Prospectus
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$825,000,000
IKON Receivables, LLC Lease-Backed Notes
Issuer Issuable in Series
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[IKON LOGO]
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.
The notes are secured only by the pledged assets of the issuer and are not
interests in or obligations of any other person.
Retain this prospectus for future reference. This prospectus may not be used to
consummate sales of securities unless accompanied by the prospectus supplement
relating to the offering of such securities.
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From time to time the issuer may sell a series of its notes that --
o will be backed solely by a pool of office equipment leases or contracts
and related assets;
o will consist of one or more classes on terms to be determined at the time
of sale; and
o may include one or more classes or subclasses of notes that are
subordinate to one or more other classes or subclasses.
The assets backing the notes may consist of --
o any combination of leases;
o leases intended as security agreements;
o installment sale contracts;
o rental stream obligations;
o monies received relating to such leases, agreements, contracts and
obligations;
o funds on deposit in one or more accounts; and
o one or more forms of credit support.
Underwriting --
o One or more underwriters specified in the related prospectus supplement
may offer the notes.
o The plan of distribution of the notes of any series and the terms of the
underwriting arrangements will be as described in this prospectus and in
the related 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 __________ 1999.
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Table Of Contents
Page
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.................15
Directors and Executive Officers of the Manager of the Issuer...............15
The Leases..................................................................16
Pool Factors................................................................18
Use Of Proceeds.............................................................18
The Originator's Leasing Business...........................................19
The Trustee.................................................................23
Description Of The Notes....................................................24
Description of the Transaction Documents....................................29
Certain Legal Aspects Of The Lease Receivables..............................34
Material Federal Income Tax Consequences....................................37
Ratings.....................................................................41
ERISA Considerations........................................................41
Plan of Distribution........................................................42
Legal Opinions..............................................................42
Experts.....................................................................42
Index To Financial Statements...............................................43
Index Of Terms..............................................................47
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Important Information about this
Prospectus and the Accompanying Prospectus Supplement
We provide information to you about the notes in two separate
documents that progressively provide more detail: (1) this prospectus, which
provides general information, some of which may not apply to a particular series
of notes, and (2) the prospectus supplement, which describes the specific terms
of your series of notes.
This prospectus does not contain complete information about the
offering of the notes. The prospectus supplement contains additional
information. You are urged to read both this prospectus and the prospectus
supplement, including the information incorporated by reference, in full. We
cannot sell the notes to you unless you have received both this prospectus and
the prospectus supplement.
If the terms of your series of notes vary between this prospectus
and the accompanying prospectus supplement, you should rely on the information
in the prospectus supplement.
The prospectus supplement for your notes will state:
o the aggregate principal amount, interest rate and authorized
denominations of the notes;
o specific information concerning the lease receivables
including any insurance related to the lease receivables;
o the terms of any credit enhancement with respect to the notes;
o information concerning any other assets backing such notes,
including any reserve fund;
o the final scheduled payment date of each class of such notes;
o how and when principal is to be paid on to the notes of each
class of such series on each payment date, the timing of the
application of principal and the order of priority of the
applications of such principal to the respective classes and
the allocation of principal to be so applied;
o additional information on the plan of distribution of the
notes;
o the federal income tax characterization of the notes;
o the terms of any subordination relating to the notes;
o the terms of any cross-collateralization relating to the
notes;
o the terms of any redemptions and the related redemption prices
relating to the notes;
o servicing terms relating to the notes;
o the presence of any prefunding feature relating to the notes;
and
o the length and terms of any revolving period relating to the
notes.
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Prospectus Summary
o 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.
o This summary provides an overview of certain 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
o Unless the related prospectus supplement otherwise states, the notes of each
series will be secured solely by office equipment leases or contracts and
related assets which will be pledged by the issuer to a trustee under an
indenture of trust for the benefit of noteholders of that series.
o 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.
o The notes are fixed income securities. Fixed income securities are generally
styled as debt instruments, having a principal balance and a specified interest
rate.
o Each class of notes may have a different interest rate, which may be a fixed
or adjustable 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.
o A series may include one or more classes of notes which are:
o stripped of regular interest payments and entitled only to principal
distributions, with disproportionate, nominal or no interest
distributions; or
o stripped of regular principal payments and entitled only to interest
distributions, with disproportionate, nominal or no principal
distributions.
o A series of notes may include two or more classes of notes with different
terms including
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different interest rates and different timing, sequential order or priority of
payments, amount of principal or interest or both.
o A series may provide that distributions of principal or interest or both on
any class may be made:
o upon the occurrence of specified events;
o in accordance with a schedule or formula; or
o on the basis of collections from designated portions of the related
asset pool.
o Any series may include one or more classes of notes which will not distribute
certain 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.
o 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 certain distributions of principal
and interest and allocations of losses on the related asset pool.
The Asset Pools
o As specified in the related prospectus supplement, the pledged pool of assets
securing a series of notes may consist of:
o leases which may include any combination of leases, leases intended
as security agreements, installment sale contracts or rental stream
obligations, together with all monies due on such leases and
agreements;
o equipment which consists of the seller's interests (other than its
ownership interests) in the underlying equipment and related
property, together with the proceeds from disposal of the equipment;
o amounts held in any collection, reserve, prefunding or other
accounts established pursuant to the transaction documents;
o proceeds and recoveries on insurance policies and the disposition of
repossessed equipment;
o credit enhancement with respect to an asset pool or any class of
notes; and
o interest earned on certain short term investments held by issuer
o 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.
o If the related prospectus supplement specifies, the notes may have a revolving
period. During a revolving period, the issuer may acquire additional leases and
equipment from the proceeds of payments on existing lease payments. The notes
may not pay principal during this period.
The Leases
o The leases are either:
o obligations for the lease or purchase of the equipment; or
o evidence loans used to acquire or finance the equipment, which
entitle the lessor to receive a stream of payments from the lessee.
Additionally, the loans may entitle the lessor to either the return
of the equipment at the termination of the related lease or the
payment of a purchase price for the equipment at the election of the
lessee.
o The originator will transfer the leases and equipment comprising each asset
pool to the seller and the seller will transfer those leases and the seller's
interests in that equipment, other than its ownership interests, to the issuer.
The seller will not transfer equipment to the issuer. The issuer will pledge all
of its right, title and interest in and to such leases and interests in the
equipment to the trustee on behalf of noteholders.
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.
Remittance Period
The transaction documents will establish a period preceding each payment date
(for example, in the case of monthly-pay notes, the calendar month preceding the
month in which a payment date occurs) as the remittance period. As the related
prospectus supplement will more fully describe, the servicer will
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remit collections received during the remittance period to the trustee prior to
the related payment date. The collections may be used to fund payments to
noteholders on such 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.
Cross-Collateralization
Except as described below, the payment source for notes of each series is the
related asset pool only. To the extent the related prospectus supplement
describes, a series or class of notes may include the right to receive moneys
from a pool of credit enhancement shared with other notes.
Registration of Notes
The issuer may issue the notes as global notes registered in the name of Cede &
Co., as nominee of The Depository Trust Company, or another nominee. In such
case, noteholders will not receive definitive notes representing their
interests, except in certain limited circumstances described in the related
prospectus supplement.
Credit and Cash Flow Enhancement
o As described in the related prospectus supplement, credit enhancement with
respect to an asset pool or any class of notes may include any one or more of
the following:
o a policy issued by an insurer specified in the related prospectus
supplement;
o overcollateralization;
o subordination of certain classes of notes;
o a reserve account;
o letters of credit;
o credit or liquidity facilities;
o third party payments or other support; and
o cash deposits or other similar arrangements.
o The prospectus supplement will describe any limitations and exclusions from
coverage.
Optional or Mandatory Termination
o Under certain circumstances described in this prospectus and the related
prospectus supplement, the servicer, the seller, the issuer, or certain 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.
o The related prospectus supplement may describe certain circumstances under
which the issuer, servicer or other entities will be required to retire early
all or any portion of a series of notes. The documents may require such 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 underwriter, 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 certain 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
o The issuer will not issue the notes unless a rating agency rates them in one
of the four highest rating categories.
o You must not assume that the rating agency will not lower, qualify or withdraw
its rating.
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Risk Factors
You should carefully consider, among other things, the following risk factors
before deciding to invest in the notes offered by this prospectus.
You May Not Be Able to Sell Your There is currently no public market for
Notes the notes. If no public market 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
such market will be created or, if
created, will continue.
Prepayments and Related In the case of notes purchased at a
Reinvestment May Reduce Your Yield discount, you should consider the risk
that slower than anticipated rates of
prepayments 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, the risk that
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 equipment leases. In addition
to the normally scheduled payments on
the leases, payments may come from a
number of different sources, including
the following:
o prepayments permitted by the servicer;
o payments as a result of leases which
are defaulted;
o payments as a result of leases
accelerated by the servicer;
o payments due to loss, theft,
destruction or other casualty; and
o payments upon repurchases by IOS
Capital, Inc. on account of a breach
of certain representations and
warranties.
Subject to certain limitations, IOS
Capital, Inc. may elect to reinvest the
proceeds of a lease which was 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 certain natural disasters such as
floods, hurricanes, earthquakes and
tornadoes may affect prepayments.
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No Ownership Interest in the The seller is not transferring any of
Equipment; Certain Security its ownership interest in the equipment
Interests are Not Perfected and to the issuer. Therefore, neither the
Other Creditors May Have Rights to issuer nor the trustee for the benefit
the Equipment of noteholders will have any ownership
interest in any equipment. Also,
although the issuer will pledge its
interest in the equipment as a secured
party to the trustee, neither the issuer
nor the trustee will have a perfected
security interest in the equipment. The
lack of a perfected security interest in
the equipment may adversely affect the
ability of the issuer or the trustee on
behalf of noteholders to recover any
moneys on such equipment following a
lease default. This could reduce the
funds available to pay the notes.
Because IOS Capital, Inc. and the
trustee will not have a perfected
security interest in any equipment,
other creditors of the related lessees
may acquire rights in the equipment
superior to those of the issuer or the
trustee. Additionally, because the
indenture and the assignment and
servicing agreement will only require
Uniform Commercial Code financing
statements to be filed in central
locations for any given state, security
interests in the equipment will also not
be perfected in favor of the issuer or
the trustee in any state requiring other
than central filings. Therefore, other
creditors of IOS Capital, Inc., may
acquire rights in the equipment superior
to those of the issuer or the trustee..
State Laws and Other Factors May State laws impose requirements and
Impede Recovery Efforts and Affect restrictions on foreclosure sales and
the Ability of the Issuer to Recoup obtaining deficiency judgments and may
the Full Amount Due on The Leases prohibit, limit or delay repossession
and sale of equipment to recover losses
on non-performing leases.
Additional factors that may affect the
issuer's ability to recoup the full
amount due on a lease include:
o the lack of any ownership
interest in any of the
equipment on the part of the
issuer;
o the failure to file
financing statements to
perfect the issuer's
security interest in certain
equipment against a lessee;
o depreciation;
o obsolescence;
o damage or loss of any item
or equipment; and
o 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
Insolvency of the Issuer, servicer, the originator or the seller,
Originator, Seller or Servicer May while in possession of the leases may
Result in Reduced or Delayed result in competing claims to ownership
Payments to Noteholders or security interests in the leases
which could result in delays in payments
on the notes, losses to the noteholders
or an acceleration of the repayment of
the notes.
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Commingling of Funds with IOS If bankruptcy or reorganization
Capital, Inc. May Result in Reduced proceedings are commenced with respect
or Delayed Payments to Noteholders to the servicer, any funds then held by
the servicer may be unavailable to
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, Inc. or In some circumstances, a bankruptcy of
IKON Receivables Funding, Inc. May IOS Capital or IKON Receivables-1, LLC
Reduce Payments to Noteholders may reduce payments to noteholders. IOS
Capital and IKON 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, Inc. or IKON
Receivables-1, LLC, a court or
bankruptcy trustee could attempt to:
o recharacterize the
contribution of the related
leases by IOS Capital, Inc.
to the seller as a loan from
the seller to IOS Capital,
Inc., secured by a pledge of
such leases; or
o 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 such leases;
o consolidate the assets of
the issuer with those of IOS
Capital, Inc. since IOS
Capital, Inc. will
indirectly own all of the
membership interests in the
issuer; or
o consolidate the assets of
the issuer with those of
IKON Receivables-1, LLC
because IKON Receivables
Funding, Inc. 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
such operating leases. Either attempt,
even if unsuccessful, could result in
delays in payments to you. If such
attempts were successful, such 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 might incur
reinvestment losses on amounts
recovered. Thus, you will not receive
your anticipated principal and interest
on the notes.
Although IOS Capital, Inc. 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, Inc. for tax
purposes. Such treatment of the assets
might increase the risk of
recharacterization of the transfer.
Transfer of Servicing May Delay If IOS Capital, Inc. were to cease
Payments to Noteholders servicing the leases, delays in
processing payments on the leases and
information regarding lease payments
could occur. This could delay payments
to the noteholders.
Default or Insolvency of Lessees If lessees default on the leases, lease
May Reduce Payments to Noteholders payments will decrease and funds
available for payment to you will be
reduced.
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No Recourse Against Affiliates of There is no recourse against any
the Issuer affiliates of the issuer. The notes
represent debt of the issuer secured
primarily by the leases. If the lease
payments and other assets pledged to
secure the notes are insufficient to pay
the notes in full, you have no rights to
obtain payment from IOS Capital, Inc. or
any of its affiliates other than the
issuer. The issuer is a limited
liability company with limited assets.
Consequently, the noteholders must rely
solely upon the related asset pool for
repayment.
Losses and Delinquencies on the We cannot guarantee that the delinquency
Lease Receivables May Differ From and loss levels of leases in the assets
the Originator's Historical Loss pools will correspond to the historical
and Delinquency Levels levels the originator experienced on its
equipment lease portfolio. There is a
risk that delinquencies and losses could
increase or decline significantly for
various reasons including:
o changes in the federal
income tax laws;
o changes in the local,
regional or national
economies; or
o other events.
Risks Associated with Year 2000 The originator is faced with the task of
Compliance completing its goals for 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. Any such occurrence
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 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
Leases May Adversely Affect added or replaced, this could affect the
Cashflow and May Decrease the Yield rate at which funds are distributed on
on the Notes the notes and decrease the yield to
noteholders. The transaction documents
will permit IOS Capital, Inc., under
certain circumstances, to substitute or
add certain 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.
IOS Capital, Inc. may only add or
substitute leases that meet certain
qualifying characteristics and
conditions. The ability of IOS Capital,
Inc. to acquire such 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,
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equipment or other concentrations of the
related asset pool. Consequently, any
adverse economic or social factors that
particularly affect a certain 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.
Technological Obsolescence of If technological advances relating to
Equipment May Reduce Value of office equipment cause leased equipment
Collateral to become obsolete, the value of such
equipment will decrease. 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 the notes.
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Where You Can Find More Information
We 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 such reports, proxy
statements and other information at the following regional offices of the SEC:
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
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 should
not assume that the information in this prospectus is accurate as of any date
other than the date on the cover page of this prospectus or the accompanying
prospectus supplement.
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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The Issuer
IKON Receivables, LLC (the "Issuer") is a Delaware limited liability
company all of the membership interests in which will be held by IKON
Receivables-1, LLC, a special purpose corporation (the "Seller"). All of the
membership interests in the Seller will, in turn, be held by IOS Capital, Inc.
("IOS Capital" or the "Originator"). 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 such 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 501 Silverside Road, Suite 28,
Wilmington, Delaware 19809.
The Issuer will from time to time sell a series of its notes
("Notes") consisting of one or more classes (each a "Class") on terms to be
determined at the time of sale and described in a related prospectus supplement
(each a "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 of any Asset Pool relating to any series of Notes may
be IOS Capital or another affiliate of the Issuer (IOS Capital or such other
servicer, in its capacity as servicer, the "Servicer").
The Issuer will pledge its interests in the Asset Pool to a trustee
(the "Trustee") in respect of the related series of Notes pursuant to an
indenture between the Issuer and such Trustee (an "Indenture").
The balance sheet of the Issuer at February 28, 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) all moneys
(including accrued interest) due under the Leases on or after a specified date
(the "Cut-off Date"), (iii) moneys held from time to time in one or more
accounts established and maintained pursuant to the related Transaction
Documents (as defined herein), (iv) the Seller's interests (other than ownership
interests) in the underlying equipment and related property relating to such
pool of Leases (the "Equipment"), (v) the rights of the Issuer under certain of
the Transaction Documents relating to the Asset Pool and (vi) interest earned on
certain short-term investments held by the Issuer. The Leases and Equipment
interests comprising an Asset Pool are referred to as the "Lease Receivables".
The Issuer will not have and the Asset Pool will not include any
residual interest in any Equipment after the related Lease has been paid in
full.
The Equipment underlying the Lease Receivables included in the Asset
Pool 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 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 then be transferred from the
Seller to the Issuer pursuant to the Assignment and Servicing Agreement. The
Leases included in the Asset Pool will be selected from those Leases held by the
Originator based on the criteria in the prospectus under "The Leases--Eligible
Leases".
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On or prior to the closing date on which the Notes are delivered to
the holders of Notes (the "Noteholders"), 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, secured by the Lease Receivables.
The Leases comprising the 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 in this prospectus under the heading "IOS Capital's
Leasing Business".
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Lease receivables are generally evaluated by IOS Capital for
write-down when they become over 121 days delinquent. All accounts assessed over
days past due automatically become non-accruing accounts. Any subsequent
recoveries offset net losses. Historical delinquency information for Leases not
written down and charge-off information for Leases owned and serviced by IOS
Capital will be set forth in each prospectus supplement.
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 distributed to the
owners 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 (including equipment) 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 such activities that relate to the
leases and 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 ("Manager") and
their ages and positions as of February 28, 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 to a limited extent. Most of the actions related to
maintaining and servicing the assets will be performed by the Servicer.
- ------------------------------------------------------------------------------
Name Age Position
- ------------------------------------------------------------------------------
Robert McLain President & Director
Patricia Donato Secretary & Director
Joseph Churchman Director
Karin M. Kinney 38 Secretary
Thomas Sheehan 39 Treasurer
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 the company, 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.
[Additional biographies and ages to be provided.]
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The Leases
Lease Receivables Pool
Information with respect to the Lease Receivables in each Asset Pool
will be set forth in the related Prospectus Supplement, including the
composition of such Lease Receivables and the distribution of such Lease
Receivables by equipment type, payment frequency and current principal balance
as of the applicable Cut-Off Date. As of the date Noteholders decide to purchase
Notes of any series, no more than 5% of the aggregate pool of assets comprising
the related Asset Pool will deviate from the asset characteristics described in
the related Prospectus Supplement.
Characteristics
The Leases consist of direct financing leases for accounting
purposes ("Finance Leases"), which may be either tax leases or conditional sales
contacts. In a Finance Lease, the lessor transfers substantially all benefits
and risks of ownership 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
bankruptcy law or other purposes.
The related Prospectus Supplement will further describe the type and
characteristics of the Leases included in each Asset Pool relating to the Notes
offered thereby. See "Originator's Leasing Business -- Types of Leases." [IOS to
clarify terminology]
Lease Payments and Valuation
In connection with all calculations required to be made pursuant to
the Transaction Documents with respect to the determination of the aggregate
Discounted Lease Balance (the "Aggregate Discounted Lease Balance") for all
Leases, on any Calculation Date (as defined herein) the Aggregate Discounted
Lease Balance for each Lease shall be calculated assuming:
(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 (each such period, a "Collection Period");
(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
Collection Period prior to the Calculation Date.
All of the Leases require the periodic, scheduled payment of rent or
other payments on a monthly, quarterly, semi-annual or annual basis, in arrears
or in advance. Such periodic payments are referred to herein as "Lease
Payments."
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Eligible Leases
All Leases have been originated 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 purchased by the Issuer on or prior to the Cut-off Date and
to all leases substituted by the Originator ("Substitute Leases") (collectively,
"Eligible Leases"):
(i) The Leases are valid and enforceable, and unconditionally
obligate the Lessee to make periodic Lease Payments (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 such Lease upon such cancellation 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;
(vi) The Leases provide for periodic payments;
(vii) In the event of a Casualty Loss (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;
(viii) The Leases have been sold to the Issuer free and clear of any
liens and are assignable without prior written consent of the Lessee;
(ix) The Leases are U.S. dollar-denominated and the lessor and each
Lessee are located in the United States;
(x) The Lease is not a consumer lease;
(xi) No more than three percent (3%) of the Leases in any Asset Pool
will consist of Leases with government entities as the obligor;
(xii) The Lease is not subject to any guaranty by the Originator;
(xiii) No adverse selection was used in selecting the Lease for
transfer to the Issuer;
(xiv) The Lessee has represented to the Originator that it has
accepted the Equipment;
(xv) The Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xvi) The Leases are not Defaulted Leases (as defined herein); and
(xvii) Each Lease is not more than 60 days past due at time of
transfer to the Issuer.
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Delinquencies, Repossession and Gross Losses
Certain information relating to the Originator's delinquency,
repossession 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 such Originator's portfolio during certain specified periods,
including Leases which may not meet the criteria for selection as a Lease
Receivable for the particular 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, such payment, together with
accelerated payments resulting from defaults, will, subject to the use of such
payments 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 thereof in accordance with the
underwriting criteria specified herein and sold to the Seller. See "IOS
Capital's Leasing Business - Credit Policies and Loss Experience" herein. The
Originator pursuant to the Assignment and Servicing Agreement will make certain
representations and warranties to the Seller in respect of the related Lease
Receivables and the benefit of such representations and warranties will be
assigned to the Issuer pursuant to 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 such 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 prior to each distribution with respect
to such Class of Notes, indicating the remaining outstanding principal balance
of such Class of Notes as of the applicable payment date (the "Payment Date"),
as a fraction of the initial outstanding principal balance of such 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 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 will be distributed by
the Issuer to the Seller and by the Seller to the Originator.
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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"). The Originator is a wholly-owned subsidiary of IKON. 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 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 is a public company headquartered in Malvern, Pennsylvania
operating the largest network of independent copier and office equipment
marketplaces in North America and the United Kingdom. IKON has over 800
locations in the United States, Canada, the United Kingdom, Germany, France,
Denmark and Mexico. IKON 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 also offers network consulting and design, hardware and
software product interfaces, computer networking, technology training and
software solutions for the networked office environment. IKON's fiscal 1998
revenues were $5.6 billion.
The Originator is engaged in the business of arranging lease
financing exclusively for office equipment marketed by IKON's office equipment
marketplaces ("IKON marketplaces"), which sell and service 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 to its customer base. During the 1998 fiscal year, 69% of
new equipment sold by IKON marketplaces was financed through the Originator. The
Originator and IKON will seek to increase this percentage in the future, as
leasing enhances the overall profit margin on equipment and is considered an
important customer retention strategy. For the fiscal years ended September 30,
1997 and 1996, 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% fax machines, and 13% other equipment. Although equipment models vary, IKON
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. The typical new lease
financed by the Originator during ___________ averaged $17,900 in amount and 46
months in duration. Although 97% of the leases 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 the IKON marketplaces,
such 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. Direct financing leases are
contractual obligations between the Originator and the IKON customer and
represent the majority of the Originator's lease portfolio.
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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. 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. As
of September 30, 1998, the average equipment residual value for all leases in
the Originator's portfolio was 7.8%. Although an Asset Pool may include tax
leases with residual values, such residual values will not be available for the
benefit of the Noteholders of such Asset Pool.
Conditional Sales Contracts. 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. Thus, because of the higher monthly
payments, the after-tax cost of the equipment to the customer under a
conditional sales contract is substantially the same as under a tax lease
(assuming the exercise of the purchase option). 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.
Credit Policies and Loss Experience
General. Prior to January 1998, IKON maintained a decentralized
credit policy. Each IKON marketplace 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 centralized its credit policy.
IKON's National Risk Management Policy established minimum standards for all
IKON 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 sales
representative and submitted to its respective IKON marketplace or district
processing center. The IKON marketplace and/or district have the responsibility
to review for accuracy and completeness prior to submission to the Originator
for funding. The marketplace 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 marketplace 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. 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.
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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 approval process is tiered based upon credit exposure.
Requests less than $50,000 utilize 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 audited 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:
o Customer Service Professional and/or Customer Service
Professional Manager
Dun & Bradstreet rated according to a decision matrix; up to
$50,000; no override authority.
o Business Credit Analysts
Up to high risk transactions.
o Senior Credit Analysts
Single signature for exposure up to $1 million; dual signature
for exposure up to $2 million.
o Director of Portfolio Quality & National Credit Coordinator
Single signature for exposure up to $2 million; dual signature
for exposure up to $5 million.
o Corporate
Exposure in excess of $5 million.
Challenges to the recommendations of the Originator's credit
analysts will be the responsibility of the IKON district presidents. In the
event the analyst does not agree with the actions recommended by the IKON
district, the Originator senior management will be requested to intervene. Sole
credit authority remains with the Originator, not IKON. 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 60 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 60 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.
Delinquencies remained at a consistent level for fiscal 1998 and
1997. During this two-year period, accounts classified as current (less that 30
days past due) ranged from 85% and 91% of the total portfolio
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balance on a monthly basis. More information concerning the Originator's
delinquency and loss experience will be provided in the Prospectus Supplement.
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 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's 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 Originator has completed the assessment phase of its Year 2000
project. The remediation phase is 69% complete and the testing phase is 40%
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. Such 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
$751,000 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 reasonable 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, its customers and suppliers, but to all
businesses. Risks include:
o Legal risks, including customer, supplier, employee or
shareholder lawsuits over failure to deliver contracted
services, product failure, or health and safety issues.
o Loss of sales due to failure to meet customer quality
expectations or inability to ship products.
o Increased operational costs due to manual processing, date
corruption or disaster recovery.
o Inability to bill or invoice.
The cost of the Year 2000 project and the date on which IKON 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 such 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.
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Contingency Plans. IKON's 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 expect to have contingency plans in place by October 31, 1999. In addition,
IKON 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 such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Indenture will be
conferred or imposed upon the Trustee and such separate Trustee or co-Trustee
jointly, or in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate Trustee or
co-Trustee, who shall exercise and perform such 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 shall 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 by mailing notice of resignation by first-class
mail, postage prepaid, to the Noteholders of such 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 any such resignation or removal, existence of
incapability, or occurrence of such 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
Event of Servicing Termination (as described herein) has 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 shall not have
any personal obligation, liability or duty whatsoever to any Noteholder or any
other person with respect to any such claim and such claim shall be asserted
solely against the Servicer or any indemnitor, except for such liability as is
determined to have resulted from the Trustee's own negligence or willful
misconduct.
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Description Of The Notes
General
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
relating to 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 statistical rating
organizations (each a "Rating Agency" collectively, "Rating Agencies").
The Notes will generally be styled as debt instruments, having a
principal balance and a specified interest rate. The Notes of each series will
represent debt secured by an Asset Pool.
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 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").
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 Servicer shall deposit the following funds net of any amounts
which the Servicer is expressly permitted to retain by the terms of the
Assignment and Servicing Agreement into the Collection Account, (as defined
below) which funds received on or prior to the last day of the prior calendar
month will be available for distribution on the next succeeding Payment Date:
(a) Lease Payments (as defined below) due during the prior
Collection Period;
(b) recoveries from Defaulted Leases (as defined below) to the
extent the Originator has not substituted Substitute Leases for such
Defaulted Leases (except to the extent required to reimburse unreimbursed
Servicer Advances);
(c) late charges received on delinquent Lease Payments not advanced
by the Servicer;
(d) proceeds from repurchases by the Seller of Leases as a result of
breaches of representations and warranties by the Seller to the extent the
Originator has not substituted Substitute Leases for such Leases;
(e) proceeds from investment of funds in the Collection Account and
any applicable Transaction Account (as defined below);
(f) Casualty Payments (as defined below);
(g) Termination Payments (as defined below) to the extent the Issuer
does not reinvest such Termination Payments in Additional Leases;
(h) Servicer Advances (as defined below); and
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(i) payments from the Seller to effect a redemption of the Notes
pursuant to the Indenture.
A "Lease Payment" is each periodic installment of rent payable by a
Lessee under a Lease. Casualty Payments, Termination Payments, prepayments of
rent required pursuant to the terms of a Lease at or before the commencement of
the term of such Lease Payments becoming due before each Cut-Off Date and
supplemental or additional payments required by the terms of such a Lease with
respect to taxes, insurance, maintenance, or other specific charges such as
excess copy charges and fee per scan 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 of any item of Equipment subject thereto which results, 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 "Termination Payment" is a payment payable by a Lessee under a
Lease upon the early termination of such 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.
"Defaulted Leases" are (i) Leases that have become more than 120
days delinquent or (ii) Leases that have been charged off by the Servicer.
Distributions
Funds on deposit in the Collection Account net of any amounts which
the Servicer is expressly permitted to withdraw by the terms of the Assignment
and Servicing Agreement ("Available Funds") and any amounts to be deposited into
the Collection Account from any Reserve Account, will be withdrawn on or before
each Payment Date to make payments of principal and interest due on the Notes,
amounts owed to the Servicer, Trustee and other parties and for other purposes
as described in the related Prospectus Supplement. Available Funds do not
include cash flows realized from the sale or release of Equipment following the
expiration date of the related Lease.
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 such 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 such
payments 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 pursuant to the Assignment
and Servicing Agreement. In such event, the application of the repurchase price
will decrease the Aggregate Discounted Lease Balance, causing the corresponding
weighted average life of the Notes to decrease.
Subject to certain limitations, the Originator will have the option
to substitute Eligible Leases having similar characteristics for (i) a Defaulted
Lease, (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 such breach (each,
a "Warranty Lease") and (iii) Leases following a modification or adjustment to
the terms of such Lease (each an "Adjusted Lease"). The Originator may
substitute for Defaulted Leases, Adjusted Leases or Warranty Leases in an
aggregate amount not to exceed specified percentages (to be stated in the
related prospectus supplement) of the discounted present value of the Leases as
of the Cut-off Date. In addition, in the event of a Lease that terminates early
which has been prepaid in full, 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 Lease Balance
(as defined below) of not less than the Discounted Lease Balance 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 replaced Leases through the term
of such replaced Leases. In the event that a Substitute Lease is not provided
for a Defaulted Lease, the Aggregate Discounted Lease Balance of the Leases in
the
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related Asset Pool will be reduced in an amount at least equal to the Discounted
Lease Balance of the Defaulted Lease, plus any delinquent payments. The
"Discounted Lease Balance" of a Lease as of any Cut-Off Date is the present
value of all of the remaining payments scheduled to be made with respect to such
lease, discounted at a rate and frequency specified in the related Prospectus
Supplement.
The effective yield to holders of the Notes will depend upon, among
other things, the rate at which principal is paid to such Noteholders. The
after-tax yield to Noteholders may be affected by lags between the time interest
income accrues to Noteholders and the time the related interest income is
received by the Noteholders.
Book-Entry Registration
Unless otherwise specified in the related Prospectus Supplement,
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 such systems, or indirectly through organizations that are
participants in such systems.
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 such 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, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such 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 such credits or any transactions in such
Notes settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such 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 such payments will be forwarded by the Issuer or note paying
agent to Cede, as nominee for DTC. DTC will forward such 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 such payments on behalf of
their respective Noteholders. Accordingly, although such 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 such Notes, may be limited due
to the lack of a physical certificate for such 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 such actions are taken on behalf of Participants
whose holdings include such 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 28 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 28 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
Underwriter. 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.
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 such 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 such Notes and such Issuer is unable to
locate a qualified successor, (ii) such 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 such Notes 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 such Noteholders' best interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the Trustee will be required to notify all such Noteholders
through Participants of the availability of Definitive Notes. Upon surrender by
DTC of the Definitive Notes representing such Notes and receipt of instructions
for reregistration, the Issuer will reissue such Notes as Definitive Notes to
such Noteholders.
Distributions of principal of, and interest on, such 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 date
preceding a Payment Date, and of which the Issuer or its paying agent fixes the
identities of Noteholders (each a "Record Date"). Such distributions will be
made by check mailed to the address of such holder as it appears on the register
maintained by the Issuer. The final payment on any such Note, however, will be
made only upon presentation and surrender of such 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 respective Trustee, as applicable, or of a certificate
registrar named in a notice delivered to holders of such Definitive Notes. No
service charge will be imposed for any registration of transfer or exchange, but
the Issuer or the Trustee, as applicable, 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, 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 related
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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 such Class of
Notes;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Asset Pool balance as of the close of business on the last
day of the related Remittance Period (as defined below);
(v) the aggregate outstanding principal balance and the Pool Factor
for such Class of Notes after giving effect to all payments reported under
(ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Remittance Period; and
(vii) the aggregate purchase amounts for Lease Receivables that have
been reacquired, if any, for such Remittance 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 certain material terms of each
transaction document pursuant to which the Asset Pool will be created and the
Notes will be issued. For purposes of this Prospectus, the term "Transaction
Documents" as used with respect to an Asset Pool means 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 related Indenture and Assignment and Servicing Agreement. 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.
Assignment and Servicing Agreement
Acquisition of the Lease Receivables. On the Closing 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
certain 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 such
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.
Additions, Substitutions and Adjustments. The Originator will be
obligated to purchase from the Issuer its interest in any Lease transferred to
the Issuer or pledged to a Trustee on behalf of Noteholders that has become a
Warranty Lease unless an Eligible Lease is substituted therefor in accordance
with the related Transaction Documents.
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Pursuant to the Transaction Documents, the Originator will have the
option to substitute Eligible Leases for Defaulted Leases, Adjusted Leases,
Warranty Leases and Early Termination Leases. The percentage of Leases in any
Asset Pool that can be substituted for 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".
The Servicer. The Servicer will service the Lease Receivables
comprising 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 certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Assignment and Servicing Agreement. An uncured breach of
such a representation or warranty that in any respect materially and adversely
affects the interests of the Noteholders will constitute a Servicer Default by
the Servicer under the related Transaction Documents.
Servicing Procedures. The Assignment and Servicing Agreement will
provide that the Servicer will take or cause to be taken all such 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 Collection Period. The Servicer will be
entitled to reimbursement for Servicer Advances on the second following Payment
Date.
Payments on Lease Receivables. With respect to each series of Notes,
the Servicer will deposit in the Collection Account all payments on the related
Lease Receivables (from whatever source) and all proceeds of such Lease
Receivables within two (2) Business Days of the Servicer's receipt thereof.
Servicing Compensation. The Servicer will be entitled to receive a
servicing fee for each Collection Period (the "Servicing Fee") in an amount
equal to a specified percentage per annum of the discounted present value of the
assets comprising the Asset Pool, as of the first day of such Collection Period.
The Transaction Documents 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 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 with
respect to each series of Notes, the Servicer will provide to the Trustee as of
the close of business on the last day of the preceding related Collection 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".
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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 statement as to compliance by the Servicer
during the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Closing 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 such
certificate, the period from the applicable Closing Date) or, if there has been
a default in the fulfillment of any such obligation in any material respect,
describing each such default. The Servicer also will agree to give the Trustee
notice of certain "Servicer Defaults" (as defined below) under the related
Assignment and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Trustee or the Issuer.
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 such duties is no longer permissible under applicable law. No
such resignation will become effective until the Trustee or a successor servicer
has assumed the Servicer's servicing obligations and duties under the
Transaction Document.
The Assignment and Servicing Agreement will further provide that
neither the Servicer nor any of its directors, officers, employees, or agents
shall 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 such
person 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 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.
Servicer Events of Default. The following events and conditions
shall 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) so long as IOS Capital is the Servicer, failure on the part of
IOS Capital to pay to the Trustee on the date when due, any
payment required to be made by IOS Capital 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 certain 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 any holder of the Notes;
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(d) if any representation or warranty of IOS Capital made in the
Assignment and Servicing Agreement shall prove to be incorrect
in any material respect as of the time made; provided,
however, that the breach of any representation or warranty
made by IOS Capital in such Assignment and Servicing Agreement
will be deemed to be "material" only if it affects the
Noteholders, the enforceability of the Indenture or of the
Notes; and provided, further, that such material breach of any
representation or warranty made by IOS Capital in such
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 repurchases such
Lease Receivable in accordance with the Assignment and
Servicing Agreement to the extent provided therein;
(e) certain 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 such failure, event or
condition shall be continuing and shall not have been waived
by the person or persons entitled to performance;
(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 Default. As long as a Servicer Default under
the Assignment and Servicing Agreement remains unremedied, the Trustee, or
holders of Notes evidencing not less than [__% of the voting rights of such then
outstanding Notes] may terminate all the rights and obligations of the Servicer,
if any, under the Assignment and Servicing Agreement, whereupon a successor
servicer appointed by such 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 Default other than such appointment has occurred, such
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, appoint, or petition a court of competent jurisdiction for the
appointment of, a successor. The Trustee may make arrangements for compensation
to be paid to any such successor, which in no event may be greater than the
servicing compensation payable to the Servicer under the Assignment and
Servicing Agreement.
Indenture
Accounts. The Trustee will establish and maintain with the Trustee
one or more accounts (such as the Collection Account), in the name of such
Trustee on behalf of the Noteholders, into which payments made on or with
respect to the related Lease Receivables are to be deposited as provided in the
related Transaction Documents (the "Collection Account"). Pursuant to the
Transactions Documents, the one or more other separate accounts in the name of
the Servicer, the Issuer or the Trustee on behalf of the Noteholders, may be
established (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 other purposes (an "Additional Account").
Funds in the Collection Account and any Distribution Account,
Reserve Account, Pre-Funding Account or Additional Account (collectively, the
"Transaction Accounts") shall be invested as provided in the related Transaction
Documents and Indenture in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Notes. Eligible
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Investments generally are limited to obligations that mature not later than the
Business Day immediately preceding the related 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, 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 such Notes entitled thereto will be made by the Trustee
to the Noteholders. The timing, calculation, allocation, order, source,
priorities of, distribution of, and requirements for each Class of Notes of such
series will be set forth in the related Prospectus Supplement.
Credit and Cash Flow 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 such
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 or such Class or series of the full amount of principal and interest
due thereon and to decrease the likelihood that such 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 more than one series of Notes,
Noteholders of any such series will be subject to the risk that such credit
enhancement will be exhausted by the claims of Noteholders of other series.
If the protection provided to the Noteholders of a given Class of
Notes 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
Defaulted Leases (as defined below). In such event, certain factors may affect
such Issuer's ability to realize on the Equipment securing such Leases, and thus
may reduce the proceeds to be distributed to the Noteholders.
Modification of the Indenture. With certain exceptions, under the
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 66-2/3% in aggregate principal amount of the Notes then outstanding
under the Indenture; but no such modification may be made if it would result in
the reduction or withdrawal of the then current ratings of the outstanding Notes
and no such 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
the suit for the enforcement of any such payment on or after the maturity
thereof; or (b) reduce the above-stated percentage of Notes, without the consent
of the holders of all Notes then outstanding under such Indenture or (c) modify
the provisions of the Indenture restricting modifications on 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
proviso to the definition of the term "Outstanding" in 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 the assets of any Asset Pool or,
except as provided in the Indenture,
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terminate the lien of the Indenture on any property 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 the related Indenture
will consist of: (i) a default for five days or more in the payment of any
interest on any Note; (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 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 such default or the failure to cure such
breach of a representation or warranty for a period of 30 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;
or (iv) certain events of bankruptcy, insolvency, receivership or liquidation
relating to the Issuer.
If an Event of Default occurs, the unpaid principal amount of the
related Notes shall automatically become due and payable together with all
accrued and unpaid interest thereon. The Trustee may, however, if the Event of
Default involves other than non-payment of principal or interest on the Notes,
not sell the related Leases and Equipment unless such sale is for an amount
greater than or equal to the outstanding principal amount of the Notes unless
directed to do so by the holders of 66-2/3% of the then outstanding principal
amount of the Notes.
Subsequent to an Event of Default and following any acceleration of
the Notes pursuant to the Indenture, any moneys that may then be held or
thereafter received by the Trustee 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 of the Notes and surrender thereof.
The Indenture will provide that the holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding will have the right to waive
certain defaults and, subject to certain limitations, to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust power conferred on the Trustee. The Indenture will
provide that in case an Event of Default shall occur (which shall not have been
cured or waived), the Trustee will be required to exercise such of its rights
and powers under such Indenture and to use the degree of care and skill in their
exercise that a prudent man would exercise or use in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under such Indenture at the request of any
of the Noteholders unless they shall have offered to the Trustee reasonable
security or indemnity. Upon request of a Noteholder, the Trustee will provide
information as to the outstanding principal amount of each Class of Notes.
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 of non-Defaulted Leases is less than or equal to 10% of the
discounted present value of the Leases in the related Asset Pool as of the
Cut-Off Date. The Issuer will give notice of such redemption to each Noteholder
and the Trustee at least 30 days before the Payment Date fixed for such
prepayment. Upon deposit of funds necessary to effect such redemption, the
Trustee shall pay the remaining unpaid principal amount on the Notes and all
accrued and unpaid interest as of the Payment Date fixed for redemption.
Certain 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. 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
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obligated from time to time to take such actions as are 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 are
primarily non-cancelable by the Lessees.
The leases are "hell or high water" leases, under which the
obligations of the Lessee is 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 se 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 such
proceeds against the Lessee's liabilities thereunder, such remedies may be
limited where the Lessee thereunder is subject to bankruptcy, or other
insolvency proceedings.
UCC and Bankruptcy Considerations
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 certain of the Leases to the Issuer, which in turn
will pledge such interest to the Trustee for the benefit of the Noteholders. The
Seller will not transfer any of its 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
assignment of the Seller's interest as secured party in such Equipment to the
Issuer and the Issuer's pledge of such 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 such 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 such 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 such Defaulted 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 such 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 such
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 such Equipment for the benefit of the Noteholders.
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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
financed pursuant to the Lease Receivables generally declines with age and
because of obsolescence, the net disposition proceeds of Equipment at any time
during the term of the Lease may be less than the outstanding balance on the
Lease principal balance. 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 Defaulted Lease in the
event that the Servicer elects to repossess and sell such 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 such
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 uncollectable.
Certain 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 such 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 such 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 such a lease
or contract constitutes a breach of such lease or contract, entitling the
nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into the
Collection Account and allocated to the Noteholders as more fully described
herein 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 Servicer is prevented from
collecting scheduled payments with respect to Leases and such Leases become
Defaulted Leases, no recourse would be available against the Originator (except
for misrepresentation or breach of warranty) and the Noteholders could suffer a
loss with respect to the Notes. 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, certain 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 such Leases may be contingent upon legislative
approval. Further, the assignment of such 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.
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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. Tax Counsel's opinion does not purport to deal
with all federal tax considerations applicable to all categories of investors.
Certain holders, including insurance companies, tax-exempt organizations,
financial institutions or broker deals, taxpayers subject to the alternative
minimum tax, and holders that will hold the Notes as other than capital assets,
may be subject to special rules that are not discussed below. In particular,
this discussion applies only to Institutional Investors that purchase Notes
directly from the issuer and hold the Notes as capital assets.
The discussion that follows, and the opinion set forth below of
Dewey Ballantine LLP, special tax counsel to the Issuer ("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.
The following discussion addresses lease backed notes such as the
Notes that are intended to be treated for federal income tax purposes as
indebtedness secured by the underlying Lease Receivables. Tax Counsel has
prepared the following discussion and is of the opinion that such discussion is
correct in all material respects.
Tax Characterization of the Issuer
Tax counsel is of the opinion that the Issuer will not be treated as
an association (or 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 secured 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
certain limitations of the Code concerning the deductability 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 such characterization of the Offered Notes will
prevail. If the Notes were treated as an ownership interest in the Leases, all
income on such Leases would be income to the holders of the Notes, and related
fees and expenses would generally be deductible (subject to certain limitations
on the deductability of miscellaneous itemized deductions by individuals) and
certain market discount and premium provisions of the Code might apply to a
purchase of the Notes.
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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 Leases by the partnership would be passed through to the
Holders, as partners in such a partnership according to their respective
interests therein. The timing, amount and character of the income or expenses
reportable by the Holders as partners in such a partnership could differ from
the income or expenses reportable by the Holders as holders of debt. If the
Holders were treated as partners, a cash basis Holder might be required to
report income when it accrues to the partnership rather than when it is received
by the Holder. Moreover, if Notes were treated as interests in a partnership, an
individual Holder's share of expenses of the partnership (such as Servicing
Fees) would be miscellaneous itemized deductions that in the aggregate are
allowed only to the extent they exceed two percent of the individual Holder's
adjusted gross income, meaning that the individual Holder 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
Holders would probably be treated as dividend income to such Holders. Such 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 Indenture 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
apply to foreign Holders. Investors are urged to consult their own tax advisors
with regard to the potential application of such provisions.
The Issuer's assets will be the assets of the partnership. The
Issuer's income will consist primarily of interest and finance charges earned on
the underlying Lease Receivables. The Issuer's deductions will consist primarily
of interest accruing with respect to any indebtedness issued by the Issuer,
servicing and other fees, and losses or deductions upon collection or
disposition of the Issuer's assets. In certain instances, the Issuer could have
an obligation to make payments of withholding tax on behalf of a beneficial
owner of a Partnership Interest. (See "Backup Withholding" and "Foreign
Investors" below).
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 number of the Notes were sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the Remittance Period and the closing date relating to such series of Notes
(the "Closing 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 such Note.
38
<PAGE>
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 Closing 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 such discount is less than 0.25% 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 Closing Date until the date on which
each such distribution is expected to be made under the assumption that the
Lease Receivables prepay at a specified rate (the "Prepayment Assumption") by
(ii) a fraction, the numerator of which is the amount of such 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 such distribution is received, gain equal to the
discount allocated to such distribution will be recognized.
The adjusted issue price of a Note at any time will equal the issue
price of such Note, increased by the aggregate amount of previously accrued
original issue discount with respect to such Note, and reduced by the amount of
any distributions made on such 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 such Note 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 such Note,
the daily portion of original issue discount with respect to such Note (but
reduced, if the cost of such Note to such purchaser exceeds its adjusted issue
price, by an amount equal to the product of (i) such daily portion and (ii) a
constant fraction, the numerator of which is such excess and the denominator of
which is the sum of the daily portions of original issue discount on such 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 such 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 such distribution does not exceed the
aggregate amount of accrued market discount on such Note not previously included
in income. With respect to Notes that have unaccrued original issue discount,
such 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 such 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 such discount is less than 0.25% of the remaining
stated redemption price at maturity of such 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 such distribution
is received, gain equal to the discount allocated to such distribution will be
recognized.
Premium. A purchaser of a Note that purchases such Note at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased such Note (a "Premium Note") at a premium. Such a
purchaser need not include in income any remaining original issue discount and
may elect, under
39
<PAGE>
section 171(c)(2) of the Code, to treat such premium as "amortizable bond
premium." If a beneficial owner makes such an election, the amount of any
interest payment that must be included in such beneficial owner's income for
each period ending on a Payment Date will be reduced by the portion of the
premium allocable to such period based on the Premium Note's yield to maturity.
Such premium amortization should be made using constant yield principles. If
such 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 such fully taxable bonds
thereafter acquired by it, and is irrevocable without the consent of the IRS. If
such an election is not made, (i) such 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 such distribution is received, a loss equal to the premium allocated to
such 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 the 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.
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% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain 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 Internal Revenue Service has issued final regulations (the
"Withholding Regulations"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective for distributions made after December 31,
1999, although valid withholding certificates that are held on that date remain
valid until the earlier of December 31, 2000 or the due date of expiration of
the certificate under the rules as currently in effect.
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
40
<PAGE>
penalties of perjury that certifies that such beneficial owner is not a U.S.
Person, and provides the name and address of such beneficial owner, and (c) the
last U.S. Person in the chain of payment to the beneficial owner receives such
statement from such beneficial owner or a financial institution holding on its
behalf and does not have actual knowledge that such 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 Tax Code.
If income or gain with respect to a Note is effectively connected
with a U.S. trade or business carried on by a Holder who or which is not a
U.S. person, the 30 percent withholding tax will not apply but such Holder
will be subject to U.S. federal income tax at graduated rates applicable to
U.S. persons.
Foreign Investors
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 Offered 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 such matters.
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 offered 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. Such ratings will address, in the opinion of
such 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. Such 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 such Notes by employee
benefit plans and individual retirement accounts.
41
<PAGE>
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 such 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.
Such 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
such Notes 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 such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Holders of Notes should consult with their legal advisors in this regard
prior to any such reoffer or sale.
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 and the related Prospectus Supplement in connection with the
offer made by this Prospectus and the related Prospectus Supplement and, if
given or made, such information or representations must not be relied upon.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create an implication that there has been no change in the
affairs of the Seller or the Issuer or any affiliate thereof or the Leases since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so to
anyone to whom it is unlawful to make such offer or solicitation.
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.
Experts
The balance sheet of IKON Receivables, LLC at February 28, 1999,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
42
<PAGE>
Index To Financial Statements
Page
----
Independent Auditors' Report 41
Balance Sheet of the Issuer at February 28, 1999 42
Notes to Balance Sheet 43
43
<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.) at February 28, 1999.
This balance sheet is the responsibility of IKON Receivables, LLC'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 of a balance sheet 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 February
28, 1999, in conformity with generally accepted accounting principles.
Ernst & Young LLP
__________ __, 1999
Philadelphia, Pennsylvania
44
<PAGE>
Exhibit 1
IKON Receivables, LLC
Balance Sheet
February 28, 1999
- --------------------------------------------------------------------
Assets
Cash ............................................. $1000.00
Total assets................................. $1000.00
========
Liabilities and Member's Equity
Liabilities....................................... $0
Total liabilities............................ $0
========
Member's equity................................... $1000.00
Total member's equity........................ $1000.00
========
Total liabilities and member's equity............. $1000.00
========
See accompanying notes to balance sheet.
45
<PAGE>
IKON Receivables, LLC
(an indirect wholly-owned subsidiary of IOS Capital, Inc.)
Notes to Balance Sheet
February 28, 1999
(1) Organization
IKON Receivables, LLC, an indirect wholly-owned subsidiary of IOS Capital,
Inc. ("IOS Capital"), was organized in the State of Delaware.
IKON Receivables, LLC was organized to engage exclusively in the following
business and financial activities: to acquire certain equipment leases and
installment sales contracts from IOS Capital and IKON Receivables Funding,
Inc.; to issue and sell notes collateralized by any or all of its assets
pursuant to one or more indentures between IKON Receivables, LLC and an
indenture trustee; and to engage in any lawful act or activity and to
exercise any power that is incidental and is necessary or convenient to
the foregoing and permitted under Delaware law.
(2) Capital Contribution
IKON Receivables Funding, Inc. has made an initial capital contribution
of $1,000 to IKON Receivables, LLC.
46
<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.
1934 Act....................................................................19
Additional Account..........................................................33
Additional Lease ...........................................................26
Adjusted Lease..............................................................26
Aggregate Discounted Lease Balance..........................................16
Asset Pool..................................................................13
Assignment and Servicing Agreement..........................................13
Available Funds ............................................................25
Bankruptcy Code.............................................................36
Business Day................................................................24
Casualty Payment............................................................25
Cede.........................................................................6
CEDEL Participants..........................................................27
CLAS........................................................................20
Class.......................................................................13
Closing Date................................................................39
Code .......................................................................37
Collection Account .........................................................33
Collection Period...........................................................16
Commission .................................................................19
Cooperative.................................................................28
Cut-off Date................................................................13
Defaulted Leases............................................................25
Definitive Notes............................................................28
Depositories................................................................26
Discounted Lease Balance....................................................26
Distribution Account........................................................33
DTC.........................................................................26
Eligible Account ...........................................................33
Eligible Investments........................................................33
Eligible Leases.............................................................17
Equipment...................................................................13
ERISA Considerations ........................................................6
Euroclear Operator..........................................................28
Euroclear Participants......................................................28
Event of Default............................................................28
Events of Default ..........................................................34
Finance Leases .............................................................16
Foreign Investors ..........................................................39
Fully Taxable Bonds.........................................................40
High Risk Review List ......................................................21
IKON........................................................................19
IKON marketplaces...........................................................19
Indenture...................................................................13
Index of Terms .............................................................12
47
<PAGE>
Indirect Participants.......................................................26
IOS Capital..............................................................13,47
IOS Capital's Leasing Business .............................................14
IRS.........................................................................37
Issuer......................................................................13
IT..........................................................................22
Lease.......................................................................13
Lease Payment...............................................................25
Lease Payments..............................................................16
Lease Receivables...........................................................13
Lessee......................................................................13
Lessees.....................................................................13
Manager.....................................................................15
Noteholder..................................................................27
Noteholders.................................................................14
Notes.......................................................................13
Originator..................................................................13
Outstanding ................................................................34
Participants................................................................26
Payment Date................................................................18
Pool Factor.................................................................18
Pre-Funding Account ........................................................33
Premium Note................................................................40
Prepayment Assumption.......................................................39
Prospectus Supplement ......................................................13
Rating Agencies.............................................................24
Record Date.................................................................29
Reserve Account ............................................................33
Rules.......................................................................27
Seller .....................................................................13
Servicer....................................................................13
Servicer Advance............................................................30
Servicer Default............................................................30
Servicer Defaults...........................................................31
Servicer Events of Default..................................................32
Servicing Fee...............................................................30
Substitute Leases...........................................................17
Tax Counsel.................................................................37
Termination Payment.........................................................25
Terms and Conditions........................................................28
The Issuer .................................................................37
Transaction Accounts........................................................33
Transaction Documents ......................................................29
Trust Depository............................................................27
Trustee.....................................................................13
U.S. Person.................................................................41
Use of Proceeds ............................................................15
Warranty Lease..............................................................26
Withholding Regulations.....................................................41
48
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.
(Subject to Completion dated _____________, 1999)
Prospectus supplement to prospectus dated ________, 1999
IKON Receivables, LLC $__________________
Issuer
IOS Capital, Inc. Lease Backed Notes, Series 1999-1
Originator and Servicer
- ----------
The issuer will issue the classes of notes shown in the table below.
- ------------------------------------------------------------------------------
You should read the section entitled "Risk Factors" starting on page S-__ of
this prospectus supplement and page __ of the prospectus and consider these
factors before making a decision to invest in the notes.
The notes are secured only by the pledged assets of the issuer and are not
interests in or obligations of any other person.
This Prospectus Supplement may be used to offer and sell the notes only if
accompanied by the Prospectus
- --------------------------------------------------------------------------------
The Notes --
o Are backed by a pledge of assets of the issuer. The assets of the
issuer securing the notes will include a pool of equipment leases or
contracts and related assets;
o Receive distributions beginning on [_________ __, 1999];
o Represent debt obligations of IKON Receivables, LLC; and
o Currently have no trading market.
================================================================================
Initial
Public Initial Ratings
Issuance Interest Offering -------------------
Amount Rate Price Moody's S & P
- --------------------------------------------------------------------------------
Class A-1 Notes $[ ] [ ]% [ ]%
- --------------------------------------------------------------------------------
Class A-2 Notes $[ ] [ ]% [ ]%
- --------------------------------------------------------------------------------
Class A-3 Notes $[ ] [ ]% [ ]%
- --------------------------------------------------------------------------------
Class A-4 Notes $[ ] [ ]% [ ]%
- --------------------------------------------------------------------------------
Class A-5 Notes $[ ] [ ]% [ ]%
================================================================================
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>
Important Notice About the Information Presented in This Prospectus
Supplement and the Accompanying Prospectus
We provide information to you about the notes in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of notes.
This prospectus supplement does not contain complete information
about the offering of the notes. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the notes to you unless you have received
both this prospectus supplement and the prospectus.
If the prospectus contemplates different or multiple options, you
should rely on the information in this prospectus supplement as to the
application option.
The issuer has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, with
respect to the notes offered by this prospectus supplement. This prospectus
supplement and the prospectus, which form a part of the registration statement,
omit certain information contained in such registration statement pursuant to
the rules and regulations of the Securities and Exchange Commission. You may
inspect and copy the registration statement at the Public Reference Room at the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.,
and the Commission's regional offices at Seven World Trade Center, 13th Floor,
New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of such
materials at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Securities and Exchange Commission maintains a site on the World Wide Web
containing reports, proxy materials, information statements and other items. The
address is http://www.sec.gov.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
S-2
<PAGE>
Table of Contents
Page
----
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-15
The Trustee...............................................................S-15
Description Of The Notes..................................................S-15
Prepayment and Yield Considerations.......................................S-16
Description Of The Transaction Documents..................................S-17
Material Federal Income Tax Consequences..................................S-21
ERISA Considerations......................................................S-21
Ratings...................................................................S-22
Plan Of Distribution......................................................S-23
Legal Opinions............................................................S-23
Index Of Principal Defined Terms..........................................S-24
S-3
<PAGE>
- --------------------------------------------------------------------------------
Summary
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the
terms of the offering of the notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in
this prospectus supplement and the accompanying prospectus.
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
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 __________, a banking corporation organized under the laws of ________.
o The trustee's offices are located at _________________________________.
The Notes
o The notes will be backed solely by a pledge of a segregated pool of assets of
the issuer.
The Asset Pool
o The pledged assets will include a pool of:
o office equipment leases or contracts and related assets;
o [leases intended as security agreements];
o [installment sale contracts];
o rental stream obligations;
The Leases
o The leases are either:
o obligations for the lease or purchase of the equipment, or
o evidence loans used to acquire or refinance the equipment.
o The originator will transfer the leases and equipment comprising each asset
pool to the seller and the seller will transfer such leases and the seller's
interests in such equipment other than its ownership interests to the issuer.
The issuer will then pledge all of its right, title and interest in and to such
leases and interests in the equipment to the trustee on behalf of noteholders.
o The discounted present value of the leases will equal, at any given time, the
future remaining scheduled payments from the leases (including delinquent
leases) but excluding:
o delinquent accounts,
o excess copy charges,
o maintenance charges, and
o fee scan charges
discounted at a rate equal to ___%.
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:
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Class [A] ___________________
Final payment on the notes will probably be earlier than the final scheduled
payment date listed above for the related class of notes.
o The aggregate initial note principal balance of the [Class A] notes
equals $[ ].
o The issuer will issue the notes in book-entry form only, through the
facilities of The Depository Trust Company.
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 collections available as property of the issuer 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.
o [applicable interest rate for each class of notes to be specified]
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:
o 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;
o 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.
o when the Class [A-3] Notes have been paid in full, to the Class [A-4]
noteholders, until the principal amount on the Class [A-4] Notes has
been reduced to zero, an amount generally equal to _____% of the
decrease in the principal value of the leases.
This general description of distributions of principal to the notes is subject
to certain 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.
Payment Date
The 15th day of each month if the fifteenth is a business day. If the fifteenth
is not a business day, the payment date will be the following day that is a
business day. The first payment date will be ________, 1999.
Record Date
The last business day of the month preceding the month the payment date occurs.
In the case of initial payment date, the trustee will pay as of the closing
date.
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
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 immediately preceding
calendar month to the close of business on the [first day] of the calendar month
in which such payment date occurs.
Cross-Collateralization
o The trustee will not use payments received on leases or other assets included
in the asset pool backing the notes to pay notes or other obligations of the
issuer backed by any other asset pool.
o Certain of the notes include the right to receive monies from a common pool of
credit enhancement.
Credit Enhancement
The credit enhancement available to the noteholders will consist of [more
information will be provided upon the structuring of the transaction].
Subordination
Each class of notes provides credit enhancement for classes with a higher
priority of payment.
Optional Redemption
o 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.
o [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.]
Material Federal Income Tax Consequences
For federal income tax purposes:
o 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.
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" and is of the opinion that such discussion accurately
states all material federal income tax consequences of the purchase, ownership
and disposition of the Notes to their original purchaser.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus, we expect that pension, profit-sharing or
other employee benefit plans, as well as individual retirement accounts and
certain 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
o The notes must receive at least the following ratings from [the rating
agencies]:
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 offered
Noteholders should consider, among other things, the following additional
factors in connection with the purchase of the notes:
Geographic Concentrations As of the statistic calculation date, obligors
of Leases May Adversely with respect to approximately [ [ ]%, [ ]% and
Affect the Leases [ %] ] of the leases were located in the following
states: [ ]. To the extent adverse events or
economic conditions were particularly severe in
such geographic regions or in the event an obligor
or group of obligors under the leases in such
geographic regions were to experience financial
difficulties due to the economic conditions, such
obligors may be unable to pay or delay payments.
If such 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 such events
have occurred or may occur, or to what extent any
such events may affect the leases or the repayment
of amounts due under the notes.
S-7
<PAGE>
The Issuer
IKON Receivables, LLC (the "Issuer") is a Delaware limited liability
company all of the membership interests in which will be held by IKON
Receivables Funding-1 LLC, a special purpose limited liability company (the
"Seller"). All of the membership interests in the Seller are, in turn, owned by
IOS Capital, Inc. ("IOS Capital" or the "Originator").
The notes offered hereby (the "Notes") 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 servicer of any Asset Pool with respect
to the Notes will be IOS Capital (IOS Capital, in its capacity as servicer, the
"Servicer").
The Issuer will pledge its interest in the Asset Pool to [name of
trustee], as trustee (the "Trustee") for the benefit of holders of the Notes and
issue the Notes pursuant to an indenture between the Issuer and the Trustee (the
"Indenture").
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) all moneys (including accrued interest) due thereunder on or after the
Cut-off Date, (iii) such 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 such pool of Leases (the "Equipment"), (v) the rights
of the Issuer under certain of the Transaction Documents (as defined herein) and
(vi) interest earned on certain 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 (such Leases "Defaulted Leases"). In such event, certain factors may
affect such Issuer's ability to realize on the collateral securing such 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 certain portfolio concentration criteria: [more information will be
provided upon the structuring of the transaction]
The Lease Receivable Statistical Information
Following is certain 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 [ ]%. Certain columns may
not total 100% due to rounding.
S-9
<PAGE>
Distribution Of Leases By Discounted Lease Balance
Sum of Percentage of
Discounted Number of Discounted Aggregate Discounted
Lease Balances Leases Lease Balances Lease Balance
-------------- ------ -------------- -------------
Greater Less Than or
Than Equal to
---- --------
$ 1 $ 5,000 $ %
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%
================================================================================
S-10
<PAGE>
Distribution Of The Leases By State
Sum of Percentage of
Number of Discounted Lease Aggregate Discounted
State Leases Balances Lease Balance
- ----- ------ -------- -------------
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
S-11
<PAGE>
Distribution Of Leases By Remaining Term To Maturity
Percentage of
Statistical Statistical Percentage
Discounted Discounted Aggregate of
Percentage Present Present Original Original
Remaining Number of of Number Value Value of Equipment Equipment
Term Leases of Leases of Leases Leases Cost Cost
- --------- --------- ---------- ---------- ------------ --------- ----------
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
- --------------------------------------------------------------------------------
Total.......... 100% 100.00% 100.00%
================================================================================
Distribution Of Leases By Original Term To Maturity
Percentage of
Statistical Percentage
Statistical Discounted Aggregate of
Percentage Discounted Present Original Original
Original Number of Number Present Value Value of Equipment Equipment
Term of Leases of Leases of Leases Leases Cost Cost
- -------- --------- ---------- ------------- ------------ --------- ----------
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
85 - 96
- --------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00%
================================================================================
Distribution Of Leases By Classification Type
Percentage
of
Statistical Statistical Percentage
Percentage Discounted Discounted Aggregate of
Number of Present Present Original Original
of Number Value of Value of Equipment Equipment
Lease Type Leases of Leases Leases Leases Cost Cost
- -------------- ------ ---------- ---------- ----------- --------- ----------
Finance Lease
Operating Lease
- --------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00%
================================================================================
S-12
<PAGE>
Distribution Of Finance Leases By Purchase Option
Percentage
of
Statistical
Statistical Discounted Percentage
Percentage Discounted Present Aggregate of
Number of Present Value Original Original
of Number Value of of Equipment Equipment
Purchase Option Leases of Leases Leases Leases Cost Cost
- --------------- ------ ---------- ----------- ----------- --------- ----------
Nominal Buyout
Fair Market Value
Fixed Purchase Option
- --------------------------------------------------------------------------------
Total 100.00% 100.00% 100.00%
================================================================================
Distribution Of Leases By Equipment Type
Percentage
of
Percentage Statistical Statistical Percentage
of Discounted Discounted Aggregate of
Number Number Present Present Original Original
of of Value of Value of Equipment Equipment
Equipment Type Leases Leases Leases Leases Cost Cost
- -------------- ------ ---------- ----------- ----------- --------- ----------
- --------------------------------------------------------------------------------
Total......... 100.00% 100.00% 100.00%
================================================================================
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 such 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]
Historical Delinquency Experience
IOS Capital Portfolio
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998 September 30, 1997 September 30, 1996 September 30, 1995 September 30, 1994
----------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Total
Receivables
Balance (1)
- ------------------------------------------------------------------------------------------------------------------------------------
No. of
Delinquent
Days
30-59 days
60-89 days
90 Days+
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Delinquencies
</TABLE>
(1) The Total Receivables Balance is equal to the aggregate future rent owing
on the leases.
Historical Default Experience. All accounts assessed over __ days
past due automatically become non-accruing accounts. Any subsequent recoveries
offset net losses. General charge-off information for Leases that are owned and
serviced by IOS Capital for the period __________, 199_ to _________, 199_ is
set forth below.
Historical Charge-Off Experience
(Dollars in Thousands)
IOS Capital Portfolio
<TABLE>
<CAPTION>
December 31, September 30, September 30, September 30, September 30, September 30,
1998 1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Losses
Net Losses as a %
of Avg. Receivables (2)
</TABLE>
(1) Equals the arithmetic average of the beginning of the period Receivable
Balance and the end of the period Receivable Balance. The Receivables
Balance is equal to the aggregate future rent owing on the leases.
(2) Annualized
S-14
<PAGE>
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.
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 such 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 501 Silverside Road, Suite
28, Wilmington, Delaware 19809.
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.
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) [ ].
S-15
<PAGE>
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 the difference between (a) the initial principal
amount of the Notes of such Class at the issuance thereof, less (b) all amounts
previously distributed with respect to such Class as principal.
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 such 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 such
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 such 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 such 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
S-16
<PAGE>
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 [ ]%.
Percentage Of Initial Note
Principal Balance Outstanding
Notes
Prepayment Speed (CPR)
----------------------
- -----------------------------------------------------------------------
Payment 0% 2% 4% 6% 8%
Date
- -----------------------------------------------------------------------
Closing Date
- -----------------------------------------------------------------------
Weighted Average
Life (years)
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 such 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 certain terms of each Transaction
Document 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
S-17
<PAGE>
procedures, and shall have full power and authority to do any and all things in
connection with such 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
certain representations and warranties concerning the Lease Receivables.
Contemporaneously, the Issuer will 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 such 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 such breach (each a
"Warranty Lease"). In addition, the Originator may from time to time reacquire
certain Leases or substitute other Substitute Leases for such 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 such 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 "Certain Legal Aspects of 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 to the terms of such leases, 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 such 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
S-18
<PAGE>
(ii) no substitution shall be permitted if, after giving effect to
such 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 such 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 such 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.
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 such 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 such distribution allocable to principal;
(iii) the amount of such 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 such 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 such 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.
S-19
<PAGE>
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 such 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 such preceding
calendar year, information as to the aggregate of amounts reported pursuant to
items (a) and (b) above for such 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 (such breach 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 such 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
S-20
<PAGE>
(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 such withholding. In the event the Noteholder is other than DTC,
then in the event that the Trustee does withhold or causes to be withheld any
amount from interest payments or advances thereof to any Noteholders pursuant to
federal income tax withholding requirements, the Trustee shall indicate the
amount withheld annually to such Noteholders.
Optional Redemption. The Servicer will have the option, subject to
certain 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. Certain holders, including insurance companies, tax exempt
organizations, financial institutions or broker deals, taxpayers subject to the
alternative minimum tax, and holders that will hold the Notes as other than
capital assets, may be subject to special rules that are not discussed below or
in the Prospectus. In particular, this decision applies only to institutional
investors that purchase Notes directly from the Issuer and hold the Notes as
capital assets.
The discussion that follows, and the opinion set forth below of
Dewey Ballantine LLP, special tax counsel ("Tax Counsel") to 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 such discussion 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
S-21
<PAGE>
certain duties on persons who are fiduciaries of plans subject to ERISA and
prohibits certain transactions between a plan and parties in interest with
respect to such plans. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a plan is
considered to be a fiduciary of such plan (subject to certain exceptions not
here relevant). A violation of these "prohibited transaction" rules may generate
excise tax and other liabilities under ERISA and the Code for such persons.
Employee plans that are government plans (as defined in Section 3(32) of ERISA)
and certain church plans (as defined in Section 3(53) of ERISA), are not subject
to ERISA; however, such plans may be subject to comparable federal, state or
local law restrictions.
Certain transactions involving the Issuer might be deemed to
constitute prohibited transactions under ERISA and the Code if assets of the
Issuer were deemed to be "plan assets" of an employee benefit plan subject to
ERISA or the Code, or an individual retirement account (an "IRA"), or any entity
whose underlying assets are deemed to be assets of an employee benefit plan or
an IRA by reason of such employee benefit plan's or such IRA's investment in
such entity (each a "Benefit Plan"). Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Issuer would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
Issuer and none of the exceptions contained in the Plan Assets Regulation were
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are treated as an
equity interest for such purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuer or any of its Affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In such case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the plan fiduciary making the
decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38, regarding investments by banks,
collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by in-house asset
managers; and PTCE 84-14, regarding transactions by "qualified professional
assets managers." Each investor using the assets of a Benefit Plan which
acquires the Notes, or to whom the Notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the Notes will be
covered by a Department of Labor class exemption.
Due to the complexity of the applicable rules and the penalties that
may be imposed upon persons included in non-exempt prohibited transactions, any
Benefit Plan fiduciary considering the purchase of a Note with plan assets
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment. Moreover, each Benefit Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Notes is appropriate for the
Benefit Plan, taking into account the overall investment policy of the Benefit
Plan and the composition of the Benefit Plan's investment portfolio.
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 such 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 such 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 such 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.
S-22
<PAGE>
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 has agreed to purchase, the
Notes. The Issuer is affiliated with IOS Capital.
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 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 such market prices or at negotiated prices. The
Underwriter may effect such transactions by selling such Notes to or through a
dealer, and such 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 such 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.
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 and the related Prospectus Supplement and, if given or made,
such information or representations must not be relied upon. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the affairs
of the Seller or the Issuer or any affiliate thereof or the Leases since the
date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so to
anyone to whom it is unlawful to make such offer or solicitation.
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-23
<PAGE>
Index Of Principal Defined Terms
Page Page
---- ----
Asset Pool.......................S-8 Leases...........................S-8
Assignment and Servicing Noteholders......................S-8
Agreement......................S-8 Notes............................S-8
Available Funds.................S-20 Originator.......................S-8
Business Day....................S-16 Payment Date....................S-15
Benefit Plan....................S-22 Plan Assets Regulation..........S-22
Closing Date....................S-18 Pool Factor.....................S-20
Collection Account..............S-20 PTCE............................S-22
Conditional Prepayment Rate.....S-17 Remittance Period...............S-19
CPR.............................S-17 Restricting Events..............S-16
Cut-Off Date.....................S-9 Securities Act..................S-23
Defaulted Leases.................S-8 Seller...........................S-8
Discounted Lease Balance........S-18 Servicer.........................S-8
Eligible Leases.................S-19 Servicer Default................S-19
Equipment........................S-8 Substitute Lease................S-18
Excluded Amounts................S-20 Tax Counsel.....................S-21
IKON............................S-14 Transaction Document............S-17
Indenture........................S-8 Trustee..........................S-8
Initial Note Principal Balance..S-15 Underwriters....................S-23
IOS Capital......................S-8 Underwriting Agreement..........S-23
IRA.............................S-22 Warranty Lease..................S-18
Issuer...........................S-8 Weighted Average Life...........S-17
Lease Receivables................S-8
S-24
<PAGE>
===================================== =======================================
$825,000,000
IKON Receivables LLC
----------------------------
P R O S P E C T U S
----------------------------
Lehman Brothers
Dated March __, 1999
Until 90 days after the date of
this prospectus, all dealers that
effect transactions in the Notes,
whether or not participating in
this offering, may be required to
deliver a prospectus. This is in
addition to the dealers' obligation
to deliver a prospectus when acting
as underwriters and with respect to
their unsold allotments or
subscriptions.
===================================== =======================================
