<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 7, 1999
REGISTRATION STATEMENT NO. 333-71073
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
IKON RECEIVABLES, LLC
(exact name of registrant as specified in charter)
Delaware 1738 Bass Road 23-2990188
(state or jurisdiction of P.O. Box 9115 (I.R.S. Employer
organization) Macon, Georgia 31208 Identification No.)
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
----------------------
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
P.O. Box 9115 1735 Market Street, 51st Floor Americas
Macon, Georgia 31208 Philadelphia, PA 19103-7599 New York, New York 10019
---------------------
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. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================
Proposed Proposed
Maximum Maximum Amount
Amount Aggregate Aggregate Of
Title of Securities To Be Price Per Offering Registration
Being Registered Registered Unit(1) Price(1) Fee
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease-Backed Notes (the
"Notes") $1,825,000,000 100% $1,825,000,000 $507,350(2)
===========================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $278,000.00 is paid in connection with this registration statement.
$229,350.00 was previously paid pursuant to this registration statement.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
FORM OF PROSPECTUS SUPPLEMENT (VERSION 1)
DB (5/6/99)
Prospectus supplement to prospectus dated May 7, 1999
IKON Receivables, LLC
Issuer $_____________
IOS Capital, Inc.
Originator and Servicer Lease Backed Notes, Series 1999-1
___________________
<TABLE>
<CAPTION>
The issuer will issue the classes of notes shown in the table below.
<S> <C>
You should read the section entitled "Risk Factors" starting on page The notes --
S-__ of this prospectus supplement and page __ of the prospectus . Are backed by a pledge of assets of the
and consider these factors before making a decision to invest in the issuer. The assets of the issuer
notes. securing the notes will include a pool
of equipment leases or contracts and
This prospectus supplement may be used to offer and sell the notes related assets;
only if accompanied by the prospectus
. Receive distributions beginning on
Offers of the notes will be made through the underwriters [on a firm [_________ __, 1999]; and
commitment basis].
. Currently have no trading market.
Credit enhancement for the notes
consists of _______
. [Describe based on transaction
structure]
Underwriting
Initial Public Discount and
Issuance Amount Interest Rate Offering Price Commissions Net Proceeds
- -----------------------------------------------------------------------------------------------------------------------
Class A-1 Notes $[ ] % % % %
- -----------------------------------------------------------------------------------------------------------------------
Class A-2 Notes $[ ] % % % %
- -----------------------------------------------------------------------------------------------------------------------
Class A-3 Notes $[ ] % % % %
- -----------------------------------------------------------------------------------------------------------------------
Class A-4 Notes $[ ] % % % %
- -----------------------------------------------------------------------------------------------------------------------
Class A-5 Notes $[ ] % % % %
- -----------------------------------------------------------------------------------------------------------------------
Total $ $ $ $
=======================================================================================================================
</TABLE>
Net Proceeds are before deducting expenses, estimated to be $ .
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
The date of this prospectus supplement is__________ __, 1999
<PAGE>
No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus supplement and the accompanying prospectus. If given or made,
the information or representations must not be relied upon. We are stating this
information as of the date of this prospectus supplement.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................................................... S-4
Risk Factors.......................................................... S-7
The Issuer............................................................ S-8
The Asset Pools....................................................... S-8
The Leases............................................................ S-9
Use of Proceeds....................................................... S-14
The Originator and the Servicer....................................... S-14
The Seller............................................................ S-16
The Trustee........................................................... S-16
Description of the Notes.............................................. S-16
Prepayment and Yield Considerations................................... S-18
Description of the Transaction Documents.............................. S-19
Material Federal Income Tax Consequences.............................. S-23
ERISA Considerations.................................................. S-23
Ratings............................................................... S-24
Plan of Distribution.................................................. S-24
Legal Opinions........................................................ S-25
Index Of Principal Defined Terms...................................... S-26
</TABLE>
S-2
<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 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 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 information
contained in the 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 these 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.
S-3
<PAGE>
Summary
. 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.
. This summary provides an overview of 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.
. Lease-Backed Notes
Series 1999-1
Issuer
IKON Receivables, LLC, a Delaware limited liability company.
Originator
IOS Capital Inc., a Delaware corporation formerly known as IKON Office
Solutions.
Seller
IKON Receivables Funding-1 LLC, a Delaware special purpose limited liability
company.
Servicer
. IOS Capital, Inc.
. The servicer's principal executive offices are located at 1738 Bass Road,
P.O. Box 9115, Macon, Georgia 31208.
Trustee
. __________, a banking corporation organized under the laws of ________.
. The trustee's offices are located at _________________________________.
The Notes
. The notes will be backed solely by a pledge of a segregated pool of assets of
the issuer.
The Asset Pool
. The pledged assets will include a pool of:
. office equipment leases or contracts and related assets;
. [leases intended as security agreements];
. [installment sale contracts];
. rental stream obligations;
The Leases
On or about [_________, 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.
. The leases will relate to various items or types of office equipment.
Initially, a substantial portion relates to copiers.
. 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 noncancellable by the lessees. All payments under the leases are
absolute, unconditional obligations of the lessees. The leases provide that the
payments are not subject to set-off or reduction without the lessor's consent.
. 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 ____%.
. The issuer will pay the notes from payments on the leases. Noteholders should
not rely on the sale of leased equipment for payments on the notes.
S-4
<PAGE>
Final Scheduled Payment Date
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 ____________
Class A-2 ____________
Class A-3 ____________
Class A-4 ____________
Class A-5 ____________
Final payment on the notes will probably be earlier than the final scheduled
payment date listed above for the related class of notes.
Optional Redemption
. The servicer may, on any payment date, redeem the notes when the total
discounted lease principal balance is less than or equal to 10% of the total
principal value of the leases as of the closing date.
. [If a redemption occurs, we will pay you a final distribution equaling the
entire unpaid principal balance of the notes plus any accrued and unpaid
interest.]
Denominations
. The issuer will issue the notes in minimum denominations of [$1,000] and
integral multiples of [$1,000].
. [One note in each class may be issued in another denomination.]
Registration
The issuer will issue the notes in book-entry form only, through the facilities
of The Depository Trust Company.
Payments on the Notes
Each month, the issuer will distribute the amounts received on the leases and
any other collections available as property of the issuer as follows:
Interest Distributions
. On each payment date, the issuer will pay interest at the applicable interest
rate that accrued during the prior interest accrual period.
. [applicable interest rate for each class of notes to be specified]
Principal Distributions
. On each payment date, the issuer will pay principal in reduction of the
outstanding principal balance of the notes.
. 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:
. to the Class [A-1] noteholders only, until the principal amount on the Class
[A-1] Notes has been reduced to zero;
. when the Class [A-1] Notes have been paid in full:
. to the Class [A-2] noteholders, 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;
. when the Class [A-2] Notes have been paid in full, to the Class [A-
3] noteholders, until the principal amount on the Class [A-3] Notes
has been reduced to zero, an amount generally equal to _____% of the
decrease in the principal value of the leases;
. 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 to the notes is subject
to targets and floors. 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.
Cut-Off Date
The cut-off date is the opening of business on _____, 1999.
Issuance Date
On or about _______, 1999.
S-5
<PAGE>
Payment Date
The 15th day of each month if the 15th is a business day. If the 15th is not a
business day, the payment date will be the following day that is a business day.
The first payment date will be ________, 1999.
Record Date
The last business day of the month prior to the month the payment date occurs.
In the case of initial payment date, the trustee will pay as of the closing
date.
Remittance Period
Payments made on each payment date will relate to the collections received from
the opening of business on the [second] day of the prior calendar month to the
close of business on the [first day] of the calendar month in which the payment
date occurs.
Credit Enhancement
The credit enhancement available to the noteholders will consist of [more
information will be provided upon the structuring of the transaction].
Material Federal Income Tax Consequences
For federal income tax purposes:
. Dewey Ballantine LLP, special tax counsel to the underwriters, 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.
. 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.
. Dewey Ballantine LLP has prepared the discussion under "Material Federal
Income Tax Consequences" and is of the opinion that this 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 this prospectus, we expect that pension, profit-sharing or
other employee benefit plans, as well as individual retirement accounts and
types of Keogh Plans may purchase the notes. Investors should consult with
their counsel regarding the applicability of the provisions of ERISA before
purchasing a note.
Ratings
. The notes must receive at least the following ratings from [the rating
agencies]:
. 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 offered
Noteholders should consider, among other things, the following additional
factors in connection with the purchase of the notes:
<TABLE>
<S> <C>
Geographic Concentrations of Leases As of the statistic calculation date, obligors with respect to
May Adversely Affect the Leases and approximately [ [ ]%, [ ]% and [ %] ] of the leases were located in
Payments on the Notes the following states: [ ]. To the extent adverse events or economic
conditions were particularly severe in these geographic regions or in
the event an obligor or group of obligors under the leases in these
geographic regions were to experience financial difficulties due to the
economic conditions, the obligors may be unable to pay or delay
payments.
If these events occurred, you may experience delays in receiving
payments and suffer loss of your investment. The issuer is unable to
determine and has no basis to predict, whether any of these events have
occurred or may occur, or to what extent any events may affect the
leases or the repayment of amounts due under the notes. [Description
to be added of known material events or conditions, if any, affecting
leases in states or regions where concentrations exist.]
</TABLE>
S-7
<PAGE>
The Issuer
The Issuer, IKON Receivables, LLC, is a Delaware limited liability
company all of the membership interests in which will be held by the Seller,
IKON Receivables Funding-1 LLC, also a special purpose limited liability
company. All of the membership interests in the Seller are, in turn, owned by
the Originator and Servicer, IOS Capital, Inc.
The Notes offered hereby will be secured solely by the related Asset
Pool (as defined herein). The Issuer does not have, nor is it expected in the
future to have, any significant assets available for payment of the Notes other
than the Asset Pool.
The Issuer will pledge its interest in the Asset Pool to [name of
trustee], as Trustee for the benefit of holders of the Notes and issue the Notes
pursuant to an Indenture between the Issuer and the Trustee.
The Asset Pools
The Notes will be secured by a segregated pool (the "Asset Pool") that
consists of a portfolio of chattel paper composed of leases, leases intended as
security agreements, installment sales contracts, or rental stream obligations,
together with all monies received relating thereto (the "Leases") (ii) certain
monies (including accrued interest) due thereunder on or after the Cut-off Date,
(iii) amounts as from time to time may be held in one or more accounts
established and maintained by IOS Capital, pursuant to the related Transaction
Document, (as defined herein), (iv) the Seller's interests (other than its
ownership interest) in the underlying equipment and related property and
proceeds relating to the pool of Leases (the "Equipment"), (v) the rights of the
Issuer under the Transaction Documents (as defined herein) and (vi) interest
earned on short-term investments held by the Issuer. The Leases and Equipment
interests comprising an Asset Pool are hereafter referred to as the "Lease
Receivables."
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. The Lease
Receivables included in the Asset Pool will be selected from those Lease
Receivables held by the Seller based on the criteria specified in the applicable
Transaction Document and described herein.
On or prior to the date on which the Notes are issued and delivered to
the holders of the Notes (the "Noteholders"), the Issuer will form the Asset
Pool by (i) acquiring Lease Receivables pursuant to the Assignment and Servicing
Agreement and (ii) entering into an Indenture with the Trustee.
The Lease Receivables comprising the Asset Pool have been originated
by the Originator or acquired by the Originator from sellers or other
originators of Lease Receivables in accordance with the Originator's specified
underwriting criteria. The underwriting criteria applicable to the Lease
Receivables included in the Asset Pool is described in all material respects
under the heading "IOS Capital's Leasing Business" in the Prospectus.
The Issuer will not have and the Asset Pool will not include any
residual interest in any Equipment after the related Lease Receivable has been
paid in full.
If the protection provided to the Noteholders of a given Class by the
subordination of another Class of Notes is insufficient, the Issuer must rely
solely on the payments from the Lessees on the related Leases, and the proceeds
from the sale of Equipment which secures or is leased under the Lease that has
become more than 120 days delinquent of which is charged off by the Servicer
(these Leases "Defaulted Leases"). In this event, various factors may affect
the Issuer's ability to realize on the collateral securing the Leases, and thus
may reduce the proceeds to be distributed to the Noteholders.
S-8
<PAGE>
The Leases
Portfolio Parameters
As described below, Leases in the aggregate shall be required to
comply with the following portfolio concentration criteria: [more information
will be provided upon the structuring of the transaction]
The Lease Receivable Statistical Information
Following is statistical information relating to the Lease Receivable
pool, calculated as of the opening of business on ________ ___. 1999 (the "Cut-
Off Date") and assuming a discount rate of [ ]%. Some columns may not total
100% due to rounding.
S-9
<PAGE>
Distribution Of Leases By Discounted Lease Balance
<TABLE>
<CAPTION>
Percentage of
Discounted Number of Sum of Discounted Aggregate Discounted Lease
Lease Balances Leases Lease Balances Balance
- --------------------------------- --------- ----------------- ---------------------------
Greater Less Than or
Than Equal to
- --------------- ------------
<S> <C> <C> <C> <C>
$ 1 $ 5,000 $ %
A 5,000 10,000
10,000 15,000
15,000 20,000
20,000 25,000
25,000 30,000
30,000 35,000
35,000 40,000
40,000 45,000
45,000 50,000
50,000 55,000
55,000 60,000
60,000 65,000
65,000 70,000
70,000 75,000
75,000 80,000
80,000 85,000
85,000 90,000
90,000 95,000
95,000 100,000
100,000 150,000
150,000 200,000
200,000 250,000
250,000 300,000
300,000 350,000
350,000 400,000
400,000 450,000
450,000 500,000
500,000 600,000
600,000 750,000
- -------------------------------------------------------------------------------------------------------
Total............................. $ 100.00%
=======================================================================================================
</TABLE>
S-10
<PAGE>
Distribution Of The Leases By State
<TABLE>
<CAPTION>
Percentage of
Number of Sum of Discounted Aggregate Discounted
State Leases Lease Balances Lease Balance
- ------- -------------- ------------------ ---------------------
<S> <C> <C> <C>
Alabama $ %
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
Washington, D.C.
West Virginia
Wisconsin
Wyoming
</TABLE>
S-11
<PAGE>
Distribution Of Leases By Remaining Term To Maturity
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical
Discounted Discounted Aggregate Percentage of
Percentage of Present Value Present Value Original Original
Remaining Term Number of Leases Number of Leases of Leases of Leases Equipment Cost Equipment Cost
- --------------- ---------------- ----------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
- -----------------------------------------------------------------------------------------------------------------------------------
Total.......... 100% 100.00% 100.00%
===================================================================================================================================
</TABLE>
Distribution Of Leases By Original Term To Maturity
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical
Percentage of Discounted Discounted Aggregate Percentage of
Number of Number of Present Value of Present Value Original Original
Original Term Leases Leases Leases of Leases Equipment Cost Equipment Cost
- --------------- ---------------- ----------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
85 - 96
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00%
==================================================================================================================================
</TABLE>
Distribution Of Leases By Classification Type
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate Percentage
Percentage of Discounted Discounted Original of Original
Number of Number of Present Value of Present Value Equipment Equipment
Lease Type Leases Leases Leases of Leases Cost Cost
- --------------- ---------------- ----------------- ---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Finance Lease
Operating Lease
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00%
==================================================================================================================================
</TABLE>
S-12
<PAGE>
Distribution Of Finance Leases By Purchase Option
<TABLE>
<CAPTION>
Percentage
of
Statistical
Statistical Discounted Aggregate Percentage
Percentage of Discounted Present Original of Original
Number of Number of Present Value of Value of Equipment Equipment
Purchase Option Leases Leases Leases Leases Cost Cost
- --------------- ---------------- ----------------- --------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Nominal Buyout
Fair Market Value
Fixed Purchase Option
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00%
==================================================================================================================================
</TABLE>
Distribution Of Leases By Equipment Type
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Percentage
Percentage of Discounted Discounted Aggregate of Original
Number of Number of Present Value Present Value Original Equipment
Equipment Type Leases Leases of Leases of Leases Equipment Cost Cost
- --------------- ---------------- ----------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Total.................. 100.00% 100.00% 100.00%
================================================================================================================================
</TABLE>
S-13
<PAGE>
Use of Proceeds
The proceeds from the sale of the Notes will be applied by the Issuer
to the acquisition of the related Lease Receivables from the Seller and applied
by the Seller to the acquisition thereof from the Originator.
The Originator and the Servicer
The Originator, formerly known as IKON Capital, Inc., was formed in
1987 to provide lease financing to customers of IKON Office Solutions, Inc.
("IKON"). The Originator is a wholly-owned subsidiary of IKON. The
Originator's corporate headquarters are located at 1738 Bass Road, P.O. Box
9115, Macon, Georgia 31208. The Originator's securities are registered under
the 1934 Act and is subject to the reporting requirements of the 1934 Act and,
in accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). The Originator filed an Annual
Report on Form 10-K for the fiscal year ending September 30, 1998 and a
Quarterly Report on Form 10-Q for the three-month period ending December 31,
1998. A copy of the reports, including the exhibits thereto, will be provided
without charge to any person to whom this Offering Circular is delivered upon
written request. Requests for copies should be directed to IOS Capital, Inc.,
1738 Bass Road, P.O. Box 9115, Macon, Georgia 31208, Attn: _______________.
[Current summary financial information re IOS Capital to be included]
As described under "The Originator's Leasing Business - Types of
Leases" in the Prospectus, the lease portfolio of IOS Capital consists of direct
financing leases and funded leases, although the Leases included in the Asset
Pool consist solely of direct financing leases. Funded leases are contractual
obligations between IKON Office Solutions and members of IKON Office Solutions'
independent dealer network (each member, an "IKON Marketplace") which have been
financed by IOS Capital. Direct financing leases are contractual obligations
between IOS Capital and the customer and represent the majority of IOS Capital's
lease portfolio. The tables below separately set forth historical delinquency
and loss information for IOS Capital's lease portfolio including funded leases
and excluding funded leases for the respective periods or dates indicated.
Summary Historical Delinquency Data (Entire Portfolio)
IOS Capital Portfolio
<TABLE>
<CAPTION>
As at:
--------------------------------------------------------------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997 September 30, 1996
--------------- ------------------ ------------------ ------------------
($ - millions) %* ($ - millions) %* ($ - millions) %* ($ - millions) %*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current $2,361.3 91.0% $2,292.2 90.8% $1,882.1 89.4% $1,299.7 86.5%
31-60 Days $ 137.5 5.3% $ 136.3 5.4% $ 113.7 5.4% $ 106.7 7.1%
61-90 Days $ 62.3 2.4% $ 63.1 2.5% $ 65.3 3.1% $ 54.1 3.6%
Over 90 Days $ 33.7 1.3% $ 32.8 1.3% $ 44.2 2.1% $ 42.1 2.8%
-------- ----- -------- ----- -------- ----- -------- -----
Total $2,594.8 100.0% $2,524.4 100.0% $2,105.3 100.0% $1,502.6 100.0%
</TABLE>
<TABLE>
September 30, 1995 September 30, 1994
------------------ ------------------
($ - millions) %* ($ - millions) %*
<S> <C> <C> <C> <C>
Current $870.3 87.9% $579.7 88.7%
31-60 Days $ 80.2 8.1% $ 49.0 7.5%
61-90 Days $ 24.8 2.5% $ 16.3 2.5%
Over 90 Days $ 14.9 1.5% $ 8.5 1.3%
------ ----- ------ -----
Total $990.2 100.0% $653.5 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance on a monthly basis.
S-14
<PAGE>
Summary Historical Loss Data (Entire Portfolio)
IOS Capital Portfolio
<TABLE>
<CAPTION>
For the 6 Month
Period Ended: For the Fiscal Year Ended:
--------------- --------------------------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997 September 30, 1996
--------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Average
Portfolio Balance $ 2,574 $2,394 $1,891 $1,275
for the Period
($ millions)*
Gross Charge-offs $ 41.8 $ 98.8 $ 51.6 $ 29.9
($ millions)**
Gross Charge-offs
as a % of the 3.3%*** 4.1% 2.7% 2.3%
Average Portfolio ======== ==== ==== ====
Balance for the Period**
</TABLE>
<TABLE>
September 30, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C>
Average
Portfolio Balance $ 848 $ 591
for the Period
($ millions)*
Gross Charge-offs $20.9 $14.4
($ millions)**
Gross Charge-offs
as a % of the 2.5% 2.4%
Average Portfolio ==== ====
Balance for the Period**
</TABLE>
* Average Portfolio Balance at September 30, 1994 was calculated by adding
the ending servicing portfolio balance for the quarters ending March 31,
1994, June 30, 1994 and September 30, 1994 and dividing by three. Average
Portfolio Balance at September 30 in each of fiscal years 1995 through 1998
was calculated by adding the ending servicing portfolio balance for each of
the four quarters of such fiscal year and dividing by four. Average
Portfolio Balance at March 31, 1999 was calculated by adding the ending
servicing portfolio balance for the quarters ending December 31, 1998 and
March 31, 1999 and dividing by two.
** Information with respect to net charge-offs is not available.
*** Annualized.
Summary Historical Delinquency Data (Without Funded Leases)
IOS Capital Portfolio
<TABLE>
<CAPTION>
As at:
------------------------------------------------------------------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997
-------------------------------- -------------------------------- ----------------------------------
($ - millions) %* ($ - millions) %* ($ - millions) %*
<S> <C> <C> <C> <C> <C> <C>
Current $1,766.1 88.1% $1,656.0 87.4% $1,363.3 85.7%
31-60 Days $ 140.3 7.0% $ 138.3 7.3% $ 116.1 7.3%
61-90 Days $ 64.2 3.2% $ 64.4 3.4% $ 65.2 4.1%
91-120 Days $ 26.1 1.3% $ 30.3 1.6% $ 27.0 1.7%
Over 120 Days $ 8.0 0.4% $ 5.7 0.3% $ 19.1 1.2%
-------- ----- -------- ----- -------- -----
Total $2,004.7 100.0% $1,894.7 100.0% $1,590.7 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance on a monthly basis.
Summary Historical Loss Data (Without Funded Leases)
IOS Capital Portfolio
<TABLE>
<CAPTION>
For the 6 Month
---------------
Period Ended: For the Fiscal Year Ended:
--------------- -----------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997
---------------- -----------------------------------------------
<S> <C> <C> <C>
Average Portfolio $ 1,971 $1,797 $1,447
Balance for the Period ($
millions)*
Gross Charge-offs $ 34.3 $ 80.5 $ 47.4
($ millions)**
Gross Charge-offs as a % 3.5%*** 4.5% 3.3%
of the Average Portfolio
Balance for the Period**
</TABLE>
* Average Portfolio Balance at September 30 in each of fiscal years 1997
and 1998 was calculated by adding the ending servicing portfolio balance
for each of the four quarters of such fiscal year and dividing by four.
Average Portfolio Balance at March 31, 1999 was calculated by adding the
ending
S-15
<PAGE>
servicing portfolio balance for the quarters ending December 31,
1998 and March 31, 1999 and dividing by two.
** Information with respect to net charge-offs is not available.
*** Annualized.
Gross charge-offs for IOS Capital's portfolio excluding funded leases
increased to $80.5 million, or 4.5% of the average portfolio balance excluding
funded leases, for the year ended September, 1998 from $47.4 million, or 3.3%,
for the year ended September 30, 1997. Approximately $5.3 million of this
increase resulted from losses associated with a single customer of two IKON
Office Solutions operational units. Of the remaining incremental increase in
gross charge-offs over fiscal year 1997, approximately $15.7 million resulted
from a change in IOS Capital's charge-off policy in mid-1998. This new policy
increased charge-offs reflecting previously unrecognized charge-offs and new
restrictions on exceptions to the charge-off policy. Prior to the implementation
of the revised charge-off policy, the individual IKON Office Solutions
operational units had the authority to make exceptions to the charge-off policy
on leases over 120 days past due for customers that the operational units judged
were likely to pay. The revised policy defines specific exceptions to the
charge-off policy based on company-wide standardized credit risk management
criteria and requires specific evidence of a customer's ability to bring the
lease to a current status. Exceptions for leases that are between 121 and 180
days past due require approval by the credit review team at IOS Capital to avoid
charge-off. Exceptions for leases beyond 181 days past due require approval by
members of a senior executive management team at IKON Office Solutions. The
revised policy promotes the constant and timely recognition of losses.
All accounts assessed over ____ days past due automatically become
non-accruing accounts. Any subsequent recoveries offset net losses.
There can be no assurance that the levels of delinquency and loss
reflected in the above tables are or will be indicative of the performance of
the Leases in the future.
[Historical delinquency and loss information to be updated for each
transaction to reflect subsequent interim periods for which information is
available.]
The Seller
The Seller is a wholly owned bankruptcy remote subsidiary of IOS
Capital, Inc. The Seller was organized for the limited purpose of engaging in
transactions described herein and any activities incidental to and necessary or
convenient for accomplishment of these purposes and is restricted by its
organizational documents and under the Assignment and Servicing Agreement from
engaging in other activities. The Seller's address is 1738 Bass Road, P.O. Box
9115 Macon, Georgia 31208.
The Trustee
General
The Trustee, [_________] is a banking corporation organized under the
laws of ________.
Duties and Immunities of the Trustee
The Trustee will be entitled to receive, pursuant to the priority set
forth in the Indenture, (a) reasonable compensation for its services, (b)
reimbursement for its reasonable expenses and (c) indemnification for loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of performance of its duties thereunder.
S-16
<PAGE>
Description of the Notes
The Notes will be issued pursuant to the Indenture to be entered into
by the Issuer and the Trustee. The Servicer will provide a copy of the
Indenture to subsequent Noteholders without charge on written request addressed
to it at [1738 Bass Road, P.O. Box 9115, Macon, Georgia 31208 Attn:__________].
General
The obligations evidenced by the Notes are recourse to the assets
pledged to the relevant Asset Pool only and are not recourse to the Originator,
the Seller, the Servicer, the Trustee, the Issuer, or any other person.
The Issuer will agree in the Indenture and in the Notes to pay to the
Noteholders (i) an amount of principal equal to the aggregate initial note
principal balance (the "Initial Note Principal Balance") 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.
Distributions
Unless an Event of Default (as defined herein) and acceleration of the
Notes has occurred or a Restricting Event (as defined herein) has occurred, on
or before the 15th day of each month if the fifteenth is a Business Day (as
defined herein) or, if the fifteenth is not a Business Day, the following day
that is a Business Day (each a "Payment Date"), the Servicer will instruct the
Trustee to apply or cause to be applied the Available Funds (as defined herein)
to make the following payments in the following priority:
(a) [ ];
(b) [ ];
(c) [ ];
(d) [ ]; and
(e) [ ].
A "Business Day" is any day that is not a Saturday, Sunday or other
day on which commercial banking institutions located in the city or cities where
the Corporate Trust Office of the Trustee and the Servicer are located are
authorized or obligated by law or executive order to be closed (each a "Business
Day").
If an Event of Default and acceleration of the Notes has occurred or a
Restricting Event 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) [ ];
(b) [ ];
(c) [ ];
(d) [ ];
(e) [ ];
(f) [ ]; and
(g) [ ].
"Restricting Events" with respect to any series include the following:
(a) an event of default by the Servicer under the Assignment and
Servicing Agreement;
(b) Events of Default; and
(c) replacement of the Servicer.
The outstanding principal amount with respect to any Class of Notes
and any date of determination is the difference between (a) the initial
principal amount of the Notes of the Class at the issuance thereof, less (b) all
amounts previously distributed with respect to the Class as principal.
S-17
<PAGE>
Accounts
[Description of Reserve, Pre-Funding or other Accounts, as applicable]
Prepayment and Yield Considerations
General
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the 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 prepayments or liquidations will 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
payments may be influenced by a number of other factors, including general
economic conditions. The rate of principal payments with respect to any series
may also be affected by any purchase of the underlying Leases by the Originator
and by the substitution or addition of Substitute Leases (as defined herein) or
Additional Leases. For a description of additional factors potentially
affecting the yield to Noteholders, see "Risk Factors" and "Description of the
Notes--Prepayment and Yield Considerations" in the Prospectus.
Weighted Average Lives of the Notes
The scheduled final payment date for the Notes is [ ]. This
date is the date on which the note principal balance would be reduced to zero,
assuming, among other things, (i) prepayments with respect to the Leases are
received at a rate of [ ]% CPR and (ii) the modeling assumptions apply. The
Weighted Average Life of the Notes is likely to be shorter than would be the
case if payments actually made on the Leases conformed to the foregoing
assumptions, and the final Payment Date with respect to the Notes could occur
significantly earlier than the final scheduled Payment Dates due to defaults,
and because the Originator is obligated to purchase Leases in the event of
breaches of representations and warranties.
"Weighted Average Life or Weighted Average Lives" refers to the
average amount of time from the date of issuance of a security or securities
until each dollar of principal of the security or securities will be repaid to
the investor. The Weighted Average Lives of the Notes will be influenced by the
rate at which principal payments (including Lease payments and prepayments) on
the Leases are made. Principal payments on Leases may be in the form of
scheduled amortization or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidations due to a default or other dispositions of
the Leases). The Weighted Average Lives of the Notes will also be influenced by
delays associated with realizing on Defaulted Leases. The prepayment model used
in this Prospectus Supplement, the "Conditional Prepayment Rate" or "CPR",
represents an assumed annualized rate of prepayment relative to the then
outstanding balance on a pool of Leases. The CPR assumes that a fraction of the
outstanding Lease Pool is prepaid on each Payment Date, which implies that each
Lease in the Lease Pool is equally likely to prepay. This fraction, expressed
as a percentage, is annualized to arrive at the CPR for the Lease Pool. The CPR
measures prepayments based on the outstanding principal on the previous Payment
Date. 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 following table sets forth the percentages of the initial
principal amount of the Notes that would be outstanding after each of the dates
shown, assuming a CPR of [ ]%.
S-18
<PAGE>
Percentage Of Initial Note
Principal Balance Outstanding
Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
----------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Payment 0% 2% 4% 6% 8%
Date
- -------------------------------------------------------------------------------------------------------------------
Closing Date
- -------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years)
</TABLE>
The Leases will not have the characteristics assumed above, and there
can be no assurance that (i) the Leases will prepay at any of the rates shown in
the tables or at any other particular rate or will prepay proportionately or
(ii) the Weighted Average Lives of the Notes will be as calculated above.
Because the rate of distributions of principal of the Notes will be a result of
the actual amortization (including prepayments) of the Leases, which will
include Leases that have remaining terms to stated maturity shorter or longer
than those assumed, the Weighted Average Lives of the Notes will differ from
those set forth above, even if all of the Leases prepay at the indicated
constant prepayment rates.
The effective yield to Noteholders will depend upon, among other
things, the price at which the Notes are purchased, and the amount of and rate
at which principal, including both scheduled and lease payments thereof, is paid
to the Noteholders. See "Special Considerations -- Maturity and Prepayment
Considerations" in the Prospectus.
Description of the Transaction Documents
The following summary describes the material terms of the Transaction
Documents pursuant to which the Asset Pool will be created and the Notes will be
issued. For purposes of this Prospectus Supplement, the term "Transaction
Document" as used with respect to an Asset Pool means, collectively, and except
as otherwise specified, any and all agreements relating to the establishment of
the Asset Pool, the servicing of the related Lease Receivables and the issuance
of the Notes, including, without limitation, the Indenture, pursuant to which
any Notes shall be issued. The summary does not purport to be complete. It is
qualified in its entirety by reference to the provisions in each respective
Transaction Document.
Assignment and Servicing Agreement.
The Servicer and the Issuer will enter into the Assignment and
Servicing Agreement on or prior to _______ ___, 1999 (the "Closing Date") that
will further detail the procedures for collecting lease payments and Equipment
remarketing. In general, the Servicer in accordance with the Servicer's
policies and procedures will manage, service, administer, collect and enforce
the Leases on behalf of the Issuer in accordance with its customary procedures,
and shall have full power and authority to do any and all things in connection
with managing, servicing, administration, and collection that it deems necessary
or desirable. The Servicer's duties will include collection and posting of all
payments, responding to inquiries of obligors regarding the Leases,
investigating delinquencies and making required advances, remitting payments to
the Collection Account (as defined herein) in a timely manner, furnishing
monthly and annual statements with respect to collections and payments, using
commercially reasonable efforts to dispose of any related Equipment that has
been pledged to the Trustee upon the expiration or termination of a Lease, and
using its best efforts to maintain the perfected security interest of the
Trustee on behalf of the Noteholders and their respective interests, if any, in
the related Equipment to the extent required herein.
Acquisition of the Lease Receivables. On the Closing Date, the Seller
will acquire the related Lease Receivables from the Originator pursuant to the
Assignment and Servicing Agreement in which the Originator will make
representations and warranties concerning the Lease Receivables.
Contemporaneously, the Issuer will
S-19
<PAGE>
acquire the related Lease Receivables from the Seller pursuant to the Assignment
and Servicing Agreement. The rights and benefits of the Seller under the
Assignment and Servicing Agreement will be assigned to the Issuer as collateral
for the Notes by the Seller pursuant to the Assignment and Servicing Agreement.
The Issuer will pledge its right, title and interests in and to the Lease
Receivables to the Trustee on behalf of Noteholders pursuant to the Indenture.
Certain of the rights and benefits of the Issuer under the Assignment and
Servicing Agreement will be assigned to the Trustee on behalf of Noteholders as
collateral for the Notes by the Issuer pursuant to the Indenture.
Purchase Obligation. The Originator will be obligated to purchase
from the Issuer its interest in any Lease transferred to the Issuer or pledged
to the Trustee on behalf of the Noteholders, in which any representation or
warranty of the Originator under the Transaction Documents has been breached,
which breach has not been cured following discovery of the breach (each a
"Warranty Lease"). In addition, the Originator may from time to time reacquire
Leases or substitute other Substitute Leases for these Leases subject to
specified conditions set forth in the related Transaction Documents.
The Trustee will have possession of the Leases and the documents in
the files relating thereto not retained by the Servicer for its servicing
purposes, and the Servicer will retain copies of any other documents which
relate to the Lease Receivables, any related evidence of insurance and payment,
delinquency and related reports maintained by the Servicer in the ordinary
course of business with respect to each Lease Receivable. Prior to transfer of
the Lease Receivables to the Issuer, the Servicer will cause its electronic
ledger to be marked to show that the Lease Receivables have been transferred to
the Seller and then to the Issuer, and the Originator and the Seller will file
UCC financing statements reflecting the sale and assignment of the Lease
Receivables in certain jurisdictions, as required by the Assignment and
Servicing Agreement. See "Legal Aspects Concerning the Lease Receivables" in
the Prospectus.
Substitutions. Pursuant to the Transaction Documents, in addition to
Warranty Leases, the Originator will have the option to substitute Eligible
Leases (as defined herein) for Defaulted Leases, Leases which have undergone
modifications or adjustments of their terms, and Leases that have prepaid, up to
a maximum of [ %] of the aggregate present value of all the remaining payments
scheduled to be made with respect to the lease (the "Discounted Lease Balance")
of the Leases contributed to the pool, provided the following conditions are
met:
(i) At the time of substitution, the substituted Eligible Leases have
in the aggregate Discounted Lease Balances of not less than the Discounted Lease
Balance of the Leases being replaced;
(ii) Substitutions by the Originator shall be approximately the same
Weighted Average Life of the remaining originally scheduled Lease payments in
the pool and shall not extend the final maturity of the pool beyond the
original maturity of the initial Leases in the pool.
Each Substitute Lease shall be a Lease, satisfying certain
representations and warranties set forth in the Assignment and Servicing
Agreement and the Indenture, (a "Substitute Lease") as of the related Substitute
Lease Cut-Off Date. In addition, the following conditions must be satisfied:
(i) as of the related Substitute Lease Cut-Off Date, the Substitute
Leases then being transferred have in the aggregate Discounted Lease Balances
that are not less than the aggregate of the Discounted Lease Balances of the
Leases being replaced; and
(ii) no substitution shall be permitted if, after giving effect to the
substitution, (x) the sum of the lease payments on all Leases due in any
Remittance Period (as defined herein) thereafter would be less than (y) the sum
of the lease payments which would otherwise be due in the Remittance Period. A
"Remittance Period" is the period from which payments made on each payment date
relate to the collections received starting from the opening of business on the
[second] day of the immediately preceding calendar month to the close of
business on the [first day] of the calendar month in which the payment date
occurs
"Eligible Leases" are leases which have been originated in the
ordinary course of the Originator's business and comply with the Originator's
credit and collection policies.
The Servicer. The Servicer will service the Lease Receivables
comprising an 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.
S-20
<PAGE>
The Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Transaction Documents. 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 Default by the
Servicer (a Servicer Default") under the related Transaction Documents.
Remittance and Other Servicing Procedures. [Information will be
provided in accordance with the structuring of the transaction.]
Servicing Compensation and Payment of Expenses. For its servicing of
the Leases, the Servicer will receive servicing compensation including a monthly
fee for each Remittance Period (payable on the next succeeding Payment Date) and
Servicing Charges.
The servicing compensation will compensate the Servicer for customary
equipment lease servicing activities to be performed by the Servicer for the
Issuer, additional administrative services performed by the Servicer on behalf
of the Issuer, and expenses paid by the Servicer on behalf of the Issuer.
Reports to Noteholders. On or prior to each Payment Date, the
Servicer or the Trustee, as applicable, will forward or cause to be forwarded to
each holder of record of a class of Notes a statement or statements with respect
to the Asset Pool setting forth the information specifically described in the
Transaction Document which generally will include the following information:
(i) the amount of the distribution with respect to each class of Notes;
(ii) the amount of distribution allocable to principal;
(iii) the amount of distribution allocable to interest;
(iv) the Asset Pool balance, if applicable, as of the close of business on the
last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool Factor (as
defined herein) for each Class of Notes after giving effect to all
payments reported under (ii) above on the Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the related
Remittance Period; and
(vii) the amount of the aggregate purchase amounts for Lease Receivables that
have been reacquired, if any, for the Remittance Period.
Each amount set forth pursuant to clauses (i), (ii), (iii) and (v)
with respect to the Notes will be expressed as a dollar amount per $1,000 of the
initial principal balance of the Notes, as applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the Issuer, or the Servicer on behalf of the
Issuer, will provide to the Noteholders a statement containing the amounts
described in (ii) and (iii) above for that calendar year and any other
information required by applicable tax laws, for the purpose of the Noteholders'
preparation of federal income tax returns.
The "note factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Remittance Period and will make
available on the related Calculation Date representing the ratio of (x) the note
principal balance which will be outstanding on the next Payment Date (after
taking into account all distributions to be made on the Payment Date) to (y) the
Initial Note Principal Balance.
The "Pool Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Remittance Period and will make
available on the related Calculation Date representing the ratio of (x) the
aggregate Discounted Lease Balance as of the end of the immediately preceding
Remittance Period to (y) the aggregate Discounted Lease Balance as of the Cut-
Off Date.
In addition, by January 31 of each calendar year following any year
during which the Notes are outstanding, commencing January 31, [ ], the
Trustee will furnish to each Noteholder of record at any time during
S-21
<PAGE>
the preceding calendar year, information as to the aggregate of amounts reported
pursuant to items (a) and (b) above for the calendar year to enable Noteholders
to prepare their federal income tax returns.]
Servicer Events of Default. [information will be provided upon the
structuring of the transaction]
[Rights Upon Servicer Default]. [information will be provided upon
the structuring of the transaction]
[Security Interest]. [The security will be described when the
structuring of the transaction is available].
Representations and Warranties of the Originator and the Seller. [The
representation and warranties will be described when the structuring of the
transaction is available.]
Indemnification. [The indemnification provisions will be described
when the structuring of the transaction is available.]
Indenture
Accounts. The Servicer will maintain an account (the "Collection
Account") in the name of the Trustee to which all lease payments received under
each Lease (including any residual proceeds and late charges), any recoveries
for Defaulted Leases if not substituted for, proceeds of losses from casualties
and Leases that termination early, and payments by the Seller in connection with
repurchases by the Seller of Leases as a result of breaches of representations
and warranties by the Seller (a "Warranty Event") to the extent the Originator
has not substituted Substitute Leases will be directed within at least two (2)
Business Days of receipt by the Servicer, but excluding any amounts exempt from
deposit into the Collection Account ("Excluded Amounts").
Excluded Amounts include (i) collections attributable to any taxes,
fees or other charges imposed by any governmental authority; (ii) collections
representing reimbursements of insurance premiums or payments for services that
were not financed by the Seller; (iii) other non-contract or rental charges
reimbursable to the Servicer in accordance with the Servicer's customary
policies and procedures; and (iv) collections with respect to repurchased
Leases.
Available Funds. Available Funds ("Available Funds") for distribution
on any Payment Date shall include the following funds received on or prior to
the related Calculation Date, net of any Excluded Amounts: [to be modified as
appropriate based on transaction structure]
(i) lease payments (including residual proceeds and late charges);
(ii) advances from the Servicer;
(iii) recoveries on Defaulted Leases to the extent the Servicer has
not substituted an Eligible Lease for a Defaulted Lease;
(iv) proceeds from losses from casualties or Leases that terminate
early;
(v) proceeds from purchases by the Seller due to a Warranty Event;
and
(vi) proceeds from investment of funds in the Collection Account.
Interest. [Information on the interest payable to Noteholders will
be provided in accordance with the structuring of the transaction.]
Principal. [Information on the principal payable to Noteholders will
be provided in accordance with the structuring of the transaction.]
Withholding. The Trustee is required to comply with all applicable
federal income tax withholding requirements respecting payments to Noteholders
of interest with respect to the Notes. The consent of Noteholders is not
required for withholding. In the event the Noteholder is other than DTC, then
in the event that
S-22
<PAGE>
the Trustee does withhold or causes to be withheld any amount from interest
payments or advances thereof to any Noteholders pursuant to federal income tax
withholding requirements, the Trustee shall indicate the amount withheld
annually to these Noteholders.
Optional Redemption. The Servicer will have the option, subject to
specified conditions, to redeem all, but not less than all, of the Notes as of
any Payment Date on which the aggregate Discounted Lease Balance as of the
related Calculation Date is less than or equal to 10 % of the aggregate
Discounted Lease Balance as of the Cut-off Date.
Events of Default. [information will be provided upon the structuring
of the transaction]
Early Retirement of the Notes. [information will be provided upon the
structuring of the transaction]
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. The tax consequences to holders subject to special rules, 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, are not discussed below or in the
Prospectus. In particular, this discussion applies only to 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 Lehman Brothers (the
"Underwriter") are based upon provisions of the Internal Revenue Code of 1956,
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 it is correct in
all material respects.
[Additional disclosure will be provided based on the structuring of the
transaction.]
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 the 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
those 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, those plans may be subject to comparable
federal, state or local law restrictions.
Some 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
A-23
<PAGE>
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 the employee benefit plan's or the IRA's
investment in that 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 these 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 this 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 the 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.
Ratings
It is a condition to the issuance of the Notes that the Class [A]
Notes be rated [ ] by _______ and [ ] by _________. The ratings are not
a recommendation to purchase, hold or sell the Notes, inasmuch as the ratings do
not comment as to market price or suitability for a particular investor. Each
rating may be subject to revision or withdrawal at any time by the assigning
Rating Agency. There is not assurance that any rating will continue for any
period of time or that it will not be lowered or withdrawn entirely by the
Rating Agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of a rating may have an adverse effect 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 pursuant to their
terms. 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 prepayments on the return of principal to the Noteholders.
Plan of Distribution
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") for the sale of the Notes dated [ ],
the Issuer has agreed to sell and the Underwriter(s) have agreed to purchase the
principal amount of the Notes set forth below: The Issuer is affiliated with
IOS Capital.
S-24
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
-------------------------------------------
[Underwriter] [Underwriter] Totals
-------------------- --------------------
<S> <C> <C> <C>
Class A-1 Notes $ $ $
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class A-5 Notes
------------------- ------------------ ------------------
Totals $ $ $
</TABLE>
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions therein, to purchase all the Notes offered hereby if
any of such Notes are purchased.
[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 these prices, 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 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, __% per Class A-4 Note and __% per Class A-5 Note.]
[The Underwriter has advised the Issuer that it proposes to offer the
Notes purchased by the Underwriter for sale from time to time in one or more
negotiated transactions or otherwise, at market prices prevailing at the time of
sale, at prices related to the market prices or at negotiated prices. The
Underwriter may effect these transactions by selling the Notes to or through a
dealer, and the dealer may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters or purchasers of the
Notes for whom they may act as agent. Any dealers that participate with the
Underwriter in the distribution of the Notes purchased by the Underwriter may be
deemed to be underwriters, and any discounts or commissions received by them or
the Underwriter, and any profit on the resale of Notes by them or the
Underwriter may be deemed to be underwriting discounts or commissions under the
Securities Act of 1933, as amended (the "Securities Act"). Noteholders should
consult with their legal advisors in this regard prior to any reoffer or sale.]
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the offered
Notes at levels above those which might otherwise prevail in the open market.
Such stabilizing, if commenced, may be discontinued at any time.
The Transaction Documents and the Underwriting Agreement provide that
the Servicer and Issuer will indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriter may be required to make in respect thereof.
For further information regarding any offer or sale of the Notes
pursuant to this Prospectus Supplement and the Prospectus, see "Plan of
Distribution" in the Prospectus.
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 Underwriter by Dewey Ballantine LLP, New York, New York.
S-25
<PAGE>
Index Of Principal Defined Terms
<TABLE>
<CAPTION>
Page
----
<S> <C>
Asset Pool............................................................. S-8
Assignment and Servicing Agreement..................................... S-8
Available Funds........................................................ S-22
Benefit Plan........................................................... S-24
Business Day........................................................... S-17
Closing Date........................................................... S-19
Collection Account..................................................... S-22
Conditional Prepayment Rate............................................ S-18
CPR.................................................................... S-18
Cut-Off Date........................................................... S-9
Defaulted Leases....................................................... S-8
Discounted Lease Balance............................................... S-20
Eligible Leases........................................................ S-20
Equipment.............................................................. S-8
Excluded Amounts....................................................... S-22
IKON................................................................... S-14
Initial Note Principal Balance......................................... S-17
IRA.................................................................... S-24
Lease Receivables...................................................... S-8
Leases................................................................. S-8
Noteholders............................................................ S-8
Payment Date........................................................... S-17
Plan Assets Regulation................................................. S-24
Pool Factor............................................................ S-21
PTCE................................................................... S-24
Remittance Period...................................................... S-20
Restricting Events..................................................... S-17
Securities Act......................................................... S-25
Servicer Default....................................................... S-21
Substitute Lease....................................................... S-20
Tax Counsel............................................................ S-23
Transaction Document................................................... S-19
Underwriting Agreement................................................. S-24
Warranty Lease......................................................... S-20
Weighted Average Life.................................................. S-18
</TABLE>
S-26
<PAGE>
FORM OF PROSPECTUS SUPPLEMENT (VERSION 2)
(5/6/99)
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 May __, 1999
(To the Prospectus dated May 7, 1999)
$764,873,000
(Approximate)
Lease-Backed Notes, Series 1999-1
- -----------------------
IKON Receivables, LLC
Issuer
IOS Capital, Inc.
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.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
Offers of the notes will be made through the underwriters on a firm commitment
basis.
- --------------------------------------------------------------------------------
The issuer will issue the four classes of notes shown in the table below. The
notes --
o Are backed by a pledge of assets of the issuer, primarily a pool of
equipment leases or contracts and related assets;
o Receive distributions beginning on June 15, 1999; and
o Currently have no trading market.
Credit enhancement for the notes will consist of --
o A reserve account that can be used to pay shortfalls in payments on
the notes;
o Overcollateralization resulting from the excess of the principal
value of the initial leases over the aggregate initial principal
amount of the notes; and
o A financial guarantee insurance policy issued by Ambac Assurance
Corporation unconditionally guaranteeing timely payment of interest
and ultimate payment of principal, as described in this prospectus
supplement.
[AMBAC LOGO]
<TABLE>
<CAPTION>
====================================================================================================================================
Underwriting
Approximate Initial Public Discount and
Issuance Amount Interest Rate Offering Price Commissions Net Proceeds
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes $307,011,000 % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Class A-2 Notes $ 37,069,000 % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Class A-3 Notes $336,159,000 % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Class A-4 Notes $ 84,634,000 % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Total $764,873,000 $ $ $
====================================================================================================================================
</TABLE>
(1) Net proceeds are before deducting expenses, estimated to be $ .
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
PNC CAPITAL MARKETS, INC.
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus supplement and the accompanying prospectus. If given or made, the
information or representations must not be relied upon. We are stating this
information as of the date of this prospectus supplement.
Table of Contents
Page
----
Summary......................................................................S-4
Risk Factors.................................................................S-7
The Issuer...................................................................S-7
The Servicer and the Originator..............................................S-8
The Insurer and the Policy..................................................S-10
The Asset Pool..............................................................S-12
Description of the Notes....................................................S-20
Prepayment and Yield Considerations.........................................S-27
The Trustee.................................................................S-33
Material Federal Income Tax Consequences....................................S-33
ERISA Considerations........................................................S-34
Use of Proceeds.............................................................S-35
Ratings of the Notes........................................................S-35
Experts.....................................................................S-36
Legal Matters...............................................................S-36
S-2
<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 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 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 information
contained in the 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 these 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 table of contents in this prospectus supplement
and the table of contents included in the accompanying prospectus provide the
pages on which these captions are located.
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 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.
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 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 the 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 May __, 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.
Initially, a substantial portion 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 noncancellable by the lessees. All payments under the
leases are absolute, unconditional obligations of the lessees. The leases
provide that the payments are not subject to set-off or reduction without the
lessor's consent.
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 ____%.
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
o The issuer 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 May __, 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 15th 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 prior 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, the issuer will pay the
outstanding principal amount of the notes in full on the payment dates in the
following months:
Class A-1 June, 2000
Class A-2 May, 2005
Class A-3 May, 2005
Class A-4 May, 2005
Final payment on the notes will probably be earlier than the stated maturity
dates listed above for the related class of notes.
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.
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 approximately
84.344399% of the decrease in the principal value of the leases;
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
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 to approximately
84.344399% 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 approximately 84.344399% of
the decrease in the principal value of the leases.
This general description of distributions of principal on the notes is subject
to 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 shortfalls in amounts due to noteholders. The issuer will initially
deposit 1% of the initial principal value of the leases 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.
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 this 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 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
following ratings:
Initial Ratings
------------------------
Moody's S&P
Class A-1 P-1 A-1+
Class A-2 Aaa AAA
Class A-3 Aaa AAA
Class A-4 Aaa AAA
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 Leases May Adversely Affect the Leases and Payments
on the Notes
Adverse economic conditions or other factors affecting any state or region where
a high 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 17.09%, 11.37%, 9.41% and 5.79% of the leases (based on the
statistical discounted present value of the leases) were located in California,
Georgia, Massachusetts and Connecticut, respectively. No other state accounts
for more than 5% of the leases.
If adverse events or economic conditions were particularly severe in those
geographic regions or in the event a lessee or group of lessees in those
geographic regions experienced financial difficulties, the lessees may be unable
to pay or may not make timely payments. If these events or conditions 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 Dependent upon Creditworthiness of Insurer
The ratings of the notes will depend primarily on the creditworthiness of the
insurer as the provider of the financial guarantee insurance policy relating to
the notes. There is a risk that any reduction in any of the insurer's financial
strength ratings would result in a reduction in the ratings of the notes.
The Issuer
The Issuer, IKON Receivables, LLC, is a special purpose Delaware limited
liability company all of the membership interests in which are held by the
Seller, IKON Receivables-1 LLC, also a special purpose Delaware limited
liability company. All of the membership interests in the Seller are, in turn,
owned by the Originator and Servicer, IOS Capital, Inc.
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 are the Asset Pool, including the Reserve
Account, 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 May __, 1999, 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 and issue the
Notes pursuant to an indenture between the Issuer and the Trustee.
S-7
<PAGE>
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. 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 March 31, 1999, IOS Capital had approximately $2,248,447,000 in assets,
approximately $1,897,221,000 in liabilities and approximately $351,226,000 in
shareholders' equity.
Historical Delinquency and Loss Information. General delinquency
information for leases in IOS Capital's servicing portfolio (including and
excluding funded leases) not charged-off, and general charge-off information for
leases in IOS Capital's servicing portfolio (including and excluding funded
leases), 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
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.
As described under "The Originator's Leasing Business - Types of Leases"
in the Prospectus, the lease portfolio of IOS Capital consists of direct
financing leases and funded leases, although the Leases included in the Asset
Pool consist solely of direct financing leases. Funded leases are contractual
obligations between IKON Office Solutions and members of IKON Office Solutions'
independent dealer network (each member, an "IKON Marketplace") which have been
financed by IOS Capital. Direct financing leases are contractual obligations
between IOS Capital and the customer and represent the majority of IOS Capital's
lease portfolio. The tables below separately set forth historical delinquency
and loss information for IOS Capital's lease portfolio including funded leases
and excluding funded leases for the respective periods or dates indicated.
S-8
<PAGE>
Summary Historical Delinquency Data (Entire Portfolio)
IOS Capital Portfolio
<TABLE>
<CAPTION>
As at:
----------------------------------------------------------------------------------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997 September 30, 1996 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------ ------------------ ----------------- -------------------
($ - millions) %* ($ - millions) %* ($ - millions) %* ($ - millions) %* ($ - millions) %* ($ - millions) %*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $2,361.3 91.0% $2,292.2 90.8% $1,882.1 89.4% $1,299.7 86.5% $870.3 87.9% $579.7 88.7%
31-60 Days $ 137.5 5.3% $136.3 5.4% $113.7 5.4% $106.8 7.1% $80.2 8.1% $49.0 7.5%
61-90 Days $ 62.3 2.4% $63.1 2.5% $65.3 3.1% $54.1 3.6% $24.8 2.5% $16.3 2.5%
Over 90 Days $ 33.7 1.3% $32.8 1.3% $44.2 2.1% $42.1 2.8% $14.9 1.5% $8.5 1.3%
-------- ----- -------- ----- -------- ----- -------- ----- ------ ----- ------ -----
Total $2,594.8 100% $2,524.4 100.0% $2,105.3 100.0% $1,502.7 100.0% $990.2 100.0% $653.5 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance on a monthly basis.
Summary Historical Loss Data (Entire Portfolio)
IOS Capital Portfolio
<TABLE>
<CAPTION>
For the 6 Month
Period Ended: For the Fiscal Year Ended:
--------------- ------------------------------------------------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997 September 30, 1996 September 30, 1995
--------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Average Portfolio
Balance for the
Period
($ millions)* $2,574 $2,394 $1,891 $1,275 $848
Gross Charge-offs
($ millions)** $ 41.8 $98.8 $51.6 $29.9 $20.9
Gross Charge-offs
as a % of the
Average Portfolio
Balance for the
Period** 3.3% *** 4.1% 2.7% 2.3% 2.5%
<CAPTION>
------------------
September 30, 1994
------------------
<S> <C>
Average Portfolio
Balance for the
Period
($ millions)* $591
Gross Charge-offs
($ millions)** $14.4
Gross Charge-offs
as a % of the
Average Portfolio
Balance for the
Period** 2.4%
</TABLE>
* Average Portfolio Balance at September 30, 1994 was calculated by adding
the ending servicing portfolio balance for the quarters ending March 31,
1994, June 30, 1994 and September 30, 1994 and dividing by three. Average
Portfolio Balance at September 30 in each of fiscal years 1995 through
1998 was calculated by adding the ending servicing portfolio balance for
each of the four quarters of such fiscal year and dividing by four.
Average Portfolio Balance at March 31, 1999 was calculated by adding the
ending servicing portfolio balance for the quarters ending December 31,
1998 and March 31, 1999 and dividing by two.
** Information with respect to net charge-offs is not available.
*** Annualized.
S-9
<PAGE>
Summary Historical Delinquency Data (Without Funded Leases)
IOS Capital Portfolio
<TABLE>
<CAPTION>
As at:
---------------------------------------------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997
----------------------- ------------------------ -----------------------
($ - millions) %* ($ - millions) %* ($ - millions) %*
<S> <C> <C> <C> <C> <C> <C>
Current $1,766.1 88.1% $1,656.0 87.4% $1,363.3 85.7%
31-60 Days $140.3 7.0% $138.3 7.3% $116.1 7.3%
61-90 Days $64.2 3.2% $64.4 3.4% $65.2 4.1%
91-120 Days $26.1 1.3% $30.3 1.6% $27.0 1.7%
Over 120 Days $8.0 0.4% $5.7 0.3% $19.1 1.2%
-------- ----- -------- ----- -------- -----
Total $2,004.7 100.0% $1,894.7 100.0% $1,590.7 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance on a monthly basis.
Summary Historical Loss Data (Without Funded Leases)
IOS Capital Portfolio
<TABLE>
<CAPTION>
For the 6 Month
Period Ended: For the Fiscal Year Ended:
---------------- ---------------------------------------------
March 31, 1999 September 30, 1998 September 30, 1997
---------------- ------------------ ------------------
<S> <C> <C> <C>
Average Portfolio
Balance for the
Period ($ millions)* $1,971 $1,797 $1,447
Gross Charge-offs
($ millions)** $34.3 $80.5 $45.1
Gross Charge-offs
as a % of the
Average Portfolio
Balance for the
Period** 3.5%*** 4.5% 3.1%
</TABLE>
* Average Portfolio Balance at September 30 in each of fiscal years 1997 and
1998 was calculated by adding the ending servicing portfolio balance for
each of the four quarters of such fiscal year and dividing by four.
Average Portfolio Balance at March 31, 1999 was calculated by adding the
ending servicing portfolio balance for the quarters ending December 31,
1998 and March 31, 1999 and dividing by two.
** Information with respect to net charge-offs is not available.
*** Annualized.
Gross charge-offs for IOS Capital's portfolio excluding funded leases
increased to $80.5 million, or 4.5% of the average portfolio balance excluding
funded leases, for the year ended September, 1998 from $47.4 million, or 3.3%,
for the year ended September 30, 1997. Approximately $_____ of this increase
resulted from marginal credits in the commercial print shop industry and two
IKON Office Solutions operational units that experienced above average losses.
The remaining incremental increase in gross charge-offs over fiscal year 1997
resulted primarily from a change in IOS Capital's charge-off policy in _______,
1998. This new policy increased charge-offs in the first several months after
implementation, reflecting previously unrecognized charge-offs and new
restrictions on exceptions to the charge-off policy. Prior to the implementation
of the revised charge-off policy, the individual IKON Office Solutions
operational units had the authority to make exceptions to the charge-off policy
on leases over 120 days past due for customers that the operational units judged
were likely to pay. The revised policy defines specific exceptions to the
charge-off policy based on company-wide standardized credit risk management
criteria and requires specific evidence of a customer's ability to bring the
lease to a current status. Exceptions for leases that are between 121 and 180
days past due require approval by the credit review team at IOS Capital to avoid
charge-off. Exceptions for leases beyond 181 days past due require approval by
members of a senior executive management team at IKON Office Solutions. The
revised policy promotes the constant and timely recognition of losses.
S-10
<PAGE>
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 the information.
The Insurer. 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 rating to
Ambac.
The consolidated financial statements of Ambac and subsidiaries as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended, December 31, 1998, 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
that 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 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 offering of the Notes, shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of those 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.
S-11
<PAGE>
Ambac Assurance Corporation
Consolidated Capitalization Table
(Dollars in Millions)
December 31, December 31, December 31,
1996 1997 1998
------ ------ ------
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
====== ====== ======
(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
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 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 financial guarantee insurance policy (the
"Policy") with respect to the Notes in favor of the Trustee for the benefit of
Noteholders. 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 the Insured
Payment is distributable to the Noteholders pursuant to the Indenture; and (ii)
the third Business Day 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 on which the Insurer has
received a certified copy of the order requiring the return of the Preference
Amount, and other documentation as reasonably required by the Insurer,
in a form satisfactory to the Insurer, provided that if this documentation is
received after 12:00 noon (New York City time) on that Business Day, it will be
deemed to have been received on the following Business Day.
The Insurer will 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 those Insured Payments. Payments under the Policy will
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 the
acceleration is at the sole option of the Insurer.
S-12
<PAGE>
The Policy does not cover shortfalls, if any, attributable to the
liability of the Issuer or the Trustee for withholding taxes, if any (including
interest and penalties in respect of that liability), any prepayment penalty
or other accelerated payment, which at any time may become due on or with
respect to any Note, including as a result of any Acceleration Event (as defined
herein), 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 the funds are properly distributed by the Trustee.
For purposes of the Policy, "Noteholders" does not and may not include the
Issuer, the Seller or the Servicer.
"Business Day" means any day that is not a Saturday, a Sunday or other day
on which commercial banking institutions in the cities in which the Corporate
Trust Office of the Trustee, the Insurer and the Servicer are located are
authorized or obligated by law or executive order to remain closed.
"Insured Payment" means (a) on any Payment Date, the excess, if any, of
(i) the related Interest Payments (as defined herein) over (ii) the related
Available Funds (as defined herein), (b) any Preference Amount (without
duplication), (c) on the Payment Date in June, 2000, the outstanding Note
Principal Balance of the Class A-1 Notes then outstanding to the extent
Available Funds are not sufficient to make the payment on that Payment Date,
and (d) on the Payment Date in May, 2005, the outstanding Note Principal Balance
of the Class A-2 Notes, Class A-3 Notes and Class A-4 Notes then outstanding to
the extent Available Funds are not sufficient to make the payment on that
Payment Date.
"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 May __, 1999 (the "Issuance Date") less any amounts actually
distributed as principal thereon.
"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 noncancellable. 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.
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 will
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 will complete a
Notice in the form of Exhibit A to the Policy and submit it to the Insurer no
later than 12:00 noon New York City time on the second Business Day preceding
that Payment Date as a claim for an Insured Payment. If the Trustee receives
a certified copy of an order of the appropriate court that any amount previously
distributed to a Noteholder has been avoided in whole or in part as a Preference
Amount, the Trustee shall so notify the Insurer and shall comply with the
provisions of the Policy to obtain payment by the Insurer of such Preference
Amount.
Under the Indenture, the Insurer has the option to deliver funds to the
Trustee to provide for payment of fees or expenses of any provider of services
to the Issuer or to be added to Available Funds to the extent that a drawing
under the Policy otherwise would be required.
S-13
<PAGE>
The Asset Pool
Lease Receivables. 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 (the "Leases"), together with the
equipment financing portion of each periodic rental payment due under the Leases
on or after the opening of business on April 1, 1999 (the "Cut-Off Date") and
all related Casualty Payments, Retainable Deposits, and Termination Payments
(each as defined herein). The Leases, including the Issuer's security interest
in the underlying equipment and other property relating to the Leases (such
equipment and property, the "Equipment"), are referred to as the "Lease
Receivables."
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 and Equipment 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 are described in all material respects under the
heading "The Originator's Leasing Business" in the Prospectus.
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 provide that they are noncancellable by the businesses
and individual business owners who lease the Equipment (each, a "Lessee"). Under
some 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"). Payments on the Leases 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 the 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
36.99 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 the first scheduled
payment.
IOS Capital offers a cost per copy program, pursuant to which Lessees pay
a fixed monthly payment for which they are allowed a minimum monthly copy usage.
The monthly fixed payment represents equipment financing and a monthly
maintenance charge (the "Maintenance Charge"). The Maintenance Charge is
remitted to IKON Office Solutions monthly upon collection by IOS Capital. 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.
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 this 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 or more after the scheduled payment date are
subject to late charges. Late charges will be retained by the Servicer to the
extent Servicer Advances (as defined below) are made by the Servicer.
S-14
<PAGE>
"Non-Performing Leases" are (a) Leases that have become more than 120 days
delinquent, (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, the Lease was not a Non-Performing Lease.
The Servicer's customary practices with respect to Non-Performing Leases
include any action necessary to cause, or attempt to cause, the Lessee
thereunder to cure its non-performance or to terminate the 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 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 present information about the Leases and the Lessees as of 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 these tables, the "Statistical
Discounted Present Value of the Leases" means an amount equal to the future
remaining scheduled Lease Payments (as defined herein) from the Leases as of the
Cut-Off Date, discounted at a rate equal to 6.75%. The aggregate Statistical
Discounted Present Value of the Leases as of the Cut-Off Date is
$849,128,061.17. Figures in the tables may not add up to the stated totals due
to rounding. See "Description of the Notes--Discounted Present Value of the
Leases."
S-15
<PAGE>
Distribution of Leases by State
<TABLE>
<CAPTION>
Percentage of Percentage of
Statistical Statistical Aggregate Aggregate
Percentage of Discounted Discounted Original Original
Number Number Present Value Present Value Equipment Equipment
State of Leases of Leases of Leases of Leases Cost Cost
----- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Alabama 455 0.63% $6,522,158.84 0.77% $4,614,915.15 0.67%
Alaska 114 0.16 1,383,728.39 0.16 967,605.47 0.14
Arizona 90 0.12 644,464.83 0.08 673,628.84 0.10
Arkansas 514 0.71 6,294,570.86 0.74 3,628,920.74 0.53
California 10,423 14.47 145,092,162.04 17.09 113,057,042.58 16.49
Colorado 78 0.11 545,599.66 0.06 590,268.70 0.09
Connecticut 4,691 6.51 49,134,612.08 5.79 50,176,924.59 7.32
Delaware 39 0.05 191,190.10 0.02 188,801.76 0.03
District of Columbia 534 0.74 6,954,504.06 0.82 6,162,075.34 0.90
Florida 3,783 5.25 35,103,255.66 4.13 28,321,863.59 4.13
Georgia 7,054 9.80 96,580,256.52 11.37 68,721,317.83 10.02
Hawaii 184 0.26 2,964,794.89 0.35 2,052,649.96 0.30
Idaho 573 0.80 4,095,709.99 0.48 4,124,660.86 0.60
Illinois 2,650 3.68 33,461,069.47 3.94 24,125,634.20 3.52
Indiana 2,232 3.10 32,842,921.00 3.87 25,793,811.21 3.76
Iowa 98 0.14 1,261,155.77 0.15 828,460.39 0.12
Kansas 1,752 2.43 12,726,294.09 1.50 10,006,668.56 1.46
Kentucky 253 0.35 2,594,454.27 0.31 2,340,374.59 0.34
Louisiana 42 0.06 375,236.96 0.04 347,465.54 0.05
Maine 412 0.57 6,914,723.35 0.81 4,108,984.66 0.60
Maryland 1,279 1.78 12,092,815.17 1.42 11,507,669.32 1.68
Massachusetts 5,783 8.03 79,868,805.62 9.41 69,689,743.31 10.17
Michigan 96 0.13 1,027,912.47 0.12 925,795.71 0.14
Minnesota 35 0.05 293,209.05 0.03 311,857.60 0.05
Mississippi 36 0.05 289,437.48 0.03 227,812.07 0.03
Missouri 1,853 2.57 15,838,277.79 1.87 12,654,980.28 1.85
Montana 123 0.17 870,814.17 0.10 623,671.92 0.09
Nebraska 851 1.18 7,178,018.68 0.85 5,158,555.87 0.75
Nevada 941 1.31 6,968,228.51 0.82 6,197,563.84 0.90
New Hampshire 16 0.02 122,942.30 0.01 109,760.89 0.02
New Jersey 1,307 1.81 20,623,593.82 2.43 15,888,321.94 2.32
New Mexico 9 0.01 150,430.03 0.02 117,823.22 0.02
New York 3,837 5.33 41,732,941.30 4.91 37,916,662.88 5.53
North Carolina 3,512 4.88 32,820,073.78 3.87 27,400,640.94 4.00
North Dakota 7 0.01 31,614.26 0.00 24,266.04 0.00
Ohio 2,729 3.79 31,220,753.35 3.68 25,783,033.95 3.76
Oklahoma 1,082 1.50 12,234,508.19 1.44 9,438,335.66 1.38
Oregon 1,734 2.41 14,445,633.29 1.70 11,490,077.74 1.68
Pennsylvania 115 0.16 1,250,504.72 0.15 1,258,780.41 0.18
Rhode Island 1,227 1.70 16,848,747.72 1.98 11,372,214.24 1.66
South Carolina 3,041 4.22 38,537,200.75 4.54 28,180,341.95 4.11
South Dakota 142 0.20 865,617.65 0.10 827,099.09 0.12
Tennessee 730 1.01 9,462,743.19 1.11 6,142,185.77 0.90
Texas 510 0.71 4,309,795.32 0.51 3,742,009.45 0.55
Utah 1,030 1.43 9,088,690.18 1.07 8,703,608.68 1.27
Vermont 491 0.68 4,189,210.21 0.49 2,879,213.14 0.42
Virginia 2,339 3.25 25,748,098.72 3.03 20,608,295.12 3.01
Washington 655 0.91 9,815,656.98 1.16 10,969,572.56 1.60
West Virginia 214 0.30 2,578,969.08 0.30 2,330,859.77 0.34
Wisconsin 63 0.09 859,817.79 0.10 731,094.29 0.11
Wyoming 255 0.35 2,080,136.75 0.24 1,531,582.73 0.22
====================================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00% $685,575,504.94 100.00%
====================================================================================================================================
</TABLE>
S-16
<PAGE>
Distribution of Leases by Lease Balance
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical
Percentage of Discounted Discounted
Statistical Discounted Present Number Number Present Value Present Value
Value of the Leases of Leases of Leases of Leases of Leases
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 0.01 - 5,000.00 32,917 45.71% $78,434,107.30 9.24%
5,000.01 - 10,000.00 16,903 23.47 121,669,131.78 14.33
10,000.01 - 15,000.00 8,219 11.41 100,197,421.04 11.80
15,000.01 - 20,000.00 4,164 5.78 71,591,409.56 8.43
20,000.01 - 25,000.00 2,392 3.32 53,283,515.41 6.28
25,000.01 - 30,000.00 1,643 2.28 44,907,373.12 5.29
30,000.01 - 40,000.00 1,973 2.74 67,858,240.16 7.99
40,000.01 - 50,000.00 1,106 1.54 49,338,650.41 5.81
50,000.01 - 60,000.00 670 0.93 36,593,944.47 4.31
60,000.01 - 70,000.00 431 0.60 27,870,168.93 3.28
70,000.01 - 80,000.00 368 0.51 27,619,627.52 3.25
80,000.01 - 90,000.00 227 0.32 19,387,651.32 2.28
90,000.01 - 100,000.00 189 0.26 17,939,299.89 2.11
100,000.01 - 150,000.00 504 0.70 60,501,583.73 7.13
150,000.01 - 200,000.00 176 0.24 30,063,293.43 3.54
200,000.01 - 300,000.00 76 0.11 18,035,943.59 2.12
300,000.01 - 400,000.00 32 0.04 10,861,298.28 1.28
400,000.01 - 500,000.00 8 0.01 3,454,553.33 0.41
500,000.01 - 600,000.00 5 0.01 2,642,319.16 0.31
600,000.01 - 700,000.00 6 0.01 3,775,120.28 0.44
700,000.01 - 800,000.00 4 0.01 3,103,408.45 0.37
=====================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00%
=====================================================================================================================
<CAPTION>
Percentage of
Aggregate Aggregate
Original Original
Statistical Discounted Present Equipment Equipment
Value of the Leases Cost Cost
------------------- ---- ----
<S> <C> <C>
$ 0.01 - 5,000.00 $98,350,948.27 14.35%
5,000.01 - 10,000.00 119,843,854.86 17.48
10,000.01 - 15,000.00 87,852,379.03 12.81
15,000.01 - 20,000.00 58,014,087.22 8.46
20,000.01 - 25,000.00 42,752,325.50 6.24
25,000.01 - 30,000.00 34,314,220.26 5.01
30,000.01 - 40,000.00 50,729,574.62 7.40
40,000.01 - 50,000.00 35,382,825.78 5.16
50,000.01 - 60,000.00 23,880,673.32 3.48
60,000.01 - 70,000.00 19,345,029.81 2.82
70,000.01 - 80,000.00 17,797,078.38 2.60
80,000.01 - 90,000.00 12,979,797.12 1.89
90,000.01 - 100,000.00 10,942,510.09 1.60
100,000.01 - 150,000.00 35,367,684.11 5.16
150,000.01 - 200,000.00 17,082,434.30 2.49
200,000.01 - 300,000.00 8,418,211.32 1.23
300,000.01 - 400,000.00 5,947,443.54 0.87
400,000.01 - 500,000.00 2,426,896.97 0.35
500,000.01 - 600,000.00 837,173.78 0.12
600,000.01 - 700,000.00 1,673,499.49 0.24
700,000.01 - 800,000.00 1,636,857.17 0.24
================================================================================
Total: $685,575,504.94 100.00%
================================================================================
</TABLE>
Distribution of Leases by Remaining Term to Maturity
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical
Percentage of Discounted Discounted
Number Number Present Value Present Value
Remaining Term (months) of Leases of Leases of Leases of Leases
----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
6 - 12 10,492 14.57% $30,601,325.50 3.60%
13 - 24 21,066 29.25 132,055,050.38 15.55
25 - 36 20,258 28.13 235,591,837.24 27.75
37 - 48 12,765 17.73 249,621,516.18 29.40
49 - 60 7,424 10.31 200,634,722.94 23.63
61 - 72 8 0.01 623,608.93 0.07
===================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00%
===================================================================================================================
<CAPTION>
Percentage of
Aggregate Aggregate
Original Original
Equipment Equipment
Remaining Term (months) Cost Cost
----------------------- ---- ----
<S> <C> <C>
6 - 12 $70,999,293.26 10.36%
13 - 24 161,120,738.30 23.50
25 - 36 191,185,361.87 27.89
37 - 48 154,665,214.20 22.56
49 - 60 107,171,659.44 15.63
61 - 72 433,237.87 0.06
================================================================================
Total: $685,575,504.94 100.00%
================================================================================
</TABLE>
S-17
<PAGE>
Distribution of Leases by Original Term to Maturity
<TABLE>
<CAPTION>
Percentage of
Statistical Statistical Aggregate
Percentage of Discounted Discounted Original
Number Number Present Value Present Value Equipment
Original Term (months) of Leases of Leases of Leases of Leases Cost
---------------------- --------- --------- --------- --------- ----
<S> <C> <C> <C> <C> <C>
7 - 12 217 0.30% $527,359.95 0.06% $425,237.55
13 - 18 84 0.12 313,211.79 0.04 346,171.10
19 - 24 2,332 3.24 8,705,574.90 1.03 12,970,186.93
25 - 30 288 0.40 1,750,445.04 0.21 1,501,157.73
31 - 36 23,225 32.25 142,066,748.12 16.73 150,841,111.60
37 - 42 4,280 5.94 34,965,066.18 4.12 32,296,149.97
43 - 48 11,769 16.34 114,656,824.03 13.50 98,760,986.74
49 - 54 785 1.09 8,808,512.04 1.04 8,113,181.94
55 - 60 28,059 38.96 516,789,474.24 60.86 361,684,377.26
61 - 66 855 1.19 14,617,727.72 1.72 14,751,243.94
67 - 72 95 0.13 5,014,189.76 0.59 3,477,858.88
73 - 78 12 0.02 721,518.26 0.08 241,151.41
79 - 84 4 0.01 111,940.39 0.01 74,005.16
85 - 90 3 0.00 55,536.42 0.01 57,484.74
91 - 96 3 0.00 20,908.30 0.00 30,312.76
97 - 102 1 0.00 1,483.04 0.00 718.14
103 - 108 1 0.00 1,540.98 0.00 4,169.09
=================================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00% $685,575,504.94
=================================================================================================================================
<CAPTION>
Percentage of
Aggregate
Original
Equipment
Original Term (months) Cost
---------------------- ----
<S> <C>
7 - 12 0.06%
13 - 18 0.05
19 - 24 1.89
25 - 30 0.22
31 - 36 22.00
37 - 42 4.71
43 - 48 14.41
49 - 54 1.18
55 - 60 52.76
61 - 66 2.15
67 - 72 0.51
73 - 78 0.04
79 - 84 0.01
85 - 90 0.01
91 - 96 0.00
97 - 102 0.00
103 - 108 0.00
=====================================================
Total: 100.00%
=====================================================
</TABLE>
Distribution of Leases by Purchase Option
<TABLE>
<CAPTION>
Percentage of Percentage of
Statistical Statistical Aggregate Aggregate
Percentage of Discounted Discounted Original Original
Number Number Present Value Present Value Equipment Equipment
Purchase Option of Leases of Leases of Leases of Leases Cost Cost
--------------- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fair Market Value 67,634 93.92% $820,737,875.20 96.66% $657,775,410.81 95.94%
Nominal Buyout 4,379 6.08 28,390,185.97 3.34 27,800,094.13 4.06
========================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00% $685,575,504.94 100.00%
========================================================================================================================
</TABLE>
Distribution of Leases by Delinquencies
<TABLE>
<CAPTION>
Percentage of Percentage of
Statistical Statistical Aggregate Aggregate
Percentage of Discounted Discounted Original Original
Number Number Present Value Present Value Equipment Equipment
Days Delinquent of Leases of Leases Of Leases of Leases Cost Cost
--------------- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
0 - 30 66,395 92.20% $772,641,741.98 90.99% $622,729,848.59 90.83%
31 - 60 5,618 7.80 76,486,319.19 9.01 62,845,656.35 9.17
==========================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00% $685,575,504.94 100.00%
==========================================================================================================================
</TABLE>
S-18
<PAGE>
Distribution of Leases by Equipment Type
<TABLE>
<CAPTION>
Percentage of Percentage of
Statistical Statistical Aggregate Aggregate
Percentage of Discounted Discounted Original Original
Number Number Present Value Present Value Equipment Equipment
Equipment Type of Leases of Leases of Leases of Leases Cost Cost
-------------- --------- --------- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Analog Copier 46,863 65.08% $522,269,868.59 61.51% $442,976,996.77 64.61%
Digital / Multi-purpose Copier 9,747 13.54 147,597,727.98 17.38 96,063,485.43 14.01
Color Copier 4,119 5.72 126,542,438.63 14.90 101,550,752.14 14.81
Fax Machine 9,394 13.04 27,709,933.94 3.26 22,999,085.14 3.35
Miscellaneous 1,485 2.06 15,027,519.13 1.77 15,055,464.10 2.20
Printer 405 0.56 9,980,572.89 1.18 6,929,721.36 1.01
===================================================================================================================================
Total: 72,013 100.00% $849,128,061.17 100.00% $685,575,504.94 100.00%
===================================================================================================================================
</TABLE>
Additions, Substitutions and Adjustments. Although the Leases provide that
they cannot be cancelled 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 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 the 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 its terms (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 in 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. These 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 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 Lease Payments, after the
inclusion of the Substitute Leases and Additional Leases, be less than the
aggregate scheduled Lease Payments prior to the substitution or reinvestment.
Additionally, the scheduled final Lease Payment for the Substitute Lease or
Additional Lease will be on or prior to the Payment Date in November, 2004, or,
to the extent the final scheduled Lease Payment for the Lease is due subsequent
to the Payment Date in November, 2004, only scheduled Lease Payments due on or
prior to that date will be included in the Discounted Present Value of the Lease
for the purpose of making any calculation under the Indenture.
S-19
<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 related Equipment. In the event that (a) any of
these representations and warranties proves at any time to have been inaccurate
in any material respect as of the Issuance Date or (b) any Lease is
terminated in whole or in part by a Lessee, or (c) any amounts due with respect
to any Lease are reduced or impaired, as a result of (i) any action or
inaction by IOS Capital (other than any 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 the inaccuracy, termination, reduction, impairment or claim has not
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 purchase
the Lease and the related Equipment interests by paying to the Trustee for
deposit into the Collection Account, not later than the Determination Date next
following the expiration of the 30-day period, an amount at least equal to the
Discounted Present Value of the 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 a 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 will be deemed to be material.
The Servicer. The Servicer will service the Lease Receivables 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 or other
custodian 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 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 any of these
representations or warranties that in any respect materially and adversely
affects the interests of the Noteholders will constitute a Servicer Event of
Default. 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 the Servicer to the national lock box
account of the Servicer. The Servicer must deposit these payments (net of
amounts that the Servicer is entitled to retain or use to reimburse itself, or
must remit to third parties, such as IKON Office Solutions) 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 (or, in the case of the Initial Payment Date, a fraction of which
the number of days from the Issuance Date to the Initial Payment Date is the
numerator and 360 is the denominator) 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 that 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 certain Trustee expenses.
S-20
<PAGE>
Reports to Noteholders. The Servicer or the Trustee, as applicable, will
forward or cause to be forwarded to each holder of record of each 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, (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 and there is no Insurer Default, the Insurer will be
entitled to exercise substantially all of the rights of Noteholders and the
Noteholders will be precluded from exercising those rights without the prior
written consent of the Insurer. These 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 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.
An "Insurer Default" is a failure by the Insurer to make a payment
required under the Policy in accordance with the terms thereof.
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 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 affiliates other than the Issuer. The Issuer is a
special purpose company with limited assets. Consequently, Noteholders must rely
solely upon the Asset Pool 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
approximately $307,011,000 for the Class A-1 Notes (the "Class A-1 Initial
Principal Amount"), approximately $37,069,000 for the Class A-2 Notes (the
"Class A-2 Initial Principal Amount"), approximately $336,159,000 for the Class
A-3 Notes (the "Class A-3 Initial Principal Amount") and approximately
$84,634,000 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 initial aggregate principal amount of the Notes will comprise the
initial principal amount (the "Initial Principal Amount") of the Notes. The
aggregate unpaid principal amount of the Notes outstanding at any time will
comprise the outstanding principal amount (the "Outstanding Principal Amount")
of the Notes as of that time.
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.
S-21
<PAGE>
The 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 those systems, or
indirectly through organizations which are participants in those 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."
Expected Maturity; Stated Maturity. The expected maturity dates of the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes are the
Payment Dates in April, 2000, June, 2000, June, 2002 and July, 2003,
respectively. The stated maturity date with respect to the Class A-1 Notes is
the Payment Date in June 2000, the stated maturity date with respect to the
Class A-2 Notes is the Payment Date in May, 2005, the stated maturity date with
respect to the Class A-3 Notes is the Payment Date in May, 2005 and the stated
maturity date with respect to the Class A-4 Notes is the Payment Date in May,
2005. 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 Business Day prior to that Payment
Date. 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 that 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 the 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, _____% per annum on the Class A-2 Notes, _____%
per annum on the Class A-3 Notes and _____% per annum on the Class A-4 Notes.
With respect to any particular class of Notes, the "Interest Rate" refers to the
applicable rate indicated in the immediately preceding sentence.
On each Payment Date, the interest due (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 those Notes since the
last Payment Date (or in the case of the first Payment Date, since the Issuance
Date) (each such period, an "Interest Accrual Period") at the applicable
Interest Rate applied to the 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
S-22
<PAGE>
Payment Date (or, in the case of the first Payment Date, the Issuance Date),
plus all previously accrued and unpaid interest on the 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 will 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 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 Amount of the Notes plus the
Overcollateralization Balance as of the immediately preceding Payment Date after
giving effect to payments on that 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 that 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 June, 2000 Payment Date,
the lesser of (1) the amount necessary to reduce the Outstanding Principal
Amount on the Class A-1 Notes to zero and (2) the difference between (A) the
Discounted Present Value of the Performing Leases as of the Determination Date
for the preceding Payment Date and (B) the Discounted Present Value of the
Performing Leases as of the related Determination Date, and (ii) on and after
the June, 2000 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 84.344399%.
An "Acceleration Event" will occur if: (i) a Servicer Event of Default has
occurred and is continuing (regardless of whether the rights and obligations of
the Servicer are terminated as a result of that Servicer Event of Default); (ii)
with respect to any Payment Date, the Overcollateralization Balance is less than
or equal to the Overcollateralization Floor, (iii) for any three consecutive Due
Periods, the average of the Annualized Default Rates for those Due Periods is
greater than 6.25%; or (iv) for any three consecutive Due Periods, the average
of the Delinquency Rates for those Due Periods is greater than 8.0%.
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 that Payment Date after giving effect to all
principal payments made on that day.
The "Overcollateralization Floor" with respect to each Payment Date means
(a) 2.5% of the Discounted Present Value of the Leases as of the Cut-Off Date,
plus (b) the Cumulative Loss Amount with respect to that 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 that 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
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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 that 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 as of the
related Determination Date of the Discounted Present Value of the Leases that
became Non-Performing Leases during that Due Period minus the sum of the
recoveries on Non-Performing Leases received during that Due Period, divided by
the Discounted Present Value of the Leases on the Determination Date immediately
preceding that Determination Date, multiplied by twelve.
The "Delinquency Rate" means for any Due Period, the sum as of the related
Determination Date of the Discounted Present Value of the Leases that are 61 or
more days delinquent, as of that Determination Date, divided by the Discounted
Present Value of the Leases on that Determination Date.
Collection Account. The Trustee will establish and maintain an Eligible
Account (as defined herein) (the "Collection Account") into which the Servicer
must deposit, as described in the Prospectus, all Lease Payments, Casualty
Payments, Retainable Deposits, Termination Payments, certain proceeds from
purchases 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 (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" is either (a) an account maintained with a
depository institution or trust company acceptable to each of the Rating
Agencies and, so long as no Insurer Default (as defined herein) shall have
occurred and be continuing, the Insurer, 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.
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 the 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 following funds will be deposited into the Collection Account:
(a) Lease Payments;
(b) recoveries from Non-Performing Leases to the extent IOS
Capital has not substituted Substitute Leases for the
Non-Performing Leases;
(c) late charges received on delinquent Lease Payments not
advanced by the Servicer;
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(d) proceeds from purchases 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 those
Leases;
(e) proceeds from investment of funds in the Collection Account
and the Reserve Account, if any;
(f) Casualty Payments;
(g) Retainable Deposits;
(h) Servicer Advances (as defined herein), if any, in respect of
the related Due Period;
(i) Termination Payments to the extent the Issuer does not
reinvest the Termination Payments in Additional Leases (as
defined herein); and
(j) proceeds received once the Issuer exercises its right to
redeem the Notes.
The foregoing funds on deposit in the Collection Account on each
Determination Date (excluding any Lease Payments not due during the related or
any prior Due Period), together with any funds deposited into the Collection
Account from the Reserve Account, will constitute "Available Funds".
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 that have not been replaced.
The Servicer must deposit the funds referred to in clauses (a) through
(d), (f) and (i) above into the Collection Account within two Business Days of
receipt thereof by the Servicer. The funds referred to in clauses (e), (g), (h)
and (j) above are to be deposited into the Collection Account on or prior to the
related Payment Date.
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 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
the amount of the 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 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,
plus all previously accrued and unpaid interest on the 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
occurs with respect to any Payment Date, Additional
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Principal will 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.
On each Payment Date, the Trustee will make required payments of principal
and interest on the Notes from Available Funds.
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 Insurer the Policy premium;
(b) to pay the Servicing Fee;
(c) to reimburse unreimbursed Servicer Advances (as defined
herein) in respect of a prior Payment 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 pay the Insurer any unreimbursed Insured Payments and any
unreimbursed optional payments together with interest thereon
at a per annum rate equal to the greater of the Citibank, N.A.
base rate from time to time plus 2% or the then highest
applicable rate of interest on the Notes (the "Late Payment
Rate");
(f) 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 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;
(g) if an Acceleration Event has occurred, to pay the Additional
Principal, if any, as an additional reduction of principal to
the Noteholders, in the order established in clause (f) above,
until the Outstanding Principal Amount on all of the Class A
Notes has been reduced to zero;
(h) 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; 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. In the absence of any Servicer Event of Default, the Servicer
will be reimbursed for 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 redemption to each Noteholder and the Trustee at
least 30 days before the Payment Date fixed for redemption. Upon deposit of
funds necessary to effect the 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.
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<PAGE>
Events of Default and Notice Thereof. The following events, among others,
will be "Events of Default" with respect to the Notes:
(a) default in making Interest Payments on any Note when due and
payable;
(b) default in making Principal Payments at Stated Maturity;
(c) certain defaults in the performance of covenants or agreements
or breaches of representations or warranties by the Issuer;
(d) the occurrence of a Servicer Event of Default; or
(e) insolvency or bankruptcy events relating to the Issuer.
The Indenture will provide that the Trustee will give the Insurer and 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 Trustee shall, at the direction of the
Insurer (if no Insurer Default has occurred and is continuing) or of holders of
not less than 66-2/3% of the Outstanding Principal Amount of the Notes (if an
Insurer Default has occurred and is continuing), and, if an Insurer Default has
occurred and is continuing, may, declare the unpaid principal amount of the
Notes to be immediately due and payable together with all accrued and unpaid
interest thereon. However, if the Event of Default involves other then non-
payment of principal or interest on the Notes, the Trustee may not sell the
related Leases or any Equipment unless the 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 (if no Insurer Default has occurred and is continuing) or the
holders of 66-2/3% of the then Outstanding Principal Amount of the Notes (if an
Insurer Default has occurred and is continuing).
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 and
surrender of the Notes.
First to the payment of all costs and expenses of collection
incurred by the Trustee, the Insurer and the Noteholders (including the
reasonable fees and expenses of any counsel to the Trustee, the Insurer
and the Noteholders) and all fees and expenses (including legal fees and
expenses) owed to the Trustee under the Indenture;
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 and unreimbursed Servicer Advances
then due to that 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
that 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,
fourth, to the payment of the Outstanding Principal Amount of the Class A-
3 Notes, and fifth to the payment of the Outstanding Principal Amount of
the Class A-4 Notes; provided, that the Noteholders may allocate payments
for interest, principal and premium at their own discretion, except that
no allocation shall affect the allocation of amounts or future payments
received by any other Noteholder;
Fourth to the payment of amounts then due the Insurer under the
Indenture, including policy premiums owed to the Insurer (other than
amounts referred to in clause Fifth);
Fifth to the payment to the Insurer of any unreimbursed Insured
Payments and any unreimbursed optional payments made by the Insurer
together with interest thereon at the Late Payment Rate;
S-27
<PAGE>
Sixth if the person then acting as Servicer is IOS Capital or an
affiliate of IOS Capital, to the payment of all Servicing Fees and
unreimbursed Servicer Advances 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 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 the default.
The Indenture will provide that the Trustee, at the direction of the
Insurer (if no Insurer Default has occurred and is continuing) or the holders of
66-2/3% in aggregate principal amount of the Notes then outstanding (if an
Insurer Default has occurred and is continuing), 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 its rights and powers under
the Indenture and to use the degree of care and skill in their exercise that a
prudent man would exercise or use in the circumstances in the conduct of his own
affairs. Subject to these provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of the
Insurer or the Noteholders unless they have offered the Trustee reasonable
security or indemnity reasonably satisfactory to the Trustee. 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. The consent of the Insurer (if no Insurer
Default has occurred and is continuing) or of the holders of 66-2/3% of the
aggregate principal amount of the Notes (if an Insurer Default has occurred and
is continuing) is required for any modification or amendment.
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 the Insurer or the 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 these Due Periods is greater than 8.0%; and (iii)
if for any three consecutive Due Periods, the average of the Delinquency Rates
for these Due Periods is greater than 10.0%.
Security for the Notes. Repayment of the Notes will be secured by (a) a
first priority security interest in the Leases perfected by filing UCC financing
statements against the Issuer, the Seller and IOS Capital, (b) a first priority
security interest in the Issuer's security interest in the Equipment perfected
by filing UCC financing statements against the Issuer and the Seller and (c) a
first priority security interest in all funds in the Collection Account and the
Reserve Account.
Prepayment and Yield Considerations
The rate of principal payments on the Notes, the aggregate amount of each
interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the 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 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 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 purchase of the
underlying Leases by IOS Capital pursuant to the Assignment and Servicing
Agreement. In this event, the purchase price will decrease the Discounted
Present Value of the Performing Leases, causing the corresponding weighted
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<PAGE>
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 any substitution will 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 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 the 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 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%, 7%,
10% and 12%, respectively, which in each case was calculated using a discount
rate of 6.692%. 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 $307,011,000,
$37,069,000, $336,159,000, and $84,634,000, respectively. The "Statistical Class
Percentage" for the Class A Notes is equal to 84.344399%. This information is
hypothetical and is set forth for illustrative purposes only. The CPR assumes
that a fraction of the outstanding Leases in the 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 Leases in the Asset Pool. The CPR
measures prepayments based on the outstanding discounted present value of the
Leases discounted at 6.692%, after the payment of all Scheduled Payments on the
Leases during the related 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 does not exercise its option to redeem the
Notes and assume the Issuance Date is April 30, 1999 and the first Payment Date
is June 15, 1999. The following charts were created using the Statistical Class
Percentage related to the Initial Statistical Principal Amounts of the
respective class.
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<PAGE>
Percentage of the Initial Principal Amounts at the
Respective CPR Set Forth Below
<TABLE>
<CAPTION>
====================================================================================================================
0% CPR
------------------------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
- ------------------ ------------------------ ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
6/15/99 83 100 100 100
7/15/99 74 100 100 100
8/15/99 66 100 100 100
9/15/99 57 100 100 100
10/15/99 49 100 100 100
11/15/99 41 100 100 100
12/15/99 32 100 100 100
1/15/00 24 100 100 100
2/15/00 16 100 100 100
3/15/00 8 100 100 100
4/15/00 0 100 100 100
5/15/00 0 46 100 100
6/15/00 0 0 99 100
7/15/00 0 0 93 100
8/15/00 0 0 88 100
9/15/00 0 0 82 100
10/15/00 0 0 77 100
11/15/00 0 0 71 100
12/15/00 0 0 66 100
1/15/01 0 0 61 100
2/15/01 0 0 56 100
3/15/01 0 0 51 100
4/15/01 0 0 47 100
5/15/01 0 0 42 100
6/15/01 0 0 38 100
7/15/01 0 0 34 100
8/15/01 0 0 30 100
9/15/01 0 0 26 100
10/15/01 0 0 22 100
11/15/01 0 0 19 100
12/15/01 0 0 15 100
1/15/02 0 0 12 100
2/15/02 0 0 9 100
3/15/02 0 0 6 100
4/15/02 0 0 3 100
5/15/02 0 0 1 100
6/15/02 0 0 0 93
7/15/02 0 0 0 84
8/15/02 0 0 0 73
9/15/02 0 0 0 63
10/15/02 0 0 0 54
11/15/02 0 0 0 46
12/15/02 0 0 0 37
1/15/03 0 0 0 30
2/15/03 0 0 0 23
3/15/03 0 0 0 17
4/15/03 0 0 0 11
5/15/03 0 0 0 6
6/15/03 0 0 0 1
7/15/03 0 0 0 0
WEIGHTED AVERAGE
LIFE(1)(YEARS)
To Maturity: 0.50 1.08 2.00 3.57
To Call: 0.50 1.08 2.00 3.20
</TABLE>
(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 the
relevant Payment Date, (b) adding the results, and (c) dividing the sum by
the Initial Principal Amount of the applicable class.
S-30
<PAGE>
Percentage of the Initial Principal Amounts at the
Respective CPR Set Forth Below
<TABLE>
<CAPTION>
==================================================================================================================
7% CPR
------------------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
- ---------------------- --------------------- --------------------- ------------------------ ------------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
6/15/99 81 100 100 100
7/15/99 71 100 100 100
8/15/99 62 100 100 100
9/15/99 52 100 100 100
10/15/99 42 100 100 100
11/15/99 33 100 100 100
12/15/99 24 100 100 100
1/15/00 15 100 100 100
2/15/00 6 100 100 100
3/15/00 0 79 100 100
4/15/00 0 21 100 100
5/15/00 0 0 96 100
6/15/00 0 0 90 100
7/15/00 0 0 84 100
8/15/00 0 0 78 100
9/15/00 0 0 72 100
10/15/00 0 0 67 100
11/15/00 0 0 61 100
12/15/00 0 0 56 100
1/15/01 0 0 51 100
2/15/01 0 0 47 100
3/15/01 0 0 42 100
4/15/01 0 0 37 100
5/15/01 0 0 33 100
6/15/01 0 0 29 100
7/15/01 0 0 25 100
8/15/01 0 0 21 100
9/15/01 0 0 18 100
10/15/01 0 0 15 100
11/15/01 0 0 11 100
12/15/01 0 0 8 100
1/15/02 0 0 6 100
2/15/02 0 0 3 100
3/15/02 0 0 * 100
4/15/02 0 0 0 92
5/15/02 0 0 0 83
6/15/02 0 0 0 73
7/15/02 0 0 0 64
8/15/02 0 0 0 55
9/15/02 0 0 0 47
10/15/02 0 0 0 39
11/15/02 0 0 0 32
12/15/02 0 0 0 25
1/15/03 0 0 0 19
2/15/03 0 0 0 14
3/15/03 0 0 0 9
4/15/03 0 0 0 5
5/15/03 0 0 0 1
6/15/03 0 0 0 0
7/15/03 0 0 0 0
WEIGHTED AVERAGE
LIFE(1)(YEARS)
To Maturity: 0.45 0.96 1.83 3.42
To Call: 0.45 0.96 1.83 3.03
</TABLE>
(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 the
relevant Payment Date, (b) adding the results, and (c) dividing the sum by
the Initial Principal Amount of the applicable class.
* The percentage of the Outstanding Principal Amount of the Class A-3 Notes
is less than 0.5% of the initial note principal balance on this Payment
Date.
S-31
<PAGE>
Percentage of the Initial Principal Amounts at the
Respective CPR Set Forth Below
<TABLE>
<CAPTION>
=======================================================================================================================
10% CPR
----------------------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
- ----------------------- ------------------------ ---------------------- ------------------------ ------------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
6/15/99 80 100 100 100
7/15/99 70 100 100 100
8/15/99 60 100 100 100
9/15/99 49 100 100 100
10/15/99 39 100 100 100
11/15/99 29 100 100 100
12/15/99 20 100 100 100
1/15/00 10 100 100 100
2/15/00 1 100 100 100
3/15/00 0 47 100 100
4/15/00 0 0 98 100
5/15/00 0 0 92 100
6/15/00 0 0 86 100
7/15/00 0 0 80 100
8/15/00 0 0 74 100
9/15/00 0 0 68 100
10/15/00 0 0 63 100
11/15/00 0 0 57 100
12/15/00 0 0 52 100
1/15/01 0 0 47 100
2/15/01 0 0 43 100
3/15/01 0 0 38 100
4/15/01 0 0 34 100
5/15/01 0 0 29 100
6/15/01 0 0 26 100
7/15/01 0 0 22 100
8/15/01 0 0 18 100
9/15/01 0 0 15 100
10/15/01 0 0 12 100
11/15/01 0 0 9 100
12/15/01 0 0 6 100
1/15/02 0 0 3 100
2/15/02 0 0 * 100
3/15/02 0 0 0 92
4/15/02 0 0 0 83
5/15/02 0 0 0 74
6/15/02 0 0 0 65
7/15/02 0 0 0 56
8/15/02 0 0 0 48
9/15/02 0 0 0 40
10/15/02 0 0 0 33
11/15/02 0 0 0 27
12/15/02 0 0 0 21
1/15/03 0 0 0 16
2/15/03 0 0 0 11
3/15/03 0 0 0 6
4/15/03 0 0 0 2
5/15/03 0 0 0 0
6/15/03 0 0 0 0
7/15/03 0 0 0 0
WEIGHTED AVERAGE
LIFE(1)(YEARS)
To Maturity: 0.42 0.91 1.77 3.35
To Call: 0.42 0.91 1.77 2.95
</TABLE>
(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 the
relevant Payment Date, (b) adding the results, and (c) dividing the sum by
the Initial Principal Amount of the applicable class.
* The percentage of the Outstanding Principal Amount of the Class A-3 Notes
is less than 0.5% of the initial note principal balance on this Payment
Date.
S-32
<PAGE>
Percentage of the Initial Principal Amounts at the
Respective CPR Set Forth Below
<TABLE>
<CAPTION>
=====================================================================================================================
12% CPR
---------------------------------------------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
- ---------------------- ----------------------- ----------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
6/15/99 80 100 100 100
7/15/99 69 100 100 100
8/15/99 58 100 100 100
9/15/99 48 100 100 100
10/15/99 37 100 100 100
11/15/99 27 100 100 100
12/15/99 17 100 100 100
1/15/00 8 100 100 100
2/15/00 0 88 100 100
3/15/00 0 25 100 100
4/15/00 0 0 96 100
5/15/00 0 0 89 100
6/15/00 0 0 83 100
7/15/00 0 0 77 100
8/15/00 0 0 71 100
9/15/00 0 0 65 100
10/15/00 0 0 60 100
11/15/00 0 0 55 100
12/15/00 0 0 49 100
1/15/01 0 0 45 100
2/15/01 0 0 40 100
3/15/01 0 0 35 100
4/15/01 0 0 31 100
5/15/01 0 0 27 100
6/15/01 0 0 23 100
7/15/01 0 0 20 100
8/15/01 0 0 16 100
9/15/01 0 0 13 100
10/15/01 0 0 10 100
11/15/01 0 0 7 100
12/15/01 0 0 4 100
1/15/02 0 0 1 100
2/15/02 0 0 0 96
3/15/02 0 0 0 87
4/15/02 0 0 0 78
5/15/02 0 0 0 68
6/15/02 0 0 0 59
7/15/02 0 0 0 51
8/15/02 0 0 0 43
9/15/02 0 0 0 36
10/15/02 0 0 0 30
11/15/02 0 0 0 24
12/15/02 0 0 0 18
1/15/03 0 0 0 13
2/15/03 0 0 0 9
3/15/03 0 0 0 5
4/15/03 0 0 0 1
5/15/03 0 0 0 0
6/15/03 0 0 0 0
7/15/03 0 0 0 0
WEIGHTED AVERAGE
LIFE(1)(YEARS)
To Maturity: 0.41 0.89 1.72 3.31
To Call: 0.41 0.89 1.72 2.94
</TABLE>
(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 the
relevant Payment Date, (b) adding the results, and (c) dividing the sum by
the Initial Principal Amount of the applicable class.
S-33
<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. The tax consequences to holders subject to special rules, 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, are not discussed below or in the
Prospectus. In particular, this discussion applies only to 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 it 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 this debt 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 its adjusted basis in the Note. See "Material Federal Income Tax
Consequences--Sale or Exchange" in the Prospectus.
S-34
<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 the 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
those 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, those plans may be subject to comparable
federal, state or local law restrictions.
Some 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 the employee benefit plan's or the IRA's investment in that 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 these 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 this
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 the 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.
S-35
<PAGE>
Use of Proceeds
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
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 warehouse facility
to Market Street Funding Corporation, for which PNC Bank, National Association
is agent. PNC Bank, National Association, 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 financial strength ratings 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 Notes,
inasmuch as the ratings do not comment as to market price or suitability for a
particular investor. There is no assurance that any rating will continue for any
period of time or that it will not be lowered or withdrawn entirely by the
Rating Agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of a rating may have an adverse affect on the market price of the
Notes. The rating of the Notes addresses the likelihood of the timely payment of
interest and the ultimate payment of principal on the Notes by 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.
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 each of the underwriters, Lehman Brothers Inc., PNC Capital Markets, Inc.,
Chase Securities Inc. and Deutsche Bank Securities Inc. has severally agreed to
purchase, the principal amount of the Notes set forth below:
Principal Amount (Approximate)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers PNC Capital Markets Chase Securities Deutsche Bank Securities Totals
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes $ $ $ $ $
Class A-2 Notes $
Class A-3 Notes $
Class A-4 Notes $
---------------- ---------------- ----------------- -------------------- --------------
Totals $ $ $ $ $
</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 these prices, 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 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
S-36
<PAGE>
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 the
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 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 the syndicate member are purchased in a syndicate
covering transaction. Such over-allotment 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
these transactions. The Issuer and the Underwriters do not represent that the
Underwriters will engage in any of these transactions. These transactions, once
commenced, may be discontinued without notice at any time.
For further information regarding any offer or sale of the Notes pursuant
to this Prospectus Supplement and the Prospectus, see "Plan of Distribution" in
the Prospectus.
Experts
The consolidated financial statements of Ambac Assurance Corporation and
subsidiaries as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998 are incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of that firm as experts in accounting and auditing.
Legal Matters
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-37
<PAGE>
Index Principal Defined Terms
Acceleration Event..................................................S-22
Additional Lease....................................................S-18
Additional Principal................................................S-22
Adjusted Lease......................................................S-18
Ambac...............................................................S-10
Annualized Default Rate.............................................S-22
Asset Pool..........................................................S-13
Assignment and Servicing Agreement..................................S-13
Available Funds Shortfall...........................................S-24
Available Reserve Amount............................................S-24
Benefit Plan........................................................S-34
Business Day........................................................S-12
Casualty............................................................S-23
Casualty Payment....................................................S-23
CEDEL...............................................................S-20
Class A Initial Principal Amount....................................S-20
Class A Noteholders.................................................S-21
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 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 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 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 Noteholders...............................................S-20
Class A-4 Notes.....................................................S-20
Class A-4 Stated Maturity Date......................................S-21
Code S-33
Collection Account..................................................S-23
CPR ...............................................................S-28
Cumulative Loss Amount..............................................S-22
Delinquency Rate....................................................S-23
Determination Date..................................................S-21
Discount Rate.......................................................S-21
Discounted Present Value of the Leases..............................S-21
Discounted Present Value of the Performing Leases...................S-21
DTC ...............................................................S-20
Due Period..........................................................S-21
Early Lease Termination.............................................S-18
Early Termination Lease.............................................S-18
Eligible Account....................................................S-23
Equipment...........................................................S-13
Euroclear...........................................................S-20
Events of Default...................................................S-25
Excess Copy Charge..................................................S-13
Fitch IBCA..........................................................S-10
Initial Principal Amount............................................S-20
Initial Statistical Principal Amount................................S-28
S-38
<PAGE>
Insured Payment.....................................................S-12
Insurer.............................................................S-10
Interest Accrual Period.............................................S-21
Interest Payments...................................................S-21
Interest Rate.......................................................S-21
IRA.................................................................S-34
IRS.................................................................S-33
Issuance Date.......................................................S-12
Late Payment Rate...................................................S-25
Lease Payment.......................................................S-23
Lease Receivables...................................................S-13
Lessor..............................................................S-13
Maintenance Charge..................................................S-13
Moody's.............................................................S-10
Non-Performing Leases...............................................S-14
Note Principal Balance..............................................S-12
Noteholders.........................................................S-12
Notes...............................................................S-20
Outstanding Principal Amount........................................S-24
Outstanding Principal Amounts.......................................S-21
Overcollateralization Balance.......................................S-22
Overcollateralization Floor.........................................S-22
Plan Assets Regulation..............................................S-34
Policy...............................................................S-7
Preference Amount...................................................S-12
Principal Payments..................................................S-21
PTCE................................................................S-34
Rating Agency.......................................................S-35
Record Date.........................................................S-21
Required Payments...................................................S-24
Required Reserve Amount.............................................S-24
Reserve Account.....................................................S-24
S&P.................................................................S-10
Servicer Advance....................................................S-25
Servicer Events of Default..........................................S-27
Servicing Fee.......................................................S-19
Statistical Class Percentage........................................S-28
Substitute Lease....................................................S-18
Tax Counsel.........................................................S-33
Termination Payment.................................................S-23
Warranty Lease......................................................S-18
S-39
<PAGE>
================================================================================
$764,873,000
(Approximate)
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
Chase Securities Inc.
Deutsche Bank Securities
PNC Capital Markets, Inc.
Dated May __, 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.
(Approximately) $307,011,000 of ___% Class A-1
Lease-Backed Notes
(Approximately) $37,069,000 ___% Class A-2
Lease-Backed Notes
(Approximately) $336,159,000 of ___% Class A-3
Lease-Backed Notes
(Approximately) $84,634,000 of ___% Class A-4
Lease-Backed Notes
================================================================================
<PAGE>
Prospectus
- --------------------------------------------------------------------------------
1,825,000,000
IKON Receivables, LLC Lease-Backed Notes
Issuer Issuable in Series
- --------------------------------------------------------------------------------
You should read the section entitled "Risk Factors" starting on Page 7 of this
prospectus and consider these factors before making a decision to invest in the
notes.
Retain this prospectus for future reference. This prospectus may not be used to
make sales of securities unless accompanied by the prospectus supplement
relating to the offering of the securities.
From time to time the issuer may sell a series of its notes that --
. will represent debt obligations solely of the issuer;
. will be payable only from the pledged assets of the issuer and any credit
enhancement for that series; and
. will consist of one or more classes on terms to be determined at the time of
sale.
The assets backing the notes may consist of any combination of --
. leases;
. installment sale contracts;
. rental stream obligations;
. monies received relating to the leases, agreements, contracts and obligations;
. funds on deposit in one or more accounts; and
. one or more forms of credit enhancement.
The terms of your series of notes are described in this prospectus and the
accompanying prospectus supplement.
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. Any representation to the contrary is
a criminal offense.
The date of this prospectus is May 7, 1999.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Important Information about this Prospectus and the Accompanying Prospectus Supplement... 3
Prospectus Summary........................................................................ 4
Risk Factors.............................................................................. 7
Where You Can Find More Information....................................................... 12
The Issuer................................................................................ 13
The Asset Pools........................................................................... 13
Management's Discussion and Analysis of Financial Condition............................... 14
Directors and Executive Officers of the Manager of the Issuer............................. 14
The Leases................................................................................ 15
Pool Factors.............................................................................. 18
Use of Proceeds........................................................................... 18
The Originator's Leasing Business......................................................... 18
The Trustee............................................................................... 22
Description of the Notes.................................................................. 23
Description of the Transaction Documents.................................................. 29
Legal Aspects of the Lease Receivables.................................................... 35
Material Federal Income Tax Consequences.................................................. 37
Ratings................................................................................... 42
ERISA Considerations...................................................................... 42
Plan of Distribution...................................................................... 42
Legal Opinions............................................................................ 42
Experts................................................................................... 43
Index To Financial Statements............................................................. 44
Index Of Terms............................................................................ 48
</TABLE>
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Important Information about this
Prospectus and the Accompanying Prospectus Supplement
The prospectus supplement for your series of notes will state:
. the aggregate principal amount, interest rate and authorized
denominations of the notes;
. specific information concerning the characteristics of the lease
receivables;
. the terms of any credit enhancement with respect to the notes;
. information concerning any other assets backing the notes, including
any reserve fund;
. the final scheduled payment date of the notes;
. how and when principal is to be paid on the notes on each payment
date, the timing of the application of principal and the order of
priority of the applications of the principal to the respective
classes of the notes;
. the federal income tax characterization of the notes;
. the terms of any subordination relating to the notes;
. the terms of any cross-collateralization relating to the notes;
. the terms of any redemptions and the related redemption prices
relating to the notes;
. servicing terms relating to the notes;
. the presence of any prefunding feature relating to the notes;
. the length and terms of any revolving period relating to the notes;
and
. additional information on the plan of distribution of the notes.
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Prospectus Summary
. This summary highlights select information from this prospectus 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 and the accompanying prospectus
supplement.
. This summary provides an overview of calculations, cash flows and other
information to aid your understanding. To understand all of the terms of the
offering, carefully read this entire document and, in particular, the full
description of these calculations, cash flows and other information in this
prospectus.
Lease-Backed Notes
Issuable in Series
Issuer
IKON Receivables, LLC, a Delaware limited liability company.
Originator
IOS Capital, Inc., a Delaware corporation formerly known as IKON Capital Inc.
and a wholly-owned subsidiary of IKON Office Solutions, Inc.
Seller
IKON Receivables-1, LLC, a Delaware special purpose limited liability company.
Servicer
The servicer will be IOS Capital unless otherwise specified in the related
prospectus supplement.
Trustee
For any series of notes, the trustee named in the related prospectus supplement.
The Notes
. The notes of each series will be secured solely by office equipment leases or
contracts and related assets. The assets will be pledged by the issuer to a
trustee under an indenture for the benefit of noteholders of that series.
. The transaction documents relating to each series of notes will describe the
rights of each of the related classes of notes to the funds derived from the
related asset pool.
. The notes will be fixed income securities, having a principal balance and a
specified interest rate.
. Each class of notes may have a different interest rate, which may be a fixed
or floating interest rate. The related prospectus supplement will specify the
interest rate for each series or class of notes, or the initial interest rate
and the method for determining subsequent changes to the interest rate.
. A series may include one or more classes of notes which are:
. stripped of regular interest payments and entitled only to principal
distributions, with disproportionate, nominal or no interest distributions;
or
. stripped of regular principal payments and entitled only to interest
distributions, with disproportionate, nominal or no principal
distributions.
. A series of notes may include two or more classes of notes with different
terms including different interest rates and different timing, sequential order
or priority of payments, amount of principal or interest or both.
. A series may provide that distributions of principal or interest or both on
any class may be made:
. upon the occurrence of specified events;
. in accordance with a schedule or formula; or
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<PAGE>
. on the basis of collections from designated portions of the related asset
pool.
. Any series may include one or more classes of notes which will not distribute
accrued interest but rather will add the accrued interest to the note principal
balance, or nominal balance, in the manner described in the related prospectus
supplement.
. A series may include one or more other classes of notes that are senior to
one or more other classes of notes in respect of distributions of principal and
interest and allocations of losses on the related asset pool.
The Asset Pools
. As specified in the related prospectus supplement, the pledged pool of assets
securing a series of notes may consist of:
. leases which may include any combination of leases, leases intended as
security agreements, installment sale contracts or rental stream
obligations, together with certain monies due on these leases and
agreements and related guarantees;
. interests other than ownership interests in the underlying equipment and
related property, together with the proceeds from disposal of the
equipment, if any;
. amounts held in any collection, reserve, prefunding or other accounts
established pursuant to the transaction documents;
. proceeds and recoveries on insurance policies and the disposition of
repossessed equipment;
. credit enhancement for an asset pool or any class of notes; and
. interest earned on certain short-term investments.
. If the related prospectus supplement specifies, the trustee may acquire
additional leases and equipment during a specified pre-funding period following
the issuance of the notes from monies in a pre-funding account.
. If the related prospectus supplement specifies, the notes may have a
revolving period. During a revolving period, the issuer may acquire additional
leases and interests in equipment from the proceeds of payments on existing
lease payments. The notes may not pay principal during this period.
Payment Date
As described in the related prospectus supplement, the notes will pay principal
and/or interest on specified dates. Payment dates will occur monthly,
quarterly, or semi-annually.
Due Period
The calendar month preceding the month in which a payment date occurs is the due
period. As the related prospectus supplement will more fully describe, the
servicer will remit collections received in respect of the due period to the
trustee prior to the related payment date. The collections may be used to fund
payments to noteholders on that payment date or to acquire additional lease
receivables.
Record Date
The related prospectus supplement will describe a date preceding the payment
date, as of which the issuer or its paying agent will fix the identity of the
holders of the notes. Noteholders whose identities are fixed on this date will
receive payments on the next succeeding payment date.
Registration of Notes
The issuer will initially issue the notes as global notes registered in the name
of Cede & Co. as nominee of The Depository Trust Company, or another nominee.
Noteholders will not receive definitive notes representing their interests,
except in limited circumstances described in the related prospectus supplement.
Credit Enhancement
. As described in the related prospectus supplement,
credit enhancement for an asset pool or any class of notes may include any one
or more of the following:
. a policy issued by an insurer specified in the related prospectus
supplement;
. overcollateralization;
. subordination of certain classes of notes;
. a reserve account;
. letters of credit;
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<PAGE>
. credit or liquidity facilities;
. third party payments or other support; and
. cash deposits or other similar arrangements.
. The prospectus supplement will describe any limitations and exclusions from
coverage.
Optional or Mandatory Termination
. Under the circumstances described in this prospectus and the related
prospectus supplement, the servicer, the seller, the issuer or other entities
may, at their respective options, cause the early retirement of a series of
notes at the price or prices indicated in the related prospectus supplement.
. The related prospectus supplement may describe circumstances under which the
issuer, servicer or other entities will be required to retire early all or any
portion of a series of notes. An indenture may require these parties to solicit
competitive bids for the purchase of the related asset pool or otherwise.
Tax Considerations
For federal income tax purposes, Dewey Ballantine LLP, special tax counsel to
the issuer, will render an opinion upon issuance of a series of notes 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. You
should consult your tax advisors.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus and the related prospectus supplement,
pension, profit-sharing or other employee benefit plans, as well as individual
retirement accounts and types of Keogh Plans may purchase the notes. You should
consult with your counsel regarding the applicability of the provisions of ERISA
before purchasing a note.
Ratings
. The issuer will not issue the notes unless a rating agency rates them in one
of the four highest rating categories.
. You must not assume that the rating agency will not lower, qualify or
withdraw its rating.
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<PAGE>
Risk Factors
You should carefully consider, among other things, the following risk factors
before deciding to invest in the notes offered by this prospectus.
<TABLE>
<S> <C>
You May Not Be Able to Sell Your There is currently no public market for the notes. If no public market
Notes develops, you may not be able to sell your notes. The underwriters expect
to make a market in the notes but they are not required to do so. There
is no assurance that any market will be created or, if created, will
continue.
Prepayments and Related Reinvestment In the case of notes purchased at a discount, you should consider the risk
May Reduce Your Yield that slower than anticipated rates of prepayments on the leases could
result in an actual yield that is less than the anticipated yield.
Conversely, you should consider the risk that in the case of notes
purchased at a premium, a faster than the anticipated rate of prepayments
could result in an actual yield that is less than the anticipated yield.
Be aware that you bear the risk of reinvesting unscheduled distributions
resulting from prepayments of the notes.
The rate of payment of principal is unpredictable because the rate on the
notes will depend on, among other things, the rate of payment on the
underlying leases. In addition to the normally scheduled payments on the
leases, payments may come from a number of different sources, including
the following:
. prepayments permitted by the servicer;
. payments as a result of leases which are defaulted;
. payments as a result of leases accelerated by the servicer;
. payments due to loss, theft, destruction or other casualty; and
. payments upon repurchases by IOS Capital on account of a breach of
representations and warranties.
Subject to limitations, IOS Capital may elect to reinvest the proceeds of
a lease which has been partially or fully repaid or upgraded in one or
more additional leases and to substitute leases for defaulted, repurchased
or modified or adjusted leases. Reinvestments and substitutions may
affect the rate or amount of payments on the leases as a whole, the rate
at which funds are distributed on the notes and the yield to noteholders.
The rate of early terminations of leases due to prepayments and various
non-payments may be influenced by a variety of economic and other factors.
For example, adverse economic conditions and natural disasters, including
floods, hurricanes, earthquakes and tornadoes, may affect prepayments.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
No Ownership Interest in the Neither the issuer nor the trustee for the benefit of noteholders will
Equipment; Certain Security have any ownership interest in any equipment, including any residual
Interests are Not Perfected and interest in the equipment at the end of the related lease term. Also, IOS
Other Creditors May Have Rights to Capital has not filed and will not file financing statements to perfect
the Equipment any security interest it may have in any of the equipment. Although any
security interest of IOS Capital in the equipment will be assigned by IOS
Capital to the seller and by the seller to the issuer, none of IOS
Capital, the seller, the issuer nor the trustee will have a perfected
security interest in the equipment against lessees. This lack of a
perfected security interest in the equipment may result in other creditors
of the related lessees acquiring rights in the equipment superior to those
of the issuer or the trustee and may adversely affect the ability of the
issuer or the trustee on behalf of noteholders to recover any monies on
the equipment following a lease default. This could reduce the funds
available to pay the notes. Accordingly, noteholders should not rely on
the sale, release or other disposition of any leased equipment for payment
on the notes.
State Laws and Other Factors May State laws impose requirements and restrictions on foreclosure sales and
Impede Recovery Efforts and Affect obtaining deficiency judgments and may prohibit, limit or delay
the Ability of the Issuer to Recoup repossession and sale of equipment to recover losses on non-performing
the Full Amount Due on the Leases leases.
Additional factors that may affect the issuer's ability to recoup the full
amount due on a lease include:
. the issuer's lack of any ownership interest in any of the equipment;
. the issuer's failure to file financing statements to perfect its security
interest in equipment against a lessee;
. depreciation;
. obsolescence;
. damage or loss of any item of equipment; and
. the application of federal and state bankruptcy and insolvency laws.
As a result, the noteholders may be subject to delays in receiving
payments and losses.
Possession of the Leases by and the Any insolvency by the issuer, the servicer, the originator or the seller,
Insolvency of the Issuer, while in possession of the leases may result in competing claims to
Originator, Seller or Servicer May ownership or security interests in the leases which could result in delays
Result in Reduced or Delayed in payments on the notes, losses to the noteholders or an acceleration of
Payments to Noteholders the repayment of the notes.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Commingling of Funds with IOS If bankruptcy or reorganization proceedings are commenced with respect to
Capital May Result in Reduced or the servicer, any funds then held by the servicer may be unavailable to
Delayed Payments to Noteholders noteholders. If those funds are not transferred to the trustee, as
required by the indenture, payments to noteholders could be delayed or
reduced if the servicer becomes bankrupt or insolvent.
Insolvency of IOS Capital or IKON In some circumstances, a bankruptcy of IOS Capital or IKON Receivables-1,
Receivables-1, LLC May Reduce LLC may reduce payments to noteholders. IOS Capital and IKON
Payments to Noteholders Receivables-1, LLC believe that each contribution of the leases should be
treated as an absolute and unconditional assignment.
However, in the event of an insolvency of IOS Capital or IKON
Receivables-1, LLC, a court or bankruptcy trustee could attempt to:
. recharacterize the contribution of the related leases by IOS Capital to
IKON Receivables-1, LLC as a loan from IKON Receivables-1, LLC to IOS
Capital secured by a pledge of the leases; or
. recharacterize the contribution of the related leases by IKON
Receivables-1, LLC to the issuer as a loan from the issuer to IKON
Receivables-1, LLC secured by a pledge of the leases; or
. consolidate the assets of the issuer with those of IOS Capital because IOS
Capital will indirectly own all of the membership interests in the issuer;
or
. consolidate the assets of the issuer with those of IKON Receivables-1, LLC
because IKON Receivables-1, LLC will own all of the membership interests
in the issuer.
If either recharacterization or consolidation were successful, the
bankruptcy trustee could repudiate any leases that are considered to be
operating leases for bankruptcy law purposes and all obligations relating
to any operating leases. An attempt to recharacterize the transactions,
even if unsuccessful, could result in delays in payments to you. If
either attempt were successful, the notes would be accelerated, and the
trustee's recovery on your behalf could be limited to the then current
value of the leases or the underlying equipment. Consequently, you could
lose the right to future payments and you may not receive your anticipated
principal and interest on the notes.
Although IOS Capital and IKON Receivables-1, LLC both believe that the
contribution of the leases should be treated as an absolute and
unconditional assignment, the leases will be treated as assets of IOS
Capital for tax purposes. This treatment of the assets might increase the
risk of recharacterization of the transfer.
Transfer of Servicing May Delay If IOS Capital were to cease servicing the leases, delays in processing
Payments to Noteholders payments on the leases and information regarding lease payments could
occur. This could delay payments to the noteholders.
</TABLE>
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<TABLE>
<S> <C>
Default or Insolvency of Lessees May If lessees default on the leases, lease payments will decrease and funds
Reduce Payments to Noteholders available for payment to you could be reduced.
No Recourse Against Affiliates of There is no recourse against any affiliates of the issuer. The notes
the Issuer represent debt of the issuer payable solely from the related asset pool
and any applicable credit enhancement. If the lease payments, any other
assets pledged to secure the notes and any applicable credit enhancement
are insufficient to pay the notes in full, you have no rights to obtain
payment from IOS Capital or any of its affiliates other than the issuer.
The issuer is a limited liability company with limited assets.
Losses and Delinquencies on the We cannot guarantee that the delinquency and loss levels of leases in the
Leases May Differ From the asset pools will correspond to the historical levels the originator
Originator's Historical Loss and experienced on its equipment lease portfolio. There is a risk that
Delinquency Levels delinquencies and losses could increase or decline significantly for
various reasons including:
. changes in the federal income tax laws; or
. changes in the local, regional or national economies.
Risks Associated with Year 2000 The originator is faced with the task of completing its goals for
Compliance compliance in connection with the year 2000 issue. The year 2000 issue is
the result of certain computer programs being written using two digits to
define the applicable year. Any computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in major computer system
failure or miscalculations. Although the originator reasonably believes
that its servicing system will be year 2000 compliant prior to the year
2000, it is presently engaged in various procedures to determine if its
computer systems and software, and those of its material suppliers,
customers, brokers and agents will be year 2000 compliant.
If the originator, any affiliate or any of their suppliers, customers,
brokers or agents do not successfully and timely achieve year 2000
compliance, the originator's performance of its obligations under the
transaction documents, including servicing of the leases could be
adversely affected. This could result in delays in payments and in
processing payments on the leases and could cause a delay in distributions
to you.
The Addition and Substitution of If a significant number of leases are added or replaced, this could affect
Leases May Adversely Affect the rate at which funds are distributed on the notes and decrease the
Cashflow and May Decrease the Yield yield to noteholders. The transaction documents will permit IOS Capital
on the Notes under certain circumstances, to substitute or add qualifying leases. The
addition or substitution of leases may include leases that have different
payment due dates, installment amounts and maturity dates than the
existing or substituted leases.
</TABLE>
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<TABLE>
<S> <C>
IOS Capital may only add or substitute leases that meet qualifying
characteristics and conditions. The ability of IOS Capital to acquire
qualifying leases depends upon its ability to originate enough leases
that meet the specified eligibility criteria. This may be affected by a
variety of social and economic factors, including interest rates,
unemployment levels, the rate of inflation and public perception of
economic conditions generally. The addition or substitution of leases
could increase the geographic, equipment or other concentrations of the
related asset pool. Consequently, any adverse economic or social factors
that particularly affect a particular geographic area, certain types of
equipment or other concentrations of leases in the related asset pool may
adversely affect the performance of the asset pool, which, in turn, could
lower the rating of the notes.
Technological Obsolescence of If technological advances relating to office equipment cause leased
Equipment May Reduce Value of equipment to become obsolete, the value of the equipment will decrease.
Collateral This will reduce the amount of monies recoverable should the equipment be
sold following a lease default and you may not recover the full amount due
on your notes.
</TABLE>
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Where You Can Find More Information
The issuer or the servicer will file with the SEC all required annual,
quarterly and special reports, proxy statements and other information about the
notes. You can read and copy these documents at the public reference facility
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, DC 20549. You can also copy and inspect these reports, proxy
statements and other information at the following regional offices of the
SEC:
<TABLE>
<CAPTION>
<S> <C>
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, Illinois 60661
</TABLE>
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. SEC filings are also available to the public on the
SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus. Information that we file later with
the SEC will automatically update the information in this Prospectus. In all
cases, you should rely on the later information over different information
included in this Prospectus or the Prospectus Supplement. We incorporate by
reference any future annual, monthly and special SEC reports and proxy materials
filed by or on behalf the issuer until we terminate our offering of the notes.
We filed a registration statement relating to the notes with the SEC.
This Prospectus is part of the registration statement but the registration
statement includes additional information. As a recipient of this Prospectus,
you may request a copy of the registration statement and any document we
incorporate by reference, except exhibits to the documents (unless the exhibits
are specifically incorporated by reference), at no cost, by writing or calling
us at:
IOS Capital, Inc.
1738 Bass Road
P.O. Box 9115
Macon, GA 31208
(912) 471-2300
You should rely only on the information incorporated by reference or
provided in this prospectus or the accompanying Prospectus Supplement. We have
not authorized anyone else to provide you with different information.
You can find a listing of the pages where capitalized terms are
defined under "Index of Terms" beginning on page 47 in this Prospectus.
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<PAGE>
The Issuer
The Issuer, IKON Receivables, LLC, is a Delaware limited liability
company all of the membership interests in which will be held by the Seller,
IKON Receivables-1, LLC, also a special purpose Delaware limited liability
company. All of the membership interests in the Seller will, in turn, be held
by the Originator and Servicer, IOS Capital, Inc. The Issuer was organized for
the limited purpose of engaging in the transactions described herein and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes and is restricted by its organizational documents and certain
agreements from engaging in other activities. In addition, its organizational
documents and certain agreements require it to operate in a manner so that it
should not be consolidated in the bankruptcy estate of the Originator or its
affiliates in the event that one of them becomes subject to bankruptcy or
insolvency proceedings. The Issuer's address is 1738 Bass Road, P.O. Box 9115,
Macon, Georgia 31208.
The Issuer will from time to time sell a series of Notes consisting of
one or more classes on terms to be determined at the time of sale and described
in a related Prospectus Supplement. The Notes of each series will be secured
solely by the related 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 Pools. The Servicer for any Asset Pool relating to any series of Notes
may be IOS Capital or another affiliate of the Issuer.
The Issuer will pledge its interests in an Asset Pool to a Trustee in
respect of the related series of Notes pursuant to an Indenture between the
Issuer and the Trustee.
The balance sheet of the Issuer at April 6, 1999 is attached as
Exhibit 1 hereto.
The Asset Pools
The Notes of each series will be secured by a segregated pool of
equipment leases or contracts and related assets (an "Asset Pool"). The
property comprising each Asset Pool may include (i) a pool of leases, which may
include any combination of leases, leases intended as security agreements,
installment sale contracts or rental stream obligations (each, a "Lease"), (ii)
specified monies due under the Leases on or after a specified date (the "Cut-off
Date"), (iii) monies held from time to time in one or more accounts established
and maintained pursuant to the related Transaction Documents (as defined
herein), (iv) a security interest in the Seller's interests in the underlying
equipment and related property relating to the pool of Leases (such equipment
and related property, the "Equipment"), (v) the rights of the Issuer under the
Assignment and Servicing Agreement (as defined herein) relating to the Asset
Pool and (vi) investment earnings on certain accounts created under the related
Indenture. The Leases, including the Issuer's security interest in the
underlying equipment and other property relating to the Leases, in an Asset Pool
are referred to as the "Lease Receivables."
The Issuer will not have and the Asset Pools will not include any
residual interest in any Equipment after the related Lease has been paid in
full.
The Equipment generally will be limited to personal property which is
leased or financed by the Originator to lessees (each a "Lessee" and,
collectively, "Lessees") pursuant to Leases which either are "chattel paper" (as
defined in the Uniform Commercial Code) or are Leases that are not treated
materially differently from "chattel paper" for purposes of title transfer,
security interests or remedies on default.
The Lease Receivables will be acquired by the Seller from the
Originator under 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 by the Seller to
the Issuer pursuant to the Assignment and Servicing Agreement. The Leases
included in an Asset Pool will be selected from Leases held by the Originator
based on the criteria described under "The Leases--Eligible Leases."
On or prior to the date of issuance of the Notes of any series to the
holders of Notes, the Issuer will form an Asset Pool by (i) acquiring Lease
Receivables pursuant to the related Assignment and Servicing Agreement and (ii)
entering into an Indenture with the Trustee, relating to the issuance of the
Notes.
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The Leases in each Asset Pool will have been originated by the
Originator or acquired by the Originator in accordance with the Originator's
specified underwriting criteria. The material underwriting criteria applicable
to the Leases are described under "Originator's Leasing Business."
Management's Discussion and Analysis of Financial Condition
As of the date of this Prospectus, the Issuer has no operating
history. The net proceeds of the sale of the Notes will be used to fund any
applicable reserve or other accounts and to make distributions to the owner of
the Issuer. See "Use of Proceeds." The Issuer is prohibited by its Limited
Liability Company Agreement from engaging in business other than (i) the
purchase of equipment leases and Lease Receivables from IOS Capital and its
affiliates, (ii) the issuance of notes collateralized by its assets and (iii)
engaging in acts incidental, necessary or convenient to the foregoing and
permitted under Delaware law. The Issuer's ability to incur, assume or guaranty
indebtedness for borrowed money is also restricted by its Limited Liability
Company Agreement to only those activities that relate to the Lease
Receivables.
Directors and Executive Officers of the Manager of the Issuer
The following table sets forth the executive officers and directors of
IKON Receivables Funding Inc., the Manager of the Issuer, and their ages and
positions as of April 30, 1999. Because the Issuer is organized as a special
purpose company and will be largely passive, it is expected that the officers
and directors of the Manager will participate in the management of the Issuer
only to a limited extent. Most of the actions related to maintaining and
servicing the assets will be performed by the Servicer.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Name Age Position
<S> <C> <C>
Robert McLain 73 President, Director, Principal Executive Officer,
Principal Financial Officer and Principal
Accounting Officer
Patricia Donato 35 Secretary & Director
Joseph Churchman 62 Director
Robert C. Campbell 41 Director
Robert W. Grier 40 Director
Karin M. Kinney 38 Secretary
Thomas Sheehan 39 Treasurer
</TABLE>
Robert K. McLain has served as Director since being elected on January
20, 1999. Mr. McLain joined the Alco Standard Corporation in 1972 and served in
various positions including Assistant Corporate Controller, Controller and Vice
President until his retirement from the company in 1991. From the time he
retired from Alco until September 30, 1998, he organized and managed Delaware
investment companies, which include subsidiaries of IKON Office Solutions, Inc.
and Unisource Worldwide, Inc., on a part-time basis.
Patricia A. Donato has served as Director since being elected on
January 20, 1999. Ms. Donato joined the Alco Standard Corporation as a Tax
Coordinator in 1988. Since January 1991, she has served as Office Manager, and
subsequently, Controller, for investment companies in Delaware, which include
subsidiaries of IKON Office Solutions, Inc. and Unisource Worldwide, Inc..
Joseph B. Churchman has served as Director since being elected on
January 20, 1999. Mr. Churchman joined Alco Standard Corporation in 1975 as
Corporate Accounting Manager. He subsequently served as Manager of Alco's Data
Services and as President of Alco Health Services, now known as Amerisource,
until his retirement in 1988. Currently, Mr. Churchman is a business consultant
and serves as a director of several Delaware investment companies.
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Robert C. Campbell has served as Director since being elected on April
9, 1999. Mr. Campbell, the Co-founder and Managing Director of Entity Services
Group, L.L.C., advises corporations on structural and tax ramifications arising
from their holding companies. Mr. Campbell, a Certified Public Accountant, has
also served as a Tax Manager at KPMG LLP where he advised corporate clients on
tax planning and compliance issues. Prior to joining KPMG LLP, Mr. Campbell
worked at the captive-finance subsidiary of Sears Roebuck & Co.
Robert W. Grier has served as Director since being elected on April 9,
1999. Presently, Mr. Grier is Executive Vice President of Entity Services
Group, L.L.C. Mr. Grier has previously served as a Senior Tax Manager at KPMG
LLP, where he advised companies, ranging from closely-held to multi-national
corporations, on compliance and tax planning issues. Prior to joining KPMG LLP,
Mr. Grier was employed by Simon, Master & Sidlow, P.A., a Wilmington accounting
firm.
Karin M. Kinney has served as Secretary of IKON Office Solutions, Inc.
since 1996 and as Corporate Counsel since 1994. From 1987 through 1994, Ms.
Kinney served as Counsel.
Thomas Sheehan has served as Director of Financial Accounting,
Planning & Analysis for IKON Office Solutions, Inc. from December 1998 to the
present. Prior to assuming his current position, Mr. Sheehan served as Director
of Operational Support, Planning & Analysis from November 1996 through December
1998, Director of Financial Accounting from March 1994 through November 1996,
and Senior Manager, Advisory Services-Domestic from November 1993 through March
1994. Before joining IKON Office Solutions, Inc., Mr. Sheehan served as an
Atlanta-Regional Controller for Unijax Sloan, a Philadelphia-Assistant
Controller for Garrett-Buchanan Co. and a Valley Forge-Manager, Group Accounting
for Paper Corporation of America.
The Leases
Information with respect to the Lease Receivables in each Asset Pool
will be set forth in the related Prospectus Supplement, including the
composition of the Lease Receivables and the distribution of the Lease
Receivables by equipment type, payment frequency and Discounted Present Value of
the Leases (as defined herein) as of the applicable Cut-Off Date. As of the
date of issuance of the Notes of any series, no more than 5% of the Lease
Receivables in the related Asset Pool (as measured by Discounted Present Value
of the Leases) will deviate from the characteristics of the Lease Receivables
described in the related Prospectus Supplement.
Eligible Leases
All Leases have been originated or acquired in the ordinary course of
the Originator's business and comply with the Originator's credit and
collections policies. In addition, the following eligibility requirements apply
or will apply to all Leases on or prior to the related Cut-Off Date
(collectively, "Eligible Leases"):
(i) The Leases are valid and enforceable, and unconditionally
obligate the Lessee to make periodic Lease Payments (as defined herein)
(including taxes);
(ii) The Leases are noncancellable by the Lessee and do not contain
early termination options (except for Leases which contain early
termination or prepayment clauses that require the Lessee to pay all
remaining scheduled payments under the Lease upon early termination or
prepayment);
(iii) All payments payable under the Leases are absolute,
unconditional obligations of the Lessees;
(iv) All of the Leases require the Lessee or a third party to
maintain the Equipment in good working order, to bear all the costs of
operating the Equipment, including taxes and insurance relating thereto;
(v) The Leases do not materially violate any U.S. or state laws;
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(vi) In the event of a Casualty (as defined herein), the Lessee is
required to pay at a minimum the outstanding principal or net book value of
the Leases and any applicable make-whole premium;
(vii) The Leases have been transferred to the Issuer free and clear
of any liens and are assignable without prior written consent of the Lessee;
(viii) The Leases are U.S. dollar-denominated and the lessor and each
Lessee are located in the United States;
(ix) The Lease is not a consumer lease;
(x) No more than the percentage of the Leases in any Asset Pool
specified in the related Prospectus Supplement will consist of Leases with
government entities as the obligor;
(xi) The Lease is not subject to any guaranty by the Lessor or
Originator but may be subject to the guaranty of others;
(xii) No adverse selection was used in selecting the Lease for
transfer to the Issuer;
(xiii) The Lessee has represented to the Originator that it has
accepted the Equipment;
(xiv) The Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xv) The Leases are not Non-Performing Leases (as defined herein);
and
(xvi) Each Lease is not more than 61 days past due at time of
transfer to the Issuer.
Accounting Characteristics
The Leases consist of finance leases for accounting purposes. In a
finance lease, the lessor transfers substantially all benefits and risks of
ownership of the underlying equipment to the lessee. In accordance with
Statement of Financial Accounting Standards No. 13, a lease is classified as a
finance lease if the collectibility of lease payments are reasonably certain and
it meets one of the following criteria: (1) the lease transfers title and
ownership of the equipment to the lessee by the end of the lease term; (2) the
lease contains a bargain purchase option; (3) the lease term at inception is at
least 75% of the estimated life of the equipment; or (4) the present value of
the minimum lease payments is at least 90% of the fair market value of the
equipment at inception of the lease.
Although the Leases are finance leases for accounting purposes, some
or all of the Leases may be considered operating or non-finance leases for tax,
bankruptcy law or other purposes.
Discounted Present Value
The discounted present value of the Leases (the "Discounted Present
Value of the Leases"), at any given time, will equal the future remaining
scheduled payments (not including delinquent amounts, excess copy charges and
maintenance charges) from the Leases (including Non-Performing Leases),
discounted at the rate specified in the related Prospectus Supplement (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 payments
on the Non-Performing Leases (not including delinquent amounts and maintenance
charges), discounted at the Discount Rate. The Discounted Present Value of
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the Leases in respect of each Asset Pool as of the initial Cut-Off Date,
calculated at the Discount Rate, will be specified in the related Prospectus
Supplement.
In connection with all calculations required to be made pursuant to an
Indenture or an Assignment and Servicing Agreement with respect to the
determination of the Discounted Present Value of the Leases at any given time,
it will be assumed that:
(i) Lease Payments are due on the last day of the period from and
including the first day of each calendar month to and including the last
day of the calendar month immediately preceding the related Payment Date;
(ii) Lease Payments are discounted on a monthly basis using a 30-day
month and a 360-day year; and
(iii) Lease Payments are discounted to the last day of the calendar
month prior to the relevant calculation date.
In addition, each Indenture and Assignment and Servicing Agreement
will provide that any calculation of future remaining scheduled payments made on
or with respect to any date will be calculated after giving effect to any
payments received prior to the date of that calculation to the extent the
payments relate to scheduled payments due and payable with respect to the
related Due Period (as defined herein) and all prior Due Periods.
Delinquencies and Gross Losses
Information relating to the Originator's delinquency and gross loss
experience with respect to leases it has originated or acquired will be set
forth in the related Prospectus Supplement. This information may include, among
other things, the experience with respect to all leases in the Originator's
portfolio during specified periods, including leases not included in any Asset
Pool and leases which may not meet the criteria for selection as a Lease
Receivable for an Asset Pool. There can be no assurance that the delinquency,
repossession and net loss experience on any Asset Pool will be comparable to the
Originator's prior experience.
Maturity and Prepayment Considerations
If a Lease permits a prepayment, the amount of the prepayment,
together with accelerated payments resulting from defaults, will, subject to the
use of those monies to acquire additional or substituted leases pursuant to the
terms of the applicable Transaction Documents, shorten the weighted average life
of the pool of Lease Receivables and the weighted average life of the Notes.
The rate of prepayments on the Lease Receivables may be influenced by a variety
of economic, financial and other factors. In addition, under certain
circumstances, the Originator will be obligated to reacquire Lease Receivables
from the Issuer pursuant to the applicable Transaction Documents as a result of
breaches of representations and warranties. Any reinvestment risks resulting
from a faster or slower amortization of the Notes, which results from
prepayments, will be borne entirely by the Noteholders.
Acquisition of Lease Receivables
The Lease Receivables underlying the Notes will be acquired pursuant
to an Assignment and Servicing Agreement (i) by the Seller from the Originator
and (ii) by the Issuer from the Seller.
The Issuer expects that each Lease Receivable so acquired will have
been originated or acquired by the Originator in accordance with the
underwriting criteria specified herein and sold to the Seller. See "The
Originator's Leasing Business - Credit Policies and Loss Experience" herein.
Pursuant to the Assignment and Servicing Agreement, the Originator will make
representations and warranties to the Seller in respect of the related Lease
Receivables and the benefit of these representations and warranties will be
assigned to the Issuer pursuant to
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the Assignment and Servicing Agreement. The Issuer will assign all its rights
under the Assignment and Servicing Agreement to the Trustee for the benefit of
the Noteholders with the result that the Originator will be liable to the Issuer
and the Trustee for defective or missing documents or an uncured breach of the
Originator's representations or warranties.
Pool Factors
A Noteholder's portion of the aggregate outstanding principal balance
of the related class of Notes is the product of (i) the original outstanding
principal amount of the Noteholder's Notes and (ii) the applicable Pool Factor.
The "Pool Factor" for each class of Notes will be a seven-digit decimal, which
the Servicer will compute on each determination date prior to each distribution
with respect to the class of Notes, indicating the remaining outstanding
principal balance of the class of Notes as of the applicable payment date (the
"Payment Date"), as a fraction of the initial outstanding principal balance of
the class of Notes. Each Pool Factor will be initially 1.0000000, and
thereafter will decline to reflect reductions in the outstanding principal
balance of the applicable class of Notes.
The Noteholders of record will receive reports on or about each
Payment Date concerning the payments received on the Lease Receivables, the
balance of Leases in the Asset Pool, the Pool Factor and various other items of
information. In addition, Noteholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law.
Use of Proceeds
The net proceeds from the sale of the Notes of each series will be
used to fund any applicable reserve or other accounts and to make distributions
by the Issuer to the Seller and by the Seller to the Originator.
The Originator's Leasing Business
The Originator, formerly known as IKON Capital, Inc., was formed in
1987 to provide lease financing to customers of IKON Office Solutions, Inc.
("IKON Office Solutions"). The Originator is a wholly-owned subsidiary of IKON
Office Solutions. The Originator's corporate headquarters are located at 1738
Bass Road, Macon, Georgia 31210. The Originator's securities are registered
under the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
Originator is subject to the reporting requirements of the 1934 Act and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). The Originator filed an Annual
Report on Form 10-K for the fiscal year ended September 30, 1998 and a Quarterly
Report on Form 10-Q for the three-month period ended December 31, 1998. A copy
of the reports, including the exhibits thereto, are available to the public on
the SEC's web site at http://www.sec.gov. Requests for copies or other
information should be directed to IOS Capital, Inc., 1738 Bass Road, Macon,
Georgia 31210, Attn: Kim Taylor.
IKON Office Solutions is a public company headquartered in Malvern,
Pennsylvania operating a large network of independent copier and office
equipment marketplaces in North America and the United Kingdom. IKON Office
Solutions has over 800 locations in the United States, Canada, the United
Kingdom, Germany, France, Denmark and Mexico. IKON Office Solutions also
provides equipment services and supplies, outsourcing and imaging services, such
as mailroom and copy center management, specialized document copying services
and electronic imaging and file conversion. IKON Office Solutions also offers
network consulting and design, hardware and software product interfaces,
computer networking, technology training and software solutions for the
networked office environment. IKON Office Solutions' fiscal 1998 gross revenues
were $5.6 billion.
The Originator is engaged in the business of arranging lease financing
exclusively for office equipment marketed by IKON Office Solutions, which sells
and services copier equipment and facsimile machines. The ability to offer
lease financing on this equipment through the Originator is considered a
competitive marketing advantage which more closely ties IKON Office Solutions to
its customer base. During the 1998 fiscal year, 69% of new equipment sold was
financed through the Originator. The Originator and IKON Office Solutions will
seek to increase this percentage in the future, as leasing enhances the overall
profit margin on
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equipment and is considered an important customer retention strategy. For the
fiscal years ended September 30, 1997 and 1996, the Originator's operating
revenues totaled approximately $214 million and $151 million, respectively, with
net income of approximately $43 million and $32 million, respectively. For the
fiscal year ended September 30, 1998, total operating revenue equaled $289
million with net income of approximately $63 million.
The equipment financed by the Originator consists of copiers,
facsimile machines, and related accessories and peripheral equipment, the
majority of which are produced by major office equipment manufacturers.
Currently 70% of the equipment financed by the Originator represents copiers,
17% facsimile machines, and 13% other equipment. Although equipment models
vary, IKON Office Solutions is increasingly focusing its marketing efforts on
the sale of higher segment equipment, such as copiers which produce 50 or more
impressions per minute.
The Originator's customer base (which consists of the end users of the
equipment) is widely dispersed, with the ten largest customers representing less
than 2.5% of the Originator's total lease portfolio as of September 30, 1998.
The typical new lease financed by the Originator during fiscal year 1998
averaged $17,900 in amount and 46 months in duration. Although 97% of the
leases in the Originator's total lease portfolio as of September 30, 1998 are
scheduled for regular monthly payments, customers are also offered quarterly,
semi-annual and other customized payment terms. In connection with its leasing
activities, the Originator performs billing, collection, property and sales tax
filings, and provides quotes on equipment upgrades and lease-end notification.
The Originator also provides certain financial reporting services to IKON Office
Solutions, such as a monthly report of marketplace increases in leasing activity
and related statistics.
Types of Leases
The lease portfolio of the Originator consists of direct financing
leases and funded leases, although the Leases to be included in any Asset Pool
will consist solely of direct financing leases. Funded leases are contractual
obligations between IKON Office Solutions and the customer which have been
financed by the Originator. Direct financing leases are contractual obligations
between the Originator and the customer and represent the majority of the
Originator's lease portfolio.
Funded leases and direct financing leases are structured as either tax
leases (from the Originator's perspective) or conditional sales contracts,
depending on the customer's needs. The customer decides which of the two
structures it desires. Under either structure, the total cost of the equipment
to the customer is substantially the same (assuming the exercise of the purchase
option).
Tax leases represented 96% of the Originator's total lease portfolio
as of September 30, 1998. The Originator is considered to be the owner of the
equipment for tax purposes during the life of these leases and receives the tax
benefit associated with equipment depreciation. Tax leases are structured with
a fair market value purchase option. Generally, the customer may return the
equipment, continue to rent the equipment or purchase the equipment for its fair
market value at the end of the lease.
Each tax lease has an assumed equipment residual value generally
ranging from 0% to 25% of original retail price, depending on model and term.
Although an Asset Pool may include tax leases with residual values, the residual
values will not be available for the benefit of the Noteholders of the related
Asset Pool.
Conditional sale contracts account for the remaining 4% of the total
leases in the Originator's portfolio. Under these arrangements, the customer is
considered to be the owner of the equipment for tax purposes and is entitled to
receive any tax benefit associated with equipment depreciation. Each
conditional sales contract has an assumed residual value of 0%. Conditional
sales contracts are customarily structured with higher monthly lease payments
than the tax leases and have a $1 purchase option for the equipment at the end
of the lease term. Although the customer has the option of returning or
continuing to rent the equipment at lease-end, the customer almost always
exercises the $1 purchase option at the end of the lease term.
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Credit Policies and Loss Experience
General. Prior to January 1998, IKON Office Solutions maintained a
decentralized credit policy. Each IKON operational unit was responsible for
developing and maintaining a credit policy that governed credit practices and
procedures. The policies contained minimum credit standards. Credit authority
levels were established and maintained locally with ultimate authority vested in
the district presidents and district CFOs. The Originator provided credit
assistance through the support of an automated front-end lease application
tracking system ("CLAS").
Beginning in January 1998, IKON Office Solutions centralized its
credit policy. IKON Office Solutions' National Risk Management Policy
established minimum standards for all IKON Office Solutions leasing transactions
and vested all credit authority with the Originator. The policy uses a tiered
approach incorporating analyst reviews and credit scoring based on customer
exposure.
Origination. Lease packages are assembled by an IKON Office Solutions
sales representative and submitted to its respective IKON operational unit or
district processing center. The IKON operational unit and/or district have the
responsibility to review for accuracy and completeness prior to submission to
the Originator for funding. The operational unit and/or district administration
staff enter the lease applications into the CLAS program. The CLAS program
provides both the credit processing and lease administration module. When
applications have completed both modules, the documents have been reviewed and
the invoice has been prepared, the operational unit and/or district
administration staff forward the leasing package for funding review and transmit
the CLAS application to the Originator.
The Originator reviews all documents for completion, accuracy and
compliance. Any changes to the original document must be approved by the
Originator's contract and documentation review specialists. Each application is
checked for credit approval based on a comprehensive risk management policy.
When the transaction has completed final review the CLAS application is updated
and uploaded to the mainframe for activation, funding and invoicing.
Credit Processing. The Originator's credit process is segmented by
transaction size and approval authority. The "High Risk Review List" lists
industries or customers which are considered volatile and require special
attention. Guidelines are also established for automatic approvals which
require minimal information.
The IKON Office Solutions approval process is tiered based upon
customer exposure. Requests less than $50,000 use the CLAS credit scorecard for
approval. Credit scoring for smaller balance exposures provides the Originator
with the ability to adjust risk scores system-wide and monitor performance.
Exposures of $50,000 to $250,000 rely on the expertise of the Originator's
credit staff in analyzing and verifying information regarding bank
relationships, trade references, D&B Business Information Reports, and financial
statements and/or tax returns. Exposures of more than $250,000 benefit from the
combined resources of the districts and the Originator, while maintaining local
ownership of the customer. Ideally, the process will be transparent to the
customer yet provide the necessary and timely information required to understand
the risk factors of the exposure and those in the portfolio.
Based upon the segmented approach, the following approval authorities
have been established:
. Customer Service Professional and/or Customer Service Professional
Manager Dun & Bradstreet rated according to a decision matrix; up
to $50,000; no override authority.
. Business Credit Analysts
Up to high risk transactions.
. Senior Credit Analysts
Single signature for exposure up to $1 million; dual signature for
exposure up to $2 million.
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. Director of Portfolio Quality & National Credit Coordinator
Single signature for exposure up to $2 million; dual signature for
exposure up to $5 million.
. Corporate
Exposure in excess of $5 million.
Challenges to the recommendations of the Originator's credit analysts
will be the responsibility of the IKON Office Solutions district presidents. In
the event the analyst does not agree with the actions recommended by the IKON
Office Solutions district, the Originator senior management will be requested to
intervene. Sole credit authority remains with the Originator, not IKON Office
Solutions. The requirements for the above approval categories for exposures
under $250,000 may be overridden with approval of a Senior Credit Analyst,
National Credit Coordinator, Director of Portfolio Quality or President of the
Originator. Justifications will be entered into CLAS.
Collections. The following minimum standards for collection activity
and contact are established for the organization. At 31 days past due, the
initial collection call or letter is sent, dependent on account balance, to
inquire as to payment status, determine reason for delinquency, and attempt to
obtain payment date. At 45 days past due, the first or second collection call
is made, depending on account balance. At 61 days past due, the second or third
collection call is made and the contract is reviewed for guarantors or
additional avenues of collection. At this point the approach is to be firm and
the collector must obtain a full understanding of any dispute that may exist. A
collection manager is notified of any problems at 61 days past due. At 75 days
past due, a third or fourth collection call is made and if payment arrangement
is not agreed upon, possibility of contract cancellation, supply or equipment
retrieval or foreclosure is raised. At 90 days past due, the customer is
advised that the equipment/supplies will be picked up and contract canceled if
payment is not received immediately. An acceleration letter is generally sent
within 10 days if payment is not received. A notice of repossession letter is
sent out at day 105 to the customer and the originating marketplace. Accounts
are generally scheduled for charge off at 120 days past due unless extenuating
circumstances (approved by a collection manager) warrants delay and additional
collection efforts. These actions are required during the indicated time frame,
and may be accelerated to an earlier time as deemed appropriate. All collection
activities are documented.
Delinquency and Loss Experience. Historical delinquency information
for leases not charged off and loss information for leases owned and included in
IOS Capital's servicing portfolio will be set forth in each Prospectus
Supplement. See "The Leases--Delinquencies and Gross Losses".
Year 2000 Issues
State of Readiness. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Originator's computer programs or hardware that
have date-sensitive software or embedded technology may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The potential for a problem
exists with all computer hardware and software, as well as in products with
embedded technology; copiers and fax machines; security and HVAC systems;
voice/telephone systems; elevators, etc.
IKON Office Solutions has appointed a Year 2000 Corporate Compliance
Team, which has prepared a compliance program for the Originator and is
responsible for coordination and inspecting compliance activities in all
business units. The compliance program requires all business units and
locations in every country to inventory potentially affected systems and
products, assess risk, take any required corrective actions, test and certify
compliance. IKON Office Solutions' Year 2000 Testing and Certification
Guidelines delineate the Year 2000 compliance process, testing and quality
assurance guidelines, certification and reporting processes and contingency
planning. An independent consulting company has received the compliance program
and any appropriate recommendations have been implemented. All internal
information technology ("IT") systems and non-IT systems have been inventoried.
The assessment phase of the Originator's Year 2000 project is approximately 90%
complete, the remediation phase is approximately 69% complete and the testing
and validation phase is approximately 73%
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complete. The Originator anticipates completing the Year 2000 project no later
than October 31, 1999, which is prior to any anticipated material impact on its
operating systems.
Costs. The Originator will use both internal and external resources
to reprogram or replace, test and implement its IT and non-IT systems for Year
2000 modifications. The Originator does not separately track the internal costs
incurred on the Year 2000 project. These costs are principally payroll and
related costs for its internal IT personnel. The total cost of the Year 2000
project, excluding these internal costs, is estimated at $1.4 million and is
being funded through operating cash flows, all of which will be expensed as
incurred. Through December 1998, the Originator has expensed approximately
$794,000 related to its Year 2000 project.
Risk. The Issuer is advised by the Originator that the Originator
believes, based on the information currently available to the Originator, that
the most reasonably likely worst case scenario that could be caused by
technology failures relating to the Year 2000 issue could pose a significant
threat not only to the Originator, IKON Office Solutions, its customers and
suppliers, but to all businesses. Risks include:
. Legal risks, including customer, supplier, employee or shareholder
lawsuits over failure to deliver contracted services, product
failure, or health and safety issues.
. Loss of sales due to failure to meet customer quality expectations
or inability to ship products.
. Increased operational costs due to manual processing, date
corruption or disaster recovery.
. Inability to bill or invoice.
The cost of the Year 2000 project and the date on which IKON Office
Solutions and the Originator believe the Originator will complete the Year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions of future events, including the continued availability of
certain resources and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause material differences
include, but are not limited to, the availability and costs of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
Contingency Plans. IKON Office Solutions' guidelines require that
contingency plans be developed and validated in the event that any critical
system cannot be corrected and certified before the system's failure date. The
Originator and IKON Office Solutions expect to have contingency plans in place
by October 31, 1999. In addition, IKON Office Solutions is forming a rapid
response team as part of its IT group that will respond to any operational
problems during the Year 2000 date change period.
Relation to Issuer. In the event that the Originator, any affiliate
or any of their suppliers, customers, brokers or agents do not successfully and
timely achieve Year 2000 compliance, the Originator's performance of its
obligations to the Issuer under the Transaction Documents, including servicing
of the Leases, could be adversely affected. This could result in delays in
processing payments on the Leases and could cause a delay in distributions to
the Noteholders.
The Trustee
The Trustee for a series of Notes will be identified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the Notes will be limited solely to the express obligations of the
Trustee set forth in the Indenture. The Originator and its affiliates may from
time to time enter into normal banking and Trustee relationships with the
Trustee and its affiliates. The Trustee, the Servicer and any of their
respective affiliates may hold Notes in their own names. In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee shall have the power to appoint a co-trustee or a separate trustee under
the Indenture. In the event of an appointment of a co-trustee or separate
trustee, all rights, powers, duties and obligations conferred or imposed upon
the Trustee by the Indenture will be conferred or imposed upon the Trustee and
the separate trustee or co-trustee jointly, or in any jurisdiction in which the
Trustee shall be
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incompetent or unqualified to perform certain acts, singly upon the separate
trustee or co-trustee, who shall exercise and perform those rights, powers,
duties and obligations solely at the direction of the Trustee.
No resignation or removal of the Trustee and no appointment of a
successor Trustee will become effective until the acceptance of appointment by
the successor Trustee. The Trustee may resign at any time by giving written
notice thereof to the Issuer and the Servicer and by mailing notice of
resignation by first-class mail, postage prepaid, to the Noteholders of the
relevant series at their addresses appearing on the security register. The
Trustee may be removed at any time by written notice of the holders of Notes
evidencing more than 66% of the voting rights thereof, delivered to the Trustee
and the Issuer. If the Trustee resigns, is removed, or becomes incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Issuer must promptly appoint a successor Trustee. If no successor Trustee
shall have been so appointed by the Issuer or the Noteholders, or if no
successor Trustee shall have accepted appointment within 30 days after the
resignation or removal, existence of incapability, or occurrence of a vacancy,
the Trustee or any Noteholder may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the Assignment and Servicing Agreement, the Notes (other than the
authentication thereof) or of any Lease Receivable or related document and will
not be accountable for the use or application by the Servicer or the Issuer of
any funds paid to the Issuer in consideration of the sale of any Notes. If no
Servicer Events of Default (as defined herein) have occurred, then the Trustee
will be required to perform only those duties specifically required of it under
the Assignment and Servicing Agreement. However, upon receipt of the various
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments required to be furnished to it, the Trustee will be required
to examine them to determine whether they conform as to form to the requirements
of the Assignment and Servicing Agreement.
No recourse is available based on any provision of the Assignment and
Servicing Agreement, the Notes or any Lease Receivable or assignment thereof
against the Trustee, in its individual capacity, and the Trustee will not have
any personal obligation, liability or duty whatsoever to any Noteholder or any
other person with respect to any claim and any claim shall be asserted solely
against the Servicer or any indemnitor, except for liability as is determined to
have resulted from the Trustee's own gross negligence or willful
misconduct.
The Trustee will be entitled to receive (a) reasonable compensation
for its services, (b) reimbursement for its reasonable expenses and (c)
indemnification for loss, liability or expense incurred without gross negligence
or bad faith on its part, arising out of performance of its duties thereunder.
Description of the Notes
General
Each series of the Notes will be issued pursuant to an Indenture. The
following summaries (together with additional summaries under "Description of
the Transaction Documents" below) describe all material terms and provisions of
the Notes. The summaries do not contain all the terms of the Notes and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Transaction Documents and the Notes.
All of the Notes offered by this Prospectus will be rated in one of
the four highest rating categories by one or more nationally recognized
statistical rating organizations (each a "Rating Agency" and, collectively, the
"Rating Agencies").
The Notes will be fixed income securities, having a principal balance
and a specified floating or fixed interest rate. The Notes of each series will
represent debt secured by an Asset Pool comprised primarily of the Lease
Receivables described in the related Prospectus Supplement.
General Payment Terms of Notes
As provided in the related Transaction Documents, Noteholders will be
entitled to receive payments on their Notes on the specified Payment Dates or on
the next day that is not a Saturday, Sunday or other
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day on which commercial banking institutions located in the city or cities where
the Corporate Trust Office of the Trustee and the Servicer (and, if applicable,
any credit enhancement provider) are located are authorized or obligated by law
or executive order to be closed (each a "Business Day").
Neither the Notes nor the underlying Lease Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Issuer, the Servicer, the Seller, any Trustee or any of their respective
affiliates.
Collections
The following funds will be deposited into the Collection Account (as
defined below):
(a) Lease Payments;
(b) recoveries from Non-Performing Leases (as defined below) to
the extent the Originator has not substituted Substitute Leases (as defined
below) for the Non-Performing Leases;
(c) late charges received on delinquent Lease Payments not
advanced by the Servicer;
(d) proceeds from purchases of Leases by the Originator as a
result of breaches of representations and warranties to the extent the
Originator has not substituted Substitute Leases for those Leases;
(e) proceeds from investment of funds in the Collection Account
and any other applicable Transaction Account (as defined below);
(f) Casualty Payments (as defined below);
(g) Retainable Deposits (each as defined below);
(h) Servicer Advances (as defined below, if any);
(i) Termination Payments (as defined below), to the extent the
Issuer does not reinvest the Termination Payments in Additional Leases;
and
(j) proceeds received to effect a redemption of the Notes pursuant
to the Indenture.
The foregoing funds on deposit in the Collection Account on each
determination date relating to a Payment Date, excluding Lease Payments not due
during the preceding calendar month (a "Due Period") or any prior Due Period,
together with any funds deposited into the Collection Account from any Reserve
Account as described below under "Distributions," will constitute available
funds ("Available Funds"). Available Funds do not include cash flows realized
from the sale or release of Equipment following the expiration date of the
related Lease other than Equipment subject to Non-Performing Leases (as defined
below) that have not been replaced.
The Servicer must deposit the funds referred to in clauses (a) through
(d), (f) and (i) above into the Collection Account within two Business Days of
receipt thereof by the Servicer. The funds referred to in clauses (e), (g), (h)
and (j) above are to be deposited into the Collection Account on or prior to the
related Payment Date.
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 term of the Lease,
security deposits, payments becoming due before each Cut-Off Date and
supplemental or additional payments required by
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the terms of a Lease with respect to taxes, insurance, maintenance or other
specific charges such as excess copy charges are not Lease Payments.
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 or in the termination of the
Lessee's obligation to make future Lease Payments.
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 the Lease (other than 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.
"Non-Performing Leases" are (i) Leases that have become more than 120
days delinquent, (ii) Leases that have been accelerated by the Servicer or (iii)
Leases that the Servicer has determined to be uncollectible in accordance with
the Servicer's customary practices.
Distributions
On each Payment Date, Available Funds will be applied to make payments
of principal and interest due on the Notes, amounts owed to the Servicer,
Trustee (to the extent not payable by the Servicer) and other parties and for
other purposes as described and in the priority set forth in the related
Prospectus Supplement. If a Reserve Account is established for a series of
Notes, the related Prospectus Supplement will describe how funds in that account
will be transferred to the Collection Account when there is a deficiency in
Available Funds otherwise available to make any payment due on a Payment Date.
Similarly, the related Prospectus Supplement will describe the extent to which
the proceeds of any applicable credit enhancement will be applied to make up any
deficiency.
Prepayment and Yield Considerations
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the 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 prepayments or liquidations will result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Leases. The rate of prepayments and
liquidations may be influenced by a number of other factors, including general
economic conditions. The rate of principal payments may also be affected by any
repurchase of the underlying Leases by the Originator or Seller pursuant to the
Assignment and Servicing Agreement. In this event, the application of the
repurchase price will decrease the Discounted Present Value of the Performing
Leases, causing the corresponding weighted average life of the Notes to
decrease.
Subject to specified limitations, the Originator will have the option
to substitute Eligible Leases having similar characteristics (each a "Substitute
Lease") for (i) Non-Performing Leases, (ii) Leases subject to repurchase as a
result of a breach of a representation and warranty by the Originator under the
Transaction Documents which breach has not been cured following discovery/notice
of the breach (each, a "Warranty Lease") and (iii) Leases following a
modification or adjustment to the terms of such Leases (each an "Adjusted
Lease"). The Originator may substitute Substitute Leases for Non-Performing
Leases, Adjusted Leases or Warranty Leases in amounts not to exceed specified
percentages (to be stated in the related prospectus supplement) of the
Discounted Present Value of the Leases as of the original Cut-Off Date. In
addition, in the event of a Lease that terminates early or which has been
prepaid in full (each, an "Early Termination Lease"), the Originator will have
the option to transfer an additional lease of similar characteristics (each, an
"Additional Lease"). The Substitute Leases and Additional Leases must have a
Discounted Present Value of not less than the Discounted Present Value of
the
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Leases being replaced and the monthly payments on the Substitute Leases or
Additional Leases must be at least equal to those of the replaced Leases through
the term of the replaced Leases. In the event that a Substitute Lease is not
provided for a Non-Performing Lease, the Discounted Present Value of the Leases
in the related Asset Pool will be reduced in an amount at least equal to the
Discounted Present Value of the Non-Performing Lease, plus any delinquent
payments.
The effective yield to holders of the Notes will depend upon, among
other things, the rate at which principal is paid to the 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.
Book-Entry Registration
Noteholders of a given series may hold their Notes through the
Depository Trust Company ("DTC") (in the United States) or CEDEL or Euroclear
(in Europe) if they are participants of those systems, or indirectly through
organizations that are participants in those systems.
Cede & Co. ("Cede"), as nominee for DTC, will hold the global Notes in
respect of given series. CEDEL and Euroclear will hold omnibus positions on
behalf of the CEDEL Participants (as defined below) and the Euroclear
Participants (as defined below) (collectively, the "Participants"),
respectively, through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositories (collectively, the
"Depositories") which in turn will hold those positions in customers' securities
accounts in the Depositories' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of securities. Participants
include brokers and dealers, banks, trust companies and clearing corporations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depository to take action
to effect final settlement on its behalf by delivering or receiving Notes in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositories.
Because of time-zone differences, credits of Notes in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent Notes settlement processing, dated the Business Day
following the DTC settlement date, and those credits or any transactions in
those subsequent Notes will be reported to the relevant CEDEL Participant or
Euroclear Participant on that Business Day. Cash received in CEDEL or Euroclear
as a result of sales of Notes by or through a CEDEL Participant or a Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the Business Day following settlement in DTC.
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Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Notes may do so only through Participants and Indirect Participants. In
addition, Noteholders will receive all distributions of principal and interest
through the Participants who in turn will receive them from DTC. Under a book-
entry format, Noteholders may experience some delay in their receipt of
payments, since the payments will be forwarded by the Issuer or note paying
agent to Cede, as nominee for DTC. DTC will forward the payments to its
Participants, which thereafter will forward them to Indirect Participants or the
Noteholders. It is anticipated that the only "Noteholder" in respect of any
series will be Cede, as nominee of DTC. Noteholders will not be recognized as
Noteholders, and the Noteholders will be permitted to exercise the rights of
Noteholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Notes among Participants on whose behalf it acts with respect to the Notes
and to receive and transmit distributions of principal of, and interest on, the
Notes. Participants and Indirect Participants with which the Noteholders have
accounts with respect to the Notes similarly are required to make book-entry
transfers and receive and transmit payments on behalf of their respective
Noteholders. Accordingly, although Noteholders will not possess Notes, the
Rules provide a mechanism by which Participants will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Noteholder
to pledge Notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to the Notes, may be limited due to the
lack of a physical certificate for the Notes.
DTC will advise the Issuer and/or Trustee in respect of each series
that it will take any action permitted to be taken by a Noteholder only at the
direction of one or more Participants to whose accounts with DTC the Notes are
credited. DTC may take conflicting actions with respect to other undivided
interests to the extent that those actions are taken on behalf of Participants
whose holdings include the undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
trust depository ("Trust Depository"). CEDEL holds notes for its participating
organizations ("CEDEL Participants") and facilitates the clearance and
settlement of notes transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating the
need for physical movement of notes. Transactions may be settled in CEDEL in
any of 38 currencies, including United States dollars. CEDEL provides to its
CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional Trust Depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to CEDEL is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold notes for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 37 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
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The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of notes and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to Notes in the Euroclear System. All Notes in the Euroclear System are
held on a fungible basis without attribution of specific Notes to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants and has no record of
relationship with persons holding through Euroclear Participants.
DTC management is aware that some computer applications, systems and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter Year 2000
problems. DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to Noteholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to properly perform its services is also
dependent upon other parties, including, but not limited to, issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information and the
provision of services, including telecommunications and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of the services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
additional, DTC is in the process of developing contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
Except as required by law, neither the Issuer nor any paying agent
will have any liability for any aspect of the records relating to or payments
made or account of beneficial ownership interests of the related Notes held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
Definitive Notes
The Notes of any series will be issued in fully registered,
certificated form ("Definitive Notes") to the Noteholders or their nominees,
rather than to DTC or its nominee, only if (i) the Servicer advises in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Trust Depository with respect to the Notes and the Issuer is unable to locate
a qualified successor, (ii) the Servicer, at its option, elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an "Event of
Default" under the Indenture or a default by the Servicer under the Assignment
and Servicing Agreement. Noteholders representing at least a majority of the
outstanding principal amount of the Notes of that series advise the Issuer
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the Noteholders' best interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Trustee will be required to notify all affected
Noteholders through Participants of the availability of Definitive Notes. Upon
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surrender by DTC of its Notes and receipt of instructions for reregistration,
the Issuer will reissue DTC's Notes as Definitive Notes to the Noteholders in
the amounts specified in the reregistration instructions.
Distributions of principal of, and interest on, Definitive Notes will
thereafter be made by the Issuer in accordance with the procedures set forth in
the Indenture directly to holders of Definitive Notes in whose names the
Definitive Notes were registered at the close of business on the applicable
Record Date. Distributions will be made by check mailed to the address of the
holder as it appears on the register maintained by the Trustee. The final
payment on any Definitive Note, however, will be made only upon presentation and
surrender of the Note at the office or agency specified in the notice of final
distribution to the applicable Noteholders.
Definitive Notes will be transferable and exchangeable at the offices
of the Issuer or Trustee or of a certificate registrar named in a notice
delivered to holders of the Definitive Notes. No service charge will be imposed
for any registration of transfer or exchange, but the Issuer or the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
Reports to Noteholders
On or prior to each Payment Date, the Servicer or the Trustee will
forward or cause to be forwarded to each holder of record of a class of Notes a
statement or statements with respect to the related Asset Pool setting forth the
information specifically described in the Transaction Document which generally
will include the following information:
(i) the amount of the distribution with respect to that class of
Notes;
(ii) the amount of the distribution allocable to principal;
(iii) the amount of the distribution allocable to interest;
(iv) the Discounted Present Value of the Leases in the related Asset
Pool;
(v) the Asset Pool balance;
(vi) the aggregate outstanding principal balance and the Pool Factor
for the class of Notes after giving effect to all payments reported under
(ii) above on that Payment Date;
(vii) the amount paid to or retained by the Servicer, if any, with
respect to the related Due Period; and
(viii) the aggregate purchase amounts for Lease Receivables that have
been reacquired, if any, for the related Due Period.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the Issuer or the Servicer will provide to the
Noteholders a statement containing the amounts described in (ii) and (iii) above
for that calendar year and any other information required by applicable tax
laws, for the purpose of the Noteholders' preparation of federal income tax
returns.
Description of the Transaction Documents
The following summary describes the material terms of each transaction
document pursuant to which an Asset Pool will be created and a series of Notes
will be issued. For purposes of this Prospectus, the term "Transaction
Documents" as used with respect to a series of Notes means the Indenture and
Assignment and Servicing Agreement relating to a series of Notes. Forms of the
Transaction Documents have been filed as exhibits to the Registration Statement
of which this Prospectus forms a part. This description is not a complete
summary of all the provisions of the respective Transaction Documents.
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Assignment and Servicing Agreement
Acquisition of the Lease Receivables. On the Issuance Date, the
Seller will acquire the related Lease Receivables from the Originator pursuant
to an Assignment and Servicing Agreement in which the Originator will make
representations and warranties concerning the Lease Receivables. The rights and
benefits of the Seller under the Assignment and Servicing Agreement will be
assigned to the Issuer by the Seller pursuant to the Assignment and Servicing
Agreement and, in turn, pledged to the Trustee under an Indenture.
Contemporaneously, the Issuer will acquire the related Lease
Receivables from the Seller pursuant to the Assignment and Servicing Agreement.
The Issuer will pledge the Issuer's right, title and interests in and to the
Lease Receivables to the Trustee for the benefit of Noteholders under the
Indenture. The rights and benefits of the Issuer under the Assignment and
Servicing Agreement will be assigned to the Trustee on behalf of Noteholders as
collateral for the Notes by the Issuer under the Indenture.
Additions, Substitutions and Adjustments. The Originator will be
obligated to purchase from the Issuer its interest in any Lease in the Asset
Pool that has become a Warranty Lease unless an Eligible Lease is substituted
therefor in accordance with the related Assignment and Servicing Agreement.
Pursuant to the Assignment and Servicing Agreement, the Originator
will have the option to substitute Eligible Leases for Non-Performing Leases,
Adjusted Leases and Warranty Leases and to add Additional Leases. The
percentage of Leases in any Asset Pool that can be substituted for Non-
Performing Leases, Adjusted Leases and Warranty Leases will be limited, as
described in the related Prospectus Supplement, to a percentage of the aggregate
Discounted Present Value of the Leases in the Asset Pool as of the related Cut-
Off Date. See "Description of the Notes--Prepayment and Yield
Considerations."
Servicing. The Servicer will service the Lease Receivables in an
Asset Pool pursuant to an 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.
The Servicer will make 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 by the
Servicer.
The Assignment and Servicing Agreement will provide that the Servicer
will take or cause to be taken all actions as are necessary or advisable to
service, administer and collect each Lease in accordance with customary and
prudent servicing procedures for leases of a similar type, and in accordance
with applicable laws, rules and regulations and, in any event, according to a
standard of care not less than that which it applies to leases it services for
its own account.
Advances by the Servicer. Prior to any Payment Date, with respect to
any series, the Servicer may, but will not be required to, advance (each, a
"Servicer Advance") to the Trustee an amount sufficient to cover delinquencies
on Leases with respect to the prior Due Period. The Servicer will be entitled
to reimbursement for Servicer Advances.
Servicing Compensation. The Servicer will be entitled to receive a
servicing fee for each Due Period (the "Servicing Fee") in an amount equal to a
specified percentage per annum of the Discounted Present Value of the Performing
Leases or the Outstanding Principal Amount of the Notes, as of the first day of
the Due Period. The Indenture will specify the priority of the Servicing Fee in
relation to payments to Noteholders and other persons. The Servicing Fee may be
paid prior to any distribution to the Noteholders.
If so provided in the related Transaction Documents, the Servicer will
also be entitled to reimbursement of out-of-pocket expenses reasonably incurred
in the course of performance of its duties as Servicer and to collect and retain
any late fees, the penalty portion of interest paid on past due amounts and
other administrative fees or similar charges allowed by applicable law with
respect to the Lease Receivables and any
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prepayment premiums or other payments in excess of the present value of all
outstanding amounts owed under a Lease by a Lessee as a result of the early
termination thereof, and will be entitled to reimbursement from the Issuer for
certain liabilities. Payments by or on behalf of Lessees will be allocated to
scheduled payments and late fees and other charges in accordance with the
Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third-party servicer of similar types of leases as an agent for
their beneficial owner. The Servicing Fee also will compensate the Servicer for
administering the Lease Receivables, accounting for collections and furnishing
statements to the Issuer and the Trustee with respect to distributions. The
Servicing Fee also will reimburse the Servicer for certain taxes, accounting
fees, outside auditor fees, trustees fees, data processing costs and other costs
incurred in connection with administering the Lease Receivables.
Statements to Trustees and Issuer. Prior to each Payment Date for a
series of Notes, the Servicer will provide to the Trustee as of the close of
business on the last day of the preceding related Due Period, a statement
setting forth substantially the same information as is required to be provided
in the periodic reports provided to Noteholders described under "Description of
the Notes--Reports to Noteholders."
Evidence as to Compliance. The Assignment and Servicing Agreement
will provide that a firm of independent public accountants will furnish to the
Issuer and the Trustee, annually, a certificate as to compliance by the Servicer
during the preceding twelve months (or, in the case of the first certificate,
the period from the applicable Issuance Date) with certain standards relating to
the servicing of the Lease Receivables.
The Assignment and Servicing Agreement will also provide for the
annual delivery to the Issuer and/or the Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under the Assignment and Servicing Agreement in all material
respects throughout the preceding 12 months (or, in the case of the first
certificate, the period from the applicable Issuance Date) or, if there has been
a default in the fulfillment of any obligation in any material respect,
describing each default. The Servicer also will agree to give the Trustee
notice of certain Servicer Events of Defaults (as defined below) under the
related Assignment and Servicing Agreement.
Copies of these statements and certificates may be obtained by
Noteholders owning at least 25% of the outstanding principal amount of the Notes
of the relevant series upon request in writing addressed to the Trustee or the
Servicer.
Certain Matters Regarding the Servicer. The Assignment and Servicing
Agreement will provide that the Servicer may not resign from its obligations and
duties as Servicer thereunder, except upon determination that the performance by
the Servicer of its duties is no longer permissible under applicable law. No
resignation by the Servicer will become effective until the Trustee or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Assignment and Servicing Agreement.
The Assignment and Servicing Agreement will further provide that
neither the Servicer nor any of its directors, officers, employees, or agents
will be under any liability to the Issuer or the Noteholders for taking any
action or for refraining from taking any action pursuant to the Assignment and
Servicing Agreement; provided, however, that neither the Servicer nor any of
-------- -------
those other persons will be protected against any liability that would otherwise
be imposed based on any breach of the warranties, representations or warranties
made by the Servicer in the Assignment and Servicing Agreement or by reason of
willful misfeasance, bad faith or negligence in the performance or non-
performance of duties.
Under the circumstances specified in the Assignment and Servicing
Agreement, any entity into which the Servicer may be merged or consolidated, or
any entity resulting from any merger or consolidation to which the Servicer is a
party, or any entity succeeding to the business of the Servicer or, with respect
to its obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the successor
to the Servicer under the Assignment and Servicing Agreement.
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Servicer Events of Default. The following events and conditions, and
any additional events and conditions that are described in the related
Prospectus Supplement, will be defined in the Assignment and Servicing
Agreement as "Servicer Events of Default":
(a) failure on the part of the Servicer to remit to the Trustee within
three Business Days following the receipt thereof any monies
received by the Servicer required to be remitted to the Trustee
under the Assignment and Servicing Agreement;
(b) failure on the part of the Servicer to pay to the Trustee on the
date when due, any payment required to be made by the Servicer
pursuant to the Assignment and Servicing Agreement;
(c) default on the part of either the Servicer or (so long as IOS
Capital is the Servicer) IOS Capital in its observance or
performance in any material respect of specified covenants or
agreements in the Assignment and Servicing Agreement which
failure continues unremedied for a period of 30 days after the
earlier of (i) the date it first becomes known to any officer of
IOS Capital or the Servicer, as the case may be, and (ii) the date
on which written notice thereof requiring the same to be remedied
shall have been given to the Servicer or IOS Capital, as the case
may be, by the Trustee, or to the Servicer or IOS Capital, as the
case may be, and the Trustee by the Seller, the Issuer, any credit
enhancement provider (if so provided in the related Prospectus
Supplement) or any Noteholder;
(d) if any representation or warranty of IOS Capital made in the
Assignment and Servicing Agreement proves to be incorrect in any
material respect as of the time made; provided, however, that the
-------- -------
breach of any representation or warranty made by IOS Capital in
the Assignment and Servicing Agreement will be deemed to be
"material" only if it affects the Noteholders or the provider of
credit enhancement or the enforceability of the related Indenture
or of the related Notes; and provided, further, that a material
-------- -------
breach of any representation or warranty made by IOS Capital in an
Assignment and Servicing Agreement with respect to any of the
Lease Receivables subject thereto will not constitute a Servicer
Event of Default if IOS Capital purchases the Lease Receivable in
accordance with the Assignment and Servicing Agreement to the
extent provided therein;
(e) specified insolvency or bankruptcy events relating to the
Servicer;
(f) the failure of the Servicer to make one or more payments due with
respect to aggregate recourse debt or other obligations exceeding
$5,000,000, or the occurrence of any event or the existence of any
condition, the effect of which event or condition is to cause (or
permit one or more persons to cause) more than $5,000,000 of
aggregate recourse debt or other obligations of the Servicer to
become due before its (or their) stated maturity or before its (or
their) regularly scheduled dates of payment so long as the
failure, event or condition shall be continuing and not waived by
the person or persons entitled to performance; or
(g) a final judgment or judgments (or decrees or orders) for the
payment of money aggregating in excess of $5,000,000 and any one
of such judgments (or decrees or orders) has remained unsatisfied
and in effect for any period of 60 consecutive days without a stay
of execution.
Rights upon Servicer Events of Default. As long as a Servicer Event
of Default under the Assignment and Servicing Agreement remains unremedied, the
Trustee may, and upon the instruction of holders of Notes evidencing not less
than 66-2/3% in principal amount of the Notes of the relevant series or, if and
to the extent described in the related Prospectus Supplement, any credit
enhancement provider in lieu of such holders, shall, terminate all the rights
and obligations of the Servicer, if any, under the related Assignment and
Servicing Agreement, whereupon a successor servicer appointed by the Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under the Assignment and Servicing Agreement and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Event of Default
has occurred, the bankruptcy trustee or official may have the power to prevent
the Trustee or the Noteholders from effecting a transfer of servicing. In the
event that the Trustee is unwilling or unable to so act, it may, subject to
certain limitations,
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appoint, or petition a court of competent jurisdiction for the appointment of, a
successor servicer. The Trustee may make arrangements for compensation to be
paid to the successor, which in no event may be greater than the servicing
compensation payable to the Servicer under the Assignment and Servicing
Agreement or such other amount indicated in the related Prospectus
Supplement.
Indenture
Accounts. The Trustee will establish and maintain one or more
accounts in the name of the Trustee on behalf of the Noteholders into which
payments made on or with respect to the related Lease Receivables shall be
deposited as provided in the related Transaction Documents (the "Collection
Account"). In addition, the Trustee may establish one or more other separate
accounts in the name of the Trustee for the benefit of the Noteholders, (i) for
the deposit of funds for distribution to the Noteholders (a "Distribution
Account"), (ii) to provide reserves to cover shortfalls in Available Funds (a
"Reserve Account"), (iii) to provide funds for the purchase of additional Lease
Receivables during any applicable pre-funding period (a "Pre-Funding Account"),
or (iv) for any other purpose (an "Additional Account").
Funds in the Collection Account and any Distribution Account, Reserve
Account, Pre-Funding Account or Additional Account (collectively, the
"Transaction Accounts") will be invested as provided in the related Indenture in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Notes. Eligible Investments generally are limited to obligations
that mature not later than the Business Day immediately preceding the next
succeeding Payment Date.
The Transaction Accounts will be maintained as Eligible Accounts.
"Eligible Account" means either (a) an account maintained with a depository
institution or trust company acceptable to each of the Rating Agencies and, if
so provided in the related Prospectus Supplement, any credit enhancement
provider, 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.
Distributions. Beginning on the first Payment Date, distributions of
principal and interest (or, where applicable, of principal only or interest
only) on each class of Notes entitled thereto will be made to the Noteholders.
The timing, calculation, allocation, order, source, priorities of, distribution
of, and requirements for each class of Notes will be set forth in the related
Prospectus Supplement.
Credit Enhancements. The amounts and types of credit enhancement
arrangements, if any, and the provider thereof, if applicable, with respect to
each class of Notes of a given series will be set forth in the related
Prospectus Supplement. If and to the extent provided in the related Prospectus
Supplement, credit enhancement may be in the form of an insurance policy,
subordination of one or more classes of Notes, reserve accounts,
overcollateralization, letters of credit, credit or liquidity facilities, third
party payments or other support, surety bonds, guaranteed cash deposits or other
arrangements as may be described in the related Prospectus Supplement or any
combination of two or more of the foregoing. If specified in the related
Prospectus Supplement, credit enhancement for a class of Notes may cover one or
more other classes of Notes of the same series, and credit enhancement for a
series of Notes may cover one or more other series of Notes.
The presence of credit enhancement for the benefit of any class or
series of Notes is intended to enhance the likelihood of receipt by the
Noteholders of that class or series of the full amount of principal and interest
due thereon and to decrease the likelihood that the Noteholders will experience
losses. As more specifically provided in the related Prospectus Supplement, the
credit enhancement for a class or series of Notes will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance and interest thereon. If losses occur which exceed the amount
covered by any credit enhancement or which are not covered by any credit
enhancement, Noteholders of any class or series will bear their allocable share
of deficiencies, as described in the related Prospectus Supplement. In
addition, if a form of credit enhancement covers
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more than one class of Notes or more than one series of Notes, Noteholders of
any class or series will be subject to the risk that the credit enhancement will
be exhausted by the claims of Noteholders of other classes or series.
If the protection provided to the Noteholders of a given class of
Notes by any applicable credit enhancement or by the subordination of another
class of Notes is insufficient, the Issuer must rely solely on the Asset
Pool.
Modification of the Indenture. Under an Indenture, the rights and
obligations of the Issuer and the rights of the Noteholders may be modified by
the Issuer with the consent of the holders of not less than 662/3% in aggregate
principal amount of the Notes then outstanding under the Indenture or, if and to
the extent described in the related Prospectus Supplement, the consent of any
credit enhancement provider in lieu of such holders; but no modification may be
made if it would result in the reduction or withdrawal of the then current
ratings of the outstanding related Notes and no modification may be made without
the consent of the holder of each outstanding note affected thereby if it would:
(a) change the fixed maturity of any Note, or the principal amount or interest
amount payable thereof, or change the priority of payment thereof or reduce the
interest rate or the principal thereon or change the place of payment where, or
the coin or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any payment on or
after the maturity thereof; or (b) reduce the percentage of Notes required for
any modification or waiver of the Indenture, without the consent of the holders
of all Notes then outstanding under that Indenture; or (c) modify the provisions
of the Indenture restricting modifications or waivers of the provisions of the
Indenture except to increase any percentage or fraction set forth therein or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the holder of each outstanding note affected
thereby; or (d) modify or alter the provisions of the Indenture treating Notes
held by the Issuer or any affiliate of the Issuer as not being "Outstanding" for
certain purposes under the Indenture; or (e) permit the creation of any lien
ranking prior to or on a parity with the lien of the Indenture with respect to
any part of any Asset Pool or, except as provided in the Indenture, terminate
the lien of the Indenture on any part of an Asset Pool at any time subject to
the Indenture or deprive any Noteholder of the security afforded by the lien
of the Indenture.
Events of Default. "Events of Default" under an Indenture will
include, in addition to any other events or conditions described in the related
Prospectus Supplement: (i) a default in the payment when due (subject to any
applicable grace period) of any interest on any Note issued under that
Indenture; (ii) a default in the payment of the principal of or any installment
of the principal of any Note at the stated maturity or when the same becomes due
and payable; (iii) a default in the observance or performance in any material
respect of any covenant or agreement regarding the contemplated transaction made
in the related Transaction Documents, or any representation or warranty made by
the Issuer in the Transaction Documents or in any certificate delivered pursuant
thereto or in connection therewith having been incorrect as of the time made,
and the continuation of any default or the failure to cure a breach of a
representation or warranty for a period of 30 days (or in some circumstances 90
days) after notice thereof is given to the Issuer by the Trustee or the Issuer
and the Trustee by the holders of at least 25% in principal amount of the Notes
then outstanding; (iv) specified events of bankruptcy, insolvency, receivership
or liquidation relating to the Issuer; or (v) the occurrence and continuation of
a Servicer Event of Default.
If an Event of Default occurs, the Trustee may (with the consent of
any credit enhancement provider as described in the related Prospectus
Supplement), and shall, if so directed as described in the related Prospectus
Supplement by a credit enhancement provider or by holders of not less than 66-
2/3% of the then outstanding principal amount of the Notes, declare the unpaid
principal amount of the related Notes to be immediately due and payable together
with all accrued and unpaid interest thereon. If the Event of Default involves
other than non-payment of principal or interest on the Notes, the Trustee may
not sell the related Lease Receivables unless the sale is for an amount greater
than or equal to the outstanding principal amount of the Notes unless directed
to do so by the credit enhancement provider or the holders of 662/3% of the then
outstanding principal amount of the Notes as specified in the related Prospectus
Supplement.
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 order of priority set
forth in the related Prospectus Supplement at the date or dates fixed by the
Trustee and, in case of the distribution of the entire amount due on account of
principal or interest, upon presentation and surrender of the Notes.
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Each Indenture will provide that the holders of 662/3% in aggregate
principal amount of the Notes then outstanding or, if and to the extent
described in the related Prospectus Supplement, any credit enhancement provider
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
shall occur (which shall not have been cured or waived), the Trustee will be
required to exercise its rights and powers under the Indenture and to use the
degree of care and skill in their exercise that a prudent man would exercise or
use in the conduct of his own affairs. Subject to these 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 or any credit enhancement
provider unless they shall have offered to the Trustee security or indemnity
satisfactory to the Trustee. Upon request of a Noteholder, the Trustee will
provide information as to the outstanding principal amount of each class of
Notes.
Redemption. The Issuer may, at its option, redeem the Notes, as a
whole, at their principal amount, without premium, together with interest
accrued to the date fixed for redemption if on any payment date the Discounted
Present Value the Leases is less than or equal to 10% of the Discounted Present
Value of the Leases in the related Asset Pool as of the original Cut-Off Date.
The Issuer will give notice of redemption to each Noteholder and the Trustee at
least 30 days before the Payment Date fixed for prepayment. Upon deposit of
funds necessary to effect redemption, the Trustee shall pay the remaining unpaid
principal amount on the Notes and all accrued and unpaid interest as of the
Payment Date fixed for redemption.
Legal Aspects of the Lease Receivables
General
The Leases will either be "chattel paper" as defined in the Uniform
Commercial Code or Leases that are not treated materially differently from
"chattel paper" for purposes of title transfer, security interests or remedies
on default. Pursuant to the UCC for most purposes, a sale of chattel paper is
treated in a manner similar to a transaction creating a security interest in
chattel paper. In connection with the creation of an Asset Pool, the Issuer,
the Originator, the Servicer and/or the Seller will cause the filing of
appropriate UCC-1 financing statements with respect to the Leases to be made
with the appropriate governmental authorities. Under the Assignment and
Servicing Agreement, the Servicer will be obligated from time to time to take
any actions necessary to protect, perfect and preserve the Issuer's or the
Trustee's interests in the Leases and their proceeds, as the case may be.
The Leases are triple-net leases, requiring the Lessees to pay all
taxes, maintenance and insurance associated with the Equipment, and provide that
they are noncancellable by the Lessees.
The Leases are full payoff leases, under which the obligations of the
Lessee are absolute and unconditional, regardless of any defense, setoff or
abatement which the Lessee may have against IOS Capital, as Originator or
Servicer, the Issuer, or any other person or entity whatsoever.
Defaults under the Leases are generally the result of failure to pay
amounts when due, failure to observe other covenants in the Lease,
misrepresentations by, or insolvency, bankruptcy or appointment of a trustee or
receiver for, the Lessee under a Lease. The remedies of the lessor (and the
Issuer as assignee) following any applicable notice and cure period are
generally to enforce the performance by the Lessee of the terms and covenants of
the Lease (including the Lessee's obligations to make scheduled payments) or
recover damages of the breach thereof, to accelerate the balance of the
remaining scheduled payments paid or to terminate the rights of the Lessee under
such Lease. Although the Leases permit the lessor to repossess and dispose of
the related Equipment in the event of a lease default, and to credit the
proceeds against the Lessee's liabilities thereunder, these remedies may be
limited where the Lessee thereunder is subject to bankruptcy, or other
insolvency proceedings.
UCC and Bankruptcy Considerations
The Originator will transfer all the Originator's interest in the
Equipment to the Seller. The Seller will assign its interest as secured party
in the Equipment relating to the Leases to the Issuer, which in turn will pledge
that interest to the Trustee for the benefit of the Noteholders. The Seller
will not transfer any of its
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ownership interests in any of the Equipment. Because of this, the Trustee, on
behalf of the Noteholders, will have no interest in or recourse to any of the
Equipment other than by virtue of the security interest granted to the Issuer in
the Seller's interest in the Equipment and the Issuer's pledge of that interest
to the Trustee. As a result, the Trustee may be unable to foreclose on the
Equipment in the event of a default by a Lessee on any Lease and Noteholders may
experience delays in receiving payments and suffer a loss of their investment in
the Notes. UCC financing statements will not be filed to perfect any security
interest in the Equipment. Moreover, Equipment may be subject to a superior
lien. In this case, the senior lienholder may be entitled to be paid the full
amount of the indebtedness owed to it out of the sale proceeds before the
proceeds could be applied to the payment of claims on behalf of the Issuer or
Noteholders. In addition, in the event of bankruptcy of the Originator or the
Seller, the security interest in the Equipment of the Issuer or Trustee may be
subject to avoidance under the Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code").
In the event of a default by the Lessee under a finance lease, the
Servicer may take action to enforce the Non-Performing Lease by repossession and
resale of the Equipment. Under the UCC in most states, a creditor can, without
prior notice to the debtor, repossess assets securing a defaulted contract by
the Lessee's voluntary surrender of the assets or by "self-help" repossession
that does not involve a breach of the peace or by judicial process.
In the event of a default by the Lessee under a finance lease, some
jurisdictions require that the Lessee be notified of the default and be given a
time period within which it may cure the default prior to repossession.
Generally, this right of reinstatement may be exercised on a limited number of
occasions in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee with reasonable
notice of the date, time and place of any public sale and/or the date after
which any private sale of the collateral may be held and that any sale be
conducted in a commercially reasonable manner. The Assignment and Servicing
Agreement may require the Servicer to sell promptly any repossessed item of
Equipment or re-lease the Equipment for the benefit of the Noteholders.
Under most state laws, a Lessee has the right to redeem collateral for
its obligations prior to actual sale by paying to the secured party the unpaid
balance of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type
subject to the Leases generally declines with age and because of obsolescence,
the net disposition proceeds of Equipment at any time during the term of a Lease
may be less than the outstanding balance of the Lease Payments. Because of
this, and because other creditors may have rights in the related Equipment
superior to those of the Issuer, the Servicer may not be able to recover the
entire amount due on a Non-Performing Lease in the event that the Servicer
elects to repossess and sell the Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a Lessee for any deficiency on
repossession and resale of the asset securing the unpaid balance of the Lessee's
contract. However, some states impose prohibitions or limitations on deficiency
judgments. In most jurisdictions, the courts, in interpreting the UCC, would
impose upon a creditor an obligation to repossess the equipment in a
commercially reasonable manner and to "mitigate damages" in the event of a
Lessee's failure to cure a default. The creditor would be required to exercise
reasonable judgment and follow acceptable commercial practice in seizing and
disposing of the equipment and to offset the net proceeds of such disposition
against its claim. In addition, a Lessee may successfully invoke an election of
remedies defense to a deficiency claim in the event that the Servicer's
repossession and sale of the Equipment is found to be a retention discharging
the Lessee from all further obligations under UCC Section 9-505(2). If a
deficiency judgment were granted, the judgment would be a personal judgment
against the Lessee for the shortfall, but a defaulting Lessee may have very
little capital or sources of income available following repossession.
Therefore, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or be uncollectible.
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Some statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell collateral or obtain a deficiency judgment. In the event of the
bankruptcy or reorganization of a Lessee, various provisions of the Bankruptcy
Code and related laws may interfere with or eliminate the ability of the
Servicer, the Issuer or the Trustee to enforce its rights under the Lease
Receivables. If bankruptcy proceedings were instituted in respect of a Lessee,
the Issuer and/or Trustee could be prevented from continuing to collect payments
due from or on behalf of the Lessee or exercising any remedies without the
approval of the bankruptcy court, and the bankruptcy court could permit the
Lessee to use or dispose of the Equipment and provide the Issuer and/or Trustee
with a lien on substitute collateral, so long as the substitute collateral
constituted "adequate protection" as defined under the Bankruptcy Code.
In the case of operating leases, the Bankruptcy Code grants to the
bankruptcy trustee or the debtor-in-possession a right to elect to assume or
reject any executory contract or unexpired lease. Any rejection of this type of
lease or contract constitutes a breach of the lease or contract, entitling the
nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into the
Collection Account and allocated to the Noteholders as more fully described
herein and in the related Prospectus Supplement. Upon the bankruptcy of a
Lessee, if the bankruptcy trustee or debtor-in-possession elected to reject a
Lease, the flow of scheduled payments to Noteholders would cease. In the event
that, as a result of the bankruptcy of a Lessee, the Leases become Non-
Performing Leases, no recourse would be available against the Originator (except
for misrepresentation or breach of warranty) and the Noteholders could suffer a
loss. Similarly, upon the bankruptcy of the Issuer, if the bankruptcy trustee
or debtor-in-possession elected to reject a Lease, the flow of Lease Payments to
the Issuer and the Noteholders would cease. As noted above, however, the Issuer
has been structured so that the filing of a bankruptcy petition with respect to
it is unlikely. See "The Issuer."
In addition, some of the Leases (but not in excess of 3% of the
related Asset Pool) may be with governmental entities. Payment by governmental
authorities of amounts due under these Leases may be contingent upon legislative
approval. Further, the assignment of their payment obligations may be void or
voidable if not done in compliance with applicable government rules and
regulations. Accordingly, payment delays and collection difficulties may limit
collections with respect to certain governmental Leases.
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment, may limit the amount
realized on the sale of the Equipment to less than the amount due on the related
Lease.
Material Federal Income Tax Consequences
General
The following discussion sets forth the material federal income tax
consequences to the original purchasers of the Notes of the purchase, ownership
and disposition of the Notes. The opinion of Dewey Ballantine LLP, special tax
counsel to the Issuer ("Tax Counsel"), does not purport to deal with all federal
tax considerations applicable to all categories of investors. The tax
consequences to holders subject to special rules, including insurance companies,
tax-exempt organizations, financial institutions or broker dealers, taxpayers
subject to the alternative minimum tax, and holders that will hold the Notes as
other than capital assets, are not discussed below. In particular, this
discussion applies only to 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 Tax
Counsel 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.
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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 it 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 agreements, the Notes
will be treated as indebtedness for federal income tax purposes. If
characterized as indebtedness, interest on the Notes will be taxable as ordinary
income for federal income tax purposes when received by Noteholders using the
cash method of accounting and when accrued by Noteholders using the accrual
method of accounting. Noteholders using the accrual method of accounting may be
required to report income for tax purposes in advance of receiving a
corresponding cash distribution with which to pay the related tax. Interest
received on the Notes also may constitute "investment income" for purposes of
limitations in the Code concerning the deductibility of investment interest
expense.
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 this debt characterization of the Notes will prevail. If the
Notes were treated as an ownership interest in the Leases, all income on the
Leases would be income to the holders of the Notes, and related fees and
expenses would generally be deductible (subject to the limitations on the
deductibility of miscellaneous itemized deductions by individuals) and the
market discount and premium provisions of the Code might apply to a purchase of
the Notes.
If, alternatively, the Notes were treated as an equity interest in the
Issuer, the Issuer might be classified as a partnership or as an association
taxable as a corporation or a publicly traded partnership taxable as a
corporation. If the Notes were treated as interests in a partnership, each item
of income, gain, loss, deduction and credit generated through the ownership of
the Equipment and the Lease Receivables by the partnership would be passed
through to the Noteholders, as partners in a partnership according to their
respective interests therein. The timing, amount and character of the income or
expenses reportable by the Noteholders as partners in a partnership could differ
from the income or expenses reportable by the Noteholders as holders of debt.
If the Noteholders were treated as partners, a cash basis Noteholder might be
required to report income when it accrues to the partnership rather than when it
is received by the Noteholder. Moreover, if Notes were treated as interests in
a partnership, an individual Noteholder's share of expenses of the partnership
(e.g., Servicing Fees) would be miscellaneous itemized deductions that in the
aggregate are allowed only to the extent they exceed two percent of the
individual Noteholder's adjusted gross income, meaning that the individual
Noteholder might be taxed on a greater amount of income than the stated interest
on his or her Notes. Finally, if a Note were treated as a partnership interest,
any taxable income allocated to a Holder that is a pension, profit sharing or
employee benefit plan or other tax-exempt, could constitute "unrelated business
taxable income."
If the Notes were treated as interests in an association taxable as a
corporation or a publicly traded partnership taxable as a corporation, the
resulting entity would be subject to federal income tax at corporate tax rates
on its taxable income generated by ownership of the Lease Receivables.
Moreover, distributions by the entity on the Notes probably would not be
deductible in computing the entity's taxable income and all or part of any
distributions to Noteholders would probably be treated as dividends. The
imposition of an entity-level tax could result in a reduced amount of cash
available for distributions to Noteholders.
Since the Issuer will treat the Notes as indebtedness for federal
income tax purposes, the Trustee (and Participants and Indirect Participants)
will not attempt to satisfy the tax reporting requirements that would apply
under these alternative characterizations of the Notes. Further, if the IRS
were to contend successfully that the Notes are interests in a publicly traded
partnership taxable as a corporation, additional tax consequences would
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apply to foreign Noteholders. Investors are urged to consult their own tax
advisors with regard to the potential application of those provisions.
Discount and Premium
A Note purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In very general terms, (i) original issue discount is
treated as a form of interest and must be included in a beneficial owner's
income as it accrues (regardless of the beneficial owner's regular method of
accounting) using a constant yield method; (ii) market discount is treated as
ordinary income and must be included in a beneficial owner's income as principal
payments are made on the Note (or upon a sale of a Note); and (iii) if a
beneficial owner so elects, premium may be amortized over the life of the Note
and offset against inclusions of interest income. These tax consequences are
discussed in greater detail below. Beneficial owners who are required to
include the interest income as it accrues may be required to report income for
tax purposes in advance of receiving a corresponding cash contribution with
which to pay the related tax.
Original Issue Discount. In general, a Note will be considered to be
issued with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a Note
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the Notes is sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the Due Period and the closing date relating to the series of Notes (the
"Issuance Date"). The stated redemption price at maturity of a Note that has a
notional principal amount or receives principal only or that is or may provide
for accruals of interest is equal to the sum of all distributions to be made
under that Note. The stated redemption price at maturity of any other Note is
its stated principal amount, plus an amount equal to the excess (if any) of the
interest payable on the first Payment Date over the interest that accrues for
the period from the Issuance Date to the first Payment Date. The Trustee will
supply, at the time and in the manner required by the IRS, to beneficial owners,
brokers and middlemen information with respect to the original issue discount
accruing on the Notes.
Notwithstanding the general definition, original issue discount will
be treated as zero if the discount is less than 0.25 percent of the stated
redemption price at maturity of the Note multiplied by its weighted average
life. The weighted average life of a Note is apparently computed for this
purpose as the sum, for all distributions included in the stated redemption
price at maturity, of the amounts determined by multiplying (i) the number of
complete years (rounding down for partial years) from the Issuance Date until
the date on which each of those distributions is expected to be made by (ii) a
fraction, the numerator of which is the amount of the distribution and the
denominator of which is the Note's stated redemption price at maturity. Even if
original issue discount is treated as zero under this rule, the actual amount of
original issue discount must be allocated to the principal distributions on the
Note and, when each principal distribution is received, gain equal to the
discount allocated to the distribution will be recognized.
The adjusted issue price of a Note at any time will equal the issue
price of the Note, increased by the aggregate amount of previously accrued
original issue discount with respect to that Note, and reduced by the amount of
any distributions made on that Note as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing
during any accrual period will then be allocated ratably to each day during the
period to determine the daily portion of original issue discount.
A subsequent purchaser of a Note that purchases it at a cost less than
its remaining stated redemption price at maturity also will be required to
include in gross income for each day on which it holds the Note, the daily
portion of original issue discount with respect to the Note (but reduced, if the
cost of the Note to the purchaser exceeds its adjusted issue price, by an amount
equal to the product of (i) that daily portion and (ii) a constant fraction, the
numerator of which is that excess and the denominator of which is the sum of the
daily portions of original issue discount on the Note for all days on or after
the day of purchase).
Market Discount. A beneficial owner that purchases a Note at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of the Note (or, in the case of a Note with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Note, and recognize
ordinary income to the extent the distribution does not exceed
39
<PAGE>
the aggregate amount of accrued market discount on the Note not previously
included in income. With respect to Notes that have unaccrued original issue
discount, any market discount must be included in income in addition to any
original issue discount. A beneficial owner that incurs or continues
indebtedness to acquire a Note at a market discount may also be required to
defer the deduction of all or a portion of the interest on the indebtedness
until the corresponding amount of market discount is included in income. In
general terms, market discount on a Note may be treated as accruing either (i)
under a constant yield method or (ii) in proportion to remaining accruals of
original issue discount, if any, or if none, in proportion to remaining
distributions of interest on the Note. The Trustee will make available, as
required by the IRS, to beneficial owners of Notes information necessary to
compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if the discount is less than 0.25 percent of the remaining
stated redemption price at maturity of the Note multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the Note by
the subsequent purchaser. If market discount on a Note is treated as zero under
this rule, the actual amount of market discount must be allocated to the
remaining principal distributions on the Note and, when each principal
distribution is received, gain equal to the discount allocated to the
distribution will be recognized.
Premium. A purchaser of a Note that purchases it at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased the Note (a "Premium Note") at a premium. A purchaser of a
Premium Note need not include in income any remaining original issue discount
and may elect, under section 171(c)(2) of the Code, to treat the premium as
"amortizable bond premium." If a beneficial owner makes this election, the
amount of any interest payment that must be included in the beneficial owner's
income for each period ending on a Payment Date will be reduced by the portion
of the premium allocable to the period based on the Premium Note's yield to
maturity. The amortization of premium should be made using constant yield
principles. If a premium amortization election is made by the beneficial owner,
the election will also apply to all bonds the interest on which is not
excludible from gross income ("fully taxable bonds") held by the beneficial
owner at the beginning of the first taxable year to which the election applies
and to all fully taxable bonds thereafter acquired by it, and is irrevocable
without the consent of the IRS. If a premium amortization election is not made,
(i) a beneficial owner must include the full amount of each interest payment in
income as it accrues, and (ii) the premium must be allocated to the principal
distributions on the Premium Note and when each principal distribution is
received, a loss equal to the premium allocated to the principal distribution
will be recognized. Any tax benefit from the premium not previously recognized
will be taken into account in computing gain or loss upon the sale or
disposition of the Premium Note.
Special Election. A beneficial owner may elect to include in gross
income all "interest" that accrues on a Note by using a constant yield method.
For purposes of the election, the term "interest" includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. A beneficial
owner should consult its own tax advisor regarding the time and manner of making
and the scope of the election and the implementation of the constant yield
method.
Sale or Exchange of Notes
If a Note is sold or exchanged, the seller of the Note will recognize
gain or loss equal to the difference between the amount realized on the sale or
exchange and the adjusted basis of the Note. The adjusted basis of a Note will
generally equal its cost, increased by any OID or market discount includible in
income with respect to the Note through the date of sale and reduced by any
principal payments previously received with respect to the Note, any payments
allocable to previously accrued OID or market discount and any amortized market
premium. Subject to the market discount rules, gain or loss will generally be
capital gain or loss if the Note was held as a capital asset. Capital losses
generally may be used only to offset capital gains.
40
<PAGE>
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Notes, may be subject to the "backup withholding tax"
under section 3406 of the Code at a rate of 31 percent if recipients of those
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from that tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against the recipient's federal income
tax. Furthermore, penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The IRS has issued regulations (the "Withholding Regulations"), which
change some of the rules relating to some of the presumptions currently
available relating to information reporting and backup withholding. The
Withholding Regulations provide alternative methods of satisfying the beneficial
ownership certification requirement. The Withholding Regulations are effective
for distributions made after December 31, 2000, although valid withholding
certificates that are held on that date remain valid until the earlier of
December 31, 2001 or the date of expiration of the certificate under the rules
as currently in effect.
Foreign Investors
Distributions made on a Note to, or on behalf of, a beneficial owner
that is not a U.S. Person generally will be exempt from U.S. federal income and
withholding taxes. The term "U.S. Person " means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
an estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States person has
the authority to control all substantial decisions of the trust. This exemption
is applicable provided (a) the beneficial owner is not subject to U.S. tax as a
result of a connection to the United States other than ownership of the Note,
(b) the beneficial owner signs a statement under penalties of perjury that
certifies that the beneficial owner is not a U.S. Person, and provides the name
and address of the beneficial owner, and (c) the last U.S. Person in the chain
of payment to the beneficial owner receives this statement from such beneficial
owner or a financial institution holding on its behalf and does not have actual
knowledge that this statement is false. Beneficial owners should be aware that
the IRS might take the position that this exemption does not apply to a
beneficial owner that is a "controlled foreign corporation" described in Section
881(c)(3)(C) of the Code.
If income or gain with respect to a Note is effectively connected with
a U.S. trade or business carried on by a Noteholder who or which is not a U.S.
person, the 30 percent withholding tax will not apply but the Noteholder will be
subject to U.S. federal income tax at graduated rates applicable to U.S.
persons.
The Withholding Regulations would require, in the case of Notes held
by a foreign partnership, that (x) the certification described above be provided
by the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. See "Backup Withholding" above. A look-through rule would apply in the
case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors regarding the application to them of the Withholding Regulations.
State and Local Tax Consequences
Investors should consult their own tax advisors regarding whether the
purchase of the Notes, either alone or in conjunction with an investor's other
activities, may subject an investor to any state or local taxes based on an
assertion that the investor is either "doing business" in, or deriving income
from a source located in, any state or local jurisdiction. Additionally,
potential investors should consider the state, local and other tax consequences
of purchasing, owning or disposing of a Note. State and local tax laws may
differ substantially from the corresponding federal tax law, and the foregoing
discussion does not purport to describe any aspect of the tax laws of any state
or other jurisdiction. Accordingly, potential investors should consult their
own tax advisors with regard to an investment in the Notes.
41
<PAGE>
The federal and state income tax discussions set forth above are
included for general information only and may not be applicable depending upon a
Noteholder's particular tax situation. Prospective purchasers should consult
their tax advisors with respect to the tax consequences to them of the purchase,
ownership and disposition of the notes, including the tax consequences under
state, local, foreign and other tax laws and the possible effects of changes in
federal or other tax laws or in the interpretations thereof.
Ratings
Each class of Notes offered by this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies. These ratings will address, in the opinion of
the Rating Agencies, the likelihood that the Issuer will be able to make timely
payment of all amounts due on the related Notes in accordance with the terms
thereof. These ratings will neither address any prepayment or yield
considerations applicable to any Notes nor constitute a recommendation to buy,
sell or hold any Notes.
ERISA Considerations
The Prospectus Supplement for each series of Notes will summarize
considerations under ERISA relevant to the purchase of Notes of that series by
employee benefit plans and individual retirement accounts.
Plan of Distribution
The Notes will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices to
be determined at the time of sale or at the time of commitment therefor.
In connection with the sale of the Notes, underwriters may receive
compensation from the Issuer or from purchasers of the Notes in the form of
discounts, concessions or commissions. The underwriters and dealers
participating in the distribution of the Notes may be deemed to be underwriters
in connection with the Notes, and any discounts or commissions received by them
from the Issuer and any profit on the resale of Notes by them may be deemed to
be underwriting discounts and commissions under the Securities Act.
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the offered
notes at levels above those which might otherwise prevail in the open market.
Any stabilizing, if commenced, may be discontinued at any time.
The underwriting agreement pertaining to the sale of the Notes will
provide that the obligations of the underwriters will be subject to certain
conditions precedent, that the underwriters will be obligated to purchase all
the Notes subject to that agreement if any are purchased and that, in limited
circumstances, the Issuer will indemnify the underwriters and the underwriters
will indemnify the Issuer against certain civil liabilities, including
liabilities under the Securities Act, or will contribute to payments required to
be made in respect thereof.
Purchasers of Notes, including dealers, may, depending on the facts
and circumstances of their purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Noteholders should consult with their legal advisors in this regard
prior to any reoffer or sale.
Legal Opinions
Certain legal matters will be passed upon in relation to the issuance
of the Notes for the Issuer by Ballard Spahr Andrews & Ingersoll, LLP,
Philadelphia, Pennsylvania and in relation to certain other matters for the
underwriters by Dewey Ballantine LLP, New York, New York.
42
<PAGE>
Experts
The balance sheet of IKON Receivables, LLC at April 6, 1999, appearing
in this Prospectus and Registration Statement, has been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and is included in reliance upon the report given on the
authority of that firm as experts in accounting and auditing.
43
<PAGE>
Index To Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 44
Balance Sheet of the Issuer as of April 6, 1999 45
Notes to Balance Sheet 46
</TABLE>
44
<PAGE>
Report of Independent Auditors
------------------------------
The Board of Directors
IKON Receivables, LLC
We have audited the accompanying balance sheet of IKON Receivables, LLC (an
indirect wholly-owned subsidiary of IOS Capital, Inc.) as of April 6, 1999.
This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of IKON Receivables, LLC at April 6,
1999, in conformity with generally accepted accounting principles.
Ernst & Young LLP
April 8, 1999
Philadelphia, Pennsylvania
45
<PAGE>
Exhibit 1
IKON Receivables, LLC
Balance Sheet
April 6, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Assets
<S> <C>
Cash.................................................................... $1,000
------
Total assets......................................................... $1,000
======
Liabilities and Member's Equity
Liabilities............................................................. $ 0
Member's equity......................................................... $1,000
------
Total liabilities and member's equity................................... $1,000
======
</TABLE>
See accompanying notes.
46
<PAGE>
IKON Receivables, LLC
Notes to Balance Sheet
April 6, 1999
1. Organization
------------
IKON Receivables, LLC (the "Company"), an indirect wholly-owned subsidiary
of IOS Capital, Inc. ("IOS Capital"), was organized in the State of Delaware
on January 20, 1999, and is managed by IKON Receivables Funding, Inc. (the
"Manager").
The Company was organized to engage exclusively in the following business
and financial activities: 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 an Assignment and
Servicing Agreement by and among IKON Receivables-1, LLC ("the Sole
Member"), as Seller, IOS Capital, as Originator and Servicer, and the
Company, as Issuer; 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; to enter into and perform its
obligations under the Assignment and Servicing Agreement, and any interest
rate hedging arrangements in connection therewith; 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 to engage in
any lawful act or activity and to exercise any power that is incidental and
is necessary or convenient to the foregoing and permitted under Delaware
law.
Neither the Sole Member nor the Manager shall be liable for the debts,
liabilities, contracts or other obligations of the Company solely by reason
of being the Sole Member or Manager of the Company.
2. Capital Contribution
--------------------
IKON Receivables-1, LLC made an initial capital contribution of $1,000 to
IKON Receivables, LLC on April 6, 1999.
3. Registration Statement
----------------------
At April 6, 1999, the Company was in the process of registering with the
Securities and Exchange Commission to be able to issue up to $825 million of
its Lease-Backed Notes.
47
<PAGE>
Index Of Terms
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
1934 Act................................................................... 18
Additional Account......................................................... 33
Additional Lease........................................................... 25
Adjusted Lease............................................................. 25
Asset Pool................................................................. 13
Assignment and Servicing Agreement......................................... 13
Available Funds............................................................ 24
Bankruptcy Code............................................................ 36
Business Day............................................................... 24
Casualty................................................................... 25
Casualty Payment........................................................... 25
Cede....................................................................... 26
CEDEL Participants......................................................... 27
CLAS....................................................................... 20
Code....................................................................... 37
Collection Account......................................................... 33
Commission................................................................. 18
Cooperative................................................................ 27
Cut-off Date............................................................... 13
Definitive Notes........................................................... 28
Depositories............................................................... 26
Discount Rate.............................................................. 16
Discounted Present Value of the Leases..................................... 16
Discounted Present Value of the Performing Leases.......................... 16
Distribution Account....................................................... 33
DTC........................................................................ 26
Due Period................................................................. 24
Early Termination Lease.................................................... 25
Eligible Account........................................................... 33
Eligible Investments....................................................... 33
Eligible Leases............................................................ 15
Equipment.................................................................. 13
Euroclear Operator......................................................... 28
Euroclear Participants..................................................... 27
Events of Default.......................................................... 34
High Risk Review List...................................................... 20
IKON Office Solutions...................................................... 18
Indirect Participants...................................................... 26
Industry................................................................... 28
IRS........................................................................ 37
IT......................................................................... 21
Lease...................................................................... 13
Lease Payment.............................................................. 24
Lease Receivables.......................................................... 13
Lessee..................................................................... 13
Lessees.................................................................... 13
Non-Performing Leases...................................................... 25
Originator's Leasing Business.............................................. 14
Participants............................................................... 26
Payment Date............................................................... 18
Pool Factor................................................................ 18
</TABLE>
48
<PAGE>
<TABLE>
<S> <C>
Pre-Funding Account........................................................ 33
Premium Note............................................................... 40
Rating Agencies............................................................ 23
Rating Agency.............................................................. 23
Reserve Account............................................................ 33
Retainable Deposit......................................................... 25
Rules...................................................................... 27
Servicer Advance........................................................... 30
Servicer Events of Default................................................. 32
Servicing Fee.............................................................. 30
Substitute Lease........................................................... 25
Systems.................................................................... 28
Tax Counsel................................................................ 37
Termination Payment........................................................ 25
Terms and Conditions....................................................... 28
Transaction Accounts....................................................... 33
Transaction Documents...................................................... 29
Trust Depository........................................................... 27
U.S. Person................................................................ 41
Warranty Lease............................................................. 25
Withholding Regulations.................................................... 41
</TABLE>
49
<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................................ $ 507,350
Indenture Trustee's Fees and Expenses......... 7,000
Legal Fees and Expenses....................... 975,000
Accounting Fees and Expenses.................. 300,000
Printing and Engraving Expenses............... 60,000
Blue Sky Qualification and Legal Investment
Fees and Expenses.......................... 25,000
Credit Enhancer Fees.......................... 50,000
Rating Agency Fees............................ 500,000
Miscellaneous................................. 50,000
TOTAL $2,474,350
- --------------------------------
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.
II-1
<PAGE>
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 Second 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 Consent of Dewey Ballantine LLP(included in Exhibit 5.1 hereto).
23.2 Consent of Dewey Ballantine LLP(included in Exhibit 8.1 hereto).
23.3 Consent of Accountants.*
25.1 Statement of Eligibility of Indenture Trustee.
- --------------------------
* 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) 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
II-2
<PAGE>
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) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) 0f the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement 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.
(4) 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.
II-3
<PAGE>
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 7th day of
May, 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
----------------------------------
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.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert K. McLain President, Director, May 7, 1999
- --------------------------- Principal Executive
Robert K. McLain Officer, Principal
Financial Officer and
Principal Accounting
Officer
/s/ Patricia Donato Secretary & Director May 7, 1999
- ---------------------------
Patricia Donato
/s/ Joseph Churchman Director May 7, 1999
- ---------------------------
Joseph Churchman
/s/ Robert C. Campbell Director May 7, 1999
- ---------------------------
Robert C. Campbell
/s/ Robert W. Grier Director May 7, 1999
- ---------------------------
Robert W. Grier
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Formation of IKON Receivables, LLC.*
3.2 Second 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 Consent of Dewey Ballantine LLP(included in Exhibit 5.1 hereto).
23.2 Consent of Dewey Ballantine LLP(included in Exhibit 8.1 hereto).
23.3 Consent of Accountants.*
25.1 Statement of Eligibility of Indenture Trustee.
- --------------------------
* Previously Filed.
<PAGE>
EXHIBIT 3.2
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
IKON RECEIVABLES, LLC
This Second Amended and Restated Limited Liability Company
Agreement, dated and effective as of April 23, 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 (the "Original Agreement");
WHEREAS, the Amended and Restated Limited Liability Company
Agreement was adopted on March 26, 1999 (the "Amended Agreement"), which amended
and restated in its entirety the Original Agreement; and
WHEREAS, the Sole Member and the Manager hereby wish to amend and
restate the Amended Agreement.
NOW, THEREFORE, the Sole Member and the Manager hereby amend and
restate the Original Agreement in its entirety and adopt the following:
ARTICLE I
FORMATION OF LIMITED LIABILITY COMPANY
Section I.1. Formation of Limited Liability Company. The Sole Member
has heretofore formed a Delaware limited liability company (the "Company")
pursuant to the Act. 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 the sole member of the Company, and the Sole
Member's Interest in the Company shall be, and hereby is, authorized and issued.
<PAGE>
Section I.2. Company Name and Principal Office. The name of the
Company shall be "IKON Receivables, LLC." The Manager shall have the power at
any time to change the name of the Company. The principal business office of the
Company shall be 1738 Bass Road, P.O. Box 9115, Macon, Georgia 31208. The
business of the Company may also be conducted at such additional place or places
as the Sole Member may determine.
Section I.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 I.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 I.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 1, 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
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<PAGE>
(e) to engage in any lawful act or activity and to exercise any
powers permitted to limited liability 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 Manager or 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 Manager and
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.
Section 1.9. Fiscal Year. The Company's fiscal year shall commence
on October 1st and end on September 30th of each year.
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.
3
<PAGE>
"Agreement" shall mean this Limited Liability Company Agreement, as
the same may be amended, supplemented or otherwise modified from time to time.
"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 of the Manager
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
4
<PAGE>
Event" is intended to replace and shall supersede and replace the definition of
"Bankruptcy" set forth in Sections 18-304 of the Act.
"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, as amended, 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 the 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 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.
5
<PAGE>
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 or other applicable law. 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.
6
<PAGE>
(c) There shall be no change of Manager without the prior
confirmation from Moody's Investors Service, Inc. and Standard & Poor's Rating
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, conversion or sale of all or substantially all of the Company's assets
or make an assignment for the benefit of creditors of
7
<PAGE>
the Company 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
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, conversion 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, to the
fullest extent permitted by law, 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
8
<PAGE>
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.
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 Agreement or the
Company's Certificate of Formation, as amended or restated from time to time.
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
stationery, 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
9
<PAGE>
other obligations of the Company solely by reason of being the Sole Member or
Manager of the Company.
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 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) To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Party defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by the
Company prior to the final disposition
10
<PAGE>
of such claim, demand, action, suit or proceeding upon receipt by the Company of
an undertaking by or on behalf of the Indemnified Party to repay such amount if
it shall be determined that the Indemnified Party is not entitled to be
indemnified as authorized in this Section 7.1.
(d) Notwithstanding anything else contained in this Agreement, the
indemnity obligations of the Company under paragraph (b) above shall:
(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.
(e) 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.
Section 8.4. Resignation. Other than as set forth in Section 8.1,
the Sole Member shall not resign from the Company.
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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;
(b) judicial dissolution pursuant to the Act;
(c) at any time there are no members of the Company, unless
the Company is continued without dissolution in accordance with the
Act or Section 9.2 below; 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
(including at least two Independent 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 or the
occurrence of any other event that causes the Sole Member to cease to be a
member of the Company at a time when the Sole Member is the only member of the
Company, to the fullest extent permitted by law, the personal representative of
the Sole Member shall, within 90 days of such event, 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. Upon such admission, the Company shall be continued without
dissolution.
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.
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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 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
13
<PAGE>
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;
(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.
14
<PAGE>
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 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 Second Amended and Restated 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
1738 Bass Road
P.O. Box 9115
Macon, Georgia 31208
Manager: IKON Receivables Funding, Inc.
103 Foulk Road, Suite 202
Wilmington, DE 19803
1
<PAGE>
EXHIBIT B
CAPITAL CONTRIBUTION OF SOLE MEMBER
1. Lease Receivables pursuant to Section 3.1 of this Limited Liability
Company Agreement.
2. Cash in the amount of $1000.00.
2
<PAGE>
Exhibit 5.1
[Letterhead of Dewey Ballantine LLP]
May 7, 1999
IKON Receivables, LLC
1738 Bass Road
P.O. Box 9115
Macon, GA 31208
Re: Lease-Backed Notes
------------------
Ladies and Gentlemen:
We have acted as counsel to Lehman Brothers (the "Underwriter") in connection
with the preparation and filing of the registration statement on Form S-3
(Registration 333-71073) (such registration statement, the "Registration
Statement") being filed today with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of
Lease-Backed Notes (the "Notes") which IKON Receivables, LLC (the "Issuer" or
the "Registrant") plans to offer in series, each series to be issued under a
separate assignment and servicing agreement or indenture (an "Indenture"), in
substantially one of the forms incorporated by reference as Exhibits to the
Registration Statement, among Issuer, a servicer to be identified in the
prospectus supplement for such series of Notes (the "Servicer" for such series),
and a trustee to be identified in the prospectus supplement for such series of
Notes (the "Trustee" for such series).
We have examined and relied on the originals or copies certified or otherwise
identified to our satisfaction of all such documents and records of Issuer and
such other instruments and other certificates of public officials, officers and
representatives of Issuer and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinions
expressed below.
We are admitted to the Bar of the State of New York and we express no opinion
as to the laws of any other jurisdiction except as to matters that are governed
by Federal law or the laws of the State of New York. All opinions expressed
herein are based on laws, regulations and policy guidelines currently in force
and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
<PAGE>
1. When, in respect of a series of Notes, an Indenture has been duly
executed and delivered by Issuer, the Servicer and the Trustee for such
series, such Indenture will be a valid and legally binding obligation of
the Issuer; and
2. When an Indenture for a series of Notes has been duly executed and
delivered by the Issuer, the Servicer and the Trustee for such series, and
when the Notes of such series have been duly executed and authenticated in
accordance with the provisions of the Indenture, and issued and sold as
contemplated in the Registration Statement and the Prospectus, as amended
or supplemented and delivered pursuant to Section 5 of the Act in
connection therewith, such Notes will be legally and validly issued, fully
paid and nonassessable, and the holders of such Notes will be entitled to
the benefits of such Indenture.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to Dewey Ballantine LLP in the
Registration Statement and in future related prospectus supplements under the
heading "Legal Matters." In giving this opinion, we do not concede that we are
experts within the meaning of the Act or the rules and regulations therewith, or
that this consent is required by Section 7 of the Act.
Very truly yours,
DEWEY BALLANTINE LLP
<PAGE>
Exhibit 8.1
[Letterhead of Dewey Ballantine LLP]
May 7, 1999
IKON Receivables, LLC
1738 Bass Road
P.O. Box 9115
Macon, CA 31208
Re: Lease-Backed Notes
------------------
Ladies and Gentlemen:
We have acted as special counsel to Lehman Brothers (the "Underwriter") in
connection with the preparation and filing of a registration statement on
Form S-3 (Registration No. 333-71073) (the "Registration Statement") being filed
today with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), in respect of Lease-Backed Notes (the "Notes")
which IKON Receivables, LLC ("Issuer") plans to offer in series.
In addition, assuming (i) the Indenture among IKON Receivables, LLC, Harris
Trust and Savings Bank and IOS Capital, Inc. is fully executed, delivered and
enforceable against the parties thereto in accordance with its terms (ii) the
transaction described in the Registration Statement is completed on
substantially the terms and conditions set forth therein, and (iii) no election
on IRS Form 8832 is made to the contrary, it is our opinion that:
. the Issuer will not be treated as an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes;
. the Notes will be characterized as indebtedness for federal income tax
purposes; and
. subject to the assumptions and limitations described therein, the
discussion under the heading "Material Federal Income Tax Consequences" in
the prospectus contained in the Registration Statement sets forth all the
material federal income tax consequences to the original purchasers of the
Notes of any series and is accurate in all material respects.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to Dewey Ballantine LLP in the
Registration Statement and in future related prospectus supplements under the
heading "Material Federal Income Tax Consequences." In giving this opinion, we
do not concede that we are experts within the meaning of the Act or the rules
and regulations therewith, or that this consent is required by Section 7 of the
Act.
Very truly yours,
DEWEY BALLANTINE LLP
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Rory Nowakowski, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
(312) 461-5180 phone (312) 461-3525 facsimile
(Name, address and telephone number for agent for service)
IKON Receivables, LLC.
(Note Issuer)
Delaware 23-2990188
(State of Incorporation) (I.R.S. Employer Identification No.)
1738 Bass Road
Macon, GA 31210
(Address of principal executive offices)
Class A-1 Lease-Backed Notes, Series 1999-1
Class A-2 Lease-Backed Notes, Series 1999-1
Class A-3 Lease-Backed Notes, Series 1999-1
Class A-4 Lease-Backed Notes, Series 1999-1
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. through 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as now in effect
which includes the authority of the trustee to commence business and to
exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File No.
2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation, File
No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 4th day of May, 1999.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Rory Nowakowski
--------------------
Rory Nowakowski
Assistant Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Rory Nowakowski
--------------------
Rory Nowakowski
Assistant Vice President
2
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of December 31, 1998, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, and Foreign and Domestic Subsidiaries, at the close of
business on December 31, 1998, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
Cash and balances due from depository institutions:
<S> <C> <C>
Non-interest bearing balances and currency and coin..................... $1,435,233
Interest bearing balances............................................... $98,929
Securities:....................................................................
a. Held-to-maturity securities $0
b. Available-for-sale securities $5,295,498
Federal funds sold and securities purchased under agreements to resell $151,575
Loans and lease financing receivables:
Loans and leases, net of unearned income................................ $9,320,939
LESS: Allowance for loan and lease losses.............................. $108,280
-----------------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b).................................................... $9,212,659
Assets held in trading accounts................................................ $252,881
Premises and fixed assets (including capitalized leases)....................... $271,540
Other real estate owned........................................................ $366
Investments in unconsolidated subsidiaries and associated companies............ $57
Customer's liability to this bank on acceptances outstanding................... $30,829
Intangible assets.............................................................. $257,627
Other assets................................................................... $1,093,599
----------------------
TOTAL ASSETS $18,100,793
======================
</TABLE>
3
<PAGE>
LIABILITIES
<TABLE>
<CAPTION>
Deposits:
<S> <C> <C>
In domestic offices.......................................................... $10,270,499
Non-interest bearing.................................................... $3,410,568
Interest bearing........................................................ $6,859,931
In foreign offices, Edge and Agreement subsidiaries, and IBF's............... $935,609
Non-interest bearing.................................................... $69,215
Interest bearing........................................................ $866,394
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's:
Federal funds purchased & securities sold under agreements to repurchase....... $3,642,049
Trading Liabilities 131,909
Other borrowed money:..........................................................
a. With remaining maturity of one year or less $1,107,125
b. With remaining maturity of more than one year $0
Bank's liability on acceptances executed and outstanding $30,829
Subordinated notes and debentures.............................................. $225,000
Other liabilities.............................................................. $424,376
----------------------
TOTAL LIABILITIES $16,767,396
======================
EQUITY CAPITAL
Common stock................................................................... $100,000
Surplus........................................................................ $608,116
a. Undivided profits and capital reserves..................................... $593,973
b. Net unrealized holding gains (losses) on available-for-sale securities $31,308
----------------------
TOTAL EQUITY CAPITAL $1,333,397
======================
Total liabilities, limited-life preferred stock, and equity capital............ $18,100,793
======================
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
1/27/99
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD E. TERRY
Directors.
4
