<PAGE>
Filed pursuant to Rule 424(b)(1)
Registration File No. 333-58909
PROSPECTUS
$209,743,000
Provident Equipment Lease Trust 1998-A, Issuer
Provident Lease Receivables Corporation, Transferor
Information Leasing Corporation, Servicer
$73,303,000 5.28% Class A-1 Lease-Backed Notes
$19,242,000 5.78% Class A-2 Lease-Backed Notes
$90,935,000 5.60% Class A-3 Lease-Backed Notes
$18,576,000 5.75% Class A-4 Lease-Backed Notes
$7,687,000 6.20% 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 1, 1998, between
Provident Lease Receivables Corporation (the "Transferor") and First Union Trust
Company, National Association, as Trustee (in such capacity, the "Trustee") and
will issue the 5.28% Class A-1 Lease-Backed Notes (the "Class A-1 Notes"), the
5.78% Class A-2 Lease-Backed Notes (the "Class A-2 Notes"), the 5.60% Class A-3
Lease-Backed Notes (the "Class A-3 Notes"), the 5.75% Class A-4 Lease-Backed
Notes (the "Class A-4 Notes"; together with the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes, the "Class A Notes"), and the 6.20% 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 1, 1998, between the Trust and Norwest Bank Minnesota, National
Association, as Indenture Trustee (in such capacity, the "Indenture Trustee").
The Trust will also issue approximately $6,589,000 6.73% Lease-Backed
Certificates (the "Certificates"; and together with the Notes, the
"Securities"), but the Certificates are not offered hereby.
The Notes will represent secured obligations of the Trust. The assets of
the Trust will include a pool of equipment leases and all of the Trust's
interest in the equipment underlying the leases (which includes computer
equipment and software, medical equipment, retail equipment, phone equipment,
office equipment, industrial equipment and food service equipment). 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
transferred by ILC to Provident Lease Receivables Corporation (the
"Transferor"), a special purpose bankruptcy remote subsidiary of ILC under a
contribution agreement (the "Contribution Agreement") by and between ILC and the
Transferor, and will in turn be transferred by the Transferor to the Trust
pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") to be entered into among the Trust, the Transferor and the Servicer.
(Cover continued on next page)
------------------------------------
Prospective investors should consider the "Risk Factors" commencing on page
12 for a discussion of certain factors that should be considered in
connection with an investment in the Notes.
THE 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 TRANSFEROR, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES OR THE LEASES ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
------------------------------------
<TABLE>
<CAPTION>
Initial Public Proceeds to
Offering Price Underwriting Discount Transferor(1)
<S> <C> <C> <C>
Per Class A-1 Note 100.000000% 0.22% $73,141,733.40
Per Class A-2 Note 100.000000% 0.30% $19,184,274.00
Per Class A-3 Note 99.984375% 0.40% $90,557,051.41
Per Class A-4 Note 99.984375% 0.50% $18,480,217.50
Per Class B Note 99.984375% 0.55% $ 7,643,520.40
Total $209,724,687.81 $717,891.10 $209,006,796.71
</TABLE>
(1) Before deducting expenses estimated to be $500,000.
The Notes are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel, or modify any order without notice.
It is expected that delivery of the Notes will be made in book-entry form
through the facilities of The Depository Trust Company on or about September 30,
1998.
------------------------------------
LEHMAN BROTHERS PRUDENTIAL SECURITIES INCORPORATED
(with respect to Class A Notes only)
The date of this Prospectus is September 25, 1998.
3
<PAGE>
(cover page continued)
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,
including funds on deposit in the Residual Account, if any, 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, including funds on deposit in the Residual Account, if any, 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 November 25, 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 November 25, 1998. The stated maturity
date with respect to the Class A-1 Notes is the Payment Date in October, 1999,
the stated maturity date with respect to the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes and the Class B Notes is the Payment Date in April,
2006. 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 (after
giving effect to the payment of principal on such Payment Date) is less than or
equal to 5% of the Discounted Present Value of the Leases as of the Cut-Off
Date. The Discounted Present Value of the Leases at any time will be determined
by discounting the remaining amounts scheduled to be paid under the Leases after
the end of the related Due Period. See "Description of the Transfer and
Servicing Agreements--Servicing Procedures" for a description of the limited
circumstances in which such amounts may be adjusted. 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 will 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 UNDERWRITERS 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 PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES
SEE "UNDERWRITING" HEREIN.
AVAILABLE INFORMATION
The Transferor, 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
4
<PAGE>
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 Transferor, 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.
5
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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.
<TABLE>
<S> <C>
Trust............................ Provident Equipment Lease Trust 1998-A (the
"Trust"), a trust to be formed under the
laws of the State of New York pursuant to
the Trust Agreement, to be dated as of
September 1, 1998 (the "Trust Agreement")
between the Transferor and the Trustee. The
activities of the Trust will be limited by
the terms of the Trust Agreement to
acquiring 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 and no officers, directors or
employees.
Transferor....................... Provident Lease Receivables Corporation (the
"Transferor"), a Delaware corporation. The
Transferor's offices are located at 1023
West Eighth Street, Cincinnati, Ohio 45203,
and its phone number is (513) 579-2861. The
Transferor will be established as a
wholly-owned bankruptcy remote subsidiary of
ILC and is intended to be a limited-purpose
corporation. Accordingly, the Transferor'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
Transferor; 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
contribution agreement (the "Contribution
Agreement") to be dated September 1, 1998,
with the Transferor to transfer its interest
in the Equipment to the Transferor, and will
also enter into a Pooling and Servicing
Agreement (the "Pooling and Servicing
Agreement"), to be dated September 1, 1998,
with the Transferor and the Trust pursuant
to which the Transferor will transfer 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................ Norwest Bank Minnesota, National
Association, as indenture trustee (the
"Indenture Trustee") under the Indenture, to
be dated as of September 1, 1998 (the
"Indenture") between the Trust and the
Indenture Trustee.
Trustee.......................... First Union Trust Company, National
Association, as trustee under the Trust
Agreement (the "Trustee").
The Notes........................ $73,303,000 aggregate principal amount (the
"Class A-1 Initial Principal Amount") of
5.28% Class A-1 Lease-Backed Notes (the
"Class A-1 Notes"),
$19,242,000 aggregate principal amount (the
"Class A-2 Initial Principal Amount") of
5.78% Class A-2 Lease-Backed Notes (the
"Class A-2 Notes"),
$90,935,000 aggregate principal amount (the
"Class A-3 Initial Principal Amount") of
5.60% Class A-3 Lease-Backed Notes (the
"Class A-3 Notes"),
$18,576,000 aggregate principal amount (the
"Class A-4 Initial Principal Amount",
together with the Class A-1 Initial
Principal Amount, the Class A-2 Initial
Principal Amount and the Class A-3 Initial
Principal Amount, the "Class
</TABLE>
6
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<TABLE>
<S> <C>
A Initial Amount") of 5.75% Class A-4
Lease-Backed Notes (the "Class A-4 Notes";
together with the Class A-1 Notes, the Class
A-2 Notes and the Class A-3 Notes, the
"Class A Notes"), and
$7,687,000 aggregate principal amount (the
"Class B Initial Principal Amount", together
with the Class A Initial Principal Amount,
the "Initial Principal Amount") of 6.20%
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" above are based upon the
Discounted Present Value of the Leases as of
the close of business on August 31, 1998
(the "Cut-Off Date") calculated at the
Discount Rate (as defined below).
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 a rate equal to
6.70% (the "Statistical Discount Rate").
The "Discounted Present Value of the Leases"
at any given time, shall equal the future
remaining scheduled payments (including
Payaheads but excluding Third Party Amounts
and, after the Closing Date, delinquent
amounts) from the Leases (including
Non-Performing Leases), discounted at a rate
equal to 6.54584% (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-4 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 Pooling 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 during the
related Due Period 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 Third
Party Amounts and, after the Closing Date,
delinquent amounts), from the Leases as of
the Cut-Off Date, discounted at the
Statistical Discount Rate. The Statistical
Discounted Present Value of the Leases as of
the Cut-Off Date is $218,899,819.97 and will
not vary more than 10% 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
$219,626,840.80.
"Non-Performing Leases" are (a) Leases that
the Servicer has determined to be more than
93 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 Transferor will
</TABLE>
7
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<TABLE>
<S> <C>
represent in the Pooling and Servicing
Agreement that as of the Cut-Off Date, no
Lease was a Non-Performing Lease.
Subordination.................... So long as no Event of Default has occurred
and the Notes have not been accelerated,
distributions of interest and principal on
the Notes will be payable as follows. On
each Payment Date, interest will be paid
first, to the Class A Noteholders, second to
the Class B Noteholders and finally to the
Holders of the Certificates. See "--Terms of
the Notes; Interest Payments". No payment of
principal will be made on Class A- 2 Notes,
the Class A-3 Notes, the Class A-4 Notes,
the Class B Notes or the Certificates until
the Class A-1 Notes have been paid in full.
Thereafter, on each Payment Date, principal
will be paid first on the Class A-2 Notes,
in the amount of the Class A Principal
Payment, then on the Class A-3 Notes, in the
amount of the Class A Principal Payment,
then on the Class A-4 Notes, in the amount
of the Class A Principal Payment, then on
the Class B Notes, in the amount of the
Class B Principal Payment, and finally, on
the Certificates, in the amount of the
Certificate Principal Payment. See "--Terms
of the Notes; Principal Payments". After
making payments of principal set forth in
the preceding sentence on each Payment Date,
Additional Principal, if any, will be paid
to the most senior class of Notes then
outstanding. Payments of interest and
principal will be made on each Payment Date
only to the extent of Available Funds
available therefor in accordance with the
Priority of Payments. 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". See also
"--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 5.28% 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 5.78% per
annum (the "Class A-2 Interest Rate"), on
the Class A-3 Notes at the rate of 5.60% per
annum (the "Class A-3 Interest Rate"), on
the Class A-4 Notes at the rate of 5.75% per
annum (the "Class A-4 Interest Rate") and on
the Class B Notes at the rate of 6.20% 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, the Class A-3 Notes, the
Class A-4 Notes and the Class B Notes will
be the interest that has accrued on such
class of Notes from (and including) the
immediately preceding Payment Date to (but
excluding) such Payment Date, or in the case
of the first Payment Date, from (and
including) 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".
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
</TABLE>
8
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<TABLE>
<S> <C>
Principal Amount on the Class A-2 Notes has
been reduced to zero, the Class A Principal
Payment, then (iii) to the Class A-3
Noteholders only, until the Outstanding
Principal Amount on the Class A-3 Notes has
been reduced to zero, the Class A Principal
Payment, then (iv) to the Class A-4
Noteholders only, until the Outstanding
Principal Amount on the Class A-4 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, Class A-3 Notes, Class A-4 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) 1.50% of the initial
Discounted Present Value of the Leases as of
the Cut-Off Date, plus (b) the Cumulative
Loss Amount with respect to such Payment
Date, minus (c) the sum 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" means
(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)
4.5030% (the "Certificate Percentage") and
(b) the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
The "Class A Principal Payment" means (a)
while the Class A-1 Notes are outstanding,
(i) on all Payment Dates prior to the
October, 1999 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 October,
1999 Payment Date and thereafter until the
Class A-1 Notes have been paid in full, 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)
87.9918% (the "Class A Percentage") and (b)
the Discounted Present Value of the
Performing Leases as of the related
Determination Date.
</TABLE>
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<TABLE>
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The "Class B Principal Payment" means (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) 2.5% 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 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)
5.2534% (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
to 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,
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................. $6,589,000 aggregate principal of 6.73%
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
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Agreements--Distributions on Securities"
herein. The Certificates are not offered
hereby.
Issuance Date.................... On or about September 30, 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 during
the immediately preceding calendar month or,
in the case of the initial Determination
Date, from, but not including, the Cut-Off
Date through October 31, 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 November 25,
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, 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, Class A-3
Notes, Class A-4 Notes and the Class B Notes
are the Payment Dates in August, 1999,
November, 1999, December, 2001, February,
2003, and April, 2003, respectively. The
stated maturity date with respect to the
Class A-1 Notes will be the Payment Date in
October, 1999, and with respect to all other
Notes will be the Payment Date in April,
2006. 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 equipment leases (the
"Lease Contracts"), and all of the Trust's
interest in the equipment (the "Equipment")
underlying the leases (which includes
computer equipment and software, medical
equipment, retail equipment, phone
equipment, office equipment, industrial
equipment and food service equipment),
including all payments not collected
thereunder on or prior to the Cut-Off Date
(the "Lease Receivables"; together with the
Lease Contracts, the "Leases"). 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
Pooling and Servicing Agreement, amounts on
deposit in the Residual Account, if any.
The Lease Pool................... On the Issuance Date, the Lease Pool will
consist of the Leases as of the Cut-Off Date
and the interest of the Trust in the related
Equipment. Thereafter, the Lease Pool will
consist of the Leases as of the Issuance
Date plus any Substitute Leases but
excluding any Leases which have been
replaced by one or more Substitute Leases,
and the interest of the Trust in the related
Equipment. See "--Substitutions", "The Lease
Pool" and "Certain Legal Matters Affecting a
Lessee's Rights and Obligations".
Less than 2% of the Statistical Discounted
Present Value of the Leases as of the CutOff
Date relate to Lessees located outside of
the United States.
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ILC will represent and warrant that, as of
the Cut-Off Date, all Leases were current or
less than 63 days delinquent and that, as of
the initial Determination Date, all Lessees
will have made at least one lease payment.
Equipment........................ The Equipment is comprised primarily of
computer equipment and software, medical
equipment, retail equipment, phone
equipment, office equipment, industrial
equipment and food service equipment. As of
the Cut-Off Date, the Lease Pool had
approximately 30 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 6.31%. As of
the Cut-Off Date, the Lease Pool included
5,447 separate Leases and approximately
4,280 Lessees.
As of the Cut-Off Date approximately 20.20%,
15.08%, 7.58%, 7.14% and 6.47% of the Leases
(based on Statistical Discounted Present
Value of the Leases) were located in Ohio,
California, Texas, Minnesota and South
Carolina, respectively. No other state
accounts for more than 5% of the Leases.
Accordingly, adverse economic conditions
particularly affecting any of these regions
could adversely affect the performance of
the Leases. See "Risk Factors--Geographic
Concentration of 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, calculated as of the Cut-Off Date, of
between approximately 3 and 80 months and a
weighted average remaining term of 39.57
months. See "The Lease Pool--The Leases".
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".
Substitutions.................... If Transferor or Servicer is required to
repurchase any Lease as a result of a breach
of representation, warranty or covenant
relating to such Lease, adjustments made to
such Lease by the Servicer or the early
termination of such Lease (each, a
"Predecessor Lease"), in lieu of such
repurchase (other than repurchases relating
to early terminations), the Transferor may
substitute one or more leases originated or
acquired using the same credit criteria as
the initial Leases and having similar
characteristics (each, a "Substitute Lease")
for Leases subject to repurchase in
accordance with the preceding paragraph, so
long as the following conditions are met:
(i) after giving effect to such
substitution, the aggregate Booked Residual
Value (without duplication) of all
Substitute Leases will not be less than 90%
of the aggregate Booked Residual Value of
all Predecessor Leases since the Issuance
Date, (ii) after giving effect to such
adjustment or substitution, either the final
payment on such Substitute Lease must be on
or prior to April, 2005 or, to the extent
the final
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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 Pooling and Servicing
Agreement, (iii) after giving effect to such
substitution, the aggregate amount of Lease
Payments through the term of the Leases will
not be more than 5% less than the aggregate
scheduled Lease Payments of the Leases prior
to such substitution, and (iv) after giving
effect to such substitution, the Discounted
Present Value of the Performing Leases is
not less than the Discounted Present Value
of the Performing Leases prior to such
substitution. See "Description of the
Transfer and Servicing Agreements--Transfer
of Leases" and "--Servicing Procedures".
No substitutions will be permitted if after
giving effect to such substitution, the
aggregate Discounted Present Value of all
Predecessor Leases would exceed 10% of the
Discounted Present Value of the Leases as of
the Cut-Off Date.
Although the limitations set forth above are
intended to minimize the probability that
substitutions would result in losses or
delays in payments to the Noteholders, no
assurances can be given to this effect. If
and when the aggregate Discounted Present
Value of all Leases for which a Substitute
Lease has been substituted equals 10% of the
Discounted Present Value of the Leases as of
the Cut-Off Date, the Servicer, on behalf of
the Trust, will file an interim report on
Form 8-K updating the distribution tables
set forth under "The Lease Pool" herein.
Payments on Leases............... All payments on Leases will be made by the
Lessees to the address specified by the
Servicer. Because the rate of payment of
principal on the Notes will depend, among
other things, on the rate of payment on the
Leases, prepayments of leases, payments as a
result of Non-Performing Leases, Casualty
Payments, and payments upon repurchase of
Leases by the Transferor or the Servicer
could impact the rate of payment and yield
on the Notes. Specifically, in the case of
Notes purchased at a discount, a slower than
anticipated rate of principal payments could
result in an actual yield that is less than
the anticipated yield. Conversely, in the
case of Notes purchased at a premium, a
faster than anticipated rate of principal
payments could result in an actual yield
that is less than the anticipated yield. See
"Risk Factors--Early Termination and Related
Investment Risk" and "Prepayment and Yield
Considerations".
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 (x)
if ILC or one of its affiliates, will be
required, and (y) if any other person, will
have the option, 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 lease 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".
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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 accrue during each Interest
Accrual Period at the rate of 0.75% per
annum (calculated on the basis of a year of
360 days comprised of twelve 30-day months)
on a balance equal to 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 and (ii) the Discounted Present Value
of the Performing Leases calculated as of
the related Determination Date.
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 and the
Management Fee. 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 lease 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 lease 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
the Record Date for such Due Period
("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
Transferor or Servicer of
Predecessor Leases if
Transferor has not substituted
Substitute Leases for such
Leases;
e) proceeds from investment of
funds in the Collection
Account (other than Security
Deposit Earnings), the Reserve
Account and the Residual
Account, if any;
f) Casualty Payments;
g) Servicer Advances;
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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
Pooling and Servicing
Agreement.
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;
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, Class A-2
Noteholders, Class A-3
Noteholders and Class A-4
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,
then (iii) to the Class A-3
Noteholders only, until the
Outstanding Principal Amount
on the Class A-3 Notes is
reduced to zero, then (iv) to
the Class A-4 Noteholders
only, until the Outstanding
Principal Amount on the Class
A-4 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 Transferor, the
balance, if any.
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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, Residual
Realizations will 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 $10,981,342.04, which represents 5.0%
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 Transferor based on amounts estimated by
management utilizing past experience, market
data and judgment (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 Transferor.
"Residual Realizations" mean net cash flows
realized by and allocable to ILC from the
sale or lease of the Equipment or extension
of Leases following the scheduled expiration
dates of such Leases; provided that such
cash flows relating to NonPerforming Leases
will only be included as "Residual
Realizations" to the extent such amounts
exceed the Discounted Present Value of such
Lease as of the Payment Date immediately
following the first Determination Date on
which such Lease was a NonPerforming Lease.
A "Residual Event" means the occurrence of
one or more of the following including but
not limited to: (a) ILC is no longer the
Servicer, (b) with respect to the December,
1998 Due Period and each Due Period
thereafter, the Three-Month Servicer
Realization Percentage calculated on any
Determination Date is less than 100%, (c)
with respect to the December, 1998 Due
Period and each Due Period thereafter, the
Three-Month Delinquency Percentage is
greater than 8.0% (d) with respect to the
December, 1998 Due Period and each Due
Period thereafter, the Three-Month Default
Percentage is greater than 2.0%, (e) the
Cumulative Net Loss Ratio is greater than
(i) 2.0%, for any Due Period occurring on or
before the August, 1999 Due Period, (ii)
3.0%, for any Due Period occurring after the
August, 1999 Due Period and on or before the
August, 2000 Due Period and (iii) 4.0%, for
any Due Period occurring after the August,
2000 Due Period or (f) such other events, if
any, required by the Rating Agencies;
provided, that (i) the Residual Event
referred to in clause (b) may be cured if
the Three-Month Servicer Realization
Percentage is greater than or equal to 100%
for three consecutive Due Periods
thereafter, (ii) the Residual Event referred
to in clause (c) may be cured if the
Three-Month Delinquency Percentage for any
Due Period thereafter is less than or equal
to 7.0%, (iii) the Residual Event referred
to in clause (d) may be cured if the
Three-Month Default Percentage for any Due
Period thereafter is less than or equal to
2.0% and (iv) the Residual Event referred to
in clause (e) may be cured if the Cumulative
Net Loss Ratio for any Due Period thereafter
is less than or equal to the ratio specified
in
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clause (e) for such Due Period. For a
description of the Three-Month Servicer
Realization Percentage, the Three-Month
Delinquency Percentage, the Three-Month
Default Percentage and the Cumulative Net
Loss Ratio, see "Description of the Transfer
and Servicing Agreements--Residual Account."
The aggregate Booked Residual Value of the
Leases as of the Cut-Off Date equals
$21,453,071.94.
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 1% 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) 1% 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................... In the opinion of Mayer, Brown & Platt,
special federal tax counsel for the Trust,
for federal income tax purposes 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 "U.S. Federal
Income Tax Considerations".
Ohio State Tax
Considerations................... In the opinion of Keating, Muething and
Klekamp, P.L.L., special Ohio tax counsel,
unless the Noteholders are Ohio residents or
are otherwise subject to the Ohio personal
income tax, the Ohio corporate franchise tax
or the Ohio tax on dealers in intangibles,
the Noteholders will not be subject to the
foregoing taxes solely as a result of
purchasing and owning the Notes.
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
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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 "P-1" and "F1+/AAA", that the Class
A-2 Notes be rated at least "Aaa" and "AAA",
that the Class A-3 Notes be rated at least
"Aaa" and "AAA", that the Class A-4 Notes be
rated at least "Aaa" and "AAA" and that the
Class B Notes be rated at least "Aa3" and
"A", in each case by Moody's Investors
Service, Inc. ("Moody's") and Fitch IBCA,
Inc. ("Fitch IBCA"), respectively. Fitch
IBCA and Moody's are referred to herein
collectively as 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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RISK FACTORS
Limited Liquidity. There is currently no public market for the Notes,
and there is no assurance that one will develop. The Underwriters expect but are
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 Transferor and Servicer
on account of a breach of certain representations, warranties or covenants in
the Pooling and Servicing Agreement or the Contribution 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. Lease Prepayments will affect the weighted average life of each
Class of Notes. This will in turn have an impact on the effective yield on each
Class of Notes, since interest accrues on the outstanding principal balance of
the Notes. Specifically, in the case of Notes purchased at a discount, a slower
than anticipated rate of principal payments could result in an actual yield that
is less than the anticipated yield. Conversely, in the case of Notes purchased
at a premium, a faster than anticipated rate of principal payments could result
in an actual yield that is less than the anticipated yield. 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 $10,000, which make up approximately 95.61% of the Statistical
Discounted Present Value of the Leases. Consistent with ILC's policies with
respect to all Leases originated or acquired by it, 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 $10,000. As a result, ILC
does not have a perfected security interest in Equipment with an original
Equipment cost of less than or equal to $10,000.
Also, Leases representing approximately 4.36% of the Statistical
Discounted Present Value of the Leases relate to leasehold improvements and
other equipment types that may be classified as "fixtures" under the UCC. ILC's
(and therefore the Trust's) security interests in fixtures are junior to the
claims of persons (other than the related lessee) with
19
<PAGE>
recorded ownership or mortgage interests in the real estate to which the
fixtures are attached, unless ILC has obtained waivers from such persons. Due to
various factors (including creditworthiness of the lessee or ILC policies at the
time a particular lease was originated), such waivers have not been obtained
with respect to most of the Equipment that may constitute fixtures. As a result,
the interests of the Trust and the Noteholders in Equipment constituting
fixtures may be junior to the rights of owners and mortgagees of the related
real estate.
In addition to the filings referred to in the second preceding
paragraph, the Pooling and Servicing Agreement, the Trust Agreement and the
Indenture will require UCC financing statements covering the Equipment to be
filed in favor of the Transferor, the Trust and the Indenture Trustee,
respectively, in states in which as of the Closing Date (i) Equipment relating
to not less than 75% of the original cost of the Equipment under the Leases as
of the Cut-Off Date is located and (ii) Equipment relating to not less than 75%
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 $10,000) 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 Transferor, the Trust nor the
Indenture Trustee, respectively, and another party (such as other creditors of
ILC) may acquire rights in ILC's interest in the Equipment superior to those of
the Transferor, 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.
No Rights in Software Subject to Certain Leases. Leases representing
approximately 2.04% of the Statistical Present Value of the Leases relate
exclusively to computer software that is not owned by ILC. As a result, no
interest in such software will be transferred to the Trust. Accordingly, if the
Lessee under such a Lease defaults, the Trust will not realize any proceeds from
the related software. Also, because software is generally eligible for
protection under the Federal copyright laws, a security interest in software
generally cannot be perfected without a filing at the U.S. Copyright Office.
Some legal authority indicates that this filing requirement could also extend to
a lease of software. Since no filings at the U.S. Copyright Office will be made
with respect to the Leases, this could mean that the Trust may not have a
perfected ownership interest in software-only Leases. Also, certain case law
authority indicates that in Ohio and certain other states a sale of a "general
intangible" (such as a software-only Lease) cannot be perfected without notice
to the obligor (i.e., the Lessee). For reasons of administrative convenience, no
such notices will be given with respect to software-only Leases transferred to
the Trust. As a result of the foregoing, the interests of the Trust and the
Noteholders in software-only Leases may be junior to the rights of other
creditors of ILC or the Transferor.
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".
20
<PAGE>
Recharacterization of Contribution Treatment. Each transfer of the
Leases to the Transferor will be documented as a contribution. 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 contribution of the
related Leases by ILC to the Transferor as a loan to ILC from the Transferor,
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 Transferor 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 Equipment. Thus, the Noteholders
could lose the right to future payments and might incur reinvestment losses on
amounts recovered. 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".
Bankruptcy of a Lessee. 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 Transferor, 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 Transferor has been structured so that the filing of a bankruptcy petition
with respect to it is unlikely. See "The Transferor".
These 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.
Limited Credit Enhancement. 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
21
<PAGE>
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
Transferor, 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 20.20%, 15.08%, 7.58%, 7.14% and 6.47% of the Leases (based on
Statistical Discounted Present Value of the Leases) were located in Ohio,
California, Texas, Minnesota and South Carolina, respectively. No other state
accounts for more than 5% of the Leases. See "The Lease Pool". Accordingly,
adverse economic conditions particularly affecting any of these regions could
adversely affect the performance on the Leases. The Transferor is not aware of
any existing adverse economic conditions particularly affecting any of these
regions which are material to Noteholders, but no assurance can be given that
materially adverse economic conditions will not develop in the future.
Risk of Delayed Payment Due to Commingling of Funds. Under the Pooling
and Servicing Agreement, the Servicer is required to deposit all Lease Payments,
Casualty Payments and Termination Payments received after the Cut-Off Date, and
all Payahead relating to payments due after the Cut-Off Date, into the
Collection 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 may be
subject to an automatic stay resulting in a delay in the transfer of such funds
to the Trust Property.
22
<PAGE>
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.
USE OF PROCEEDS
The Transferor will use the net proceeds from the sale of the Notes to
make the initial deposit into the Reserve Account and, if applicable, the
Residual Account, and to pay dividends to ILC.
THE TRUST
General. The Trust will be formed under the laws of the State of New
York pursuant to the Trust Agreement. After its formation, the Trust will not
engage in any activity other than acquiring 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 officers, directors or employees.
The "Trust Property" will consist of a pool (the "Lease Pool") of
equipment leases (the "Lease Contracts"), and all of the Trust's interest in the
equipment (the "Equipment") underlying the leases (which includes computer,
medical equipment, office equipment, food service equipment, industrial
equipment and service station equipment), including all payments not collected
thereunder on or prior to the Cut-Off Date (the "Lease Receivables"; together
with the Lease Contracts, the "Leases"). 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 Pooling 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 Transferor, 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 ILC, the Transferor, the Trust or the
Indenture Trustee not having a first priority perfected ownership or security
interest, as applicable, in the Equipment subject to some of the Leases may
affect the Servicer's ability to repossess and sell the Equipment subject to
those Leases, and thus may reduce or eliminate the proceeds from such Equipment
to be distributed to the holders of the Notes. See "Risk Factors--Security
Interests in the Equipment; Certain Security Interests Not Perfected".
The Trust's principal offices are in Wilmington, Delaware, in care of
First Union Trust Company, National Association, as Trustee, at the address
listed below under "--The Trustee".
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<PAGE>
Capitalization of the Trust. The following table illustrates the
capitalization of the Trust as of the Cut-Off Date, as if the issuance and sale
of the Notes and the Certificates had taken place on such date:
<TABLE>
<CAPTION>
<S> <C>
Class A-1 5.28% Lease-Backed Notes............................. $73,303,000
Class A-2 5.78% Lease-Backed Notes............................. 19,242,000
Class A-3 5.60% Lease-Backed Notes............................. 90,935,000
Class A-4 5.75% Lease-Backed Notes............................. 18,576,000
Class B 6.20% Lease-Backed Notes............................. 7,687,000
6.73% Lease-Backed Certificates...................... 6,589,000
Total ........................................................ $216,332,000
</TABLE>
The Trustee. First Union Trust Company, National Association, will be
the Trustee under the Trust Agreement. First Union Trust Company, National
Association, is a national banking association and its principal offices are
located at One Rodney Square, 920 King Street, First Floor, Wilmington, Delaware
19801. 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 Pooling 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.
THE TRANSFEROR
The Transferor is a wholly-owned bankruptcy remote subsidiary of ILC
and is intended to be a limited-purpose corporation. Accordingly, the
Transferor'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 Transferor; and (b) diminish the risk that it
will be consolidated into the bankruptcy proceedings of any other entity. The
Transferor'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 Transferor has had no operating
history. The net proceeds of the sale of the Notes will be used to make a
dividend payment to ILC. See "Use of Proceeds". The Transferor is prohibited by
its Certificate of Incorporation from engaging in business other than (i) the
acquisition 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 Transferor's ability to incur, assume or
guaranty indebtedness for borrowed money is also restricted by its Certificate
of
24
<PAGE>
Incorporation. As of the date of this Prospectus, the Transferor is not the
subject of any legal proceedings.
THE SERVICER
General
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 $259,224,000.
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 June 30, 1998, Provident
Financial Group, Inc. had total assets of $7.9 billion, net loans and leases of
$5.5 billion, deposits of $4.8 billion and total shareholders' equity of $702
million. Provident Financial Group, Inc.'s tier 1 and total risked-based capital
ratios were 10.31% and 13.44%, respectively. For the six-months ended June 30,
1998, Provident Financial Group, Inc. had net earnings of $62.4 million.
Provident represents approximately 94% 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.
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<PAGE>
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.
As of the Cut-Off Date, no more than 10% of the Statistical Discounted
Present Value of the Leases relates to any single vendor, broker or major
account or affiliated group of vendors, brokers or major accounts.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000.
The Year 2000 issue is being actively addressed by Provident Financial
Group, Inc. ("Provident Financial") and its subsidiaries, including Transferor
and ILC, as it could significantly affect their operations. Many of the computer
systems of Provident Financial and its subsidiaries do not meet Year 2000
requirements. It is management's estimate that it will cost approximately $10
million to correct all of the application systems of Provident Financial and its
subsidiaries. As of December 31, 1997, Provident Financial had expensed $1.5
million for the correction of this problem. The plan of Provident Financial
management calls for all computer programs to be corrected by the end of the
third quarter of 1998, with subsequent testing of the programs during the fourth
quarter of 1998 and all of 1999.
Additionally, Provident Financial is also taking actions to receive
assurance that its customers, including Lessees, are taking necessary steps to
remedy their Year 2000 issues due to the fact that noncompliance could adversely
effect their ability to repay obligations owing to Provident Financial and the
Transferor.
THE LEASE POOL
The Leases. As of the close of business on August 31, 1998 (the
"Cut-Off Date"), the Notes will be secured with approximately 5,447 Leases. The
Leases were primarily originated by ILC, although approximately 4.59% of the
Statistical Discounted Present Value of the Leases as of the Cut-Off Date were
existing Leases acquired by ILC. The underwriting criteria used in acquiring
these Leases was the same as the underwriting criteria used by ILC in
originating Leases. The weighted average remaining term of the Lease Pool is
39.57 months.
26
<PAGE>
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. ILC
is willing to finance the full acquisition cost of the related Equipment under
the Leases and generally requires that the first installment of rent and either
the last installment of rent or a security deposit in that amount be paid at the
time a Lease is generated.
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% per month 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.
27
<PAGE>
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
of 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. 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 30 equipment types. See "--Distribution
of Leases by Equipment Type" for a listing of the types of Equipment subject to
the Leases.
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. Percentages in the tables below may not add
up to 100% due to rounding.
28
<PAGE>
DISTRIBUTION OF LEASES BY STATE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Percentage of
Number Percentage of Discounted Present Discounted Original
of Number Value Present Value Aggregate Original Equipment
State Leases of Leases of Leases of Leases Equipment Cost Cost
- ----- -------- ----------- ----------- ---------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Alabama 152 2.79 1,521,464.84 0.70 1,919,441.93 0.73
Alaska 6 0.11 49,671.58 0.02 54,469.22 0.02
Arizona 50 0.92 3,610,435.32 1.65 4,049,867.25 1.54
Arkansas 59 1.08 732,872.24 0.33 781,422.14 0.30
California 513 9.42 33,019,321.17 15.08 33,488,558.68 12.75
Canada 7 0.13 977,318.95 0.45 1,382,246.15 0.53
Colorado 77 1.41 1,177,329.56 0.54 1,265,755.62 0.48
Connecticut 38 0.70 2,556,467.42 1.17 3,075,138.35 1.17
Delaware 8 0.15 92,181.65 0.04 141,593.46 0.05
District of Columbia 22 0.40 336,412.51 0.15 359,368.17 0.14
England 19 0.35 1,401,580.46 0.64 1,876,462.85 0.71
Florida 176 3.23 5,789,201.26 2.64 6,691,337.21 2.55
Georgia 122 2.24 2,834,578.54 1.29 2,945,093.23 1.12
Hawaii 4 0.07 979,652.27 0.45 1,056,131.49 0.40
Idaho 12 0.22 57,852.79 0.03 53,205.35 0.02
Illinois 161 2.96 5,858,799.20 2.68 6,489,135.34 2.47
Indiana 74 1.36 1,642,737.07 0.75 1,914,569.19 0.73
Iowa 39 0.72 1,448,300.94 0.66 1,793,801.45 0.68
Kansas 17 0.31 448,703.83 0.20 438,427.26 0.17
Kentucky 262 4.81 5,218,497.47 2.38 8,496,234.90 3.24
Louisiana 176 3.23 3,444,029.09 1.57 3,377,112.31 1.29
Maine 20 0.37 195,543.81 0.09 254,557.27 0.10
Maryland 95 1.74 2,181,495.31 1.00 2,495,864.02 0.95
Massachusetts 114 2.09 3,036,037.44 1.39 3,953,242.30 1.51
Michigan 97 1.78 3,251,542.62 1.49 3,659,570.76 1.39
Minnesota 129 2.37 15,629,444.36 7.14 21,671,003.37 8.25
Mississippi 77 1.41 1,337,496.94 0.61 1,261,670.24 0.48
Missouri 88 1.62 4,548,844.04 2.08 5,095,623.29 1.94
Montana 14 0.26 697,401.03 0.32 697,885.91 0.27
Nebraska 18 0.33 211,673.71 0.10 243,761.63 0.09
Nevada 29 0.53 603,187.00 0.28 668,196.37 0.25
New Hampshire 25 0.46 345,075.83 0.16 436,410.33 0.17
New Jersey 90 1.65 3,680,396.79 1.68 3,505,522.09 1.34
New Mexico 20 0.37 1,052,853.68 0.48 896,296.96 0.34
New York 224 4.11 6,521,153.69 2.98 7,192,189.69 2.74
North Carolina 78 1.43 2,920,995.08 1.33 3,305,308.95 1.26
North Dakota 4 0.07 18,469.78 0.01 18,434.04 0.01
Ohio 1,108 20.34 44,221,066.05 20.20 60,486,791.58 23.04
Oklahoma 48 0.88 1,879,825.39 0.86 2,493,082.40 0.95
Oregon 58 1.06 1,534,933.83 0.70 1,629,846.12 0.62
Pennsylvania 172 3.16 7,052,432.47 3.22 7,841,329.13 2.99
Rhode Island 10 0.18 158,543.54 0.07 157,277.82 0.06
South Carolina 49 0.90 14,169,255.85 6.47 19,462,407.63 7.41
South Dakota 8 0.15 167,125.77 0.08 203,041.47 0.08
Tennessee 151 2.77 4,215,880.79 1.93 5,040,380.68 1.92
Texas 372 6.83 16,599,856.65 7.58 17,538,754.01 6.68
Utah 21 0.39 451,614.11 0.21 461,703.22 0.18
Vermont 18 0.33 198,343.61 0.09 173,443.54 0.07
Virginia 159 2.92 5,061,172.86 2.31 6,248,391.07 2.38
Washington 88 1.62 2,074,544.89 0.95 1,990,027.51 0.76
West Virginia 20 0.37 190,102.61 0.09 236,940.87 0.09
Wisconsin 47 0.86 1,473,862.78 0.67 1,567,672.02 0.60
Wyoming 2 0.04 22,269.50 0.01 21,416.23 0.01
Total................ 5,447 100.00% $218,899,819.97 100.00% $262,557,414.07 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
29
<PAGE>
DISTRIBUTION OF LEASES BY LEASE BALANCE
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Percentage of
Statistical Discounted Percentage of Discounted Discounted Aggregate Original Original
Present Value of the Number 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 1,791 32.88 3,685,839.05 1.68 5,324,760.31 2.03
5,000.01 - 10,000.00 919 16.87 7,143,099.97 3.26 9,191,300.04 3.50
10,000.01 - 15,000.00 809 14.85 9,959,006.80 4.55 11,552,729.72 4.40
15,000.01 - 20,000.00 366 6.72 6,307,189.39 2.88 7,621,812.19 2.90
20,000.01 - 25,000.00 202 3.71 4,525,669.61 2.07 5,973,578.93 2.28
25,000.01 - 30,000.00 152 2.79 4,158,474.85 1.90 5,860,222.46 2.23
30,000.01 - 35,000.00 112 2.06 3,624,689.70 1.66 4,460,870.93 1.70
35,000.01 - 40,000.00 87 1.60 3,252,565.75 1.49 4,261,591.75 1.62
40,000.01 - 45,000.00 88 1.62 3,749,829.58 1.71 4,725,689.17 1.80
45,000.01 - 50,000.00 75 1.38 3,550,397.24 1.62 4,256,227.37 1.62
50,000.01 - 60,000.00 114 2.09 6,237,315.74 2.85 7,571,672.44 2.88
60,000.01 - 70,000.00 98 1.80 6,365,817.98 2.91 7,956,191.86 3.03
70,000.01 - 80,000.00 76 1.40 5,675,906.99 2.59 7,157,119.09 2.73
80,000.01 - 90,000.00 63 1.16 5,356,680.53 2.45 6,283,293.14 2.39
90,000.01 - 100,000.00 60 1.10 5,673,967.81 2.59 6,509,149.97 2.48
100,000.01 - 125,000.00 92 1.69 10,348,716.17 4.73 12,537,163.15 4.78
125,000.01 - 150,000.00 55 1.01 7,516,664.90 3.43 8,239,223.51 3.14
150,000.01 - 175,000.00 33 0.61 5,317,839.60 2.43 5,808,468.94 2.21
175,000.01 - 200,000.00 35 0.64 6,636,276.71 3.03 8,735,173.28 3.33
200,000.01 - 300,000.00 79 1.45 19,154,233.11 8.75 22,810,331.47 8.69
300,000.01 - 400,000.00 46 0.84 15,918,181.47 7.27 18,300,787.40 6.97
400,000.01 - 500,000.00 32 0.59 14,512,356.08 6.63 16,362,955.89 6.23
500,000.01 - 600,000.00 30 0.55 16,336,067.19 7.46 16,506,980.82 6.29
600,000.01 - 700,000.00 9 0.17 6,019,886.35 2.75 7,583,876.15 2.89
700,000.01 - 800,000.00 7 0.13 5,257,362.38 2.40 5,969,832.25 2.27
800,000.01 - 900,000.00 3 0.06 2,442,570.86 1.12 2,452,193.34 0.93
900,000.01 - 1,000,000.00 1 0.02 969,706.65 0.44 1,100,126.71 0.42
1,000,000.01 - 1,500,000.00 5 0.09 6,240,440.52 2.85 7,453,143.22 2.84
1,500,000.01 - 2,000,000.00 3 0.06 5,012,192.05 2.29 6,591,088.98 2.51
greater than $2,000,000.01 5 0.09 17,950,874.94 8.20 23,399,859.59 8.91
----- ------ --------------- ------ --------------- -------
Total...................... 5,447 100.00% $218,899,819.97 100.00% $262,557,414.07 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
30
<PAGE>
DISTRIBUTION OF LEASES BY
REMAINING TERM
<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> <C>
1-6 55 1.01 612,790.19 0.28 2,803,017.96 1.07
7-12 346 6.35 5,296,762.74 2.42 14,907,026.86 5.68
13-18 362 6.65 8,752,384.87 4.00 16,143,280.95 6.15
19-24 554 10.17 24,071,047.43 11.00 36,303,791.00 13.83
25-30 840 15.42 28,157,860.40 12.86 36,083,910.03 13.74
31-36 1,069 19.63 29,854,859.80 13.64 32,203,222.46 12.27
37-42 457 8.39 22,346,676.84 10.21 27,812,954.76 10.59
43-48 463 8.50 20,537,402.26 9.38 21,463,789.39 8.17
49-54 565 10.37 34,298,336.51 15.67 33,096,839.37 12.61
55-60 692 12.70 42,070,571.46 19.22 38,948,658.68 14.83
61-66 43 0.79 2,547,994.35 1.16 2,425,239.36 0.92
79-84 1 0.02 353,133.12 0.16 365,683.25 0.14
---------------------------------------------------------------------------------------------------------
Total 5,447 100.00% $218,899,819.97 100.00% $262,557,414.07 100.00%
=========================================================================================================
</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 5,124 94.07 187,416,274.58 85.62 218,333,627.81 83.16
Operating Lease 323 5.93 31,483,545.39 14.38 44,223,786.26 16.84
---------------------------------------------------------------------------------------------------------
Total............ 5,447 100.00% $218,899,819.97 100.00% $262,557,414.07 100.00%
=========================================================================================================
</TABLE>
DISTRIBUTION OF 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 2,451 45.00 $ 81,832,267.30 37.38 $ 87,970,658.02 33.51
Fair Market Value 2,631 48.30 119,476,204.60 54.58 157,682,948.06 60.06
Put 365 6.70 17,591,348.07 8.04 16,903,807.99 6.44
---------------------------------------------------------------------------------------------------------
Total............ 5,447 100.00% $218,899,819.97 100.00% $262,557,414.07 100.00%
=========================================================================================================
</TABLE>
31
<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 Related Equipment 895 16.44 57,776,339.89 26.39 78,637,777.72 29.95
Medical Equipment 128 2.35 24,846,945.15 11.35 26,474,900.20 10.08
Retail Equipment 1688 30.99 21,778,848.20 9.95 22,730,977.90 8.66
Phone Equipment 285 5.23 10,835,655.51 4.95 12,932,838.80 4.93
Office Equipment 388 7.13 10,122,830.73 4.63 11,730,349.48 4.47
Leasehold Fixtures 103 1.89 9,535,461.35 4.36 11,891,758.67 4.53
Manufacturing/Production 132 2.42 9,496,542.80 4.34 10,868,696.53 4.14
Equipment
Food Service Equipment 467 8.57 9,049,374.60 4.13 8,966,847.19 3.42
Industrial Power Equipment 100 1.84 6,326,892.93 2.89 6,704,374.60 2.55
Machine Tool Equipment 115 2.11 4,480,407.95 2.05 5,182,144.11 1.97
Multiple Equipment Types (1) 541 9.93 30,961,094.91 14.14 35,040,595.69 13.35
Miscellaneous Equipment (2) 605 11.08 23,689,425.95 10.82 31,396,153.18 11.96
----------------------------------------------------------------------------------------------
Total........................ 5,447 100.00% $218,899,819.97 100.00% $262,557,414.07 100.00%
==============================================================================================
</TABLE>
(1) The "Multiple Equipment Types" category represents Leases that cover more
than one type of equipment and hence have been coded with "multiple" as the
equipment type on ILC's computer systems. As a result, no further breakout
of these equipment types is available.
(2) The "Miscellaneous" category aggregates equipment types that individually
make up less than 2% of the Statistical Discounted Present Value of the
Leases. Examples include office furniture and workstations, video
equipment, data communications equipment, exercise equipment and washers
and dryers.
32
<PAGE>
HISTORICAL DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
At June 30, 1998 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Receivables Balance(1) $259,822,008 100% $203,494,406 100% $127,600,911 100% $87,658,275 100%
No. of Delinquent Days(1)(2)
31-60 Days $3,254,609 1.25% $8,099,506 3.98% $1,564,823 1.23% $2,938,416 3.35%
61-90 Days 3,298,886 1.27 921,400 0.45 725,769 0.57 0 0.00
91 Days + 3,746,697 1.44 5,652,229 2.78 1,898,759 1.49 2,044,179 2.33
- -------------------------- -------------- --------- -------------- -------- -------------- --------- ------------- -------
Total Delinquency $10,300,192 3.96% $14,673,135 7.21% $4,189,351 3.29% $4,982,595 5.68%
</TABLE>
- ----------
(1) The Total Receivables Balance and Delinquent Amounts are equal to
the aggregate future rent owing on the leases.
(2) These amounts represent gross lease receivables with the following
adjustments.
(a) Amounts are not considered delinquent if interim rents are not
received.
(b) Amounts are not considered delinquent if the past due amount is less
than 20% of the monthly lease payment.
(c) Amounts are not considered delinquent if the amount is under research
for customer service adjustments.
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 above. In
late 1997, ILC expanded its collections department, which expansion has had a
favorable impact on the level of delinquencies.
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)..... $220,208,636 $158,447,666 $104,208,522 $64,091,430
Net Losses.............................. $1,033,119 $661,356 $222,878 $92,485
Net Losses as a Percentage of 0.94%(2) 0.42% 0.21% 0.14%
Average Receivables....................
</TABLE>
- ----------
(1) Equals the arithmetic average of the beginning of the period Receivable
Balance and the end of the period Receivable Balance. The Receivables
Balance is equal to the aggregate future rent owing on the leases.
(2) Annualized.
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 charge-off
is recommended by the collections staff to senior management of ILC when the
collections staff has determined that a lease is uncollectible. In determining
whether a Lease is uncollectible, the collections staff will evaluate several
factors, including the Lessee's current financial condition, the Lessee's stated
intention toward repayment and the value of the related Equipment. This
determination may be made earlier or later than when the account is determined
to be 90 days past due, depending on the collections staff's assessment of the
creditworthiness of the related Lessee. All charge-offs must be approved by the
president of ILC. General charge-off information for leases owned and serviced
by ILC is set forth above.
33
<PAGE>
Net losses as a percentage of average receivables outstanding shown
above remain at low levels despite significant net losses under Leases relating
to two relationships totaling approximately $327,870 in 1997 and $441,921 in
1998. Leases generated under these relationships are not included in the Lease
Pool.
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 $1.5 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.
ILC will finance up to the full acquisition cost of Equipment through a
Lease. Lessees are generally required to pay the first installment of rent and
either the last installment of rent or a security deposit in that amount at the
time of origination of the Lease.
Residual Values. Residual realizations from the sale or lease of
Equipment after the end of the applicable Lease term are not a primary source of
payment on the Notes, but residual realizations serve as credit enhancement for
the Notes up to the Residual Amount Cap. 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. ILC is generally able to dispose of equipment
within one month after expiration of the applicable lease. There can be no
assurance, however, that residual realizations on the Equipment included in the
Trust will exceed or equal the booked residual values on the Equipment or that
ILC will be able to dispose of such Equipment within any particular period of
time.
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
34
<PAGE>
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
charge-off is recommended by the collections staff to senior management of ILC
when the collections staff has determined that the lease is uncollectible. In
determining whether a Lease is uncollectible, the collections staff will
evaluate several factors, including the Lessee's current financial condition,
the Lessee's stated intention toward repayment and the value of the related
Equipment. This determination may be made earlier or later than when the account
is determined to be 90 days past due, depending on the collections staff's
assessment of the creditworthiness of the related Lessee. The rewriting or
extension of an account must be approved at a level of management commensurate
with the size of the account. All charge-offs must be approved by the president
of ILC.
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 $1.5 million on an
annual basis.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture (the "Indenture")
between the Trust and Norwest Bank Minnesota, National Association, as indenture
trustee (the "Indenture Trustee"). The following statements with respect to the
Notes summarize the material terms of the Notes and the Indenture, forms of
which are filed as an exhibit to the registration statement of which this
Prospectus forms a part.
General. The Notes represent secured debt obligations of the Trust and
do not represent an interest in or a recourse obligation of the Transferor, 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, 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, Class
A-2 Notes, Class A-3 Notes and Class A-4 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, Class A-3 Notes, Class A-4 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.
35
<PAGE>
The Indenture
Modification of Indenture. Without the consent of any Noteholders, the
Trust and the Indenture Trustee may execute a supplemental indenture for any of
the following purposes: (i) to add to the covenants of the Trust for the benefit
of the Noteholders, or to surrender any right or power conferred upon the Trust
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
interests of the Noteholders in any respect. 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 662/3% 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 Transferor, 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; (iii) any representation or
warranty made by the Trust in the Indenture or in any certificate delivered
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 (iv) 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 prior to the final scheduled Payment Date of any class of Note 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 may, or at the direction of Holders of 662/3%
of the principal amount of the Notes then outstanding shall, declare the
principal of the Notes to be immediately due and payable. Such declaration may,
under certain circumstances, be rescinded by the Holders of 662/3% of the
principal amount of the Notes then outstanding.
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<PAGE>
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 662/3%
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 662/3% of the outstanding principal
amount of the Notes 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 662/3% 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 662/3% 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 Transferor 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,
(v) any action necessary to maintain the security interest created under the
Indenture shall have been taken and (vi) the Trust has received an opinion of
counsel to the effect that all conditions precedent to such consolidation or
merger required under the Indenture have been satisfied.
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"),
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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. Norwest Bank Minnesota, National Association,
will be the Indenture Trustee under the Indenture. Norwest Bank Minnesota,
National Association, is a national banking association and its corporate trust
offices are located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota
55479-0070. 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 Transferor 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, with the consent of the Holders of
at least 66 2/3% of the aggregate principal amount of the Notes, will be
obligated to appoint a successor indenture trustee. The Trust shall give notice
of any resignation or removal of an Indenture Trustee and the appointment of any
successor Indenture Trustee to the Holders. The Indenture Trustee may also be
removed by the written request of the Holders of a majority of the outstanding
principal amount of the Notes delivered to the Indenture Trustee and the Trust.
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
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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 First Union Trust Company, National
Association, 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 summarize the
material terms of the Trust Agreement, the form of which is filed as an exhibit
to the registration statement of which this Prospectus forms a part.
The Certificates represent beneficial interests in the Trust and do not
represent an interest in or recourse obligation of ILC, the Transferor or
any of their respective affiliates. Each Certificate will bear interest
from the Issuance Date at the rate of 6.73% per annum (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 Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between Participants will occur in accordance with DTC rules.
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.
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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 Transferor 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 Transferor is unable to locate a qualified successor, (b) the
Transferor at its option elects to terminate the book-entry system through DTC
or (c) after the occurrence of a Servicer Event of Default, Note Owners of any
class of Notes evidencing not less than a majority of the outstanding principal
amount of such class of Notes advise the Indenture Trustee and DTC that the
continuation of the book-entry system through DTC with respect to such class of
Notes is no longer in the best interests of the Note Owners of such class of
Notes.
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 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 wire transfer of federal funds to the account and
number specified in the register under the Indenture on the related Record Date,
or if no such account or number is so specified, then 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.
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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 within five business days of 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 "U.S. Federal Tax
Considerations".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material terms of the Pooling and
Servicing Agreement, the Contribution Agreement, the Management 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.
Transfer of Leases
On the Issuance Date, ILC will contribute to the Transferor its entire
interest in the Leases and its security or ownership interests in the Equipment,
pursuant to the Contribution Agreement. The Transferor 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 Pooling and Servicing
Agreement. The Trustee will, concurrently with such transfer and assignment,
execute and deliver the Notes and Certificates.
In the Contribution Agreement, ILC will represent and warrant to the
Transferor, and pursuant to the Pooling and Servicing Agreement, the Transferor
will represent and warrant to the Trust, among other things, that (i) upon
contribution, the Transferor, in the case of the Contribution Agreement, and
upon payment of the applicable consideration, the Trust, in the case of the
Pooling and Servicing Agreement, (A) will be the legal owner of the Leases
(including the right to receive
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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
other than software, and (c) will have a perfected security interest in each
item of Equipment other than software with a purchase price in excess of $10,000
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 and other than any lien
created by the Transfer and Servicing Agreements and, as to Equipment that is
classified as a "fixture under the UCC," any conflicting rights of an owner or
mortgagee of the real estate to which the fixture is attached, 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 (i) any of such representations and warranties made by the
Transferor or ILC proves at any time to have been inaccurate in any material
respect as of the Issuance Date, (ii) certain adjustments or modifications are
made to any Lease by the Servicer or (iii) 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 Transferor 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 Pooling and
Servicing Agreement) or any claim by any Lessee against the Transferor or ILC
and, in any case referred to in (i) or (iii), 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
Transferor is given notice thereof by the Transferor or the Trustee or the date
on which the Transferor otherwise first has notice thereof, the Transferor (or
the Servicer, in the case of clause (ii)) will repurchase such Lease (a
"Predecessor Lease") and the Equipment subject thereto by depositing into the
Collection Account, not later than the Determination Date (A) next following the
expiration of such 30-day period, in the case of events referred to in (i) or
(iii), and (B) next following the date of such event with respect to events
referred to in (ii), an amount equal to the Discounted Present Value of such
Lease plus any amounts previously due and unpaid thereon. 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 Transferor to
repurchase any Leases under clause (a) relating to representations and
warranties made by ILC in the Contribution Agreement 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.
If the Transferor or the Servicer is required to repurchase any
Predecessor Lease under clause (i) or (ii) of the preceding paragraph, in lieu
of such repurchase, the Transferor may substitute one or more leases originated
or acquired using the same credit criteria as the initial Leases and having
similar characteristics (each, a "Substitute Lease") for Leases subject to
repurchase in accordance with the preceding paragraph, so long as the following
conditions are met: (i) after giving effect to such substitution, the aggregate
Booked Residual Value (without duplication) of all Substitute Leases will not be
less than 90% of the aggregate Booked Residual Value of all Predecessor Leases
since the Issuance Date, (ii) after giving effect to such adjustment or
substitution, either the final payment on such Substitute Lease must be on or
prior to April, 2005 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
Pooling and Servicing Agreement, (iii) after giving effect to such substitution,
the aggregate amount of Lease Payments through the term of the Leases will not
be more than 5% less than the aggregate scheduled Lease Payments of the Leases
prior to such substitution, and (iv) after giving effect to such substitution,
the Discounted Present Value of the Performing Leases is not less than the
Discounted Present Value of the Performing Leases prior to such substitution.
No substitutions will be permitted if after giving effect to such
substitution, the aggregate Discounted Present Value of all Predecessor Leases
would exceed 10% of the Discounted Present Value of the Leases as of the Cut-Off
Date.
Although the limitations set forth above are intended to minimize the
probability that substitutions would result in losses or delays in payments to
the Noteholders, no assurances can be given to this effect. If and when the
aggregate Discounted Present Value of all Leases for which a Substitute Lease
has been substituted equals 10% of the Discounted
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Present Value of the Leases as of the Cut-Off Date, the Servicer, on behalf of
the Trust, will file an interim report on Form 8-K updating the distribution
tables set forth under "The Lease Pool" herein.
Pursuant to the Pooling and Servicing Agreement, to assure uniform
quality in servicing the Leases and to reduce administrative costs, the
Transferor 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 transfer and
assignment of the Leases to the Trust, and Uniform Commercial Code ("UCC")
financing statements reflecting such transfer and assignment will be filed.
Pursuant to the Pooling 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
Collection Account. The Servicer will establish and maintain for 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, Payaheads 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"). "Payaheads" mean early payments by or
on behalf of Lessees that do not constitute scheduled payments, full prepayments
or partial prepayments, in any case in accordance with the Servicer's customary
practices. Until such time as all or a portion of any Payaheads fall due and are
released from the Collection Account, they will not constitute Available Funds
and will not be available for distribution to the Noteholders. 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").
On the business day preceding each Payment Date, the Indenture Trustee
will release Payaheads from 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 Transferor or Servicer.
Reserve Account. The Servicer will establish and maintain for 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 1% 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)
1% 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 Transferor.
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Residual Account. The Servicer will establish and maintain for 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 Transferor.
A "Residual Event" means the occurrence of one or more of the following
including but not limited to: (a) ILC is no longer the Servicer, (b) with
respect to the December, 1998 Due Period and each Due Period thereafter, the
Three-Month Servicer Realization Percentage calculated on any Determination Date
is less than 100%, (c) with respect to the December, 1998 Due Period and each
Due Period thereafter, the Three-Month Delinquency Percentage is greater than
8.0% (d) with respect to the December, 1998 Due Period and each Due Period
thereafter, the Three-Month Default Percentage is greater than 2.0%, (e) the
Cumulative Net Loss Ratio is greater than (i) 2.0%, for any Due Period occurring
on or before the August, 1999 Due Period, (ii) 3.0%, for any Due Period
occurring after the August, 1999 Due Period and on or before the August, 2000
Due Period and (iii) 4.0%, for any Due Period occurring after the August, 2000
Due Period or (f) such other events, if any, required by the Rating Agencies;
provided, that (i) the Residual Event referred to in clause (b) may be cured if
the Three-Month Servicer Realization Percentage is greater than or equal to 100%
for three consecutive Due Periods thereafter, (ii) the Residual Event referred
to in clause (c) may be cured if the Three-Month Delinquency Percentage for any
Due Period thereafter is less than or equal to 7.0%, (iii) the Residual Event
referred to in clause (d) may be cured if the Three-Month Default Percentage for
any Due Period thereafter is less than or equal to 2.0% and (iv) the Residual
Event referred to in clause (e) may be cured if the Cumulative Net Loss Ratio
for any Due Period thereafter is less than or equal to the ratio specified in
clause (e) for such Due Period.
The "Cumulative Net Loss Ratio" means, with respect to any Due Period,
the percentage equivalent of a fraction (a) the numerator of which is the
aggregate of net losses on the Leases from the Cut-Off Date through the last day
of such Due Period and (b) the denominator of which is the Discounted Present
Value of the Leases as of the Cut-Off Date.
A "Delinquent Lease" means, as of any Determination Date, any Lease
(other than a Lease which became a Non-Performing Lease prior to such
Determination Date) with respect to which the Servicer has determined the Lessee
is 31 days or more delinquent with respect to any Lease Payments then due.
The "Annualized Monthly Default Percentage" means, with respect to any
Due Period, twelve times the percentage equivalent of a fraction (a) the
numerator of which is the Discounted Present Value of all Leases that became
NonPerforming Leases during such Due Period, calculated as of the related
Determination Date, and (b) the denominator of which is the Discounted Present
Value of all Leases, calculated as of the Determination Date immediately
preceding the related Determination Date.
The "Monthly Delinquency Percentage" means, with respect to any Due
Period, the percentage equivalent of a fraction (a) the numerator of which is
the Discounted Present Value of the Leases which are Delinquent Leases
determined as of the related Determination Date and (b) the denominator of which
is the Discounted Present Value of the Performing Leases as of the related
Determination Date.
The "Monthly Servicer Realization Percentage" means, with respect to
any Due Period, the percentage equivalent of a fraction (a) the numerator of
which is the aggregate amount of Servicer Residual Realizations collected during
such Due Period and (b) the denominator of which is equal to the aggregate
Servicer Booked Residual Values with respect to the Leases for which Servicer
Residual Realizations have been collected in respect of such Due Period.
The "Servicer Residual Realizations" means the aggregate cash flows
realized by ILC from the sale (including pursuant to a Lessee's purchase option)
or lease of any Equipment or extension of the related Lease following the
termination of such Lease.
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The "Servicer Booked Residual Value" means the estimated residual value
of the Equipment recorded on the books of ILC.
The "Three-Month Default Percentage" means, with respect to any Due
Period, the percentage equivalent of a fraction, (a) the numerator of which is
the sum of the Annualized Monthly Default Percentage for such Due Period and the
two immediately preceding Due Periods and (b) the denominator of which is three.
The "Three-Month Delinquency Percentage" means, with respect to any Due
Period, the percentage equivalent of a fraction, (a) the numerator of which is
the sum of the Monthly Delinquency Percentage for such Due Period and the two
immediately preceding Due Periods and (b) the denominator of which is three.
The "Three-Month Servicer Realization Percentage" means, with respect
to any Due Period, the percentage equivalent of a fraction, (a) the numerator of
which is the sum of the Monthly Servicer Realization Percentage for such Due
Period and the two immediately preceding Due Periods and (b) the denominator of
which is three.
Funds in the Collection Account, the Reserve Account, and the Residual
Account (collectively, the "Trust Accounts") will be invested as provided in the
Pooling and Servicing Agreement in Eligible Investments. "Eligible Investments"
are limited to the following types of investments: (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, 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, Transferor 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 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.
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, except that Investment
Earnings attributable to security deposits of Lessees on deposit in the
Collection Account ("Security Deposit Earnings") shall be paid to ILC.
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 either (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
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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 (i) customary and prudent
servicing procedures for leases of a similar type, (ii) all applicable laws,
rules and regulations, and (iii) without limiting the foregoing, no less a
standard of care than that which it applies to leases and equipment of a similar
type it services for its own account.
The Servicer may enter into modifications, waivers and amendments to
the terms of any Lease except for modifications, waivers or amendments that (i)
are inconsistent with the standards set forth above, (ii) 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, individually or in connection with all other
adjustments and modifications made pursuant to this sentence, could adversely
affect the interests of any of the Transferor, the Trustee, the Indenture
Trustee or the Securityholders.
Notwithstanding the foregoing, the Servicer may, without obtaining the
prior written consent of the Trust, the Indenture Trustee, or any Noteholder or
Certificateholder, enter into and grant modifications, waivers or amendments in
addition to those referred to in the preceding paragraph if such Lease is
repurchased by Servicer in accordance with the Pooling and Servicing Agreement.
See "--Transfer of Leases".
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".
Substitute Leases will be originated or purchased 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 accrue during each Interest Accrual Period at the rate of 0.75% per annum
(calculated on the basis of a year of 360 days comprised of twelve 30 day
months) on a balance equal to 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 and (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
Transferor 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 and payment of the Management Fee.
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.
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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 lease 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 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
NonPerforming 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) Lease Payments due during the prior Due Period (net of any Third Party
Amounts), (ii) Residual Realizations up to the Residual Amount Cap, (iii)
recoveries from Non-Performing Leases (net of amounts retained by the Servicer),
(iv) proceeds from repurchases by Transferor or Servicer of Predecessor Leases
if Transferor has not substituted Substitute Leases for such Leases, (v)
proceeds from investment of funds in the Collection Account (other than Security
Deposit Earnings), the Reserve Account and the Residual Account, if any, (vi)
Casualty Payments, (vii) Servicer Advances, (viii) Termination Payments, (ix)
funds, if any, on deposit in the Reserve Account, and (x) funds, if any, on
deposit in the Residual Account to the limited extent provided in the Pooling
and Servicing Agreement.
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; provided that (a) prepayments of rent required pursuant to
the terms of a Lease, at or before the commencement of the Lease, (b) payments
(other than Payaheads) collected on or before the Cut-Off Date, (c) Payaheads,
until such time as such Payaheads are released from the Collection Account, (d)
any security deposit, unless and until such security deposit is permitted to be
treated as a payment on a Lease in accordance with the terms of such Lease, and
(e) 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.
On any Determination Date, the Servicer (x) if ILC or one of its
affiliates, will be required, and (y) if any other person, will have the option,
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
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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
November 25, 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, Class A-2 Noteholders, Class A-3
Noteholders and Class A-4 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, then (iii) to the
Class A-3 Noteholders only, until the Outstanding Principal
Amount on the Class A-3 Notes is reduced to zero, then (iv) to
the Class A-4 Noteholders only, until the Outstanding
Principal Amount on the Class A-4 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
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(l) to the Transferor, 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
Indenture Trustee and the Noteholders (including the
reasonable fees and expenses of counsel to such persons);
(b) if the person then acting as Servicer under the Pooling 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, Class A-2
Noteholders, Class A-3 Noteholders and Class A-4 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,
Class A-3 Notes and Class A-4 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 Transferor 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)
1.5% 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" means (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.
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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" means (a) while the Class A-1 Notes are
outstanding, (i) on all Payment Dates prior to the October, 1999 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 October,
1999 Payment Date and thereafter until the Class A-1 Notes have been paid in
full, 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) Class A Percentage and (b)
the Discounted Present Value of the Performing Leases as of the related
Determination Date.
The "Class B Principal Payment" means (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) 2.5% 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 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 to 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, means the future remaining scheduled payments
(including Payaheads but excluding Third Party Amounts and, after the Closing
Date, delinquent 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-4 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.
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"Non-Performing Leases" are (a) Leases that the Servicer has determined
to be more than 93 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,
that such amount will never be less than zero.
Evidence as to Compliance. The Pooling 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 Pooling 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 Pooling 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 Pooling 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 Pooling and Servicing
Agreement.
The Pooling 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 Pooling and Servicing Agreement with respect
to any Lease (including any Non-Performing 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 Pooling and Servicing Agreement or any certificate delivered
in conjunction with the issuance of the Notes.
Under the circumstances specified in the Pooling 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 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
Pooling and Servicing Agreement.
Servicer Events of Default. The following events and conditions shall
be defined in the Pooling and Servicing Agreement as "Servicer Events of
Default": (i) failure on the part of the Servicer to deposit into the Collection
Account or other applicable account within three business days following the
receipt thereof any monies received by the Servicer required to be remitted to
the Indenture Trustee under the Pooling 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 Pooling
and Servicing Agreement; (iii) default on the part of either the Servicer in its
observance or performance in any material respect of certain covenants or
agreements in the Pooling and Servicing Agreement which failure continues
unremedied for a period of 30 days after the earlier of (A) the date it first
becomes known to any officer of Transferor or Servicer, as the case may be, and
(B) the date on which written notice thereof requiring the same to be remedied
shall have been given to Transferor or Servicer, as the case may be by Indenture
Trustee or Trustee, or to Transferor or Servicer by any Holder of the Notes or
the Certificates; (iv) if any representation or warranty of ILC made in the
Pooling 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 Pooling and Servicing Agreement will be deemed to
be "material" only if it affects the Noteholders or the Certificateholders, the
enforceability of the Indenture or of the Notes or the enforceability of the
Trust Agreement or the Certificates; and provided, further, that such material
breach of any representation or warranty made by ILC in such Pooling and
Servicing Agreement with respect to any of the Leases or the
51
<PAGE>
Equipment subject thereto will not constitute a Servicer Event of Default if ILC
repurchases such Lease and Equipment in accordance with the Pooling and
Servicing Agreement to the extent provided therein; (v) certain insolvency or
bankruptcy events relating to the Servicer; (vi) the Servicer defaulting in the
payment of any debt or other obligations exceeding $1,000,000, or the occurrence
of any event the effect of which is to cause (or permit one or more persons to
cause) such obligations exceeding $1,000,000, to be accelerated, if the effect
of such event is not waived by the person or persons entitled to performance;
and (vii) a final judgment or judgments for the payment of money aggregating in
excess of $1,000,000 shall have remained unsatisfied and in effect for 60
consecutive days without a stay of execution.
Servicer Termination. So long as a Servicer Event of Default under the
Pooling and Servicing Agreement is continuing, the Indenture Trustee shall, upon
the instructions of the Holders of 662/3% in principal amount of the Notes (or,
if no Notes are Outstanding, Holders of Certificates representing at least
662/3% of the Certificate Balance), by notice in writing to the Servicer
terminate all of the rights and obligations of the Servicer under the Pooling
and Servicing Agreement. On the receipt by the Servicer of such written notice,
all authority and power of the Servicer under the Pooling 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 Pooling and Servicing Agreement and the Indenture.
Waiver of Past Defaults. The Holders of Notes evidencing at least 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 Pooling 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 Pooling 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,
to cure any ambiguity, to correct or supplement any provision of any Transfer
and Servicing Agreement or 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. The Transfer and Servicing Agreements may also be
amended by the Transferor, 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 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 Transferor, 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 disposition
52
<PAGE>
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.
Management Agreement
ILC, in its capacity as manager (the "Manager"), will enter into an
agreement (as amended and supplemented from time to time, the "Management
Agreement") with the Issuer and the Indenture Trustee pursuant to which the
Manager will agree, to the extent provided in the Management Agreement, to
perform on behalf of the Issuer certain administrative obligations required by
the Indenture. As compensation for the performance of the Manager's obligations
under the Management Agreement and as reimbursement for its expenses related
thereto, the Manager will be entitled to a quarterly management fee in an amount
equal to $500 (the "Management Fee"). The Management Fee shall be paid to the
Manager by the Servicer from the Servicing Fee.
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 Pooling 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 Predecessor Lease, ILC will have the option to
substitute a Substitute Lease for such Predecessor Lease. The Substitute Leases
will have a Discounted Present Value of the Predecessor Leases equal to or
greater than that of the Predecessor Leases being replaced and the monthly
payments on the Substitute Leases will be at least equal to those of the
Predecessor Leases through the term of such Predecessor 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 Conditional Payment Rate ("CPR") of
5.0%, 10.0%, 15.0% and 20.0%, respectively and were calculated using the
Statistical Discount Rate. Such information is hypothetical and is set forth for
illustrative purposes only. The CPR 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 CPR 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
54
<PAGE>
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 30, 1998 and the first Payment Date is November 25, 1998.
The information included in the following tables represents
forward-looking statements and involves risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. The actual characteristics and performance of the Leases will differ
from the assumptions used in constructing the following tables. The assumptions
used are hypothetical and have been provided only to give a general sense of how
the principal cash flows might behave under varying prepayment scenarios. For
example, it is highly unlikely that the Leases will prepay at a constant CPR
until maturity or that all of the Leases will prepay at the same CPR. Moreover,
the diverse terms of the Leases could produce slower or faster principal
distributions than indicated in the table at the various CPRs specified. Any
difference between such assumptions and the actual characteristics and
performance of the Leases, or actual prepayment experience, will affect the
percentages of initial balances outstanding over time and the weighted average
lives of the Notes.
55
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3 AND A-4 PRINCIPAL
AMOUNTS AND THE INITIAL CLASS B PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
5% CPR
------------------------------------------------------------
Month Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
<S> <C> <C> <C> <C> <C> <C>
0 9/30/98 100% 100% 100% 100% 100%
1 11/25/98 83 100 100 100 100
2 12/25/98 74 100 100 100 100
3 1/25/99 65 100 100 100 100
4 2/25/98 54 100 100 100 100
5 3/25/99 45 100 100 100 100
6 4/25/99 36 100 100 100 100
7 5/25/99 26 100 100 100 100
8 6/25/99 17 100 100 100 100
9 7/25/99 9 100 100 100 100
10 8/25/99 0 97 100 100 100
11 9/25/99 0 69 100 100 95
12 10/25/99 0 42 100 100 91
13 11/25/99 0 11 100 100 87
14 12/25/99 0 0 97 100 83
15 1/25/00 0 0 92 100 79
16 2/25/00 0 0 85 100 75
17 3/25/00 0 0 80 100 71
18 4/25/00 0 0 75 100 67
19 5/25/00 0 0 69 100 63
20 6/25/00 0 0 64 100 60
21 7/25/00 0 0 60 100 57
22 8/25/00 0 0 55 100 53
23 9/25/00 0 0 51 100 50
24 10/25/00 0 0 47 100 47
25 11/25/00 0 0 42 100 44
26 12/25/00 0 0 38 100 42
27 1/25/01 0 0 35 100 39
28 2/25/01 0 0 31 100 37
29 3/25/01 0 0 28 100 34
30 4/25/01 0 0 25 100 32
31 5/25/01 0 0 22 100 30
32 6/25/01 0 0 19 100 28
33 7/25/01 0 0 17 100 26
34 8/25/01 0 0 14 100 24
35 9/25/01 0 0 11 100 22
36 10/25/01 0 0 9 100 21
37 11/25/01 0 0 6 100 19
38 12/25/01 0 0 4 100 18
39 1/25/02 0 0 2 100 18
40 2/25/02 0 0 0 100 18
41 3/25/02 0 0 0 90 18
42 4/25/02 0 0 0 81 18
43 5/25/02 0 0 0 71 18
44 6/25/02 0 0 0 62 18
45 7/25/02 0 0 0 54 18
46 8/25/02 0 0 0 45 18
47 9/25/02 0 0 0 38 18
48 10/25/02 0 0 0 30 18
49 11/25/02 0 0 0 23 18
50 12/25/02 0 0 0 16 18
51 1/25/03 0 0 0 10 18
52 2/25/03 0 0 0 4 18
53 3/25/03 0 0 0 0 17
54 4/25/03 0 0 0 0 6
55 5/25/03 0 0 0 0 0
56 6/25/03 0 0 0 0 0
57 7/25/03 0 0 0 0 0
58 8/25/03 0 0 0 0 0
Avg. Life 0.495 1.086 2.136 3.923 2.383
<CAPTION>
10% CPR
------------------------------------------------------------
Month Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
<S> <C> <C> <C> <C> <C> <C>
0 9/30/98 100% 100% 100% 100% 100%
1 11/25/98 82 100 100 100 100
2 12/25/98 72 100 100 100 100
3 1/25/99 61 100 100 100 100
4 2/25/98 50 100 100 100 100
5 3/25/99 40 100 100 100 100
6 4/25/99 30 100 100 100 100
7 5/25/99 19 100 100 100 100
8 6/25/99 10 100 100 100 100
9 7/25/99 1 100 100 100 100
10 8/25/99 0 68 100 100 95
11 9/25/99 0 38 100 100 91
12 10/25/99 0 10 100 100 87
13 11/25/99 0 0 95 100 82
14 12/25/99 0 0 90 100 78
15 1/25/00 0 0 84 100 74
16 2/25/00 0 0 78 100 70
17 3/25/00 0 0 73 100 66
18 4/25/00 0 0 68 100 62
19 5/25/00 0 0 62 100 58
20 6/25/00 0 0 57 100 55
21 7/25/00 0 0 53 100 52
22 8/25/00 0 0 48 100 48
23 9/25/00 0 0 44 100 45
24 10/25/00 0 0 40 100 43
25 11/25/00 0 0 35 100 39
26 12/25/00 0 0 32 100 37
27 1/25/01 0 0 29 100 35
28 2/25/01 0 0 25 100 32
29 3/25/01 0 0 22 100 30
30 4/25/01 0 0 19 100 28
31 5/25/01 0 0 16 100 26
32 6/25/01 0 0 14 100 24
33 7/25/01 0 0 11 100 23
34 8/25/01 0 0 9 100 21
35 9/25/01 0 0 7 100 19
36 10/25/01 0 0 5 100 18
37 11/25/01 0 0 2 100 18
38 12/25/01 0 0 0 99 18
39 1/25/02 0 0 0 90 18
40 2/25/02 0 0 0 81 18
41 3/25/02 0 0 0 72 18
42 4/25/02 0 0 0 64 18
43 5/25/02 0 0 0 56 18
44 6/25/02 0 0 0 48 18
45 7/25/02 0 0 0 41 18
46 8/25/02 0 0 0 34 18
47 9/25/02 0 0 0 27 18
48 10/25/02 0 0 0 21 18
49 11/25/02 0 0 0 15 18
50 12/25/02 0 0 0 10 18
51 1/25/03 0 0 0 4 18
52 2/25/03 0 0 0 0 17
53 3/25/03 0 0 0 0 8
54 4/25/03 0 0 0 0 0
55 5/25/03 0 0 0 0 0
56 6/25/03 0 0 0 0 0
57 7/25/03 0 0 0 0 0
58 8/25/03 0 0 0 0 0
Avg. Life 0.456 1.000 2.000 3.786 2.266
</TABLE>
56
<PAGE>
(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 5% CPR and 10% 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;
Class A-3 Notes; Class A-4 Notes; and Class B Notes would be 0.50 years and 0.46
years; 1.09 years and 1.00 years; 2.14 years and 2.00 years; 3.82 years and 3.66
years; and 2.27 years and 2.14 years, respectively.
57
<PAGE>
PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3 AND A-4 PRINCIPAL
AMOUNTS AND THE INITIAL CLASS B PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
15% CPR
------------------------------------------------------------
Month Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
- ----- ----------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9/30/98 100% 100% 100% 100% 100%
1 11/25/98 81 100 100 100 100
2 12/25/98 69 100 100 100 100
3 1/25/99 58 100 100 100 100
4 2/25/98 45 100 100 100 100
5 3/25/99 34 100 100 100 100
6 4/25/99 24 100 100 100 100
7 5/25/99 12 100 100 100 100
8 6/25/99 2 100 100 100 100
9 7/25/99 0 74 100 100 96
10 8/25/99 0 38 100 100 91
11 9/25/99 0 7 100 100 86
12 10/25/99 0 0 95 100 82
13 11/25/99 0 0 88 100 77
14 12/25/99 0 0 83 100 73
15 1/25/00 0 0 77 100 69
16 2/25/00 0 0 71 100 64
17 3/25/00 0 0 65 100 61
18 4/25/00 0 0 60 100 57
19 5/25/00 0 0 55 100 53
20 6/25/00 0 0 50 100 50
21 7/25/00 0 0 46 100 47
22 8/25/00 0 0 41 100 43
23 9/25/00 0 0 37 100 41
24 10/25/00 0 0 33 100 38
25 11/25/00 0 0 29 100 35
26 12/25/00 0 0 26 100 33
27 1/25/01 0 0 23 100 31
28 2/25/01 0 0 19 100 28
29 3/25/01 0 0 17 100 26
30 4/25/01 0 0 14 100 24
31 5/25/01 0 0 11 100 22
32 6/25/01 0 0 9 100 21
33 7/25/01 0 0 7 100 19
34 8/25/01 0 0 4 100 18
35 9/25/01 0 0 2 100 18
36 10/25/01 0 0 0 100 18
37 11/25/01 0 0 0 88 18
38 12/25/01 0 0 0 80 18
39 1/25/02 0 0 0 71 18
40 2/25/02 0 0 0 64 18
41 3/25/02 0 0 0 56 18
42 4/25/02 0 0 0 49 18
43 5/25/02 0 0 0 42 18
44 6/25/02 0 0 0 35 18
45 7/25/02 0 0 0 29 18
46 8/25/02 0 0 0 24 18
47 9/25/02 0 0 0 18 18
48 10/25/02 0 0 0 13 18
49 11/25/02 0 0 0 8 18
50 12/25/02 0 0 0 4 18
51 1/25/03 0 0 0 0 17
52 2/25/03 0 0 0 0 8
53 3/25/03 0 0 0 0 0
54 4/25/03 0 0 0 0 0
55 5/25/03 0 0 0 0 0
56 6/25/03 0 0 0 0 0
57 7/25/03 0 0 0 0 0
58 8/25/03 0 0 0 0 0
Avg. Life 0.423 0.920 1.872 3.637 2.152
<CAPTION>
20% CPR
----------------------------------------------------------
Month Date Class A-1 Class A-2 Class A-3 Class A-4 Class B
- ----- ----------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9/30/98 100% 100% 100% 100% 100%
1 11/25/98 79 100 100 100 100
2 12/25/98 66 100 100 100 100
3 1/25/99 54 100 100 100 100
4 2/25/98 40 100 100 100 100
5 3/25/99 28 100 100 100 100
6 4/25/99 17 100 100 100 100
7 5/25/99 5 100 100 100 100
8 6/25/99 0 80 100 100 97
9 7/25/99 0 46 100 100 92
10 8/25/99 0 8 100 100 86
11 9/25/99 0 0 95 100 82
12 10/25/99 0 0 89 100 77
13 11/25/99 0 0 81 100 72
14 12/25/99 0 0 76 100 68
15 1/25/00 0 0 70 100 64
16 2/25/00 0 0 64 100 59
17 3/25/00 0 0 58 100 56
18 4/25/00 0 0 53 100 52
19 5/25/00 0 0 48 100 48
20 6/25/00 0 0 43 100 45
21 7/25/00 0 0 39 100 42
22 8/25/00 0 0 35 100 39
23 9/25/00 0 0 31 100 36
24 10/25/00 0 0 27 100 34
25 11/25/00 0 0 23 100 31
26 12/25/00 0 0 20 100 29
27 1/25/01 0 0 17 100 27
28 2/25/01 0 0 14 100 24
29 3/25/01 0 0 12 100 23
30 4/25/01 0 0 9 100 21
31 5/25/01 0 0 7 100 19
32 6/25/01 0 0 4 100 18
33 7/25/01 0 0 2 100 18
34 8/25/01 0 0 0 99 18
35 9/25/01 0 0 0 89 18
36 10/25/01 0 0 0 81 18
37 11/25/01 0 0 0 70 18
38 12/25/01 0 0 0 63 18
39 1/25/02 0 0 0 56 18
40 2/25/02 0 0 0 49 18
41 3/25/02 0 0 0 42 18
42 4/25/02 0 0 0 36 18
43 5/25/02 0 0 0 30 18
44 6/25/02 0 0 0 25 18
45 7/25/02 0 0 0 20 18
46 8/25/02 0 0 0 15 18
47 9/25/02 0 0 0 11 18
48 10/25/02 0 0 0 6 18
49 11/25/02 0 0 0 2 18
50 12/25/02 0 0 0 0 16
51 1/25/03 0 0 0 0 8
52 2/25/03 0 0 0 0 1
53 3/25/03 0 0 0 0 0
54 4/25/03 0 0 0 0 0
55 5/25/03 0 0 0 0 0
56 6/25/03 0 0 0 0 0
57 7/25/03 0 0 0 0 0
58 8/25/03 0 0 0 0 0
Avg. Life 0.394 0.848 1.750 3.481 2.049
</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 15% CPR and 20% 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;
Class A-3 Notes; Class A-4 Notes; and Class B Notes would be 0.42 years and 0.39
years; 0.92 years and 0.85 years; 1.87 years and 1.75 years; 3.53 years and 3.36
years; and 2.03 years and 1.91 years, respectively.
58
<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 Transferor 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 $10,000,
which make up approximately 95.61% of the Statistical Discounted Present Value
of the Leases. Consistent with ILC's policies with respect to all Leases
originated or acquired by it, 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 $10,000. As a result, ILC does not have a perfected
security interest in Equipment with an original Equipment cost of less than or
equal to $10,000.
Also, Leases representing approximately 4.36% of the Statistical
Discounted Present Value of the Leases relate to leasehold improvements and
other equipment types that may be classified as "fixtures" under the UCC. ILC's
(and therefore the Trust's) security interests in fixtures are junior to the
claims of persons (other than the related lessee) with recorded ownership or
mortgage interests in the real estate to which the fixtures are attached, unless
ILC has obtained waivers from such persons. Due to various factors (including
creditworthiness of the lessee or ILC policies at the time a particular lease
was originated), such waivers have not been obtained with respect to most of the
Equipment that may constitute fixtures. As a result, the interests of the Trust
and the Noteholders in Equipment constituting fixtures may be junior to the
rights of owners and mortgagees of the related real estate.
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<PAGE>
In addition to the filings referred to in the second preceding
paragraph, the Pooling and Servicing Agreement, the Trust Agreement and the
Indenture will require UCC financing statements covering the Equipment to be
filed in favor of the Transferor, the Trust and the Indenture Trustee,
respectively, in states in which as of the Closing Date (i) Equipment relating
to not less than 75% of the original cost of the Equipment under the Leases as
of the Cut-Off Date is located and (ii) Equipment relating to not less than 75%
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 Transferor, 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 Transferor, 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
Transferor has been structured so that the filing of a bankruptcy petition with
respect to it is unlikely. See "The Transferor".
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.
No Rights in Software Subject to Certain Leases. Leases representing
approximately 2.04% of the Statistical Present Value of the Leases relate
exclusively to computer software that is not owned by ILC. As a result, no
interest in such software will be transferred to the Trust. Accordingly, if the
Lessee under such a Lease defaults, the Trust will not realize any proceeds from
the related software. Also, because software is generally eligible for
protection under the Federal copyright laws, a security interest in software
generally cannot be perfected without a filing at the
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<PAGE>
U.S. Copyright Office. Some legal authority indicates that this filing
requirement could also extend to a lease of software. Since no filings at the
U.S. Copyright Office will be made with respect to the Leases, this could mean
that the Trust may not have a perfected ownership interest in software-only
Leases. Also, certain case law authority indicates that in Ohio and certain
other states a sale of a "general intangible" (such as a software-only Lease)
cannot be perfected without notice to the obligor (i.e., the Lessee). For
reasons of administrative convenience, no such notices will be given with
respect to software-only Leases transferred to the Trust. As a result of the
foregoing, the interests of the Trust and the Noteholders in software-only
Leases may be junior to the rights of other creditors of ILC or the Transferor.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, summarizing the material Federal income tax
consequences of the purchase, ownership and disposition of the Notes, is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), proposed, temporary and final Treasury regulations thereunder, and
published rulings and court decisions in effect as of the date hereof, all of
which are subject to change, possibly retroactively. Mayer, Brown & Platt,
special federal tax counsel ("Federal Tax Counsel") for the Trust, has prepared
or reviewed the statements in the following discussion. This discussion does not
address every aspect of the Federal income tax laws that may be relevant to
Noteholders in light of their personal investment circumstances or their special
treatment under the Federal income tax laws (for example, banks and life
insurance companies). Prospective investors are advised to consult their own tax
advisers in determining the Federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes.
An opinion of Federal Tax Counsel regarding the Federal income tax
matters identified as opinions of Federal Tax Counsel below has been filed as an
exhibit to the registration statement relating to the Notes. Only those matters
identified as opinions of Federal Tax Counsel below are opinions of Federal Tax
Counsel. 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 debt issued by a trust with
terms similar to those of the Notes. 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
In the opinion of Federal Tax Counsel, the Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
Federal income tax purposes. This opinion is based upon the assumption of
compliance by all parties with the terms of the Trust Agreement and related
documents.
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<PAGE>
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 Transferor will agree, and
the Noteholders will agree by the purchase of Notes, to treat the Notes as debt
for Federal, State and local income and franchise tax purposes. In the opinion
of Federal Tax Counsel, the Notes will be classified as debt for Federal income
tax purposes.
The discussion below assumes this characterization of the Notes is
correct. 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 any 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.
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<PAGE>
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 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 and at 20% if the Note
is held for more than 12 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 Transferor (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Transferor 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. On October 14, 1997, final Treasury Regulations (the "1997 Final
Regulations") were issued regarding the withholding and information reporting
rules discussed above. In general, the 1997 Final Regulations do not
significantly alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
reliance standards. Special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The 1997 Final Regulations are generally effective
for payments made after December 31, 1999, regardless of the issue date of the
instrument with respect to which such payments are made and subject to certain
transition rules. Foreign persons are advised to consult their own tax advisors
with respect to 1997 Final Regulations.
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<PAGE>
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 advised 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 taxable as a corporation for
Federal income tax purposes, and would be subject to corporate income tax on its
taxable income. Any such corporate income tax could materially reduce cash
available to make payments on the Notes.
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<PAGE>
OHIO STATE TAX CONSIDERATIONS
The following is a summary of the material Ohio tax consequences of the
purchase, ownership and disposition of the Notes. This discussion does not
address every aspect of the Ohio tax laws that may be relevant to Noteholders in
light of their personal investment circumstances or their special treatment
under the Ohio tax laws (for example, banks and life insurance companies).
The following summary is based upon existing provisions of the Ohio
Revised Code pertaining to Ohio taxation, the administrative rules promulgated
thereunder, and relevant judicial rulings and administrative decisions and
pronouncements, all of which are subject to change, which change may be
retroactive. There are no Ohio authorities addressing similar transactions or
involving a trust that issues interests with terms similar to those of the
Notes, and no ruling addressing the matters discussed herein will be sought from
Ohio tax officials. Accordingly, there can be no assurance that such officials
will agree with this summary.
In the opinion of Keating, Muething and Klekamp, P.L.L., Special Ohio
Tax Counsel ("Ohio Tax Counsel"), unless the Noteholders are Ohio residents or
are otherwise subject to the Ohio personal income tax, the Ohio corporate
franchise tax or the Ohio tax on dealers in intangibles, the Noteholders will
not be subject to the foregoing taxes solely as a result of purchasing and
owning the Notes.
For purposes of determining Ohio taxable income, Ohio has adopted the
federal Code and the regulations thereunder. Therefore, the Ohio tax
consequences to the Noteholders who are Ohio residents or otherwise subject to
the Ohio personal income tax, corporate franchise tax or tax on dealers in
intangibles will be the same as the tax consequences to the Noteholders for
federal income tax purposes. Accordingly, the stated interest on the Notes will
be taxable as ordinary interest income and the gain or loss on the sale or
disposition of the Notes will be capital gain or loss. See "U.S.
Federal Income Tax Consequences."
Effective generally for tax years beginning on or after January 1,
1998, an Ohio tax may be levied on a "qualifying investor's" distributive share
of the Ohio apportioned income of a "qualifying pass-through entity." Ohio Tax
Counsel believes the Trust may be considered a qualifying pass-through entity
for purposes of this tax. However, because Federal Tax Counsel will opine that
the Notes constitute debt instruments for federal income tax purposes, payments
on the Notes represent interest payments on debt rather than a distributive
share of the income of the Trust. Therefore, the Noteholders should not be
subject to this tax since they are not receiving a distributive share of the
Trust's income.
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.
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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 Transferor 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 Transferor, 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
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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.
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UNDERWRITING
Under the terms and subject to the conditions set forth in the
underwriting agreement (the "Underwriting Agreement") for the sale of the Notes,
the Trust has agreed to sell and Lehman Brothers Inc. and Prudential Securities
Incorporated (the "Underwriters") have agreed to purchase the principal amount
of the Notes set forth opposite their names:
<TABLE>
<CAPTION>
Underwriters of the Class A Notes Principal Amount of Principal Amount of Principal Amount of Principal Amount of
Class A-1 Notes Class A-2 Notes Class A-3 Notes Class A-4 Notes
<S> <C> <C> <C> <C>
Lehman Brothers Inc. $58,642,400 $15,393,600 $72,748,000 $14,860,800
Prudential Securities Incorporated $14,660,600 $ 3,848,400 $18,187,000 $ 3,715,200
Underwriter of the Class B Notes Principal Amount of Class B Notes
Lehman Brothers Inc. $7,687,000
</TABLE>
The Trust has been advised by Lehman Brothers Inc., as representative
of the Underwriters, that the Underwriters propose 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 0.135% per Class A-1 Note, 0.195% per Class A-2 Note, 0.240%
per Class A-3 Note, 0.270% per Class A-4 Note and 0.360% per Class B Note. The
Underwriters may allow and such dealers may reallow to other dealers a discount
not in excess of 0.070% per Class A-1 Note, 0.100% per Class A-2 Note, 0.120%
per Class A-3 Note, 0.135% per Class A-4 Note and 0.180% per Class B Note. After
the initial public offering, the public offering price may be changed.
The Transferor and ILC have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Trust has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are 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 either 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 Underwriters and
selling group members and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such person may bid for or purchase
the Notes for the purpose of stabilizing its market price. In addition, Lehman
Brothers Inc., 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.
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 "P-1" and "F1+/AAA", that the Class A-2 Notes be
rated at least "Aaa" and "AAA", that the Class A-3 Notes be rated at least "Aaa"
and "AAA",
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that the Class A-4 Notes be rated at least "Aaa" and "AAA" and that the Class B
Notes be rated at least "Aa3" and "A" by Moody's and Fitch IBCA, respectively.
The ratings assess the likelihood of timely payment of interest and the ultimate
payment of principal to the Noteholders by the Stated Maturity date. There is no
assurance that any rating will not be lowered or withdrawn if, in the judgement
of any Rating Agency, circumstances in the future so warrant.
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 Keating,
Muething and Klekamp, P.L.L., Cincinnati, Ohio. Each of Keating, Muething and
Klekamp, P.L.L. and Mayer, Brown & Platt may from time to time render legal
services to the Transferor, the Servicer and their affiliates. Certain legal
matters will be passed upon for the Underwriters by Mayer, Brown & Platt,
Chicago, Illinois.
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INDEX OF TERMS
<TABLE>
<CAPTION>
Term(s) Page(s)
<S> <C>
1997 Final Regulations...........................................................................................44
Additional Principal......................................................................................8, 46, 58
Annualized Monthly Default Percentage............................................................................40
Available Funds ...........................................................................................13, 43
Available Funds Shortfall........................................................................................40
Available Reserve Amount.....................................................................................16, 40
Bankruptcy Code ...............................................................................................55
Booked Residual Value............................................................................................15
Casualty ...............................................................................................43
Casualty Payment ...............................................................................................43
Cede ................................................................................................4
Certificate Distribution Account.................................................................................39
Certificate Floor ............................................................................................8, 46
Certificate Percentage............................................................................................8
Certificate Principal Payment.................................................................................8, 46
Certificate Rate ...............................................................................................35
Certificate Target Investor Principal Amount..................................................................8, 46
Certificates .............................................................................................3, 9
Class A Initial Amount............................................................................................6
Class A Noteholders...............................................................................................4
Class A Notes ................................................................................................3
Class A Percentage................................................................................................8
Class A Principal Payment.....................................................................................8, 46
Class A Target Investor Principal Amount......................................................................8, 46
Class A-1 Initial Principal Amount................................................................................5
Class A-1 Interest Rate...........................................................................................7
Class A-1 Notes .............................................................................................3, 5
Class A-2 Initial Principal Amount................................................................................5
Class A-2 Interest Rate...........................................................................................7
Class A-2 Notes .............................................................................................3, 5
Class A-3 Initial Principal Amount................................................................................5
Class A-3 Interest Rate...........................................................................................7
Class A-3 Notes .............................................................................................3, 5
Class A-4 Initial Principal Amount................................................................................1
Class A-4 Interest Rate...........................................................................................7
Class A-4 Notes .............................................................................................3, 6
Class B Floor ............................................................................................9, 46
Class B Initial Principal Amount..................................................................................6
Class B Interest Rate.............................................................................................7
Class B Noteholders...............................................................................................4
Class B Notes .............................................................................................3, 6
Class B Percentage................................................................................................9
Class B Principal Payment.....................................................................................9, 46
Class B Target Investor Principal Amount......................................................................9, 46
Code ...............................................................................................56
Collection Account...............................................................................................39
Commission ................................................................................................4
Contribution Agreement.........................................................................................3, 5
CPR ...............................................................................................50
Cumulative Loss Amount........................................................................................9, 46
</TABLE>
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<TABLE>
<S> <C>
Cumulative Net Loss Ratio........................................................................................40
Cut-Off Date ................................................................................................6
Definitive Notes ...............................................................................................36
Delinquent Lease ...............................................................................................40
Determination Date...............................................................................................10
Discount Rate ............................................................................................6, 47
Discounted Present Value of the Leases........................................................................6, 47
Discounted Present Value of the Performing Leases.............................................................6, 47
DTC ................................................................................................4
Due Period ...............................................................................................10
Early Lease Termination..........................................................................................11
Eligible Account ...............................................................................................42
Eligible Institution.............................................................................................42
Eligible Investments.............................................................................................41
Equipment ...........................................................................................10, 21
ERISA ...............................................................................................16
Events of Default ...............................................................................................32
Exchange Act ................................................................................................4
Federal Tax Counsel..............................................................................................56
Filing Locations ...........................................................................................18, 55
Fitch IBCA ...............................................................................................17
Holders ............................................................................................4, 10
ILC ................................................................................................3
Indenture ............................................................................................5, 31
Indenture Trustee .........................................................................................3, 5, 31
Indirect Participants............................................................................................35
Information Leasing...............................................................................................5
Initial Principal Amount..........................................................................................6
Interest Accrual Period...........................................................................................7
Interest Rate ................................................................................................7
Investment Earnings..............................................................................................42
IRS ...............................................................................................56
Lease Contracts ...........................................................................................10, 21
Lease Payment ...............................................................................................44
Lease Pool ...........................................................................................10, 21
Lease Prepayment ...............................................................................................18
Lease Receivables ...........................................................................................10, 21
Leases ...........................................................................................10, 21
Lessee ...............................................................................................11
Lessees ...............................................................................................11
Management Agreement.............................................................................................49
Management Fee ...............................................................................................49
Manager ...............................................................................................49
Monthly Delinquency Percentage...................................................................................41
Monthly Servicer Realization Percentage..........................................................................41
Moody's ...............................................................................................17
Nominal Buy-Out Leases...........................................................................................18
Non-Performing Leases.........................................................................................6, 47
Note Distribution Account........................................................................................39
Note Owners ................................................................................................4
Noteholders ................................................................................................4
Notes .............................................................................................3, 6
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
Ohio Tax Counsel ...............................................................................................45
OID ...............................................................................................57
OID Regulations ...............................................................................................57
Outstanding Principal Amount......................................................................................7
Overcollateralization Amount......................................................................................9
Participants ...............................................................................................35
Payaheads ...............................................................................................39
Payment Date ........................................................................................4, 10, 31
Pooling and Servicing Agreement...................................................................................1
Predecessor Lease ...........................................................................................11, 38
Priority of Payments.............................................................................................14
Provident ...............................................................................................22
Provident Financial..............................................................................................23
Rating Agencies ...............................................................................................11
Record Date ...............................................................................................10
Registration Statement............................................................................................4
Related Documents ...............................................................................................34
Required Payments ...............................................................................................40
Required Reserve Amount......................................................................................16, 40
Reserve Account ...........................................................................................16, 40
Residual Account ...............................................................................................40
Residual Amount Cap..............................................................................................15
Residual Event ...........................................................................................15, 40
Residual Realizations............................................................................................15
Securities .............................................................................................3, 9
Securities Act ................................................................................................4
Security Deposit Earnings........................................................................................42
Securityholders ...............................................................................................15
Servicer ................................................................................................5
Servicer Advance ...........................................................................................12, 44
Servicer Booked Residual Value...................................................................................41
Servicer Events of Default.......................................................................................48
Servicer Residual Realizations...................................................................................41
Servicing Fee ...........................................................................................13, 43
Short-Term Note ...............................................................................................57
Statistical Discount Rate.........................................................................................2
Statistical Present Value of the Leases...........................................................................2
Subject Payment Date..............................................................................................9
Substitute Lease .......................................................................................11, 38, 49
Supplemental Servicing Fee........................................................................................8
Termination Payment..............................................................................................44
Third Party Amounts..............................................................................................44
Three-Month Default Percentage...................................................................................41
Three-Month Delinquency Percentage...............................................................................41
Three-Month Servicer Realization Percentage......................................................................41
Transfer and Servicing Agreements................................................................................37
Trust .............................................................................................3, 5
Trust Acceleration Event.........................................................................................45
Trust Accounts ...............................................................................................41
Trust Agreement ............................................................................................5, 35
Trust Collections ...............................................................................................39
Trust Property ...........................................................................................10, 21
Trustee .........................................................................................3, 5, 35
UCC .......................................................................................18, 39, 55
Underwriters ...............................................................................................61
Underwriting Agreement...........................................................................................61
</TABLE>
72
<PAGE>
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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 Transferor 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
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information...........................................................(ii)
Reports to Noteholders..........................................................(ii)
Prospectus Summary.................................................................1
Risk Factors......................................................................12
Use of Proceeds...................................................................14
The Trust.........................................................................14
The Transferor....................................................................15
The Servicer......................................................................15
The Lease Pool....................................................................17
ILC's Underwriting and
Servicing Practices.............................................................22
Description of the Notes..........................................................23
Description of the Certificates...................................................26
Certain Information Regarding the Notes...........................................27
Description of the Transfer and Servicing
Agreements.......................................................................28
Prepayment and Yield Considerations ..............................................38
Certain Legal Matters Affecting a Lessee's Rights
and Obligations.................................................................42
U.S. Federal Tax
Considerations..................................................................43
Ohio State Tax Considerations.....................................................45
Legal Investment..................................................................46
ERISA Considerations..............................................................46
Underwriting......................................................................47
Rating of the Notes...............................................................47
Legal Opinions....................................................................48
Index of Terms....................................................................49
</TABLE>
Until December 24, 1998 (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.
================================================================================
$209,743,000
Provident Equipment Lease Trust 1998-A, Issuer
$73,303,000 5.28% Class A-1
Lease-Backed Notes
$19,242,000 5.78% Class A-2
Lease-Backed Notes
$90,935,000 5.60% Class A-3
Lease-Backed Notes
$18,576,000 5.75% Class A-4
Lease-Backed Notes
$7,687,000 6.20% Class B
Lease-Backed Notes
PROSPECTUS
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
INCORPORATED
(with respect to Class A Notes only)
Dated September 25, 1998
================================================================================
