AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 12, 1999
REGISTRATION STATEMENT NO. 333-71073
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IKON RECEIVABLES, LLC
(exact name of registrant as specified in charter)
Delaware 501 Silverside Road 23-2990188
(state or jurisdiction Suite 28 (I.R.S. Employer
of organization) Wilmington, Delaware 19809 Identification No.)
(Address, including zip code, and
telephone number, including area code,
of registrants principal
executive offices)
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The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name, address and telephone number, including area code, of agent for service)
----------------------
Copies to:
Harry G. Kozee Carl H. Fridy, Esq. Peter Humphreys, Esq.
IOS Capital, Inc. Ballard Spahr Andrews Dewey Ballantine LLP
1738 Bass Road & Ingersoll, LLP 1301 Avenue of the Americas
P.O. Box 9115 1735 Market Street, 51st Floor
Macon, Georgia 31208 Philadelphia, PA 19103-7599 New York, New York 10019
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
Title of Securities Amount Proposed Maximum Proposed Maximum Amount
Being Registered To Be Aggregate Price Per Aggregate Offering Of Registration Fee
Registered Unit(1) Price(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease-Backed Notes (the "Notes") $825,000,000 100% $825,000,000 $229,350(2)
============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $229,350.00 was previously paid pursuant to this registration statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Notes.
SEC Filing Fee $ 229,350
Indenture Trustee's Fees and Expenses.......................... *
Legal Fees and Expenses........................................ *
Accounting Fees and Expenses................................... *
Printing and Engraving Expenses................................ *
Blue Sky Qualification and Legal Investment Fees and Expenses.. *
Rating Agency Fees............................................. *
Miscellaneous.................................................. *
*
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TOTAL $ *
* To be filed by Amendment.
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Item 15. Indemnification of Managers and Officers.
Indemnification. Under the Delaware Limited Liability Company Act, the
Registrant has the power and in some instances may be required to provide an
agent, including an officer or manager, who was or is a party or is threatened
to be made a party to certain proceedings, with indemnification against certain
expenses, judgments, fines, settlements and other amounts under certain
circumstances.
Section 7.1 of the Amended and Restated Limited Liability Company
Agreement of IKON Receivables, LLC. provides that all officers and managers of
the company shall be indemnified by the company from and against all expenses,
liabilities or other matters arising out of their status as an officer or
manager for their acts, omissions or services rendered in such capacities. IOS
Capital, Inc., the ultimate corporate parent of IKON Receivables, LLC.,
maintains certain policies of liability insurance coverage for the officers and
managers of IOS Capital, Inc. and certain of its subsidiaries, including IKON
Receivables, LLC.
The form of the Underwriting Agreement, filed as Exhibit 1.1 to this
Registration Statement, provides that IKON Receivables, LLC will indemnify and
reimburse the underwriter(s) and each controlling person of the underwriter(s)
with respect to certain expenses and liabilities, including liabilities under
the 1933 Act or other federal or state regulations or under the common law,
which arise out of or are based on certain material misstatements or omissions
in the Registration Statement. In addition, the Underwriting Agreement provides
that the underwriter(s) will similarly indemnify and reimburse IKON Receivables,
LLC with respect to certain material misstatements or omissions in the
Registration Statement which are based on certain written information furnished
by the underwriter(s) for use in connection with the preparation of the
Registration Statement.
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Insurance. As permitted under the Delaware Limited Liability Company Act,
the Registrant's Limited Liability Company Agreement permit the managers to
purchase and maintain insurance on behalf of the Registrant's agents, including
its officers and managers, against any liability asserted against them in such
capacity or arising out of such agents' status as such, whether or not such
Registrant would have the power to indemnify them against such liability under
applicable law.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Formation of IKON Receivables, LLC.**
3.2 Amended and Restated Limited Liability Company Agreement of IKON
Receivables, LLC.
4.1 Form of Indenture between the Issuer and the Indenture Trustee.**
5.1 Opinion of Dewey Ballantine LLP with respect to validity.**
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters.**
10.1 Form of Assignment and Servicing Agreement.**
23.1 Consents of Dewey Ballantine (included in Exhibit 8.1 hereto).**
23.2 Consents of Dewey Ballantine LLP(included in Exhibit 5.1 hereto).**
23.3 Consents of Accountants.*
25.1 Statement of Eligibility of Indenture Trustee.*
99.1 Form of Prospectus Supplement.**
99.2 Additional Form of Prospectus Supplement.
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* To be Filed by Amendment.
** Previously Filed.
Item 17. Undertakings.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to managers, officers and controlling persons of the Registrant
pursuant to the provisions described above in Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a manager, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
manager, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by them is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-2
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(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
is registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement; provided, however, that paragraphs (i) and
(ii) do not apply if the information required to be included in the
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
D. Undertaking pursuant to the Trust Indenture Act of 1939.
The Registrant hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
section 310 of the Trust Indenture Act ("Act") in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York on the 8th day of
April, 1999. As of the date hereof, the Registrant reasonably believes that the
security rating requirement for asset-backed offerings on Form S-3 will be met
at the time of each sale.
IKON RECEIVABLES, LLC
By: IKON RECEIVABLES FUNDING
INC.,
as Initial Manager
By: /s/ Robert K. McLain
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Name: Robert K. McLain
Title: President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert K. McLain President & Director April 6, 1999
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Robert K. McLain
/s/ Patricia Donato Secretary & Director April 8, 1999
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Patricia Donato
/s/ Joseph Churchman Director April 7, 1999
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Joseph Churchman
<PAGE>
EXHIBIT INDEX
1.1 Form of Underwriting Agreement.**
3.1 Certificate of Formation of IKON Receivables, LLC.**
3.2 Amended and Restated Limited Liability Company Agreement of IKON
Receivables, LLC.
4.1 Form of Indenture between the Issuer and the Indenture Trustee.**
5.1 Opinion of Dewey Ballantine LLP with respect to validity.**
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters.**
10.1 Form of Assignment and Servicing Agreement.**
23.1 Consents of Dewey Ballantine (included in Exhibit 8.1 hereto).**
23.2 Consents of Dewey Ballantine LLP(included in Exhibit 5.1 hereto).**
23.3 Consents of Accountants.*
25.1 Statement of Eligibility of Indenture Trustee.*
99.1 Form of Prospectus Supplement.**
99.2 Additional Form of Prospectus Supplement.
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* To be Filed by Amendment.
** Previously Filed.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
IKON RECEIVABLES, LLC
This Amended and Restated Limited Liability Company Agreement, dated as of
March 26, 1999, is adopted by IKON Receivables-1, LLC, a Delaware limited
liability company ("IKON Receivables-1"), as the sole member (in such capacity,
the "Sole Member"), and IKON Receivables Funding, Inc., a Delaware corporation,
as the manager (in such capacity, the "Manager"). Each capitalized term used
herein and not defined shall have the meaning given to such term in Article II
of this Agreement.
WHEREAS, the Certificate of Formation was filed on January 20, 1999;
WHEREAS, the original Limited Liability Company Agreement was adopted on
January 20, 1999; and
WHEREAS, the Sole Member and the Manager hereby wish to amend and restate
the Limited Liability Company Agreement.
NOW, THEREFORE, the Sole Member and the Manager hereby adopt the
following:
ARTICLE I
FORMATION OF LIMITED LIABILITY COMPANY
Section 1.1. Formation of Limited Liability Company. The Sole Member
resolves to form a Delaware limited liability company (the "Company") pursuant
to the Act and for that purpose shall cause a certificate of formation to be
executed and filed with the Secretary. The Manager and each person from time to
time serving as an officer or director of the Manager shall be, and hereby is,
designated as an "authorized person" within the meaning of Section 18-204 of the
Act, authorized and empowered to execute certificates to be filed with the
Secretary under the Act. The Sole Member shall be, and hereby is, admitted as
the sole member of the Company, and the Sole Member's Interest in the Company
shall be, and hereby is, authorized and issued.
Section 1.2. Company Name and Principal Office. The name of the Company
shall be "IKON Receivables, LLC." The Manager shall have the power at
<PAGE>
any time to change the name of the Company. The principal business office of the
Company shall be 501 Silverside Road, Suite 28 Wilmington, Delaware 19809. The
business of the Company may also be conducted at such additional place or places
as the Sole Member may determine.
Section 1.3. Office of and Agent for Service of Process. The registered
office of the Company in Delaware shall be maintained at The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware 19801. The Company's agent for
service of process on the Company at such address shall be The Corporation Trust
Company. The Manager shall have the power and the authority, and is hereby
authorized and empowered to change, at any time and from time to time, the
location of such registered office and/or such registered agent upon compliance
with the Act.
Section 1.4. Term of Company. The Company shall be formed and commence on
the date the certificate of formation is filed with the Secretary (the
"Effective Date"). The Company shall have a perpetual existence as a separate
legal entity until cancellation of the Company's certificate of formation.
Section 1.5. Purpose of Company. The purpose to be conducted or promoted
by the Company is:
(a) to purchase or acquire from any other subsidiary of IKON Office
Solutions, Inc. any right to payment, whether constituting an account,
chattel paper, instrument or general intangible, and certain related
property (other than equipment) and rights (collectively, "Lease
Receivables"), and to hold, sell, transfer, pledge or otherwise dispose of
Lease Receivables or interests therein pursuant to that certain Assignment
and Servicing Agreement by and among IKON Receivables-1, LLC, as Seller,
IOS Capital, as Originator and Servicer, and the Company, as Issuer, dated
as of April ___, 1999 (as the same may hereafter be modified or amended,
the "Assignment and Servicing Agreement");
(b) to enter into any agreement related to any Lease Receivables
that provides for the administration, servicing and collection of amounts
due on such Lease Receivables;
(c) to enter into and perform its obligations under the Assignment
and Servicing Agreement, and any interest rate hedging arrangements in
connection therewith;
(d) to distribute Lease Receivables or proceeds from Lease
Receivables and any other income to its Sole Member in such amounts as
determined by the Manager; and
(e) to engage in any lawful act or activity and to exercise any
powers permitted to limited liability
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companies formed under the Limited Liability Company Act of the State of
Delaware that are incidental to and necessary, suitable or convenient for
the accomplishment of the purposes specified in clauses (a), (b), (c) and
(d) above.
The Company shall have the power and authority, and is hereby authorized
and empowered, to engage in the activities set forth in paragraphs (a) through
(e) inclusive of this Section 1.5 and other activities approved in accordance
with Section 5.5.
Section 1.6. Address of the Sole Member and Manager. The addresses of the
Sole Member and the Manager are set forth in Exhibit A.
Section 1.7. Exclusivity. No Person may be admitted to the Company as an
additional or substitute member, except as expressly set forth in this
Agreement.
Section 1.8. Authorization. The Company, and the Manager or any officer of
the Company on behalf of the Company, are hereby authorized to enter into,
execute, deliver and perform the Assignment and Servicing Agreement and other
agreements related to the sale and servicing of the Lease Receivables as the
officer executing such agreement deems necessary and appropriate and to prepare
and file a registration statement on Form S-3 with the Securities and Exchange
Commission and to do all things necessary and appropriate to the declaration of
effectiveness of such Registration Statement as the officers directing such
preparation and filing deem necessary, notwithstanding any other provision of
this Agreement, the Act or other applicable law, rule or regulation, and without
any further act, vote or approval of any person. The foregoing authorization
shall not be deemed a restriction on the power of the Manager or officers of the
Company to enter into other agreements on behalf of the Company.
ARTICLE II
DEFINITIONS
Section 2.1. Defined Terms.
"Act" means the Delaware Limited Liability Company Act, Delaware Code
Title 6, Sections 18-101 et seq., as amended from time to time.
"Affiliate" when used with respect to a Person shall mean any other Person
controlling, controlled by, or under common control with, such Person.
"Agreement" shall mean this Limited Liability Company
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.
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"Capital Contributions" shall mean the amount of cash and the fair market
value of property (as determined by the Manager and net of any liabilities to
which such property is subject or which is deemed assumed by the Company)
contributed to the Company by the Sole Member.
"Company" shall mean the limited liability company governed by this
Agreement and formed by the filing of the Certificate of Formation of the
Company with the Secretary.
"IOS Capital" shall mean IOS Capital, Inc., a Delaware corporation, and
sole member of IKON Receivables-1, LLC.
"Indemnified Party" means the Sole Member, any successor member of the
Company, the Manager, any successor manager of the Company, any officer, agent,
shareholder, director, employee or incorporator of the Sole Member, any
successor member, the Manager or any successor manager, or any officer, manager,
employee, organizer or agent of the Company.
"Independent Director" shall mean an individual who has not been for a
period of 5 years prior to election to the board of directors and continuing
through such time: (i) a director, officer or employee of any entity owning
beneficially, directly or indirectly, more than 5% of the outstanding shares of
IOS Capital's or the Manager's common stock, or (ii) a director, officer or
employee of such beneficial owner's subsidiaries or affiliates, other than the
Manager or any other special purpose entity of IOS Capital (an "SPE"). An
Independent Director may not be a trustee in bankruptcy for any SPE or any
affiliate of a SPE.
"Insolvency Event" shall mean with respect to the Sole Member or any
successor member: (i) the entry of a decree or order by a court, agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator, receiver or liquidator for such member, in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of such member's affairs, and
the continuance of any such decree or order unstayed and in effect for a period
of 90 consecutive days; (ii) the consent by such member to the appointment of a
conservator, receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating to
such member or of or relating to substantially all of such member's property; or
(iii) if such member shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations. The
foregoing definition of "Insolvency Event" is intended to replace and shall
supersede and replace the definition of "Bankruptcy" set forth in Sections
18-304 of the Act.
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"Interest" shall mean the Sole Member's ownership interest in the Company
including, without limitation, the right of the Sole Member to the profits and
losses of the Company and to receive distributions of the Company's assets,
together with the obligations of the Sole Member to comply with all the terms
and provisions of this Agreement.
"Lease Receivables" shall have the meaning set forth in Section 1.5(a).
"Manager" shall mean the Manager and any other Person selected from time
to time by the Sole Member pursuant to Section 5.1 as a manager of the Company.
The "Manager" shall be a manager of the Company within the meaning of the Act.
"Net Cash Flow" shall mean, as of any date, any and all amounts received
by the Company on or before such date (other than Capital Contributions), less
(i) amounts previously distributed under Section 4.1, (ii) unpaid costs and
accrued expenses pursuant to Section 4.2 and any reasonable reserves therefor
and (iii) all other cash expenditures made by or on behalf of the Company.
"Notes" shall mean the Notes of the Company issued pursuant to the
Registration Statement on Form S-3 filed by the Company.
"Person" shall mean any individual, partnership, corporation, trust,
limited liability company, association, joint venture, estate, governmental
entity or other legal person.
"Secretary" means the Secretary of State of Delaware.
"Sole Member" shall have the meaning set forth in the preamble to this
Agreement.
ARTICLE III
CAPITAL CONTRIBUTIONS
Section 3.1. Contributions. The Sole Member shall contribute concurrently
with the execution of this Agreement or has already contributed such amount as
is represented by the property described in Exhibit B as its Capital
Contribution to the Company and shall from time to time contribute such other
property as is described in the Assignment and Servicing Agreement, as amended
from time to time. Such contribution is an absolute transfer and assignment of
such property to the Company, without recourse or warranty. The Manager has not
made and shall not make any Capital Contributions to the Company.
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Section 3.2. Additional Contributions. The Sole Member shall have no
obligation to make additional contributions after the date hereof, but may elect
to do so from time to time.
ARTICLE IV
DISTRIBUTIONS
Section 4.1. Distributions of Net Cash Flow. Distributions of Net Cash
Flow shall be made to the Sole Member by the Manager at such times and in such
amounts as determined by the Manager, acting alone, provided such distributions
are not prohibited by any agreement to which the Company is a party or the Act.
The Manager shall not receive any distribution of Net Cash Flow.
Section 4.2. Expenses of the Company. The Company shall pay all costs and
expenses incurred in connection with the Company's affairs (or shall reimburse
the Manager for having incurred any such out-of-pocket expenses), including
without limitation, all expenses of conducting the business of the Company.
ARTICLE V
MANAGEMENT
Section 5.1. Manager. (a) The Manager shall not be a member of the Company
and shall not own any Interest or any portion thereof, or any other ownership
interest in the Company, and, as such, shall not share in the distributions of
Net Cash Flow or the profits or losses of the Company. The Manager shall be (i)
a special purpose entity with at least two Independent Directors on its board of
directors and (ii) selected by the Sole Member from time to time or at such time
as a vacancy for any reason shall occur and shall serve until a successor is
selected or qualified. The Sole Member hereby selects IKON Receivables Funding,
Inc. as the initial Manager.
(b) The Manager, acting alone, without the approval or authorization of
the Sole Member, shall have full and exclusive management and control of the
business of the Company, including, without limitation, the power to appoint
Persons to act on behalf of the Company, to hire employees and agents and
appoint officers of the Company to perform such functions as from time to time
shall be delegated to such employees, agents, and officers by the Manager and to
determine the compensation of any employees, agents and officers of the Company
or to delegate some or all compensation decisions to officers or employees of
the Company.
(c) There shall be no change of Manager without the prior confirmation
from Moody's Investors Service, Inc. and Standard & Poor's Rating
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<PAGE>
Services that such change will not result in either a downgrade or a withdrawal
of the then current ratings of the outstanding Notes.
Section 5.2. Resignation. The Manager may resign at any time by giving
written notice to the Sole Member, provided that the Manager may resign only
after a successor Manager meeting the requirements and having similar
restrictions in its certificate of incorporation or other charter documents set
forth in Section 5.1 has been appointed, has executed a counterpart to this
Agreement and has assumed the duties of the resigning Manager and such
resignation will not result in either a downgrade or a withdrawal of the then
current ratings of the outstanding Notes.
Section 5.3. Removal. The Manager may be removed with or without cause by
the Sole Member, provided that the Sole Member shall not remove the Manager
unless a successor manager meeting the requirements and having similar
restrictions in its certificate of incorporation or other charter documents set
forth in Section 5.1 has been appointed, has executed a counterpart to this
Agreement and has assumed the duties and obligations of the removed Manager and
such removal and succession will not result in either a downgrade or a
withdrawal of the then current ratings of the Notes.
Section 5.4. Compensation. The Manager shall receive such compensation as
shall from time to time be determined by the Sole Member and shall be reimbursed
by the Company for any reasonable out-of-pocket expenses incurred by the Manager
on behalf of the Company.
Section 5.5. Limitation on Actions. (a) Notwithstanding any other
provision of this Agreement and, to the fullest extent permitted by law, any
provision of law that otherwise so empowers the Manager or any other Person, the
Manager and any other Person shall not have the power or authority, and shall
not be authorized or empowered, without the prior written consent of (1) the
Manager, including its board of directors, which shall include all of the
directors of the Manager who would be in office (including at least two
Independent Directors) if there were at any time neither any vacancies nor any
unfilled newly-created directorships on the board of directors, and (2) the Sole
Member, to cause the Company do any of the following:
(i) amend, alter, change or repeal Sections 1.5, 5.7, 8.2, 9.2, 9.3 or
this Section 5.5; or
(ii) make or commence any bankruptcy or insolvency filing or proceeding or
any similar filing or proceeding or make or commence, to the fullest extent
permitted by law, any dissolution, liquidation, consolidation, merger or sale of
all or substantially all of the Company's assets or acquiesce, petition or
otherwise invoke or cause any other Person to invoke the process of the United
States of America, any state or other political subdivision thereof or any other
jurisdiction, or any entity
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exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government for the purpose of commencing or
sustaining a case against the Company under a federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Company for
all or any part of its property or assets or, to the fullest extent permitted by
law ordering the winding-up, dissolution or liquidation of the affairs of the
Company or a consolidation, merger or sale of all or substantially all of the
assets of the Company.
(b) So long as the Notes are outstanding, the Company shall not:
(i) consolidate, convert or merge with or into any other entity or convey
or transfer its properties and assets substantially as an entirety to any
entity; or
(ii) incur any indebtedness, or assume or guaranty any indebtedness of any
other entity, other than (a) indebtedness incurred or guaranteed pursuant to
transactions set forth in Section 1.5 in connection with the issuance of notes,
certificates or other securities contemplated by Section 1.5; provided, however,
that the Person(s) to whom the indebtedness is owing has delivered to the
Company its undertaking that it will not institute against, or join any other
Person in instituting against, the Company any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under any
federal or state bankruptcy or similar law for one year and one day after all
notes certificates, or other securities contemplated by Section 1.5 are paid in
full and (b) indebtedness incurred in the ordinary course of business of the
Company which does not at any time exceed the aggregate amount of $4,950.00.
(c) No Manager nor any director of the Manager pursuant to the
requirements of this Section 5.5 shall, with regard to any matter described in
this Section 5.5 or Section 5.6, owe a fiduciary duty or other obligation to the
Sole Member (except as may specifically be required by any applicable law);
instead, such Manager or director's fiduciary duty and other obligations with
regard to any matter described in this Section 5.5 or Section 5.6 shall be owed
to the Company including, without limitation, the Company's creditors. Every
member of the Company shall be deemed to have consented to the foregoing by
virtue of such member's acceptance of interests therein, and no further act or
deed of any member of the Company shall be required to evidence such consent. In
addition, no Independent Director of the Manager may be removed unless his or
her successor has been duly elected.
Section 5.6. Sale or Purchase of Lease Receivables. The Manager shall not
have the power to sell or to purchase any Lease Receivables, except pursuant to
the Assignment and Servicing Agreement and subject to the limitations in Section
1.5, unless the Manager has first gotten confirmation from Moody's Investors
Service, Inc. and Standard & Poor's Rating Services that such sale will not
result in either a downgrade or a withdrawal of the then current ratings of the
Notes.
8
<PAGE>
Section 5.7. Amendment to Certificate of Formation. Without the
affirmative vote of each member of the Manager's Board of Directors, including,
without limitation, the affirmative vote of the Independent Directors of the
Manager, and prior notice to Moody's Investors Service, Inc. and Standard &
Poor's Rating Services, the Company shall not amend either this Limited
Liability Company Agreement or the Company's Certificate of Formation.
Section 5.8. Binding Authority. Only the Manager or its delegates pursuant
to Section 5.1 shall have the power and authority (subject to the terms and
conditions of this Agreement) to bind the Company.
Section 5.9 Company Separateness. In addition to the foregoing, the
Manager shall conduct the affairs of the Company in the following manner so
that: (i) the business and affairs of the Company will be managed by or under
the direction of the Manager; (ii) the Company will maintain separate bank
accounts, corporate records and books of account from those of any direct or
ultimate parent of the Company or any subsidiary or any other SPE or affiliate
of any such parent; (iii) the Company will pay from its funds and assets all
obligations and indebtedness incurred by it; (iv) the Company's assets shall not
be commingled with those of any other entity; (v) the Company shall maintain an
office or area separate from any direct, indirect or ultimate parent of the
Company (which area may be within the premises of the parent of the Company);
(vi) the Company shall maintain an arm's length relationship with its
affiliates; (vii) the Company shall pay the salaries of its own employees and
maintain sufficient number of employees in light of its contemplated business
operations; (viii) the Company shall not guarantee or become obligated for the
debts of any other entity or hold out its credit as being available to satisfy
the obligations of others; (ix) the Company shall not acquire obligations or
securities of its member; (x) the Company shall allocate fairly and reasonably
any overhead for shared office space; (xi) the Company shall use separate
stationary, invoices, and checks; (xii) the Company shall not pledge its assets
for the benefit of any other entity or make any loans or advances to any entity;
(xiii) the Company shall hold itself out as a separate entity; (xiv) the Company
shall correct any known misunderstanding regarding its separate entity; (xv) the
Company shall maintain adequate capital in light of its contemplated business
operations; (xvi) the Company shall maintain separate financial statements; and
(xvii) the Company shall conduct its own business in its own name.
ARTICLE VI
OBLIGATIONS AND/OR RIGHTS OF THE SOLE MEMBER AND MANAGER
Section 6.1. Liability of the Sole Member and Manager. Neither the Sole
Member nor the Manager shall be personally liable for any of the debts,
liabilities, contracts or other obligations of the Company solely by reason of
being the Sole Member or Manager of the Company.
9
<PAGE>
Section 6.2. No Management Responsibility. The Sole Member shall not take
part in the management of the business or the affairs, or transact any business
for, the Company, except to the extent that its approval or consent is expressly
required under this Agreement for the taking of any actions by or on behalf of
the Company or of the Manager.
Section 6.3. No Authority to Act. The Sole Member shall not have the
authority to act on behalf of or bind the Company.
ARTICLE VII
INDEMNIFICATION
Section 7.1. Exculpation and Indemnification of the Sole Member and
Manager. (a) No Indemnified Party shall be liable to the Company for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Party in connection with any matter arising from, or related
to, or in connection with this Agreement or the Company's business or affairs;
provided, however, that the foregoing shall not eliminate or limit the liability
of any Indemnified Party if a judgment or other final adjudication adverse to
the Indemnified Party establishes that the Indemnified Party's acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law or that the Indemnified Party personally gained in fact a financial profit
or other advantage to which the Indemnified Party was not legally entitled.
(b) The Company shall, to the fullest extent permitted by the Act,
indemnify and hold harmless, and advance expenses to, each Indemnified Party
against any losses, claims, damages or liabilities to which the Indemnified
Party may become subject in connection with any matter arising from, related to,
or in connection with, this Agreement or the Company's business or affairs;
provided, however, that no indemnification may be made to or on behalf of any
Indemnified Party if a judgment or other final adjudication adverse to the
Indemnified Party establishes (i) that the Indemnified Party's acts or omissions
giving rise to such losses, claims, damages or liabilities were committed in bad
faith or involved intentional misconduct or knowing violation of law and were
material to the cause of action so adjudicated or (ii) that the Indemnified
Party personally gained in fact a financial profit or other advantage to which
the Indemnified Party was not legally entitled; provided, further that such
indemnification shall be subject to the terms of, and shall be subordinate to
the obligations payable under, the agreements to which the Company is a party.
(c) Notwithstanding anything else contained in this Agreement, the
indemnity obligations of the Company under paragraph (b) above shall:
10
<PAGE>
(i) be in addition to any liability that the Company may otherwise
have;
(ii) inure to the benefit of the successors, assigns, heirs and
personal representatives of each Indemnified Party, and
(iii) be limited to the assets of the Company.
(d) This Article VII shall survive any termination of this Agreement and
the dissolution of the Company.
ARTICLE VIII
TRANSFERABILITY OF SOLE MEMBER'S INTERESTS
Section 8.1. Restriction on Transfer. The Sole Member may not transfer its
Interest unless such transfer is involuntary or by operation of law or is not
prohibited by any agreement to which the Company is a party.
Section 8.2. Transfer for Security. The Sole Member may not pledge,
mortgage or otherwise hypothecate all or any part of its right, title and
interest in cash distributions to be received from the Company.
Section 8.3. Substitute Member. If the Sole Member assigns all or any part
of its Interest pursuant to Section 8.1, the assignee shall be admitted to the
Company as a member of the Company upon the assignee's obtaining the consent of
the Manager to such admission and the assignee's executing a counterpart of this
Agreement, provided that prior notice is given to Moody's Investors Service,
Inc. and Standard & Poor's Ratings Services. If the Sole Member assigns all of
its interest pursuant to Section 8.1, the Sole Member shall cease to be a member
of the Company immediately after the admission of the assignee to the Company as
member of the Company and the Company shall be continued without dissolution.
ARTICLE IX
DISSOLUTION AND LIQUIDATION
Section 9.1. Dissolution. The Company shall be dissolved and its affairs
shall be wound up solely upon the occurrence of any of the following events,
provided however, to the fullest extent permitted by law, that the Company may
not dissolve so long as the Notes are outstanding:
(a) the happening of any event that makes it unlawful to carry on
the business of the Company;
11
<PAGE>
(b) judicial dissolution pursuant to the Act;
(c) at any time there are no members of the Company, unless the
Company is continued in accordance with the Act; or
(d) subject to the requirements of each agreement to which the
Company is a party, the Company is dissolved by the Manager with the
unanimous written consent of its entire board of directors and the Sole
Member as provided in Section 5.5. To the fullest extent permitted by law,
the Sole Member shall not have the power or authority, acting alone, to
dissolve the Company and wind up its affairs.
Section 9.2. Continuation of Company. Notwithstanding any other provision
of this Agreement, the occurrence of an Insolvency Event with respect to the
Sole Member shall not cause the Sole Member to cease to be a member of the
Company and upon the occurrence of such an event, the business of the Company
shall continue without dissolution. Notwithstanding any other provision of the
Agreement, the Sole Member waives any right that it might have under Section
18-801(b) of the Act to agree in writing to dissolve the Company upon the
occurrence of any event that causes the Sole Member to cease to be a member of
the Company. In the event of the dissolution of the Sole Member, to the fullest
extent permitted by law, the personal representative of the Sole Member shall
agree in writing to continue the Company and to the admission of such personal
representative or its nominee or designee as a member of the Company effective
as of the dissolution of the Sole Member.
Section 9.3. Winding up and Liquidation of the Company. Upon dissolution,
the Company shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of creditors
and the Sole Member; provided, however, that creditors of the Company shall be
able to continue operations of the Company at their option until their debt has
been paid in full or otherwise completely discharged. Upon dissolution, a full
accounting of the assets and liabilities of the Company shall be taken, and the
Company assets shall be distributed as promptly as possible as hereinafter
provided:
(a) first, to the satisfaction (or the making of reasonable
provision for the satisfaction) of such debts and liabilities of the
Company (or reserves therefor), including any necessary expenses of
liquidation, except any debts, liabilities and loans that may be due to
the Sole Member, in the order of priority as provided by law; and
(b) second, to the satisfaction (or the making of reasonable
provision for the satisfaction) of any debts and liabilities that may be
due to the Sole Member and to the satisfaction (or the making of
reasonable provision
12
<PAGE>
for the satisfaction) of the unpaid principal balance and the interest
accrued thereon on loans, if any, made by the Sole Member to the Company.
All of the remaining assets of the Company shall be distributed to the
Sole Member.
ARTICLE X
POWER OF ATTORNEY
Section 10.1. Manager as Attorney-In-Fact. The Sole Member hereby makes,
constitutes, and appoints the Manager with full power of substitution and
resubstitution, its true and lawful attorney-in-fact for it and in its name,
place, and stead and for its use and benefit, to sign, execute, certify,
acknowledge, swear to, file, and record (a) all limited liability company
certificates, assumed name or similar certificates, and other certificates and
instruments (including counterparts of this Agreement) which the Manager deems
necessary in its reasonable discretion to be filed by the Company under the laws
of the State of Delaware or any other state or jurisdiction in which the Company
is doing business; (b) any and all amendments or changes to the instruments
described in clause (a), as now or hereafter amended, which the Manager may deem
necessary in its reasonable discretion to effect a change or modification of the
Company in accordance with the terms of this Agreement, including, without
limitation, amendments or changes to reflect any amendments adopted by the Sole
Member in accordance with the terms of this Agreement; (c) all certificates of
cancellation and other instruments which the Manager deems necessary in its
reasonable discretion to effect the dissolution and termination of the Company
pursuant to the terms of this Agreement; and (d) any other instrument which is
now or may hereafter be required by law to be filed on behalf of the Company or
is deemed necessary by the Manager in its reasonable discretion to carry out
fully the provisions of this Agreement in accordance with its terms, in each
case, however, subject to the provisions of Section 5.5. The Sole Member
authorizes such attorney-in-fact to take any further action which such
attorney-in-fact shall reasonably consider necessary in connection with any of
the foregoing, hereby giving such attorney-in-fact full power and authority to
do so and perform each and every act or thing whatsoever requisite or advisable
to be done in connection with the foregoing as fully as the Sole Member might or
could do personally, and hereby ratifying and confirming all that any such
attorney-in-fact shall lawfully do or cause to be done by virtue thereof or
hereof.
Section 10.2. Nature of Special Power. The power of attorney granted
pursuant to this Article X:
(a) is a special power of attorney coupled with an interest and is
irrevocable;
13
<PAGE>
(b) may be exercised by any such attorney-in-fact by identifying the
Sole Member executing any agreement, certificate, instrument or other
document with the single signature of any such attorney-in-fact for the
Sole Member; and
(c) shall not be affected by and shall survive the bankruptcy,
insolvency, dissolution, disability, incapacity or cessation of existence
of the Sole Member and shall survive the delivery of an assignment by the
Sole Member of its interest in the Company, except that where an assignee
of the Sole Member is admitted as a substituted member, the power of
attorney shall survive the delivery of such assignment for the sole
purpose of enabling any such attorney-in-fact to effect such substitution.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Notices. Any notices or communications hereunder shall be in
writing, and may be either delivered personally (which shall include deliveries
by courier), by facsimile transmission or mailed, postage prepaid, by certified
or registered mail, return receipt requested, directed to the parties at their
respective addresses or fax numbers set forth in Exhibit A. Any party hereto may
designate a different address to which notices and demands shall thereafter be
directed by written notice given in the same manner and directed to the Company
at is office hereinabove set forth.
Section 11.2. Amendments. Subject to Section 5.5 and Section 5.7, this
Agreement shall be amended only by the written consent of the Sole Member and
the Manager.
Section 11.3. Headings. The headings of the various Articles and Sections
herein are for the convenience of reference only and shall not define or limit
any of the terms or provisions hereof.
Section 11.4. Severability. If any one or more of the provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
provisions or terms shall be deemed severable from the remaining provisions or
terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
Section 11.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF
14
<PAGE>
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.6. Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts together constitute
one and the same instrument.
Section 11.7. Effect of Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective successors
and assigns.
Section 11.8. Integration. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter thereof and supersedes all
prior agreements and understandings and contemporaneous agreements and
understandings pertaining thereto.
Section 11.9. Enforceability. Notwithstanding any other provision of this
Agreement, the Member agrees that this Agreement constitutes a legal, valid and
binding agreement of the Member, and is enforceable against the Member by the
Manager and the Independent Directors, in accordance with its terms. In
addition, the Independent Directors shall be intended beneficiaries of this
Agreement.
15
<PAGE>
IN WITNESS WHEREOF, this Limited Liability Company Agreement has been
executed as of the date first above written.
IKON RECEIVABLES-1, LLC,
as Sole Member
By: /s/ Robert K. McLain
----------------------------------
Name: Robert K. McLain
Title: President of Manager, IKON
Receivables Funding, Inc.
IKON RECEIVABLES FUNDING, INC.,
as Manager
By: /s/ Robert K. McLain
----------------------------------
Name: Robert K. McLain
Title: President
<PAGE>
EXHIBIT A
ADDRESSES OF THE SOLE MEMBER AND THE MANAGER
Address:
Sole Member: IKON Receivables-1, LLC
501 Silverside Road, Suite 28
Wilmington, DE 19809
Manager: IKON Receivables Funding, Inc.
501 Silverside Road, Suite 28
Wilmington, DE 19809
<PAGE>
EXHIBIT B
CAPITAL CONTRIBUTION OF SOLE MEMBER
1. Lease Receivables pursuant to Section 3.1 of this Operating Agreement.
2. Cash in the amount of $1000.00.
The information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Prospectus supplement dated April __, 1999
(To the Prospectus dated April __, 1999)
- --------------------------------------
IKON Receivables, LLC $_______________________
Issuer
IOS Capital, Inc. Lease Backed Notes, Series 1999-1
Originator and Servicer
- --------------------------------------
- --------------------------------------------------------------------------------
[IOS LOGO]
You should read the section entitled "Risk Factors" starting on page S-7 of this
prospectus supplement and page 7 of the prospectus and consider these factors
before making a decision to invest in the notes.
The notes are debt of the issuer payable only from the pledged assets of the
issuer and the insurance policy described in this prospectus supplement.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
- --------------------------------------------------------------------------------
The issuer will issue the four classes of notes shown in the table below.
The notes --
o Are backed by a pledge of certain assets of the issuer, primarily a
pool of equipment leases or contracts and related assets;
o Receive distributions beginning on June 15, 1999;
o Represent debt obligations of IKON Receivables, LLC; and
o Currently have no trading market.
Credit enhancement for the notes consists of --
o A reserve account that can be used to pay certain shortfalls in
payments on the notes;
o Overcollateralization resulting from the excess of the principal
value of the initial leases over the aggregate principal amount of
the notes; and
o A financial guarantee insurance policy from Ambac Assurance
Corporation unconditionally guaranteeing timely payment of interest
and ultimate payment of principal, as described in this prospectus
supplement
[AMBAC LOGO]
<TABLE>
<CAPTION>
=========================================================================================
Initial Ratings
Issuance Interest Initial Public -----------------------
Amount Rate Offering Price Moody's S & P
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes $[ ] [ ]% [ ]%
- -----------------------------------------------------------------------------------------
Class A-2 Notes $[ ] [ ]% [ ]%
- -----------------------------------------------------------------------------------------
Class A-3 Notes $[ ] [ ]% [ ]%
- -----------------------------------------------------------------------------------------
Class A-4 Notes $[ ] [ ]% [ ]%
=========================================================================================
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.
LEHMAN BROTHERS
CHASE SECURITIES, INC.
DEUTSCHE BANK SECURITIES INC.
PNC CAPITAL MARKETS, INC.
<PAGE>
Important Notice About the Information Presented in This Prospectus
Supplement and the Accompanying Prospectus
We provide information to you about the notes in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of notes.
This prospectus supplement does not contain complete information
about the offering of the notes. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the notes to you unless you have received
both this prospectus supplement and the prospectus .
If the prospectus contemplates different or multiple options, you
should rely on the information in this prospectus supplement as to the
applicable option.
The issuer has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, with
respect to the notes offered by this prospectus supplement. This prospectus
supplement and the prospectus, which form a part of the registration statement,
omit certain information contained in such registration statement pursuant to
the rules and regulations of the Securities and Exchange Commission. You may
inspect and copy the registration statement at the Public Reference Room at the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.,
and the Commission's regional offices at Seven World Trade Center, 13th Floor,
New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of such
materials at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Securities and Exchange Commission maintains a site on the World Wide Web
containing reports, proxy materials, information statements and other items. The
address is http://www.sec.gov.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
In addition to the documents described in the accompanying
prospectus as being incorporated by reference, the financial statements of Ambac
Assurance Corporation included in, or as exhibits to, the following documents,
which have been filed by Ambac Assurance Corporation with the SEC are hereby
incorporated by reference:
o Annual report on Form 10-K for the year ended December 31,
1998, and
o Quarterly report on Form 10-Q for the quarter ended March 31,
1999
All financial statements of Ambac Assurance Corporation included in
documents filed by the Ambac Assurance Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the filing of
this prospectus supplement and prior to the termination of the offering of the
notes shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof.
S-2
<PAGE>
Table of Contents
Page
----
Summary......................................................................S-4
Risk Factors.................................................................S-7
The Issuer...................................................................S-8
The Servicer and the Originator..............................................S-8
The Insurer and the Policy...................................................S-9
The Asset Pool..............................................................S-11
Description of the Notes....................................................S-20
Prepayment and Yield Considerations.........................................S-27
The Trustee.................................................................S-30
Material Federal Income Tax Consequences....................................S-30
ERISA Considerations........................................................S-31
Use of Proceeds.............................................................S-31
Ratings of the Notes........................................................S-32
Legal Opinions..............................................................S-34
S-3
<PAGE>
- --------------------------------------------------------------------------------
Summary
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the
terms of the offering of the notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in
this prospectus supplement and the accompanying prospectus.
o Lease-Backed Notes
Series 1999-1
Issuer
IKON Receivables, LLC, a Delaware special purpose limited liability company.
Originator
IOS Capital Inc., a Delaware corporation formerly known as IKON Capital Inc.
Seller
IKON Receivables-1 LLC, a Delaware special purpose limited liability company.
Servicer
o IOS Capital, Inc.
o The servicer's principal executive offices are located at 1738 Bass Road, P.O.
Box 9115, Macon, Georgia 31208.
Trustee
o Harris Trust and Savings Bank, a banking corporation organized under the laws
of Illinois.
o The trustee's offices are located at 311 West Monroe Street, 12th Floor,
Chicago, IL 60606.
Insurer
Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation.
The Asset Pool
The issuer will pledge certain property to secure payments on the notes. The
pledged assets will include:
o a pool of office equipment leases or contracts, including
installment sale contracts, and related assets;
o cash on deposit in a reserve account and the collection account; and
o other assets as described in detail elsewhere in this prospectus
supplement.
The Leases
o On or about April __, 1999, IOS Capital, Inc. will contribute to IKON
Receivables-1, LLC, a pool of office equipment leases, including conditional
sale and other contracts, and IKON Receivables-1, LLC will transfer them to the
issuer. Payments on the notes will be made from payments on these leases.
o The leases will relate to various items or types of office equipment. However,
initially, a substantial portion of the total original equipment cost of the
leased equipment in the asset pool relates to copiers.
o The leases are triple-net leases, which means that the lessee is required 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. The leases provide that such
payments are not subject to set-off or reduction without the lessor's consent.
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
o The aggregate principal value of the pool of leases at any time will be
calculated by discounting their remaining payments (except for certain minor
charges and delinquent payments) at a rate equal to ____%.
o We will pay the notes from payments on the leases. Noteholders should not rely
on the sale of leased equipment for payments on the notes.
Issuance Date
On or about April __, 1999.
Cut-Off Date
The opening of business on April 1, 1999.
Payment Date
The 15th day of each month if the 15th is a business day. If the fifteenth is
not a business day, the payment date will be the following day that is a
business day. The first payment date will be June 15, 1999.
Determination Date
Five business days before the payment date. The trustee will calculate the
amounts to be paid on the notes on this date.
Due Period
Payments made on each payment date will relate to the collections received in
respect of the immediately preceding calendar month or, in the case of the June
15, 1999 payment date, the months of April and May, 1999.
Record Date
The last business day preceding a payment date unless the notes are no longer
book-entry notes. If the notes are definitive notes, the record date is the last
business day of the month preceding a payment date.
Stated Maturity Dates
If the notes have not already been paid in full, we will pay the outstanding
principal amount of the notes in full on the following payment dates:
Class A-1 [Insert date]
Class A-2 [Insert date]
Class A-3 [Insert date]
Class A-4 [Insert date]
Final payment on the notes will probably be earlier than the stated maturity
dates listed above for the related class of notes.
Denominations
o The issuer will issue the notes in minimum denominations of $1,000 and
integral multiples of $1,000.
o One note in each class may be issued in another denomination.
Payments on the Notes
Each month, the issuer will distribute the amounts received on the leases and
any other amounts available for these purposes as follows:
Interest Distributions
o On each payment date, the issuer will pay interest at the applicable interest
rate that accrued during the prior interest accrual period.
Principal Distributions
o On each payment date, the issuer will pay principal in reduction of the
outstanding principal balance of the notes.
o Principal payments will be an amount usually equal to the decrease in the
principal value of the leases between determination dates. The issuer will pay
principal in the following priority:
o to the Class A-1 noteholders only, until the principal amount on the Class
A-1 Notes has been reduced to zero;
o when the Class A-1 Notes have been paid in full to the Class A-2
noteholders only, until the principal amount on the Class A-2 Notes has
been reduced to zero, an amount generally equal to _____% of the decrease
in the principal value of the leases;
o when the Class A-2 Notes have been paid in full, to the Class A-3
noteholders only, until the principal amount on the Class A-3 Notes has
been reduced to zero, an amount generally equal
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
to _____% of the decrease in the principal value of the leases;
o when the Class A-3 Notes have been paid in full, to the Class A-4
noteholders, until the principal amount on the Class A-4 Notes has been
reduced to zero, an amount generally equal to _____% of the decrease in
the principal value of the leases.
This general description of distributions of principal on the notes is subject
to certain targets and floors which may result in additional principal payments.
We refer you to "Descriptions of the Notes--Distributions" in this prospectus
supplement for further information regarding the payment of interest and
principal on the notes.
Credit Enhancement
The credit enhancement available to you will consist of the following:
o Reserve Account. A reserve account will be set up in the name of the trustee
for the benefit of the noteholders. Funds in the reserve account will be used to
pay certain shortfalls in amounts due to noteholders. The issuer will initially
deposit $__________into the reserve account.
o Overcollateralization. Additional credit enhancement is provided because the
initial principal amount of the notes is less than the initial principal value
of the leases in the asset pool.
o Insurance Policy. The issuer will obtain a noncancellable insurance policy
from Ambac Assurance Corporation with respect to the notes. This insurance
policy will unconditionally and irrevocably guarantee payments to you of
interest and principal, but subject to specific terms and conditions set forth
under the heading "The Insurer and the Policy" in this prospectus supplement.
We refer you to "The Insurer and the Policy" and "Description of the
Notes--Principal Payments" and "--Reserve Account" in this prospectus supplement
for more detail.
Optional Redemption
o The issuer may, on any payment date, redeem the notes when the total
discounted lease balance is less than or equal to 10% of the total discounted
lease balance of the leases as of April 1, 1999.
o If a redemption occurs, you will receive a final distribution equaling the
entire unpaid principal balance of the notes plus any accrued and unpaid
interest.
Material Federal Income Tax Consequences
For federal income tax purposes:
o Dewey Ballantine LLP, special tax counsel to issuer, is of the opinion that
the notes will be treated as debt and the issuer will not be treated as an
association (or publicly traded partnership) taxable as a corporation. By your
acceptance of a note, you agree to treat the notes as debt.
o Interest on the notes will be taxable as ordinary income when received by a
holder on the cash method of accounting and when accrued by a holder on the
accrual method of accounting.
o Dewey Ballantine LLP has prepared the discussion under "Material Federal
Income Tax Consequences" in the prospectus and this prospectus supplement and is
of the opinion that such discussion accurately states all material federal
income tax consequences of the purchase, ownership and disposition of the notes
to their original purchaser.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in the prospectus and this prospectus supplement, pension,
profit-sharing or other employee benefit plans, as well as individual retirement
accounts and certain types of Keogh Plans, may purchase notes. Investors should
consult with their counsel regarding the applicability of the Employee
Retirement Income Security Act of 1974, as amended, before purchasing a note.
Ratings
o The issuer will not issue the notes unless they have been assigned the ratings
designated on the cover page of this prospectus supplement.
o You must not assume that the ratings will not be lowered, qualified or
withdrawn by the rating agencies.
- --------------------------------------------------------------------------------
S-6
<PAGE>
Risk Factors
In addition to the risk factors discussed in the Prospectus, prospective
investors should consider, among other things, the following additional factors
in connection with the purchase of the notes:
Geographic Concentrations of Adverse economic conditions or other factors
Leases May Adversely Affect affecting any state or region where a high
the Leases concentration of lessees under the leases are
located could adversely affect the performance
of the leases. As of April 1, 1999, lessees with
respect to approximately [ [ ]%, [ ]% and [ %] ]
of the leases (based on the statistical
discounted present value of the leases) were
located in __________, __________ and
__________, respectively. No other state
accounts for more than 5% of the leases. If
adverse events or economic conditions were to be
particularly severe in those geographic regions
or in the event a lessee or group of lessees in
such geographic regions were to experience
financial difficulties, such lessees may be
unable to pay or may not make timely payments.
If such conditions or other factors occur, you
may experience delays in receiving payments on
the notes and suffer loss of your investment.
The issuer is unable to determine and has no
basis to predict, for any state or region,
whether any events like these have occurred or
may occur, or to what extent any events like
these may affect the leases or the repayment of
amounts due under the notes.
Ratings of the Notes are The ratings of the notes will depend primarily
Dependent upon on the creditworthiness of the insurer as the
Creditworthiness of Insurer provider of the financial guarantee insurance
policy relating to the notes. There is a risk
that any reduction in the insurer's rating would
result in a reduction in the ratings of the
notes.
S-7
<PAGE>
The Issuer
IKON Receivables, LLC (the "Issuer") is a Delaware limited liability
company all of the membership interests in which are held by IKON Receivables-1
LLC, a special purpose Delaware limited liability company (the "Seller"). All of
the membership interests in the Seller are, in turn, owned by IOS Capital, Inc.
("IOS Capital" or the "Originator").
The Notes will be secured solely by the Asset Pool (as defined
herein). The Issuer does not have, nor is it expected in the future to have, any
significant assets other than the Asset Pool and the sole sources of funds
available for payment of the Notes is the Asset Pool and proceeds of the
financial guaranty insurance policy described herein (the "Policy").
Because the Issuer has no operating history and will not engage in
any business other than activities incidental to the acquisition of the Asset
Pool (and asset pools relating to other series of notes) and the issuance of the
Notes (and other series of notes), no historical or pro forma financial
statements or ratios of earnings to fixed charges with respect to the Issuer,
other than the balance sheet of the Issuer at April 6, 1999 included in the
accompanying Prospectus dated April __, 1999 (the "Prospectus"), have been
included herein or in the Prospectus.
The Issuer will pledge its interest in the Asset Pool to Harris
Trust and Savings Bank, as Trustee for the benefit of holders of the Notes (the
"Trustee") and issue the Notes pursuant to an indenture between the Issuer and
the Trustee ( the "Indenture").
The Servicer and the Originator
General. The Lease Receivables (as defined below) will be acquired
by the Seller from IOS Capital and by the Issuer from the Seller. IOS Capital, a
Delaware corporation headquartered in Macon, Georgia will serve as the servicer
of the Leases (in such capacity, the "Servicer"). IOS Capital is a wholly-owned
subsidiary of IKON Office Solutions, Inc. ("IKON Office Solutions"). Additional
information about IOS Capital is contained in the Prospectus. See "The
Originator's Leasing Business" in the Prospectus.
At December 31, 1998, IOS Capital had approximately $2,239,433,000
in assets, approximately $1,906,240,000 in liabilities and approximately
$333,193,000 in shareholders' equity.
Historical Delinquency and Loss Information. General delinquency
information for leases in IOS Capital's total servicing portfolio not
charged-off, and general charge-off information for leases in IOS Capital's
total servicing portfolio, are set forth in the tables below. Lease receivables
in the Servicer's servicing portfolio are charged-off between 121 and 181 days
past due depending upon credit quality and the reasons for delinquency in
accordance with the IKON National Risk Management Policy. Any account more than
181 days past due requires IKON corporate authorization to waive charge-off. Any
subsequent recoveries offset gross losses.
Summary Historical Delinquency Data
IOS Capital Portfolio
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998 September 30, 1997 September 30, 1996 September 30, 1995
-------------------- -------------------- -------------------- -------------------- --------------------
($ - millions) %* ($ - millions) %* ($ - millions) %* ($ - millions) %* ($ - millions) %*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current 2,450.9 90.7% $2,452.6 90.8% $1,981.5 89.4% $1,304.3 86.5% $910.8 87.9%
31-60 Days 146.4 5.4% $144.7 5.4% $120.00 5.4% $107.1 7.1% $83.9 8.1%
61-90 Days 64.6 2.4% $66.2 2.4% $67.7 3.1% $54.3 3.6% $25.9 2.5%
Over 90 Days 39.9 1.5% $37.0 1.4% $46.2 2.1% $42.2 2.8% $15.5 1.5%
---- --- ----- --- ----- --- ----- --- ----- ---
Total $2,701.8 100.0% $2,700.5 100.0% $2,215.4 100.0% $1,507.9 100.0% $1,036.1 100.0%
<CAPTION>
September 30, 1994
-------------------
($ - millions) %*
<S> <C> <C>
Current $572.4 88.7%
31-60 Days $48.3 7.5%
61-90 Days $16.0 2.5%
Over 90 Days $8.2 1.3%
---- ---
Total $644.9 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance on a monthly basis.
S-8
<PAGE>
Summary Historical Loss Data
IOS Capital Portfolio
<TABLE>
<CAPTION>
December 31, September 30, September 30, September 30, September 30, September 30,
1998 1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
($- millions) ($- millions) ($- millions) ($- millions) ($- millions) ($- millions)
<S> <C> <C> <C> <C> <C> <C>
Average
Portfolio
Balance for
the Fiscal
Year* 2,679 $2,545 $1,917 $1,286 $850 $561
Gross
Charge-offs
($ millions)** $88.8 $98.8 $51.6 $29.9 $20.9 $14.4
Gross
Charge-offs
as a % of
the Average
Portfolio
Balance for
the Fiscal
Year** 3.3% 3.9% 2.7% 2.3% 2.4% 2.7%
</TABLE>
* Average Portfolio Balance at September 30 in each of fiscal years 1994 through
1998 was calculated by adding the servicing portfolio balance for each of the
twelve months of such fiscal year and dividing by 12. Average Portfolio Balance
at December 31, 1998 represents average of balances for first three months of
fiscal year 1999.
** Information with respect to net chargeoffs is not available. Gross chargeoff
at December 31, 1998 is annualized amount calculated by multiplying gross
chargeoffs during quarter ended December 31, 1998 of $22.2 million by 4.
The loss rate increased to 3.9% for the year ended September, 1998.
This increase resulted primarily from marginal credits in the commercial print
shop industry and two IKON marketplaces that experienced above average losses.
In the summer of 1998, IOS Capital revised it's charge-off policy, thereby
accelerating recognition of losses.
There can be no assurance that the levels of delinquency and loss
reflected in the tables above are or will be indicative of the performance of
the Leases in the future.
The Insurer and the Policy
General. The information set forth in this section has been provided
by Ambac Assurance Corporation ("Ambac" or the "Insurer") for inclusion in this
Prospectus Supplement. No representation is made by any of the Underwriters (as
defined herein), the Issuer, IOS Capital, or any of their affiliates as to the
accuracy or completeness of such information.
Ambac is a Wisconsin-domiciled stock insurance corporation regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, the Commonwealth
of Puerto Rico and the Territory of Guam. Ambac primarily insures newly issued
municipal and structured finance obligations. Ambac is a wholly-owned subsidiary
of Ambac Financial Group, Inc. (formerly AMBAC Inc.), a 100% publicly-held
company. Moody's Investors Service Inc. ("Moody's"), Standard & Poor's, a
division of The McGraw Hill Companies Inc. ("S&P"), and Fitch IBCA, Inc. ("Fitch
IBCA") have each assigned a triple-A financial strength ability rating to Ambac.
The consolidated financial statements of Ambac and its subsidiaries
as of December 31, 1998, December 31, 1997 and December 31, 1996, prepared in
accordance with generally accepted accounting principles, included in the Annual
Report on Form 10-K of Ambac Financial Group, Inc. (which was filed with the
Commission on March 30, 1999, Commission File No. [1-10777]) are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated herein by
reference shall be modified or superseded for the purposes of this Prospectus
Supplement to the extent that a statement contained herein by reference herein
also modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of Ambac and its subsidiaries included in
documents filed by Ambac Financial Group, Inc. with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus Supplement and prior to the
termination of the
S-9
<PAGE>
offering of the Notes (as defined herein), shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing such documents.
The following table sets forth the capitalization of Ambac as of
December 31, 1996, December 31, 1997 and December 31, 1998, respectively, in
conformity with generally accepted accounting principles.
Ambac Assurance Corporation
Consolidated Capitalization Table
(Dollars in Millions)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Unearned premiums.................... $ 995 $ 1,184 $ 1,303
Other liabilities ................... 259 562 548
------------- ------------- -------------
Total liabilities.................... 1,254 1,746 1,851
============= ============= =============
Stockholder's equity: (1)
Common stock.................. 82 82 82
Additional paid-in capital.... 515 521 541
Accumulated other
comprehensive income....... 66 118 138
Retained earnings............. 992 1,180 1,405
------------- ------------- -------------
Total stockholder's equity........... 1,655 1,901 2,166
------------- ------------- -------------
Total liabilities and
stockholder's equity ............ 2,909 3,647 4,017
============= ============= =============
</TABLE>
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance with
the Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" adopted by Ambac effective January 1, 1998. As this new standard only
requires additional information in the financial statements, it does not affect
Ambac's financial position or results of operations.
For additional financial information concerning Ambac, see the
audited and unaudited financial statements of Ambac incorporated by reference
herein. Copies of the financial statements of Ambac incorporated herein by
reference and copies of Ambac's annual statement for the year ended December 31,
1998 prepared in accordance with statutory accounting standards are available,
without charge, from Ambac. The address of Ambac's administrative offices and
its telephone number are One State Street Plaza, 17th Floor, New York, New York,
10004 and (212) 668-0340.
Ambac makes no representation regarding the Notes or the
advisability of investing in the Class A Notes and makes no representation
regarding, nor has it participated in the preparation of, this Prospectus
Supplement other than the information supplied by Ambac and presented under the
heading "The Insurer and the Policy" and in the financial statements
incorporated herein by reference.
The Policy. The following summary of the terms of the Policy does
not purport to be complete and is qualified in its entirety by reference to the
Policy. The Insurer will issue a Policy in favor of the Trustee for the benefit
of the holders of Notes (the "Noteholders") with respect to the Notes. The
Policy unconditionally guarantees the payment of Insured Payments (as defined
herein) on the Notes. The Insurer will make each required Insured Payment other
than with respect to Preference Amounts to the Trustee on the later of (i) the
Payment Date (as defined herein) on which such Insured Payment is distributable
to the Noteholders pursuant to the Indenture; and (ii) the third Business Day
(as defined herein) following the Business Day on which the Insurer shall have
received telephonic or telegraphic notice, subsequently confirmed in writing, or
written notice by registered or certified mail, from the Trustee, specifying
that an Insured Payment is due in accordance with the terms of the Policy. The
Insurer will pay any Insured Payment that is a Preference Amount on the third
Business Day following the Business Day of a certified copy of the order
requiring the return of a preference payment, and such other documentation as is
reasonably required by the Insurer, such documentation being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon (New York City time) on such Business Day, they will be deemed to
have been received on the following Business Day.
S-10
<PAGE>
The Insurer shall be subrogated to all of the Noteholder's rights to
payment on the Notes to the extent of the payments made under the Policy. Once
Insured Payments are paid to the Trustee, the Insurer will have no further
obligation in respect of such Insured Payments. Payments under the Policy shall
be made only at the time set forth in the Policy and no accelerated payments
shall be made regardless of any acceleration of any of the Notes, unless such
acceleration is at the sole option of the Insurer.
The Policy does not cover shortfalls, if any, attributable to the
liability of the Trust or the Trustee for withholding taxes, if any (including
interest and penalties in respect of any such liability), any prepayment penalty
or other accelerated payment which at any time may become due on or with respect
to any Note, other than at the sole option of the Insurer, nor against any risk
other than nonpayment, including failure of the Trustee to make any payment due
to the Noteholders. The Policy does not cover, and Insured Payments do not
include, any shortfalls due to the application of the Soldiers' and Sailors
Relief Act.
The Insurer's obligation under the Policy will be discharged to the
extent that funds are received by the Trustee for distribution to the
Noteholders, whether or not such funds are properly distributed by the Trustee.
For purposes of the Policy, "Noteholders" does not and may not
include the Issuer or the Servicer.
"Insured Payment" means (x) with respect to any Payment Date the
excess, if any, of (i) the sum of (a) the related Interest Payments (as defined
herein) and (b) the related (without duplication) over (ii) Available Funds
(excluding Insured Payments) and (y) on [date], the outstanding Note Principal
Balance of the Notes of each Class then outstanding to the extent Available
Funds (excluding Insured Payments) are not sufficient to make such payment on
such date. The Policy expires and terminates without any action on the part of
the Insurer or any other person on the date that is one year and one day
following the date on which the Notes have been paid in full.
"Note Principal Balance" means as of any date of determination and
with respect to each class of Notes, the principal balance of the related class
of Notes on April __, 1999 (the "Issuance Date") less any amounts actually
distributed as principal thereon on all prior Payment Dates.
"Preference Amount" means any amount previously distributed to a
Noteholder that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.) as amended from time to time, in accordance with a final
non-appealable order of a court having competent jurisdiction.
The Policy is non-cancelable.
The Policy is issued under and pursuant to and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The Policy Is Not Covered by The Property/Casualty Insurance
Security Fund Specified in Article 76 of The New York Insurance Law.
Drawings Under the Policy. On each Determination Date the Trustee
shall determine whether an Insured Payment is required to be paid for the Notes
for the related Payment Date. If the Trustee determines that an Insured Payment
is required to be paid for the related Payment Date, the Trustee shall complete
a Notice in the form of Exhibit A to the Policy and submit such notice to the
Insurer no later than 12:00 noon New York City time on the second Business Day
preceding such Payment Date as a claim for an Insured Payment.
The Asset Pool
The Pledged Assets. The Notes will be secured by a segregated pool
of assets (the "Asset Pool") that includes a portfolio of chattel paper composed
of leases, leases intended as security agreements and installment sales
contracts acquired or originated by IOS Capital, together with certain monies
received relating thereto (the "Leases"). The Leases, including the Issuer's
interests in the underlying Equipment, are hereafter referred to as the "Lease
Receivables."
S-11
<PAGE>
The Leases. The Lease Receivables will be acquired by the Seller
from the Originator pursuant to an Assignment and Servicing Agreement among the
Seller, the Originator and the Issuer (the "Assignment and Servicing
Agreement"). Contemporaneously, the Lease Receivables will be transferred from
the Seller to the Issuer pursuant to the Assignment and Servicing Agreement and
pledged by the Issuer to the Trustee for the benefit of the Noteholders.
The Leases were originated by the Originator or acquired by the
Originator from sellers or other originators in accordance with the Originator's
specified underwriting criteria. The underwriting criteria applicable to the
Leases included in the Asset Pool is described in all material respects under
the heading "The Originator's Leasing Business" in the Prospectus.
The Issuer will not have and the Asset Pool will not include any
ownership interest in any Equipment, including any residual interest in any
Equipment after the related Lease has been paid in full.
The Leases are triple-net leases which means that the terms of the
leases require the lessees to pay all taxes, maintenance and insurance
associated with the related Equipment and are non-cancelable by the businesses
and individual business owners who lease the Equipment (each, a "Lessee"). Under
certain conditions, IOS Capital may consent to prepayment of the Leases.
Generally, IOS Capital will consent to a prepayment of a Lease where the Lessee
is upgrading the related Equipment. All payments under the Leases are absolute,
unconditional obligations of the related Lessees. The Leases provide that
payments under the Leases are not subject to setoff or reduction without the
consent of the related lessor (each a "Lessor"). Such payments will be made by
the Lessees to IOS Capital, as servicer , for the account of IKON Receivables,
LLC.
Each Lessee entered into its Lease for specified equipment which may
be designated in schedules incorporated into the Lease. To the extent not set
forth in the Lease, the schedules, among other things, establish the periodic
payments and the term of the Lease with respect to such equipment. The Leases
follow one of several different forms of lease agreement, with occasional
modifications which do not materially affect the basic terms of the Leases. As
of the Cut-Off Date, the weighted average remaining term of the Leases in the
Asset Pool is _____ months. The Originator will represent and warrant that, as
of the Cut-Off Date, all Leases will be current or less than 61 days delinquent
and, as of the initial Determination Date, all Lessees will have made at least
one payment.
IOS Capital offers a cost per copy program, pursuant to which
Lessees pay a fixed monthly payment for which they are allowed a certain minimum
monthly copy usage. The monthly fixed payment represents equipment financing and
a monthly maintenance charge (the "Maintenance Charge"). IOS Capital calculates
usage monthly using copier meter readings. To the extent that the usage has
exceeded the monthly copy allowance, IOS Capital bills the Lessee incremental
charges for the excess copy usage ("Excess Copy Charge"). This Excess Copy
Charge is remitted to IKON Office Solutions, upon collection by IOS Capital.
Only the equipment financing portion will be included in the Discounted Present
Value of the Leases.
Lessees covenant to maintain the Equipment and install it at a place
of business agreed upon with IOS Capital. Delivery, transportation, repairs and
maintenance are the obligation of the Lessees, and all Lessees are required to
carry, at their respective expense, liability and replacement cost insurance
under terms acceptable to IOS Capital. Proceeds of such insurance will
constitute Casualty Payments (as defined herein). Any defaults under a Lease
permit a declaration, as immediately due and payable, of 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.
"Non-Performing Leases" are (a) Leases that have become more than
120 days delinquent or (b) Leases that have been accelerated by the Servicer or
(c) Leases that the Servicer has determined to be uncollectible in accordance
with the Servicer's customary practices. IOS Capital will represent and warrant
that, as of the Cut-Off Date, none of the Leases are Non-Performing Leases and
the Seller will represent in the Assignment and Servicing Agreement that at the
time of transfer of any Lease to the Issuer, such Lease was not a Non-Performing
Lease.
The Servicer's customary practices with respect to Non-Performing
Leases include such action as is necessary to cause, or attempt to cause, the
Lessee thereunder to cure such non-performance or to terminate such lease and
recover the outstanding amount owed under the Lease and all damages resulting
from any default on the Non-Performing Leases. The Servicer will take action
that is consistent with the customary practices of servicers in the equipment
leasing industry. In addition, the Servicer will use its best efforts to sell or
lease any Equipment that
S-12
<PAGE>
is subject to a Non-Performing Lease in a timely manner and upon the most
favorable terms and conditions available at the time in order to recoup any
amounts still due on the Lease.
Certain Information with Respect to the Leases and the Lessees. The
following tables summarize certain information with respect to the Leases and
the Lessees as of the opening of business on April 1, 1999 (the "Cut-Off Date").
The Issuer is not aware of any trends or changes relating to the data in the
following tables that would be expected to impact the future performance of the
pool of leases. As used in such tables, the "Statistical Discounted Present
Value of the Leases" means an amount equal to the future remaining scheduled
Lease Payments from the Leases as of the Cut-Off Date, discounted at a rate
equal to ___%. The aggregate Statistical Discounted Present Value of the Leases
as of the Cut-Off Date is $__________. See "Description of the Notes--Discounted
Present Value of the Leases."
S-13
<PAGE>
Distribution of Leases By State
<TABLE>
<CAPTION>
Percentage
of
Statistical Percentage
Statistical Discounted of Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value Value of Original Equipment
State Leases of Leases of Leases Leases Equipment Cost Cost
- ----------------------- --------- ---------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
District of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
North Dakota
Nebraska
New Hampshire
New Jersey
New Mexico
Nevada
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
===================================================================================================================
Total
===================================================================================================================
</TABLE>
S-14
<PAGE>
Distribution of Leases by Lease Balance
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Percentage of
Statistical Discounted Percentage Discounted Present Aggregate Aggregate
Present Value of the Number of of Number Present Value Value of Original Original
Leases Leases of Leases of Leases Leases Equipment Cost Equipment Cost
- -------------------------- --------- ---------- ------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - 5,000.00
5,000.01 - 10,000.00
10,000.01 - 15,000.00
15,000.01 - 20,000.00
20,000.01 - 25,000.00
25,000.01 - 30,000.00
30,000.01 - 35,000.00
35,000.01 - 40,000.00
40,000.01 - 45,000.00
45,000.01 - 50,000.00
50,000.01 - 60,000.00
60,000.01 - 70,000.00
70,000.01 - 80,000.00
80,000.01 - 90,000.00
90,000.01 - 100,000.00
100,000.01 - 125,000.00
125,000.01 - 150,000.00
150,000.01 - 175,000.00
175,000.01 - 200,000.00
200,000.01 - 300,000.00
300,000.01 - 400,000.00
400,000.01 - 500,000.00
500,000.01 - 600,000.00
600,000.01 - 700,000.00
700,000.01 - 800,000.00
800,000.01 - 900,000.00
900,000.01 -1,000,000.00
1,000,000.01 -1,500,000.00
1,500,000.01 -2,000,000.00
greater than 2,000,000.00
=====================================================================================================================
Total
=====================================================================================================================
</TABLE>
Distribution of Leases by Remaining Term to Maturity
<TABLE>
<CAPTION>
Percentage
of
Statistical Percentage
Statistical Discounted of Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value of Value of Original Equipment
Remaining Term (months) Leases of Leases Leases Leases Equipment Cost Cost
- -------------------------- --------- ---------- ---------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
0 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
=====================================================================================================================
Total:
=====================================================================================================================
</TABLE>
S-15
<PAGE>
Distribution of Leases by Original Term to Maturity
<TABLE>
<CAPTION>
Percentage
of Percentage
Statistical of
Statistical Discounted Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value Value of Original Equipment
Original Term (months) Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- --------- ---------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
0 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
85 - 96
=====================================================================================================================
Total
=====================================================================================================================
</TABLE>
Distribution of Leases by Classification Type
<TABLE>
<CAPTION>
Percentage
of Percentage
Statistical of
Statistical Discounted Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value Value of Original Equipment
Lease Type Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- --------- ---------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Finance Lease
Operating Lease
=====================================================================================================================
Total
=====================================================================================================================
</TABLE>
Distribution of Finance Leases by Purchase Option
<TABLE>
<CAPTION>
Percentage
of Percentage
Statistical of
Statistical Discounted Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value Value of Original Equipment
Purchase Option Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- --------- ---------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Purchase Option
Fair Market Value
Nominal Buyout
=====================================================================================================================
Total
=====================================================================================================================
</TABLE>
Distribution of Leases by Delinquencies
<TABLE>
<CAPTION>
Percentage
of Percentage
Statistical of
Statistical Discounted Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value of Value of Original Equipment
Days Delinquent Leases of Leases Leases Leases Equipment Cost Cost
- -------------------------- --------- ---------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
0 - 29
30 - 59
60 - 62
=====================================================================================================================
Total
=====================================================================================================================
</TABLE>
S-16
<PAGE>
Distribution of Leases by Equipment Type
<TABLE>
<CAPTION>
Percentage
of
Statistical Percentage
Statistical Discounted of Aggregate
Percentage Discounted Present Aggregate Original
Number of of Number Present Value Value of Original Equipment
Equipment Type Leases of Leases of Leases Leases Equipment Cost Cost
- -------------------------- --------- ---------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
=====================================================================================================================
Total
=====================================================================================================================
</TABLE>
Additions, Substitutions and Adjustments. Although the Leases will
be non-cancelable by the Lessees, IOS Capital has, from time to time, permitted
early termination by Lessees ("Early Lease Termination") or other modifications
of the Lease terms in certain circumstances more fully specified in the
Assignment and Servicing Agreement, including, without limitation, in connection
with a full or partial buy-out or equipment upgrade.
In the event of an Early Lease Termination which has been prepaid in
full or in part, the Issuer will have the option to reinvest the proceeds of the
related Lease ("Early Termination Lease") in one or more Leases having similar
characteristics as such terminated Lease (each, an "Additional Lease").
In addition, IOS Capital will have the option to substitute one or
more leases having similar characteristics (each, a "Substitute Lease") for (a)
Non-Performing Leases, (b) Leases subject to repurchase as a result of a breach
of representation and warranty (each a "Warranty Lease") and (c) Leases
following a modification or adjustment to the terms of such Lease (each, an
"Adjusted Lease"). The aggregate Discounted Present Value of the Non-Performing
Leases for which IOS Capital may substitute Substitute Leases is limited to an
amount not in excess of 10% of the aggregate Discounted Present Value of the
Leases as of the Cut-Off Date. The aggregate Discounted Present Value of
Adjusted Leases and Warranty Leases for which IOS Capital may substitute
Substitute Leases is limited to an amount not in excess of 10% of the aggregate
Discounted Present Value of the Leases as of the Cut-Off Date.
The terms of a Lease may be modified or adjusted for administrative
reasons or at the request of the Lessee or Lessor due to a variety of
circumstances, including changes to the delivery date of equipment, the cost of
equipment, the components of leased equipment or to correct information when a
Lease is entered into IOS Capital's servicing system. Such modifications may
result in adjustments to the lease commencement date, the monthly payment date,
the amount of the monthly payment or the equipment subject to a Lease.
Additional Leases and Substitute Leases will be originated using the
same credit criteria as the initial Leases. To the extent material, information
with respect to such Additional or Substitute Leases will be included in
periodic reports filed with the Commission as are required under the Securities
Exchange Act of 1934. Each Substitute Lease and Additional Lease will be
required to be an Eligible Lease.
In no event will the aggregate scheduled payments of the Leases,
after the inclusion of the Substitute Leases and Additional Leases, be
materially less than the aggregate scheduled payments of the Leases prior to
such substitution or reinvestment. Additionally, the final payment on such
Substitute Lease or Additional Lease will be on or prior to [date], or, to the
extent the final payment on such Lease is due subsequent to [date], only
scheduled payments due on or prior to such date will be included in the
Discounted Present Value of such Lease for the purpose of making any calculation
under the Indenture.
S-17
<PAGE>
In the event that an Early Lease Termination is allowed by IOS
Capital and an Additional Lease is not provided, the amount prepaid will be
equal to at least the Discounted Present Value of the terminated Lease, plus any
delinquent payments. See "The Asset Pool--The Leases."
Assignment and Servicing Agreement. In the Assignment and Servicing
Agreement, IOS Capital will make certain representations and warranties
regarding the Leases and the Equipment. In the event that (a) any of such
representations and warranties made by IOS Capital proves at any time to have
been inaccurate in any material respect as of the Issuance Date or (b) any Lease
shall be terminated in whole or in part by a Lessee, or (c) any amounts due with
respect to any Lease shall be reduced or impaired, as a result of (i) any action
or inaction by IOS Capital (other than any such action or inaction of IOS
Capital, when acting as Servicer, in connection with the enforcement of any
Lease other than those leases IOS Capital permitted to be terminated early in a
manner consistent with the provisions of the Assignment and Servicing Agreement)
or (ii) any claim by any Lessee against IOS Capital, and, in any such case, the
event or condition causing such inaccuracy, termination, reduction, impairment
or claim shall not have been cured or corrected within 30 days after the earlier
of the date on which IOS Capital is given notice thereof by the Issuer or the
Trustee or the date on which IOS Capital otherwise first has notice thereof, IOS
Capital will repurchase such Lease and the related Equipment by paying to the
Trustee for deposit into the Collection Account, not later than the
Determination Date next following the expiration of such 30-day period, an
amount at least equal to the Discounted Present Value of such Lease plus any
amounts previously due and unpaid thereon. In the alternative, subject to the
satisfaction of certain requirements set forth in the Assignment and Servicing
Agreement, IOS Capital will have the option to substitute one or more Substitute
Leases for such Warranty Lease. Any inaccuracy in any representation or warranty
with respect to (i) the priority of the lien of the Indenture with respect to
any Lease or (ii) the amount (if less than represented) of the Lease Payments,
Casualty Payments or Termination Payments under any Lease shall be deemed to be
material.
The Servicer. The Servicer will service the Lease Receivables
comprising the Asset Pool pursuant to the Assignment and Servicing Agreement.
The Servicer may delegate its servicing responsibilities to one or more
sub-servicers, but will not be relieved of its liabilities with respect thereto.
Pursuant to the Assignment and Servicing Agreement, the Servicer will forward
Excess Copy Charges and Maintenance Charges to IKON Office Solutions and may
make Servicer Advances (as defined herein).
The Servicer will retain possession of the Leases and Lease files,
provided, however, that, the Servicer may be required, upon the written request
of the Insurer, to deliver the Leases and Lease files to the Trustee if the
long-term debt rating assigned to the Servicer is downgraded below BBB- by S&P
or Baa3 by Moody's.
The Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Assignment and Servicing Agreement. An uncured breach of
such a representation or warranty that in any respect materially and adversely
affects the interests of the Noteholders will constitute a Servicer Event of
Default under the related Transaction Documents. See "Description of the
Transaction Documents--Assignment and Servicing Agreement--Servicer Events of
Default" and "--Rights upon Servicer Events of Default" in the Prospectus.
Remittance and Other Servicing Procedures. All payments on Leases
will be made by the Lessees to the order of IOS Capital to the national lock box
account of the Servicer. The Servicer must deposit such payments (net of amounts
that the Servicer is entitled to retain under the Indenture) in the Collection
Account within two Business Days of the receipt thereof. See "Description of the
Notes--Collection Account".
Servicing Compensation and Payment of Expenses. A Servicing Fee (the
"Servicing Fee") will be paid monthly to the Servicer on each Payment Date from
amounts in the Collection Account and will be calculated by multiplying
one-twelfth of 0.75% times the lesser of (i) the Outstanding Principal Amount of
the Notes or (ii) the Discounted Present Value of the Performing Leases, each at
the Determination Date for such Payment Date before application of payments with
respect thereto.
The Servicing Fee will be paid to the Servicer for servicing the
Lease Receivables and to pay certain administrative expenses in connection with
the Notes, including Trustee fees and expenses.
Reports to Noteholders. The Servicer or the Trustee, as applicable,
will forward or cause to be forwarded to each holder of record of such class of
Notes statements or information with respect to the Asset Pool setting forth the
information specifically described in the Assignment and Servicing Agreement and
the Indenture,
S-18
<PAGE>
(as defined herein) which will include the statements and information described
under "Description of the Notes--Reports to Noteholders," in the Prospectus.
Certain Rights of Insurer. Under the Transaction Documents, so long
as the Policy is outstanding, the Insurer will be entitled to exercise
substantially all of the rights of Noteholders and the Noteholders will be
precluded from exercising such rights without the prior written consent of the
Insurer. Such rights include: (i) the right to remove the Servicer or Trustee
and to appoint or approve successors to the Servicer or Trustee, (ii) the right
to declare defaults or to waive such defaults, (iii) the right to institute
proceedings in respect of the Transaction Documents or the Notes, and (iv) the
right to consent to or approve amendments or modifications to the Transaction
Documents.
S-19
<PAGE>
Description of the Notes
General. The _____% Class A-1 Lease-Backed Notes (the "Class A-1
Notes"), _____% Class A-2 Lease-Backed Notes (the "Class A-2 Notes"), _____%
Class A-3 Lease-Backed Notes (the "Class A-3 Notes") and _____% Class A-4
Lease-Backed Notes (the "Class A-4 Notes" and, together with the Class A-1
Notes, Class A-2 Notes and Class A-3 Notes, the "Notes") will be issued pursuant
to the Indenture. The following statements with respect to the Notes is a
summary of all material terms relating to a description of the Notes. However,
investors in the Notes should review the Indenture, the form of which is filed
as an exhibit to the registration statement of which this Prospectus forms a
part. Whenever any particular section of the Indenture or any term used therein
is referred to, the section in the Indenture or the term used therein should be
reviewed by you in order to fully understand this offering.
The Issuer will agree in the Indenture and in the Notes to pay to
the Noteholders (i) the Initial Principal Amount and (ii) monthly interest at
the times, from the sources and on the terms and conditions set forth in the
Indenture and in the Notes. The Notes are debt obligations of the Issuer secured
by the Asset Pool. The Notes do not represent any interest in or a recourse
obligation of IOS Capital, the Insurer (except as provided in the Policy), the
Trustee or any of their other affiliates other than the Issuer. The Issuer is a
Delaware limited liability company with limited assets. Consequently,
Noteholders must rely solely upon the Leases, funds on deposit in the Collection
Account and the Reserve Account and the Policy for payment of principal of and
interest on the Notes.
The initial principal amount of the Notes of each Class will be
$__________ for the Class A-1 Notes (the "Class A-1 Initial Principal Amount"),
$__________ for the Class A-2 Notes (the "Class A-2 Initial Principal Amount"),
$__________ for the Class A-3 Notes (the "Class A-3 Initial Principal Amount")
and $__________ for the Class A-4 Notes (the "Class A-4 Initial Principal
Amount" and, 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
A Initial Principal Amount").
The combined aggregate principal amount of the Notes will comprise
the initial principal amount (the "Initial Principal Amount") of the Notes.
Interest on the Notes will be payable as set forth under "Interest
Payments." Principal will be payable as set forth under "Principal Payments."
Notes may be presented to the corporate trust office of the Trustee for
registration of transfer or exchange. Notes may be exchanged without a service
charge, but the Trustee may require payment to cover taxes or other governmental
charges.
Book-Entry Registration. The holders of the Class A-1 Notes (the
"Class A-1 Noteholders"), the holders of the Class A-2 Notes (the "Class A-2
Noteholders"), the holders of the Class A-3 Notes (the "Class A-3 Noteholders"),
and the holders of the Class A-4 Notes (the "Class A-4 Noteholders") and,
together with the Class A-1 Noteholders, the Class A-2 Noteholders, and the
Class A-3 Noteholders, the "Class A Noteholders"), may hold their notes through
The Depository Trust Company ("DTC") (in the United States) or Cedel Bank
("CEDEL") and the Euroclear System ("Euroclear") (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. See "Description of the Notes--Book Entry
Registration" in the Prospectus.
Discounted Present Value of the Leases. The discounted present value
of the Leases (the "Discounted Present Value of the Leases"), at any given time,
shall equal the future remaining scheduled Lease Payments on the Leases
(including Non-Performing Leases), discounted at a rate equal to _____% (the
"Discount Rate"). The discounted present value of the Performing Leases (the
"Discounted Present Value of the Performing Leases") equals the Discounted
Present Value of the Leases, reduced by all future remaining scheduled Lease
Payments on the Non-Performing Leases, discounted at the Discount Rate. The
aggregate Discounted Present Value of the Leases as of the Cut-Off Date,
calculated at the Discount Rate, is $__________. Certain of the information set
forth in this Prospectus Supplement is based on the Statistical Discounted
Present Value of the Leases as of the Cut-Off Date rather than on the basis of
the Discounted Present Value of the Leases as of the Cut-Off Date. However, the
Statistical Discounted Present Value of the Leases as of the Cut-Off Date does
not vary materially from the Discounted Present Value of the Leases as of the
Cut-Off Date. See "The Asset Pool--Certain Information with Respect to the
Leases and the Lessees."
S-20
<PAGE>
Expected Maturity; Stated Maturity. The expected maturity dates with
respect to the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4
Notes are the Payment Dates on __________, __________, __________ and
__________, respectively. The stated maturity date with respect to the Class A-1
Notes is the Payment Date on _____________ (the "Class A-1 Stated Maturity
Date"), the stated maturity date with respect to the Class A-2 Notes is the
Payment Date on __________, ____ (the "Class A-2 Stated Maturity Date"), the
stated maturity date with respect to the Class A-3 Notes is the Payment Date on
__________, ____ (the "Class A-3 Stated Maturity Date") and the stated maturity
date with respect to the Class A-4 Notes is the Payment Date on __________, ____
(the "Class A-4 Stated Maturity Date"). However, if all payments on the Leases
are made as scheduled, final payment with respect to the Notes would occur prior
to stated maturity.
Determination Date. The determination date ("Determination Date")
with respect to each Payment Date is the fifth day prior to such Payment Date
(or the preceding business day, if such day is not a business day). On each
Determination Date, the Servicer will determine the amount of payments received
on the Leases in respect of the immediately preceding calendar month (each such
period, a "Due Period") which will be available for distribution on the Payment
Date. See "Description of the Notes--Distributions on Notes."
Payment Date. Payments on the Notes will be made on the fifteenth
day of each month (or if such day is not a business day, the next succeeding
business day), commencing on June 15, 1999, to holders of record on the last
business day preceding a Payment Date, or, if the notes are definitive notes,
the last business day of the month preceding a Payment Date (each, a "Record
Date"). See "Description of the Notes--Distributions on Notes."
Interest Payments. The Notes will bear interest from the Issuance
Date at the applicable interest rate for the respective class as set forth
below. The Interest Rate is 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,
for which interest will be calculated on the basis of a year of 360 days and the
actual number of days in such interest accrual period) payable on the Payment
Date to the person in whose name the Note was registered at the close of
business on the preceding Record Date. The interest rate for the Notes is as
follows: _____% per annum on the Class A-1 Notes (the "Class A-1 Interest
Rate"), _____% per annum on the Class A-2 Notes (the "Class A-2 Interest Rate"),
_____% per annum on the Class A-3 Notes (the "Class A-3 Interest Rate") and
_____% per annum on the Class A-4 Notes (the "Class A-4 Interest Rate"). With
respect to any particular Class, the "Interest Rate" refers to the applicable
rate indicated in the immediately preceding sentence.
On each Payment Date, the interest due (the "Interest Payments")
with respect to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes will be the interest that has accrued on such Notes
since the last Payment Date (or in the case of the first Payment Date, since the
Issuance Date) (each such period, the "Interest Accrual Period") at the
applicable Interest Rate applied to the then unpaid principal amounts (the
"Outstanding Principal Amounts") of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes, respectively, after giving effect
to payments of principal to the Class A-1 Noteholders, the Class A-2
Noteholders, the Class A-3 Noteholders and the Class A-4 Noteholders,
respectively, on the preceding Payment Date (or, in the case of the first
Payment Date, the Issuance Date), plus all previously accrued and unpaid
interest on such Notes. See "Description of the Notes--General" and
"Distributions on Notes."
Principal Payments. For each Payment Date, the Noteholders will be
entitled to receive payments of principal ("Principal Payments"), to the extent
funds are available therefor, in the priorities set forth in the Indenture and
described below and under "Description of the Notes--Distributions on Notes." On
each Payment Date, to the extent funds are available therefor, the Principal
Payment will be paid to the Noteholders in the following priority: (a) (i) to
the Class A-1 Noteholders only, until the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the Class A Principal Payment, then
(ii) to the Class A-2 Noteholders only, until the Outstanding Principal Amount
on the Class A-2 Notes has been reduced to zero, the Class A Principal Payment,
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, and then (iv) to the Class A-4 Noteholders, until the Outstanding
Principal Amount on the Class A-4 Notes has been reduced to zero, the Class A
Principal Payment, and (b) if an Acceleration Event has occurred, Additional
Principal shall be distributed, as an additional principal payment,
sequentially, to the Class A-1 Noteholders, the Class A-2 Noteholders, the Class
A-3 Noteholders and the Class A-4 Noteholders until the Outstanding Principal
Amount of each such Class has been reduced to zero.
"Additional Principal" with respect to each Payment Date equals the
excess, if any, of (i)(A) the Outstanding Principal Balance of the Notes plus
the Overcollateralization Balance as of the immediately preceding
S-21
<PAGE>
Payment Date after giving effect to payments on such Payment Date, minus (B) the
Discounted Present Value of the Performing Leases as of the related
Determination Date, over (ii) the Class A Principal Payment to be paid on such
Payment Date.
The "Class A Principal Payment" will equal (a) while the Class A-1
Notes are outstanding, (i) on all Payment Dates prior to the __________ 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 previous
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
and after the __________ Payment Date, the entire Outstanding Principal Amount
of 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 of the
Notes to the Class A Target Investor Principal Amount.
The "Class A Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the product of (a) the Class A Percentage and
(b) the Discounted Present Value of the Performing Leases as of the related
Determination Date.
The "Class A Percentage" will be equal to approximately _____%.
An "Acceleration Event" will occur if (i) with respect to any
Payment Date, the Overcollateralization balance is less than or equal to the
Overcollateralization Floor, (ii) for any three consecutive Due Periods, the
average of the Annualized Default Rates for such Due Periods shall be greater
than [____]%; and (iii) for any three consecutive Due Periods, the average of
the Delinquency Rates for such Due Periods shall be greater than [____]%.
The "Overcollateralization Balance" with respect to each Payment
Date is an amount equal to the excess, if any, of (a) the Discounted Present
Value of Performing Leases as of the related Determination Date over (b) the
Outstanding Principal Amount of the Notes as of such Payment Date after giving
effect to all principal payments made on that day.
The "Overcollateralization Floor" with respect to each Payment Date
means (a) __% of the initial Discounted Present Value of the Leases as of the
Cut-Off Date, plus (b) the Cumulative Loss Amount with respect to such Payment
Date, minus (c) the amount on deposit in the Reserve Account (as defined herein)
after giving effect to withdrawals to be made on account of such Payment Date.
The "Cumulative Loss Amount" with respect to each Payment Date is an
amount equal to the excess, if any, of (a) the total of (i) the Outstanding
Principal Amount of the Notes as of the immediately preceding Payment Date after
giving effect to all principal payments made on that day, plus (ii) the
Overcollateralization Balance as of the immediately preceding Payment Date,
minus (iii) 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 related Determination Date and (B) Available Funds remaining after the
payment of amounts owing the Servicer and in respect of interest on the Notes on
such Payment Date, over (b) the Discounted Present Value of the Performing
Leases as of the related Determination Date.
The "Annualized Default Rate" means for any Due Period, the sum of
the Discounted Present Value as of the related Determination Date of all Leases
that became Non-Performing Leases during such Due Period minus the sum of the
recoveries on Non-Performing Leases received during such Due Period, divided by
the Discounted Present Value of the Leases on the Determination Date immediately
preceding such Determination Date, multiplied by twelve.
The "Delinquency Rate" means for any Due Period, the sum of the
Discounted Present Value as of the related Determination Date of all Leases that
are 61 or more days delinquent, as of such Determination Date, divided by the
Discounted Present Value of the Leases on such Determination Date.
Collection Account. The Trustee will establish and maintain an
Eligible Account (as defined herein) (the "Collection Account") into which the
Servicer will deposit, as described in the Prospectus, all Lease Payments (as
defined herein), Casualty Payments, Retainable Deposits, Termination Payments,
certain proceeds from repurchases by IOS Capital of Leases as a result of
breaches of representations and warranties and recoveries from Non-Performing
Leases to the extent IOS Capital has not substituted a Substitute Lease for such
Non-
S-22
<PAGE>
Performing Lease (except to the extent required to reimburse unreimbursed
Servicer Advances) (each as defined herein) on or in respect of each Lease
included in the Asset Pool within two Business Days of receipt thereof. See
"Description of the Notes--Collections" in the Prospectus.
An "Eligible Account" means either (a) an account maintained with a
depository institution or trust company acceptable to each of the Rating
Agencies, or (b) a trust account or similar account maintained with a federal or
state chartered depository institution, which may be an account maintained with
the Trustee.
A "Lease Payment" is the equipment financing portion of each fixed
periodic rental payment payable by a Lessee under a Lease. Casualty Payments,
Retainable Deposits, Termination Payments, prepayments of rent required pursuant
to the terms of a Lease at or before the commencement of the Lease, security
deposits, payments becoming due before the applicable Cut-Off Date and
supplemental or additional payments required by the terms of a Lease with
respect to taxes, insurance, maintenance (including, without limitation, any
Maintenance Charges) or other specific charges (including, without limitation,
any Excess Copy Charges), will not be Lease Payments hereunder.
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 "Retainable Deposit" is any security or other similar deposit
which the Servicer has determined in accordance with its customary servicing
practices is not refundable to the related Lessee.
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 Issuer, and the Lessee.
The Servicer will deposit the following funds within two Business
Days of receipt into the Collection Account. The amount of such funds on deposit
on any Determination Date, together with any funds deposited into the Collection
Account from the Reserve Account, will constitute "Available Funds":
(a) Lease Payments due during the prior Due Period;
(b) Insured Payments;
(c) recoveries from Non-Performing Leases to the extent IOS
Capital has not substituted Substitute Leases for such
Non-Performing Leases (except to the extent required to
reimburse unreimbursed Servicer Advances);
(d) late charges received on delinquent Lease payments not
advanced by the Servicer;
(e) proceeds from repurchases by IOS Capital of Leases as a result
of breaches of representations and warranties to the extent
IOS Capital has not substituted Substitute Leases for such
Leases;
(f) proceeds from investment of funds in the Collection Account
and the Reserve Account, if any;
(g) Casualty Payments and Retainable Deposits;
(h) Servicer Advances (as defined herein);
(i) Termination Payments to the extent the Issuer does not
reinvest such Termination Payments in Additional Leases (as
defined herein);
(j) proceeds received once the Issuer exercises its right to
redeem the Notes; and
S-23
<PAGE>
(k) to the extent there occurs an Available Funds Shortfall (as
defined below), funds, if any, on deposit in the Reserve
Account to the extent of such Available Funds Shortfall.
The Servicer will not be required to deposit in the Collection
Account, and Available Funds will not include, cash flows realized from the sale
or release of the Equipment following the expiration dates of the Leases, other
than Equipment subject to Non-Performing Leases.
Reserve Account. The Trustee will establish and maintain an Eligible
Account (the "Reserve Account"). On the Issuance Date, the Issuer will make an
initial deposit to the Reserve Account in an amount equal to 1.00% of the
Discounted Present Value of the Leases as of the Cut-Off Date. In the event that
Available Funds (exclusive of amounts on deposit in the Reserve Account) are
insufficient to pay the amounts owing the Servicing Fee, unreimbursed Servicer
Advances, the premium on the Policy, Interest Payments on the Notes and the
Class A Principal Payment (such payments, the "Required Payments" and such
shortfall, an "Available Funds Shortfall") on any Payment Date, the Trustee will
transfer from the Reserve Account to the Collection Account an amount equal to
the lesser of the funds on deposit in the Reserve Account (the "Available
Reserve Amount") and such deficiency.
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) 1.00% of the Discounted
Present Value of the Leases as of the Cut-Off Date and (b) the then unpaid
principal amount (the "Outstanding Principal Amount") of the Notes. Any amounts
on deposit in the Reserve Account in excess of the Required Reserve Amount will
be released to the Issuer.
Distributions on Notes. The first Payment Date is June 15, 1999. On
each Determination Date, the Servicer will determine the Available Funds and the
Required Payments in respect of the related Payment Date.
For each Payment Date, the interest due with respect to the Notes
will be the interest that has accrued on such Notes since the last Payment Date
(or, in the case of the first Payment Date, since the Issuance Date), at the
applicable Interest Rates applied to the Outstanding Principal Amount of each
Class, after giving effect to payments of principal to Noteholders on the
preceding Payment Date (or, in the case of the first Payment Date, the Issuance
Date), plus all previously accrued and unpaid interest on the Notes. Funds in
the Collection Account, together with reinvestment earnings thereon, will be
used by the Trustee to make required payments of principal and interest on the
related Notes.
For each Payment Date, Principal Payments due with respect to the
Notes will be the Class A Principal Payment. In addition, if an Acceleration
Event shall occur with respect to any Payment Date, Additional Principal shall
be distributed, sequentially, as an additional principal payment on the Notes of
each Class until the Outstanding Principal Amount of each Class has been reduced
to zero.
Unless an Event of Default (as defined herein) and acceleration of
the Notes has occurred, on or before each Payment Date, the Servicer will
instruct the Trustee to apply or cause to be applied the Available Funds to make
the following payments in the following priority:
(a) to pay the Servicing Fee;
(b) to reimburse unreimbursed Servicer Advances (as defined
herein) in respect of a prior Payment Date;
(c) to pay the Insurer the Policy premium due on such date;
(d) to make Interest Payments owing on the Class A Notes
concurrently to the Class A-1 Noteholders, Class A-2
Noteholders, Class A-3 Noteholders and Class A-4
Noteholders;
(e) to make the Class A Principal Payment to (i) 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
S-24
<PAGE>
Noteholders only, until the Outstanding Principal Amount
on the Class A-3 Notes is reduced to zero, and finally
(iv) to the Class A-4 Noteholders, until the Outstanding
Principal Amount on the Class A-4 Notes is reduced to
zero;
(f) to pay the Additional Principal, if any, as an
additional reduction of principal to the Noteholders, in
the order established in Clause (e) above, until the
Outstanding Principal Amount on all of the Class A Notes
has been reduced to zero;
(g) to make a deposit to the Reserve Account in an amount
equal to the excess of the Required Reserve Amount over
the Available Reserve Amount;
(h) to pay the Insurer any unreimbursed Insured Payments
made by it together with interest thereon at a rate
equal to ___% (the "Late Payment Rate"); and
(i) to pay the Issuer the balance, if any.
Advances by the Servicer. Prior to any Payment Date, the Servicer
may, but will not be required to, advance (each, a "Servicer Advance") to the
Trustee an amount sufficient to cover delinquencies on some or all Leases with
respect to prior Due Periods. The Servicer will be reimbursed for such Servicer
Advances from Available Funds on the following Payment Date. See "Distributions
on Notes" above.
Redemption. The Issuer may, at its option, redeem the Notes, as a
whole, at their principal amount, without premium, together with interest at the
applicable rate accrued to the date fixed for redemption if on any payment date
the Discounted Present Value of the Performing Leases is less than or equal to
10% of the Discounted Present Value of the Leases as of the Cut-Off Date. The
Issuer will give notice of such redemption to each Noteholder and the Trustee at
least 30 days before the Payment Date fixed for such redemption. Upon deposit of
funds necessary to effect such redemption, the Trustee shall pay the remaining
unpaid principal amount on the Notes and all accrued and unpaid interest as of
the date fixed for redemption.
Events of Default and Notice Thereof. The following events will be
"Events of Default" with respect to the Notes:
(a) default in making Interest Payments when such become due and
payable;
(b) default in making Principal Payments at Stated Maturity; or
(c) insolvency or bankruptcy events relating to the Issuer.
The Indenture will provide that the Trustee will give the
Noteholders notice of all uncured defaults known to it (the term "default" to
include the events specified above without applicable grace periods).
If an Event of Default occurs, the unpaid principal amount of the
Notes will automatically become due and payable together with all accrued and
unpaid interest thereon. However, if the Event of Default involves other than
non-payment of principal or interest on the Notes, the Trustee may not sell the
related Leases or any rights in the Equipment unless such sale is for an amount
greater than or equal to the Outstanding Principal Amount of the Notes unless
directed to do so by the Insurer (so long as the Policy is outstanding) or the
holders of 66-2/3% of the then Outstanding Principal Amount of the Notes (if the
Policy is no longer outstanding).
Subsequent to an Event of Default and following any acceleration of
the Notes pursuant to the Indenture, any monies that may then be held or
thereafter received by the Trustee will be applied in the following order of
priority, on the date or dates fixed by the Trustee and, in case of the
distribution of the entire amount due on account of principal or interest, upon
presentation of the Notes and surrender thereof:
First to the payment of all costs and expenses of collection
incurred by the Trustee and the Noteholders (including the reasonable fees
and expenses of any counsel to the Trustee and the Noteholders);
S-25
<PAGE>
Second if the person then acting as Servicer under the Assignment
and Servicing Agreement is not IOS Capital or an affiliate of IOS Capital,
to the payment of all Servicing Fees then due to such person;
Third first, to the payment of all accrued and unpaid interest on
the Outstanding Principal Amount of the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes pro rata to the date of payment
thereof, including (to the extent permitted by applicable law) interest on
any overdue installment of interest and principal from the maturity of
such installment to the date of payment thereof at the rate per annum
equal to the Class A-1 Interest Rate, Class A-2 Interest Rate, Class A-3
Interest Rate and Class A-4 Interest Rate, respectively, second to the
payment of the Outstanding Principal Amount of the Class A-1 Notes, third,
to the payment of the Outstanding Principal Amount of the Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes pro rata to the date of payment
thereof; provided, that the Noteholders may allocate such payments for
interest and principal at their own discretion, except that no such
allocation may affect the allocation of such amounts or future payments
received by any other Noteholder;
Fourth to the payment of amounts then due the Trustee under the
Indenture;
Fifth to the payment of the Insurer of any unreimbursed Insured
Payments made by it together with interest thereon at the Late Payment
Rate;
Sixth if the person then acting as servicer is IOS Capital or an
affiliate of IOS Capital, to the payment of all Servicing Fees then due to
the Servicer; and
Seventh to the payment of the remainder, if any, to the Issuer or
any other person legally entitled thereto.
The Issuer will be required to furnish annually to the Trustee a
statement of certain officers of the Issuer to the effect that to the best of
their knowledge the Issuer is not in default in the performance and observance
of the terms of the Indenture or, if the Issuer is in default, specifying such
default.
The Indenture will provide that the Insurer, so long as the Policy
is outstanding, or the holders of 66-2/3% in aggregate principal amount of the
Notes (if the Policy is no longer outstanding) then outstanding will have the
right to waive certain defaults and, subject to certain limitations, to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust power conferred on the Trustee. The
Indenture will provide that in case an Event of Default occurs (which shall not
have been cured or waived), the Trustee will be required to exercise such of its
rights and powers under such Indenture and to use the degree of care and skill
in their exercise that a prudent man would exercise or use in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any of the Noteholders unless they have offered the Trustee reasonable security
or indemnity. Upon request of a Noteholder, the Trustee will provide information
as to the outstanding principal amount of each Class of Notes.
Modification of the Indenture. The Indenture may be modified and
amended as described under "Description of the Transaction
Documents--Modification of the Indenture" in the Prospectus.
Servicer Events of Default. The events and conditions constituting
"Servicer Events of Default" under the Assignment and Servicing Agreement and
the rights of the Trustee on behalf of Noteholders in the event of a Servicer
Event of Default are described in "Description of the Transaction
Documents--Servicer Events of Default" and "--Rights upon Servicer Events of
Default" in the Prospectus.
Servicer Events of Default shall include: (i) so long as IOS Capital
is the Servicer, if there shall be a downgrading of the long-term debt rating
assigned by Moody's or S&P to IOS Capital to BB or below or Ba2 or below, as the
case may be; (ii) if for any three consecutive Due Periods, the average of the
Annualized Default Rates for such Due Periods is greater than [____]%; and (iii)
if for any three consecutive Due Periods, the average of the Delinquency Rates
for such Due Periods is greater than [____]%.
Security for the Notes. Repayment of the Notes will be secured by
(a) a first priority security interest in the Leases perfected both by filing
UCC financing statements against the Issuer, the Seller and IOS Capital and by
the Servicer taking possession of the respective Lease documents on behalf of
the Issuer, (b) an
S-26
<PAGE>
assignment to the Issuer of IOS Capital's security interest in the underlying
Equipment (which security interest in the Equipment has not been perfected by
IOS Capital) and (c) a first priority security interest in all funds in the
Collection Account and the Reserve Account. The Notes will also be entitled to
the benefits of the Policy.
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, 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 IOS Capital pursuant to the
Assignment 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 and Related Reinvestment May Reduce Your Yield" in the
Prospectus.
In the event a Lease becomes a Non-Performing Lease, a Warranty
Lease or an Adjusted Lease, IOS Capital will have the option to substitute a
Substitute Lease; provided that such substitution shall be limited to (i) an
aggregate amount not to exceed 10% of the Discounted Present Value of the Leases
as of the Cut-Off Date with respect to Non-Performing Leases and (ii) an
aggregate amount not to exceed 10% of the Discounted Present Value of the Leases
as of the Cut-Off Date with respect to Adjusted Leases and Warranty Leases. In
addition, in the event of an Early Lease Termination resulting in a Lease having
been prepaid in full, IOS Capital will have the option to transfer an Additional
Lease. The Substitute Leases and Additional Leases will have a Discounted
Present Value of the Leases equal to or greater than that of the Leases being
replaced and the monthly payments on the Substitute Leases or Additional Leases
will be at least equal to those of the terminated Leases through the term of
such terminated Leases. In the event that an Early Lease Termination is allowed
by IOS Capital and a Substitute Lease is not provided, the amount prepaid will
be equal to at least the Discounted Present Value of the Early Termination
Lease, 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
Statistical Principal Amount (as defined below) of the Class A-1 Notes, Class
A-2 Notes, Class A-3 Notes and Class A-4 Notes which would be outstanding on the
Payment Dates set forth below assuming a Conditional Prepayment Rate ("CPR") of
0% and 12%, respectively, which in each case was calculated using the
Statistical Discount Rate. The "Initial Statistical Principal Amount" of the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes, is
$___________, $__________, $___________ and $___________, respectively. The
"Statistical Class Percentage" for the Class A Notes is equal to _____%. Such
information is hypothetical and is set forth for illustrative purposes only. The
CPR assumes that a fraction of the outstanding Asset Pool is prepaid on each
Distribution Date, which implies that each Lease in the Asset Pool is equally
likely to prepay. This fraction, expressed as a percentage, is annualized to
arrive at the Conditional Payment Rate for the Asset Pool. The CPR measures
prepayments based on the outstanding Statistical Discounted Present Value of the
Leases, after the payment of all Scheduled Payments on the Leases during such
Due Period. The CPR further assumes that all Leases are the same size and
amortize at the same rate and that each Lease will be either paid as scheduled
or prepaid in full. The amounts set forth below are based upon the timely
receipt of scheduled monthly Lease Payments as of the Cut-Off Date, assume that
the Issuer exercises its option to redeem the Notes and assume the Issuance Date
is April __, 1999 and the first Payment Date is June 15, 1999. The following
charts were created using the Statistical Class Percentage related to the
Statistical Initial Principal Amounts of the respective class.
S-27
<PAGE>
Percentage Of The Initial Principal Amounts At the
Respective CPR Set Forth Below
================================================================================
% CPR
-----------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
- ------------- ------------- ------------- ------------- -------------
Issuance Date
WEIGHTED AVERAGE
LIFE(1)(YEARS)
To Call:
To Maturity:
(1) The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note and Class A-4 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.
S-28
<PAGE>
Percentage Of The Initial Principal Amounts At the
Respective CPR Set Forth Below
================================================================================
% CPR
-----------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
- ------------- ------------- ------------- ------------- -------------
Issuance Date
WEIGHTED AVERAGE
LIFE(1)(YEARS)
To Call:
To Maturity:
(1) The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note and Class A-4 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.
S-29
<PAGE>
The Trustee
The Trustee, Harris Trust and Savings Bank, is a banking corporation
organized under the laws of Illinois. The Prospectus describes the conditions
under which the Trustee may resign and the appointment of a successor trustee.
See "The Trustee" in the Prospectus.
Material Federal Income Tax Consequences
General. The following paragraphs together with the description of
federal income tax consequences detailed in the Prospectus under the heading
"Material Federal Income Tax Consequences" set forth the material federal income
tax consequences to the original purchasers of the Notes of the purchase,
ownership and disposition of the Notes. Tax Counsel's opinion does not purport
to deal with all federal income tax considerations applicable to all categories
of investors. Certain holders, including insurance companies, tax exempt
organizations, financial institutions or broker deals, taxpayers subject to the
alternative minimum tax, and holders that will hold the Notes as other than
capital assets, may be subject to special rules that are not discussed below or
in the Prospectus. In particular, this decision applies only to institutional
investors that purchase Notes directly from the Issuer and hold the Notes as
capital assets.
The discussion that follows, and the opinion set forth below of
Dewey Ballantine LLP, special tax counsel ("Tax Counsel") to the Issuer are
based upon provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and treasury regulations promulgated thereunder as in effect on the date
hereof and on existing judicial and administrative interpretations thereof.
These authorities are subject to change and to differing interpretations, which
could apply retroactively. The opinion of Tax Counsel is not binding on the
courts or the Internal Revenue Service (the "IRS"). Potential investors should
consult their own tax advisors in determining the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
Notes.
The following discussion addresses lease-backed Notes such as the
Notes that are intended to be treated for federal income tax purposes as
indebtedness secured by the underlying Lease Receivables. Tax counsel has
prepared the following discussion and is of the opinion that such discussion is
correct in all material respects.
Tax Characterization of the Issuer. Tax Counsel is of the opinion
that the Issuer will not be treated as an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes.
Tax Characterization of the Notes. In the opinion of Tax Counsel,
although no transaction closely comparable to that contemplated herein has been
the subject of any treasury regulation, revenue ruling or judicial decision,
based on the application of existing law to the facts as set forth in the
applicable agreement, the Notes will be treated as indebtedness for federal
income tax purposes. Although it is the opinion of Tax Counsel that the Notes
are properly characterized as indebtedness for federal income tax purposes, no
assurance can be given that such characterization of the Notes will prevail. The
IRS could recharacterize the Notes under several alternative theories. See
"Material Federal Income Tax Consequences--Tax Characterization of the Notes" in
the Prospectus.
Discount and Premium. It is not anticipated that the Notes will be
issued with any original issue discount. See "Material Federal Income Tax
Consequences--Discount and Premium--Original Issue Discount" in the Prospectus.
In addition, a subsequent purchaser who buys a Note for less than its principal
amount may be subject to the "market discount" rules of the Code. See "Material
Federal Income Tax Consequences--Discount and Premium--Market Discount" in the
Prospectus. A subsequent purchaser who buys a Note for more than its principal
amount may be subject to the "market premium" rules of the Code. See "Material
Federal Income Tax Consequences--Discount and Premium--Premium" in the
Prospectus.
Sale or Exchange of the Notes. If a Note is sold or exchanged, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and such holder's adjusted basis in the Note. See "Material
Federal Income Tax Consequences--Sale or Exchange" in the Prospectus.
S-30
<PAGE>
Other Matters. For a discussion of backup withholding and taxation
of foreign investors in the Notes, see "Material Federal Income Tax
Consequences--Backup Withholding" and "--Foreign Investors" in the Prospectus.
ERISA Considerations
Section 406 of ERISA and Section 4975 of the Code prohibit a
pension, profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.
ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA and prohibits certain transactions between a plan and parties
in interest with respect to such plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Code for
such persons. Employee plans that are government plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(53) of ERISA),
are not subject to ERISA; however, such plans may be subject to comparable
federal, state or local law restrictions.
Certain transactions involving the Issuer might be deemed to
constitute prohibited transactions under ERISA and the Code if assets of the
Issuer were deemed to be "plan assets" of an employee benefit plan subject to
ERISA or the Code, or an individual retirement account (an "IRA"), or any entity
whose underlying assets are deemed to be assets of an employee benefit plan or
an IRA by reason of such employee benefit plan's or such IRA's investment in
such entity (each a "Benefit Plan"). Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Issuer 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
Issuer and none of the exceptions contained in the Plan Assets Regulation were
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets 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 Issuer
incurred losses. However, without regard to whether the Notes are treated as an
equity interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuer or any of its Affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In such case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the plan fiduciary making the
decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38, regarding investments by banks,
collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by in-house asset
managers; and PTCE 84-14, regarding transactions by "qualified professional
assets managers." Each investor using the assets of a Benefit Plan which
acquires the Notes, or to whom the Notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the Notes will be
covered by a Department of Labor class exemption.
Due to the complexity of the applicable rules and the penalties that
may be imposed upon persons included in non-exempt prohibited transactions, any
Benefit Plan fiduciary considering the purchase of a Note with plan assets
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment. Moreover, each Benefit Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Notes is appropriate for the
Benefit Plan, taking into account the overall investment policy of the Benefit
Plan and the composition of the Benefit Plan's investment portfolio.
Use of Proceeds
Proceeds from the sale of the Notes will be approximately
$____________ before deducting expenses of approximately $____________ and
before adding accrued interest. The net proceeds from the sale of the Notes will
be used to fund the Reserve Account and to make distributions by the Issuer to
the Seller and by the
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<PAGE>
Seller to the Originator. See "Use of Proceeds" in the Prospectus. The
Originator will apply a substantial portion of the net proceeds distributed to
it to satisfy obligations of it or its subsidiaries under a certain warehouse
facility to PNC Bank, National Association, which is an affiliate of PNC Capital
Markets, Inc., one of the Underwriters.
Ratings of the Notes
It is a condition to the issuance of the Notes that the Class A-1
Notes be rated at least "P-1" and "A-1" and that the Class A-2, A-3 and A-4
Notes be rated at least "Aaa" and "AAA" by Moody's and S&P, respectively (each a
"Rating Agency"). The ratings are dependent upon the rating of the Insurer as
described in "Risk Factors--Ratings of the Notes are Dependent upon
Creditworthiness of the Insurer".
The ratings are not a recommendation to purchase, hold or sell the
related Notes, inasmuch as such ratings do not comment as to market price or
suitability for a particular investor. There is no assurance that any such
rating will continue for any period of time or that it will not be lowered or
withdrawn entirely by the Rating Agencies if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse affect on
the market price of the Notes. The rating of the Notes addresses the likelihood
of the timely payment of interest and the ultimate payment of principal on the
Notes by the Stated Maturity Date. The rating does not address the rate of
Prepayments that may be experienced on the Leases and, therefore, does not
address the effect of the rate of Lease Prepayments on the return of principal
to the Noteholders.
S-32
<PAGE>
Underwriting
Under the terms and subject to the conditions set forth in the
underwriting agreement for the sale of the Notes, the Issuer has agreed to sell
and Lehman Brothers ("Lehman Brothers"), PNC Capital Markets, Inc ("PNC Capital
Markets"), Chase Securities, Inc. ("Chase Securities") and Deutsche Bank
Securities Inc. ("Deutsche Bank" and, collectively with Lehman Brothers, PNC
Capital Markets and Chase Securities, the "Underwriters") each severally has
agreed to purchase the principal amount of the Notes set forth below:
<TABLE>
<CAPTION>
Principal Amount
Underwriting ---------------------------------------------------------------------------
Discount Lehman Brothers PNC Capital Markets Chase Securities Deutsche Bank
------------ --------------- ------------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
</TABLE>
The Issuer has been advised by the Underwriters that the several
Underwriters propose initially to offer the Notes to the public at the
respective prices set forth on the cover page of this Prospectus, and to certain
dealers at such price, less a selling concession not in excess of ____% per
Class A-1 Note, ____% per Class A-2 Note, ____% per Class A-3 Note and ____% per
Class A-4 Note. The Underwriters may allow and such dealers may reallow to other
dealers, a discount not in excess of ____% per Class A-1 Note, ____% per Class
A-2 Note, ____% per Class A-3 Note and ____% per Class A-4 Note.
The Underwriters will each represent and agree that:
(a) it has not offered or sold, and, prior to the expiration of
six months from the Issuance Date, will not offer or sell, any
Notes to persons in the United Kingdom, except to persons
whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent)
for purposes of their business, or otherwise in circumstances
which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;
(b) it has complied and will comply with all applicable provisions
of the Financial Services Act 1986 with respect to anything
done by it in relation to the Notes in, from or otherwise
involving the United Kingdom; and
(c) it has only issued or passed on and will only issue or pass on
in the United Kingdom any document received by it in
connection with the issue of the Notes to a person who is of a
kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995 or
persons to whom such document may otherwise lawfully be
issued, distributed or passed on.
The Issuer and IOS Capital, Inc. have agreed to jointly and
severally indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Issuer 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 the Underwriters. Accordingly, no assurance can
be given as to the liquidity of, or trading markets for, the Notes.
The Underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Notes in accordance with Regulation M under the Securities
Exchange Act of 1934, as amended. Over-allotment transactions involve syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the Notes so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transaction involve purchase of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Notes originally sold by such syndicate member are
purchased in a syndicate covering transaction. Such over-allotment
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<PAGE>
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Notes to be higher than they would
otherwise be in the absence of such transactions. The Issuer and the
Underwriters do not represent that the Underwriters will engage in any such
transactions. Such transactions, once commenced, may be discontinued without
notice at any time.
Legal Opinions
Certain legal matters relating to the Notes will be passed upon for
the Issuer by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania
and for the Underwriters by Dewey Ballantine LLP, New York, New York.
S-34
<PAGE>
Index Of Principal Defined Terms
Acceleration Event...............................S-22
Additional Lease.................................S-17
Additional Principal.............................S-21
Adjusted Lease...................................S-17
Ambac.............................................S-9
Annualized Default Rate..........................S-22
Asset Pool.......................................S-11
Assignment and Servicing Agreement...............S-12
Available Funds..................................S-23
Available Funds Shortfall........................S-24
Available Reserve Amount.........................S-24
Benefit Plan.....................................S-31
Casualty.........................................S-23
Casualty Payment.................................S-23
CEDEL............................................S-20
Chase Securities.................................S-33
Class A Initial Principal Amount.................S-20
Class A Noteholders..............................S-20
Class A Percentage...............................S-22
Class A Principal Payment........................S-22
Class A Target Investor Principal Amount.........S-22
Class A-1 Initial Principal Amount...............S-20
Class A-1 Interest Rate..........................S-21
Class A-1 Noteholders............................S-20
Class A-1 Notes..................................S-20
Class A-1 Stated Maturity Date...................S-21
Class A-2 Initial Principal Amount...............S-20
Class A-2 Interest Rate..........................S-21
Class A-2 Noteholders............................S-20
Class A-2 Notes..................................S-20
Class A-2 Stated Maturity Date...................S-21
Class A-3 Initial Principal Amount...............S-20
Class A-3 Interest Rate..........................S-21
Class A-3 Noteholders............................S-20
Class A-3 Notes..................................S-20
Class A-3 Stated Maturity Date...................S-21
Class A-4 Initial Principal Amount...............S-20
Class A-4 Interest Rate..........................S-21
Class A-4 Noteholders............................S-20
Class A-4 Notes..................................S-20
Class A-4 Stated Maturity Date...................S-21
Code.............................................S-30
Collection Account...............................S-22
CPR..............................................S-27
Cumulative Loss Amount...........................S-22
Cut-Off Date.....................................S-13
Delinquency Rate.................................S-22
Determination Date...............................S-21
Deutsche Bank....................................S-33
Discount Rate....................................S-20
Discounted Present Value of the Leases...........S-20
Discounted Present Value of the Performing
Leases.........................................S-20
DTC..............................................S-20
Due Period.......................................S-21
Early Lease Termination..........................S-17
Early Termination Lease..........................S-17
Eligible Account.................................S-23
Equipment........................................S-11
Euroclear........................................S-20
Events of Default................................S-25
Excess Copy Charge...............................S-12
Fitch IBCA........................................S-9
Indenture.........................................S-8
Initial Principal Amount.........................S-20
Initial Statistical Principal Amount.............S-27
Insured Payment..................................S-11
Insurer...........................................S-9
Interest Accrual Period..........................S-21
Interest Payments................................S-21
Interest Rate....................................S-21
IOS Capital.......................................S-8
IRA..............................................S-31
IRS..............................................S-30
Issuance Date....................................S-11
Issuer............................................S-8
Late Payment Rate................................S-25
Lease Payment....................................S-23
Lease Receivables................................S-11
Leases...........................................S-11
Lehman Brothers..................................S-33
Lessor...........................................S-12
Maintenance Charge...............................S-12
Moody's...........................................S-9
Non-Performing Leases............................S-12
Note Principal Balance...........................S-11
Noteholders................................S-10, S-11
Notes............................................S-20
Originator........................................S-8
Outstanding Principal Amount.....................S-24
Outstanding Principal Amounts....................S-21
Overcollateralization Balance....................S-22
Overcollateralization Floor......................S-22
Plan Assets Regulation...........................S-31
PNC Capital Markets..............................S-33
Policy............................................S-8
Preference Amount................................S-11
Principal Payments...............................S-21
PTCE.............................................S-31
Rating Agency....................................S-32
Record Date......................................S-21
Required Payments................................S-24
Required Reserve Amount..........................S-24
Reserve Account..................................S-24
S&P...............................................S-9
Seller............................................S-8
Servicer..........................................S-8
Servicer Advance.................................S-25
Servicer Events of Default.......................S-26
Servicing Fee....................................S-18
Statistical Class Percentage.....................S-27
Substitute Lease.................................S-17
Tax Counsel......................................S-30
Termination Payment..............................S-23
Trustee...........................................S-8
Underwriters.....................................S-33
Warranty Lease...................................S-17
S-35
<PAGE>
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$_________________________________
IKON Receivables, LLC
------------------------
P R O S P E C T U S
S U P P L E M E N T
------------------------
Lehman Brothers
PNC Capital Markets, Inc.
Chase Securities, Inc.
Deutsche Bank Securities Inc.
Dated April __, 1999
Until 90 days after the date of this prospectus supplement, all dealers that
effect transactions in the Notes, whether or not participating in this offering,
may be required to deliver a prospectus supplement and prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
$_________ ___% Class A-1
Lease-Backed Notes
$_________ ___% Class A-2
Lease-Backed Notes
$_________ ___% Class A-3
Lease-Backed Notes
$_________ ___% Class A-4
Lease-Backed Notes
================================================================================
