture on any Defaulted Contract and the Issuers may then sell the Contracts.
A "DELINQUENT CONTRACT" is, as of any date, a Contract as to which a
Scheduled Payment, or part thereof, remains unpaid for more than 60 days from
the original due date thereof.
APPLICATION OF RESIDUAL RECEIPTS
The Trustee will establish and maintain an Eligible Account designated as
the Residual Account (the "RESIDUAL ACCOUNT"). If an Event of Default or any of
certain other limited events described in the Indenture (an Event of Default and
each other such event, a "RESIDUAL EVENT") has occurred and is continuing, then
on each Payment Date, if any Available Funds remain after the Servicer provides
for the repayment of Servicer Advances, the payment of the Servicing Fee, the
payment of interest and principal on the Notes, and the deposit of any required
amounts into the Reserve Account, then the Servicer shall deposit into the
Residual Account the lesser of (i) the remaining Available Funds and (ii) the
aggregate amount of Residual Receipts originally included in Available Funds for
such Payment Date.
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 VALUE").
As provided in the Indenture, funds on deposit in the Residual Account will
be available to cover shortfalls in the amount available to repay Servicer
Advances and to pay the Servicer Fee owing to the Servicer and to make interest
and principal payments on the Notes and to maintain the balance in the Reserve
Account at the Required Reserve Account. If, on any Payment Date, shortfall(s)
exist and both the Residual Account and the Reserve Account have amounts on
deposit therein, the Indenture provides that the 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 Collection
Account which if unutilized on that Payment Date will be released to the
Issuers.
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RESERVE ACCOUNT
The Noteholders will have the benefit of funds on deposit in an account
(the "RESERVE ACCOUNT") to the extent that, on any Payment Date, there is a
shortfall in the amount available to repay the Servicer Advances and to pay the
Servicer Fee owing the Servicer or to make interest and principal payments on
the Notes. The Reserve Account will be funded by an initial deposit of 1% of the
Initial Aggregate Contract Principal Balance (that amount, the "RESERVE ACCOUNT
INITIAL DEPOSIT"). Thereafter, 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. See "Flow of Funds" in this prospectus. The "REQUIRED RESERVE
AMOUNT" as of any Payment Date equals the lesser of (i) the greater of 1% of the
Initial Aggregate Contract Principal Balance and 5% of the aggregate outstanding
note balance and (ii) the aggregate principal amount of the 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 the amounts transferred from the Reserve Account but after
taking into account any transfer to the Collection Account from the Residual
Account) for that Payment Date are insufficient to fund in full the items
described above under "-- Flow of Funds" which items are of a higher priority
than the funding of the Reserve Account.
If, on any Payment Date, the aggregate amounts on deposit in the Collection
Account, Reserve Account and Residual Account are greater than or equal to the
sum of (i) the remaining principal balance of the Class A and Class B Notes,
(ii) the accrued and unpaid interest, (iii) the accrued and unpaid Servicing Fee
and (iv) the unreimbursed Servicer Advances, the amount on deposit in both the
Reserve Account and Residual Account will be deposited in the Collection Account
and used to repay in full the Class A and Class B Notes.
SECURITY DEPOSITS
Amounts paid by a User to the Originator as a security deposit (the
"SECURITY DEPOSIT") will be transferred to the Issuers. The Issuers shall hold
the Security Deposits on behalf of the Users and the Trustee.
In the event that (i) any User requests that a Security Deposit be applied
as an offset against such User's payment obligations or Booked Residual Value
under a Contract or (ii) any Contract becomes a Defaulted Contract, the Servicer
shall demand that the Issuers remit to the Servicer, on the next Business Day,
out of the applicable User's Security Deposit an amount (the "OFFSET AMOUNT")
equal to the lesser of (a) the amount of such Security Deposit and (b) the
amount of all unpaid and remaining Scheduled Payments and Booked Residual Value.
The Servicer shall deposit any Offset Amount so delivered to it into the
Collection Account within two Business Days after its receipt thereof.
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR
The Originator will provide warranties in the Contribution Agreement (as of
the Closing Date with respect to the Contracts), the benefits of which will be
assigned to the Trustee, including that, as of the Closing Date or, where
indicated, the Cut-Off Date, each Contract is an "ELIGIBLE CONTRACT" meeting the
following requirements:
- The Contract is with an obligor whose billing address is in the United
States or its territories and possessions and requires all payments under
such Contract to be made in United States dollars;
- The Contract is with an obligor who, if a natural person, is a resident
of the United States or its territories and possessions with legal
capacity to contract or, if a corporation or other business organization,
is organized under the laws of the United States, its territories or any
political subdivision thereof and has its chief executive office in the
United States or its territories;
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- The Contract has not had any of its terms, conditions or provisions
modified or waived other than in compliance with the credit and
collection policy of Advanta Business Services and has not been
restructured at any time when such Contract was delinquent over 60 days;
- The payments arising under the Contracts constitute an account or general
intangible which is evidenced by a Contract that constitutes "chattel
paper" within the meaning of Section 9-105(b) of the UCC of all
applicable jurisdictions and for which there is only one original of such
Contract that constitutes "chattel paper" for purposes of the UCC;
- The Contract does not contravene any applicable federal, state and local
laws, and regulations thereunder;
- The Contract satisfies in all material respects all applicable
requirements of the credit and collection policy of Advanta Business
Services;
- The Contract is not a municipal contract;
- As of the Cut-Off Date, the Contract is not a Delinquent Contract;
provided, however, that a Contract can be a Delinquent Contract so long
as the Contract is not more than 90 days delinquent. Furthermore, the sum
of the Contract Principal Balances of all other Contracts which are more
than 60 days delinquent is less than 2% of the Initial Aggregate Contract
Principal Balance;
- As of the Cut-Off Date, the Contract is not a Defaulted Contract;
- The Contract (other than a Contract which is a loan in form), (a)
contains "hell or high water" provisions requiring the User to assume all
risk of loss or malfunction of the related Equipment, (b) makes the User
absolutely and unconditionally liable for all payments required to be
made thereunder, (c) is a "triple-net" lease and (d) is non-cancellable;
- As of the Cut-Off Date, the Contract, when aggregated with the sum of the
Contract Principal Balances of all other Contracts relating to a single
User, shall not be greater than the product of (a) 1% and (b) the
Aggregate Contract Principal Balance at that time;
- The Contract creates a valid and enforceable security interest in favor
of the Originator in the related Equipment, if any, for Equipment with an
initial balance of more than $25,000;
- The Contract has only one set of original documentation.
- The Contract is free and clear of any adverse claims, other than the
claims arising pursuant to the transaction documents; provided, however,
that nothing in this clause shall prevent or be deemed to prohibit the
Originator from allowing any adverse claim for federal, state, municipal
or other local taxes to exist upon such Contract if such taxes shall not
at the time be due and payable or if the Originator shall concurrently be
contesting the validity thereof in good faith by appropriate proceedings
that have stayed enforcement thereof and shall have set aside on its
books adequate reserves with respect thereto;
- The Contract is in full force and effect in accordance with its terms and
contains enforceable provisions such that the right and remedies of the
holder thereof shall be adequate for realization against the Equipment,
if any, thereunder and of the benefits of any security granted
thereunder;
- The Contract does not provide for the substitution, exchange, or addition
of any other items of Equipment pursuant to such Contract which would
result in any reduction or extension of payments due thereunder;
- The Contract by its terms is due and payable on or within 84 months and
has not had its payment terms extended other than in compliance with the
credit and collection policy of Advanta Business Services;
- The Contract is in substantially the form of one of the standard form
contracts that Advanta Business Services uses or a form reviewed and
accepted by Advanta Business Services;
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- The Contract (a) does not preclude the pledge, transfer or assignment
thereof, (b) does not require the consent of the User to the pledge,
assignment or transfer thereof, and (c) does not contain a
confidentiality provision that purports to restrict the ability of the
Trustee (or any prior pledgor or owner thereof) to exercise its rights
under the transaction documents with respect thereto, including, without
limitation, its right to review the Contract;
- The Contract or interest therein was (a) originated or purchased by the
Originator in the ordinary course of its business, (b) approved and
purchased or funded in the ordinary course of the Originator's business
and (c) if purchased from a broker or vendor, has been re-underwritten by
the Originator in the ordinary course of the Originator's business and in
compliance with its underwriting policies;
- The Contract either (a) is an account receivable representing all or part
of the sales price of merchandise, insurance and/or services within the
meaning of Section 3(c)(5) of the Investment Company Act of 1940, as
amended, or (b) represents a financial asset that converts to cash within
a finite period of time within the meaning of Rule 3a-7 promulgated under
the Investment Company Act of 1940, as amended;
- The Contract does not require a balloon payment;
- The Contract relates to a piece of Equipment which is located in the
United States of America, its territories or possessions;
- As of the Cut-Off Date, the Contract, when aggregated with the sum of the
Contract Principal Balances of all Contracts acquired by the Originator
or its affiliates from the same single broker or vendor, shall not exceed
6% of the Aggregate Contract Principal Balance at that time;
- The Contract is not a consumer lease;
- The Contract is not subject to any guaranty by the Originator;
- No adverse selection was used in selecting the Contract for transfer to
the Issuers;
- The information with respect to the Contract contained in the list of
Contracts delivered to the Trustee is true and correct in all material
respects; and
- All filings necessary to evidence the conveyance or transfer of the
Contract (or interest therein) and, to the extent described in this
Prospectus, the security interest in the related Equipment, if any, to
the Issuers and to the Trustee have been made in all appropriate
jurisdictions.
The 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 to accept the reconveyance of any Contract and
deposit the related Prepayment Amount with the Trustee 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 the Contract, which breach has
not been cured or waived in all material respects. This obligation to accept the
reconveyance of the Contract and remit the Prepayment Amount 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 Indenture will provide that the Servicer will defend and indemnify the
Issuers, 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's obligations,
as
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Servicer, to indemnify the Noteholders for its acts or omissions as Servicer
will survive the removal of the Servicer but will not apply to any acts or
omissions of a successor Servicer. The indemnification does not extend to
indirect, incidental, special or consequential damages.
THE ACCOUNTS
The Trustee is required in accordance with the Indenture and the Series
Supplement to establish and maintain three accounts (each, an "ACCOUNT"), the
Collection Account, the Residual Account and the Reserve Account. Each is to be
held by the Trustee for the benefit of the Noteholders. Each 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 any later date as permitted by the Rating Agencies, following the
Servicer's receipt thereof.
Servicer Advances, if any, are required to be deposited into the Collection
Account 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
and any Security Deposits which the Issuers have designated for deposit in the
Collection Account as a result of the User's default on the related Contract.
Furthermore, the Servicer is required to deposit Advance Payments received
by the Servicer in the Collection Account within two Business Days of when
received; provided, however, that the Advance Payment or any portion thereof
shall be treated as collections of Scheduled Payments only in the Collection
Period in which such payment is due and owing. "ADVANCE PAYMENTS" are amounts
paid by a User during a Collection Period with respect to amounts due from the
User in subsequent Collection Periods but do not include Prepayment Amounts.
The Indenture permits the Servicer to direct the investment of amounts in
the Accounts in Eligible Investments that mature not later than the Business Day
prior to the next succeeding Payment Date. Any income from the 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.
"ELIGIBLE INVESTMENTS" include any of the following: (i) marketable full
faith and credit obligations of the United States of America; (ii) marketable
obligations directly and fully guaranteed by the full faith and credit of the
United States of America; (iii) bankers' acceptances and certificates of deposit
and other interest-bearing obligations issued by any bank with capital, surplus
and undivided profits of at least $100,000,000 and the short-term securities of
which are rated "A-1" by Standard & Poor's Ratings Services ("S&P"), "P-1" by
Moody's Investors Service, Inc. ("MOODY'S") and "F1" by Fitch IBCA, Inc.
("FITCH") (if rated by Fitch) (iv) repurchase obligations for underlying
securities of the types described in (i), (ii) and (iii) above entered into with
a bank of the type described in (iii) above; (v) commercial paper rated at least
"A-1+" by S&P, "P-1" by Moody's and "F1" by Fitch (if rated by Fitch); (vi)
shares in money market funds which money market funds are rated at least "AAm"
or "AAm-g" by S&P, "Aa1" by Moody's and "AA" by Fitch (if rated by Fitch); and
(vii) demand deposits, time deposits or certificates of deposit (having original
maturities of no more than 365 days) of depository institutions or trust
companies incorporated under the laws of the United States or any state thereof
(or domestic branches of any foreign bank) and subject to supervision and
examination by federal or state banking or depository institution authorities;
provided that at the time the investment, or the commitment to make such
investment, is entered into, the short-term debt rating of the depository
institution or trust company shall be at least "A-1" by S&P, "P-1" by Moody's
and "F1" by Fitch (if rated by Fitch).
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ADVANCES
In the event that any User fails to remit its full Scheduled Payment on any
Contract by the Calculation Date, the Servicer may, but is not required to, make
an advance from its own funds of an amount equal to the unpaid Scheduled Payment
(a "SERVICER ADVANCE").
The Indenture provides that, in the event that the Servicer determines that
any Servicer Advances previously made are nonrecoverable ("NONRECOVERABLE
ADVANCES"), the Trustee shall draw on the Collection Account to repay the
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 the 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 the affected Noteholders.
REPORTS TO NOTEHOLDERS
On each Payment Date, the Trustee will forward to the Rating Agencies and,
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 the payment allocable to the Class A-1 Principal
Payment Amount, Class A-2 Principal Payment Amount, Class A-3 Principal
Payment Amount or the Class B Principal Payment Amount, as applicable;
(b) The amount of the payment allocable to that Noteholder's portion
of Class A Note Interest or Class B Note 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-1 Principal Balance, the Class A-2 Principal Balance,
the Class A-3 Principal Balance, the Class B Principal Balance, the Class
A-1 Note Factor, the Class A-2 Note Factor, the Class A-3 Note Factor, the
Class B Note Factor, the Aggregate Contract Principal Balance and the
Collateral Factor, after taking into account all distributions made on that
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 the Contracts became Defaulted Contracts;
(g) The amount on deposit in the Reserve Account and the Residual
Account;
(h) 31-60, 61-90 and greater than 90 days delinquencies as of the end
of the related Collection Period; and
(i) Prepayment Amounts received during the related Collection Period.
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 that
Payment Date) to (y) the Class A-1 Initial Principal Balance.
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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 and to be made on that
Payment Date) to (y) the Class A-2 Initial Principal Balance.
The "CLASS A-3 NOTE FACTOR" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-3 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on that
Payment Date) to (y) the Class A-3 Initial Principal Balance.
The "CLASS B NOTE FACTOR" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class B Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions to be made on that Payment
Date) to (y) the Class B 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 Initial 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, 2000, the Trustee will
furnish to each Noteholder of record at any time during the 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.
REBATES, REFUNDS, MODIFICATIONS, PAYMENTS FROM THIRD PARTIES
The Servicer has agreed to manage, administer and service the Contracts and
to enforce and make collections on the Contracts 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 the 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 the 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. 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 Recoveries.
With respect to amounts due under a Contract, the Servicer may accept
payments from any entity on behalf of the relevant User and credit the amounts
against amounts due from the User.
As used herein:
"RESIDUAL RECEIPTS" means, generally, (1) the proceeds of a User's optional
purchase or renewal of Equipment and proceeds of the sale or re-lease of
Equipment, in each case to the extent the proceeds exceed
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any Scheduled Payments remaining unpaid and (2) the proceeds of a prepaid
Contract minus the Prepayment Amount.
"RECOVERIES" means all amounts received in respect of a Defaulted Contract,
including, without limitation, amounts received in connection with the sale or
other disposition of Equipment, the sale or other distribution of Defaulted
Contracts, insurance proceeds with respect to the related Equipment or any other
payments made by or on behalf of the related User, including any amounts paid
from a security deposit and applied by the Servicer as a Recovery and, in each
case, as reduced by (i) any unreimbursed Servicer Advances with respect to the
Contract or the Equipment and (ii) any reasonably incurred out-of-pocket
expenses incurred by the Servicer in enforcing the Contract or in liquidating
the Equipment. Recoveries are not Residual Receipts.
SERVICING COMPENSATION
On each Payment Date, 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% (the "SERVICER FEE RATE") and (ii) the Aggregate Contract
Principal Balance of all Contracts as of the beginning of the related Collection
Period, payable out of the Collection Account and (b) the Servicing Charges.
"SERVICING CHARGES" means (i) any late payment charges paid by a User on a
Delinquent Contract if the Servicer has made Servicer Advances on such Contract
and (ii) any other incidental charges or fees received from a User, including
insurance premium payments.
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 Contracts
and enforcing and making collections on the Contracts and any insurance policies
and for the enforcing of any security interest in any item of Equipment, all as
set forth in the Indenture. The Servicer's responsibilities will include
collecting and posting of all payments, responding to inquiries of Users,
investigating delinquencies, accounting for collections, furnishing monthly and
annual statements to the Trustee with respect to distributions, providing
appropriate federal income tax information for use in 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.
The Servicer is required to furnish to the Trustee, and the Trustee is
required to furnish to the Noteholders, copies of the Servicer's annual audited
and quarterly unaudited financial statements.
The Indenture will provide that the Servicer, upon request of the Trustee,
will furnish to the Trustee the 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 its duties is no longer permissible under
applicable law; however, as described below, the Servicer may transfer its
duties, obligations, rights and privileges to a successor and the successor
shall become the Servicer. The Servicer can only be removed pursuant to an Event
of Servicer Termination as discussed below.
MERGER, CONSOLIDATION, OR ASSUMPTION OF THE OBLIGATIONS OF THE SERVICER
Any corporation (i) into which the Servicer may be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Servicer shall be a
party or (iii) succeeding to the business of the Servicer, shall be the
successor to the Servicer under the Indenture and the successor in any of the
foregoing
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cases shall execute an agreement of assumption, in a form reasonably
satisfactory to the Trustee, agreeing to perform every obligation of the
Servicer under the Indenture and under the Series Supplement. Any corporation
succeeding to the business of the Servicer by merger, consolidation or otherwise
shall be a corporation organized and existing under the laws of the United
States or any state and shall have a tangible net worth of at least $20,000,000.
In addition to the provisions set forth in the preceding paragraph, if the
servicer is Advanta Business Services or an affiliate thereof, the Servicer may
transfer all of its duties, obligations, rights and privileges as Servicer under
the Indenture and all Supplements hereto to any affiliate of Advanta Business
Services provided that (i) the then Servicer shall give 30 days prior written
notice of the change to the Trustee and the entity assuming the Servicer
position shall execute an agreement of assumption, in a form reasonably
satisfactory to the Trustee agreeing to perform every obligation of the Servicer
under the Indenture and under the Series Supplement and (ii) the entity assuming
the servicer position shall deliver to the Trustee written evidence that the
Rating Agency Condition has been satisfied. Upon the execution and delivery to
the Trustee of the written assumption and delivery of the evidence of
satisfaction of the Rating Agency Condition, the affiliate shall become the
Servicer under the Indenture and under the Series Supplement without any further
act on the part of any of the parties thereto.
The "RATING AGENCY CONDITION" means the notification in writing by each
Rating Agency to the Servicer and the Trustee that a proposed action will not
result in such Rating Agency reducing or withdrawing its then existing rating of
the Notes of any Class with respect to which it is a Rating Agency.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following events will be defined in the Indenture as "EVENTS OF
DEFAULT":
(a) default for five calendar days or more in making Interest Payments
when due and payable;
(b) the Outstanding Principal Balance of any Class of Notes is not
reduced to zero by that Class's Stated Maturity Date;
(c) default in the performance, or breach, by either Issuer of
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 the default or breach
for a period of 30 days after the earliest of (i) any officer of an Issuer
first acquiring the knowledge thereof, (ii) the Trustee's giving written
notice thereof to the applicable 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 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;
(f) voluntary or involuntary insolvency or bankruptcy events relating
to either Issuer; or
(g) if either or both of the Issuers become an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
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 specified in clause (f) above occurs, the unpaid
principal amount of all outstanding Notes (the "OUTSTANDING PRINCIPAL BALANCE")
shall automatically become due and payable together with all accrued and unpaid
interest thereon, and all other amounts due to Noteholders under the Indenture
shall immediately and without further act become due and payable.
48
<PAGE> 52
If any other Event of Default occurs and is continuing, then the Trustee
may or, if so directed by the holders of 66 2/3% of the then Outstanding
Principal Balance of the Notes, will declare the unpaid principal amount of all
the Notes to be due and payable immediately, together with all accrued and
unpaid interest thereon.
If the Notes have been declared due and payable, the Trustee may or, at the
written direction and discretion of the Holders of the Notes representing a
majority of the aggregate principal amount then outstanding, shall institute
proceedings to collect amounts due or foreclose on the Trust Estate or any
portion thereof, exercise remedies as a secured party, sell the Trust Estate or
any portion thereof or elect to have the Issuers maintain possession of the
Trust Estate and continue to apply collections on the Trust Estate as if there
had been no declaration of acceleration. The Trustee, however, will be
prohibited from selling the Trust Estate following an Event of Default, unless
(i) the Holders of all the outstanding Notes consent to the sale; (ii) the
proceeds of the sale distributable to Holders of the Notes are sufficient to pay
in full the principal of and the accrued interest on all the outstanding Notes
at the date of the sale; or (iii) the Trustee determines that the Trust Estate
may not continue to provide sufficient funds for the payment of interest and
principal on the Notes as they would have become due if the Notes had not been
declared due and payable and the Trustee obtains the consent of 66 2/3% of the
Outstanding Notes of each Class.
In determining such sufficiency or insufficiency with respect to clause
(ii) or (iii) in the preceding paragraph the Trustee may, but need not, obtain
and rely upon an opinion of an investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and the sufficiency of
the Trust Estate for such purpose. In no event shall the Trustee be liable for
making any such determination or in relying upon any such opinion.
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 fees, costs and expenses including
conversion costs due to the Trustee (including the reasonable fees and
expenses of any counsel to the Trustee);
Second, to the payment of all fees, costs, and expenses due to the
Noteholders (including the reasonable fees and expenses of any counsel to
the Noteholders);
Third, to the payment of all Servicer's Fees then due to the Servicer;
Fourth, to the payment of all accrued and unpaid interest on the
Outstanding Principal Balance of the Class A-1 Notes, Class A-2 Notes and
Class A-3 Notes pro rata to the date of payment thereof (to the extent
permitted by applicable law) interest on any overdue interest and principal
to the date of payment thereof at the Class A-1 Interest Rate, the Class
A-2 Interest Rate, and the Class A-3 Interest Rate, respectively;
Fifth, 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 (to the extent permitted by applicable law) interest on any overdue
interest and principal to the date of payment thereof the Class B Interest
Rate;
Sixth, to the payment of the Outstanding Principal Balance of the
Class A-1 Notes to the date of payment when the balance is reduced to zero;
Seventh, to the payment of the Outstanding Principal Balance of the
Class A-2 Notes and Class A-3 Notes pro rata to the date of payment when
the balance is reduced to zero;
Eighth, to the payment of the Outstanding Principal Balance of the
Class B Notes to the date of payment when the balance is reduced to zero;
Ninth, to the payment of amounts then due to the Trustee under the
Indenture and not paid pursuant to clause First above; and
49
<PAGE> 53
Tenth, to the payment of the remainder, if any, to the Issuers or any
other person legally entitled thereto.
The Issuers will be required to furnish annually to the Trustee a statement
of 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 the default.
The Indenture will provide that the holders of 66 2/3% in Outstanding
Principal Balance of the Notes (excluding any Notes held by Advanta Business
Services or any of its affiliates) will have the right to waive defaults and,
subject to limitations established in the Indenture, 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 the Indenture and to use the degree of care and skill in its exercise of
its rights that a prudent man would exercise or use in the conduct of his own
affairs. Subject to those provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
of the Noteholders unless they shall have offered to the Trustee reasonable
security or indemnity.
AMENDMENT OF INDENTURE
Supplements to or amendments of the Indenture may be executed without the
consent of the Holders of the Notes to (i) authorize the issuance of one or more
series of Notes (if the Rating Agency Condition is satisfied), (ii) evidence the
succession, in compliance with the terms of the Indenture, of another
corporation to any Issuer and the assumption by the successor of the Issuer's
covenants, (iii) add covenants for the benefit of the Holders or to surrender
any right conferred upon the Issuers, (iv) permit the issuance of notes in
bearer form, (v) modify the restrictions and procedures for transfers of the
Notes to reflect changes in law or practice; (vi) provide for acceptance of
appointment by a successor Trustee or to provide for more than one Trustee,
(vii) modify provisions necessary to qualify, requalify or continue the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended; (viii) cure any ambiguity, correct or supplement any provision which is
inconsistent with another provision; or (ix) make any other provisions with
respect to matters or questions arising under the Indenture which shall not
adversely affect the interests of the Holders of the Notes in any material
respect.
Except as described in the preceding paragraph, the rights and obligations
of the Issuers and the rights of the Noteholders under the Indenture may not be
modified by the Issuers without (i) the consent of the holders of not less than
66 2/3% in Outstanding Principal Balance of the Notes (excluding any Notes held
by Advanta Business Services or any of its affiliates) and (ii) satisfaction of
the Rating Agency Condition with respect to such modification; but no
modification may be made which would (a) extend the fixed maturity of any Note,
or reduce the principal amount thereof, or reduce the rate or extend the time of
payment of principal or interest thereon, without the consent of the Holder of
each Note so affected or (b) reduce the above-stated percentage of Notes
required to consent to amendments, without the consent of the Holders of all
Notes then outstanding.
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 the failure has
been unremedied for 30 calendar days after receipt by the Servicer of a
written notice from the Trustee;
50
<PAGE> 54
(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 the material breach of
any representation or warranty made by Advanta Business Services in the
Contribution Agreement with respect to any of the Contracts or the
Equipment subject thereto will not constitute an Event of Servicer
Termination if Advanta Business Services or a successor thereto repurchases
the Contract and Equipment in accordance with the Contribution Agreement to
the extent provided therein; and
(d) events of voluntary or involuntary insolvency or bankruptcy
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 Notes (excluding any Notes held by the
Servicer or any affiliate of the Servicer), by notice in writing to the Servicer
terminate all of the rights and obligations of the Servicer (except the
Servicer's obligations that shall survive such termination) under the Indenture.
Upon the receipt by the Servicer of the written notice, all authority and power
of the Servicer under the Indenture to take any action with respect to any
Contract or Equipment will cease and the same will pass to and be vested in the
Trustee (or other successor Servicer) pursuant to and under the Indenture.
PREPAYMENT AND YIELD CONSIDERATIONS
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 the Contracts may be in the form
of scheduled principal payments or liquidations due to default, casualty and the
like. Any of these 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 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 amount (which is at least equal to the Prepayment
Amount) into the Collection Account.
The leases do not allow prepayment at the option of the User. Under the
Indenture, the Servicer may allow prepayments of leases; provided that no
prepayment of a Contract that is a lease 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 following chart sets forth the percentage of the Initial Principal
Balance of the Class A-1, Class A-2, Class A-3 and Class B Notes which would be
outstanding on the Payment Dates set forth below assuming a CPR of 0%, 6%, 12%
and 18%, respectively, and were calculated using the Statistical Discount Rate
7.18%. Furthermore, the charts were calculated assuming no losses related to the
Contracts and that the Residual Receipts equal the aggregate Booked Residual
Value in each Collection Period. This information is hypothetical and is set
forth for illustrative purposes only.
This information is based upon assumptions which may or may not be
accurate. Actual payment experience may vary significantly from the following
tables.
The Conditional Payment Rate ("CPR") 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 CPR for the Contract pool. The
CPR
51
<PAGE> 55
equals the monthly prepayments divided by the previous month's outstanding
discounted present value of the Contracts minus the payment of all Scheduled
Payments on the Contracts during that 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
Statistical Calculation Date, assumes that the Issuers exercise their options to
redeem the Notes when the Aggregate Contract Principal Balance amortizes to less
than 10% of the Initial Aggregate Contract Principal Balance and assumes the
Closing Date is August 17, 1999 and the first Payment Date is September 15,
1999. In addition, it is assumed, for the purposes of these charts only, that
the Issuers issue the Notes in the following amounts and at the following
interest rates:
<TABLE>
<CAPTION>
ASSUMED ASSUMED
CLASS INITIAL PRINCIPAL AMOUNT INTEREST RATE
----- ------------------------ -------------
<S> <C> <C>
A-1................................................ $51,460,585 5.57%
A-2................................................ $38,232,647 6.39%
A-3................................................ $10,213,977 6.66%
B.................................................. $11,720,956 6.89%
</TABLE>
52
<PAGE> 56
<TABLE>
<CAPTION>
PERCENTAGE OF THE INITIAL PRINCIPAL PERCENTAGE OF THE INITIAL PRINCIPAL
BALANCE OF THE CLASS A-1 NOTES BALANCE OF THE CLASS A-2 NOTES
------------------------------------- -------------------------------------
CPR CPR
------------------------------------- -------------------------------------
PAYMENT DATE 0% 6% 12% 18% 0% 6% 12% 18%
- ------------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.............. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
September 15, 1999........ 89.57 88.51 87.38 86.19 100.00 100.00 100.00 100.00
October 15, 1999.......... 79.32 77.30 75.18 72.93 100.00 100.00 100.00 100.00
November 15, 1999......... 69.26 66.40 63.40 60.25 100.00 100.00 100.00 100.00
December 15, 1999......... 59.52 55.92 52.16 48.23 100.00 100.00 100.00 100.00
January 15, 2000.......... 50.01 45.76 41.35 36.76 100.00 100.00 100.00 100.00
February 15, 2000......... 40.69 35.89 30.93 25.80 100.00 100.00 100.00 100.00
March 15, 2000............ 31.69 26.42 21.01 15.45 100.00 100.00 100.00 100.00
April 15, 2000............ 22.99 17.34 11.56 5.66 100.00 100.00 100.00 100.00
May 15, 2000.............. 14.72 8.75 2.68 0.00 100.00 100.00 100.00 96.22
June 15, 2000............. 6.91 0.69 0.00 0.00 100.00 100.00 93.93 87.03
July 15, 2000............. 0.00 0.00 0.00 0.00 99.34 92.39 85.40 78.37
August 15, 2000........... 0.00 0.00 0.00 0.00 91.43 84.34 77.26 70.17
September 15, 2000........ 0.00 0.00 0.00 0.00 83.77 76.61 69.49 62.40
October 15, 2000.......... 0.00 0.00 0.00 0.00 76.41 69.23 62.12 55.09
November 15, 2000......... 0.00 0.00 0.00 0.00 69.42 62.27 55.22 48.30
December 15, 2000......... 0.00 0.00 0.00 0.00 62.74 55.66 48.72 41.94
January 15, 2001 0.00 0.00 0.00 0.00 56.32 49.35 42.57 35.97
February 15, 2001......... 0.00 0.00 0.00 0.00 50.21 43.39 36.79 30.40
March 15, 2001............ 0.00 0.00 0.00 0.00 44.43 37.79 31.40 25.25
April 15, 2001............ 0.00 0.00 0.00 0.00 38.89 32.46 26.30 20.41
May 15, 2001.............. 0.00 0.00 0.00 0.00 33.69 27.49 21.58 15.97
June 15, 2001............. 0.00 0.00 0.00 0.00 28.89 22.93 17.27 11.93
July 15, 2001............. 0.00 0.00 0.00 0.00 24.39 18.68 13.29 8.22
August 15, 2001........... 0.00 0.00 0.00 0.00 20.27 14.80 9.67 4.88
September 15, 2001........ 0.00 0.00 0.00 0.00 16.55 11.31 6.43 1.90
October 15, 2001.......... 0.00 0.00 0.00 0.00 13.20 8.19 3.54 0.00
November 15, 2001......... 0.00 0.00 0.00 0.00 10.19 5.40 0.97 0.00
December 15, 2001......... 0.00 0.00 0.00 0.00 7.36 2.78 0.00 0.00
January 15, 2002.......... 0.00 0.00 0.00 0.00 4.67 0.31 0.00 0.00
February 15, 2002......... 0.00 0.00 0.00 0.00 2.13 0.00 0.00 0.00
March 15, 2002............ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
April 15, 2002............ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
May 15, 2002.............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2002............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life(1)
to Call (in years)...... 0.47 0.43 0.40 0.37 1.61 1.51 1.41 1.32
Weighted Average Life(1)
to Maturity (in
years).................. 0.47 0.43 0.40 0.37 1.61 1.51 1.41 1.32
</TABLE>
- ---------------
(1) The weighted average life of a Class A-1 Note or Class A-2 Note is
determined by (a) multiplying the amount of cash distributions in reduction
of the outstanding principal amount of such Class of Notes by the number of
years from the Closing Date to the relevant Payment Date, (b) adding the
results and (c) dividing the sum by the initial principal amount of the
applicable Class.
53
<PAGE> 57
<TABLE>
<CAPTION>
PERCENTAGE OF THE INITIAL PRINCIPAL PERCENTAGE OF THE INITIAL PRINCIPAL
BALANCE OF THE CLASS A-3 NOTES BALANCE OF THE CLASS B NOTES
------------------------------------- -------------------------------------
CPR CPR
------------------------------------- -------------------------------------
PAYMENT DATE 0% 6% 12% 18% 0% 6% 12% 18%
- ------------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.............. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
September 15, 1999........ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October 15, 1999.......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November 15, 1999......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December 15, 1999......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
January 15, 2000.......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
February 15, 2000......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
March 15, 2000............ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
April 15, 2000............ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
May 15, 2000.............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 97.02
June 15, 2000............. 100.00 100.00 100.00 100.00 100.00 100.00 95.21 89.77
July 15, 2000............. 100.00 100.00 100.00 100.00 99.48 93.99 88.48 82.93
August 15, 2000........... 100.00 100.00 100.00 100.00 93.24 87.64 82.05 76.46
September 15, 2000........ 100.00 100.00 100.00 100.00 87.20 81.54 75.92 70.33
October 15, 2000.......... 100.00 100.00 100.00 100.00 81.38 75.71 70.11 64.56
November 15, 2000......... 100.00 100.00 100.00 100.00 75.87 70.22 64.66 59.20
December 15, 2000......... 100.00 100.00 100.00 100.00 70.60 65.01 59.53 54.18
January 15, 2001.......... 100.00 100.00 100.00 100.00 65.53 60.03 54.68 49.47
February 15, 2001......... 100.00 100.00 100.00 100.00 60.71 55.33 50.11 45.08
March 15, 2001............ 100.00 100.00 100.00 100.00 56.15 50.91 45.86 41.01
April 15, 2001............ 100.00 100.00 100.00 100.00 51.77 46.70 41.84 37.19
May 15, 2001.............. 100.00 100.00 100.00 100.00 47.67 42.78 38.12 33.69
June 15, 2001............. 100.00 100.00 100.00 100.00 43.88 39.18 34.72 30.50
July 15, 2001............. 100.00 100.00 100.00 100.00 40.33 35.82 31.57 27.57
August 15, 2001........... 100.00 100.00 100.00 100.00 37.08 32.77 28.72 24.93
September 15, 2001........ 100.00 100.00 100.00 100.00 34.14 30.01 26.16 22.58
October 15, 2001.......... 100.00 100.00 100.00 97.19 31.50 27.55 23.88 20.49
November 15, 2001......... 100.00 100.00 100.00 88.40 29.13 25.34 21.85 18.64
December 15, 2001......... 100.00 100.00 94.66 0.00 26.89 23.28 19.96 0.00
January 15, 2002.......... 100.00 100.00 0.00 0.00 24.77 21.33 0.00 0.00
February 15, 2002......... 100.00 92.49 0.00 0.00 22.76 19.50 0.00 0.00
March 15, 2002............ 98.96 0.00 0.00 0.00 20.86 0.00 0.00 0.00
April 15, 2002............ 90.58 0.00 0.00 0.00 19.10 0.00 0.00 0.00
May 15, 2002.............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
June 15, 2002............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life(1)
to Call (in years)...... 2.74 2.57 2.41 2.32 1.84 1.73 1.62 1.53
Weighted Average Life(1)
to Maturity (in
years).................. 3.13 3.00 2.86 2.71 2.04 1.95 1.85 1.76
</TABLE>
- ---------------
(1) The weighted average life of a Class A-3 Note or a Class B Note is
determined by (a) multiplying the amount of cash distributions in reduction
of the outstanding principal amount of such Class of Notes by the number of
years from the Closing Date to the relevant Payment Date, (b) adding the
results and (c) dividing the sum by the initial principal amount of the
applicable Class.
54
<PAGE> 58
AGGREGATE MONTHLY SCHEDULED PAYMENTS AND BOOKED RESIDUAL VALUES
The following table sets forth the Scheduled Payments and the scheduled
Booked Residual Value of the Contracts. For the purposes of this table we have
assumed there are no delinquencies, losses or prepayments on the Contracts. In
addition, we have assumed that an amount equal to the Booked Residual Value of a
Contract is received from the disposition of the related Equipment in the
Collection Period immediately following the Collection Period in which the last
Scheduled Payment on the Contract is due. The information set forth below is not
a prediction of the actual payments that will be received. The information
regarding delinquencies and defaults set forth under the caption "Servicing
Portfolio Delinquency and Default Information" in this Prospectus, as well as
the information under "Risk Factors" should be reviewed together with the
information set forth below.
<TABLE>
<CAPTION>
MONTH AGGREGATE SCHEDULED PAYMENTS AGGREGATE BOOKED RESIDUAL VALUES
- ----- ---------------------------- --------------------------------
<S> <C> <C>
August 1999............................... 5,949,253.63 99,395.73
September 1999............................ 5,852,281.52 329,233.00
October 1999.............................. 5,723,207.52 351,100.28
November 1999............................. 5,530,260.33 307,158.22
December 1999............................. 5,390,905.33 306,929.98
January 2000.............................. 5,262,277.04 452,884.01
February 2000............................. 5,071,912.39 494,458.18
March 2000................................ 4,894,107.77 625,182.09
April 2000................................ 4,659,951.59 680,269.92
May 2000.................................. 4,394,336.95 417,960.30
June 2000................................. 4,225,390.22 240,655.46
July 2000................................. 4,090,837.55 286,079.16
August 2000............................... 3,953,999.32 369,016.76
September 2000............................ 3,796,326.88 388,335.31
October 2000.............................. 3,599,431.04 348,357.12
November 2000............................. 3,437,931.82 384,691.19
December 2000............................. 3,295,228.33 392,793.26
January 2001.............................. 3,134,328.09 531,583.86
February 2001............................. 2,959,641.44 327,197.53
March 2001................................ 2,834,271.89 463,823.19
April 2001................................ 2,652,405.30 552,282.04
May 2001.................................. 2,452,154.62 401,110.82
June 2001................................. 2,295,117.78 419,119.96
July 2001................................. 2,102,737.48 536,384.85
August 2001............................... 1,905,632.25 609,961.33
September 2001............................ 1,713,604.79 587,012.94
October 2001.............................. 1,542,994.59 321,507.28
November 2001............................. 1,451,565.29 239,693.25
December 2001............................. 1,378,561.46 186,157.75
January 2002.............................. 1,296,613.23 187,649.03
February 2002............................. 1,226,895.54 285,920.87
March 2002................................ 1,140,842.20 307,388.57
April 2002................................ 1,043,500.06 234,606.69
May 2002.................................. 974,637.37 87,955.64
June 2002................................. 936,376.55 93,540.13
July 2002................................. 892,327.41 126,957.31
August 2002............................... 845,426.62 93,471.28
</TABLE>
55
<PAGE> 59
<TABLE>
<CAPTION>
MONTH AGGREGATE SCHEDULED PAYMENTS AGGREGATE BOOKED RESIDUAL VALUES
- ----- ---------------------------- --------------------------------
<S> <C> <C>
September 2002............................ 811,049.06 85,254.51
October 2002.............................. 766,346.22 43,790.16
November 2002............................. 742,670.42 42,654.35
December 2002............................. 713,581.55 34,456.39
January 2003.............................. 695,811.96 25,159.73
February 2003............................. 685,020.87 35,851.96
March 2003................................ 660,917.00 99,765.87
April 2003................................ 606,860.98 253,066.29
May 2003.................................. 507,854.12 227,007.20
June 2003................................. 425,080.03 277,116.56
July 2003................................. 319,733.68 301,727.80
August 2003............................... 205,855.71 308,442.56
September 2003............................ 110,641.22 229,725.84
October 2003.............................. 36,003.93 16,105.49
November 2003............................. 25,824.20 34,002.76
December 2003............................. 13,501.39 20,322.45
January 2004.............................. 8,118.11 4,389.08
February 2004............................. 6,497.74 6,957.44
March 2004................................ 5,188.19 2.00
April 2004................................ 4,968.56 6,079.11
May 2004.................................. 3,341.29 --
June 2004................................. 3,259.02 --
July 2004................................. 2,881.02 --
August 2004............................... 2,121.02 2.00
September 2004............................ 470.00 --
October 2004.............................. 295.00 --
November 2004............................. 295.00 --
December 2004............................. 295.00 --
January 2005.............................. 295.00 --
February 2005............................. 295.00 --
March 2005................................ 295.00 --
April 2005................................ -- --
</TABLE>
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<PAGE> 60
LEGAL MATTERS AFFECTING THE CONTRACTS
GENERAL
The Contracts that are leases are "triple-net" leases, requiring the Users
to pay all taxes, maintenance and insurance associated with the Equipment, and
cannot be canceled by the Users.
The Contracts which are leases 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 Advanta Business
Services, 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 Originator (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 the Contract.
Although the Contracts permit the Originator to repossess and dispose of the
related Equipment in the event of a lease default, and to credit the proceeds
against the User's liabilities thereunder, the remedies may be limited where the
User thereunder is subject to bankruptcy, or other insolvency proceedings.
UCC AND BANKRUPTCY CONSIDERATIONS
All Contracts that are leases are "chattel paper" which creates a security
interest in the related item of Equipment with respect to the 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 the 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 36.45% of the Statistical
Aggregate Contract Principal Balance have been so filed. Neither the Issuers nor
Advanta Business Services expect to take action 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. 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
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 the Equipment will result in claims against the
Users being unsecured and may adversely affect the ability of the Servicer to
realize on the Equipment.
For 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 the 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. Pursuant to the Contribution
Agreement, the Originator will sell and assign its interest in the Scheduled
Payments under the Contracts and its security interests in the Equipment
securing the Contracts to Advanta Leasing Receivables IX and, pursuant to the
Indenture, Advanta Leasing Receivables IX will assign its interest in the
Scheduled Payments under the Contracts and its security interests in the
Equipment to the Trustee. However, because of the administrative burden and
expense, none of the Originator, the Servicer, the Issuers or the Trustee will
amend or file any UCC financing statements to identify the Trustee as the new
secured party on the financing statement relating to the Equipment.
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<PAGE> 61
In most states, an assignment of a security interest in equipment relating
to a financing lease is an effective conveyance of a security interest without
amendment of any UCC financing statement relating to such Equipment, and the
assignee succeeds thereby to the assignor's rights as secured party. Such an
assignment will be made under the Contribution Agreement. By not identifying the
Trustee as the secured party on the financing statement, the security interest
of the Trustee in the Equipment could be defeated through fraud or negligence or
inadvertance by the Originator. In the absence of error, fraud or forgery by the
related User or administrative error by state or local agencies, the proper
initial filing of the financing statement relating to such Equipment will be
sufficient to protect the Trustee against the rights of subsequent purchasers of
such Equipment or subsequent lenders who take a security interest in the
Equipment. For Equipment as to which the original secured party failed to obtain
and assign to the Originator a perfected security interest (whether because the
Equipment has an initial cost which of $25,000 or less or for any other
reasons), the security interest of the Originator will be subordinated to, among
others, subsequent purchasers of the equipment and holders of perfected security
interests. Such a failure, however, with respect to any Equipment with an
initial cost in excess of $25,000 would constitute a breach of the warranties of
the Originator under the Contribution Agreement and would create an obligation
of the Issuers to remove the related Contract from the Trust Estate and of the
Originator to repurchase such Contract from the Issuers unless the breach is
cured. The Issuers will assign their rights pursuant to the Contribution
Agreement to the Trustee.
To the extent any of the Contracts are determined to be "true leases" (not
financing leases) title to the Residual Interests in the Equipment (including
the Residual Receipts thereon) will be held by the Originator. The Originator
will assign such interest to Advanta Leasing Receivables VIII. Advanta Leasing
Receivables VIII will grant a security interest in any such Equipment (including
the Residual Receipts thereon) to the Trustee. Under the Contribution Agreement,
the Originator has represented that the transfer of its interest in the Residual
Interest in the Equipment (including the Residual Receipts thereon) is an
absolute sale. In the event such transfer is recharacterized as a pledge, a
bankruptcy of the Originator may result in delays in realization on the
Equipment. As security for its obligations under the Contribution Agreement, the
Originator has pledged its Residual Interest (including the Residual Receipts
thereon) to Advanta Leasing Receivables VIII. To perfect the security interest
granted by Advanta Business Services and Advanta Leasing Receivables VIII, UCC
financing statements showing the Originator as debtor and Advanta Leasing
Receivables VIII as secured party and Advanta Leasing Receivables VIII as debtor
and the Trustee as secured party will be filed in certain states. The
jurisdictions will be selected so that filings are made to cover the
Originator's and Advanta Leasing Receivables VIII's interest, if any, in the
Equipment relating to Contracts which in the aggregate represent approximately
85% of the Statistical Aggregate Contract Principal Balance. Financing
statements will not be filed in all jurisdictions and, therefore, to the extent
Advanta Business Services or Advanta Leasing Receivables VIII has an interest in
Equipment not covered by one of such statements, their creditors may gain a
superior interest therein.
For some contracts, Advanta Business Services has acquired and,
accordingly, transferred to the Issuers, only a contractual right to certain
Scheduled Payments arising under the Contracts and the collateral therefor. The
originator of such Contracts has retained rights to the Equipment at the end of
the lease term and Residual Receipts. Thus, if the originator of such Contracts
were to become a debtor in a bankruptcy case, the timing or amount of Scheduled
Payments transferred to Advanta Business Services (and thus to the Issuers and
the Trustee) could be adversely affected. For example, if the Contracts in which
the Issuers only have a right to periodic payments are determined to be "true
leases" (not financing leases), under the federal bankruptcy code (the
"BANKRUPTCY CODE"), the bankruptcy trustee of the originator of such Contracts
(including the originator itself as a debtor-in-possession) may be authorized to
reject such Contracts. Rejection of a Contract is treated as a breach of such
Contract. Delays in and possible reductions of the amount of Scheduled Payments
owed by the Users might result. Additionally, the originator of such Contracts
may be permitted under the Bankruptcy Code, in certain circumstances, to dispose
of all of the rights under the Contracts (including the right to Scheduled
Payments transferred to Advanta Business Services). In such event, the proceeds
of the disposition of such Contracts paid to the Issuers (and therefore the
Trustee) may be less than the amount of the Scheduled Payments owed by the
Users.
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<PAGE> 62
Furthermore, the Bankruptcy Code provides 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 the 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.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes generally the material United States
federal income tax consequences of an investment in the Notes. The following
summary has been prepared and reviewed by Orrick, Herrington & Sutcliffe LLP as
special tax counsel to the Issuers ("SPECIAL TAX COUNSEL"). The summary is based
on the Internal Revenue Code of 1986, as amended (the "CODE") as of the date
hereof, and existing final, temporary and proposed Treasury regulations, revenue
rulings and judicial decisions, all of which are subject to prospective and
retroactive changes. The summary is addressed only to original purchasers of the
Notes, deals only with Notes held as capital assets within the meaning of
Section 1221 of the Code and, except as specifically set forth below, does not
address tax consequences of holding Notes that may be relevant to investors in
light of their own investment circumstances or their special tax situations,
such as certain financial institutions, tax-exempt organizations, life insurance
companies, dealers in securities, non-U.S. persons, or investors holding the
Notes as part of a conversion transaction, as part of a hedge or hedging
transaction, or as a position in a straddle for tax purposes. Further, this
discussion does not address alternative minimum tax consequences or any tax
consequences to holders of interests in a Noteholder. Special Tax Counsel is of
the opinion that the following summary of federal income tax consequences is
correct in all material respects. An opinion of Special Tax Counsel, however, is
not binding on the Internal Revenue Service ("IRS") or the courts, and no ruling
on any of the issues discussed below will be sought from the IRS. Moreover,
there are no authorities on similar transactions involving interests issued by
an entity with terms similar to those of the Notes described herein.
Accordingly, persons considering the purchase of Notes should consult their own
tax advisors with regard to the United States federal income tax consequences of
an investment in the Notes and the application of United States federal income
tax laws, as well as the laws of any state, local or foreign taxing
jurisdictions, to their particular situations.
CONSEQUENCES TO HOLDERS OF THE OFFERED NOTES
Treatment of the Notes as Debt. Special Tax Counsel is of the opinion
that, although no transaction closely comparable to that contemplated herein has
been the subject of any Treasury regulation, revenue ruling or judicial decision
and hence the matter cannot be free from doubt, the Notes will be characterized
as debt for United States federal income tax purposes. Additionally, the Issuers
will agree by entering into the Indenture, and the Noteholders will agree by
their purchase and holding of Notes, to treat the Notes as debt for United
States federal income tax purposes.
If, contrary to the opinion of Special Tax Counsel, the IRS successfully
asserted that a class of Notes did not represent debt for United States federal
income tax purposes, those Notes might be treated as equity interests in an
Issuer or some other entity for such purposes. If so treated, investors could be
treated for such purposes either as partners in a partnership or, alternatively,
as shareholders in a taxable corporation. Treatment of a Noteholder as a partner
could have adverse tax consequences to certain holders; for example, income to
foreign persons generally would be subject to United States tax and United
States tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their share
of partnership expenses. If the Notes instead were treated as corporate stock,
the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on the Notes
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<PAGE> 63
recharacterized as equity, and any increase in the corporate tax imposed with
respect to such corporation could materially reduce cash available to make
payments on the Notes; further, Noteholders might not be entitled to any
dividends received deduction in respect of payments of interest on Notes treated
as dividends. Prospective investors should consult with their own tax advisors
with regard to the consequences of each such possible alternative
characterization to them in their particular circumstances; the following
discussion assumes that the characterization of the Notes as debt is correct.
Interest and Original Issue Discount. In general, stated interest on a
Note will be includible in gross income as it accrues or is received in
accordance with a Noteholder's usual method of tax accounting. If a Class of
Notes is issued with original issue discount ("OID"), the provisions of Sections
1271 through 1273 and 1275 of the Code will apply to those Notes. Under those
provisions, a Holder of such a Note (including a cash basis holder) generally
would be required to include the OID on a Note in income for federal income tax
purposes on a constant yield basis, resulting in the inclusion of OID in income
in advance of the receipt of cash attributable to that income. In general, a
Note will be treated as having OID to the extent that its "stated redemption
price" exceeds its "issue price," if such excess equals or exceeds 0.25 percent
multiplied by the weighted average life of the Note (determined by taking into
account the number of complete years following issuance until payment is made
for each partial principal payment). Under Section 1272(a)(6) of the Code,
special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those debt
instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the Notes is
unclear, but the application of Section 1272(a)(6) could affect the rate of
accrual of OID and could have other consequences to Holders of the Notes.
Additionally, the IRS could take the position based on Treasury regulations that
none of the interest payable on a Note is "unconditionally payable" and hence
that all of such interest should be included in the Note's stated redemption
price at maturity. If sustained, such treatment should not significantly affect
tax liabilities for most Holders of the Notes, but prospective Noteholders
should consult their own tax advisors concerning the impact to them in their
particular circumstances. The Issuers intend to take the position that interest
on the Notes constitutes "qualified stated interest" and that the above
consequences do not apply.
The Class A-1 Notes may be subject to certain additional rules applicable
to "short-term obligations" if they are treated as having a maturity date of not
more than one year from the date of issuance; for this purpose, such maturity
date generally would be the last possible date that the obligation could be
outstanding by its terms, without regard to "remote or incidental" contingencies
(including defaults). In general, an individual or other cash method holder of a
short-term obligation is not required to accrue OID for federal income tax
purposes unless it elects to do so. Noteholders who report income for federal
income tax purposes on the accrual method of accounting and certain other
holders are required to include OID on short-term obligations on a straight-line
basis, unless an election is made to accrue the OID according to a constant
yield basis. In the case of a holder who is not required and does not elect to
include OID in income currently, any gain realized on the sale, exchange or
retirement of a short-term obligation will be ordinary income to the extent of
the OID accrued on a straight-line basis (or, if elected, according to a
constant interest method based on daily compounding) through the date of sale,
exchange or retirement. In addition, such non-electing holders who are not
subject to the current inclusion requirement described in this paragraph will be
required to defer deductions for any interest paid on indebtedness incurred or
continued to purchase or carry such short-term obligations in an amount not
exceeding the deferred interest income, until such deferred interest income is
realized. For purposes of determining the amount of OID subject to these rules,
all interest payments on a short-term obligation, including stated interest, are
included in the short-term obligation's stated redemption price at maturity.
Market Discount. A Holder of a Note who purchases an interest in a Note at
a discount that exceeds any OID not previously includible in income may be
subject to the "market discount" rules of Sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other disposition
of a Note and partial principal payments on a Note (in each case, other than a
"short-term obligation") are treated as ordinary income to the extent of accrued
market discount. The market discount rules also provide for deferral of interest
deductions with respect to debt incurred to purchase or carry a Note that has
market discount.
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<PAGE> 64
Market Premium. A Holder of a Note who purchases an interest in a Note at
a premium may elect to amortize the premium against interest income over the
remaining term of the Note in accordance with the provisions of Section 171 of
the Code.
Disposition of the Notes. Upon the sale, exchange, or retirement of a
Note, the Holder of the Note generally will recognize taxable gain or loss in an
amount equal to the difference between the amount realized on the sale (other
than amounts attributable to accrued interest) and the Holder's adjusted tax
basis in the Note. The Holder's adjusted tax basis in the Note generally will
equal the cost of the Note to such Holder, increased by any market or original
issue discount previously included in income by such Holder with respect to the
Note, and decreased by the amount of any bond premium previously amortized and
any payments of principal or OID previously received by such Holder with respect
to such Note. Subject to the discussion of "short-term obligations" above, any
such gain or loss generally will be capital gain or loss, except to the extent
of accrued market discount not previously included in income, and will be
long-term capital gain or loss if at the time of sale the Note has been held for
more than one year.
Foreign Holders. Under United States federal income tax law now in effect,
payments of interest by the Issuers to a Holder of a Note who, as to the United
States, is a nonresident alien individual or a foreign corporation (a "foreign
person") generally will be considered "portfolio interest," and generally will
not be subject to United States federal income tax and withholding tax, provided
the interest is not effectively connected with the conduct of a trade or
business within the United States by the foreign person and the foreign person
(i) is not for United States federal income tax purposes (a) actually or
constructively a "10 percent shareholder" of an Issuer, (b) a "controlled
foreign corporation" with respect to which an Issuer is a "related person"
within the meaning of the Code, or (c) a bank extending credit pursuant to a
loan agreement entered into in the ordinary course of its trade or business, and
(ii) provides the person who is otherwise required to withhold United States tax
with respect to the Notes with an appropriate statement (on IRS Form W-8 or a
substitute form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions (as is expected to be the
case unless Definitive Notes are issued), the organization or institution may
provide the relevant signed statement generally to the withholding agent; in
that case, however, the signed statement generally must be accompanied by an IRS
Form W-8 or substitute form provided by the foreign person that owns the Note.
If such interest is not portfolio interest, then it will be subject to United
States federal income and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable tax treaty or such interest is effectively
connected with the conduct of a trade or business within the United States and,
in either case, the appropriate statement has been provided. The U.S. Treasury
Department recently issued final Treasury regulations which will revise some of
the foregoing procedures whereby a foreign person may establish an exemption
from withholding generally beginning January 1, 2001; foreign persons should
consult their tax advisors concerning the impact to them, if any, of such
revised procedures.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income tax and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person, and (ii) in the case of an individual foreign
person, such individual is not present in the United States for 183 days or more
in the taxable year.
Backup Withholding. Payments of principal and interest, as well as
payments of proceeds from the sale, retirement or disposition of a Note, may be
subject to "backup withholding" tax under Section 3406 of the Code at a rate of
31% if a recipient of such payments fails to furnish to the payor certain
identifying information. Any amounts deducted and withheld would be allowed as a
credit against such recipient's United States federal income tax, provided
appropriate proof is provided under rules established by the IRS. 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.
Backup withholding will not apply with respect to payments made to certain
exempt recipients, such as corporations and financial institutions. Holders of
the Notes should consult their tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
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<PAGE> 65
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY, MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR TAX SITUATION, AND DOES NOT PURPORT TO ADDRESS THE ISSUES DESCRIBED
WITH THE DEGREE OF SPECIFICITY THAT WOULD BE PROVIDED BY A TAXPAYER'S OWN TAX
ADVISOR. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL TAX
LAWS.
STATE TAX CONSEQUENCES
Because of the differences in state and local tax laws and their
applicability to different investors, it is not possible to summarize the
potential state and local tax consequences of holding the Notes. However,
purchasers of Notes should be aware that if some of the Notes were classified as
interests in a partnership rather than as debt for applicable state and local
tax purposes, certain states and localities might assert that the partnership is
doing business therein and subject the affected Holders to taxation as a result
of holding the affected Notes. In addition, the Issuers, as Nevada corporations,
are not subject to income or franchise taxes imposed by the state of Nevada, but
the Issuers could be taxable in other states and localities by reason of their
activities; if so, state and local taxes could reduce amounts available for
distribution to Holders of the Offered Notes. ACCORDINGLY, PURCHASERS OF NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE STATE AND LOCAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ANY NOTES.
LEGAL INVESTMENT
The Class A-1 Notes will be an "eligible security" within the meaning of
Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and certain collective investment funds or
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility
provisions of ERISA and/or Section 4975 of the Code (collectively, "PLANS"), and
on persons who are fiduciaries with respect to Plans, in connection with the
investment of "plan assets" of any Plan ("PLAN ASSETS"). ERISA generally imposes
on Plan fiduciaries certain general fiduciary requirements, including those of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons ("parties in interest" under ERISA and
"disqualified persons" under the Code, collectively, "PARTIES IN INTEREST") who
have certain specified relationships to a Plan or its Plan Assets, unless a
statutory or administrative exemption is available. Parties in Interest that
participate in a prohibited transaction may be subject to a penalty imposed
under ERISA and/or an excise tax imposed pursuant to Section 4975 of the Code,
unless a statutory or administrative exemption is available. These prohibited
transactions generally are set forth in Section 406 of ERISA and Section 4975 of
the Code.
Subject to the considerations described below, the Notes are eligible for
purchase with Plan Assets of any Plan.
Any Plan fiduciary or other Plan investor considering whether to purchase
the Notes with Plan Assets of any Plan should determine whether such purchase is
consistent with its fiduciary duties and whether such purchase would constitute
or result in a non-exempt prohibited transaction under ERISA and/or Section 4975
of the Code because any of the Originator, the Issuers, the Servicer, the
Trustee or any other party may be Parties in Interest with respect to the
investing Plan and may be deemed to be benefiting from the issuance of the
Notes. If the Originator, any Issuer or the Servicer is a Party in Interest with
respect to the prospective
62
<PAGE> 66
Plan investor, any Plan fiduciary or other Plan investor considering whether to
purchase or hold the Notes should consult with its counsel regarding the
availability of exemptive relief under U.S. Department of Labor ("DOL")
Prohibited Transaction Class Exemption ("PTCE") 96-23 (relating to transactions
determined by "in-house asset managers"), 95-60 (relating to transactions
involving insurance company general accounts), 91-38 (relating to transactions
involving bank collective investment funds), 90-1 (relating to transactions
involving insurance company pooled separate accounts) or 84-14 (relating to
transactions determined by independent "qualified professional asset managers")
or any other prohibited transaction class exemption issued by the DOL. A
purchaser of the Notes should be aware, however, that even if the conditions
specified in one or more of the above-referenced class exemptions are met, the
scope of the exemptive relief provided by the exemption might not cover all acts
which might be construed as prohibited transactions. In such case, an individual
prohibited transaction exemption must be requested and obtained from the DOL
pursuant to Section 408(a) of ERISA in order to effect any such transaction.
In addition, under DOL Regulation Section 2510.3-101 (the "PLAN ASSET
REGULATION"), the purchase with Plan Assets of equity interests in the Trust
Estate could, in certain circumstances, cause the Contracts and other property
and rights included in the Trust Estate to be deemed Plan Assets of the
investing Plan which, in turn, would subject the Issuers and the Trust Estate to
the fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code. Nevertheless, because the
Notes (a) are expected to be treated as indebtedness under local law and will,
in the opinion of Special Tax Counsel, be treated as debt, rather than equity,
for federal tax purposes (see "Federal Income Tax Consequences -- Consequences
to Holders of the Notes" herein), and (b) should not be deemed to have any
"substantial equity features," purchases of the Notes with Plan Assets should
not be treated as equity investments and, therefore, the Contracts and other
assets included in the Trust Estate should not be deemed to be Plan Assets of
the investing Plans. Those conclusions are based, in part, upon the traditional
debt features of the Notes, including the reasonable expectation of purchasers
of the Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features.
The Notes may not be purchased or held by any Plan, or any person investing
Plan Assets of any Plan, if any of the Originator, the Issuers, the Servicer,
the Trustee or any of their respective affiliates (a) has investment or
administrative discretion with respect to the Plan Assets used to effect such
purchase; (b) has authority or responsibility to give, or regularly gives,
investment advice with respect to such Plan Assets, for a fee and pursuant to an
agreement or understanding that such advice (1) will serve as a primary basis
for investment decisions with respect to such Plan Assets, and (2) will be based
on the particular investment needs of such Plan; or (c) unless PTCE 95-60, 91-38
or 90-1 is applicable, is an employer maintaining or contributing to such Plan.
Each purchaser or holder of the Notes or any interest therein will be deemed to
have represented by its purchase and holding thereof that it is not subject to
the foregoing limitation.
Any Plan fiduciary or other Plan investor considering whether to purchase
any Notes on behalf of or with Plan Assets of any Plan should consult with its
counsel and refer to this Prospectus for guidance regarding the ERISA
considerations applicable to the Notes offered hereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and church plans (as defined in Section 3(33) of ERISA)
with respect to which the election provided by Section 410(d) of the Code has
not been made, are not subject to the requirements of ERISA or Section 4975 of
the Code. Accordingly, assets of such plans may be invested in the Notes without
regard to the ERISA considerations described herein, subject to the provisions
of other applicable federal and state law. However, any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
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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,
Advanta Business Services 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>
UNDERWRITERS OF THE PRINCIPAL AMOUNT OF THE
CLASS A-1 NOTES CLASS A-1 NOTES
- ------------------- -----------------------
<S> <C>
First Union Capital Markets Corp. .......................... $47,364,426
Barclays Capital Inc. ...................................... $ 3,565,064
-----------
$50,929,490
===========
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITERS OF THE PRINCIPAL AMOUNT OF THE
CLASS A-2 NOTES CLASS A-2 NOTES
- ------------------- -----------------------
<S> <C>
First Union Capital Markets Corp. .......................... $35,805,862
Barclays Capital Inc. ...................................... $ 2,695,065
-----------
$38,500,927
===========
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITERS OF THE PRINCIPAL AMOUNT OF THE
CLASS A-3 NOTES CLASS A-3 NOTES
- ------------------- -----------------------
<S> <C>
First Union Capital Markets Corp. .......................... $ 8,784,508
Barclays Capital Inc. ...................................... $ 661,200
-----------
$ 9,445,708
===========
</TABLE>
The Issuers have been advised by First Union Capital Markets Corp., as
representative of the Underwriters (the "REPRESENTATIVE"), 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 0.05% per
Class A-1 Note, 0.15% per Class A-2 Note and 0.20% per Class A-3 Note. The
Underwriters may allow and such dealers may reallow to other dealers a discount
not in excess of 0.025% per Class A-1 Note, 0.075% per Class A-2 Note and 0.100%
per Class A-3 Note.
<TABLE>
<CAPTION>
UNDERWRITERS'
DISCOUNTS AMOUNT PER
CLASS AND COMMISSIONS $1,000 OF PRINCIPAL TOTAL AMOUNT
----- ---------------------- ------------------- ------------
<S> <C> <C> <C>
A-1 0.225% $2.25 $114,591
A-2 0.375% $3.75 $144,378
A-3 0.397% $3.97 $ 37,499
----- --------
Total $296,469
===== ========
</TABLE>
Additional offering expenses are estimated to be $500,000.
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;
64
<PAGE> 68
(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 of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or persons to whom such document may otherwise lawfully be
issued, distributed or passed on.
The Originator and the Issuers have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act. The
Issuers have been advised by the Representative 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 Offered
Notes. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such person may bid
for or purchase the Offered Notes for the purpose of stabilizing its market
price.
RATINGS OF THE NOTES
It is a condition to the issuance of the Notes that the Class A-1 Notes be
rated at least "P-1," the Class A-2 Notes be rated at least "Aaa," the Class A-3
Notes be rated at least "Aaa" and the Class B Notes be rated at least "A1" by
Moody's and the Class A-1 Notes be rated at least "F1+/AAA," the Class A-2 Notes
be rated at least "AAA," the Class A-3 Notes be rated at least "AAA" and the
Class B Notes be rated at least "A+" by Fitch, respectively (each, a "RATING
AGENCY" and, together, the "RATING AGENCIES").
Each 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 Residual Account and the Rating
Agency's opinion of the credit quality of the Contracts and the other Pledged
Assets included in the Trust Estate. The ratings are not a recommendation to
purchase, hold or sell the related Notes, inasmuch as ratings do not comment as
to market price or suitability for a particular investor. There is no assurance
that any 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 a rating may have an
adverse affect on the market price of the Notes. The rating of the Notes
addresses the likelihood of the timely payment of interest and the ultimate
payment of principal on the Notes by each Class's 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. See "Risk Factors -- Limited
Nature of Credit Ratings Assigned to the Notes."
EXPERTS
The balance sheets of Advanta Leasing Receivables Corp. VIII and Advanta
Leasing Receivables Corp. IX as of May 13, 1999, included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
65
<PAGE> 69
LEGAL MATTERS
Legal matters relating to the validity of the issuance of the Notes will be
passed upon for the Issuers by Orrick, Herrington & Sutcliffe LLP, Washington,
D.C. Legal matters related to Nevada law will be passed upon for the Issuers by
Woodburn & Wedge, Reno, Nevada. Legal matters will be passed upon for the
Underwriters by Moore & Van Allen, PLLC, Charlotte, North Carolina.
REPORTS TO NOTEHOLDERS
The Servicer will prepare monthly and annual reports that will contain
information about the Notes. The financial information contained in the reports
will be prepared in accordance with generally accepted accounting principles.
Unless and until Definitive Notes are issued, the reports will be sent to Cede,
the nominee of DTC, Cedelbank and Euroclear, as the case may be, and the
registered holder of the Notes. No reports will be sent to you.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement relating to the Offered Notes with the
SEC. This prospectus is part of the registration statement, but the registration
statement includes additional information.
The Servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the Notes.
You may read and copy any reports, statements or other information we file
at the SEC's public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at (800) SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings also are available to the public
on the SEC Internet Site (http://www.sec.gov).
66
<PAGE> 70
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Account............................. 44
Additional Principal................ 34
Advance Payments.................... 44
Advanta............................. 22
Advanta Business Services........... 13
Advanta Leasing Receivables VIII.... 13
Advanta Leasing Receivables IX...... 13
Aggregate Contract Principal
Balance........................... 18
Applicable Discount Rate............ 25
Available Funds..................... 38
Available Reserve Amount............ 41
Bankruptcy Code..................... 58
Beneficial Owners................... 32
Booked Residual Value............... 40
Business Day........................ 32
Calculation Date.................... 34
Cede................................ 35
Cedelbank........................... 37
Cedelbank Customers................. 37
Class............................... 13
Class A Notes....................... 13
Class A Noteholders................. 38
Class A Percentage.................. 34
Class A Principal Balance........... 34
Class A Principal Payment Amount.... 33
Class A Stated Maturity Date........ 32
Class A Target Investor Principal
Amount............................ 34
Class A-1 Initial Principal
Balance........................... 34
Class A-1 Interest Rate............. 33
Class A-1 Notes..................... 13
Class A-1 Note Factor............... 45
Class A-1 Note Interest............. 33
Class A-1 Principal Balance......... 34
Class A-1 Stated Maturity Date...... 32
Class A-2 Initial Principal
Balance........................... 34
Class A-2 Interest Rate............. 33
Class A-2 Notes..................... 13
Class A-2 Note Factor............... 46
Class A-2 Note Interest............. 33
Class A-2 Principal Balance......... 34
Class A-2 Stated Maturity Date...... 32
Class A-3 Initial Principal
Balance........................... 34
Class A-3 Interest Rate............. 33
Class A-3 Notes..................... 13
Class A-3 Note Factor............... 46
Class A-3 Note Interest............. 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Class A-3 Principal Balance......... 34
Class A-3 Stated Maturity Date...... 32
Class B Floor....................... 34
Class B Initial Principal Balance... 34
Class B Interest Rate............... 33
Class B Note Factor................. 46
Class B Note Interest............... 33
Class B Noteholders................. 38
Class B Notes....................... 13
Class B Percentage.................. 34
Class B Principal Balance........... 34
Class B Principal Payment Amount.... 34
Class B Special Redemption.......... 39
Class B Stated Maturity Date........ 32
Class B Target Investor Principal
Amount............................ 34
Closing Date........................ 13
Code................................ 59
Collateral Factor................... 46
Collection Account.................. 38
Collection Period................... 32
Complaint........................... 23
Contract Files...................... 16
Contract Principal Balance.......... 18
Contracts........................... 16
Contribution Agreement.............. 13
Cooperative......................... 37
CPR................................. 25, 51
Cumulative Loss Amount.............. 34
Cut-Off Date........................ 16, 25
Defaulted Contract.................. 40
Definitive Notes.................... 35
Delinquent Contract................. 40
Depositaries........................ 35
Determination Date.................. 32
DOL................................. 63
DTC................................. 35
Eligible Contract................... 41
Eligible Investments................ 44
Equipment........................... 16
ERISA............................... 62
Euroclear........................... 37
Euroclear Operator.................. 37
Euroclear Participants.............. 37
Euroclear System.................... 37
Events of Default................... 48
Events of Servicer Termination...... 50
</TABLE>
67
<PAGE> 71
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Excess Amount....................... 18
FFIEC............................... 22
Fitch............................... 44
Fleet............................... 23
Fleet Transaction................... 23
Holders............................. 32
Indenture........................... 13
Indirect Participants............... 35
Initial Aggregate Contract Principal
Balance........................... 25
Interest Accrual Period............. 32
Interest Payments................... 32
IRS................................. 59
Issuer.............................. 13
Issuers............................. 13
Issuers' Interest................... 39
IT.................................. 22
Master Agreement.................... 13
Monthly Principal Amount............ 33
Moody's............................. 44
Nonrecoverable Advances............. 45
Notes............................... 13
Noteholders......................... 32
Offered Notes....................... 13
Offset Amount....................... 41
OID................................. 60
Originator.......................... 13
Outstanding Principal Balance....... 34, 48
Participants........................ 35
Parties in Interest................. 62
Payment Date........................ 32
Plan Asset Regulation............... 63
Plan Assets......................... 62
Plans............................... 62
Pledged Assets...................... 16
Prepayment Amount................... 18
Project Office...................... 22
Prospectus.......................... 13
PTCE................................ 63
</TABLE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Purchase Option Payments............ 17
Rating Agencies..................... 65
Rating Agency....................... 65
Rating Agency Condition............. 48
Record Date......................... 32
Recoveries.......................... 47
Representative...................... 64
Required Reserve Amount............. 41
Reserve Account..................... 41
Reserve Account Initial Deposit..... 15, 41
Residual Account.................... 40
Residual Event...................... 40
Residual Interest................... 13
Residual Receipts................... 46
S&P................................. 44
Scheduled Payments.................. 18
SEC................................. 15
Securities Act...................... 15
Security Deposit.................... 41
Series Supplement................... 13
Servicer............................ 14
Servicer Advance.................... 45
Servicer Fee........................ 47
Servicer Fee Rate................... 47
Servicing Charges................... 47
Special Tax Counsel................. 59
Stated Maturity Date................ 32
Statistical Aggregate Contract
Principal Balance................. 25
Statistical Calculation Date........ 25
Statistical Discount Rate........... 25
Terms and Conditions................ 38
Trust Estate........................ 17
Trustee............................. 13
UCC................................. 17
Underwriters........................ 64
Underwriting Agreement.............. 64
User................................ 17
Year 2000 Issue..................... 22
</TABLE>
68
<PAGE> 72
APPENDICES
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
A Global Clearance, Settlement and Tax Documentation A-1
Procedures................................................
B Report of Independent Accountants for Advanta Leasing B-1
Receivables Corp. VIII....................................
C Financial Statements of Advanta Leasing Receivables Corp. C-1
VIII......................................................
D Notes to Advanta Leasing Receivables Corp. VIII Financial D-1
Statements................................................
E Report of Independent Accountants for Advanta Leasing E-1
Receivables Corp. IX......................................
F Financial Statements of Advanta Leasing Receivables Corp. F-1
IX........................................................
G Notes to Advanta Leasing Receivables Corp. IX Financial G-1
Statements................................................
</TABLE>
69
<PAGE> 73
APPENDIX A
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in limited circumstances, the globally offered Equipment Receivables
Asset-Backed Notes, Series 1999-1 (the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedelbank or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedelbank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet specific requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedelbank and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC (other than
through accounts at Cedelbank or Euroclear) will follow the settlement practices
applicable to U.S. corporate debt obligations. Investor securities custody
accounts will be credited with their holdings against payment in same-day funds
on the settlement date.
Investors electing to hold their Global Securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds in registered form. Global Securities will be credited to
the securities custody accounts on the business day following the settlement
date against payment for value on the settlement date.
SECONDARY MARKET TRADING
Because the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants (other than Citibank, N.A. ("Citibank") and Morgan Guaranty Trust
Company of New York ("Morgan") as depositories for Cedelbank and Euroclear,
respectively) will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedelbank Customers and/or Euroclear
Participants. Secondary market trading between Cedelbank Customers and/or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
A-1
<PAGE> 74
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
(other than Citibank and Morgan as depositories for Cedelbank and Euroclear,
respectively) to the account of a Cedelbank Customer or a Euroclear Participant,
the purchaser will send instructions to Cedelbank or Euroclear, as the case may
be, before settlement date 12:30. Cedelbank or Euroclear, as the case may be,
will instruct Citibank or Morgan respectively, to receive the Global Securities
against payment. Payment will then be made by Citibank or Morgan, as the case
may be, to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedelbank Customer's or Euroclear
Participant's account. Credit for the Global Securities will appear the next day
(European time) and cash debit will be back-valued to, and the interest on the
Global Securities will accrue from, the value date (which would be the preceding
day when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedelbank or Euroclear cash
debit will be valued instead as of the actual settlement date.
Cedelbank Customers and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedelbank or Euroclear. Under this approach,
they may take on credit exposure to Cedelbank or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Customers or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedelbank Customers or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedelbank
Customer's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
Citibank or Morgan for the benefit of Cedelbank Customers or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently from a trade between two DTC Participants.
Trading between Cedelbank or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedelbank Customers and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through Citibank or Morgan, to another DTC Participant. The seller will send
instructions to Cedelbank or Euroclear, as the case may be, before settlement
date 12:30. In these cases, Cedelbank or Euroclear will instruct Citibank or
Morgan, as appropriate, to credit the Global Securities to the DTC Participant's
account against payment. The payment will then be reflected in the account of
the Cedelbank Customer or Euroclear Participant the following business day, and
receipt of the cash proceeds in the Cedelbank Customer's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). If the Cedelbank Customer
or Euroclear Participant has a line of credit with its respective clearing
system and elects to draw on such line of credit in anticipation of receipt of
the sale proceeds in its account, the back-valuation may substantially reduce or
offset any overdraft charges incurred over that one-day period. If settlement is
not completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Cedelbank Customer's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that
A-2
<PAGE> 75
generally applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless, under currently applicable law,
(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
Certificates that are non-U.S. Persons generally 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, 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 that are Certificate Owners 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 the Certificate Owner or
his 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 Certificate Owner of a
Global Security 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.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities. Further, the U.S. Treasury Department has recently finalized
new regulations that will revise some aspects of the current system for
withholding on amounts paid to foreign persons. Under these regulations,
interest or OID paid to a nonresident alien would continue to be exempt from
U.S. withholding taxes (including backup withholding) provided that the holder
complies with the new certification procedures.
A-3
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Advanta Leasing Receivables Corp. VIII:
We have audited the accompanying balance sheet of Advanta Leasing
Receivables Corp. VIII (a Nevada corporation and wholly owned subsidiary of
Advanta Business Services Corp.) as of May 13, 1999. 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.
VIII as of May 13, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
May 13, 1999
B-1
<PAGE> 77
ADVANTA LEASING RECEIVABLES CORP. VIII
BALANCE SHEET -- AS OF MAY 13, 1999
<TABLE>
<S> <C>
ASSET
CASH........................................................ $1,000
======
SHAREHOLDER'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> 78
ADVANTA LEASING RECEIVABLES CORP. VIII
NOTES TO FINANCIAL STATEMENT
MAY 13, 1999
1. NATURE OF OPERATIONS:
Advanta Leasing Receivables Corp. VIII (the "Company"), a wholly owned
subsidiary of Advanta Business Services Corp. ("ABSC"), was incorporated in the
state of Nevada on May 5, 1999. 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 May 13, 1999.
D-1
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Advanta Leasing Receivables Corp. IX:
We have audited the accompanying balance sheet of Advanta Leasing
Receivables Corp. IX (a Nevada corporation and wholly owned subsidiary of
Advanta Business Services Corp.) as of May 13, 1999. 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.
IX as of May 13, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
May 13, 1999
E-1
<PAGE> 80
ADVANTA LEASING RECEIVABLES CORP. IX
BALANCE SHEET -- AS OF MAY 13, 1999
<TABLE>
<S> <C>
ASSET
CASH........................................................ $1,000
======
SHAREHOLDER'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
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Total liabilities and shareholder's equity........ $1,000
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</TABLE>
The accompanying notes are an integral part of this statement.
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ADVANTA LEASING RECEIVABLES CORP. IX
NOTES TO FINANCIAL STATEMENT
MAY 13, 1999
1. NATURE OF OPERATIONS:
Advanta Leasing Receivables Corp. IX (the "Company"), a wholly owned
subsidiary of Advanta Business Services Corp. ("ABSC"), was incorporated in the
state of Nevada on May 5, 1999. 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 May 13, 1999.
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ADVANTA LEASING RECEIVABLES CORP. VIII
ADVANTA LEASING RECEIVABLES CORP. IX
ISSUERS
ADVANTA BUSINESS SERVICES CORP.
ORIGINATOR AND SERVICER
EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES 1999-1
$50,929,490 5.76664% Class A-1 Equipment Receivables Asset-Backed Notes
$38,500,927 6.64% Class A-2 Equipment Receivables Asset-Backed Notes
$ 9,445,708 6.90% Class A-3 Equipment Receivables Asset-Backed Notes
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PROSPECTUS
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FIRST UNION CAPITAL MARKETS CORP. BARCLAYS CAPITAL
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Class A notes in any state where the offer is not
permitted.
Dealers will deliver a prospectus when acting as underwriters of the Class
A notes and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Class A notes will deliver a prospectus until
November 21, 1999.
