<PAGE>
As filed with the Securities and Exchange Commission on July 10, 1998
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PROVIDENT EQUIPMENT LEASE TRUST 1998-A
(Issuer)
PROVIDENT LEASE RECEIVABLES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 9999 31-1605466
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
102 West Eighth Street
Cincinnati, Ohio 45203
(513) 579-2867
(Address, including zip code, and telephone number, including area code,
of principal executive offices of Registrant)
Mark Magee
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2867
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Robert F. Hugi, Esq. Stuart M. Litwin, Esq.
Mayer, Brown & Platt Mayer, Brown & Platt
190 South LaSalle Street 190 South LaSalle Street
Chicago, Illinois 60603 Chicago, Illinois 60603
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum Amount of
Class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Unit(1) Price(1) Fee
---------------- ---------- ----------- -------- ---
<S> <C> <C> <C> <C>
Class A-1 Lease-Backed Notes $1,000,000 100% $1,000,000 $295
Class A-2 Lease-Backed Notes $1,000,000 100% $1,000,000 $295
Class B Lease-Backed Notes $1,000,000 100% $1,000,000 $295
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
PROVIDENT EQUIPMENT LEASE TRUST 1998-A
PROVIDENT LEASE RECEIVABLES CORPORATION
Cross Reference Sheet Furnished
Pursuant to Rule 501(b) of Regulation S-K
Item and Caption in Form S-1 Caption or Location in Prospectus
---------------------------- ---------------------------------
1. Forepart of Registration Statement Forepart of Registration
and Outside Cover Page of Prospectus Statement; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Underwriting
9. Description of Securities to be Summary; The Trust; The Lease
Registered Pool; Prepayment and Yield
Considerations; Description of
the Notes
10. Interests of Named Experts and Counsel *
11. Information With Respect to the The Trust; The Seller
Registrant
12. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
* Answer negative or item inapplicable.
2
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted without delivery of a final prospectus. This
prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED [ ], 1998
PROSPECTUS
$[__________]
Provident Equipment Lease Trust 1998-A, Issuer
Provident Lease Receivables Corporation, Seller
Information Leasing Corporation, Servicer
$[___________] [____]% Class A-1 Lease-Backed Notes
$[___________] [____]% Class A-2 Lease-Backed Notes
$[___________] [____]% Class B Lease-Backed Notes
The Provident Equipment Lease Trust 1998-A (the "Trust") will be formed
pursuant to a Trust Agreement, to be dated as of September __, 1998, between
Provident Lease Receivables Corporation (the "Seller") and [Trustee Name], as
Trustee (in such capacity, the "Trustee") and will issue the [___]% Class A-1
Lease-Backed Notes (the "Class A-1 Notes"), the [___]% Class A-2 Lease-Backed
Notes (the "Class A-2 Notes"; together with the Class A-1 Notes, the "Class A
Notes"), and the [___]% Class B Lease-Backed Notes (the "Class B Notes"; and
together with the Class A Notes, the "Notes"). The Notes will be issued
pursuant to an Indenture, to be dated as of [September __, 1998], between the
Trust and [Name of Indenture Trustee], as Indenture Trustee (in such capacity,
the "Indenture Trustee"). The Trust will also issue $________ [___]%
Lease-Backed Certificates (the "Certificates"; and together with the Notes,
the "Securities"), but the Certificates are not offered hereby.
(Cover continued on next page)
------------------------------------
Prospective investors should consider the "Risk Factors" commencing on
page [__] for a discussion of certain factors that should be considered
in connection with an investment in the Notes.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE SELLER, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES OR THE LEASES ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
------------------------------------
Initial Public Proceeds to
Offering Price Underwriting Discount Seller(2)
-------------- --------------------- ---------
Per Class A-1 Note % % %
Per Class A-2 Note % % %
Per Class B Note % % %
------------------------------------------------------
Total $ $ $
(1) Before deducting expenses estimated to be $[_______].
The Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter' right to reject any order
in whole or in part and to withdraw, cancel, or modify any order without
notice. It is expected that delivery of the Notes will be made in book-entry
form through the facilities of The Depository Trust Company on or about
[____________], 1998.
------------------------------------
LEHMAN BROTHERS
The date of this Prospectus is [ ], 1998.
<PAGE>
(cover page continued)
The Notes will represent secured obligations of the Trust. The assets of
the Trust will include a pool of computer, medical equipment, office equipment
and miscellaneous commercial leases, and all of the Trust's interest in the
equipment underlying the leases. The leases and the related interests in the
equipment were originated or acquired by Information Leasing Corporation
("ILC"), an Ohio corporation that is a wholly-owned subsidiary of The
Provident Bank, as described herein and will be sold or contributed by ILC to
Provident Lease Receivables Corporation (the "Seller"), a special purpose
bankruptcy remote subsidiary of ILC under a purchase agreement (the "Purchase
Agreement") by and between ILC and the Seller, and will in turn be transferred
by the Seller to the Trust pursuant to the Sale and Servicing Agreement (the
"Sale and Servicing Agreement") to be entered into among the Trust, the Seller
and the Servicer.
Payments of principal and interest to the holders of record (the
"Holders") of the Class A Notes (the "Class A Noteholders") will have the
benefit of limited credit support consisting of the subordination of the Class
B Notes and the Certificates, funds on deposit in the reserve account,
Residual Realizations and the Overcollateralization Amount. The Holders of the
Class B Notes (the "Class B Noteholders"; and together with the Class A
Noteholders, the "Noteholders") will have the benefit of limited credit
support in the form of the subordination of the Certificates, funds on deposit
in the reserve account, Residual Realizations and the Overcollateralization
Amount. Capitalized terms used herein will have the meanings ascribed to such
terms herein. The pages on which terms are defined are set forth on the Index
of Terms contained herein.
Interest on the Notes will be payable monthly in arrears on the 25th day
of each month (or if such date is not a business day, the next succeeding
business day) beginning on ____________, 1998 (each, a "Payment Date") with
respect to the period from and including the immediately preceding Payment
Date (or with respect to the initial Payment Date, the Issuance Date) to the
day prior to such current Payment Date. Principal payments with respect to the
Notes will be payable on each Payment Date beginning on _____________, 1998.
The stated maturity date with respect to the Class A-1 Notes is the Payment
Date in [month/year], the stated maturity date with respect to the Class A-2
Notes and the Class B Notes is the Payment Date in [month/year]. However, if
all payments on the leases are made as scheduled, final payment with respect
to the Notes would occur prior to stated maturity and it is expected that the
Notes will mature prior to stated maturity. See "Prospectus Summary--Expected
Maturity; Stated Maturity". In addition, if Early Lease Terminations or
Casualties (each, as described herein) occur, or if an Event of Default
occurs, repayment of principal on the Notes may be earlier than would
otherwise be the case.
The Servicer will have the option, subject to certain conditions, to
repurchase the Leases and cause the Trust to redeem all, but not less than
all, of the Notes and thereby cause early repayment of the Notes as of any
Payment Date on which the Discounted Present Value of the Performing Leases is
less than or equal to 5% of the Discounted Present Value of the Leases as of
the Cut-Off Date (after giving effect to the payment of principal on such
Payment Date). The Trust will give notice of such redemption to each
Noteholder and the Indenture Trustee at least 30 days before the Payment Date
fixed for such prepayment. Upon deposit of funds necessary to effect such
redemption, the Indenture Trustee shall pay the remaining unpaid principal
amount on the Notes and all accrued and unpaid interest as of the Payment Date
fixed for redemption. See "Description of the Notes--Redemption".
The Notes offered hereby are being offered pursuant to this Prospectus.
Sales of the Notes may not be consummated unless the purchaser has received
this Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE NOTES OFFERED HEREBY, INCLUDING PURCHASES OF NOTES TO STABILIZE THE MARKET
PRICE AND THE IMPOSITION OF BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING" HEREIN.
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered pursuant to this Prospectus and described herein. For further
information, reference is made to the Registration Statement which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, monthly
unaudited reports containing information concerning the Notes and the Leases
will be prepared by the Servicer and will be sent on behalf of the Trust to
Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"), as
the registered holder of the Notes. Such reports will be made available by
DTC, and its participants to holders of interests in the Notes (the "Note
Owners") in accordance with the rules, regulations and procedures creating and
affecting DTC. See "Certain Information Regarding the Notes--Book Entry
Registration". However, such reports will not be sent directly to any
beneficial owner while the Notes are in book-entry form. Upon the issuance of
fully registered, certificated Notes, such reports will be sent directly to
each Note Owner. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Seller, as originator of the Trust, will file with the Commission such
periodic reports with respect to the Trust as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations of the Commission thereunder.
4
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. A listing of
pages on which terms are defined can be found in the "Index of Terms" herein.
Trust............................ Provident Equipment Lease Trust 1998-A
(the "Trust"), a Delaware business trust
to be formed pursuant to the Trust
Agreement, to be dated as of September __,
1998 (the "Trust Agreement") between the
Seller and the Trustee. The activities of
the Trust will be limited by the terms of
the Trust Agreement to purchasing, owning
and managing the Leases, issuing and
making payments on the Notes and the
Certificates, and other activities related
to the foregoing. The Trust will have no
significant assets other than the Trust
Property.
Seller........................... Provident Lease Receivables Corporation
(the "Seller"), a [Delaware] corporation.
The Seller's offices are located at 1023
West Eighth Street, Cincinnati, Ohio
45203, and its phone number is (513)
579-2861. The Seller will be established
as a wholly-owned bankruptcy remote
subsidiary of ILC Corporation and is
intended to be a limited-purpose
corporation. Accordingly, the Seller's
operations have been restricted to (a)
limit its ability to engage in business
with, or incur liabilities to, any other
entity which may bring bankruptcy
proceedings against the Seller; and (b)
decrease the risk that it would be
consolidated into the bankruptcy
proceedings of any other entity.
Servicer......................... ILC (the "Servicer"), an Ohio corporation
that is a wholly-owned subsidiary of The
Provident Bank. ILC will enter into a
purchase agreement (the "Purchase
Agreement") to be dated September ___,
1998, with the Seller to sell the Leases
[and contribute] its interest in the
Equipment to the Seller, and will also
enter into a Sale and Servicing Agreement
(the "Sale and Servicing Agreement"), to
be dated September ___, 1998, with the
Seller and the Trust pursuant to which the
Seller will sell the Leases and its
interest in the Equipment to the Trust and
the Servicer will agree to service the
Leases included in the Lease Pool and make
Servicer Advances.
Indenture Trustee................ [Indenture Trustee Name], as indenture
trustee (the "Indenture Trustee") under
the Indenture, to be dated as of September
___, 1998 (the "Indenture") between
the Trust and the Indenture Trustee.
Trustee.......................... [Trustee Name], as trustee under the Trust
Agreement (the "Trustee").
The Notes........................ $[__________] aggregate principal amount
(the "Class A-1 Initial Principal Amount")
of [____]% Class A-1 Lease-Backed Notes
(the "Class A-1 Notes"),
$[__________] aggregate principal amount
(the "Class A-2 Initial Principal Amount",
together with the Class A-1 Initial
Principal Amount, the "Class A Initial
Amount") of [____]% Class A-2 Lease-Backed
Notes (the "Class A-2 Notes"; together
with the Class A-1 Notes, the "Class A
Notes"), and
$[__________] aggregate principal amount
(the "Class B Initial Principal Amount",
together with the Class A Initial
Principal Amount, the "Initial Principal
Amount") of [____]% Class B Lease-Backed
Notes (the "Class B Notes"; together with
the Class A Notes, the "Notes").
The Notes will be issued pursuant to the
Indenture and will be secured by the
assets of the Trust pursuant to the
Indenture. The Class B Notes will be
subordinated to the Class A Notes to the
extent provided in the Indenture as
described herein. See "--Application of
Payments" and "Description of the Notes".
Discounted Present Value
of the Leases ................. The Initial Principal Amounts of the Class
A Notes and the Class B Notes set forth in
"--the Notes" are based upon the
Discounted Present Value of the Leases as
of the close of business on ____________,
1998 (the "Cut-Off Date") calculated at
the Statistical Discount Rate. Certain
information concerning the Leases has been
calculated based on the Discounted Present
Value of the Leases as of the Cut-Off Date
calculated at the Statistical Discount
Rate. The Initial Principal Amount of
5
<PAGE>
the Notes and the Certificates will be
calculated using the actual Discount Rate.
See "--Initial Principal Amounts".
The "Discounted Present Value of the
Leases" at any given time, shall equal the
future remaining scheduled payments
(including Payaheads but excluding
delinquent amounts and Third Party
Amounts) from the Leases (including
Non-Performing Leases), discounted at a
rate equal to [____]% (the "Discount
Rate"), which rate is equal to the sum of
(a) the weighted average Interest Rate of
the Class A Notes (utilizing the Class A-2
Interest Rate), the Class B Notes and
Certificates on the Issuance Date and (b)
the Servicing Fee Rate of 0.75% per annum.
The "Discounted Present Value of the
Performing Leases" equals the Discounted
Present Value of the Leases reduced by the
Discounted Present Value of the
Non-Performing Leases. See "Description of
the Transfer and Servicing
Agreements--Distributions". Each of the
Indenture and the Sale and Servicing
Agreement will provide that any
calculation of future remaining scheduled
payments made on a Determination Date or
with respect to a Payment Date will be
calculated as of the related Determination
Date after giving effect to any payments
received prior to such Determination Date
to the extent such payments relate to
scheduled payments due and payable by the
Lessees with respect to the related Due
Period and all prior Due Periods.
"Statistical Discounted Present Value of
the Leases" means an amount equal to the
future remaining scheduled payments
(including Payaheads but excluding
delinquent amounts and Third Party
Amounts), from the Leases as of the
Cut-off Date, discounted at a rate equal
to [____]% (the "Statistical Discount
Rate"). The Statistical Discounted Present
Value of the Leases as of the Cut-Off Date
is $[________] and will not vary
materially from the Discounted Present
Value of the Leases as of the Cut-Off
Date. See "The Lease Pool--The Equipment".
The aggregate Discounted Present Value of
the Leases as of the Cut-Off Date,
calculated at the Discount Rate is
$[_________].
"Non-Performing Leases" are (a) Leases
that the Servicer has determined to be
more than 90 days delinquent or (b) Leases
that have been accelerated by the Servicer
or Leases that the Servicer has determined
to be uncollectible in accordance with its
customary practices. See "The Lease
Pool--The Leases". The Seller will
represent in the Sale and Servicing
Agreement that as of the Cut-Off Date,
such Lease was not a Non-Performing Lease.
Subordination.................... The Class A Notes will be paid
sequentially in accordance with the
provisions of the Indenture and as
described in clause (f) under "Application
of Payments". The Class A Notes will be
senior in right of payment to the Class B
Notes and the Class B Notes will be senior
in right to the Certificates to the extent
described in the Priority of Payments
herein. See "--Application of Payments"
and "Description of the Notes".
Terms of the Notes
A. Interest Payments......... Interest will accrue on the Class A-1
Notes at the rate of [____]% per annum
(the "Class A-1 Interest Rate") and will
be calculated on the basis of a year of
360 days and the actual number of days in
each Interest Accrual Period. Interest
will accrue on the Class A-2 Notes at the
rate of [____]% per annum (the "Class A-2
Interest Rate") and on the Class B Notes
at the rate of [____]% per annum (the
"Class B Interest Rate"), in each case
calculated on the basis of a year of 360
days comprised of twelve 30-day months.
With respect to any particular class of
Notes, the "Interest Rate" refers to the
applicable rate indicated in the
immediately preceding sentence.
On each Payment Date, the interest due
with respect to each of the Class A-1
Notes, the Class A-2 Notes and the Class B
Notes will be the interest that has
accrued on such class of Notes since the
immediately preceding Payment Date, or in
the case of the first Payment Date, since
the Issuance Date (each such period, an
"Interest Accrual Period") at the
applicable Interest Rate applied to the
unpaid principal amount (the "Outstanding
Principal Amount") of such class of Notes,
in each case calculated as of the
immediately preceding Payment Date after
giving effect to all payments of principal
on such class of Notes made on such
preceding Payment Date. See "Description
of the Notes--Interest Payments" and
"Description of the Transfer and Servicing
Agreements--Distributions".
6
<PAGE>
B. Principal Payments........ On each Payment Date, to the extent funds
are available therefor in accordance with
the Priority of Payments, the principal
payments will be paid to the Noteholders
in the following priority: (a) (i) to the
Class A-1 Noteholders only, until the
Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the
Class A Principal Payment, then (ii) to
the Class A-2 Noteholders only, until the
Outstanding Principal Amount on the Class
A-2 Notes has been reduced to zero, the
Class A Principal Payment, (b) to the
Class B Noteholders, the Class B Principal
Payment, (c) to the Certificateholders,
the Certificate Principal Payment, and (d)
to the extent that the Class B Floor
exceeds the Class B Target Investor
Principal Amount and/or the Certificate
Floor exceeds the Certificate Target
Investor Principal Amount, Additional
Principal shall be distributed,
sequentially, as an additional principal
payment on the Class A-1 Notes, Class A-2
Notes and the Class B Notes until the
Outstanding Principal Amount of each class
has been reduced to zero.
"Additional Principal" with respect to
each Payment Date is an amount equal to
(a) the difference between (i) the
Discounted Present Value of the Performing
Leases as of the Determination Date for
the preceding Payment Date and (ii) the
Discounted Present Value of the Performing
Leases as of the related Determination
Date, less (b) the Class A Principal
Payment, the Class B Principal Payment and
the Certificate Principal Payment to be
paid on such Payment Date.
The "Certificate Floor" with respect to
each Payment Date means (a) [_______]% of
the initial Discounted Present Value of
the Leases as of the Cut-Off Date, plus
(b) the Cumulative Loss Amount with
respect to such Payment Date, minus (c)
the sum of the Overcollateralization
Amount as of such Payment Date plus the
amount on deposit in the Reserve Account
after giving effect to withdrawals to be
made on such Payment Date.
The "Certificate Principal Payment" shall
equal (a) while the Class A-1 Notes are
outstanding, zero and (b) after the
Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the
amount necessary to reduce the Certificate
Balance to the greater of the Certificate
Target Investor Principal Amount and the
Certificate Floor.
The "Certificate Target Investor Principal
Amount" with respect to each Payment Date
is an amount equal to the product of (a)
[___]% (the "Certificate Percentage") and
(b) the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Class A Principal Payment" shall
equal (a) while the Class A-1 Notes are
outstanding, (i) on all Payment Dates
prior to the [month/year] Payment Date,
the lesser of (1) the amount necessary to
reduce the Outstanding Principal Amount on
the Class A-1 Notes to zero and (2) the
difference between (A) the Discounted
Present Value of the Performing Leases as
of the Determination Date for the
preceding Payment Date, and (B) the
Discounted Present Value of the Performing
Leases as of the related Determination
Date, and (ii) on the [month/year] Payment
Date, the entire Outstanding Principal
Amount on the Class A-1 Notes and (b)
after the Class A-1 Notes have been paid
in full, the amount necessary to reduce
the aggregate Outstanding Principal Amount
on the Class A Notes to the Class A Target
Investor Principal Amount.
The "Class A Target Investor Principal
Amount" with respect to each Payment Date
is an amount equal to the product of (a)
[___]% (the "Class A Percentage") and (b)
the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Class B Principal Payment" shall
equal (a) while the Class A-1 Notes are
outstanding, zero and (b) after the
Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the
amount necessary to reduce the 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 Floor" with respect to each
Payment Date (the "subject Payment Date")
means (a) [_____]% of the initial
Discounted Present Value of the Leases as
of the Cut-Off Date, plus (b) the
Cumulative Loss Amount with respect to the
7
<PAGE>
subject Payment Date, minus (c) the sum of
the Certificate Balance as of the
preceding Payment Date after giving effect
to all payments made on such Payment Date
plus the Overcollateralization Amount as
of the subject Payment Date plus the
amount on deposit in the Reserve Account
after giving effect to withdrawals to be
made on the subject Payment Date.
The "Class B Target Investor Principal
Amount" with respect to each Payment Date
is an amount equal to the product of (a)
[____]% (the "Class B Percentage") and (b)
the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Cumulative Loss Amount" with respect
to each Payment Date (the "subject Payment
Date") is an amount equal to the excess,
if any, of (a) the difference of (i) the
sum of the Outstanding Principal Amount of
the Notes and the Certificate Balance as
of the immediately preceding Payment Date
after giving effect to all payments made
on such Payment Date, minus (ii) the
lesser of (A) the Discounted Present Value
of the Performing Leases as of the
Determination Date relating to the
immediately preceding Payment Date minus
the Discounted Present Value of the
Performing Leases as of the Determination
Date related to the subject Payment Date
and (B) Available Funds remaining after
the payment of amounts owing the Servicer
and in respect of interest on the
Securities on the subject Payment Date
over (b) the Discounted Present Value of
Performing Leases as of the Determination
Date related to the subject Payment Date.
The "Overcollateralization Amount" with
respect to each Payment Date is an amount
equal to (a) the Discounted Present Value
of the Performing Leases as of the related
Determination Date minus (b) the
Outstanding Principal Amount of the Notes
and the Certificate Balance (after giving
effect to payments of principal (other
than Additional Principal) on such Payment
Date); provided, however, that such amount
will never be less than zero.
C. Redemption............... The Servicer will have the option, subject
to certain conditions, to repurchase the
Leases and cause the Trust to redeem all,
but not less than all, of the Notes and
thereby cause early repayment of the Notes
as of any Payment Date on which the
Discounted Present Value of the Performing
Leases is less than or equal to 5% of the
Discounted Present Value of the Leases as
of the Cut-Off Date. Upon the Payment Date
fixed for such prepayment, the remaining
unpaid principal amount on the Notes and
all accrued and unpaid interest thereon
shall become due and payable. See
"Description of the Notes--Redemption".
The Certificates................. $[__________] aggregate principal of
[____]% Lease-Backed Certificates (the
"Certificates"; and together with the
Notes, the "Securities"). The Certificates
represent fractional undivided interests
in the Trust and will be issued pursuant
to the Trust Agreement. Distributions of
interest and principal on the Certificates
will be subordinated in priority of
payment to interest and principal on the
Notes to the extent described herein. See
"The Transfer and Servicing
Agreements--Distributions on Securities"
herein. The Certificates are not offered
hereby.
Issuance Date.................... On or about September __, 1998.
Determination Date............... The third day prior to each Payment Date
or, if such day is not a business day, the
preceding business day (each, a
"Determination Date"). On each
Determination Date, the Servicer will
determine the amount of payments received
on the Leases from, but not including, the
__ day of the preceding calendar month
through the ___ day of the calendar month
of such Determination Date or, in the case
of the initial Determination Date, from,
but not including, the Cut-Off Date
through ________, 1998 (each such period,
a "Due Period") which will be available
for distribution on the related Payment
Date. See "Description of the Transfer and
Servicing Agreements--Distributions".
Payment Date..................... Payments on the Notes will be made on the
25th day of each month (or if such day is
not a business day, the next succeeding
business day), commencing on __________,
1998 (each, a "Payment Date"), to holders
of record ("Holders") of the Notes as of
the last day of the immediately preceding
calendar month (each,
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a "Record Date"). See "Description of the
Transfer and Servicing
Agreements--Distributions on Securities".
Denominations.................... The Notes will be issued in minimum
denominations of $1,000 and integral
multiples of $1,000 in excess thereof,
except that one Class A Note and Class B
Note may be issued in another
denomination.
Expected Maturity;
Stated Maturity.................. The expected maturity with respect to the
Class A-1 Notes, Class A-2 Notes, and the
Class B Notes are the Payment Dates in
[month/year], [month/year], [month/year],
[month/year] and [month/year],
respectively. The stated maturity date
with respect to the Class A-1 Notes will
be the Payment Date in [month/year] and
with respect to all other Notes will be
the Payment Date in [month/year]. However,
if all payments on the Leases are made as
scheduled, final payment with respect to
the Notes will occur prior to stated
maturity.
Trust Property................... The "Trust Property" will consist of a
pool (the "Lease Pool") of computer,
medical equipment, office equipment and
miscellaneous commercial lease contracts
(the "Lease Contracts"), including all
payments due thereunder (the "Lease
Receivables"; together with the Lease
Contracts, the "Leases") and the interest
in the related leased equipment (the
"Equipment") transferred by ILC to the
Seller, and by the Seller to the Trust. In
addition, the Trust Property will include
the funds on deposit in the Reserve
Account, if any, and to the limited extent
provided in the Trust Agreement, amounts
on deposit in the Residual Account, if
any.
The Lease Pool................... The Lease Pool will consist of the Leases
as of the Cut-Off Date, plus any
Substitute Leases excluding any Warranty
Leases which have been replaced by one or
more Substitute Leases and, the interest
of the Trust in the related Equipment. See
"The Lease Pool" and "Certain Legal
Matters Affecting a Lessee's Rights and
Obligations".
The Seller will represent and warrant
that, as of the Cut-Off Date, all Leases
were current or less than 32 days
delinquent and that, as of the initial
Determination Date, all Lessees have made
at least one lease payment.
Equipment........................ The Equipment is comprised primarily of
office equipment, such as personal
computers, copy machines and facsimile
machines, medical and ophthalmic equipment
and retail petroleum industry equipment,
such as leak detection systems, fueling
dispensers and other in-store equipment
such as coolers and shelving. As of the
Cut-Off Date, the Lease Pool had
approximately [____] equipment
categories.]
Lessees.......................... The Leases are comprised of commercial
equipment leases in a variety of
industries with businesses and individual
business owners (each, a "Lessee"; and
collectively, the "Lessees"), with no
single Lessee concentration of greater
than [___]%. As of the Cut-Off Date, the
Lease Pool included [____] separate Leases
and approximately [____] Lessees. As of
the Cut-Off Date, Leases relating to
Lessees in any one state did not account
for more than [____]% of the Statistical
Discounted Present Value of the Leases.
See "The Lease Pool--The Leases".]
Certain Lease Terms.............. The Leases are triple-net leases,
requiring the Lessee to pay all taxes,
maintenance and insurance associated with
the Equipment. The Leases are
non-cancelable by the Lessees. All
payments under the Leases are absolute,
unconditional obligations of the Lessees
without right of offset for any reason.
Each Lessee entered into its Lease for
specified Equipment designated in
schedules incorporated into the Lease. The
schedules, among other things, establish
the payments and the term of the Lease
with respect to such Equipment. The Leases
have remaining terms to maturity,
calculated as of the Cut-Off Date, of
between approximately [____] and [____]
months and a weighted average term to
stated maturity of [____] months. See "The
Lease Pool--The Leases".
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<PAGE>
Substitutions
and Adjustments.................. Although the Leases will be non-cancelable
by the Lessees, ILC has, from time to
time, permitted early termination by
Lessees ("Early Lease Termination") or
other modifications of the lease terms in
certain circumstances, including in
connection with a full or partial buy-out
or equipment upgrade. If ILC allows an
Early Lease Termination or other
modification of the lease term in
connection with a partial buy-out, the
amount prepaid by the lessor must be at
least equal to the Discounted Present
Value of the terminated Lease (or, in the
case of a partial buy-out, the portion
thereof related to such buy-out) plus any
delinquent payments. See "The Lease
Pool--The Leases".
The Servicer may (i) make adjustments to a
Lease (as so adjusted, an "Adjusted
Lease") which modify one or more terms of
such Lease, such as payment amount or
payment date and (ii) substitute one or
more leases having similar characteristics
(each, a "Substitute Lease") for Leases
subject to repurchase as a result of a
breach of representation, warranty or
covenant (each a "Warranty Lease"), in
either case so long as the following
conditions are met: (i) after giving
effect to such adjustments or
substitution, the aggregate Book Residual
Value (without duplication) of all
Adjusted Leases and Substitute Leases will
not be less than 90% of the aggregate
Booked Residual Value of the Leases
adjusted, replaced or substituted since
the Issuance Date, (ii) after giving
effect to such adjustment or substitution,
either the final payment on such Lease
must be on or prior to [stated maturity
month/year] or, to the extent the final
payment is due later, only scheduled
payments due on or prior to such date are
included in the Discounted Present Value
of such Lease for the purpose of making
any calculation under the Sale and
Servicing Agreement, (iii) after giving
effect to such adjustment or substitution,
the aggregate amount of Lease Payments
through the term of the Leases will not be
materially less than the aggregate
scheduled Lease Payments of the Leases
prior to such adjustment, and (iv) after
giving effect to such adjustment or
substitution, the Discounted Present Value
of the Performing Leases is not less than
the Discounted Present Value of the
Performing Leases prior to such
adjustment.
Substitute Leases will be originated using
the same credit criteria as the initial
Leases. To the extent material,
information with respect to such
Substitute Leases will be included in
periodic reports filed with the Commission
as are required under the Exchange Act.
Payments on Leases............... All payments on Leases will be made by the
Lessees to the address specified by the
Servicer. Unless otherwise permitted to
make deposits monthly, the Servicer will
deposit the proceeds of such payments to
the Collection Account within two Business
Days of the receipt thereof. See
"Description of Transfer and Servicing
Agreements--Distributions--Deposits to
Collection Account".
Advances by Servicer............. On any Determination Date, the Servicer
will be required to advance (each, a
"Servicer Advance") to the Trustee for
distribution as Available Funds on the
related Payment Date, an amount sufficient
to cover delinquencies on any scheduled
payment under Leases in the Trust Property
due during the related Due Period;
provided that the Servicer will not be
required to make any Servicer Advance if
it determines that such Servicer Advance
may not ultimately be recoverable by it
from recoveries from the applicable
Leases. The Servicer will be reimbursed
for Servicer Advances not recovered from
late payments or proceeds from the sale or
release of the Equipment under a Lease
with respect to which the Servicer has
made a Servicer Advance to the extent that
funds are available therefor in accordance
with the Priority of Payments on the
second Payment Date following the
Determination Date on which the Servicer
made such Servicer Advance. See
"Description of the Transfer and Servicing
Agreements--Distributions".
Servicing Fee.................... A Servicing Fee (the "Servicing Fee"),
will be paid monthly to the Servicer on
each Payment Date from amounts in the
Collection Account and will be calculated
by multiplying one-twelfth of 0.75% times
the lesser of (i) the sum of the aggregate
Outstanding Principal Amount of the Notes
and outstanding Certificate Balance, each
calculated as of the preceding Payment
Date, after giving effect to all payments
made on such Payment Date or (ii) the
Discounted Present Value of the Performing
Leases calculated as of the related
Determination Date.
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<PAGE>
The Servicing Fee will be paid to the
Servicer for servicing the Lease Pool and
to pay certain administrative expenses in
connection with the Notes and the
Certificates, including Trustee and
Indenture Trustee fees and expenses. The
Servicing Fee in respect of a Due Period
(together with any portion of the
Servicing Fee that remains unpaid from
prior Payment Dates) may be paid at the
beginning of such Due Period out of
collections for such Due Period. See
"Description of the Transfer and Servicing
Agreements--Servicing Compensation."
The Servicer will also collect and retain
any late fees, extension fees, prepayment
charges and certain non-sufficient funds
charges and other administrative fees or
similar charges (the "Supplemental
Servicing Fee") allowed by applicable law
with respect to the Leases.
In addition to the Servicing Fee and the
Supplemental Servicing Fee, the Servicer
is also entitled to retain, out of any
amounts received by the Servicer in
connection with the sale or release of any
Equipment subject to a NonPerforming Lease
upon the early termination of such Lease
or otherwise, (i) the Servicer's actual
out-of-pocket expenses reasonably incurred
in connection with such sale or release
and (ii) if the Servicer has made any
Servicer Advances with respect to any
Lease which thereafter became a
Non-Performing Lease and the Servicer has
not otherwise been fully reimbursed for
such Servicer Advance, the unreimbursed
portion thereof.
Available Funds.................. All payments made on or with respect to
the Leases with respect to the immediately
preceding Due Period received on or prior
to a Determination Date ("Available
Funds") will be available for distribution
by the Trustee on a Payment Date and will
include:
a) Lease Payments due during the
prior Due Period (net of any
Third Party Amounts);
b) Residual Realizations up to the
Residual Amount Cap;
c) recoveries from Non-Performing
Leases (net of amounts retained
by the Servicer);
d) proceeds from repurchases by ILC
of Leases as a result of breaches
of representations, warranties or
covenants to the extent ILC has
not substituted Substitute Leases
for such Leases;
e) proceeds from investment of funds
in the Collection Account, the
Reserve Account and the Residual
Account, if any;
f) Casualty Payments;
g) Servicer Advances;
h) Termination Payments;
i) funds, if any, on deposit in the
Reserve Account; and
j) funds, if any, on deposit in the
Residual Account to the limited
extent provided in the Indenture.
Application of
Payments......................... The "Priority of Payments" for the
Securities is as follows:
So long as no Event of Default has
occurred and the Notes have not been
accelerated, distributions will be made on
each Payment Date from Available Funds in
the following priority:
a) to pay the then accrued and
unpaid Servicing Fee;
b) to reimburse unreimbursed
Servicer Advances in respect of a
prior Payment Date;
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<PAGE>
c) to make Interest Payments owing
on the Class A Notes, pro rata
based on the respective amounts
due under this priority, to the
Class A-1 Noteholders and Class
A-2 Noteholders;
d) to make Interest Payments owing
on the Class B Notes;
e) to make Interest Payments owing
on the Certificates;
f) to make the Class A Principal
Payment (i) to the Class A-1
Noteholders only, until the
Outstanding Principal Amount on
the Class A-1 Notes is reduced to
zero, then (ii) to the Class A-2
Noteholders only, until the
Outstanding Principal Amount on
the Class A-2 Notes is reduced to
zero;
g) to make the Class B Principal
Payment;
h) to make the Certificate Principal
Payment;
i) to pay the Additional Principal,
if any, to the Class A
Noteholders then receiving the
Class A Principal Payment as
provided in clause (f) above
until the Outstanding Principal
Amount on all of the Class A
Notes has been reduced to zero,
then to the Class B Noteholders
until the Outstanding Principal
Amount on the Class B Notes has
been reduced to zero and
thereafter to the
Certificateholders until the
Certificate Balance has been
reduced to zero;
j) to the Reserve Account, an amount
equal to the excess of the
Required Reserve Amount over the
Available Reserve Amount;
k) following a Residual Event, to
the Residual Account an amount
equal to Residual Realizations up
to the Residual Amount Cap; and
l) to the Seller or any other person
legally entitled thereto, the
balance, if any.
Upon the occurrence of an Event of Default
and the acceleration of the Notes and
until such Event of Default has been
rescinded, distributions will be made in
the priority described in "Description of
the Transfer and Servicing
Agreement--Distributions". For a
description of Events of Default and
conditions to the acceleration of the
Notes, see "Description of the Notes--the
Indenture".
Residual Realizations............ Following the Issuance Date, net cash
flows realized by and allocable to ILC
from the sale or re-lease of the Equipment
following the scheduled expiration dates
of the Leases, other than Equipment
subject to Non-Performing Leases (the
"Residual Realizations"), shall be
deposited into the Collection Account
until the aggregate Residual Realizations
used (without duplication) to cover
amounts owing the Noteholders and Holders
of the Certificates (collectively, the
"Securityholders") and the Servicer,
deposited into the Reserve Account, on
deposit in the Residual Account, or
withdrawn from the Residual Account as a
result of an Available Funds Shortfall,
equals $[________], which represents
[___]% of the Discounted Present Value of
the Leases as of the Cut-Off Date (the
"Residual Amount Cap"), and will provide
additional credit support to the Notes and
the Certificates. Actual Residual
Realizations may be more or less than the
residual value of the Equipment recorded
on the books of the Seller (the "Booked
Residual Value"). Upon the occurrence of a
Residual Event, the Residual Realizations
not distributed to Securityholders, paid
to the Servicer or deposited into the
Reserve Account will be deposited in the
Residual Account. Funds on deposit in the
Residual Account will be available to
cover shortfalls in the amount available
to pay the amounts owing the Servicer and
to make interest and principal payments on
the Notes and the Certificates. Following
the termination of a Residual Event,
amounts on deposit in the Residual Account
will be deposited into the Reserve Account
to the extent that the amount on deposit
in the Reserve Account is less than the
required Reserve Amount and thereafter
will be disbursed to the Seller.
A "Residual Event" will occur when
[_________________].
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<PAGE>
The aggregate Booked Residual Value of the
Leases as of the Cut-Off Date equals
$[__________].
Reserve Account.................. The Securityholders will have the benefit
of funds on deposit in an account (the
"Reserve Account") to the extent that
there is a shortfall in the amount
available to pay amounts owing the
Servicer and to make interest and
principal payments on the Notes and the
Certificates, on any Payment Date. The
Reserve Account will be funded by an
initial deposit of [______]% of the
Discounted Present Value of the Leases as
of the Cut-Off Date. Thereafter, on any
Payment Date to the extent funds are
available therefor in accordance with the
Priority of Payments (and, on any Payment
Date following the termination of a
Residual Event, from the Residual
Account), additional deposits will be made
to the Reserve Account to the extent that
the amount on deposit in the Reserve
Account (the "Available Reserve Amount")
is less than the Required Reserve Amount.
The "Required Reserve Amount" equals the
lesser of (a) [______]% of the Discounted
Present Value of the Performing Leases as
of the Cut-Off Date and (b) the
Outstanding Principal Amount of the Notes
and the Certificate Balance. Amounts on
deposit in the Reserve Account in excess
of the Required Reserve Amount will be
disbursed to the Trust in accordance with
the provisions of the Indenture.
Federal Income Tax
Considerations................... It is intended that the Notes will be
characterized as debt, and the Trust will
not be characterized as an association (or
a publicly traded partnership) taxable as
a corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat
the Notes as indebtedness. See "Material
Federal Income Tax Considerations".
ERISA Considerations............. The Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and
Section 4975 of the Code place certain
restrictions on those pension and other
employee benefits plans to which they
apply. Pursuant to regulations issued by
the United States Department of Labor
defining "plan assets", if the Notes are
considered to be indebtedness under local
law without substantial equity features,
the assets of the Trust will not be
considered assets of any ERISA plan
holding the Notes, thereby generally
avoiding potential application of the
prohibited transaction rules under ERISA
and the Code to transactions entered into
by the Trust. However, regardless of
whether the Notes constitute an equity
interest in the Trust, the prohibited
transaction rules would be applicable to a
plan's purchase and holding of the Notes.
Certain exemptions from the prohibited
transaction rules could be applicable,
however, with respect to the acquisition
and holding of the Notes. Accordingly, the
Notes may be acquired by ERISA plans,
subject to certain restrictions. Before
purchasing any of the Notes, fiduciaries
of such plans should determine whether an
investment in the Notes is appropriate
under ERISA. By its acquisition of a Note,
each purchaser shall be deemed to
represent and warrant that its purchase
and holding of the Note will not result in
a nonexempt prohibited transaction under
ERISA or the Code. See "ERISA
Considerations".
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.
Rating........................... It is a condition to the issuance of any
of the Notes that the Class A-1 Notes be
rated at least ["___"] or its equivalent,
that the Class A-2 Notes be rated at least
["___"] or its equivalent, and that the
Class B Notes be rated at least ["___"] or
its equivalent, in each case by at least
two nationally recognized rating agencies
(the rating agencies rating the Notes
being the "Rating Agencies"). The ratings
assess the likelihood of timely payment of
interest and the ultimate payment of
principal to the Noteholders by the Stated
Maturity date. There is no assurance that
any rating will not be lowered or
withdrawn if, in the judgement of any
Rating Agency, circumstances in the future
so warrant. See "Rating of the Notes".
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<PAGE>
RISK FACTORS
Limited Liquidity. There is currently no public market for the Notes,
and there is no assurance that one will develop. The Underwriter expects, but
is not obligated, to make a market in the Notes. There is no assurance that
any such market will be created or, if so created, will continue. If no public
market develops, the Noteholders may not be able to liquidate their investment
in the Notes prior to maturity.
Early Termination and Related Reinvestment Risk. Because the rate of
payment of principal on the Notes will depend, among other things, on the rate
of payment on the Leases, such rate of payments of principal on the Notes
cannot be predicted. Payments on the Leases will include scheduled payments as
well as prepayments permitted by ILC, payments as a result of Non-Performing
Leases, Casualty Payments, and payments upon repurchases by the Seller and ILC
on account of a breach of certain representations, warranties or covenants in
the Sale and Servicing Agreement (to the extent not replaced by Substitute
Leases) (any such voluntary or involuntary prepayment, a "Lease Prepayment").
The rate of early terminations of Leases due to Lease Prepayments and defaults
may be influenced by a variety of economic and other factors. For example,
adverse economic conditions and certain natural disasters such as floods,
hurricanes, earthquakes and tornadoes may affect Lease Prepayments. The risk
of reinvesting unscheduled early distributions on the Notes resulting from
Lease Prepayments will be borne by the Noteholders. See "Prepayment and Yield
Considerations".
Security Interests in the Equipment; Certain Security Interests Not
Perfected. The Leases will consist of either finance leases (where
substantially all of the value of the Equipment is financed by the lease
payments) or operating leases (where substantially less than all of the value
of the Equipment is recovered through the lease payments). See "The Lease
Pool--The Leases". Finance leases include Leases ("Nominal Buy-Out Leases")
which contain a nominal purchase option upon expiration or other terms which
may be deemed effectively to vest equitable ownership of the Equipment in the
Lessee. Prior to the Cut-Off Date, ILC will have filed Uniform Commercial Code
("UCC") financing statements in its favor against Lessees in respect of
Equipment, including Equipment subject to Nominal-Buy-Out Leases, with an
original Equipment cost in excess of [$________]. Financing statements in
favor of ILC with respect to approximately [____]% of the Statistical
Discounted Present Value of the Leases will be filed. No action will be taken
to perfect the interest of ILC in any Equipment to the extent the original
Equipment cost of the related Equipment is less than [$________]. As a result,
ILC does not have a perfected security interest in Equipment with an original
Equipment cost of less than or equal to [$________], which represents
approximately [_____]% of the Statistical Present Value of the Leases. In
addition, the Sale and Servicing Agreement, the Trust Agreement and the
Indenture will require UCC financing statements identifying security interests
in the Equipment as transferred to, or obtained by, the Seller, the Trust and
the Indenture Trustee, respectively, and UCC financing statements identifying
equipment owned by ILC, transferred to the Seller, the Trust and the Indenture
Trustee, respectively, to be filed in favor of the Seller, the Trust and the
Indenture Trustee, respectively, in states in which as of the Closing Date (i)
Equipment relating to not less than [___]% of the Discounted Present Value of
the Leases as of the Cut-Off Date is located and (ii) Equipment relating to
not less than [___]% of the Booked Residual Value of such Equipment as of the
Cut-Off Date is located (the "Filing Locations"). To the extent UCC financing
statements evidencing ILC's security interest in the Equipment have not been
filed against the Lessee (i.e., with respect to those Leases relating to
Equipment with an original cost of less than [$________]) and to the extent
the Equipment is located in the states other than the Filing Locations, any
such security interests in the Equipment will not be perfected in favor of
ILC, the Seller, the Trust nor the Indenture Trustee and another party (such
as other creditors of ILC) may acquire rights in ILC's interest in the
Equipment superior to those of the Seller, the Trust and the Indenture
Trustee. See "Certain Legal Matters Affecting a Lessee's Rights and
Obligations". The lack of a perfected security interest in certain Equipment
will result in claims against Lessees being unsecured and may adversely affect
the ability of the Trust to realize on such Equipment.
Restrictions on Recoveries. State laws impose requirements and
restrictions relating to foreclosure sales and obtaining deficiency judgments
following such sales. If the Trust must rely on repossession and disposition
of Equipment to cover losses on Non-Performing Leases, the Trust may not
realize the full amount due because of the application of those requirements
and restrictions. Other factors that may affect the ability of the Trust to
realize the full amount due on a Lease include the failure to file financing
statements to perfect the Trust's security interest in the Equipment against a
Lessee, depreciation, obsolescence, damage or loss of any item of Equipment,
and the application of federal and state bankruptcy and insolvency laws. As a
result, the Noteholders may be subject to delays in receiving payments and
losses. See "Certain Legal Matters Affecting a Lessee's Rights and
Obligations".
Recharacterization of Sale Treatment. ILC believes that each transfer
of the Leases to the Seller should be treated as an absolute and unconditional
sale or assignment. However, in the event of an insolvency of ILC, a creditor
or trustee in bankruptcy, or ILC as debtor in possession, could attempt to
recharacterize the sale of the related Leases by ILC to the Seller as a loan
to ILC from the Seller, secured by a pledge of such Leases or a court could
allow the trustee in bankruptcy to repudiate the Leases that are operating
leases and all obligations thereunder. Moreover, in the event of an insolvency
of ILC, a creditor or trustee in bankruptcy, or ILC as debtor in possession,
could attempt to consolidate the assets of the Seller with those of ILC.
Either attempt, even if unsuccessful, could result in delays in payments of
the Notes. If such attempts were successful, the Notes would be accelerated,
and the Indenture Trustee's recovery on behalf of the Noteholders could be
limited to the then current value of the Leases or the underlying
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<PAGE>
Equipment. Thus, the Noteholders could lose the right to future payments and
might incur reinvestment losses on amounts recovered. Although ILC believes
that the transfer of the Leases to the Seller should be treated as an absolute
and unconditional sale or assignment, for tax purposes the Leases will be
treated as assets of ILC on the tax return for its consolidated group, which
might increase the risk of recharacterization of the transfer to the Trust as
a financing. See "Certain Legal Matters Affecting a Lessee's Rights and
Obligations".
Subordination. Credit enhancement with respect to the Notes will be
provided by the subordination of the Certificates, funds on deposit in the
Reserve Account, the Overcollateralization Amount and, to the limited extent
provided in the Indenture, the Residual Account. In addition, the Class A
Notes have the benefit of the subordination of the Class B Notes. However, on
any Payment Date the amount available to Noteholders is limited to the extent
of funds on deposit in the Collection Account (including Residual Realizations
up to the Residual Cap Amount), the Reserve Account and, to the limited extent
provided in the Indenture, the Residual Account. Therefore, if a Lease becomes
a non-performing lease at a time when total losses on the Leases are in excess
of the outstanding principal amount of any subordinated class and, the
amounts, if any, available to be withdrawn from the Reserve Account and the
Residual Account are reduced to zero, the holders of Notes of any senior class
may be forced to rely solely on the amount of Residual Realizations on the
Equipment for ultimate payment of principal and interest on such class of
Notes. The aggregate amount of Residual Realizations available to Noteholders
to pay (without duplication) the amounts owing the Servicer, to be deposited
in the Reserve Account, on deposit in the Residual Account or withdrawn from
the Residual Account as the result of an Available Funds Shortfall after the
Issuance Date will not exceed the Residual Amount Cap.
Non-Recourse Obligations. The Notes represent debt obligations of the
Trust and do not represent interests in or recourse obligations of the Seller,
ILC or any of their respective affiliates. The Trust is not expected to have
any significant assets other than the Trust Property. Consequently, the
Noteholders must rely solely upon the Leases, the Equipment and funds in the
Reserve Account and the Residual Account, if any, for payment of principal of
and interest on the Notes. If no funds are on deposit in the Reserve Account
or the Residual Account and the payments made on the Leases and the
disposition proceeds of the Equipment are insufficient to make payments on the
Notes, no other assets will be available for the payment of the deficiency.
Book-Entry Registration. The Notes offered hereby initially will be
represented by one or more certificates registered in the name of Cede & Co.
and will not be registered in the names of the beneficial owners or their
nominees. As a result of this, unless and until Definitive Notes are issued,
beneficial owners will not be recognized by the Trust, the Indenture Trustee
or the Trustee as Noteholders, as that term is used in the Indenture and the
Trust Agreement. Hence, until such time, beneficial owners will only be able
to exercise the rights of Noteholders indirectly, through DTC, and its
participating organizations, and will receive reports and other information
provided for under the Indenture and the Trust Agreement only if, when and to
the extent provided by DTC and its participating organizations. See "Certain
Information Regarding the Notes--Book-Entry Registration".
Geographic Concentration of Leases. As of the Cut-Off Date,
approximately [___]%, [___]%, [___]%, [___]%, [___]% and [___]% of the Leases
(based on Statistical Discounted Present Value of the Leases) were located in
[______], [______], [______], [______], [______] and [______], respectively.
No other state accounts for more than 5% of the Leases. See "The Lease Pool".
Accordingly, adverse economic conditions or other factors particularly
affecting any of these regions could adversely affect the performance on the
Leases.
Commingling of Funds. Under the Sale and Servicing Agreement, the
Servicer is required to deposit all Lease Payments, Casualty Payments and
Termination Payments received after the Cut-off Date into the Collection
Account, and all Payahead Amounts into the Payahead Account, in each case
within two Business Days of receipt thereof; however, under certain
circumstances, the Servicer will only be required to make such deposits
monthly. See "Description of the Transfer and Servicing
Agreements--Distributions--Deposits to Collection Account". If bankruptcy or
reorganization proceedings were commenced with respect to the Servicer, those
funds held by the Servicer prior to deposit in the Collection Account or
Payahead Account, as applicable, may be subject to an automatic stay resulting
in a delay in the transfer of such funds to the Trust Property.
Insolvency of Lessees. To the extent Lessees default on the Leases,
including through insolvency, Lease Payments deposited into the Collection
Account will decrease and accordingly Available Funds will be reduced.
15
<PAGE>
USE OF PROCEEDS
The Trust will use the net proceeds from the sale of the Notes to
purchase the Leases from the Seller and to make the initial deposit into the
Reserve Account and, if applicable, the Residual Account. The Seller will use
the net proceeds paid to the Seller by the Trust to purchase the Leases from
ILC.
THE TRUST
General. The Trust will be a business trust formed under the laws of
the State of Delaware pursuant to the Trust Agreement. After its formation,
the Trust will not engage in any activity other than purchasing, owning and
managing the Leases, issuing and making payments on the Notes and the
Certificates and other activities related to the foregoing.
The "Trust Property" will consist of a pool (the "Lease Pool") of
computer, medical equipment, office equipment and miscellaneous commercial
lease contracts (the "Lease Contracts"), including all payments due thereunder
(the "Lease Receivables"; together with the Lease Contracts, the "Leases") and
the interest in the related leased equipment (the "Equipment") transferred by
ILC to the Seller and by the Seller to the Trust. In addition, the Trust
Property will include the funds on deposit in the Reserve Account, if any, and
to the limited extent provided in the Sale and Servicing Agreement, amounts on
deposit in the Residual Account, if any.
The Servicer will continue to service the Leases and will receive
fees for such services. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation". To facilitate the servicing of the
Leases, the Seller, the Trustee and the Indenture Trustee will authorize the
Servicer to retain physical possession of the Leases and other documents
relating thereto as custodian for the Trust.
If the protection provided to the Noteholders by the subordination of
the Certificates (and in the case of the Class A Notes, the Class B Notes),
the Overcollateralization Amount and by the availability of amounts on deposit
in the Reserve Account and under limited circumstances, the Residual Account,
is insufficient, such Noteholders would have to look principally to the
Lessees on the Lease Contracts, the proceeds from the repossession and sale of
the Equipment which relate to defaulted Lease Receivables for payment on such
Notes. In such event, certain factors, such as Information Leasing, the
Seller, the Trust or the Indenture Trustee not having a first priority
perfected ownership or security interest, as applicable, in the Leases and the
Equipment may affect the Servicer's ability to repossess and sell the
Equipment subject to the Leases, and thus may reduce the proceeds to be
distributed to the holders of the Notes.
The Trust's principal offices are in Wilmington, Delaware, in care of
[_______________], as Trustee, at the address listed below under "--The
Trustee".
Capitalization of the Trust. The following table illustrates the
capitalization of the Trust as of the Cutoff Date, as if the issuance and sale
of the Notes and the Certificates had taken place on such date:
Class A-1 _____% Lease-Backed Notes................... $___________
Class A-2 _____% Lease-Backed Notes................... ___________
Class B _____% Lease-Backed Notes..................... ___________
_____% Lease-Backed Certificates......................
Total............................................ $
===========
The Trustee. [______________________] will be the Trustee under the
Trust Agreement. [_____________________] is a Delaware banking corporation and
its principal offices are located at [ ______________________], Wilmington,
Delaware _____. In the ordinary course of its business, the Trustee and its
affiliates have engaged and may in the future engage in commercial banking or
financial advisory transactions with Information Leasing and its affiliates.
The Trustee's liability in connection with the issuance and sale of
the Notes is limited solely to the express obligations of such Trustee set
forth in the Trust Agreement and the Sale and Servicing Agreement. The Trustee
may resign at any time, in which event the Servicer must appoint a successor
trustee. The Servicer may also remove the Trustee if the Trustee ceases to be
eligible to continue as Trustee under the related Trust Agreement or if the
Trustee becomes insolvent. In such circumstances, the Servicer must appoint a
successor trustee. Any resignation or removal of the Trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
16
<PAGE>
THE SELLER
The Seller will be established as a wholly-owned bankruptcy remote
subsidiary of ILC and is intended to be a limited-purpose corporation.
Accordingly, the Seller's operations have been restricted to (a) limit its
ability to engage in business with, or incur liabilities to, any other entity
which may bring bankruptcy proceedings against the Seller; and (b) diminish
the risk that it will be consolidated into the bankruptcy proceedings of any
other entity. The Seller's offices are located at 1023 West Eighth Street,
Cincinnati, Ohio 45203 and its phone number is (513) 579-2861.
As of the date of this Prospectus, the Seller has had no operating
history. The net proceeds of the sale of the Notes will be used to purchase
the Leases. See "Use of Proceeds". The Seller is prohibited by its Certificate
of Incorporation from engaging in business other than (i) the purchase of
equipment leases and lease receivables (including equipment) from ILC and its
affiliates, (ii) the transfer of such assets to the Trust and (iii) engaging
in acts incidental, necessary or convenient to the foregoing and permitted
under Delaware law. The Seller's ability to incur, assume or guaranty
indebtedness for borrowed money is also restricted by its Certificate of
Incorporation.
THE SERVICER
Information Leasing Corporation ("ILC"), an Ohio corporation, was
incorporated in September 1984. ILC is a wholly-owned subsidiary of The
Provident Bank ("Provident"), which acquired ILC in December 1996. ILC's
primary business consists of originating and servicing leases to businesses
and business owners in the United States. ILC has 15 sales offices located
throughout the United States and is headquartered at 1023 West Eighth Street,
Cincinnati, Ohio 45203 and its phone number is (513) 421-9191. As of June 30,
1998, ILC had total assets of approximately $____________.
ILC's parent company, Provident is the principal banking subsidiary
of Provident Financial Group, Inc., a Cincinnati based commercial banking and
financial services holding company registered under the Bank Holding Company
Act. Provident Financial Group, Inc. operates throughout Ohio, northern
Kentucky, southeastern Indiana and Florida. As of March 31, 1998, Provident
Financial Group, Inc. had total assets of $7.7 billion, net loans and leases
of $5.2 billion, deposits of $5.0 billion and total shareholders' equity of
$672 million. Provident Financial Group, Inc.'s tier 1 and total risked-based
capital ratios were 9.80% and 13.06%, respectively. For the three-months ended
March 31, 1998, Provident Financial Group, Inc. had net earnings of $30.4
million. Provident represents approximately 92% of Provident Financial Group,
Inc.'s assets.
ILC is a full service equipment leasing company that focuses on
establishing strategic relationships with high volume, quality equipment
vendors and customers. ILC establishes customized financing programs for its
customers as well as for the end-user customers of equipment vendors and
select financial intermediaries that focus on customers who meet ILC's general
customer profiles.
ILC currently consists of four groups: Major Accounts group, Vendor
Programs group, Brokerage Services and Capital Lending Services.
Major Accounts group focuses on developing creative financing
solutions for its customers. Its customer base ranges from middle market to
Fortune 100 entities. This group generates its business primarily by
establishing master lease agreements with its customers.
Vendor Programs group focuses on establishing formal and informal
programs with equipment vendors including equipment manufacturers, dealers and
distributors to provide point of sale financing for their customers. ILC has
formal and informal programs established with sellers of office equipment such
as personal computers and related peripherals, copy machines, fax machines,
office furniture, telephone and voice mail systems, beverage dispensing
equipment, satellite communication equipment, machine tools and automotive
diagnostic equipment. ILC offers a variety of financing programs including
private label and usage based programs as well as traditional lease financing
programs.
Broker Services focuses on buying transactions originated outside ILC
and establishing strategic relationships with equipment lease brokers.
Generally these relationships are long term and well developed with ILC acting
as the primary and often exclusive funding source for small lessors and
brokers who often have vendor programs of their own. The equipment financed
generally mirrors the rest of the portfolio with special emphasis on medical
and ophthalmic equipment.
Capital Lending Services focuses on providing creative financing
solutions for the retail petroleum industry, primarily at the chain store
level. The Equipment financed typically includes point of sale systems, leak
detection systems, fueling dispensers, and other in-store equipment such as
coolers and shelving.
17
<PAGE>
THE LEASE POOL
The Leases. As of the close of business on ____________, 1998 (the
"Cut-Off Date"), the Notes will be secured with approximately leases. The
Leases were primarily originated by ILC, although a small amount of Leases
were existing Leases acquired by ILC. The weighted average remaining term of
the Lease Pool is months.
The leases are generally in one of two forms: (a) a master lease
agreement containing all of the general terms and conditions of the lease
transaction or transactions, with schedules setting forth the specific terms
of each transaction with that particular Lessee; or (b) a specific lease
agreement form containing all of the terms and conditions of the transaction.
The Leases follow one of several different forms of lease agreement, with
occasional modifications which do not materially affect the basic terms of the
Lease.
The leases are triple-net leases which impose no affirmative
obligations on the lessor, and are non-cancelable by the Lessees. None of the
leases permit the prepayment or early termination of the Lease. Under certain
conditions, however, ILC may consent to the prepayment of the Leases.
Generally, ILC will consent to a prepayment of a Lease where the Lessee is
upgrading the Equipment. All payments under the Leases are absolute,
unconditional obligations of the Lessees without right of offset for any
reason and are required to be made regardless of the condition or suitability
of the related Equipment. Such payments will be made by the Lessees to the
address specified by the Servicer.
Lessees covenant to maintain the Equipment and install it at a place
of business agreed upon with ILC. Lessees may not move the equipment without
the prior consent of ILC. The Leases require the Lessees to assume the
responsibility for payment of all expenses of the related Equipment including,
without limitation, any expenses in connection with the maintenance and repair
of the related Equipment, the payment of any and all premiums for casualty and
liability insurance and the payment of all taxes relating to the equipment.
The Leases also require that the Lessees bear responsibility for any loss,
theft or destruction to the Equipment from any cause whatsoever.
Lessees are required to carry insurance against risks of loss and
damage from any cause in an amount not less than the unpaid balance of the
lease plus the then current fair market value of the Equipment. The Lessees
must name ILC as a loss payee and an additional insured. Lessees are provided
with written information concerning the types of insurance required under the
Lease. In some cases, should the Lessee not provide satisfactory evidence of
its own insurance coverage, ILC is entitled under the related Lease Contract
to receive a risk charge of 0.25% of the original cost of the Equipment. Such
payments will be made by the Lessees to the Servicer for the account of the
Trust.
The Leases permit the assignment thereof by ILC without consent of
the Lessee. The Leases do not permit the assignment, sale, transfer or
sublease of the Equipment or of the Lessee's interest in the Lease without
prior consent of ILC.
Any defaults under a Lease permit a declaration as immediately due
and payable all remaining Lease payments under the Lease and the immediate
return of the Equipment. Generally, any payments received six days after the
scheduled payment date are subject to late charges.
At end of the Lease term, the Lessee must, at its expense, deliver
the equipment to ILC in as good condition as when the lessee received it,
except for normal wear and tear, to any place in the United States so
designated by ILC.
Pursuant to terms of the Lease, the Lessee is required to advise ILC
at least 90 days prior to the end of the initial term of the Lease of its
intent to Return or purchase the Equipment. In most cases, failure to provide
such notification results in an automatic renewal of the Lease for a specified
period time until Lessee delivers the Equipment to ILC or exercises one if its
end of lease options.
[The Equipment. The Equipment subject to the Leases is purchased by
ILC under direct specifications and instructions from the Lessees. As of the
Cut-Off Date, the Lease Pool had approximately [__] equipment types.]
Certain Information with respect to the Leases and Lessees. The
following tables summarize certain information with respect to the Leases and
the Lessees as of the Cut-off Date.
18
<PAGE>
DISTRIBUTION OF LEASES BY STATE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Percentage
Percentage Discounted Discounted Aggregate of Original
Number of Number Present Value Present Value Original Equipment
State of Leases of Leases of Leases of Leases Equipment Cost Cost
----- --------- --------- --------- --------- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
- ----------------------------------------------------------------------------------------------------------------
Total........... [______] 100.00% $[_________] 100.00% $[__________] 100.00%
================================================================================================================
</TABLE>
19
<PAGE>
DISTRIBUTION OF LEASES BY LEASE BALANCE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage
Statistical Discounted Percentage Discounted Discounted Original of Original
Present Value of the Number of Number Present Value Present Value Equipment Equipment
Leases of Leases of Leases of Leases of Leases Cost Cost
-------- --------- --------- ----------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
$0.01 - 5,000.00
5,000.01 - 10,000.00
10,000.01 - 15,000.00
15,000.01 - 20,000.00
20,000.01 - 25,000.00
25,000.01 - 30,000.00
30,000.01 - 35,000.00
35,000.01 - 40,000.00
40,000.01 - 45,000.00
45,000.01 - 50,000.00
50,000.01 - 60,000.00
60,000.01 - 70,000.00
70,000.01 - 80,000.00
80,000.01 - 90,000.00
90,000.01 - 100,000.00
100,000.01 - 125,000.00
125,000.01 - 150,000.00
150,000.01 - 175,000.00
175,000.01 - 200,000.00
200,000.01 - 300,000.00
300,000.01 - 400,000.00
400,000.01 - 500,000.00
500,000.01 - 600,000.00
600,000.01 - 700,000.00
700,000.01 - 800,000.00
800,000.01 - 900,000.00
900,000.01 - 1,000,000.00
1,000,000.01 - 1,500,000.00
1,500,000.01 - 2,000,000.00
greater than $2,000,000.01
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................ [_____] 100.00% $[__________] 100.00% $[__________] 100.00%
=================================================================================================================================
</TABLE>
20
<PAGE>
DISTRIBUTION OF LEASES BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage
Percentage Discounted Discounted Original of Original
Remaining Number of Number Present Value Present Value Equipment Equipment
Term of Leases of Leases of Leases of Leases Cost Cost
---- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1-12
13-24
25-36
37-48
49-60
61-72
73-84
- -------------------------------------------------------------------------------------------------------------------
Total........ [____] 100.00% $[________] 100.00% $[_______] 100.00%
===================================================================================================================
</TABLE>
DISTRIBUTION OF LEASES BY CLASSIFICATION TYPE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage
Percentage Discounted Discounted Original of Original
Number of Number Present Value Present Value Equipment Equipment
Lease Type of Leases of Leases of Leases of Leases Cost Cost
---------- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Finance
Lease
Operating
Lease
- -------------------------------------------------------------------------------------------------------------------
Total........ [____] 100.00% $[________] 100.00% $[_______] 100.00%
===================================================================================================================
</TABLE>
DISTRIBUTION OF FINANCE LEASES BY PURCHASE OPTION
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage
Percentage Discounted Discounted Original of Original
Number of Number Present Value Present Value Equipment Equipment
Lease Type of Leases of Leases of Leases of Leases Cost Cost
---------- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nominal Buyout
Fair Market
Value
Fixed Purchase
Option
- -------------------------------------------------------------------------------------------------------------------
Total........ [____] 100.00% $[________] 100.00% $[_______] 100.00%
===================================================================================================================
</TABLE>
21
<PAGE>
DISTRIBUTION OF LEASES BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage
Percentage Discounted Discounted Original of Original
Number of Number Present Value Present Value Equipment Equipment
Equipment Type of Leases of Leases of Leases of Leases Cost Cost
-------------- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Computer
Printers
[__________]
Miscellaneous
Office Furniture & Equipment
Telephone
- -------------------------------------------------------------------------------------------------------------------
Total........ [____] 100.00% $[________] 100.00% $[_______] 100.00%
===================================================================================================================
</TABLE>
Historical Delinquency Information. Telephone contact is normally
initiated once an account is 15 days past due. ILC utilizes a variety of
collection techniques depending on the nature of the delinquency, prior
collection experiences with an account, and the relationship with the vendor
of the Equipment. General delinquency information for equipment leases that
are owned by ILC is set forth below.
HISTORICAL DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended June 30, 1998 1997 1996 1995
------------------- ---- ---- ----
$ % $ % $ % $ %
- -------------------------- ------------- --------- ------------- --------- ------------- --------- ------------- ---------
Total Receivables Balance(1)
- -------------------------- ------------- --------- ------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
No. of Delinquent Days
30-59 Days
60-89 Days
90 Days +
- -------------------------- ------------- --------- ------------- --------- ------------- --------- ------------- ---------
Total Delinquency
</TABLE>
- ---------
(1) The Total Receivables Balance is equal to the aggregate future rent owing
on the leases.
Historical Default Experience. ILC requires that accounts determined by it to
be 90 days past due are deemed to be "non-earning" and are placed on a
non-accrual status. A write-off is recommended when it has been determined
that a lease is uncollectible. General charge-off information for leases in
owned and serviced by ILC is set forth below.
HISTORICAL CHARGE-OFF EXPERIENCE
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
-------------------------------------------------------------
June 30, 1998 1997 1996 1995
------------- ------ ------ -----
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)...... $ $ $ $
Net Losses.............................. $ $ $ $
Net Losses as a Percentage of
Average Receivables.................... %(2) % % %
</TABLE>
- ---------
(1) Equals the arithmetic average of the beginning of the period Receivable
Balance and the end of the period Receivable Balance. The Receivables
Balance is equal to the aggregate future rent owing on the leases.
(2) Annualized
22
<PAGE>
ILC'S UNDERWRITING AND SERVICING PRACTICES
The management of ILC, which includes senior management of Provident,
has established policies, controls, systems and procedures to manage and limit
credit risk. Provident's Audit Group performs reviews to monitor the quality
and consistency of ILC's underwriting practices and to evaluate ILC's systems
of internal controls, adherence to internal controls and management
directives, and the reliability and integrity of financial and management
information systems.
Credit Review. Credit approval limits are established by the board of
directors of ILC. ILC has assigned each credit officer a specific lending
limit based upon experience and seniority. ILC has also assigned credit
approval limits to the president of ILC as well as certain vice presidents and
sales managers. The ILC Loan Committee, which also includes members of senior
management of Provident, must approve all transactions or aggregate exposures
to one customer in excess of $1 million.
Credit data are submitted for credit review in Cincinnati, Ohio.
Credit decisions are based on the credit characteristics of the applicant
including an analysis of the credit reports of the business entity as well as
any guarantor; bank and trade information, the amount, terms and conditions of
the proposed transaction and the type of equipment to be financed. If the
credit request exceeds $75,000 or increases ILC's exposure to a particular
customer to above $75,000, the credit review also includes a review of the
prospect's most recent financial statements. In general, potential lessees
should have been in business for at least two years and have a minimum of two
trade references.
Residual Values. ILC has realized residual values which, on average,
have exceeded the residual values booked with respect to such leases. Residual
values are either established or approved by the president or sales managers
of ILC. For leases in which there is a pre-determined buy-out price, the
buy-out price is the residual value recorded on ILC's books. ILC utilizes the
services of its vendors, some of whom are contractually obligated to perform
remarketing services, and other remarketing resources to recover residuals on
returned equipment.
Documentation. Prior to funding a transaction, a complete
documentation package must be completed. Generally, the package includes a
credit application, signed agreement, vendor invoice, initial or advanced
payment, proof of insurance, delivery and acceptance acknowledgments,
certificates of incumbency, appropriate UCC financing statements, and other
documents required as part of the underwriting process. UCC filings are
generally required if the underlying equipment cost exceeds $10,000.
Collections. ILC services all of its leases. Although in a limited
number of cases, it permits a vendor to invoice the Lessee in connection with
vendor programs that entitle a vendor to certain Third Party Amounts, ILC
maintains collection responsibilities. ILC generates invoices approximately 25
days prior to the due date of the payment. A late charge is assessed after the
grace period lapses, typically 6 days after the payment due date. Telephone
contact is normally initiated when an account is 15 days past due. ILC
utilizes a variety of collection techniques depending on the nature of the
delinquency, prior collection experiences with the account, and the
relationship with the vendor of the equipment. All collection activity is
entered into the computerized collection system. Activity notes are input
directly into the collection system in order to facilitate routine collection
activity.
Charge-off Policy. ILC requires that accounts determined by it to be
90 days past due are deemed "non-earning" and are placed on a non-accrual
status. A write-off is recommended when it has been determined that the lease
is uncollectible. Before an account is written-off or settled, its
disposition, including re-writes and extensions, must be approved at a level
of management commensurate with the size of the account.
On-going Credit Review. ILC management monitors the quality and
consistency of its underwriting policies and procedures, evaluates the
inherent risk in the portfolio and monitors the adequacy of credit loss
reserves. ILC's loan committee, reviews all credit exposures in excess of $1
million on an annual basis.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture (the "Indenture")
between the Trust and [_____________], as indenture trustee (the "Indenture
Trustee"). The following statements with respect to the Notes are subject to
the detailed provisions of the Indenture, the form of which is filed as an
exhibit to the registration statement of which this Prospectus forms a part.
Whenever any particular section of the Indenture or any term used therein is
referred to, the statement in connection with which such reference is made is
qualified in its entirety by such reference.
General. The Notes represent secured debt obligations of the Trust
and do not represent an interest in or a recourse obligation of the Seller,
the Servicer or any of their affiliates. The Trust will have no significant
assets other than the Trust Property. Consequently, Noteholders must rely
solely upon the Leases, the interests in the Equipment,
23
<PAGE>
and funds on deposit in the Collection Account, the Reserve Account and the
Residual Account, if any, for payment of principal of and interest on the
Notes.
Payments of Interest. Each Note will bear interest from the Issuance
Date at the applicable Interest Rate, calculated on the basis of a year of 360
days comprised of twelve 30-day months, except in the case of the Class A-1
Notes, which interest will be calculated on the basis of a year of 360 days
and the actual number of days in the related Interest Accrual Period, payable
on the 25th day of each month, or if such day is not a business day the next
succeeding business day (each, a "Payment Date"), to the person in whose name
the Note was registered at the close of business on the preceding Record Date.
Principal will be payable as set forth under "Description of Transfer and
Servicing Agreements--Distributions".
Payments of Principal. For each Payment Date, principal payments due
with respect to the Class A Notes and the Class B Notes will be the Class A
Principal Payment (which will be paid sequentially to the Class A-1 Notes and
Class A-2 Notes) and the Class B Principal Payment, respectively. In addition,
to the extent that the Class B Floor exceeds the Class B Target Investor
Principal Amount and/or the Certificate Floor exceeds the Certificate Target
Investor Principal Amount, Additional Principal shall be distributed,
sequentially, as an additional principal payment on the Class A-1 Notes, Class
A-2 Notes and the Class B Notes until the Outstanding Principal Amount of each
Class has been reduced to zero.
Redemption. The Servicer will have the option, subject to certain
conditions, to repurchase the Leases and cause the Trust to redeem all, but
not less than all, of the Notes and thereby cause early repayment of the Notes
as of any Payment Date on which the Discounted Present Value of the Performing
Leases is less than or equal to 5% of the Discounted Present Value of the
Leases as of the Cut-Off Date. Upon the Payment Date fixed for such
prepayment, the remaining unpaid principal amount on the Notes and all accrued
and unpaid interest thereon shall become due and payable.
The Indenture
Modification of Indenture. Without the consent of any Noteholders,
the Trust and the Indenture Trustee may execute a supplemental indenture to
add provisions (i) to add to the covenants of the Seller for the benefit of
the Noteholders, or to surrender any right or power conferred upon the Seller
in the Indenture, (ii) to cure any ambiguity, to correct or supplement any
provision of the Indenture that may be inconsistent with any other provision
of the Indenture or (iii) to correct or amplify the description of any
property at any time subject to the security interest arising under the
Indenture, or to better assure, convey and confirm unto the Indenture Trustee
any property subject or required to be subjected to the security interest
under the Indenture; in any case so long as such action will not adversely
affect the interest of any Noteholder. Additionally, the Trust and the
Indenture Trustee, without the consent of any Noteholders, may execute a
supplemental indenture to conform the Indenture to the description thereof and
of the Securities contained in this Prospectus.
The Indenture also permits the Trust and the Indenture Trustee, with
the consent of Holders of not less than 66 2/3% in aggregate principal amount
of the Notes then outstanding under the Indenture, to execute a supplemental
indenture for the purpose of adding or changing any provisions of the
Indenture or modifying the rights of the Noteholders in any manner; provided,
that no such modification may be made which would (i) change the due date of
any installment of principal of or interest on any Note or reduce the
principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change any place of payment where or
the coin or currency in which any Note or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment; (iii) reduce the percentage of
the aggregate amount of the outstanding Notes, the consent of the Holders of
which is required for any such supplemental indenture or the consent of the
Holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in such Indenture, or the consent of the Holders
of which is required to take any action under the Indenture or to instruct the
Indenture Trustee to take (or refrain from taking) any action; (iv) modify or
alter the provisions of the Indenture regarding the voting of Notes held by
the Trust, the Seller, the Servicer or an affiliate of any of them; (v)
decrease the percentage of the aggregate principal amount of the Notes
required to amend the sections of the Indenture which specify the applicable
percentage of aggregate principal amount of the Notes necessary to amend the
Indenture or certain other related agreements; or (vi) permit the creation of
any lien ranking prior to or on a parity with the lien created under the
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in such Indenture, terminate the lien of
such Indenture on any such collateral or deprive the Holder of any Note of the
security afforded by the lien of such Indenture.
Events of Default; Rights upon Event of Default. "Events of Default"
under the Indenture will consist of: (i) a default in the payment of any
principal of or interest on any Note when the same becomes due and payable;
(ii) a default in the observance or performance of any covenant or agreement
of the Trust made in the Indenture and the continuation of any such default
for a period of 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the Holders of
at least 25% in principal amount of the Notes then outstanding; (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered
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pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the Holders of at least
25% in principal amount of the Notes then outstanding or (v) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. However, the
amount of principal required to be paid to Noteholders under the Indenture on
any Payment Date will be limited to amounts available therefor in accordance
with the Priority of Payments. Therefore, the failure to pay principal on a
class of Notes will not result in the occurrence of an Event of Default until
the final scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to
the Notes, the Indenture Trustee or Holders of 66 2/3% of the principal amount
of the Notes then outstanding may declare the principal of the Notes to be
immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by the Holders of 66 2/3% of the principal amount
of the Notes then outstanding.
If the Notes have been declared due and payable following an Event of
Default with respect thereto, the Indenture Trustee may institute proceedings
to collect amounts due or foreclose on Trust property, exercise remedies as a
secured party, sell the Lease Receivables or elect to have the Trust maintain
possession of such Lease Receivables and continue to apply collections on such
Lease Receivables as if there had been no declaration of acceleration.
However, the Indenture Trustee is prohibited from selling the Lease
Receivables following an Event of Default, other than a default in the payment
of any principal of or a default for five days or more in the payment of any
interest on any Note, unless (i) the Holders of all outstanding Notes consent
to such sale, (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding Notes at the date of
such sale or (iii) the Indenture Trustee determines that the proceeds of Lease
Receivables would not be sufficient on an ongoing basis to make all payments
on the Notes as such payments would have become due if such obligations had
not been declared due and payable, and the Indenture Trustee obtains the
consent of the Holders of 66 2/3% of the aggregate outstanding amount of the
Notes.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, if an Event of Default occurs and is continuing with
respect to the Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of the Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, the Holders of 66 2/3% of the principal amount of
the outstanding Notes of a given series will have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the Indenture Trustee, and the Holders of 66 2/3% of the principal amount of
the Notes then outstanding may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all the Holders of such outstanding
Notes.
No Holder of a Note will have the right to institute any proceeding
with respect to the Indenture, unless (i) such Holder previously has given to
the Indenture Trustee written notice of a continuing Event of Default, (ii)
the Holders of not less than 25% in principal amount of the outstanding Notes
have made written request to the Indenture Trustee to institute such
proceeding in its own name as Indenture Trustee, (iii) such Holder or Holders
have offered the Indenture Trustee reasonable indemnity, (iv) the Indenture
Trustee has for 60 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to the
Indenture Trustee during such 60-day period by the Holders of 66 2/3% of the
principal amount of the Notes.
In addition, the Indenture Trustee and the Noteholders, by accepting
the Notes, will covenant that they will not at any time institute against the
Trust or the Seller any bankruptcy, reorganization or other proceeding under
any Federal or state bankruptcy or similar law.
Neither the Trustee nor the Indenture Trustee in its individual
capacity, nor any Holder of a Certificate representing an ownership interest
in such Trust nor any of their respective owners, beneficiaries, agents,
officers, directors, employees, affiliates, successors or assigns will, in the
absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the Notes or for the agreements of
such Trust contained in the Indenture.
Certain Covenants. The Indenture will provide that the Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed
by or surviving such consolidation or merger is organized under the laws of
the United States or any state, (ii) such entity expressly assumes the Trust's
obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of such Trust under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust has been
advised that the rating of the Notes and the Certificates then in effect would
not be reduced or withdrawn by the Rating Agencies as a result of such merger
or consolidation and (v) the Trust has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder.
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The Trust will not, among other things, (i) except as expressly
permitted by the Indenture, the applicable Transfer and Servicing Agreements
or certain related documents with respect to such Trust (collectively, the
"Related Documents"), sell, transfer, exchange or otherwise dispose of any of
the assets of the Trust, (ii) claim any credit on or make any deduction from
the principal and interest payable in respect of the Notes (other than amounts
withheld under the Code or applicable state law) or assert any claim against
any present or former holder of the Notes because of the payment of taxes
levied or assessed upon the Trust, (iii) except as contemplated by the Related
Documents, dissolve or liquidate in whole or in part, (iv) permit the validity
or effectiveness of the Indenture to be impaired or permit any person to be
released from any covenants or obligations with respect to the Notes under the
Indenture except as may be expressly permitted thereby or (v) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of the
Trust or any part thereof, or any interest therein or the proceeds thereof.
The Trust may not engage in any activity other than as specified
under "Prospectus Summery -- the Trust". The Trust will not incur, assume or
guarantee any indebtedness other than indebtedness incurred pursuant to the
Notes and the Indenture or otherwise in accordance with the Related Documents.
Annual Compliance Statement. The Trust will be required to file
annually with the Indenture Trustee a written statement as to the fulfillment
of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for the
Trust will be required to mail each year to all related Noteholders a brief
report relating to its eligibility and qualification to continue as Indenture
Trustee under the Indenture, any amounts advanced by it under the Indenture,
the amount, interest rate and maturity date of certain indebtedness owing by
the Trust to the Indenture Trustee in its individual capacity, the property
and funds physically held by the Indenture Trustee as such and any action
taken by it that materially affects the Notes and that has not been previously
reported.
Satisfaction and Discharge of Indenture. The Indenture will be
discharged with respect to the collateral securing the Notes upon the delivery
to the Indenture Trustee for cancellation of all Notes or, with certain
limitations, upon deposit with the Indenture Trustee of funds sufficient for
the payment in full of all Notes.
The Indenture Trustee. [_____________] will be the Indenture Trustee
under the Indenture. [______________] is a [_________] banking corporation and
its corporate trust offices are located at [______________]. In the ordinary
course of its business, the Indenture Trustee and its affiliates have engaged
and may in the future engage in commercial banking or financial advisory
transactions with ILC, the Seller and their affiliates.
The Indenture Trustee may resign at any time, in which event the
Trust will be obligated to appoint a successor indenture trustee. The Trust
may also remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, the Trust will be obligated to
appoint a successor indenture trustee. Any resignation or removal of the
Indenture Trustee and appointment of a successor indenture trustee for the
Notes does not become effective until acceptance of the appointment by the
successor indenture trustee for the Notes.
Pursuant to the Trust Indenture Act of 1939, as amended, the
Indenture Trustee may be deemed to have a conflict of interest and be required
to resign as trustee for either the Class A Notes or the Class B Notes if a
default occurs under the Indenture. The Indenture will provide for a successor
trustee to be appointed for one or both Classes of Notes in these
circumstances, so that there will be separate trustees for the Class A Notes
and the Class B Notes. In these circumstances, the Class A Noteholders and
Class B Noteholders will continue to vote as a single group. So long as any
amounts remain unpaid with respect to the Class A Notes, only the trustee for
the Class A Noteholders will have the right to exercise remedies under the
Indenture (but the Class B Noteholders will be entitled to their share of any
proceeds of enforcement, subject to the subordination of the Class B Notes to
the Class A Notes as described herein). Upon repayment of the Class A Notes in
full, all rights to exercise remedies under the Indenture will transfer to the
trustee for the Class B Notes. Any resignation of the original Indenture
Trustee as described above with respect to any class of Notes will become
effective only upon the appointment of a successor trustee for such class of
Notes and such successor's acceptance of such appointment.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Trust Agreement (the
"Trust Agreement") between the Trust and [_____________], as trustee (the
"Trustee"). The Certificates are not offered hereby and will be offered in a
private offering concurrently with the offering of the Notes. The following
statements with respect to the Certificates are subject to the detailed
provisions of the Trust Agreement, the form of which is filed as an exhibit to
the registration statement of which this Prospectus forms a part. Whenever any
particular section of the Trust Agreement or any term used therein is referred
to, the statement in connection with which such reference is made is qualified
in its entirety by such reference.
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The Certificates represent beneficial interests in the Trust and do
not represent an interest in or recourse obligation of ILC, the Seller or any
of their respective affiliates. Each Certificate will bear interest from the
Issuance Date at the Certificate Rate, calculated on the basis of a year of
360 days comprised of twelve 30-day months, payable on each Payment Date. No
distributions of principal on the Certificates will be made until the Class
A-1 Notes have been paid in full. Thereafter on each Payment Date, the
Certificateholders will be entitled to receive payments of principal in an
amount equal to the Certificate Principal Payment after payment of principal
on the Notes. Such payment will be made only to the extent of funds available
therefor in accordance with the Priority of Payments.
CERTAIN INFORMATION REGARDING THE NOTES
Book-Entry Registration. Note Owners may hold their Notes through DTC
if they are participants of such system, or indirectly through organizations
which are participants in such system. Cede, as nominee for DTC, will hold the
global Class A Note or Notes and the global Class B Note or Notes.
DTC is a limited-purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of securities. Participants include
the Underwriter, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between Participants will occur in accordance with DTC
rules. Note Owners 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, Note Owners will receive all distributions of
principal and interest on the Notes through DTC and its Participants. Under a
book-entry format, Note Owners may receive payments after the related Payment
Date because, while payments are required to be forwarded to Cede, as nominee
for DTC, on each such date, DTC will forward such payments to its Participants
which thereafter will be required to forward them to Indirect Participants or
Note Owners. It is anticipated that the only Class A Noteholder and Class B
Noteholder will be Cede, as nominee of DTC, and that Note Owners of the Class
A Notes or Class B Notes, respectively, will only be permitted to exercise the
rights of Class A Noteholders or Class B Noteholders, respectively, under the
Indenture indirectly through DTC and its Participants who in turn will
exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Notes and is required
to receive and transmit distributions of principal of and interest on the
Notes. Participants and Indirect Participants with which Note Owners have
accounts similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of these respective holders.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability of Note
Owners to pledge Notes to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of such Notes, may be limited
due to the lack of a Definitive Note for such Notes.
DTC has advised the Trust that it will take any action permitted to
be taken by a Class A Noteholder or Class B Noteholder under the Indenture
only at the direction of one or more Participants to whose account with DTC
the Class A Notes or Class B Notes, as applicable, are credited. Additionally,
DTC has advised the Trust that it may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf
of Participants whose holdings include such undivided interests.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Notes among its participants, DTC is under no
obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
Definitive Notes. The Notes will be issued in fully registered,
authenticated form to Note Owners or their nominees ("Definitive Notes"),
rather than to DTC or its nominee, only if (a) the Seller advises the
Indenture Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to the
Notes, and the Indenture Trustee or the Seller is unable to locate a qualified
successor or (b) the Seller at its option elects to terminate the book-entry
system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all
applicable Note Owners through DTC of the availability of Definitive Notes for
such class. Upon surrender by DTC of the Definitive Note representing the
Notes and instructions for reregistration, the
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Indenture Trustee will issue such Definitive Notes and thereafter the
Indenture Trustee will recognize the holders of such Definitive Notes as
Holders under the Indenture. The Indenture Trustee will also notify the
Holders of any adjustment to the Record Date with respect to the Notes
necessary to enable the Indenture Trustee to make distributions to Holders of
the Definitive Notes for such class as of each Payment Date.
Additionally, upon the occurrence of any such event described above
with respect to any class of Notes, distribution of principal of and interest
on such Notes will be made by the Indenture Trustee directly to the related
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 register under the Indenture. Upon at least 10
days' notice to such Holders, however, the final payment on any Note (whether
the Definitive Notes or the Notes registered in the name of Cede) will be made
only upon presentation and surrender of such Note at the office or agency
specified in the notice of final distribution to Noteholders.
Definitive Notes will be transferable and exchangeable at the offices
of the Indenture Trustee or its agent in New York, New York, which the
Indenture 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 Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
List of Noteholders. Three or more Holders of the Notes or one or
more Holders of the Notes evidencing at least 25% of the aggregate outstanding
principal balance of the Notes may, by written request to the Indenture
Trustee, obtain access to the list of all Noteholders maintained by the
Indenture Trustee for the purpose of communicating with other Noteholders with
respect to their rights under the Indenture or under the Notes. The Indenture
Trustee may elect not to afford the requesting Noteholders access to the list
of Noteholders if it agrees to mail the desired communication or proxy, on
behalf of and at the expense of the requesting Noteholders, to all
Noteholders.
Reports to Noteholders. On or prior to each Payment Date, the
Servicer will prepare and provide to the Indenture Trustee a statement to be
delivered to the Noteholders on such Payment Date. Each such statement to be
delivered to the Noteholders will include the following information as to the
Notes with respect to such Payment Date or the period since the previous
Payment Date, as applicable:
(i) the amount of the distribution allocable to principal of
each class of Securities;
(ii) the amount of the distribution allocable to interest on or
with respect to each class of Securities;
(iii) the Discounted Present Value of the Performing Leases as
of the close of business on the last day of the preceding Due
Period;
(iv) the aggregate outstanding principal balance of each class
of Notes and the Certificate Balance, each after giving effect to
all payments reported under clause (i) above on such date;
(v) the amount of the Servicing Fee paid to the Servicer for
the related Due Period;
(vi) the amount of the aggregate Residual Realizations, if any,
for such Due Period;
(vii) the aggregate purchase amounts for Leases, if any, that
were repurchased in such Due Period; and
(viii) the balance of the Reserve Account (if any) and the
Residual Account (if any) on such Payment Date, after giving effect
to changes therein on such Payment Date.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
with respect to the Notes or the Certificates will be expressed as a dollar
amount per $1,000 of the initial principal balance of the Notes or the
Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Trust, the Trustee will
mail to each person who at any time during such calendar year has been a
Noteholder with respect to the Trust and received any payment thereon, a
statement containing certain information for the purposes of such Noteholder's
preparation of Federal income tax returns. See "Material Federal Income Tax
Considerations".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and
Servicing Agreement, the Purchase Agreement, and the Trust Agreement,
collectively, the "Transfer and Servicing Agreements"). Forms of the Transfer
and Servicing Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. This
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summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the definitive agreements.
Sale and Assignment of Leases
On the Issuance Date, ILC will sell and assign to the Seller, without
recourse, its entire interest in the Leases, [and contribute its] security or
ownership interests in the Equipment, pursuant to the Purchase Agreement. The
Seller will transfer and assign to the Trust, without recourse, its entire
interest in such Leases and security and ownership interests in the Equipment,
pursuant to the Sale and Servicing Agreement. The Trustee will, concurrently
with such transfer and assignment, execute and deliver the Notes and
Certificates.
In the Purchase Agreement, ILC will represent and warrant to the
Seller, and pursuant to the Sale and Servicing Agreement, the Seller will
represent and warrant to the Trust, among other things, that (i) upon payment
of the applicable consideration, the Seller, in the case of the Purchase
Agreement, and the Trust, in the case of the Sale and Servicing Agreement, (A)
will be the legal owner of the Leases (including the right to receive all
payments due or to become due thereunder), (B) will have good title to each
item of Equipment subject to any Lease other than a Nominal Buy-Out Lease, and
(C) will have a valid security interest in each item of Equipment with a
purchase price in excess of [$_________] subject to a Nominal Buy-Out Lease,
(ii) on the Issuance Date, the Leases and the interest in the Equipment
transferred will be free and clear of all liens other than the rights of each
Lessee under its Lease is a party and other than any lien created by the
Transfer and Servicing Agreements, and there are no delinquent taxes or other
outstanding charges affecting the Equipment which are or may give rise to
liens prior to, or on parity with, the liens created by the Transfer and
Servicing Agreements and (iii) each Lease requires the Lessee thereunder to
maintain insurance on the Equipment subject thereto in an amount at least
equal to the fair market value thereof.
If (a) any of such representations and warranties made by the Seller
proves at any time to have been inaccurate in any material respect as of the
Issuance Date or (b) any Lease is terminated in whole or in part by a Lessee,
or any amounts due with respect to any Lease shall be reduced or impaired, as
a result of any action or inaction by the Seller or ILC (other than any such
action or inaction of ILC, when acting as Servicer, in connection with the
enforcement of any Lease (other than an Early Lease Termination) in a manner
consistent with the provisions of the Sale and Servicing Agreement) or any
claim by any Lessee against the Seller or ILC and, in any such case, the event
or condition causing such inaccuracy, termination, reduction, impairment or
claim shall not have been cured or corrected within 30 days after the earlier
of the date on which the Seller is given notice thereof by the Seller or the
Trustee or the date on which the Seller otherwise first has notice thereof,
the Seller will repurchase such Lease (a "Warranty Lease") and the Equipment
subject thereto by depositing into the Collection Account, not later than the
Determination Date next following the expiration of such 30-day period, an
amount equal to the Discounted Present Value of such Lease plus any amounts
previously due and unpaid thereon. In addition, subject to the satisfaction of
certain requirements set forth in the Sale and Servicing Agreement, the Seller
will have the option to substitute one or more Substitute Leases for such
Warranty Lease. Any inaccuracy in any representation or warranty with respect
to (i) the priority of the lien of the Indenture with respect to any Lease or
(ii) the amount (if less than represented) of the Lease Payments, Casualty
Payments or Termination Payments under any Lease is deemed to be material. The
obligation of the Seller to repurchase any Leases as set forth above is
subject to ILC's repurchase of such Leases. The repurchase obligation
constitutes the sole remedy available to the Noteholders, the Indenture
Trustee, the Certificateholders and the Trustee in respect of the Trust for
any such uncured breach.
Pursuant to the Sale and Servicing Agreement, to assure uniform
quality in servicing the Leases and to reduce administrative costs, the Seller
and the Trust will designate the Servicer as custodian to maintain possession,
as the Trust's agent, of the Leases and any other documents relating to the
Leases. The Servicer's accounting records will reflect the sale and assignment
of the Leases to the Trust, and Uniform Commercial Code ("UCC") financing
statements reflecting such sale and assignment will be filed.
Pursuant to the Sale and Servicing Agreement, the Servicer will have
the right (but no obligation) to purchase all of the remaining Leases held by
the Trust after the Discounted Present Value of the Performing Leases is less
than or equal to 5% of the Discounted Present Value of the Leases as of the
Cut-Off Date.
Accounts. The Servicer will establish and maintain with the Indenture
Trustee an account, in the name of the Indenture Trustee on behalf of the
Noteholders and Certificateholders, into which all Lease Payments, Casualty
Payments, Termination Payments, Residual Realizations, and recoveries from
Non-Performing Leases, net of amounts retained by the Servicer, in each case
on or in respect of each Lease in the Lease Pool ("Trust Collections") will be
deposited (the "Collection Account"). The Servicer will establish and maintain
with the Indenture Trustee an account, in the name of the Indenture Trustee on
behalf of such Noteholders, into which amounts released from the Collection
Account for payment to the Noteholders will be deposited and from which all
distributions to the Noteholders will be made (the "Note Distribution
Account"). The Servicer will establish and maintain with the Trustee an
account, in the name of the Trustee on behalf of the Certificateholders, into
which amounts released from the Collection Account for distribution to the
Certificateholders will be deposited and from which all distributions to the
Certificateholders will be made (the "Certificate Distribution Account").
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Reserve Account. The Servicer will establish and maintain with the
Indenture Trustee an Eligible Account (the "Reserve Account"). On the Closing
Date, the Trust will make an initial deposit in an amount equal to [____]% of
the Discounted Present Value of the Leases as of the Cut-Off Date into the
Reserve Account. If Available Funds (exclusive of amounts on deposit in the
Reserve Account and the Residual Account) are insufficient to pay the amounts
owing the Servicer, Interest Payments on the Notes and the Class A Principal
Payment, the Class B Principal Payment and the Certificate Principal Payment
(such payments, the "Required Payments" and such shortfall, an "Available
Funds Shortfall"), the Indenture Trustee will withdraw from the Reserve
Account an amount equal to the lesser of the funds on deposit in the Reserve
Account (the "Available Reserve Amount") and such deficiency. In addition, on
each Payment Date, Available Funds remaining after the payment of the Required
Payments will be deposited into the Reserve Account to the extent that the
Required Reserve Amount exceeds the Available Reserve Amount. The "Required
Reserve Amount" equals the lesser of (a) [____]% of the Discounted Present
Value of the Leases as of the Cut-Off Date and (b) the Outstanding Principal
Amount of the Notes and the Certificate Balance. Any amounts on deposit in the
Reserve Account in excess of the Required Reserve Amount after giving effect
to all other transactions on such Payment Date will be released to the Seller.
Residual Account. The Servicer will establish and maintain with the
Indenture Trustee an Eligible Account (the "Residual Account"). Upon the
occurrence of a Residual Event, Residual Realizations will be deposited in the
Residual Account up to the Residual Amount Cap in accordance with the
application of funds described herein under "Distributions on the Notes".
Funds on deposit in the Residual Account will be available to cover shortfalls
in the amount available to pay the amounts owing the Servicer and to make
interest and principal payments on the Notes and Certificates. Following the
termination of a Residual Event, amounts on deposit in the Residual Account
will be deposited into the Reserve Account to the extent that the amount on
deposit in the Reserve Account is less than the Required Reserve Amount and
thereafter will be disbursed to the Seller.
A "Residual Event" will occur when [_____________________].
Payahead Account. The Servicer will establish an additional account
(the "Payahead Account"), into which early payments by or on behalf of Lessors
that do not constitute scheduled payments, full prepayments or partial
prepayments, in any case in accordance with the Servicer's customary practices
("Payaheads") will be deposited until such time as the payment falls due.
Until such time as payments are transferred from the Payahead Account to the
Collection Account, they will not constitute Available Funds and will not be
available for distribution to the Noteholders. The Payahead Account will
initially be maintained with and in the name of the Indenture Trustee. The
Servicer will, within two business days of receipt, deposit all Payaheads
received by it into the Payahead Account. However, at any time that the
Servicer is not required to deposit Trust Collections into the Collection
Account on a daily basis, the Servicer will not be required to deposit such
amounts into the Payahead Account until on or before the business day
preceding the applicable Payment Date.
On the business day preceding each Payment Date, the Indenture
Trustee will withdraw funds from the Payahead Account and deposit in the
Collection Account (x) with respect to each Lease for which the payments made
by or on behalf of the Obligor for the related Due Period are less than the
scheduled payment for the related Due Period, the amount of Payaheads, if any,
made with respect to such Lease which, when added to the amount of such
payments, is equal to the amount of such scheduled payment, (y) with respect
to each Lease for which prepayments insufficient to prepay the Lease in full
have been made by or on behalf of the Obligor for the related Due Period, the
amount of Payaheads, if any, made with respect to such Lease which, when added
to the amount of such prepayments, is equal to an amount sufficient to prepay
such Lease in full, and (z) the amount of all Payaheads, if any, made with
respect to any Lease repurchased by ILC.
Funds in the Collection Account, the Note Distribution Account, the
Certificate Distribution Account, the Reserve Account, the Residual Account
and the Payahead Account (collectively, the "Trust Accounts") will be invested
as provided in the Sale and Servicing Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of the Securities and
include: (a) direct obligations of, obligations fully guaranteed as to timely
payment by, the United States of America; (b) demand deposits, time deposits
or certificates of deposit of any depository institution or trust company
incorporated under the laws of the United States of America or any state
thereof (or any domestic branch of a foreign bank) and subject to supervision
and examination by Federal or State banking or depository institution
authorities; provided, however, that at the time of the investment or
contractual commitment to invest therein, the commercial paper or other
short-term senior unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) thereof will have a credit rating from each of
the Rating Agencies in the highest investment category granted thereby; (c)
commercial paper having, at the time of the investment or contractual
commitment to invest therein, a rating from each of the Rating Agencies in the
highest investment category granted thereby; (d) to the extent described
below, investments in money market funds having a rating from each of the
Rating Agencies in the highest investment category granted thereby (including
funds for which the Indenture Trustee, the Trustee, Seller or any of their
respective affiliates is investment manager or advisor); (e) bankers'
acceptances issued by any depository institution or trust company referred to
in clause (b) above; (f) repurchase obligations with respect to any security
that is a direct obligation of, or fully guaranteed as to timely payment by,
the United States of America
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or any agency or instrumentality thereof the obligations of which are backed
by the full faith and credit of the United States of America, in either case
entered into with a depository institution or trust company (acting as
principal) described in clause (b); and (g) any other investment permitted by
each of the Rating Agencies as set forth in writing delivered to the Indenture
Trustee; provided that in the case of clauses (d) and (g) such investments
will be made only so long as making such investments will not require the
Trust to register as an investment company, in accordance with the Investment
Company Act of 1940, as amended.
Subject to certain conditions, Eligible Investments may include
securities issued by the Seller or its affiliates or trusts originated by the
Seller or its affiliates. Eligible Investments are limited to obligations or
securities that mature on or before the business day preceding the date of the
next distribution. Investment earnings on funds deposited in the Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the Leases.
The Trust Accounts will be maintained as Eligible Accounts. "Eligible
Account" means either (a) a segregated account with an Eligible Institution or
any other segregated account the deposit of funds in which has been approved
by the Rating Agencies or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade. "Eligible Institution" means (a) the corporate trust
department of the Indenture Trustee or the Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank) (i) which has either (A) a long-term
unsecured debt rating or certificate of deposit rating acceptable to the
Rating Agencies or (B) a short-term unsecured debt rating or certificate of
deposit rating acceptable to the Rating Agencies and (ii) whose deposits are
insured by the FDIC.
Servicing Procedures. The Servicer will take, or cause to be taken,
all actions as may be necessary or advisable to service, administer and
collect each Lease from time to time, all in accordance with all applicable
laws, rules and regulations, and without limiting the foregoing, no less a
standard of care than that which it applies to leases it services for its own
account.
The Servicer may enter into modifications, waivers and amendment to
the terms of any Lease except for modifications, waivers or amendments that
(i) are inconsistent with the standards set forth above, (ii) except as set
forth in the next paragraph, would reduce the amount or extend the time for
payment of any Lease Payment, Casualty Payment or Termination Payment (other
than to permit termination of a Lease which does not otherwise provide for
termination by requiring the payment, in lieu of all future Lease Payments
with respect to the Lease or the Equipment subject thereto, of an amount which
is at least equal to the Discounted Present Value of the Lease as of the next
following Payment Date plus any delinquent amounts) or the Lessee's absolute
and unconditional obligation to make payment of the same, (iii) would reduce
or adversely affect the Lessee's obligation to maintain, service, insure and
care for the Equipment or would permit the alteration of any item of Equipment
in any way which could adversely affect is present or future value or (iv)
otherwise could adversely affect the interests of any of the Seller, the
Trustee, the Indenture Trustee or the Securityholders.
Notwithstanding the foregoing, the Servicer may (i) make adjustments
to a Lease (as so adjusted, an "Adjusted Lease") which modify one or more
terms of such Lease, such as payment amount or payment date and (ii)
substitute one or more leases having similar characteristics (each, a
"Substitute Lease") for Warranty Leases, in either case so long as the
following conditions are met: (i) after giving effect to such adjustments or
substitution, the aggregate Book Residual Value (without duplication) of all
Adjusted Leases and Substitute Leases will not be less than 90% of the
aggregate Booked Residual Value of the Leases adjusted, replaced or
substituted since the Issuance Date, (ii) after giving effect to such
adjustment or substitution, either the final payment on such Lease must be on
or prior to [stated maturity month/year] or, to the extent the final payment
is due later, only scheduled payments due on or prior to such date are
included in the Discounted Present Value of such Lease for the purpose of
making any calculation under the Sale and Servicing Agreement, (iii) after
giving effect to such adjustment or substitution, the aggregate amount of
Lease Payments through the term of the Leases will not be materially less than
the aggregate scheduled Lease Payments of the Leases prior to such adjustment,
and (iv) after giving effect to such adjustment or substitution, the
Discounted Present Value of the Performing Leases is not less than the
Discounted Present Value of the Performing Leases prior to such adjustment.
If ILC allows an Early Lease Termination or other modification of the
lease in connection with a partial buy-out, the amount prepaid by the lessor
must be at least equal to the Discounted Present Value of the terminated Lease
(or, in the case of a partial buy-out, the portion thereof related to such
buy-out), plus any delinquent payments. See "The Lease Pool--The Leases".
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Substitute Leases will be originated using the same credit criteria
as the initial Leases. To the extent material, information with respect to
such Substitute Leases will be included in periodic reports filed with the
Commission as are required under the Exchange Act.
Servicing Compensation. The Servicer will be entitled to receive the
"Servicing Fee", which will be paid monthly on the Payment Date solely from
funds available therefor in accordance with the Priority of Payments and which
will be calculated by multiplying one-twelfth of 0.75% times the lesser of (i)
the sum of the aggregate of the Outstanding Principal Amount of the Notes and
the Certificate Balance, each calculated as of the preceding Payment Date
after giving effect to all payments made on such Payment Date or (ii) the
Discounted Present Value of the Performing Leases calculated as of the related
Determination Date. Unless a Trust Acceleration Event has occurred and is
continuing while ILC, the Seller or one of their affiliates is acting as
Servicer, the Servicing Fee will be paid prior to any payments on the Notes.
The Servicing Fee in respect of a Due Period (together with any portion of the
Servicing Fee that remains unpaid from prior Payment Dates) may be paid at the
beginning of such Due Period out of collections for such Due Period. The
Servicing Fee will be paid to the Servicer for servicing the Lease Pool and
for certain administrative expenses in connection with the Securities,
including Trustee and Indenture Trustee fees and expenses.
The Servicer will also collect and retain any late fees, prepayment
charges and certain non-sufficient funds charges and other administrative fees
or similar charges (the "Supplemental Servicing Fee") allowed by applicable
law with respect to the Leases.
In addition to the Servicing Fee and the Supplemental Servicing Fee,
the Servicer is also entitled to retain, out of any amounts received by the
Servicer in connection with the sale or release of any Equipment subject to a
Non-Performing Lease upon the early termination of such Lease or otherwise,
(i) the Servicer's actual out-of-pocket expenses reasonably incurred in
connection with such sale or release and (ii) if the Servicer has made any
Servicer Advances with respect to any Lease which thereafter became a
Non-Performing Lease and the Servicer has not otherwise been fully reimbursed
for such Servicer Advance, the unreimbursed portion thereof.
Distributions
Deposits to Collection Account. The Servicer will, within two
business days of receipt, deposit all Trust Collections (other than Payaheads)
received by it into the Collection Account. However, at any time that and for
so long as (i) ILC is the Servicer, (ii) there exists no Servicer Event of
Default and (iii) each other condition to making deposits less frequently than
daily as may be specified by the Rating Agencies is satisfied, the Servicer
will not be required to deposit such amounts into the Collection Account until
on or before the business day preceding the applicable Payment Date. Pending
deposit into the Collection Account, collections may be invested by the
Servicer at its own risk and for its own benefit and will not be segregated
from its own funds.
On the business day following the Determination Date, the Servicer
will provide the Indenture Trustee with certain information, including the
total amount of all Lease Payments, Casualty Payments, Termination Payments
and Non-Performing Lease Payments received by the Servicer and deposited in
the Collection Account prior to such Determination Date and on or after the
preceding Determination Date, and the calculation of the amount of Available
Funds for application on the related Payment Date.
With respect to any Payment Date, "Available Funds" means the
following payments and deposits made on or with respect to the Leases with
respect to the immediately preceding Due Period received on or prior to a
Determination Date: (i) Residual Realizations up to the Residual Amount Cap,
(ii) recoveries from Non-Performing Leases (net of amounts retained by the
Servicer), (iii) proceeds from repurchases by ILC of Warranty Leases to the
extent ILC has not substituted Substitute Leases for such Leases, (iv)
proceeds from investment of funds in the Collection Account, the Reserve
Account and the Residual Account, if any, (v) Casualty Payments, (vi) Servicer
Advances, (vii) Termination Payments, (viii) funds, if any, on deposit in the
Reserve Account, and (ix) funds, if any, on deposit in the Residual Account to
the limited extent provided in the Indenture.
A "Casualty Payment" is any payment pursuant to a Lease on account of
the loss, theft, condemnation, governmental taking, destruction, or damage
beyond repair (each, a "Casualty") of any item of Equipment subject thereto
which results, in accordance with the terms of the Lease, in a reduction in
the number or amount of any future Lease Payments due thereunder or in the
termination of the Lessee's obligation to make future Lease Payments
thereunder.
A "Lease Payment" is each periodic installment of rent payable by a
Lessee under a Lease. Casualty Payments, Termination Payments, prepayments of
rent required pursuant to the terms of a Lease at or before the commencement
of the Lease; provided that (x) payments becoming due before the Cut-Off Date,
(y) Payaheads, until such time as such Payaheads are deposited into the
Collection Account from the Payahead Account and (z) supplemental or
additional payments required by the terms of a Lease with respect to taxes,
insurance, maintenance, or other specific charges, including charges included
in an invoice but payable to vendors (such supplemental or additional payments
and special charges ("Third Party Amounts"), shall not be Lease Payments
hereunder.
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On any Determination Date, the Servicer will be required to advance
(each, a "Servicer Advance") to the Trustee for distribution as Available
Funds on the related Payment Date, an amount sufficient to cover delinquencies
on any scheduled payment under Leases in the Trust Property due during the
related Due Period; provided that the Servicer will not be required to make
any Servicer Advance if it determines that such Servicer Advance may not
ultimately be recoverable by it from recoveries from the applicable Leases.
The Servicer will be reimbursed for Servicer Advances not recovered from late
payments or proceeds from the sale or release of the Equipment under a Lease
with respect to which the Servicer has made a Servicer Advance to the extent
that funds are available therefor in accordance with the Priority of Payments
on the second Payment Date following the Determination Date on which the
Servicer made such Servicer Advance.
A "Termination Payment" is a payment payable by a Lessee under a
Lease upon the early termination of such lease (but not on account of a
Casualty or a Lease default) which may be agreed upon by the Servicer, acting
in the name of the Trust, and the Lessee.
Net Deposits. As an administrative convenience, unless the Servicer
is required to remit collections daily, the Servicer will be permitted to make
the deposit of collections and purchase price amounts for any Leases purchased
by the Servicer for the Trust for or with respect to the related Due Period
net of distributions to be made to the Servicer for the Trust with respect to
such Due Period. The Servicer, however, will account to the Indenture Trustee,
the Trustee, the Noteholders and the Certificateholders with respect to the
Trust as if all deposits, distributions and transfers were made individually.
Distributions on Securities. Payments on the Notes will commence on
___________, 1998. So long as no Trust Acceleration Event shall be continuing,
shall be paid out of Available Funds in the following priority:
(a) to pay the then accrued and unpaid Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances in respect of
a prior Payment Date;
(c) to make Interest Payments, owing on the Class A Notes, pro
rata based on the respective amounts due under this
priority, to the Class A-1 Noteholders and Class A-2
Noteholders;
(d) to make Interest Payments owing on the Class B Notes;
(e) to make Interest Payments owing on the Certificates;
(f) to make the Class A Principal Payment (i) to the Class A-1
Noteholders only, until the Outstanding Principal Amount
on the Class A-1 Notes is reduced to zero, then (ii) to
the Class A-2 Noteholders only, until the Outstanding
Principal Amount on the Class A-2 Notes is reduced to
zero;
(g) to make the Class B Principal Payment;
(h) to make the Certificate Principal Payment;
(i) to pay the Additional Principal, if any, to the Class A
Noteholders then receiving the Class A Principal Payment
as provided in clause (f) above until the Outstanding
Principal Amount on all of the Class A Notes has been
reduced to zero, then to the Class B Noteholders until the
Outstanding Principal Amount on the Class B Notes has been
reduced to zero and thereafter to the Certificateholders
until the Certificate Balance on the Certificates has been
reduced to zero;
(j) to the Reserve Account, an amount equal to the excess of
the Required Reserve Amount over the Available Reserve
Amount;
(k) following a Residual Event, to the Residual Account an
amount equal to Residual Realizations up to the Residual
Amount Cap; and
(l) to the Seller or any other person legally entitled
thereto, the balance, if any.
Upon the occurrence of an Event of Default and the acceleration of
the Notes (a "Trust Acceleration Event") and until such Trust Acceleration
Event has been rescinded, distributions will be made on each Payment Date from
Available Funds in the following priority:
(a) to pay all costs and expenses of collection incurred by
the Trustee, the Indenture Trustee and the Securityholders
(including the reasonable fees and expenses of counsel to
such persons);
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(b) if the person then acting as Servicer under the Sale and
Servicing Agreement is not ILC or an affiliate of ILC, to
pay the Servicing Fee;
(c) first, to pay all accrued and unpaid Interest Payments on
each class of Class A Notes plus (to the extent permitted
by applicable law) interest on any overdue interest and
principal payments on each class of Class A Notes at a
rate per annum equal to the applicable Interest Rate for
such class of Notes concurrently to the Class A-1
Noteholders and Class A-2 Noteholders, second, to pay all
accrued and unpaid Interest Payments on the Class B Notes
plus (to the extent permitted by applicable law) interest
on any overdue interest and principal payments on the
Class B Notes at a rate per annum equal to the Class B
Interest Rate, third, to pay all accrued and unpaid
Interest Payments on the Certificates plus (to the extent
permitted by applicable law) interest on any overdue
interest and principal payments on the Certificates at a
rate per annum equal to the Certificate Rate, fourth, to
the payment of the Outstanding Principal Amount of the
Class A-1 Notes, fifth, to the payment of the Outstanding
Principal Amount of the Class A-2 Notes to the date of
payment thereof, sixth, to the payment of the Outstanding
Principal Amount of the Class B Notes to the date of
payment thereof, and seventh, to the payment of the
Certificate Balance; provided, that the Noteholders may
internally allocate such payments for interest, principal
and premium at their own discretion, except that no such
allocation shall affect the allocation of such amounts
pursuant to this priority or future payments received by
any other Noteholder;
(d) to pay amounts then due the Trustee under the Trust
Agreement and the Indenture Trustee under the Indenture;
(e) if ILC or an affiliate of ILC is the Servicer, to pay the
Servicing Fee; and
(f) to the Seller or any other person legally entitled
thereto, the balance, if any.
"Additional Principal" with respect to each Payment Date is an amount
equal to (a) the difference between (i) the Discounted Present Value of the
Performing Leases as of the previous Determination Date and (ii) the
Discounted Present Value of the Performing Leases as of the related
Determination Date, less (b) the Class A Principal Payment, the Class B
Principal Payment and the Certificate Principal Payment to be paid on such
Payment Date.
The "Certificate Floor" with respect to each Payment Date means (a)
[_______]% of the initial Discounted Present Value of the Leases as of the
Cut-Off Date, plus (b) the Cumulative Loss Amount with respect to such Payment
Date, minus (c) the sum of the Overcollateralization Amount as of such Payment
Date plus the amount on deposit in the Reserve Account after giving effect to
withdrawals to be made on such Payment Date.
The "Certificate Principal Payment" shall equal (a) while the Class
A-1 Notes are outstanding, zero and (b) after the Outstanding Principal Amount
on the Class A-1 Notes has been reduced to zero, the amount necessary to
reduce the Certificate Balance to the greater of the Certificate Target
Investor Principal Amount and the Certificate Floor.
The "Certificate Target Investor Principal Amount" with respect to
each Payment Date is an amount equal to the product of (a) [___ ]% (the
"Certificate Percentage") and (b) the Discounted Present Value of the
Performing Leases as of the related Determination Date.
The "Class A Principal Payment" shall equal (a) while the Class A-1
Notes are outstanding, (i) on all Payment Dates prior to the [month/year]
Payment Date, the lesser of (1) the amount necessary to reduce the Outstanding
Principal Amount on the Class A-1 Notes to zero and (2) the difference between
(A) the Discounted Present Value of the Performing Leases as of the
Determination Date for the preceding Payment Date and (B) the Discounted
Present Value of the Performing Leases as of the related Determination Date,
and (ii) on the [month/year] Payment Date, the entire Outstanding Principal
Amount on the Class A-1 Notes and (b) after the Class A-1 Notes have been paid
in full, the amount necessary to reduce the aggregate Outstanding Principal
Amount on the Class A Notes to the Class A Target Investor Principal Amount.
The "Class A Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the product of (a) [___]% (the "Class A
Percentage") and (b) the Discounted Present Value of the Performing Leases as
of the related Determination Date.
The "Class B Principal Payment" shall equal (a) while the Class A-1
Notes are outstanding, zero and (b) after the Outstanding Principal Amount on
the Class A-1 Notes has been reduced to zero, the amount necessary to reduce
the 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 Floor" with respect to each Payment Date (the "subject
Payment Date") means (a) [_____]% of the initial Discounted Present Value of
the Leases as of the Cut-Off Date, plus (b) the Cumulative Loss Amount with
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respect to the subject Payment Date, minus (c) the sum of the Certificate
Balance as of the preceding Payment Date after giving effect to all payments
made on such Payment Date plus the Overcollateralization Amount as of the
subject Payment Date plus the amount on deposit in the Reserve Account after
giving effect to withdrawals to be made on the subject Payment Date.
The "Class B Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the product of (a) [____]% (the "Class B
Percentage") and (b) the Discounted Present Value of the Performing Leases as
of the related Determination Date.
The "Cumulative Loss Amount" with respect to each Payment Date (the
"subject Payment Date") is an amount equal to the excess, if any, of (a) the
difference of (i) the sum of the Outstanding Principal Amount of the Notes and
the Certificate Balance as of the immediately preceding Payment Date after
giving effect to all payments made on the subject Payment Date, minus (ii) the
lesser of (A) the Discounted Present Value of the Performing Leases as of the
Determination Date relating to the immediately preceding Payment Date minus
the Discounted Present Value of the Performing Leases as of the Determination
Date related to the subject Payment Date and (B) Available Funds remaining
after the payment of amounts owing the Servicer and in respect of interest on
the Securities on the subject Payment Date over (b) the Discounted Present
Value of Performing Leases as of the Determination Date related to the subject
Payment Date.
The "Discounted Present Value of the Leases", with respect to the
Trust Property at any given time, shall equal the future remaining scheduled
payments (including Payaheads but excluding delinquent amounts and Third Party
Amounts) from the related Leases (including Non-Performing Leases), discounted
at the Discount Rate. The "Discount Rate" will be equal to the sum of (a) the
weighted average Interest Rate of the Class A Notes (utilizing the Class A-2
Interest Rate), the Class B Notes and the Certificates on the Issuance Date
and (b) the Servicing Fee Rate.
The "Discounted Present Value of the Performing Leases", with respect
to the Trust Property at any given time equals the Discounted Present Value of
the Leases, including any Substitute Leases, reduced by the Discounted Present
Value of the Non-Performing Leases.
"Non-Performing Leases" are (a) Leases that the Servicer has
determined to be more than 90 days delinquent or (b) Leases that have been
accelerated by the Servicer. See "The Lease Pool--The Leases".
The "Overcollateralization Amount" with respect to each Payment Date
is an amount equal to (a) the Discounted Present Value of the Performing
Leases as of the related Determination Date minus (b) the Outstanding
Principal Amount of the Notes and the Certificate Balance (after giving effect
to payments of principal (other than Additional Principal) on such Payment
Date); provided, however, that such amount will never be less than zero.
Evidence as to Compliance. The Sale and Servicing Agreement provides
for delivery to the Trust and Indenture Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Sale and Servicing Agreement throughout the preceding
twelve months (or, in the case of the first such certificate, from the
Issuance Date) or, if there has been a default in the fulfillment of any such
obligation, describing each such default. The Servicer will agree to give the
Indenture Trustee and the Trustee notice of certain Servicer Defaults under
the Sale and Servicing Agreement.
Copies of such certificates may be obtained by Noteholders by written
request addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer. The Sale and Servicing
Agreement provides that ILC may not resign from its obligations and duties as
Servicer thereunder, except upon determination that ILC's performance of such
duties is no longer permissible under applicable law. No such resignation will
become effective until the Indenture Trustee or a successor servicer has
assumed ILC's servicing obligations and duties under the Sale and Servicing
Agreement.
The Sale and Servicing Agreement will further provide that neither
the Servicer nor any of its directors, officers, employees and agents will be
under any liability to the Trust or the Noteholders for any action taken or
not taken in good faith pursuant to the Sale and Servicing Agreement with
respect to any Lease (including any NonPerforming Lease) or the Equipment
subject thereto, except that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance or
nonperformance of the Servicer's duties thereunder nor shall the Servicer nor
any such person be protected against any breach of warranties, representations
or covenants made by it pursuant to the Sale and Servicing Agreement or any
certificate delivered in conjunction with the issuance of the Notes.
Under the circumstances specified in the Sale and Servicing
Agreement, any entity into which the Servicer may be merged or consolidated,
or any entity resulting from any merger or consolidation to which the Servicer
is a party, or
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any entity succeeding to the business of the Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor of the Servicer under the Sale and Servicing
Agreement.
Servicer Events of Default. The following events and conditions shall
be defined in the Sale and Servicing Agreement as "Servicer Events of
Default": (i) failure on the part of the Servicer to remit to the Trustee
within three Business Days following the receipt thereof any monies received
by the Servicer required to be remitted to the Trustee under the Sale and
Servicing Agreement; (ii) so long as ILC is the Servicer, failure on the part
of ILC to pay to the Trustee on the date when due, any payment required to be
made by ILC pursuant to the Sale and Servicing Agreement; (iii) default on the
part of either the Servicer or (so long as ILC is the Servicer) ILC in its
observance or performance in any material respect of certain covenants or
agreements in the Sale and Servicing Agreement; (iv) if any representation or
warranty of ILC made in the Sale and Servicing Agreement shall prove to be
incorrect in any material respect as of the time made; provided, that the
breach of any representation or warranty made by ILC in such Sale and
Servicing Agreement will be deemed to be "material" only if it affects the
Noteholders, the enforceability of the Indenture or of the Notes; and
provided, further, that such material breach of any representation or warranty
made by ILC in such Sale and Servicing Agreement with respect to any of the
Leases or the Equipment subject thereto will not constitute a Servicer Event
of Default if ILC repurchases such Lease and Equipment in accordance with the
Sale and Servicing Agreement to the extent provided therein; and (v) certain
insolvency or bankruptcy events relating to the Servicer.
Servicer Termination. So long as a Servicer Event of Default under
the Sale and Servicing Agreement is continuing, the Indenture Trustee shall,
upon the instructions of the Holders of 66 2/3% in principal amount of the
Notes, by notice in writing to the Servicer terminate all of the rights and
obligations of the Servicer (but not ILC's obligations which shall survive any
such termination) under Sale and Servicing Agreement. On the receipt by the
Servicer of such written notice, all authority and power of the Servicer under
the Sale and Servicing Agreement to take any action with respect to any Lease
or Equipment will cease and the same will pass to and be vested in the
Indenture Trustee pursuant to and under the Sale and Servicing Agreement and
the Indenture.
Waiver of Past Defaults
The Holders of Notes evidencing at least a 66 2/3% of the principal
amount of the then outstanding Notes of the related series (or the Holders of
the Certificates evidencing at least a majority of the outstanding Certificate
Balance, in the case of any Servicer Event of Default that does not adversely
affect the Indenture Trustee or the Noteholders) may, on behalf of all such
Noteholders and Certificateholders, waive any default by the Servicer in the
performance of its obligations under the Sale and Servicing Agreement and its
consequences, except a default in making any required deposits to or payments
from any of the Trust Accounts in accordance with the Sale and Servicing
Agreement. Therefore, the Noteholders have the ability, as limited above, to
waive defaults by the Servicer which could materially adversely affect the
Certificateholders. No such waiver will impair such Noteholders' rights with
respect to subsequent defaults.
Amendment
The Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of the Noteholders or
Certificateholders; provided that such action will not, in the opinion of
counsel satisfactory to the Indenture Trustee and the Trustee, materially and
adversely affect the interest of any the Noteholders or Certificateholders. In
addition, the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the Noteholders or Certificateholders, to
substitute or add credit enhancement for any class of Securities provided the
Rating Agencies confirm in writing that such substitution or addition will not
result in a reduction or withdrawal of the rating of such class of Securities
or any other class of Securities of the related series. The Transfer and
Servicing Agreements may also be amended by the Seller, the Servicer and the
Trustee with the consent of the Indenture Trustee, the Holders of Notes
evidencing at least 66 2/3% of the principal amount of then outstanding Notes
and the Holders of Certificates of such series evidencing at least 66 2/3% of
the Certificate Balance, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Transfer
and Servicing Agreements or of modifying in any manner the rights of the
Noteholders or Certificateholders; provided, however, that no such amendment
may (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the related Leases or distributions
that are required to be made for the benefit of the Noteholders or
Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
Certificates of such series that are required to consent to any such
amendment, without the consent of the Holders of all the outstanding Notes and
Certificates.
Termination
The obligations of the Servicer, the Seller, the Trustee and the
Indenture Trustee pursuant to the Transfer and Servicing Agreements will
terminate upon (i) the maturity or other liquidation of the last related
Leases and the
36
<PAGE>
disposition of any amounts received upon liquidation of any such remaining
Leases and (ii) the payment to Noteholders and Certificateholders of all
amounts required to be paid to them pursuant to the Transfer and Servicing
Agreements.
In order to avoid excessive administrative expense, the Servicer will
be permitted at its option to purchase from the Trust, on any Payment Date
after the Payment Date on which the Discounted Present Value of the Performing
Leases is less than or equal 5% of the Discounted Present Value of the Leases
as of the Cut-Off Date, and any outstanding Notes will be redeemed
concurrently therewith.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on such Notes and the yield to maturity of such Notes
are directly related to the rate of payments on the underlying Leases. The
payments on such Leases may be in the form of scheduled payments, Lease
Prepayments or liquidations due to default, casualty and other events, which
cannot be specified at present. Any such payments may result in distributions
to Noteholders of amounts which would otherwise have been distributed over the
remaining term of the Leases. In general, the rate of such payments may be
influenced by a number of other factors, including general economic
conditions. The rate of Principal Payments with respect to any class may also
be affected by any repurchase of the underlying Leases by ILC pursuant to the
Sale and Servicing Agreement. In such event, the repurchase price will
decrease the Discounted Present Value of the Performing Leases, causing the
corresponding weighted average life of the Notes to decrease. See "Risk
Factors--Prepayments".
If a Lease becomes a Warranty Lease, ILC will have the option to
substitute a Substitute Lease for such Warranty Lease. The Substitute Leases
will have a Discounted Present Value of the Warranty Leases equal to or
greater than that of the Warranty Leases being replaced and the monthly
payments on the Substitute Leases will be at least equal to those of the
Warranty Leases through the term of such Warranty Leases. In the event that an
Early Lease Termination or other modification of the lease terms in connection
with a partial buy-out is allowed by ILC, the amount prepaid will be equal to
at least the Discounted Present Value of the terminated Lease (or, in the case
of a partial buy-out, the portion thereof related to such buy-out), plus any
delinquent payments.
The effective yield to Holders of the Notes will depend upon, among
other things, the amount of and rate at which principal is paid to such
Noteholders. The after-tax yield to Noteholders may be affected by lags
between the time interest income accrues to Noteholders and the time the
related interest income is received by the Noteholders.
The following chart sets forth the percentage of the Initial
Principal Amount of the Class A and Class B Notes which would be outstanding
on the Payment Dates set forth below assuming a CPR of [__]% and [__]%,
respectively and were calculated using the Statistical Discount Rate. Such
information is hypothetical and is set forth for illustrative purposes only.
The CPR ("Conditional Payment Rate") assumes that a fraction of the
outstanding Lease Pool is prepaid on each Distribution Date, which implies
that each Lease in the Lease Pool is equally likely to prepay. This fraction,
expressed as a percentage, is annualized to arrive at the Conditional Payment
Rate for the Contract Pool. The CPR measures prepayments based on the
outstanding Discounted Present Value of the Leases, after the payment of all
Scheduled Payments on the Leases during such Due Period. The CPR further
assumes that all Leases are the same size and amortize at the same rate and
that each Lease will be either paid as scheduled or prepaid in full. The
amounts set forth below are based upon the timely receipt of scheduled monthly
Lease payments as of the Cut-Off Date, assumes that the Trust does not
exercise its option to redeem the Notes and assumes the Issuance Date is
[September __, 1998] and the first Payment Date is [_______________, 1998].
37
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A-1 AND A-2 PRINCIPAL
AMOUNTS AND THE INITIAL CLASS B PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
[__]% CPR [__]% CPR
-------------------------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class B Certificates Class A-1 Class A-2 Class B
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
% % % % % %
Issuance Date
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
</TABLE>
38
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A-1 AND A-2 PRINCIPAL
AMOUNTS AND THE INITIAL CLASS B PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
[__]% CPR [__]% CPR
-----------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class B Class A-1 Class A-2 Class B
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance Date
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
[Month, Year]
WEIGHTED AVERAGE
LIFE(1)(YEARS)
</TABLE>
(1) The weighted average life of a Class A Note or Class B Note is determined
by (a) multiplying the amount of cash distributions in reduction of the
Outstanding Principal Amount of the respective Note by the number of
years from the Issuance Date to such Payment Date, (b) adding the
results, and (c) dividing the sum by the respective Initial Principal
Amount of such Note.
For the [__]% CPR and [__]% CPR scenarios, if the Trust exercises its
option to redeem the Notes, the average life of the Class A-1 Notes; Class A-2
Notes; and Class B Notes would be [ ] years and [ ] years; [ ] years and [ ]
years; and [ ] years and [ ] years, respectively.
39
<PAGE>
CERTAIN LEGAL MATTERS AFFECTING A LESSEE'S
RIGHTS AND OBLIGATIONS
General. The Leases are triple-net leases, requiring the Lessees to
pay all taxes, maintenance and insurance associated with the Equipment, and
are primarily non-cancelable by the Lessees.
The Leases are "hell or high water" leases, under which the
obligations of the Lessee are absolute and unconditional, regardless of any
defense, setoff or abatement which the Lessee may have against ILC, as Seller
or Servicer, the Trust, or any other person or entity whatsoever.
Events of default under the Leases are generally the result of
failure to pay amounts when due, failure to observe other covenants in the
Lease, misrepresentations by, or the insolvency, bankruptcy or appointment of
a trustee or receiver for the Lessee under a Lease. The remedies of the lessor
(and the Trust as assignee) following a notice and cure period are generally
to seek to enforce the performance by the Lessee of the terms and covenants of
the Lease (including the Lessee's obligation to make scheduled payments) or
recover damages for the breach thereof, to accelerate the balance of the
remaining scheduled payments paid to terminate the rights of the Lessee under
such Lease. Although the Leases permit the lessor to repossess and dispose of
the related Equipment in the event of a lease default, and to credit such
proceeds against the Lessee's liabilities thereunder, such remedies may be
limited where the Lessee thereunder is subject to bankruptcy, or other
insolvency proceedings.
UCC and Bankruptcy Considerations. Prior to the Cut-Off Date, ILC
will have filed Uniform Commercial Code ("UCC") financing statements in its
favor against Lessees in respect of Equipment, including Equipment subject to
Nominal-Buy-Out Leases, with an original Equipment cost in excess of
[$________]. Financing statements in favor of ILC with respect to
approximately [____]% of the Statistical Discounted Present Value of the
Leases will be filed. No action will be taken to perfect the interest of ILC
in any Equipment to the extent the original Equipment cost of the related
Equipment is less than [$________]. As a result, ILC does not have a perfected
security interest in Equipment with an original Equipment cost of less than or
equal to [$________], which represents approximately [_____]% of the
Statistical Present Value of the Leases. In addition, the Sale and Servicing
Agreement, the Trust Agreement and the Indenture will require UCC financing
statements identifying security interests in the Equipment as transferred to,
or obtained by, the Seller, the Trust and the Indenture Trustee, respectively,
and UCC financing statements identifying equipment owned by ILC, transferred
to the Seller, the Trust and the Indenture Trustee, respectively, to be filed
in favor of the Seller, the Trust and the Indenture Trustee, respectively, in
states in which as of the Closing Date (i) Equipment relating to not less than
[___]% of the Discounted Present Value of the Leases as of the Cut-Off Date is
located and (ii) Equipment relating to not less than [___]% of the Booked
Residual Value of such Equipment as of the Cut-Off Date is located (the
"Filing Locations"). In the event of the repossession and resale of Equipment
subject to a superior lien, the senior lienholder would be entitled to be paid
the full amount of the indebtedness owed to it out of the sale proceeds before
such proceeds could be applied to the payment of claims by the Servicer on
behalf of the Trust. Certain statutory provisions, including federal and state
bankruptcy and insolvency laws, may limit the ability of the Servicer to
repossess and resell collateral or obtain a deficiency judgment in the event
of a Lessee default. In the event of the bankruptcy or reorganization of a
Lessee, or ILC, as Servicer, or the Seller, various provisions of the
Bankruptcy Code of 1978, 11 U.S.C. ss.ss. 101-1330 (the "Bankruptcy Code"),
and related laws may interfere with, delay or eliminate the ability of ILC or
the Trust to enforce its rights under the Leases.
In the case of operating leases, the Bankruptcy Code grants to the
bankruptcy trustee or the debtor-in-possession a right to elect to assume or
reject any executory contract or unexpired lease. Any rejection of such a
lease or contract constitutes a breach of such lease or contract, entitling
the nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into
the Collection Account and allocated to the Noteholders as more fully
described herein. Upon the bankruptcy of a Lessee, if the bankruptcy trustee
or debtor-in-possession elected to reject a Lease, the flow of scheduled
payments to Noteholders would cease. If, as a result of the bankruptcy of a
Lessee, the Servicer is prevented from collecting scheduled payments with
respect to Leases and such Leases become Non-Performing Leases, no recourse
would be available against ILC (except for misrepresentation or breach of
warranty or covenant) and the Noteholders could suffer a loss with respect to
the Notes. Similarly, upon the bankruptcy of the Seller, if the bankruptcy
trustee or debtor-in-possession elected to reject a Lease, the flow of Lease
payments to the Trust and the Noteholders would cease. As noted above,
however, the Seller has been structured so that the filing of a bankruptcy
petition with respect to it is unlikely. See "The Seller".
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment, may limit the amount
realized on the sale of Equipment to less than the amount due on the related
Lease.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the anticipated material Federal income
tax consequences of the purchase, ownership and disposition of the Notes. The
summary does not purport to deal with Federal income tax consequences
applicable to all categories of holders, some of which may be subject to
special rules. For example, it does not discuss the tax treatment of
Noteholders that are insurance companies, regulated investment companies or
dealers in securities.
40
<PAGE>
This discussion is directed to prospective purchasers who purchase Notes in
the initial distribution thereof and who hold the Notes or Certificates as
"capital assets" within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"). Prospective investors are urged to
consult their own tax advisors in determining the Federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of the Notes.
The following summary is based upon current provisions of the Code,
the Treasury regulations promulgated thereunder, judicial authority, and
ruling authority, all of which are subject to change, which change may be
retroactive. The Trust will be provided with an opinion of Mayer, Brown &
Platt, special Federal tax counsel to the Trust ("Federal Tax Counsel")
regarding certain Federal income tax matters discussed below. An opinion of
Federal Tax Counsel, however, is not binding on the Internal Revenue Service
(the "IRS") or the courts. Moreover, there are no cases or IRS rulings on
similar transactions involving both debt and equity interests issued by a
trust with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or a part of the discussion below. No
ruling on any of the issues discussed below will be sought from the IRS.
Tax Characterization of the Trust
Federal Tax Counsel will deliver its opinion that the Trust will not
be an association (or publicly traded partnership) taxable as a corporation
for Federal income tax purposes. This opinion will be based upon the
assumption of compliance by all parties with the terms of the Trust Agreement
and related documents.
If the Trust were taxable as a corporation for Federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the Leases,
possibly reduced by its interest expense on the Notes. Any such corporate
income tax could materially reduce cash available to make payments on the
Notes.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for Federal, state and local income and franchise tax purposes. Federal
Tax Counsel will, except as otherwise provided in the related Prospectus
Supplement, advise the Trust that the Notes will be classified as debt for
Federal income tax purposes. The discussion below assumes this
characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars[, and that the Notes are
not Indexed Securities or Strip Notes.] Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified
stated interest" under Treasury regulations (the "OID Regulations") relating
to original issue discount ("OID"), and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) is a de
minimis amount (i.e., less than 1/4% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of
the OID Regulations.
Interest Income on the Notes. Based upon the above assumptions,
except as discussed below, the Notes will not be considered issued with OID.
The stated interest thereon will be taxable to a Noteholder as ordinary
interest income when received or accrued in accordance with such Noteholder's
method of tax accounting. Under the OID Regulations, a holder of a Note issued
with a de minimis amount of OID must include such OID in income, on a pro rata
basis, as principal payments are made on the Note. A purchaser who buys a Note
for more or less than its principal amount will generally be subject,
respectively, to the premium amortization or market discount rules of the
Code.
A holder of a Note that has a fixed maturity date of not more than
one year from the issue date of such Note (a "Short-Term Note") may be subject
to special rules. Under the OID Regulations, all stated interest will be
treated as OID. An accrual basis holder of a Short-Term Note (and certain cash
basis holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest
income as OID accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon
the taxable disposition of the Short-Term Note). However, a cash basis holder
of a Short-Term Note reporting interest income as it is paid may be required
to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Note until the
taxable disposition of the Short-Term Note. A cash basis taxpayer may elect
under Section 1281 of the Code to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include OID on the Short-Term Note in income as it accrues, but would
not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, OID and gain
previously included by such Noteholder in income with respect to the Note and
decreased by the amount of premium (if any) previously amortized and by the
amount of principal payments previously received by
41
<PAGE>
such Noteholder with respect to such Note. Any such gain or loss will be
capital gain or loss, except for gain representing accrued interest and
accrued market discount not previously included in income. Capital losses
generally may be used by a corporate taxpayer only to offset capital gains,
and by an individual taxpayer only to the extent of capital gains plus $3,000
of other income. In the case of an individual taxpayer, any capital gain on
the sale of a Note will be taxed at a maximum rate of 39.6% if the Note is
held for not more than 12 months, at 28% if the Note is held for more than 12
months, but not more than 18 months, and at 20% if the Note is held for more
than 18 months.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States Federal income tax and
withholding tax, if 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 actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of the
outstanding Certificates) or a "controlled foreign corporation" with respect
to which the Trust or the Seller is a "related person" within the meaning of
the Code and (ii) satisfies the statement requirement set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder. To
satisfy this requirement, the foreign person, or a financial institution
holding the Note on behalf of such foreign person, must provide, in accordance
with specified procedures, a paying agent of the Trust with a statement to the
effect that the foreign person is not a United States person. Currently these
requirements will be met if (x) the foreign person provides his name and
address, and certifies, under penalties of perjury, that he is not a United
States person (which certification may be made on an IRS Form W-8) or (y) a
financial institution holding the Note on behalf of the foreign person
certifies, under penalties of perjury, that such statement has been received
by it and furnishes a paying agent with a copy thereof. Under recently
finalized Treasury regulations (the "Final Regulations"), the statement
requirement may also be satisfied with other documentary evidence with respect
to an offshore account or through certain foreign intermediaries. The Final
Regulations will generally be effective for payments made after December 31,
1999.
If such interest is not "portfolio interest," then it will be subject
to a 30% withholding tax unless the foreign person provides the Trust or its
paying agent, as the case may be, with a properly executed (i) IRS Form 1001
(or successor form) claiming an exemption from withholding tax or a reduction
in withholding tax under the benefit of a tax treaty or (ii) IRS Form 4224 (or
successor form) stating that interest paid on the Note is not subject to
withholding tax because it is effectively connected with the foreign person's
conduct of a trade or business in the United States. Under the Final
Regulations, a foreign person will generally be required to provide IRS Form
W-8 in lieu of IRS Form 1001 and IRS Form 4224, although alternative
documentation may be applicable in certain situations.
If a foreign person is engaged in a trade or business and interest on
the Note is effectively connected with the conduct of such trade or business
in the United States, the foreign person, although exempt from the withholding
tax discussed above, will be subject to United States federal income tax on
such interest on a net income basis in the same manner as if it were a United
States person. In addition, if such foreign person is a foreign corporation,
it may be subject to a branch profits tax equal to 30% (or lower treaty rate)
of its effectively connected earnings and profits for the taxable year,
subject to adjustments.
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 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, the foreign person is not present in the United States for 183
days or more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt
holder such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct Federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31% of the amount otherwise payable to the holder, and
remit the withheld amount to the IRS as a credit against the holder's Federal
income tax liability. The Final Regulations make certain modifications to the
backup withholding and information reporting rules. Prospective investors are
urged to consult their own tax advisors regarding the Final Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for Federal income tax purposes, the Notes
might be treated as equity interests in the Trust. In such a case, the Trust
would be treated as a publicly traded partnership that would not be taxable as
a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to foreign holders might be subject to U.S. tax and U.S. tax
return filing and withholding requirements, and individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses.
42
<PAGE>
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
Subject to the following discussion the Notes may be acquired by
pension, profit-sharing or other employee benefit plans, as well as individual
retirement accounts and Keogh plans (each a "Benefit Plan"). Section 406 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Section 4975 of the Code prohibit a Benefit Plan from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax
or other penalties and liabilities under ERISA and the Code for such persons
or the fiduciaries of the Benefit Plan. In addition, Title I of ERISA also
requires fiduciaries of a Benefit Plan subject to ERISA to make investments
that are prudent, diversified and in accordance with the governing plan
documents.
Certain transactions involving the Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased Notes if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Regulation"), the assets of the Trust would be
treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the Trust and
none of the exceptions to plan assets contained in the Regulation was
applicable. An equity interest is defined under the Regulation as an interest
other than an instrument which is treated as indebtedness under applicable
local law and which has no substantial equity features. Although there is
little guidance on the subject, assuming the Notes are treated as debt for
local law purposes, the Seller believes that, at the time of their issuance,
the Notes should not be treated as an equity interest in the Trust for
purposes of the Regulation. This determination is based in part upon the
traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Trust
incurred losses. This risk of recharacterization is enhanced for Notes that
are subordinated to other securities.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes
by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Trust, the Seller, the Indenture Trustee or the
Trustee is or becomes a party in interest or a disqualified person with
respect to such Benefit Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of Notes by
a Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions
are: Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding
transactions effected by "in-house asset managers"; PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 90-1, regarding
investments by insurance company pooled separate accounts; and PTCE 84-14,
regarding transactions effected by "qualified professional asset managers." By
acquiring a Note, each purchaser will be deemed to represent that either (i)
it is not acquiring the Notes with the assets of a Benefit Plan; or (ii) the
acquisition and holding of the Notes will not give rise to a nonexempt
prohibited transaction under Section 406(a) of ERISA or Section 4975 of the
Code.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements, however governmental plans
may be subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
43
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the
underwriting agreement (the "Underwriting Agreement") for the sale of the
Notes, the Trust has agreed to sell and Lehman Brothers Inc. (the
"Underwriter") have agreed to purchase the principal amount of the Notes set
forth opposite their names:
Principal Amount of Principal Amount of
Underwriter of the Class A Notes Class A-1 Notes Class A-2 Notes
- -------------------------------- --------------- ---------------
Lehman Brothers Inc.
Underwriter of the Class B Notes Principal Amount of Class B Notes
- -------------------------------- ---------------------------------
Lehman Brothers Inc.
The Trust has been advised by the Underwriter that the Underwriter
proposes initially to offer the Notes to the public at the respective public
offering prices set forth on the cover page of this Prospectus, and to certain
dealers at such price, less a concession not in excess of [___]% per Class A-1
Note, [___]% per Class A-2 Note and [___]% per Class B Note. The Underwriter
may allow and such dealers may reallow to other dealers a discount not in
excess of [___]% per Class A-1 Note, [___]% per Class A-2 Note and [___]% per
Class B Note. After the initial public offering, the public offering price may
be changed.
The Underwriter will represent and agree that:
(a) it has not offered or sold, and, prior to the expiry of
six months from the Issuance Date, will not offer or sell, any Notes
to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for purposes of their
business, or otherwise in circumstances which have not resulted and
will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations
1995;
(b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Notes in, from or otherwise
involving the United Kingdom; and
(c) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in
connection with the issue of the Notes to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 or persons to
whom such document may otherwise lawfully be issued, distributed or
passed on.
The Seller and Information have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Trust has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Notes, as permitted by applicable
laws and regulations. The Underwriter is not obligated, however, to make a
market in the Notes and any such market making may be discontinued at any time
at the sole discretion of the Underwriter. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the Notes.
In connection with the offering of the Notes, the Underwriter and
selling group members and their respective affiliates may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Notes. Such transactions may include stabilization transactions effected
in accordance with Rule 104 of Regulation M, pursuant to which such person may
bid for or purchase the Notes for the purpose of stabilizing its market price.
[ In addition, Lehman Brothers, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the offering) for
the account of the other Underwriters, the selling concession with respect to
the Notes that it distributed in the offering but subsequently purchased for
the account of the Underwriters in the open market.] Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Notes at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and, if they
are taken, may be discontinued at any time without notice.
44
<PAGE>
RATING OF THE NOTES
It is a condition to the issuance of any of the Notes that the Class
A-1 Notes be rated at least ["___"] or its equivalent, that the Class A-2
Notes be rated at least ["___"] or its equivalent, and that the Class B Notes
be rated at least ["___"] or its equivalent in each case by at least two
nationally recognized rating agencies (the rating agencies rating the Notes
being the "Rating Agencies"). The ratings assess the likelihood of timely
payment of interest and the ultimate payment of principal to the Noteholders
by the Stated Maturity date. There is no assurance that any rating will not be
lowered or withdrawn if, in the judgement of any Rating Agency, circumstances
in the future so warrant.
Such rating will reflect only the views of each Rating Agency and
will be based primarily on the amount of subordination, the availability of
funds on deposit in the Reserve Account and the value of the Leases and
Equipment. The ratings are not a recommendation to purchase, hold or sell the
related Notes, inasmuch as such ratings do not comment as to market price or
suitability for a particular investor. There is no assurance that any such
rating will continue for any period of time or that it will not be lowered or
withdrawn entirely by a Rating Agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse affect on
the market price of the Notes. The rating of the Notes addresses the
likelihood of the timely payment of interest and the ultimate payment of
principal on the Notes by the Stated Maturity date. The rating does not
address the rate of Lease Prepayments that may be experienced on the Leases
and, therefore, does not address the effect of the rate of Lease Prepayments
on the return of principal to the Noteholders.
LEGAL OPINIONS
Certain legal matters relating to the Notes and certain federal
income tax and other matters will be passed upon for the Trust by Mayer, Brown
& Platt, Chicago, Illinois and certain Ohio tax matters will be passed upon by
[______________]. Each of [______________] and Mayer, Brown & Platt may from
time to time render legal services to the Seller, the Servicer and their
affiliates. Certain legal matters will be passed upon for the Underwriter by
Mayer, Brown & Platt, Chicago, Illinois.
45
<PAGE>
INDEX OF TERMS
Term(s) Page(s)
- ------- -------
Additional Principal......................................................6, 41
Adjusted Lease...........................................................10, 38
Available Funds..........................................................11, 39
Available Funds Shortfall....................................................36
Available Reserve Amount.................................................13, 36
Bankruptcy Code..............................................................47
Booked Residual Value........................................................13
Casualty.....................................................................39
Casualty Payment.............................................................39
Cede..........................................................................3
Certificate Distribution Account.............................................36
Certificate Floor.........................................................6, 41
Certificate Percentage....................................................7, 41
Certificate Principal Payment.............................................6, 41
Certificate Target Investor Principal Amount..............................7, 41
Certificates...............................................................1, 8
Class A Noteholders...........................................................2
Class A Notes.................................................................1
Class A Percentage........................................................7, 41
Class A Principal Payment.................................................7, 41
Class A Target Investor Principal Amount..................................7, 41
Class A-1 Initial Principal Amount............................................4
Class A-1 Interest Rate.......................................................6
Class A-1 Notes............................................................1, 4
Class A-2 Initial Principal Amount............................................4
Class A-2 Interest Rate.......................................................6
Class A-2 Notes............................................................1, 4
Class B Floor.............................................................7, 41
Class B Initial Principal Amount..............................................4
Class B Interest Rate.........................................................6
Class B Noteholders...........................................................2
Class B Notes..............................................................1, 4
Class B Percentage........................................................7, 42
Class B Principal Payment.................................................7, 41
Class B Target Investor Principal Amount..................................7, 41
Code.........................................................................48
Collection Account...........................................................35
Commission....................................................................2
Conditional Payment Rate.....................................................44
Cumulative Loss Amount....................................................7, 42
Cut-Off Date..................................................................5
Definitive Notes.............................................................33
Determination Date............................................................8
Discount Rate.............................................................5, 42
Discounted Present Value of the Leases....................................5, 42
Discounted Present Value of the Performing Leases.........................5, 42
DTC...........................................................................3
Due Period....................................................................8
Early Lease Termination.......................................................9
Eligible Account.............................................................37
Eligible Institution.........................................................37
Eligible Investments.........................................................37
Equipment.................................................................9, 18
ERISA........................................................................13
Events of Default............................................................30
Exchange Act..................................................................3
Federal Tax Counsel..........................................................48
Filing Locations.........................................................15, 47
Final Regulations............................................................49
Holders....................................................................2, 8
ILC...........................................................................2
46
<PAGE>
Indenture.................................................................4, 28
Indenture Trustee......................................................1, 4, 28
Indirect Participants........................................................33
Information Leasing...........................................................4
Initial Principal Amount......................................................4
Interest Accrual Period.......................................................6
Interest Rate.................................................................6
Investment Earnings..........................................................37
IRS..........................................................................48
Lease Contracts...........................................................9, 18
Lease Payment................................................................39
Lease Pool................................................................9, 18
Lease Prepayment.............................................................15
Lease Receivables.........................................................9, 18
Leases....................................................................9, 18
Lessee........................................................................9
Lessees.......................................................................9
Nominal Buy-Out Leases.......................................................15
Non-Performing Leases.....................................................5, 42
Note Distribution Account....................................................36
Note Owners...................................................................3
Noteholders...................................................................2
Notes......................................................................1, 4
OID..........................................................................48
OID Regulations..............................................................48
Outstanding Principal Amount..................................................6
Overcollateralization Amount..................................................7
Participants.................................................................32
Payahead Account.............................................................36
Payaheads....................................................................36
Payment Date...........................................................2, 8, 29
Priority of Payments.........................................................12
Provident....................................................................19
Purchase Agreement.........................................................2, 4
Record Date...................................................................8
Registration Statement........................................................2
Related Documents............................................................31
Required Payments............................................................36
Required Reserve Amount..................................................13, 36
Reserve Account..........................................................13, 36
Residual Account.............................................................36
Residual Amount Cap..........................................................13
Residual Event...........................................................13, 36
Residual Realizations........................................................12
Sales and Servicing Agreement..............................................2, 4
Securities.................................................................1, 8
Securities Act................................................................2
Securityholders..............................................................13
Seller.....................................................................1, 4
Servicer......................................................................4
Servicer Advance.........................................................10, 39
Servicer Events of Default...................................................43
Servicing Fee............................................................10, 38
Short-Term Note..............................................................49
Subject Payment Date..........................................................7
Substitute Lease.....................................................10, 38, 44
Termination Payment..........................................................39
Third Party Amounts..........................................................39
Transfer and Servicing Agreements............................................34
Trust......................................................................1, 4
Trust Acceleration Event.....................................................40
Trust Accounts...............................................................36
Trust Agreement...........................................................4, 32
Trust Collections............................................................35
Trust Property................................................................9
47
<PAGE>
Trustee................................................................1, 4, 32
UCC..................................................................15, 35, 47
Underwriters.................................................................51
Underwriting Agreement.......................................................51
Warranty Lease...........................................................10, 35
48
<PAGE>
==============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon. Neither
the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the
affairs of the Seller or the Trust or any affiliate thereof or the Leases
since the date hereof. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so to anyone to whom it is unlawful to make such offer or
solicitation.
---------------
TABLE OF CONTENTS
Page
----
Available Information.........................................................
Reports to Noteholders........................................................
Prospectus Summary............................................................
Risk Factors..................................................................
Use of Proceeds...............................................................
The Trust.....................................................................
The Seller....................................................................
The Servicer..................................................................
The Lease Pool................................................................
ILC's Underwriting and
Servicing Practices.........................................................
Description of the Notes......................................................
Description of the Certificates...............................................
Certain Information Regarding the Notes.......................................
Description of the Transfer and Servicing
Agreements...................................................................
Prepayment and Yield Considerations ..........................................
Certain Legal Matters Affecting a Lessee's Rights
and Obligations.............................................................
Material Federal Income Tax
Considerations..............................................................
Legal Investment..............................................................
ERISA Considerations..........................................................
Underwriting..................................................................
Rating of the Notes...........................................................
Index of Terms................................................................
Until [_______________] (90 days after the date of this Prospectus), all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
==============================================================================
==============================================================================
$[_______________]
$[__________] [___]% Class A-1
Lease-Backed Notes
$[__________] [___]% Class A-2
Lease-Backed Notes
$[__________] [___]% Class B
Lease-Backed Notes
----------------
PROSPECTUS
----------------
LEHMAN BROTHERS
[OTHERS]
Dated [____________], 1998
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Expenses in connection with the offering of the Notes being
registered herein are estimated as follows:
SEC registration fee $885
Legal fees and expenses
Accounting fees and expenses
Blue sky fees and expenses
Rating agency fees
Trustee fees and expenses
Printing
Miscellaneous
------------- -----
Total $
=====
Item 14. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware provides as follows:
145. Indemnification of officers, directors, employees and
agents; insurance
(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in
good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this section, or in defense of
any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a
quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written
opinion, or (3) by the stockholders.
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending a civil, criminal,
administrative or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of
directors deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references
to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to
"serving at the request of the corporation" shall include any
service as a director, officer, employee, or agent of the
corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement
of expenses or indemnification brought under this section or
under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery
may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
Article XI of the Bylaws of Provident Lease Receivables Corporation
(referred to as the "Corporation" therein) provides as follows:
Section 1. Coverage. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative
or investigative ("proceeding"), by reason of the fact that he or she
is or was a director, officer or agent of the Corporation (which
term shall include any predecessor corporation of the Corporation) or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to employee benefit plan ("indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment),
against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid
in settlement) reasonably incurred or suffered by such indemnitee
in connection therewith and such indemnification shall continue as to
an indemnitee who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as
provided in Section 2 of this Article XI with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify
any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors. The right to indemnification
conferred in this Article XI shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made in advance of the final
disposition of a proceeding only upon delivery to the Corporation
of an undertaking, by or on behalf of such indemnitee, to repay
all amounts so advanced if it ultimately be determined by final
judicial decision from which there is no further right to appeal
that such indemnitee is not entitled to be indemnified for such
expenses under this Article XI or otherwise. Expenses incurred by
agents in defending in any action, suit or proceeding, whether civil,
criminal, administrative or investigative may be paid by the
Corporation upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
Section 2. Claims. If a claim under Section 1 of this Article XI
is not paid in full by the Corporation within sixty (60)
days after a written claim has been received by the Corporation,
except in the case of a claim for expenses incurred in defending
a proceeding in advance of its final disposition, in which case
the applicable period shall be thirty (30) days, the indemnitee may
at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim. If successful in whole or in part in
any such suit or in a suit brought by the Corporation to recover
payments by the Corporation or expenses incurred by an indemnitee in
defending his or her capacity as a director or officer, a proceeding
in advance of its final disposition, the indemnitee shall be entitled
to be paid also for the expense of prosecuting or defending such claim.
If any action brought by the indemnitee to enforce a right to
indemnification hereunder (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has
been tendered to the Corporation) or by the Corporation to recover
payments by the Corporation of expenses incurred by an indemnitee in
defending, in his or her capacity as a director or officer, a
proceeding in advance of its final disposition, the burden of
proving that the indemnitee is not entitled to be indemnified under
this Article XI or otherwise shall be on the Corporation. Neither
the failure of the Corporation (including the Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including the Board of Directors,
independent legal counsel or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall be a
presumption that the indemnitee has not met the applicable standard
of conduct, or in the case of such an action brought by the
indemnitee, be a defense to the action.
Section 3. Rights Not Exclusive. The rights conferred on any person
by Sections 1 and 2 of this Article XI shall not be exclusive
of any other right which such person may have or hereafter acquire
under any statute, the Certificate of Incorporation of the
Corporation, these By-laws, any agreement, a vote of stockholders or
disinterested directors or otherwise.
Section 4. Employees. Persons who are not included as indemnities
under Section 1 of this Article XI but are employees of the
Corporation or any subsidiary may be indemnified to the extent
authorized at any time or from time to time by the Board of
Directors.
Article XII of the Certificate of Incorporation of Provident Lease Receivables
Corporation (referred to as the "Corporation" therein) provides as follows:
To the fullest extent permitted by the General Corporation
Law of the State of Delaware as it now exists or may hereafter
be amended, no director of the Company shall be personally liable
to the Company or its stockholders for monetary damages arising from
a breach of fiduciary duty owned to the Company or its stockholders,
except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) pursuant to section 174 of the
General Corporation Law of Delaware; or (iv) for any transaction from
which the director derived an improper personal benefit.
<PAGE>
Any repeal or modification of the foregoing paragraph by
the stockholders of the Company shall not adversely affect any right
or protection of a director of the Company existing at the time of
such repeal or modification.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits and Financial Statement Schedules.
a. A list of exhibits filed herewith is contained in the Exhibit Index, which
is incorporated herein by reference.
b. Financial Statement Schedules:
Not applicable.
Item 17. Undertakings.
The undersigned registrants hereby undertake as follows:
(a) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by a registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act will be deemed to be part of this registration statement as of
the time it was declared effective.
(c) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cincinnati and State of Ohio, on the 10th day of July, 1998.
PROVIDENT LEASE RECEIVABLES CORPORATION,
By: /s/ John R. Farrenkopf
-------------------------------
Name: John R. Farrenkopf
Title: Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement on Form S-1 has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------------------------------------------------------
/s/ Robert L. Hoverson Director and July 10, 1998
- ----------------------- Principal Executive
Robert L. Hoverson Officer
/s/ John R. Farrenkopf Director July 10, 1998
- -----------------------
John R. Farrenkopf
/s/ Mark E. Magee Director July 10, 1998
- -----------------------
Mark E. Magee
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
1.1* -- Form of Underwriting Agreement
3.1* -- Articles of Incorporation of Provident Lease Receivables
Corporation
3.2* -- Bylaws of Provident Lease Receivables Corporation
4.1* -- Form of Indenture between Provident Equipment Lease Trust
1998-A and the Indenture Trustee
4.2* -- Form of Class A-1 Lease-Backed Note
4.3* -- Form of Class A-2 Lease-Backed Note
4.3* -- Form of Class A-3 Lease-Backed Note
5.1* -- Opinion of Mayer, Brown & Platt with respect to the validity
of the securities being offered
8.1* -- Opinion of Mayer, Brown & Platt with respect to federal
income tax matters
8.2* -- Opinion of Ohio tax counsel with respect to certain Ohio tax
matters
10.1* -- Form of Trust Agreement between Provident Lease Receivables
Corporation and the Trustee
10.2* -- Form of Sale and Servicing Agreement between Provident
Equipment Lease Trust 1998-A, Provident Lease Receivables
Corporation and Information Leasing Corporation
10.3* -- Form of Receivables Purchase Agreement between Information
Leasing Corporation and Provident Lease Receivables
Corporation
23.1* -- Consent of Mayer, Brown & Platt (included in Exhibit 5.1)
23.2* -- Consent of Ohio tax counsel (included in Exhibit 8.2)
25* -- Form T-1 Statement of eligibility and qualification of
Indenture Trustee
* To be filed by amendment.
